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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. 17 (X)
THE DFA INVESTMENT TRUST COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 395-8005
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Irene R. Diamant, 1299 Ocean Avenue, 11th Floor, Santa Monica CA 90401
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
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Please Send Copy of Communications to:
Stephen W. Kline, Esq.
Stradley, Ronon, Stevens & Young, LLP
Great Valley Corporate Center
30 Valley Stream Parkway
Malvern, Pennsylvania 19355
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THE DFA INVESTMENT TRUST COMPANY
THE U.S. LARGE COMPANY SERIES
THE ENHANCED U.S. LARGE COMPANY SERIES
THE U.S. LARGE CAP VALUE SERIES
THE TAX-MANAGED U.S. MARKETWIDE VALUE SERIES
THE U.S. 4-10 VALUE SERIES
THE U.S. 6-10 VALUE SERIES
THE U.S. 6-10 SMALL COMPANY SERIES
THE U.S. 9-10 SMALL COMPANY SERIES
THE DFA INTERNATIONAL VALUE SERIES
THE JAPANESE SMALL COMPANY SERIES
THE PACIFIC RIM SMALL COMPANY SERIES
THE UNITED KINGDOM SMALL COMPANY SERIES
THE CONTINENTAL SMALL COMPANY SERIES
THE EMERGING MARKETS SERIES
THE EMERGING MARKETS SMALL CAP SERIES
THE DFA ONE-YEAR FIXED INCOME SERIES
THE DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
MARCH 24, 1999
FORM N-1A, PART A:
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RESPONSES TO ITEMS 1 THROUGH 3 HAVE BEEN OMITTED PURSUANT TO PARAGRAPH 2(b) OF
INSTRUCTION B OF THE GENERAL INSTRUCTIONS TO FORM N-1A
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS
(A) AND (B) INVESTMENT OBJECTIVES AND IMPLEMENTATION OF INVESTMENT
OBJECTIVES. The DFA Investment Trust Company (the "Trust") issues seventeen
series which are listed above, each of which operates as a diversified
investment company and represents a separate class ("Series") of the Trust's
shares of beneficial interest. 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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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"), in terms of 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 Ratings Group, a Division of The
McGraw-Hill Companies ("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) "Risks"). 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 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.
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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 (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 of
1986, as amended (the "Code") or by unanticipated illiquidity in the
marketplace for such instruments. For more information about Index
Derivatives, see Item 4(c) "Risks."
It is the position of the Securities and Exchange Commission ("SEC") 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 nor 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 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
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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.
THE U.S. LARGE CAP VALUE SERIES, THE TAX-MANAGED U.S. MARKETWIDE VALUE
SERIES, THE U.S. 4-10 VALUE SERIES AND THE U.S. 6-10 VALUE SERIES
The investment objective of The U.S. Large Cap Value Series (the "Large Cap
Value Series"), The Tax-Managed U.S. Marketwide Value Series (the
"Tax-Managed Marketwide Value Series"), U.S. 4-10 Value Series (the "4-10
Value Series") and U.S. 6-10 Value Series (the "6-10 Value Series")
(collectively the "U.S. Value Series") is to achieve long-term capital
appreciation. Ordinarily, each Series will invest at least 80% of its assets
in a broad and diverse group of readily marketable common stocks of U.S.
companies which the Advisor believes to be value stocks at the time of
purchase. Securities are considered value stocks primarily because a
company's shares have a high book value in relation to their market value (a
"book to market ratio"). In measuring value, the Advisor may consider
additional factors such as cash flow, economic conditions and developments in
the issuer's industry. Generally, a company's shares will be considered to
have a high book to market ratio if the ratio equals or exceeds the ratios of
any of the 30% of companies with the highest positive book to market ratios
whose shares are listed on the NYSE and, except as described below under
"Portfolio Structure," will be considered eligible for investment.
The Large Cap Value Series will purchase common stocks of companies whose
market capitalizations equal or exceed those of the companies having the
median market capitalization of companies whose shares are listed on the
NYSE, and the 6-10 Value Series will purchase common stocks of companies
whose market capitalizations are smaller than that of the company having the
median market capitalization of companies listed on the NYSE. The Tax-Managed
Marketwide Value Series will purchase common stocks of companies whose market
capitalizations are equal to the market capitalizations of companies in the
1st through 8th deciles of those companies listed on the NYSE. The 4-10
Value Series will purchase common stocks of companies whose market
capitalizations are equal to the market capitalizations of companies in the
4th through 10th deciles of those companies listed on the NYSE. With respect
to the 9th and 10th deciles, the 4-10 Value Series will only purchase such
common stocks when it is advantageous to do so through block trades with the
Advisor's other accounts.
THE TAX-MANAGED MARKETWIDE VALUE SERIES. The Tax-Managed Marketwide Value
Series seeks to minimize the impact of federal taxes on returns by managing
its portfolio in a manner that will defer the realization of net capital
gains and may minimize the receipt of dividend income in order to minimize
taxable distributions to investors.
When selling securities, the Tax-Managed Marketwide Value Series typically
will select the highest cost shares of the specific security in order to
minimize the realization of capital gains. In certain cases, the highest
cost shares may produce a short-term capital gain. Since short-term
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capital gains are taxed at higher tax rates than long-term capital gains, the
highest cost shares with a long-term holding period may be disposed of
instead. The Tax-Managed Marketwide Value Series will seek, when possible,
not to dispose of a security until the long-term holding period for capital
gains for tax purposes has been satisfied. Additionally, the Tax-Managed
Marketwide Value Series may, when consistent with all other tax management
policies, sell securities in order to realize capital losses. Realized
capital losses can be used to offset realized capital gains, thus reducing
capital gains distributions. However, realization of capital gains is not
entirely within the Advisor's control. Capital gains distributions may vary
considerably from year to year; there will be no capital gains distributions
in years when the Tax-Managed Marketwide Value Series realizes net capital
losses. The timing of purchases and sales of securities may be managed to
minimize the receipt of dividends to the extent possible. With respect to
dividends that are received, the Tax-Managed Marketwide Value Series may not
be eligible to flow through the dividends received deduction attributable to
holdings in U.S. equity securities to corporate shareholders, if because of
timing activities, the requisite holding period of the dividend paying stock
is not met. Portfolio holdings may be managed to emphasize low
dividend-yielding securities.
The Tax-Managed Marketwide Value Series is expected to deviate from its
market capitalization weightings to a greater extent than the non-tax managed
Series. For example, the Advisor may exclude the stock of a company that
meets applicable market capitalization criterion in order to avoid dividend
income, and the Advisor may sell the stock of a company that meets applicable
market capitalization criterion in order to realize a capital loss.
Additionally, while the U. S. Value Series are managed so that securities
will generally be held for longer than one year, the Tax-Managed Marketwide
Value Series may dispose of any securities whenever the Advisor determines
that such disposition would be consistent with the tax management strategies
of the Tax-Managed Marketwide Value Series.
Although the Advisor seeks to manage the Tax-Managed Marketwide Value Series
in order to minimize the realization of capital gains and possible taxable
dividend income during a particular year, the Tax-Managed Marketwide Value
Series may nonetheless distribute taxable gains and taxable income to
shareholders from time to time. Furthermore, shareholders may be required to
pay taxes on the Tax-Managed Marketwide Value Series' capital gains, if any,
realized upon the sale of the Tax-Managed Marketwide Value Series' assets to
meet redemptions of shares of the Tax-Managed Marketwide Value Series. The
redeeming shareholder will be required to pay taxes on the shareholder's
capital gains realized on a redemption, whether paid in cash or in kind, if
the amount realized on redemption is greater than the amount of the
shareholder's tax basis in the shares sold.
PORTFOLIO CONSTRUCTION. 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 and 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
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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 also will occur in the
Series because they intend to purchase round lots only and, with respect to
the 4-10 Value Series and the Tax-Managed Marketwide Value Series, because
they intend to purchase common stocks in the 4th through 10th deciles only
(in the case of the 4-10 Value Series) and in the 1st through 8th deciles
only (in the case of the Tax-Managed Marketwide Value Series) through block
trades, as described above. 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 Kind Purchases" in Item
7(b).) 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 may be
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.
Generally, securities will be purchased with the expectation that they will
be held for longer than one year. The Large Cap Value Series and Tax-Managed
Marketwide 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. The 4-10 and 6-10 Value Series each 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 and Tax-Managed Marketwide 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 4-10 and 6-10 Value Series may
also sell portfolio securities in the same circumstances, however, each
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.
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With regard to the Tax-Managed Marketwide Value Series, management strategies
used to defer the realization of accrued capital gains and to minimize
dividend income might from time to time cause deviation from market
capitalization weighting. The Tax-Managed Marketwide Value Series is not
expected to adhere to its market capitalization weightings with the same
precision as the 4-10 and 6-10 Value Series. (See "Tax-Managed Marketwide
Value Series" above.)
INVESTMENT OBJECTIVE AND POLICIES - SMALL COMPANY SERIES
The U.S. 6-10 Small Company, U.S. 9-10 Small Company, Japanese Small Company,
Pacific Rim Small Company, United Kingdom Small Company and Continental Small
Company Series of the Trust (the "Small Company Series"), each has an
investment objective to achieve long-term capital appreciation. The Small
Company Series provide investors with access to securities portfolios
consisting of small U.S., Japanese, United Kingdom, European and Pacific Rim
companies. Company size will be determined for purposes of these Series
solely on the basis of a company's market capitalization. "Market
capitalization" for domestic securities will be calculated by multiplying the
price of a company's stock by the number of its shares of outstanding common
stock. "Market capitalization" for foreign securities will be calculated
using the number of outstanding stocks similar to domestic common stocks.
Each Small Company Series intends to invest at least 80% of its assets in
equity securities of U.S., Japanese, United Kingdom, European and Pacific Rim
small companies, as defined herein, and as applicable to the Series. Each
Small Company Series will be structured to reflect reasonably the relative
market capitalizations of its portfolio companies. The Advisor believes that
over the long term the investment performance of small companies is superior
to large companies, not only in the U.S. but in other developed countries as
well, and that investment in the Series is an effective way to improve global
diversification. Investors which, for a variety of reasons, may choose not
to make substantial, or any, direct investment in companies whose securities
will be held by the Small Company Series, may participate in the investment
performance of these companies through ownership of a Series' stock.
THE U.S. 6-10 SMALL COMPANY SERIES
The U.S. 6-10 Small Company Series (the "U.S. 6-10 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"). The 6-10 Series
may invest in securities of foreign issuers which are traded in the U.S.
securities markets, but such investments may not exceed 5% of the gross
assets of the Series. It is the intention of the U.S. 6-10 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 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
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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' net assets at the time of purchase.
THE U.S. 9-10 SMALL COMPANY SERIES
The U.S. 9-10 Small Company Series (the "U.S. 9-10 Series") will invest in a
broad and diverse segment of small U.S. companies having readily marketable
stocks, and whose market capitalization is not larger than the largest of
those in the quintile of companies listed on the NYSE having the smallest
market capitalizations (smallest 20%). The U.S. 9-10 Series will purchase
stocks of companies whose share are listed on the NYSE or AMEX or traded OTC.
The U.S. 9-10 Series may invest in securities of foreign issuers which are
traded in the U.S. securities markets, but such investments may not exceed 5%
of the gross assets of the Series. There is some overlap in the companies in
which the U.S. 9-10 Series and the U.S. 6-10 Series invest. It is the
intention of the U.S. 9-10 Series to acquire a portion of the stock of each
eligible NYSE, AMEX and OTC company on a market capitalization weighted
basis. (See INVESTMENT OBJECTIVES AND POLICIES - SMALL COMPANY SERIES -
"Portfolio Structure.") In the future, the U.S. 9-10 Series may include
stocks of small U.S. companies which are listed on other U.S. securities
exchanges. The U.S. 9-10 Series is authorized to invest in privately placed
convertible debentures and the value thereof together with the value of all
other illiquid investments may not exceed 10% of the value of the Series' net
assets at the time of purchase.
THE JAPANESE SMALL COMPANY SERIES
The Japanese Small Company Series (the "Japanese Series") will invest in a
broad and diverse group of readily marketable stocks of Japanese small
companies which are traded in the Japanese securities markets. Generally,
reference in this registration statement to the term "Japanese small company"
means a company located in Japan whose market capitalization is not larger
than the largest of those in the smaller one-half (deciles 6 through 10) of
companies whose securities are listed on the First Section of the Tokyo Stock
Exchange ("TSE").
While the Japanese Series will invest primarily in the stocks of small
companies which are listed on the TSE, it may acquire the stocks of Japanese
small companies which are traded in other Japanese securities markets as
well. It is the intention of the Japanese Series to acquire a portion of the
stock of each of these companies on a market capitalization weighted basis.
The Japanese Series also may invest up to 5% of its assets in convertible
debentures issued by Japanese small companies. (See "INVESTMENT OBJECTIVES
AND POLICIES - SMALL COMPANY SERIES -Portfolio Structure.")
THE UNITED KINGDOM SMALL COMPANY SERIES
The United Kingdom Small Company Series (the "United Kingdom Series") will
invest in a broad and diverse group of readily marketable stocks of United
Kingdom small companies which are traded principally on the International
Stock Exchange of the United Kingdom and the
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Republic of Ireland ("ISE"). Generally, reference in this registration
statement to a "United Kingdom small company" means a company organized in
the United Kingdom, with shares listed on the ISE whose market capitalization
is not larger than the largest of those in the smaller one-half (deciles 6
through 10) of companies included in the Financial Times-Actuaries All Share
Index ("FTA").
The FTA is an index of stocks traded on the ISE, which is similar to the S&P
500 Index, and is used by investment professionals in the United Kingdom for
the same purposes as investment professionals in the U.S. use the S&P 500
Index. While the FTA typically will be used by the United Kingdom Series to
determine the maximum market capitalization of any company whose stock the
Series will purchase, acquisitions by the United Kingdom Series will not be
limited to stocks which are included in the FTA. The United Kingdom Series
will not, however, purchase shares of any investment trust or of any company
whose market capitalization is less than $5,000,000.
It is the intention of the United Kingdom Series to acquire a portion of the
stock of each eligible company on a market capitalization basis. The United
Kingdom Series also may invest up to 5% of its assets in convertible
debentures issued by United Kingdom small companies. (See "INVESTMENT
OBJECTIVES AND POLICIES - SMALL COMPANY SERIES - Portfolio Structure.")
THE CONTINENTAL SMALL COMPANY SERIES
The Continental Small Company Series (the "Continental Series") is authorized
to invest in readily marketable stocks of a broad and diverse group of small
companies organized under the laws of certain European countries. As of the
date of this registration statement, the Continental Series may invest in
small companies located in Austria, Belgium, Denmark, Finland, France,
Germany, Ireland, Italy, the Netherlands, Norway, Spain, Sweden, and
Switzerland, whose shares are traded principally in securities markets
located in those countries. Company size will be determined by the Advisor in
a manner that will compare the market capitalizations of companies in all
countries in which the Continental Series invests. The Advisor typically
will use the appropriate country indices of the Financial Times-Actuaries
World Index ("FTW") converted to a common currency, the United States dollar,
and aggregated to define "small companies." The FTW consists of a series of
country indices which contain generally the largest companies in the major
industry sectors in proportion to their market capitalization whose shares
are available for purchase by non-resident investors. Its constituents
represent about 70% of the total market capitalization of the respective
markets. Generally, companies with publicly traded stock whose market
capitalizations are not greater than the largest of those in the smallest 20%
(9th and 10th deciles) of companies listed in the FTW as combined for the
countries in which the Continental Series invests will be considered to be
"small companies" and will be eligible for purchase by the Continental Series.
While the Advisor typically will use the aggregated FTW indices to determine
the maximum size of eligible portfolio companies, portfolio acquisitions will
not be limited to stocks listed on the FTW for any country. The Continental
Series does not intend, however, to purchase shares of any company whose
market capitalization is less than the equivalent of $5,000,000. The
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Continental Series intends to acquire a portion of the stock of each eligible
company on a market capitalization basis. The Continental Series also may
invest up to 5% of its assets in convertible debentures issued by European
small companies. The Continental Series has acquired the stocks of small
companies located in Denmark, France, Germany, Ireland, Italy, Switzerland,
the Netherlands, Belgium, Sweden and Spain. When the Advisor determines that
the investments of the Continental Series in the stocks of small companies in
those countries are sufficiently diverse, the stocks of small companies
located in other European countries may be acquired on a country-by-country
basis. In addition, the Advisor may in its discretion either limit further
investments in a particular country or divest the Continental Series of
holdings in a particular country. (See "INVESTMENT OBJECTIVES AND POLICIES -
SMALL COMPANY SERIES - Portfolio Structure.")
THE PACIFIC RIM SMALL COMPANY SERIES
The Pacific Rim Small Company Series (the "Pacific Rim Series") is authorized
to invest in stocks of a broad and diverse group of small companies located
in Australia, New Zealand and Pacific Rim Asian countries whose shares are
traded principally on the securities markets located in those countries. As
of the date of this registration statement, the Pacific Rim Series may invest
in small companies located in Australia, Hong Kong, Malaysia, New Zealand and
Singapore. In the future, the Advisor may add small companies located in
other Asian countries as securities markets in these countries become
accessible. In addition, the Advisor may in its discretion either limit
further investments in a particular country or divest the Pacific Rim Series
of holdings in a particular country. As of September 10, 1998, the Pacific
Rim Series ceased offering its shares to new investors as a consequence of
certain restrictions imposed by the Malaysian government on the repatriation
of assets by foreign investors, such as the Pacific Rim Series. (See "Item
4(c) - Risks - Investing in Emerging Markets.")
Company size will be determined by the Advisor in a manner that will compare
the market capitalizations of the companies in all countries in which the
Pacific Rim Series invests. The Advisor typically will use the appropriate
country indices of the FTW converted to a common currency and aggregated, to
define "small companies." Generally, companies with publicly traded stock
whose market capitalizations are not greater than the largest of those in the
smallest 30% of companies (8th, 9th and 10th deciles) listed in the FTW as
combined for the countries in which the Pacific Rim Series invests will be
considered to be "small companies" and will be eligible for purchase by the
Pacific Rim Series.
While the Advisor typically will use the aggregated FTW indices to determine
the maximum size of eligible portfolio companies, portfolio acquisitions will
not be limited to stocks listed on the FTW for any country. The Pacific Rim
Series does not intend to purchase shares of any company whose market
capitalization is less than $5,000,000. The Pacific Rim Series intends to
acquire a portion of the stock of each eligible company on a market
capitalization basis. The Pacific Rim Series also may invest up to 5% of its
assets in convertible debentures issued by small companies located in the
Pacific Rim. (See "INVESTMENT OBJECTIVES AND POLICIES - SMALL COMPANY
PORTFOLIOS - Portfolio Structure.")
PORTFOLIO CONSTRUCTION
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Each Small Company 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 each Series a reasonable reflection of the relative
market capitalizations of its portfolio companies. The following discussion
applies to the investment policies of the Small Company Series.
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 same country; except with respect
to Continental and Pacific Rim Series, such determination shall be made by
reference to other companies located in all countries in which the Series
invest. Company size is measured in terms of local currencies in order to
eliminate the effect of variations in currency exchange rates, except that
Continental and Pacific Rim Series each will measure company size in terms of
a common currency. Even though a company's stock may meet the applicable
market capitalization criterion, it may not be purchased 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 inappropriate.
Deviation from strict market capitalization weighting also will occur because
the Advisor intends to purchase round lots only. Furthermore, in order to
retain sufficient liquidity, the relative amount of any security held 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 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.
Block purchases of eligible securities may be made 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, each Small Company Series may, in
exchange for the issuance of shares, acquire securities eligible for purchase
or otherwise represented in their portfolios at the time of the exchange.
(See "In Kind Purchases" in Item 7(b).) 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
assets.
If securities must be sold in order to obtain funds to make redemption
payments, they may be repurchased as additional cash becomes available. 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. (See "INVESTMENT OBJECTIVES AND
POLICIES - SMALL COMPANY SERIES - Portfolio Transactions.")
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Changes in the composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase 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 eligible for investment. Common stocks whose market
capitalizations are not greater than such company will be purchased.
Additional investments generally will not be made in securities which have
appreciated in value sufficiently to be excluded from the Advisor's then
current market capitalization limit for eligible portfolio securities. This
may result in further deviation from strict market capitalization weighting
and such deviation could be substantial if a significant amount of holdings
increase in value sufficiently to be excluded from the limit for eligible
securities, but not by a sufficient amount to warrant their sale. (See
"INVESTMENT OBJECTIVES AND POLICIES -SMALL COMPANY PORTFOLIOS - Portfolio
Transactions.") A further deviation from market capitalization weighting may
occur if a Series invests a portion of its assets in convertible debentures.
It is management's belief that the stocks of small companies offer, over a
long term, a prudent opportunity for capital appreciation, but, at the same
time, selecting a limited number of such issues for investment involves
greater risk than investing in a large number of them.
Generally, current income is not sought 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 selected for
investment do pay dividends. It is anticipated, therefore, that dividend
income will be received. Also, each Small Company Series may lend securities
to qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional income. (See "Securities Loans" below.)
PORTFOLIO TRANSACTIONS
On a periodic basis, the Advisor will review the holdings of each of the
Small Company Series and determine which, at the time of such review, are no
longer considered small U.S., Japanese, United Kingdom, European or Pacific
Rim companies. The present policy of the Advisor (except with respect to the
U.S. 6-10 Series) is to consider portfolio securities for sale when they have
appreciated sufficiently to rank, on a market capitalization basis, more than
one full decile higher than the company with the largest market
capitalization that is eligible for purchase by the particular Small Company
Series as determined periodically by the Advisor. As of the date of this
registration statement, the Advisor has established the following policy with
respect to the U.S. 6-10 Series: 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 50% (deciles 5 through 1) based on market capitalization of
securities listed on the NYSE. The Advisor may, from time to time, revise
such policies 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 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
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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 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 the Advisor believes to be value
stocks at the time of purchase. Securities are considered value stocks
primarily because a company's shares have a high book value in relation to
their market value (a "book to market ratio"). In measuring value, the
Advisor may consider additional factors such as cash flow, economic
conditions and developments in the issuer's industry. Generally, the shares
of a company in any given country will be considered to have a high book to
market ratio if the ratio equals or exceeds the ratios of any of the 30% of
companies in that country with the highest positive book to market ratios
whose shares are listed on a major exchange, and, except as described below,
will be considered eligible for investment. The Series intends to invest in
the stocks of large companies in countries with developed markets. As of the
date of this registration statement, the Series may invest in the stocks of
large companies in Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. As the
Series' asset growth permits, it may invest in the stocks of large companies
in other developed markets.
As of September 10, 1998, the Series ceased investing additional funds in
Malaysia as a consequence of certain restrictions imposed by the Malaysian
government on the repatriation of assets by foreign investors, such as the
Series. (See "Item 4(c) - Risks - Investing in Emerging 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. Such investments entail certain risks. (See "Risks" in Item 4(c).)
As of the date of this registration statement, the Series intends to invest
in companies having at least $800 million of market capitalization, and the
Series will be approximately market capitalization weighted. The Advisor may
reset such floor from time to time to reflect changing market conditions. In
determining market capitalization weights, the Advisor, using its best
judgment, will seek to eliminate the effect of cross holdings on the
individual country weights. As a result, the weighting of certain countries
in the Series may vary from their weighting in international indices such as
those published by The Financial Times, Morgan Stanley Capital
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International or Salomon/Russell. The Advisor, however, will not attempt to
account for cross holding within the same country. The Advisor may exclude
the stock of a company that otherwise meets the applicable criteria if the
Advisor determines in its best judgment that other conditions exist that make
the purchase of such stock for the Series inappropriate.
Deviation from market capitalization weighting also will occur because the
Series intends to purchase round lots only. Furthermore, in order to retain
sufficient liquidity, the relative amount of any security held by the Series
may be reduced from time to time from the level which adherence to market
capitalization weighting would otherwise require. A portion, but generally
not in excess of 20%, of the Series' assets may be invested in
interest-bearing obligations, such as money-market instruments, 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(b).) 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 value stocks of large companies offer,
over a long term, a prudent opportunity for capital appreciation, but, at the
same time, selecting a limited number of such issues for inclusion in the
Series involves greater risk than including a large number of them. The
Advisor does not anticipate that a significant number of securities which
meet the market capitalization criteria will be selectively excluded from the
Series.
The Series does not seek current income as an investment objective, and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in
the Series do pay dividends. It is anticipated, therefore, that the Series
will receive dividend income. The Series may lend securities to qualified
brokers,
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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.
In addition to the policies discussed in response to this Item, investment
limitations have been adopted by each Series and are noted in response to
Items 12(b) and (c) of Part B.
THE EMERGING MARKETS SERIES AND THE EMERGING MARKETS SMALL CAP SERIES
The investment objective of both The Emerging Markets Series and The Emerging
Markets Small Cap Series is to achieve long-term capital appreciation. Each
Series operates as a diversified investment company and seeks to achieve its
investment objective by investing in emerging markets designated by the
Investment Committee of the Advisor ("Approved Markets"). Each 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 ("IDRs") or American Depository Receipts
("ADRs"). As of September 10, 1998, the Emerging Markets Series and the
Emerging Markets Small Cap Series ceased investing additional funds in
Malaysia as a consequence of certain restrictions imposed by the Malaysian
government on the repatriation of assets by foreign investors such as the
Series. (See "Item 4(c) - Risks -Investing in Emerging Markets.")
SERIES' CHARACTERISTICS AND POLICIES. The Emerging Markets Series will seek
a broad market coverage of larger companies within each Approved Market.
This Series will attempt to own shares of companies whose aggregate overall
share of the Approved Market's total public market capitalization is at least
in the upper 40% of such capitalization, and can be as large as 75%. The
Emerging Markets Series may limit the market coverage in the smaller emerging
markets in order to limit purchases of small market capitalization companies.
The Emerging Markets Small Cap Series will seek a broad market coverage of
smaller companies within each Approved Market. This Series will attempt to
own shares of companies whose market capitalization is less than $1.5
billion. On a periodic basis, the Advisor will review the holdings of the
Emerging Markets Small Cap Series and determine which, at the time of such
review, are no longer considered small emerging market companies. The
present policy
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is to consider portfolio securities for sale when they have appreciated
sufficiently to rank, on a market capitalization basis, 100% larger than the
largest market capitalization that is eligible for purchase as set by the
Advisor for that Approved Market.
Each Series may not invest in all such companies or Approved Markets
described above or achieve approximate market weights, for reasons which
include constraints imposed within Approved Markets (e.g., restrictions on
purchases by foreigners), and each Series' policy not to invest more than 25%
of its assets in any one industry.
Under normal market conditions, the Emerging Markets Series will invest at
least 65% of its assets in Approved Market securities, and the Emerging
Markets Small Cap Series will invest at least 65% of its assets in small
company (as defined above) Approved Market Securities. Approved Market
securities are defined to be (a) securities of companies organized in a
country in an Approved Market or for which the principal trading market is in
an Approved Market, (b) securities issued or guaranteed by the government of
an Approved Market country, its agencies or instrumentalities, or the central
bank of such country, (c) securities denominated in an Approved Market
currency issued by companies to finance operations in Approved Markets, (d)
securities of companies that derive at least 50% of their revenues primarily
from either goods or services produced in Approved Markets or sales made in
Approved Markets and (e) Approved Markets equity securities in the form of
depositary shares. Securities of Approved Markets may include securities of
companies that have characteristics and business relationships common to
companies in other countries. As a result, the value of the securities of
such companies may reflect economic and market forces in such other countries
as well as in the Approved Markets. The Advisor, however, will select only
those companies which, in its view, have sufficiently strong exposure to
economic and market forces in Approved Markets such that their value will
tend to reflect developments in Approved Markets to a greater extent than
developments in other regions. For example, the Advisor may invest in
companies organized and located in the United States or other countries
outside of Approved Markets, including companies having their entire
production facilities outside of Approved Markets, when such companies meet
the definition of Approved Markets securities so long as the Advisor believes
at the time of investment that the value of the company's securities will
reflect principally conditions in Approved Markets.
The Advisor defines the term "emerging market" to mean a country which is
considered to be an emerging market by the International Finance Corporation.
Approved emerging markets may not include all such emerging markets. In
determining whether to approve markets for investment, the 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 each of the Series.
As of the date of this registration statement, the following countries are
designated as Approved Markets: Argentina, Brazil, Chile, Greece, Hungary,
Indonesia, Israel, Mexico, Philippines, Poland, Portugal, South Korea,
Thailand and Turkey. Countries that may be approved in the future include
but are not limited to Colombia, Czech Republic, India, Jordan, Nigeria,
Pakistan, Republic of China (Taiwan), Republic of South Africa, Venezuela and
Zimbabwe.
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Each Series may invest up to 35% of its assets in securities of issuers that
are not Approved Markets securities, but whose issuers the Advisor believes
derive a substantial proportion, but less than 50%, of their total revenues
from either goods and services produced in, or sales made in, Approved
Markets.
Pending the investment of new capital in Approved Market equity securities,
each 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, each 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 neither Series
expects the aggregate of all such amounts to exceed 10% of its net assets
under normal circumstances. Both Series also may invest in shares of other
investment companies that invest in one or more Approved Markets, although
they intend to do so only where access to those markets is otherwise
significantly limited. The Series may also invest in money market mutual
funds for temporary cash management purposes. The Investment Company Act of
1940 limits investment by a Series in shares of other investment companies as
follows: (1) no more than 10% of the value of a Series' total assets may be
invested in shares of other investment companies; (2) a 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) a Series
may not own more than 3% of the total outstanding voting stock of an
investment company. If either 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 a Series to establish a wholly-owned subsidiary or a trust for
the purpose of investing in the local markets. Each Series also may invest
up to 5% of its assets in convertible debentures issued by companies
organized in Approved Markets.
PORTFOLIO CONSTRUCTION. Each Series' policy of seeking broad market
diversification means that the Advisor will not utilize "fundamental"
securities research techniques in identifying securities selections. The
decision to include or exclude the shares of an issuer will be made primarily
on the basis of such issuer's relative market capitalization determined by
reference to other companies located in the same country. Company size is
measured in terms of reference to other companies located in the same country
and in terms of local currencies in order to eliminate the effect of
variations in currency exchange rates. Even though a company's stock may
meet the applicable market capitalization criterion, it may not be included
in a 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 Code). 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 investments as between Approved Markets.
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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 a Series involves
greater risk than including a large number of them.
Neither Series seeks 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
a Series do pay dividends. It is anticipated, therefore, that both 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.
For the purpose of converting U.S. dollars to another currency, or vice
versa, or converting one foreign currency to another foreign currency, each
Series may enter into forward foreign exchange contracts. In addition, to
hedge against changes in the relative value of foreign currencies, each
Series may purchase foreign currency futures contracts. A Series will only
enter into such a futures contract if it is expected that the Series will be
able readily to close out such contract. There can, however, be no assurance
that it will be able in any particular case to do so, in which case the
Series may suffer a loss.
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 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 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 this Item 4 below.)
THE DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
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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 majority of
their operating income in, at least three different countries, one of which
may be the United States.
The Series will acquire obligations that have a dollar-weighted average
length of maturity not to exceed two years. 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 this
Item 4 below.)
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 and Two-Year Global Fixed
Income Series (the "Fixed Income Series").
Permissible
Categories:
-----------
The DFA One-Year Fixed Income Series 1-6, 8
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.
9. FOREIGN ISSUER OBLIGATIONS - Debt securities of non-U.S. issuers
rated AA or better by S&P or 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
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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 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 their investments in the banking industry.
As of the date of this registration statement, The DFA One-Year Fixed Income
Series is not concentrating its investments in this industry and the Two-Year
Global Fixed Income Series is concentrating its investments in this industry.
The types of bank and bank holding company obligations in which The DFA
One-Year Fixed Income and Two-Year Global Fixed Income Series may invest
include: certificates of deposit, bankers' acceptances, commercial paper and
other debt obligations 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,
both 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.
PORTFOLIO STRATEGY
The DFA One-Year 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. The term "credit risk premium" means the anticipated incremental
return on investment for holding obligations considered to have greater
credit risk than direct obligations of the U.S. Treasury, and "maturity risk
premium" means the anticipated incremental return on investment for holding
securities having maturities of longer than one month compared to securities
having a maturity of one month. The Advisor believes that credit risk
premiums are available largely through investment in high grade commercial
paper, certificates of deposit and corporate obligations. The holding period
for assets of the Series will be chosen with a view to maximizing anticipated
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. 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
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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.
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.
The U.S. 6-10 Small Company Series and U.S. 9-10 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
"Investment Objectives and Policies - Fixed Income Series - The DFA One-Year
Fixed Income Series" in Items 4(a) and (b).)
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. 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%. Such investments entail certain risks. (See "Risks" in
Item 4(c).)
4(C) RISKS
SMALL COMPANY SECURITIES
Typically, securities of small companies are less liquid than securities of
large companies. Recognizing this factor, management will endeavor to effect
securities transactions in a manner to avoid causing significant price
fluctuations in the market for these securities. In addition, the prices of
small company securities may fluctuate more sharply than those of other
securities.
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FOREIGN SECURITIES
The Japanese Small Company, United Kingdom Small Company, Continental Small
Company, Pacific Rim Small Company, Enhanced U.S. Large Company, DFA One-Year
Fixed Income, Two-Year Global Fixed Income and DFA International Value 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. (Also see "Foreign Currencies and Related Transactions" below.)
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 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.
The economies of many countries in which The Japanese Small Company, United
Kingdom Small Company, Continental Small Company, Pacific Rim Small Company,
Enhanced U.S. Large Company, DFA One-Year Fixed Income, Two-Year Global Fixed
Income and DFA International Value Series invest are not as diverse or resilient
as the U.S. economy, and have significantly less financial resources. Some
countries are more heavily dependent on international trade and may be affected
to a greater extent by protectionist measurers of their governments, or
dependent upon a relatively limited number of commodities and, thus, sensitive
to changes in world prices for these commodities.
In many foreign countries, stock markets are more variable than U.S. markets for
two reasons. Contemporaneous declines in both (i) foreign securities prices in
local currencies and (ii) the value of local currencies in relation to the U.S.
dollar can have a significant negative impact on the net asset value of a Series
that holds the foreign securities. The next asset value of the Series is
denominated in U.S. dollars, and therefore, declines in market price of both the
foreign securities held by a Series and the foreign currency in which those
securities are denominated will be reflected in the net asset value of the
Series' shares.
INVESTING IN EMERGING MARKETS
The investments of The Emerging Markets Series and The Emerging Markets Small
Cap Series involve risks that are 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 and The Emerging
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Markets Small Cap Series will invest only in markets where these restrictions
are considered acceptable to the Advisor, new or additional repatriation
restrictions might be imposed subsequent to a Series' investment. If such
restrictions were imposed subsequent to investment in the securities of a
particular country, a 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
a Series is the responsibility of the Board of Trustees, acting in good faith
and with advice from the Advisor. (See "Pricing of Fund Shares" in Item
7(a).) 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 and The Emerging
Markets Small Cap 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. These risks are heightened for investments in small
company emerging markets securities.
In addition, many emerging markets, including most Latin American countries,
have experienced substantial, and, in some periods, extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the
economies and securities markets of certain countries. In an attempt to
control inflation, wage and price controls have been imposed at times in
certain countries. Certain emerging markets have recently transitioned, or
are in the process of transitioning, from centrally controlled to
market-based economies. There can be no assurance that such transitions will
be successful.
Brokerage commissions, custodial services and other costs relating to
investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such
markets have different settlement and clearance procedures. In certain
markets there have been times when settlements do not keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of a 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 a Series due
to subsequent declines in value of the portfolio security or, if a Series has
entered into a contract to sell the security, could result in possible
liability to the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may
be substantially curtailed and prices for a 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.
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Government involvement in the private sector varies in degrees among the
emerging securities markets contemplated for investment by the Series. Such
involvement may, in some cases, include government ownership of companies in
certain commercial business sectors, wage and price controls or imposition of
trade barriers and other protectionist measures. With respect to any
developing country, there is no guarantee that some future economic or
political crisis will not lead to price controls, forced mergers of
companies, expropriation, the creation of government monopolies, or other
measures which could be detrimental to the investments of a Series.
On September 1, 1998, the Malaysian government announced a series of capital
and foreign exchange controls on the Malaysian currency, the ringgit, and on
transactions on the Kuala Lampur Stock Exchange, that operated to severely
constrain or prohibit foreign investors, including the Series, from
repatriating assets. Pursuant to these regulations, the Series was not
permitted to convert the proceeds of the sale of their Malaysian investments
into U.S. dollars prior to September 1, 1999.
As a consequence of these developments, the Series ceased investing additional
funds in Malaysia effective September 8, 1998. On February 4, 1999, the
Malaysian government announced the imposition of a levy on repatriation of
portfolio capital. The levy replaced the 12-month holding period imposed under
the September 1, 1998 exchange control rules. The amount of the levy depends on
the duration that funds have been held in Malaysia. With respect to funds
invested in Malaysia prior to February 15, 1999, which includes the funds
invested by the Series, profits from investment made during the 12-month holding
period are exempt from imposition of a levy. A levy will be imposed, however,
on the amount of capital that is repatriated. Although there is some confusion
in the market concerning the mechanics of the levy, it appears that any
principal repatriated after one year from September 1, 1998 will not attract any
levy. Principal amounts that are repatriated within one year will be subject to
a levy at a decreasing rate, depending on the duration the principal is held.
The Advisor is closely monitoring the situation to determine when to begin
divesting the Series of its Malaysian assets without adverse affect. With
respect to the current Malaysian investments owned by the Series, the Series are
presently valuing the securities at current market prices and discounting the
U.S. dollar-ringgit currency exchange rate. Pending further clarification from
Malaysian regulatory authorities regarding the controls identified above, the
Series are treating their investments in Malaysian securities as illiquid. As
of the date of this Part A, Malaysian securities constitute approximately the
following percentages of the net asset value of the following Series: Pacific
Rim Small Company Series, 26.48%; The Emerging Markets Series, 6.28%; and The
Emerging Markets Small Cap Series, 7.87%. Malaysian securities constitute less
than one percent of the net asset value of the remaining 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
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and procedures than is the case in the United States, and such laws may
permit retroactive taxation so that The Emerging Markets Series and The
Emerging Markets Small Cap 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 Japanese, United Kingdom, Continental and Pacific Rim
Series, The DFA International Value Series, The Emerging Markets Series, The
Emerging Markets Small Cap 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. Such contracts involve an agreement to purchase or sell a specific
currency at a future date at a price set in the contract and enable the
Series to protect against losses resulting from adverse changes in the
relationship between the U.S. dollar and foreign currencies occurring between
the trade and settlement dates of Series securities transactions, but they
also tend to limit the potential gains that might result from a positive
change in such currency relationships. Gains and losses on investments in
futures and options thereon depend on the direction of securities prices,
interest rates and other economic factors.
INTRODUCTION OF THE EURO
On January 1, 1999, the European Monetary Union ("EMU") introduced a common
currency, the Euro, replacing its members' national currencies. This
development may affect Series' investments in EMU countries to the extent the
introduction of the Euro changes investment practices, opportunities, risks
and investor behavior or creates administrative problems. The Advisor and
its global custodians are attempting to assure on an ongoing basis that the
Series will remain unaffected by any transition-related disruptions.
However, they cannot guarantee that their efforts will succeed completely.
The relative value of the U.S. dollar and Euro will fluctuate. Accordingly,
currency risk (discussed above) will continue to apply to Series' investments
in EMU countries.
BORROWING
Each Series, except the U.S. 9-10 Series, Japanese Series and 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
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, The Emerging Markets
Series and The Emerging Markets Small Cap Series may invest in index futures
contracts and options on index futures. 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, as a
result, more than 5% of its net assets would then consist of margin deposits
and premiums required to establish such positions, after taking into account
unrealized profits and unrealized losses on such contracts it has entered
into; provided, however, that, in the case of an option that is in-the-money
at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%.
These investments entail the risk that an imperfect correlation may exist
between changes in the market value of the stocks owned by the Series and the
prices of such futures contracts and options, and, at times, the market for
such contracts and options might lack liquidity, thereby inhibiting a Series'
ability to close a position in such investments. Gains or losses on
investments in options and futures depend on the direction of securities
prices, interest rates and other economic factors, and the loss from
investing in futures transactions is potentially unlimited. Certain
restrictions imposed by the 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
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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 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 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
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on or increase in value of a particular dollar amount invested in 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 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 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 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 and Two-Year Global Fixed Income Series than might
occur in less concentrated portfolios.
YEAR 2000 ISSUE
Unless modified, many computer programs will not properly process information
from the year 2000 on. While the issue is international in scope, there is
particular concern with foreign entities. The Advisor has taken steps
designed to ensure that its computers and those of the Series' service
providers (e.g., custodians) will operate properly. The Series may be
negatively
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affected if the Advisor's efforts prove inadequate, and/or year
2000 problems hurt economic conditions generally.
RESPONSES TO ITEM 5 HAVE BEEN OMITTED PURSUANT TO PARAGRAPH 2(b) OF INSTRUCTION
B OF THE GENERAL INSTRUCTIONS TO FORM N-1A
ITEM 6. MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
(a)(1) INVESTMENT ADVISER.
(i) Dimensional Fund Advisors Inc., 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 $28 billion.
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.
INVESTMENT SERVICES - UNITED KINGDOM AND CONTINENTAL SMALL COMPANY SERIES
Pursuant to Sub-Advisory Agreements with the Advisor, Dimensional Fund Advisors
Ltd. ("DFAL"), 14 Berkeley Street, London, W1X 5AD, England, a company that is
organized under the laws of England, has the authority and responsibility to
select brokers or dealers to execute securities transactions for the United
Kingdom and Continental Series. DFAL's duties include the maintenance of a
trading desk for the Series and the determination of the best and most efficient
means of executing securities transactions. On at least a semi-annual basis
the Advisor reviews the holdings of the United Kingdom and Continental Series
and reviews the trading process and the execution of securities transactions.
The Advisor is responsible for determining those securities which are eligible
for purchase and sale by these Series and may delegate this task, subject to its
own review, to DFAL. DFAL maintains and furnishes to the Advisor information
and reports on United Kingdom and European small companies, including its
recommendations of securities to be added to the securities that are eligible
for purchase by the Series. DFAL is a member of the Investment Management
Regulatory Organization Limited ("IMRO"), a self regulatory organization for
investment managers operating under the laws of England. The Advisor owns 100%
of the outstanding shares of DFAL.
INVESTMENT SERVICES - JAPANESE AND PACIFIC RIM SMALL COMPANY SERIES
Pursuant to Sub-Advisory Agreements with the Advisor, DFA Australia Limited
("DFA Australia"), Suite 4403 Gateway, 1 MacQuarie Place, Sydney, New South
Wales 2000, Australia, the successor to Dimensional Fund Advisors Asia Inc., has
the authority and responsibility to select brokers and dealers to execute
securities transactions for the Japanese and
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Pacific Rim Series. DFA Australia's duties include the maintenance of a
trading desk for each Series and the determination of the best and most
efficient means of executing securities transactions. On at least a
semi-annual basis, the Advisor reviews the holdings of the Japanese and
Pacific Rim Series and reviews the trading process and the execution of
securities transactions. The Advisor is responsible for determining those
securities which are eligible for purchase and sale by these Series and may
delegate this task, subject to its own review, to DFA Australia. DFA
Australia maintains and furnishes to the Advisor information and reports on
Japanese and Pacific Rim small companies, including its recommendations of
securities to be added to the securities that are eligible for purchase by
each Series. The Advisor beneficially owns 100% of DFA Australia.
CONSULTING SERVICES - DFA INTERNATIONAL VALUE SERIES, EMERGING MARKETS SERIES
AND EMERGING MARKETS SMALL CAP SERIES
The Advisor has entered into a Consulting Services Agreement with DFAL and DFA
Australia, respectively. Pursuant to the terms of each Consulting Services
Agreement, DFAL and DFA Australia provide certain trading and administrative
services to the Advisor with respect to DFA International Value Series, Emerging
Markets Series and Emerging Markets Small Cap Series.
6(a)(1)(ii) For the fiscal year ended November 30, 1998, 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:
<TABLE>
<CAPTION>
Series Management Fee
------ --------------
<S> <C>
U.S. Large Company 0.025%
Enhanced U.S. Large 0.05%
Company
U.S. Large Cap Value 0.10%
U.S. 4-10 Value 0.10%
U.S. 6-10 Value 0.20%
U.S. 6-10 Small Company 0.03%
U.S. 9-10 Small Company 0.10%
DFA International Value 0.20%
Japanese Small Company 0.10%
Pacific Rim Small Company 0.10%
United Kingdom Small 0.10%
Company
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Series Management Fee
------ --------------
<S> <C>
Continental Small Company 0.10%
Emerging Markets 0.10%
Emerging Markets Small 0.20%
Cap
DFA One-Year Fixed Income 0.05%
DFA Two-Year Global Fixed 0.05%
Income
</TABLE>
The management fee applicable to The Tax-Managed Marketwide Value Series
which had not commenced operations as of November 30, 1998, is equal to 0.20%
of the Series' average net assets on an annual basis.
6(a)(2) PORTFOLIO MANAGER. 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.
6(a)(3) LEGAL PROCEEDINGS. Not applicable.
6(b) CAPITAL STOCK. Not applicable.
ITEM 7. SHAREHOLDER INFORMATION
(a) PRICING OF FUND SHARES. The net asset value per share of each Series
is calculated as of the close of the NYSE by dividing the total market value
of 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. 9-10 Small Company, The U.S. Large Company, The DFA
International Value, the U.S. Value, The Emerging Markets and The Emerging
Markets Small Cap 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. Securities
issued by open-end investment companies, such as the Series, are valued using
their respective net asset values for purchase orders placed at the close of
the NYSE. 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 Japanese, Pacific Rim,
Continental, United Kingdom, The DFA International Value, The DFA Two-Year
Global Fixed Income, The Emerging Markets and The Emerging Markets Small Cap
Series are expressed in U.S. dollars by translating the net assets of
33
<PAGE>
each Series using the mean 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 those Series that invest in such securities are determined
as of such times for the purpose of computing the net asset value of the
Series. If events which materially affect the value of the investments of
the Series occur subsequent to the close of the securities market on which
such securities are primarily traded, the investments affected thereby will
be valued at "fair value" as described above.
Certain of the securities holdings of The Emerging Markets Series and The
Emerging Markets Small Cap Series in Approved Markets may be subject to tax,
investment and currency repatriation regulations of the Approved Markets that
could have a material effect on the valuation of the securities. For
example, a Series might be subject to different levels of taxation on current
income and realized gains depending upon the holding period of the
securities. In general, a longer holding period (E.G., 5 years) may result
in the imposition of lower tax rates than a shorter holding period (E.G., 1
year). The Series may also be subject to certain contractual arrangements
with investment authorities in an Approved Market which require a Series to
maintain minimum holding periods or to limit the extent of repatriation of
income and realized gains. As a result, the valuation of particular
securities at any one time may depend materially upon the assumptions that a
Series makes at that time concerning the anticipated holding period for the
securities. Absent special circumstances as determined by the Board of
Trustees, it is presently intended that the valuation of such securities will
be based upon the assumption that they will be held for at least the amount
of time necessary to avoid higher tax rates or penalties and currency
repatriation restrictions. However, the use of such valuation standards will
not prevent the Series from selling such securities in a shorter period of
time if the Advisor considers the earlier sale to be a more prudent course of
action. Revision in valuation of those securities will be made at the time of
the transaction to reflect the actual sales proceeds inuring to the Series.
Futures contracts are valued using the settlement price established each day
on the exchange on which they are traded. The value of such futures
contracts held by a Series are determined each day as of such close.
34
<PAGE>
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 the Series' shares to such investors, will eliminate
a dilutive effect such costs would otherwise have on the net asset value of
shares held by existing investors. Therefore, the shares of The Emerging
Markets, Emerging Markets Small Cap, Japanese, Pacific Rim and Continental
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 and
the Japanese Series, expressed as a percentage of the net asset value of each
Series' shares, is 0.50%. The reimbursement fee for The Emerging Markets
Small Cap, Pacific Rim and Continental Series, expressed as a percentage of
the net assets of each Series' shares, is 1.00%. 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,
Emerging Markets Small Cap, Japanese, Pacific Rim, and Continental Series, is
the net asset value thereof next 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.
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 of
the Trust which are not allocable to a particular Series are borne by each
Series on the basis of its relative net assets.
7(b) PURCHASE OF FUND SHARES. 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, Emerging Markets
Small Cap, Japanese, Pacific Rim and Continental Series are sold at a price
which is equal to the net asset value of such shares plus a reimbursement
fee. (See Item 7(a).) 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.
IN KIND PURCHASES
- -----------------
35
<PAGE>
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 in exchange for local currencies in which such
securities of the Japanese, United Kingdom, Pacific Rim, Continental, The DFA
International Value, The Emerging Markets, The Emerging Markets Small Cap,
The DFA Two-Year Global Fixed Income 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 "Pricing of Fund Shares" in Item 7(a), 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 Japanese, United
Kingdom, Pacific Rim, Continental, The DFA International Value or DFA
Two-Year Global Fixed Income with local currencies should first contact the
Advisor for wire instructions.
The Trust will not accept securities in exchange for shares of a Series unless:
(1) such securities are eligible to be included, 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 Items 4(a) and (b)
above.) 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.
7(c) REDEMPTION OF FUND SHARES. As stated above in response to Item
7(b), "Purchase of Fund Shares," 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 Investment Company Act of 1940. 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.
36
<PAGE>
When in the best interests of a Series, the 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. The Japanese Small Company, United
Kingdom Small Company, Continental Small Company, Pacific Rim Small Company,
Emerging Markets, Emerging Markets Small Cap, Two-Year Global Fixed Income
and DFA International Value Series reserve the right to redeem their shares
in the currencies in which their investments are denominated. Investors may
incur charges in converting such currencies to dollars and the value of the
securities may be affected by currency exchange fluctuations.
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.
For additional information about redemption of Trust shares, see Item 18 in
Part B.
7(d) DIVIDENDS AND DISTRIBUTIONS. Except for the Partnership Series
(defined below), the Trust's policy is to distribute substantially all net
investment income not previously distributed during the year from the Small
Company Series, U.S. 4-10 Value Series, U.S. 6-10 Value Series and the DFA
International Value Series together with any net realized capital gains in
December of each year. In addition, the Corporate Series (as defined below)
will distribute all net investment income earned through the end of November
each year in the month of November. Dividends from net investment income of
The 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 for January) by The DFA One-Year Fixed Income
Series and quarterly by The DFA Two-Year Global Fixed Income 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 (other
than shareholders of the Partnership Series) 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, U.S. 9-10 Small Company Series, the Fixed Income 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 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.
7(e) TAX CONSEQUENCES. Each Series of the Trust, other than the Japanese,
United Kingdom, Pacific Rim, Continental, The U.S. Large Company, The
Emerging Markets, The Emerging
37
<PAGE>
Markets Small Cap and Tax-Managed Marketwide Value Series, is classified as a
separate corporation for U.S. federal income tax purposes (collectively,
referred to as the "Corporate Series").
The Japanese, United Kingdom, Pacific Rim, Continental, The U.S. Large
Company, The Emerging Markets and The Emerging Markets Small Cap Series
(together, the "Partnership Series") are classified as partnerships for U.S.
federal income tax purposes.
For U.S. 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 U.S. 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 to shareholders of record in such a month but which, for operational
reasons, may not be paid to the shareholder until the following January, will
be treated for U.S. federal income 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.
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 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 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' taxable year-end will be November 30. Although, as
described above, the Partnership Series will not be subject to U.S. federal
income tax, they will file appropriate U.S. federal income tax returns.
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.
38
<PAGE>
The Partnership Series will inform investors promptly after the close of each
fiscal year of the source of dividends and distributions at the time they are
paid and will promptly advise investors of their allocable share of a
Partnership Series' income, gains, losses, deductions and credits for U.S.
federal income tax purposes.
Investors may wish to contact their tax advisors to determine the
applicability of state and local taxes to their distributive share of a
Partnership Series' income, gains, losses, deductions, and credits.
ITEM 8. DISTRIBUTION ARRANGEMENTS
(a) SALES LOADS. Not applicable.
(b) RULE 12B-1FEES. Not applicable.
(c) MASTER-FEEDER FUNDS. Certain shareholders of the Series are open-end
investment companies that seek to achieve their investment objectives by
investing all of their investable assets in a corresponding Series of the
Trust (the "Feeder Portfolios"). Each Feeder Portfolio has the same
investment objective, policies and limitations as the corresponding Series in
which it invests. The master-feeder structure is unlike many other
investment companies that directly acquire and manage their own portfolio of
securities. The investment experience of each Feeder Portfolio will
correspond directly with the investment experience of its corresponding
Series.
RESPONSES TO ITEM 9 HAVE BEEN OMITTED PURSUANT TO PARAGRAPH 2(b) OF
INSTRUCTION B OF THE GENERAL INSTRUCTIONS TO FORM N-1A
PART B:
- -------
ITEM 10. COVER PAGE AND TABLE OF CONTENTS Not applicable.
ITEM 11. FUND HISTORY
(a) The Trust was organized as a Delaware business trust on October 27,
1992. Until August 1, 1997, The U.S. 6-10 Value Series was named The U.S.
Small Cap Value Series.
(b) Not applicable.
ITEM 12. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
(a) CLASSIFICATION. The Trust is an open-end, management investment company
registered under the Investment Company Act of 1940. Each Series operates as
a diversified investment company. Further, no Series will invest more than
25% of its total assets in securities of companies in a single industry.
39
<PAGE>
(b) AND (c) INVESTMENT STRATEGIES AND RISKS AND FUND POLICIES. In
addition to the policies stated in response to Item 4 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. 9-10 and 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 Series 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 5% of the Series' total assets,
at market, would be invested in the securities of such issuer; provided that
this limitation applies to 100% of the total assets of The U.S. 9-10 Small
Company Series;
(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; provided
that The U.S. 4-10 Value Series and The Tax-Managed U.S. Marketwide Value
Series are not subject to this limitation;
(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, U.S. 9-10 Small Company Series
and the Japanese 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; provided that The U.S. 4-10 Value Series and The Tax-Managed U.S.
Marketwide Value Series are not subject to this limitation;
(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 U.S. 4-10 Value, The Tax-Managed U.S.
Marketwide Value, Enhanced U.S. Large Company, The DFA Two-Year Global Fixed
Income
40
<PAGE>
and The Emerging Markets Small Cap Series are not subject to this limitation,
and The DFA International Value Series, The U.S. 6-10 Value Series, The U.S.
Large Cap 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; provided that The U.S. 9-10 Small Company Series, and The U.S. 4-10
Value Series and The Tax-Managed U.S. Marketwide Value Series are not subject
to this limitation;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization; provided that (a) The Emerging Markets, Emerging Markets
Small Cap, Japanese, United Kingdom, Pacific Rim and Continental Series are
not subject to this limitation; (b) each of the U.S. 4-10 Value, Tax-Managed
U.S. Marketwide Value, Enhanced U.S. Large Company, Emerging Markets,
Emerging Markets Small Cap, Japanese, United Kingdom, Pacific Rim and
Continental Series may invest its assets in securities of investment
companies and units of such companies such as, but not limited to, S & P
Depository Receipts; and (c) the U.S. 9-10 Small Company Series is not
subject to this limitation;
(11) invest more than 5% of its total assets in securities of companies which
have (with predecessors) a record of less than three years' continuous
operation; provided that The U.S. 9-10 Small Company Series, The U.S. 4-10
Value Series and The Tax-Managed U.S. Marketwide Value Series are not subject
to this limitation;
(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 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 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 that (a) the Enhanced U.S. Large Company Series may write or acquire
options; and (b) the U.S. 4-10 Value Series is not subject to these
limitations; and (c) The Tax-Managed U.S. Marketwide Value Series may write
or acquire options;
(14) purchase warrants; however, each Series, except The DFA One-Year Fixed
Income Series and Two-Year Global Fixed Income Series (the "Fixed Income
Series"), may acquire warrants as a result of corporate actions involving its
holdings of other equity securities; and The U.S. 4-10 Value Series and The
Tax-Managed U.S. Marketwide Value Series are not subject to this limitation;
41
<PAGE>
(15) purchase securities on margin or sell short; provided that The U.S. 4-10
Value Series and The Tax-Managed U.S. Marketwide Value Series are not subject
to the limitation on selling securities short;
(16) acquire more than 10% of the voting securities of any issuer; provided
that (a) this limitation applies only to 75% of the assets of The U.S. Value
Series, The Emerging Markets Series and The Emerging Markets Small Cap
Series; and (b) The U.S. 9-10 Small Company Series and The Tax-Managed U.S.
Marketwide Value Series are not subject to this limitation; or
(17) issue senior securities (as such term is defined in Section 18(f) of the
Investment Company Act of 1940), except to the extent permitted under the Act.
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 and The Emerging
Markets Small Cap 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
such Series' behalf in lieu of depositing initial margin in connection with
currency futures contracts, and the Series have no present intent to engage
in any other types of borrowing transactions under this authority. Although
(2) above prohibits cash loans, the Series are authorized to lend portfolio
securities. (See "Securities Loans" in Item 4 of Part A.)
For the purposes of (7) above, The DFA One-Year 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 Rule 144A securities to be considered
liquid, there must be at least two dealers making a market in such
securities. After purchase, the Board of Trustees and the Advisor will
continue to monitor the liquidity of Rule 144A securities.
Although not a fundamental policy subject to shareholder approval: (1) The
U.S. 6-10 Series, Japanese Series, United Kingdom Series, Pacific Rim Series
and Continental Series, will not purchase interests in any real estate
investment trust; and (2) The Enhanced U.S. Large Company, U.S. 4-10 Value,
Tax-Managed U.S. Marketwide Value, Two-Year Global Fixed
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<PAGE>
Income and Emerging Markets Small Cap Series do not intend to invest more
than 15% of their net assets in illiquid securities.
The Japanese, United Kingdom, Pacific Rim, Continental, DFA International
Value, The DFA Two-Year Global Fixed Income, The Emerging Markets and The
Emerging Markets Small Cap 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 and The Emerging Markets Small Cap Series may establish
subsidiaries or other similar vehicles for the purpose of conducting their
investment operations in Approved Markets, if such subsidiaries or vehicles
are required by local laws or regulations governing foreign investors such as
the Series or whose use is otherwise considered by the Series to be
advisable. Such Series would "look through" any such vehicle to determine
compliance with their investment restrictions.
Subject to future regulatory guidance, for purposes of those investment
limitations identified above that are based on total assets, "total assets"
refers to the assets that the Series owns, and does not include assets which
the Series does not own but over which it has effective control. For
example, when applying a percentage investment limitation that is based on
total assets, the Series will exclude from its total assets those assets
which represent collateral received by the Series for its securities lending
transactions.
Unless otherwise indicated, all limitations applicable to the Series'
investments apply only at the time that a transaction is undertaken. With
respect to illiquid securities, if a fluctuation in value causes a Series to
go above its limitation on investment in illiquid securities, the Board will
consider what action, if any, should be taken to reduce the percentage to the
applicable limitation. 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.
OPTIONS ON STOCK INDICES
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<PAGE>
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 liquid assets 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 liquid assets 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 liquid assets 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 liquid assets
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. 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
44
<PAGE>
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
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 Enhanced U.S. Large
Company Series will only invest in
45
<PAGE>
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. 9-10 and 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. 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. 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, as a result, more than 5% of its net assets
would then consist of initial margin deposits and premiums required to
establish such positions, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that, in the case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5%. Pursuant to
published positions of the SEC, the Series may be required to maintain
segregated accounts consisting of liquid assets (or, as permitted under
applicable regulation, enter into offsetting positions) in connection with
its futures contract transactions in order to cover its obligations with
respect to such contracts. Positions in futures contracts may be closed out
only on an exchange which provides a secondary market. However, there can be
no assurance that a liquid secondary market will exist for any particular
futures contract at any specific time. Therefore, it might not be possible
to close a futures position and, in the event of adverse price movements, the
Series would continue to be required to continue to make variation margin
deposits. In such circumstances, if the Series has insufficient cash, it
might have to sell portfolio securities to meet daily margin requirements at
a time when it might be disadvantageous to do so. Management intends to
minimize the possibility that it will be unable to close out a futures
contract by only entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid secondary market.
REPURCHASE AGREEMENTS
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<PAGE>
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.
12(d) TEMPORARY DEFENSIVE POSITION. The information required by this
item is provided in response to Item 4(b) of Part A.
12(e) PORTFOLIO TURNOVER. 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.
The portfolio turnover rate for the Tax-Managed U.S. Marketwide Value Series
is anticipated to be approximately 60%.
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.
ITEM 13. MANAGEMENT OF THE FUND
(a), (b) AND (c) The Trust has a Board of Trustees, which is responsible
for establishing Trust policies and for overseeing the management of the
Trust. The names, locations and dates of birth of the trustees and officers
of the Trust and a brief statement of their present positions and principal
occupations during the past five years are set forth below. As used below,
"DFA Entities" refers to the following: Dimensional Fund Advisors Inc.,
Dimensional Fund Advisors Ltd., DFA Australia Limited, DFA Investment
Dimensions Group Inc. (Registered Investment Company), Dimensional Emerging
Markets Value Fund Inc. (Registered Investment Company), Dimensional
Investment Group Inc. (Registered Investment Company) and DFA Securities Inc.
TRUSTEES
David G. Booth*, 12/2/46, Trustee, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Limited, DFA Investment Dimensions Group Inc.,
Dimensional Investment Group Inc. and Dimensional Emerging Markets Value Fund
Inc. Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 9/22/47, Trustee, 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 Value Fund Inc.
John P. Gould, 1/19/39, Trustee, Chicago, IL. Steven G. Rothmeier
Distinguished Service Professor of Economics, Graduate School of Business,
University of Chicago. Trustee, First
47
<PAGE>
Prairie Funds (registered investment companies). Director, DFA Investment
Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional
Emerging Markets Value Fund Inc. and Harbor Investment Advisors. Executive
Vice President, Lexecon Inc. (economics, law, strategy and finance
consulting).
Roger G. Ibbotson, 5/27/43, 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 Value
Fund Inc., Hospital Fund, Inc. (investment management services) and BIRR
Portfolio Analysis, Inc. (software products). Chairman, Ibbotson Associates,
Inc., Chicago, IL (software, data, publishing and consulting).
Merton H. Miller, 5/16/23, 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 Value Fund
Inc. Public Director, Chicago Mercantile Exchange.
Myron S. Scholes, 7/1/42, Trustee, Greenwich, CT. Limited Partner, Long-Term
Capital Management L.P. (money manager). Frank E. Buck Professor Emeritus of
Finance, Graduate School of Business and Professor of Law, Law School, Senior
Research Fellow, Hoover Institution, (all) Stanford University. Director,
DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc.,
Dimensional Emerging Markets Value Fund Inc., Benham Capital Management Group
of Investment Companies and Smith Breeden Group of Investment Companies.
Rex A. Sinquefield*, 9/7/44, Trustee, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Limited, DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc. and
Dimensional Emerging Markets Value Fund Inc. Chairman, Chief Executive
Officer and Director, Dimensional Fund Advisors Ltd.
* Interested Trustee of the Trust.
OFFICERS
Arthur Barlow, 11/7/55, Vice President, Santa Monica, CA. Vice President of
all DFA Entities.
Truman Clark, 4/8/41, 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.
Robert Deere, 10/8/57, Vice President, Santa Monica, CA. Vice President of
all DFA Entities.
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<PAGE>
Irene R. Diamant, 7/16/50, Vice President and Secretary, Santa Monica, CA.
Vice President and Secretary of all DFA Entities except Dimensional Fund
Advisors Ltd. for which she is Vice President.
Richard Eustice, 8/5/65, Vice President and Assistant Secretary, Santa
Monica, CA. Vice President and Assistant Secretary of all DFA Entities.
Eugene Fama, Jr., 1/21/61, Vice President, Santa Monica, CA. Vice President
of all DFA Entities.
Kamyab Hashemi-Nejad, 1/22/61, Vice President, Controller and Assistant
Secretary, Santa Monica, CA. Vice President, Controller and Assistant
Treasurer of all DFA Entities.
Stephen P. Manus, 12/26/50, Vice President, Santa Monica, CA. Managing
Director, ANB Investment Management and Trust Company from 1985-1993;
President, ANB Investment Management and Trust Company from 1993-1997. Vice
President of all DFA Entities.
Karen McGinley, 3/10/66, Vice President, Santa Monica, CA. Vice President of
all DFA Entities.
Catherine L. Newell, 5/7/64, Vice President and Assistant Secretary, Santa
Monica, CA. Associate, Morrison & Foerster, LLP from 1989-1996. Vice
President and Assistant Secretary of all DFA Entities except Dimensional Fund
Advisors Ltd. for which she is Vice President.
David Plecha, 10/26/61, Vice President, Santa Monica, CA. Vice President of
all DFA Entities.
George Sands, 2/8/56, Vice President, Santa Monica, CA. Vice President of
all DFA Entities.
Michael T. Scardina, 10/12/55, Vice President, Chief Financial Officer and
Treasurer, Santa Monica, CA. Vice President, Chief Financial Officer and
Treasurer of all DFA Entities.
Jeanne C. Sinquefield, Ph.D., 12/2/46, Executive Vice President, Santa
Monica, CA. Executive Vice President of all DFA Entities.
Scott Thornton, 3/1/63, Vice President, Santa Monica, CA. Vice President of
all DFA Entities.
Weston Wellington, 3/1/51, Vice President, Santa Monica, CA. Vice President
of all DFA Entities. Vice President, Director of Research, LPL Financial
Services, Inc., Boston, MA 1987-1994.
Rex A. Sinquefield, Trustee, Chairman-Chief Investment Officer of the Trust,
and Jeanne C. Sinquefield, Executive Vice President of the Trust, are husband
and wife.
13(d) COMPENSATION. 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
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<PAGE>
30, 1998, and the total compensation received from all four registered
investment companies for which the Advisor serves as investment advisor
during that same fiscal year.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST AND FUND
TRUSTEE FROM TRUST COMPLEX
------- ------------ -------------------
<S> <C> <C>
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
</TABLE>
13(e) SALES LOADS. Not applicable.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) CONTROL PERSONS. As of February 26, 1999, the following persons may
be deemed to control the following Series either by owning more than 25% of
the voting securities of such Series directly or, through the operation of
pass-through voting rights, by owning more than 25% of the voting securities
of a feeder portfolio investing its assets in the Series:
<TABLE>
<S> <C>
U.S. 4-10 VALUE SERIES
West Virginia Investment Management Board
One Cantley Drive
Charleston, WV 25314 100%
THE DFA INTERNATIONAL VALUE SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309 26.58%
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<PAGE>
JAPANESE SMALL COMPANY SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309 41.70%
PACIFIC RIM SMALL COMPANY SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309 49.03%
UNITED KINGDOM SMALL COMPANY SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309 39.71%
CONTINENTAL SMALL COMPANY SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309 39.03%
EMERGING MARKETS SMALL CAP SERIES
South Dakota Retirement System
4009 W. 49th Street, Suite 300
Sioux Falls, SD 57105 69.62%
14(b) PRINCIPAL HOLDERS. As of February 26, 1999, the following
shareholders owned 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. LARGE COMPANY SERIES
Blackrock Funds -
Index Equity Portfolio
c/o PFPC
400 Bellevue Parkway
Wilmington, DE 19809 66.43%
DFA Investment Dimensions Group Inc. -
The U.S. Large Company Portfolio 33.57%
ENHANCED U.S. LARGE COMPANY SERIES
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<PAGE>
DFA Investment Dimensions Group Inc.
Enhanced U.S. Large Company Portfolio 100%
THE U.S. LARGE CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Large Cap Value Portfolio 62.40%
Dimensional Investment Group Inc. -
U.S. Large Cap Value Portfolio III 25.62%
Dimensional Investment Group Inc. -
RWB/DFA U.S. High Book to Market Portfolio 7.77%
Gateway 2000, Inc.
610 Gateway Drive
North Sioux City, SD 57049 11.47%
TAX-MANAGED U.S. MARKETWIDE VALUE SERIES
DFA Investment Dimensions Group Inc.
Tax-Managed U.S. Marketwide Value Portfolio 70.85%
Dimensional Investment Group Inc.
Tax-Managed U.S. Marketwide Value Portfolio 29.12%
U.S. 4-10 VALUE SERIES
West Virginia Management Board
One Cantley Drive
Charleston, WV 25314 100%
THE U.S. 6-10 VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. 6-10 Value Portfolio 96.90%
THE U.S. 6-10 SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. 6-10 Small Company Portfolio 58.36%
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<PAGE>
The California Wellness Foundation
6320 Canoga Avenue, Suite 1700
Woodland Hills, CA 91367 23.02%
Dimensional Investment Group Inc. -
DFA 6-10 Institutional Portfolio 18.62%
THE U.S. 9-10 SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. 9-10 Small Company Portfolio 100%
THE DFA INTERNATIONAL VALUE SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309 26.58%
Dimensional Investment Group Inc. -
DFA International Value Portfolio 26.05%
DFA Investment Dimensions Group Inc. -
RWB/DFA International High Book to Market Portfolio 16.15%
Dimensional Investment Group Inc. -
RWB/DFA International Value Portfolio III 16.10%
Dimensional Investment Group Inc. -
DFA International Value Portfolio IV 6.11%
JAPANESE SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Japanese Small Company Portfolio 64.17%
DFA Investment Dimensions Group Inc.
International Small Company Portfolio 35.83%
PACIFIC RIM SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Pacific Rim Small Company Portfolio 64.92%
DFA Investment Dimensions Group Inc.
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<PAGE>
International Small Company Portfolio 35.08%
UNITED KINGDOM SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
United Kingdom Small Company Portfolio 61.18%
DFA Investment Dimensions Group Inc.
International Small Company Portfolio 38.82%
CONTINENTAL SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Continental Small Company Portfolio 63.73%
DFA Investment Dimensions Group Inc.
International Small Company Portfolio 36.27%
THE EMERGING MARKETS SERIES
DFA Investment Dimensions Group Inc. -
Emerging Markets Portfolio 97.29%
EMERGING MARKETS SMALL CAP SERIES
South Dakota Retirement System
4009 W. 49th Street, Suite 300
Sioux Falls, SD 57105 69.62%
DFA Investment Dimensions Group Inc.
Emerging Markets Small Cap Portfolio 29.87%
THE DFA ONE-YEAR FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
The DFA One-Year Fixed Income Portfolio 87.51%
Gateway 2000, Inc.
610 Gateway Drive
North Sioux City, SD 57049 11.47%
DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
DFA Two-Year Global Fixed Income Portfolio 100%
</TABLE>
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<PAGE>
14(c) MANAGEMENT OWNERSHIP. As of February 26, 1999 the trustees and
officers as a group owned less than 1% of each Series' outstanding stock.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES
(a) INVESTMENT ADVISERS. The information provided in response to this
item is in addition to the information provided in response to Items 6(a)(1)
and (2) in Part A and Items 13(a), (b) and (c) in this Part B.
David G. Booth and Rex A. Sinquefield, directors and officers of the Advisor
and Trustees and officers of the Trust, and shareholders of the Advisor's
outstanding voting stock, 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 fiscal periods ended November 30,
1996, 1997 and 1998, as applicable, the Series paid management fees as set
forth in the following table:
<TABLE>
<CAPTION>
1996 1997 1998
(000) (000) (000)
<S> <C> <C> <C>
U.S. Large Company $62 $160 $293
Enhanced U.S. Large Company $386 $17 $26
U.S. Large Cap Value $699 $1,255 $1,667
U.S. 4-10 Value n/a n/a $86
U.S. 6-10 Value $699 $3,534 $4,743
U.S. 6-10 Small Company $81 $102 $150
U.S. 9-10 Small Company n/a n/a $1,458
DFA International Value $2,124 $2,997 $3,466
Japanese Small Company $106 $258 $181
Pacific Rim Small Company $65 $230 $133
United Kingdom Small Company $52 $180 $157
Continental Small Company $100 $351 $334
Emerging Markets $111 $226 $220
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<PAGE>
Emerging Markets Small Cap n/a $47 $37
DFA One-Year Fixed Income $82 $392 $420
DFA Two-Year Global Fixed
Income $69 $185 $214
</TABLE>
The Japanese Small Company, United Kingdom Small Company, Pacific Rim Small
Company and Continental Small Company Series commenced operations on August
10, 1996. The Emerging Markets Small Cap Series commenced operations on
December 2, 1996. The U.S. 9-10 Small Company Series commenced operations on
December 1, 1997, and The U.S. 4-10 Value Series commenced operations on
February 6, 1998. The Tax-Managed U.S. Marketwide Value Series had not
commenced operations as of November 30, 1998.
From December 1, 1993 through August 8, 1996, 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 average net assets of
the Series on an annualized basis.
The Advisor pays DFAL quarterly fees of 12,500 pounds sterling for services
to each of the United Kingdom and Continental Series. The Advisor pays DFA
Australia fees of $13,000 per year for services to each of the Japanese and
Pacific Rim Series.
15(b) PRINCIPAL UNDERWRITER. 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.
15(c) SERVICES PROVIDED BY EACH INVESTMENT ADVISER AND EXPENSES PAID BY
THIRD PARTIES. The information provided in response to this item is in
addition to the information provided in response to Item 6(a)(1) and (2) of
Part A.
Initially, 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 Investment Company Act of 1940.
15(d) SERVICE AGREEMENTS. Not applicable.
15(e) OTHER INVESTMENT ADVICE. Not applicable.
56
<PAGE>
15(f) DEALER REALLOWANCES. Not applicable.
15(g) RULE 12B-1 PLANS. Not applicable.
15(h) OTHER SERVICE PROVIDERS.
(1) AND (2) PFPC Inc. ("PFPC"), 400 Bellevue Parkway, Wilmington, Delaware
19809, serves as the administrative and accounting 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. 9-10 SMALL COMPANY SERIES
U.S. 6-10 SMALL COMPANY SERIES
U.S. 6-10 VALUE SERIES
U.S. LARGE CAP VALUE SERIES
TAX-MANAGED U.S. MARKETWIDE 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
PFPC charges a minimum fee of $58,800 per year to each of the Large Cap Value,
Tax-Managed U.S. Marketwide Value Series and 6-10 Value Series. PFPC charges
the Enhanced U.S. Large Company Series a minimum fee of $75,000 per year which
is to be phased in over the first year of the Series' operation. PFPC has
agreed that it may from time to time limit the fee rates and the minimum fees
for these Series.
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. PFPC has agreed to limit the
minimum fee for the Series from time to time.
JAPANESE SMALL COMPANY SERIES
UNITED KINGDOM SMALL COMPANY SERIES
PACIFIC RIM SMALL COMPANY SERIES
CONTINENTAL SMALL COMPANY SERIES
57
<PAGE>
DFA INTERNATIONAL VALUE SERIES
EMERGING MARKETS SERIES
EMERGING MARKETS SMALL CAP 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
The DFA International Value, Emerging Markets and Emerging Markets Small Cap
Series are each subject to minimum fees of $75,000 per year. The Pacific Rim
Small Company Series is subject to a minimum fee of $100,000 per year. PFPC has
agreed to limit the minimum fee for these Series from time to time.
DFA ONE-YEAR FIXED INCOME SERIES
.0513% of the first $100 million of net assets
.0308% of the next $100 million of net assets
.0205% of net assets over $200 million
U.S. LARGE COMPANY SERIES
.015% of net assets
U.S. 4-10 VALUE SERIES
.0160% of net assets
15(h)(3) Citibank, N.A. ("Citibank"), 111 Wall Street, New York, New York,
10005, is the global custodian for the following Series: DFA International
Value Series, the Japanese Small Company Series, the Pacific Rim Small
Company Series, the United Kingdom Small Company Series, the Continental
Small Company Series, DFA Two-Year Global Fixed Income Series, and Enhanced
U.S. Large Company Series (co-custodian with PNC Bank, N.A.). The Chase
Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245, serves as the
custodian for the Emerging Markets Series and Emerging Markets Small Cap
Series, and PFPC Trust Company, 400 Bellevue Parkway, Wilmington, DE 19809,
serves as the custodian for all other Series of the Trust. The custodians
maintain separate accounts for the Series; make receipts and disbursements of
money on behalf of the Series; and collect and receive income and other
payments and distributions on account of the Series' portfolio securities.
The custodians do not participate in decisions relating to the purchase and
sale of portfolio securities.
PricewaterhouseCoopers LLP, 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103, the Trust's independent accountant, audit the Trust's
financial statements on an annual basis.
15(h)(4) Not applicable.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES
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16(a) AND (c) BROKERAGE TRANSACTIONS AND BROKERAGE SELECTION. The
following table depicts brokerage commissions paid by the following Series:
BROKERAGE COMMISSIONS
FISCAL YEARS ENDED NOVEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
U.S. Large Company $ 72,262 $ 40,689 $ 15,841
Enhanced U.S. Large
Company $ 1,650 $ 10,284 $ 2,210
U.S. Large Cap Value $ 934,452 $ 929,005 $1,116,421
U.S. 4-10 Value n/a n/a $ 717,873
U.S. 6-10 Value $2,754,009 $4,591,853 $4,289,226
U.S. 6-10 Small Company $ 473,887 $ 855,652 $1,022,535
U.S. 9-10 Small Company $1,704,251 $1,641,020 $1,541,534
DFA International Value $1,251,242 $1,133,787 $ 763,022
Japanese Small Company $ 466,795 $ 602,098 $ 300,862
Pacific Rim Small Company $ 181,812 $ 485,846 $ 316,644
United Kingdom Small
Company $ 86,854 $ 68,028 $ 116,482
Continental Small Company
Series $ 214,631 $ 145,195 $ 278,568
Emerging Markets $ 437,088 $ 559,853 $ 375,895
Emerging Markets Small Cap n/a $ 123,081 $ 40,579
</TABLE>
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.
59
<PAGE>
The DFA One-Year Fixed Income and Two-Year Global Fixed Income Series acquire
and sell 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.
16(b) COMMISSIONS. No commissions were paid to affiliates or affiliates
of affiliates during fiscal years 1996, 1997 or 1998.
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, The U.S. 9-10 Small Company Series, The U.S. 4-10 Value Series and
The U.S. 6-10 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, The U.S. 9-10 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 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.
Brokerage commissions for transactions in securities listed on the Tokyo
Stock Exchange ("TSE") and other Japanese securities exchanges are fixed.
Under the current regulations of the TSE and the Japanese Ministry of
Finance, member and non-member firms of Japanese exchanges are required to
charge full commissions to all customers other than banks and certain
financial institutions, but members and licensed non-member firms may confirm
transactions to banks and financial institution affiliates located outside
Japan with institutional discounts on brokerage commissions. The Japanese
Small Company Series has been able to avail itself of institutional
discounts. The Series' ability to effect transactions at a discount from
fixed commission rates depends on a number of factors, including the size of
the transaction, the relation between the cost to the member or the licensed
non-member firm of effecting such transaction and the commission receivable,
and the law, regulation and practice discussed above. There can be no
assurance that the Series will continue to be able to realize the benefit of
discounts from fixed commissions.
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<PAGE>
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.
DFAL performs these services for the United Kingdom and Continental Small
Company Series and DFA Australia performs these services for the Japanese and
Pacific Rim Small Company Series. Transactions also may be placed with
brokers who provide the Advisor or sub-advisors 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. Research services furnished
by brokers through whom securities transactions are effected may be used by
the Advisor in servicing all of its accounts and not all such services may be
used by the Advisor with respect to the 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.
16(d) DIRECTED BROKERAGE. During the fiscal year ended November 30,
1998, the Series paid commissions for securities transactions to brokers
which provided market price monitoring services, market studies and research
services to the Series as follows:
<TABLE>
<CAPTION>
VALUE OF
SECURITIES BROKERAGE
TRANSACTIONS COMMISSIONS
<S> <C> <C>
U.S. Large Cap Value $ 71,611,201 $ 65,046
U.S. 4-10 Value $ 89,593,893 $ 260,598
U.S. 6-10 Value $328,395,637 $ 983,614
U.S. 6-10 Small Company $210,827,199 $ 497,918
U.S. 9-10 Small Company $121,765,353 $ 345,522
DFA International Value $ 2,427,926 $ 15,569
Japanese Small Company $ 22,628,881 $ 150,514
</TABLE>
61
<PAGE>
<TABLE>
<S> <C> <C>
Pacific Rim Small Company $ 8,995,911 $ 39,849
TOTAL: $856,246,001 $ 2,358,630
</TABLE>
16(e) REGULAR BROKER DEALERS. Not applicable.
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES
(a) CAPITAL STOCK. All sixteen 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 Investment Company Act of 1940,
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,
The Emerging Markets Small Cap, The U.S. Large Company, Japanese, Pacific
Rim, United Kingdom or Continental Series redeems its entire interest in the
Series or becomes bankrupt, a majority in interest of the remaining
shareholders in such 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, The
Emerging Markets Small Cap, The U.S. Large Company, Japanese, Pacific Rim,
United Kingdom and Continental 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 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. 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.
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 Investment Company Act
of 1940. 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 Investment Company Act of
1940.
17(b) OTHER SECURITIES. Not applicable.
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<PAGE>
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF SHARES
The information provided in response to this item is in addition to the
information provided in response to Item 7 in Part A.
(a) AND (c) PURCHASE OF SHARES AND OFFERING PRICE. 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, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas Day. The Federal Reserve System is
closed on the same days as the NYSE, except that it is open on Good Friday
and closed on Columbus Day and Veterans' Day. Orders for redemptions and
purchases will not be processed if the Trust is closed. The TSE is closed on
the following days in 1999: January 1 and 15, February 11, March 22, April
29, May 3, 4 and 5, July 20, September 15 and 23, October 11, November 3 and
23 and December 23, 30 and 31. Orders for the purchase and redemption of
shares of the Japanese Series received on those days will be priced as of the
close of the NYSE on the next day that the TSE is open for trading.
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
judgment 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) 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.
18(b) FUND REORGANIZATIONS. Not applicable.
18(d) REDEMPTION IN KIND. The Trust has filed a notice of election
pursuant to Rule 18f-1 under the Investment Company Act of 1940. (See Item
7(c) of Part A.)
ITEM 19. TAXATION OF THE FUND
The information provided in response to this item is in addition to the
information provided in response to Items 7(d) and (e) in Part A.
Each Corporate Series intends to qualify each year as a regulated investment
company under Subchapter M of the Code, so that it will not be liable for
U.S. federal income taxes to the extent that its net investment income and
net realized capital gains are distributed.
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<PAGE>
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.
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 their 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 their
share of such foreign taxes in computing their taxable income or to claim a
credit for such taxes against their U.S. federal 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 and Two-Year Global 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.
The Trust may accept securities or local currencies in exchange for shares of
a Series. A gain or loss for U.S. federal income tax purposes may be
realized by investors in a Corporate Series who are subject to U.S. federal
taxation upon the exchange depending upon the cost of the securities or local
currency exchanged. (See "In Kind Purchases" in Item 7(b).)
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<PAGE>
Shareholders of the Corporate Series who are not U.S. persons for purposes of
U.S. federal income taxation should consult with their 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. Series shares held by the estate of a non-U.S.
investor may also be subject to U.S. estate tax.
The Partnership Series are series of a trust organized under Delaware law.
The Partnership Series will not be subject to any U.S. federal income tax.
Instead, each investor will be required to report separately on its own U.S.
federal 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 U.S. federal income taxes, investors in
the Partnership Series may also be subject to state and local taxes on their
distributive share of a Partnership Series' income.
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 such Series' entire fiscal 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.
Investors in the Partnership Series who are not U.S. persons for purposes of
U.S. federal income taxation should consult with their tax advisors to
determine the applicability of U.S. withholding by a Partnership Series on
interest, dividends and any other items of fixed or determinable annual or
periodical gains, profits and income included in such investors' distributive
share of a Partnership Series' income. Non-U.S. investors may also wish to
contact their tax advisors to determine the applicability of foreign tax
laws. Series shares held by the estate of a non-U.S. investor may be subject
to U.S. estate tax.
The Tax-Managed Marketwide Value Series may time investments to minimize the
receipt of dividends. These actions could result in the Tax-Managed
Marketwide Value Series being unable to flow through the dividends received
deduction to corporate shareholders. This will occur if the Tax-Managed
Marketwide Value Series does not hold the stock of a domestic (U.S.)
corporation for the requisite holding period to be eligible for pass-through
of the dividends received deduction.
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<PAGE>
The Advisor seeks to manage the Tax-Managed Marketwide Value Series in order
to minimize the realization of net capital gains where possible and may
minimize taxable dividend distributions during a particular year. However,
the realization of capital gains and receipt of income is not entirely within
the Advisor's control. Thus, capital gains distributions may vary
considerably from year to year. There will be no capital gains distributions
in years when the Tax-Managed Marketwide Value Series realizes net capital
losses. Furthermore, the realization of capital gains by a shareholder on
the sale of portfolio shares will depend on whether a shareholder's
redemption price exceeds his or her tax basis in the shares sold. If a
shareholder elects to receive capital gains distributions in cash, instead of
reinvesting them in additional shares, the capital at work in the Tax-Managed
Marketwide Value Series will be reduced. Also, purchases of shares in the
Tax-Managed Marketwide Value Series shortly before the record date for a
dividend or capital gains distribution may cause of portion of the investment
to be returned to the shareholder as a taxable distribution, regardless of
whether the distribution is being reinvested or paid in cash.
ITEM 20. UNDERWRITERS. Not applicable.
ITEM 21. CALCULATION OF PERFORMANCE DATA
(a) MONEY MARKET FUNDS. Not applicable.
(b) OTHER FUNDS. Following are quotations of the annualized percentage
total returns for the one-, five-, and ten-year periods ended November 30,
1998 (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).
<TABLE>
<CAPTION>
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
The U.S. Large Company Series 23.60 22.91 20.90
(95 months)
The Enhanced U.S. Large 24.00 31.76 NA
Company Series (28 months)
The U.S. Large Cap Value 11.92 18.30 17.01
Series (69 months)
The U.S. 4-10 Value Series -15.54 NA NA
(9 months)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
The U.S. 6-10 Value Series -9.05 14.47 15.05
(68 months)
The U.S. 6-10 Small Company -8.97 12.26 12.38
Series (69 months)
The U.S. 9-10 Small Company -10.81 NA NA
Series
The DFA International Value 12.49 6.44 NA
Series (57 months)
The Japanese Small Company -2.53 -31.50 NA
Series (27 months)
The Pacific Rim Small Company -24.33 -26.61 NA
Series (27 months)
The United Kingdom Small -13.20 1.25 NA
Company Series (27 months)
The Continental Small Company 18.71 15.33 NA
Series (27 months)
The Emerging Markets Series -12.78 -3.05 NA
(55 months)
The Emerging Markets Small Cap -16.48 -19.26 NA
Series (23 months)
The DFA One-Year Fixed Income 5.90 5.64 5.44
Series (69 months)
The DFA Two-Year Global Fixed 6.48 6.74 NA
Income Series (33 months)
</TABLE>
As the following formula indicates, the average annual total return is
determined by finding the average annual compounded rates of return over the
stated time period that would equate a hypothetical initial purchase order of
$1,000 to its redeemable value (including capital appreciation/depreciation
and dividends and distributions paid and reinvested less any fees charged to
a shareholder account) at the end of the stated time period. The calculation
assumes that all dividends and distributions are reinvested at the public
offering price on the reinvestment dates during the period. The 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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<PAGE>
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five-, and ten-year periods at the end of the
one-, five-, and ten-year periods (or fractional portion thereof).
ITEM 22. FINANCIAL STATEMENTS.
(a)-(c) The audited financial statements and financial highlights of the Trust
for its fiscal year ended November 30, 1998 as set forth in the Trust's annual
report to shareholders, including the report of PricewaterhouseCoopers LLP,
independent accountants, are incorporated herein by reference. The audited
annual report does not contain any data regarding The Tax-Managed U.S.
Marketwide Value Series because it had not commenced operations as of
November 30, 1998.
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THE DFA INVESTMENT TRUST COMPANY
(THE "REGISTRANT")
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS:
(a) CHARTER, AS NOW IN EFFECT.
(1) Agreement and Declaration of Trust.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 5 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: December 1, 1995.
(2) Certificate of Trust dated September 11, 1992.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(3) Certificate of Amendment to Certificate
of Trust dated January 15, 1993.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(b) Existing bylaws or instruments corresponding thereto.
(1) By-Laws.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
Not applicable.
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<PAGE>
(c) Instruments defining the rights of holders of the securities
being registered including where applicable, the relevant
portion of the articles or incorporation or bylaws of the
Registrant.
Not applicable.
(d) Investment advisory contracts relating to the management of
the assets of the Registrant.
(1) Investment Management Agreement dated January 6, 1993
between the Registrant and Dimensional Fund Advisors Inc.
("DFA") on behalf of The U.S. 6-10 Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(2) Investment Management Agreement between the Registrant and
DFA on behalf of The U.S. Large Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 5 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: December 1, 1995.
(3) Investment Management Agreement dated January 6, 1993
between the Registrant and DFA on behalf of The DFA
One-Year Fixed Income Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(4) Investment Management Agreement dated January 6, 1993
between the Registrant and DFA on behalf of The U.S. Large
Cap Value Series (formerly The U.S. Large Cap High Book to
Market Series).
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
70
<PAGE>
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(5) Investment Management Agreement dated January 6, 1993
between the Registrant and DFA on behalf of The U.S. 6-10
Value Series (formerly The U.S. Small Cap High Book to
Market Series).
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(6) Investment Management Agreement dated December 1, 1993
between the Registrant and DFA on behalf of The DFA
International Value Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(7) Investment Management Agreement dated October 18, 1996
between the Registrant and DFA on behalf of The Emerging
Markets Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(8) Investment Management Agreement dated February 8, 1996
between the Registrant and DFA on behalf of The
Enhanced U.S. Large Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 6 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: February 7, 1996.
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<PAGE>
(9) Investment Management Agreement dated February 8, 1996
between the Registrant and DFA on behalf of The DFA
Two-Year Global Fixed Income Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 6 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: February 7, 1996.
(10) Investment Management Agreement dated February 8, 1996
between the Registrant and DFA on behalf of The DFA
Two-Year Corporate Fixed Income Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 6 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: February 7, 1996.
(11) Investment Management Agreement dated February 8, 1996
between the Registrant and DFA on behalf of The DFA
Two-Year Government Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 6 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: February 7, 1996.
(12) Investment Management Agreement dated August 7, 1996
between the Registrant and DFA on behalf of The Japanese
Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
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<PAGE>
(13) Investment Management Agreement dated August 7, 1996
between the Registrant and DFA on behalf of The United
Kingdom Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
(14) Investment Management Agreement dated August 7, 1996
between the Registrant and DFA on behalf of The Pacific Rim
Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
(15) Investment Management Agreement dated August 7, 1996
between the Registrant and DFA on behalf of The Continental
Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
(16) Investment Management Agreement dated October 18, 1996
between the Registrant and DFA on behalf of The Emerging
Markets Small Cap Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 9 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: February 24, 1997.
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<PAGE>
(17) Investment Management Agreement dated November 28, 1996
between the Registrant and DFA on behalf of The U.S. 9-10
Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 12 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: November 28, 1997.
(18) Investment Management Agreement dated November 28, 1996
between the Registrant and DFA on behalf of The U.S. 4-10
Value Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 12 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: November 28, 1997.
(19) Form of Investment Management Agreement dated December 7,
1998 between the Registrant and DFA on behalf of the
Tax-Managed U.S. Marketwide Value Series
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 16 to The Registrant's
Registration Statement on
Form N-1A.
File No: 811-07436
Filing Date: December 7, 1996
(20) Sub-Advisory Agreement among the Registrant, DFA and
Australia Pty Ltd. ("DFA-Australia") dated August 7, 1996
The Japanese Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
(21) Sub-Advisory Agreement among the Registrant, DFA and
Dimensional Fund Advisors Ltd. ("DFAL") dated August 7,
1996
74
<PAGE>
on behalf of The United Kingdom Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
(22) Sub-Advisory Agreement among the Registrant, DFA and
DFA-Australia dated August 7, 1996 on behalf of The
Pacific Rim Small Company Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
(23) Sub-Advisory Agreement among the Registrant, DFA and
DFAL dated August 7, 1996 on behalf of The Continental
Small Company Series
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 7 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: August 7, 1996.
(24) Consultant Services Agreement between Dimensional Fund
Advisors Inc. and Dimensional Fund Advisors Ltd. on
behalf of:
THE DFA INVESTMENT TRUST COMPANY
* DFA International Value Series
* Emerging Markets Small Cap Series
* Emerging Markets Series
* Tax-Managed U.S. Marketwide Value Series
75
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
* DFA International Small Cap Value Portfolio
* VA International Value Portfolio
* Large Cap International Portfolio
* Tax-Managed DFA International Value Portfolio; and
DIMENSIONAL EMERGING MARKETS FUND, INC.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment No. 16 to
The Registrant's Registration Statement on
Form N-1A.
File No: 811-07436
Filing Date: December 7, 1996
(25) Consultant Services Agreement between Dimensional Fund
Advisors Inc. and DFA Australia Ltd. on behalf of:
THE DFA INVESTMENT TRUST COMPANY
* DFA International Value Series
* Emerging Markets Small Cap Series
* Emerging Markets Series
* Tax-Managed U.S. Marketwide Value Series
DFA INVESTMENT DIMENSIONS GROUP INC.
* DFA International Small Cap Value Portfolio
* VA International Value Portfolio
* Large Cap International Portfolio
* Tax-Managed DFA International Value Portfolio; and
DIMENSIONAL EMERGING MARKETS FUND, INC.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 16 to the Registrant's
Registration Statement on
Form N-1A.
File No: 811-07436
Filing Date: December 7, 1996
76
<PAGE>
(e) Underwriting or distribution contract between the Registrant and
a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers.
Agreement dated January 6, 1993 between the Registrant
and DFA Securities Inc.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(f) Bonus, profit sharing, pension or similar contracts or
arrangements wholly or partly for the benefit of directors or
officers of the Registrant in their official capacity; Describe
in detail any such plan not included in a formal document.
Not applicable.
(g) Custodian agreements and depository contracts under Section
17(f) of the Investment Company Act of 1940, as amended
[15 U.S.C. 80a 17(f)] concerning the Registrant's securities
and similar investments including the schedule of remuneration.
(1) Custodian Agreement between the Registrant and PNC Bank,
N.A. (formerly Provident National Bank N.A.)
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(2) Custodian Agreement dated December 1, 1993 between
Registrant and Boston Safe Deposit and Trust Company.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(3) Addendum to the Custodian Agreements.
(a) Addendum Number 1 dated December 8, 1998 between
the Registrant and PNC on behalf of each series of
the
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<PAGE>
Registrant is electronically filed herewith as
Exhibit EX-99.b8.
(4) Global Custody Agreement dated January 18, 1994
between the Registrant and The Chase Manhattan Bank, N.A.
on behalf of The Emerging Markets Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(5) Custodial Services Agreement dated January 13, 1998
between the Registrant and Citibank, N.A.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(i) Manual Transmission Authorization.
(ii) Manual Transmission Procedures.
(h) Other material contracts not made in the ordinary course of
business to be performed in whole or in part on or after the
filing date of the Registration Statement.
(1) Transfer Agency Agreement dated January 15, 1993
between the Registrant and PFPC Inc. (formerly
known as Provident Financial Processing Corporation.)
("PFPC").
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(i) Appendix A: Authorized Persons to Give Oral and
Written Instructions
(ii) Schedule A: Listing of Statistical Reports
(2) Amendments to the Transfer Agency Agreement.
(a) Amendment Number 1 dated December 1, 1993 between
78
<PAGE>
the Registrant and PFPC on behalf of The
International Value Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(3) Addendum to the Transfer Agency Agreement.
(a) Addendum Number 1 dated December 8,1998 between the
Registrant and PFPC on behalf of each series of the
Registrant is electronically filed herewith as
Exhibit EX -99.b9.1.
(4) Administration and Accounting Services Agreement
dated January 15, 1993 between the Registrant and
PFPC.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(5) Amendments to the Administration and Accounting
Services Agreement.
(a) Amendment Number 1 dated December 1, 1993
between the Registrant and PFPC on behalf of
The DFA International Value Series.
INCORPORATED HEREIN BY REFERENCE TO:
Filing: Post-Effective Amendment
No. 14 to the Registrant's
Registration Statement on
Form N-1A.
File No.: 811-07436.
Filing Date: March 3, 1998.
(6) Addendum to the Administration and Accounting
Services Agreement.
(a) Addendum Number 1 dated December 8, 1998 between the
Registrant and PFPC on behalf of each series of the
Registrant is electronically filed herewith as
Exhibit EX 99.b9.2.
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<PAGE>
(i) An opinion and consent of counsel regarding the legality of the
securities being registered, stating whether the securities
will, when sold, be legally issued, fully paid and
non-assessable.
Not applicable.
(j) Any other opinions, appraisals or rulings and related consents
relied on in preparing this Registration Statement and required
by Section 7 of the 1933 Act [15 U.S.C. 77g].
Consent of PricewaterhouseCoopers LLP is electronically filed
herewith as Exhibit EX-99.B11.
(k) All Financial statements omitted from Item 23.
Not applicable.
(l) Any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant,
the underwriter, adviser, promoter or initial stockholders and
written assurances from promoters or initial stockholders that
purchases were made for investment purposes and not with the
intention of redeeming or reselling.
Not applicable.
(m) Any plan entered into by Registrant under Rule 12b-1, and any
agreements with any person relating to the Plan's
implementation.
Not applicable.
(n) Financial Data Schedules meeting the requirements of Rule 483
under the Securities Act of 1933.
Financial Data Schedules containing information as of
November 30, 1998 are filed herewith as Exhibits
EX-99.b27.1 to 18.
(o) Any plan entered into by Registrant pursuant to Rule 18f-3, any
agreement with any person relating to the plan's implementation,
and any amendment to the plan or agreement.
Not Applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
If an investor beneficially owns more than 25% of the outstanding
voting securities of a feeder fund that invests all of its investable
assets in a Series of the Trust, then the feeder fund and its
corresponding Series may be
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<PAGE>
deemed to be under the common control of such investor. Accordingly,
certain feeder portfolios of DFA Investment Dimensions Group
("DFA IDG") and Dimensional Investment Group ("DIG"), both Maryland
corporations and registered investment companies, may be deemed to be
under common control with their corresponding Series of the Trust. As
of March 24, 1999, the following persons beneficially owned more than
25% of the outstanding voting securities of the feeder portfolios
investing in the Trust:
DFA IDG
-------
JAPANESE SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309-3610 64.99%
UNITED KINGDOM SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309-3610 64.90%
CONTINENTAL SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309-3610 61.25%
PACIFIC RIM SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30309-3610 75.52%
INTERNATIONAL SMALL COMPANY PORTFOLIO
San Diego County Employees
Retirement Association
1495 Pacific Highway 350
San Diego, CA 92101 62.70%
U.S. 6-10 SMALL COMPANY PORTFOLIO
McKinsey & Company Master Retirement Trust
55 E. 52nd Street
New York, NY 10055 25.28%
U.S. 4-10 VALUE PORTFOLIO
Dimensional Fund Advisors Inc.
(see above address) 100%
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<PAGE>
DIG
---
6-10 INSTITUTIONAL PORTFOLIO
BAYCARE Health System
323 Jefford Street
Clearwater, FL 34617 48.20%
U.S. 6-10 VALUE PORTFOLIO II
BellSouth Corporation 401(k)
1155 Peachtree Street N.E.
Atlanta, GA 30309-3610 100%
U.S. LARGE CAP VALUE PORTFOLIO II
BellSouth Corporation 401(k)
1155 Peachtree Street N.E.
Atlanta, GA 30309-3610 100%
DFA INTERNATIONAL VALUE PORTFOLIO II
BellSouth Corporation 401(k)
(see above address) 100%
EMERGING MARKETS PORTFOLIO II
Citibank Savings Incentive Plan
153 E. 53rd Street
New York, NY 10043 100%
DFA INTERNATIONAL VALUE PORTFOLIO IV
Citibank Savings Incentive Plan
153 E. 53rd Street
New York, NY 10043 100%
ITEM 25. INDEMNIFICATION.
Reference is made to Article VII of the Registrant's Agreement and
Declaration of Trust and to Article X of the Registrant's By-Laws,
which are incorporated herein by reference.
Pursuant to Rule 484 under the Securities Act of 1933, as
amended, the Registrant furnishes the following undertaking:
"Insofar as indemnification for liability arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or
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<PAGE>
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Dimensional Fund Advisors Inc., the investment manager for the
Registrant, is also the investment manager for three other registered
open-end investment companies, DFA Investment Dimensions Group Inc.,
Dimensional Emerging Markets Value Fund Inc. and Dimensional
Investment Group Inc. The Advisor also serves as sub-advisor for
certain other registered investment companies. For additional
information, please see "Management of the Trust" in PART A and
"Management of the Registrant" in PART B of this Registration
Statement. Additional information as to the Advisor and the directors
and officers of the Advisor is included in the Advisor's Form ADV
filed with the Commission (File No. 801-16283), which is
incorporated herein by reference and sets forth the officers and
directors of the Advisor and information as to any business,
profession, vocation or employment of a substantial nature engaged
in by those officers and directors during the past two years.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Not applicable.
(b) Registrant distributes its own shares. It has entered into an
agreement with DFA Securities Inc. which provides that DFA
Securities Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica,
CA 90401, will supervise the sale of Registrant's shares.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant will be located at the
office of the Registrant and at additional locations, as follows:
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NAME ADDRESS
The DFA Investment Trust Company 1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
PFPC Inc. 400 Bellevue Parkway
Wilmington, DE 19809
The Chase Manhattan Bank 4 Chase MetroTech Center
Brooklyn, NY 11245
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in
Part A or Part B.
ITEM 30. UNDERTAKINGS.
(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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Post-Effective Amendment No. 17
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, as of the 24 day of March, 1999.
THE DFA INVESTMENT TRUST COMPANY
(REGISTRANT)
By:
--------------------------------------------
IRENE R. DIAMANT
VICE PRESIDENT
(NAME AND TITLE)
85
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
N-1A EDGAR
EXHIBIT NO. EXHIBIT NO. DESCRIPTION
<S> <C> <C>
23(g)(3) EX-99.b8 Custodian Agreement Addendum No. 1
dated December 8, 1998 between the
Registrant and PNC on behalf of each series
of the Registrant.
23(h)(3) EX-99.b9.1 Transfer Agency Agreement Addendum
No. 1 dated December 8, 1998 between the
Registrant and PFPC on behalf of each series
of the Registrant.
23(h)(6) EX-99.b9.2 Administration and Accounting Services
Agreement, Addendum No. 1 dated December 8,
1998 between the Registrant and PFPC on
behalf of each series of the Registrant.
23(j) EX-99.b11 Consent of PriceWaterhouseCoopers LLP
Financial Data Schedules dated
November 30, 1998 relating to:
23(n)(1) EX-99.b27.1 U.S. 6-10 Small Company
23(n)(2) EX-99.b27.2 Series U.S. Large Company
23(n)(3) EX-99.b27.3 Series U.S. 6-10 Value Series
23(n)(4) EX-99.b27.4 U.S. Large Cap Value Series
23(n)(5) EX-99.b27.5 DFA One-Year Fixed Income Series
23(n)(6) EX-99.b27.6 DFA International Value Series
23(n)(7) EX-99.b27.7 Emerging Markets Series
23(n)(8) EX-99.b27.8 DFA Two-Year Global Fixed Income Series
23(n)(9) EX-99.b27.9 Enhanced U.S. Large Company Series
23(n)(10) EX-99.b27.10 Japanese Small Company Series
23(n)(11) EX-99.b27.11 United Kingdom Small Company Series
23(n)(12) EX-99.b27.12 Pacific Rim Small Company Series
23(n)(13) EX-99.b27.13 Continental Small Company Series
23(n)(14) EX-99.b27.14 Emerging Markets Small Cap Series
23(n)(17) EX-99.b27.17 U.S. 9-10 Small Company Series
23(n)(18) EX-99.b27.18 U.S. 4-10 Value Series
</TABLE>
86
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
CUSTODIAN AGREEMENT
ADDENDUM NUMBER ONE
THIS AGREEMENT is made as of the 7TH day of DECEMBER, 1998 by and between
--- --------------
THE DFA INVESTMENT TRUST COMPANY, a Delaware business trust (the "Fund"), and
PNC BANK, N.A., formerly "Provident National Bank," a national banking
association ("PNC").
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended;
WHEREAS, the Fund has retained PNC to serve as the Fund's custodian
pursuant to a Custodian Agreement dated January 15, 1993 (the "Agreement"),
which, as of the date hereof, is in full force and effect;
WHEREAS, PNC presently provides such services to the series of shares of
the Fund, including a new series of the Fund, designated as The Tax-Managed U.S.
Marketwide Value Series, which are listed on Schedule A, attached hereto; and
WHEREAS, Section 1 of the Agreement provides that the Fund may from time to
time issue additional series and, in such event, the provisions of the Agreement
shall apply to such series as may be mutually agreed to by the Fund and PNC;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound thereby, the parties agree:
1. The Agreement hereby is amended effective December 7, 1998 by:
replacing all references to "Provident National Bank" with
"PNC Bank, N.A.";
(b) replacing all references to "Provident" with "PNC";
(c) re-stating Paragraph 1 of the Agreement, to read as follows:
"1. APPOINTMENT.
The Fund hereby appoints PNC to act as custodian of
the portfolio securities, cash and other property
belonging to the series of shares of the Fund as listed
on Schedule A, attached hereto, (the "Covered Series")
for the period and on the terms set forth in this
Agreement. PNC accepts such appointment and agrees to
furnish the services herein set forth in return for the
compensation as provided in Paragraph 21 of this
Agreement.
1
<PAGE>
The Fund may from time to time issue additional series
and, in such event, the provisions of this Agreement
shall apply to such series as may be mutually agreed by
the Fund and PNC. PNC shall identify to each Covered
Series the property and liabilities belonging to such
Covered Series and in such actions, records, reports,
confirmations, accounts and notices to the Fund called
for under this Agreement shall identify the Covered
Series to which such action, record, account, report,
confirmation or notice pertains."
(d) re-stating Paragraph 2 of the Agreement to read as follows:
"2. DELIVERY OF DOCUMENTS.
The Fund has furnished PNC with copies of properly certified
or authenticated copies of each of the following:
(a) Resolutions of the Fund's Board of
Trustees authorizing the appointment of PNC as
custodian of the portfolio securities, cash and
other property belonging to the Fund, as provided
herein and approving this Agreement;
(b) Appendix A identifying and containing the
signatures of the Fund's officers authorized to
issue Oral Instructions and to sign Written
Instructions, as hereinafter defined, on behalf of
the Fund;
(c) The Fund's Agreement and Declaration of Trust and
all amendments thereto (such Agreement and
Declaration of Trust, as presently in effect and
as it shall from time to time be amended, is
herein called the "Declaration of Trust");
(d) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they
shall from time to time be amended, are herein
called the "By-Laws");
(e) The current investment advisory agreements between
Dimensional Fund Advisors Inc. (the "Advisor") and
the Fund with respect to the covered Series (the
"Advisory Agreements");
(f) The Transfer Agency Agreement between PFPC Inc.
(the "Transfer Agent") and the Fund dated as of
January 15, 1993 (the "Transfer Agency
Agreement");
2
<PAGE>
(g) The Administration and Accounting Services
Agreement between PFPC Inc. and the Fund dated as
of January 15, 1993 (the "Account Services
Agreement"); and
(h) The Fund's most recent registration statement on
Form N-1A under the 1940 Act (File No. 811-7436)
as filed with the U.S. Securities and Exchange
Commission (the "SEC") on December 7, 1998 and all
amendments thereto (such registration statement as
presently effective and as it shall from time to
time be amended, is herein called the
"Registration Statement");
The Fund will furnish PNC from time to time with copies,
properly certified or authenticated, of all amendments of or
supplements to the foregoing, if any."
2. The fee schedules of PNC applicable to the Covered Series shall be as
agreed to in writing from time to time.
3. This Addendum supercedes all prior Amendments to the Agreement.
4. In all other respects, the Agreement shall remain unchanged and in
full force and effect.
5. This Addendum may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum Number One
to the Agreement to be executed by their duly authorized officers designated
below on the day and year first above written.
THE DFA INVESTMENT TRUST COMPANY
By: /s/ Irene R. Diamant
-------------------------------------
IRENE R. DIAMANT
VICE PRESIDENT
PNC BANK, N.A.
By: /s/ Joseph Gramlich
-------------------------------------
JOSEPH GRAMLICH
SENIOR VICE PRESIDENT
3
<PAGE>
AMENDED AND RESTATED
DECEMBER 7, 1998
APPENDIX A
THE DFA INVESTMENT TRUST COMPANY
I, Irene R. Diamant, Secretary of The DFA Investment Trust Company, a
Delaware business trust (the "Fund"), do hereby certify that:
The following individuals are duly authorized as Authorized Persons to
give Oral Instructions and Written Instructions on behalf of the Fund:
NAME SIGNATURE
---- ---------
4
<PAGE>
AMENDED AND RESTATED
DECEMBER 7, 1998
SCHEDULE A
SERIES OF
THE DFA INVESTMENT TRUST COMPANY
THE U.S. 9-10 SMALL COMPANY SERIES
THE U.S. 6-10 SMALL COMPANY SERIES
THE U.S. LARGE COMPANY SERIES
THE ENHANCED U.S. LARGE COMPANY SERIES
THE U.S. 6-10 VALUE SERIES
THE U.S. LARGE CAP VALUE SERIES
THE U.S. 4-10 VALUE SERIES
THE JAPANESE SMALL COMPANY SERIES
THE PACIFIC RIM SMALL COMPANY SERIES
THE UNITED KINGDOM SMALL COMPANY SERIES
THE EMERGING MARKETS SERIES
THE DFA INTERNATIONAL VALUE SERIES
THE EMERGING MARKETS SMALL CAP SERIES
THE CONTINENTAL SMALL COMPANY SERIES
THE DFA ONE-YEAR FIXED INCOME SERIES
THE DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
THE DFA TAX-MANAGED U.S. MARKETWIDE VALUE SERIES
5
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
TRANSFER AGENCY AGREEMENT
ADDENDUM NUMBER ONE
THIS AGREEMENT is made as of the 7TH day of DECEMBER, 1998 by and between
THE DFA INVESTMENT TRUST COMPANY, a Delaware Business Trust (the "Fund"), and
PFPC INC., formerly "Provident Financial Processing Corporation," a Delaware
corporation, (the "Transfer Agent").
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended;
WHEREAS, the Fund has retained the Transfer Agent to serve as the Fund's
transfer agent, registrar and dividend disbursing agent, pursuant to a Transfer
Agency Agreement dated January 15, 1993 (the "Agreement"), which, as of the date
hereof, is in full force and effect;
WHEREAS, the Transfer Agent currently provides such services to the
existing series of shares of the Fund, including a new series of the Fund,
designated as The U.S. Marketwide Value Series, which are listed on Schedule B,
attached hereto; and
WHEREAS, Paragraph 1 of the Agreement provides that any series of shares
created by the Fund after the date of the Agreement shall be included thereunder
upon the mutual agreement of the Fund and the Transfer Agent;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound thereby, the parties agree:
1. The Agreement hereby is amended effective December 7, 1998 by:
(a) replacing all references to "Provident Financial Processing
Corp." with "PFPC Inc."
(b) re-stating Paragraph 1 of the Agreement to read as follows:
"1. APPOINTMENT.
The Fund hereby appoints the Transfer Agent to serve as
transfer agent, registrar, and dividend disbursing agent for the
series of shares of the Fund as listed on Schedule B, attached hereto,
(the "Series") for the period and on the terms set forth in this
Agreement. The Transfer Agent shall identify to each Series property
belonging to such Series and in such reports, records, confirmations
and notices to the Fund and other services provided hereunder shall
promptly identify the Series to which such property, record, report,
confirmation
1
<PAGE>
or service pertains and shall issue shares on a per Series basis as
provided in the registration statement of the Fund. The Transfer Agent
accepts such appointment and agrees to furnish the services herein set
forth in return for the compensation as provided in Paragraph 16 of
this Agreement. Any Series of Shares created by the Fund after the
date hereof shall be included hereunder upon the mutual agreement of
the Fund and the Transfer Agent."
(c) re-stating Paragraph 2. of the Agreement to read as follows:
"2. DELIVERY OF DOCUMENTS.
The Fund has furnished the Transfer Agent with copies of
properly certified or authenticated copies of each of the
following:
(a) Resolutions of the Fund's Board of Trustees,
authorizing the appointment of the Transfer Agent
as transfer agent and registrar and dividend
disbursing agent for the Fund and approving this
Agreement;
(b) Appendix A identifying and containing the
signatures of the Fund's officers and other
persons authorized to issue Oral Instructions and
to sign Written Instructions as hereinafter
defined, on behalf of the Fund and to execute
share certificates representing Shares of the
applicable Series;
(c) The Fund's Certificate of Trust filed with the
Delaware Secretary of State on October 17, 1992
and all amendments thereto;
(d) The Fund's Agreement and Declaration of Trust and
all amendments thereto (such Agreement and
Declaration of Trust as presently in effect and as
it may from time to time be amended, is herein
called the "Declaration of Trust");
(e) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they
shall from time to time be amended, are herein
called "By-Laws");
2
<PAGE>
(f) The Custodian Agreement between PNC Bank, N.A.
(formerly Provident National Bank) and the Fund
dated as of January 15, 1993;
(g) The Administration and Accounting Services
Agreement between the Transfer Agency and the Fund
dated as of January 15, 1993; and
(h) The Fund's most recent registration statement on
Form N-1A under the 1940 Act (File No. 811-7436),
as filed with the U.S. Securities and Exchange
Commission ("the SEC") on December 7, 1998 and all
amendments thereto (such registration statement as
presently effective and as it shall from time to
time be amended, is herein called the
"Registration Statement").
The Fund will furnish PFPC from time to time with copies,
properly certified or authenticated, of all amendments of
or supplements to the foregoing, if any."
2. The fee schedules of PFPC applicable to the Series shall be as agreed
to in writing, from time to time.
3. This Addendum supercedes all prior Amendments to the Agreement.
4. In all other respects, the Agreement shall remain unchanged and in
full force and effect.
5. This Addendum may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum
Number One to the Agreement to be executed by their duly authorized officers
designated below on the day and year first above written.
THE DFA INVESTMENT TRUST COMPANY
By: /s/ Irene R. Diamant
------------------------------------
Irene R. Diamant
Vice President
PFPC INC.
By: /s/ Joseph Gramlich
------------------------------------
Joseph Gramlich
Senior Vice President
4
<PAGE>
AMENDED AND RESTATED
DECEMBER 7, 1998
APPENDIX A
THE DFA INVESTMENT TRUST COMPANY
I, Irene R. Diamant, Secretary of The DFA Investment Trust Company, a
Delaware business trust (the "Fund"), do hereby certify that:
The following individuals are duly authorized as Authorized Persons to
give Oral Instructions and Written Instructions on behalf of the Fund:
NAME SIGNATURE
---- ---------
5
<PAGE>
AMENDED AND RESTATED
DECEMBER 7, 1998
SCHEDULE B
SERIES OF
THE DFA INVESTMENT TRUST COMPANY
THE U.S. 9-10 SMALL COMPANY SERIES
THE U.S. 6-10 SMALL COMPANY SERIES
THE U.S. LARGE COMPANY SERIES
THE ENHANCED U.S. LARGE COMPANY SERIES
THE U.S. 6-10 VALUE SERIES
THE U.S. LARGE CAP VALUE SERIES
THE U.S. 4-10 VALUE SERIES
THE JAPANESE SMALL COMPANY SERIES
THE PACIFIC RIM SMALL COMPANY SERIES
THE UNITED KINGDOM SMALL COMPANY SERIES
THE EMERGING MARKETS SERIES
THE DFA INTERNATIONAL VALUE SERIES
THE EMERGING MARKETS SMALL CAP SERIES
THE CONTINENTAL SMALL COMPANY SERIES
THE DFA ONE-YEAR FIXED INCOME SERIES
THE DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
THE TAX-MANAGED U.S. MARKETWIDE VALUE SERIES
6
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT
ADDENDUM NUMBER ONE
THIS AGREEMENT is made as of the 7TH day of DECEMBER, 1998 by and between
THE DFA INVESTMENT TRUST COMPANY, a Delaware Business Trust (the "Fund"), and
PFPC INC., formerly "Provident Financial Processing Corporation," a Delaware
corporation ("PFPC").
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended;
WHEREAS, the Fund has retained PFPC to provide certain administration and
accounting services pursuant to an Administration and Accounting Services
Agreement dated January 15, 1993, (the "Agreement") which, as of the date
hereof, is in full force and effect;
WHEREAS, PFPC presently provides such services to the existing series of
shares of the Fund, including a new series of the Fund, designated as The
Tax-Managed U.S. Marketwide Value Series, which are listed on Schedule B,
attached hereto; and
WHEREAS, Paragraph 1 of the Agreement provides that PFPC shall provide such
services to any series organized by the Fund after the date of the Agreement as
agreed to in writing by the Fund and PFPC;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound thereby, the parties agree:
1. The Agreement hereby is amended effective December 7, 1998 by:
(a) replacing all references to "Provident Financial Processing
Corp." with "PFPC Inc."
(b) re-stating Paragraph 1 of the Agreement to read as follows:
"1. APPOINTMENT.
The Fund hereby appoints PFPC to provide certain
administrative and accounting services to each series of shares of the
Fund, as listed on Schedule B, (the "Series") attached hereto, for the
period and on the terms set forth in this Agreement. PFPC accepts
such appointment and agrees to furnish the series herein set forth in
return for the compensation as provided in Paragraph 12 of this
Agreement. The records, notices, reports and services provided by
PFPC hereunder shall be prepared, kept, maintained and furnished by
PFPC in respect of
1
<PAGE>
each Series of the Fund existing on the date hereof, and any Series
organized by the Fund after the date hereof as agreed in writing by
the Fund and PFPC.
(c) re-stating Paragraph 2 of the Agreement to read as follows:
"2. DELIVERY OF DOCUMENTS.
The Fund has furnished PFPC with copies of properly certified or
authenticated copies of each of the following:
a. Resolutions of the Fund's Board of Trustees authorizing the
appointment of PFPC to provide certain administration and
accounting services for the Fund as provided herein and
approving this Agreement;
b. Appendix A, identifying and containing the signatures of the
Fund's officers and other persons authorized to issue Oral
Instructions and to sign Written Instructions, as
hereinafter defined, on behalf of the Fund;
c. The Fund's Certificate of Trust filed with the Delaware
Secretary of State on October 17, 1992 and all amendments
thereof;
d. The Fund's Agreement and Declaration of Trust and all
amendments thereto (such Agreement and Declaration of Trust
as presently in effect and as it may from time to time be
amended, is herein called the "Declaration of Trust");
e. The Fund's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time
be amended, are herein called "By-Laws");
f. The current investment advisory agreements between
Dimensional Fund Advisors Inc. (the "Advisor") and the Fund;
g. The Custodian Agreement between PNC Bank, N.A. (formerly
Provident National Bank) and the Fund dated as of January
15, 1993;
2
<PAGE>
h. The Transfer Agency Agreement between PFPC Inc. (formerly
Provident Financial Processing Corporation) and the Fund
dated as of January 15, 1993; and
i. The Fund's most recent registration statement on Form N-1A
under the 1940 Act (File No. 811-7436), as filed with the
U.S. Securities and Exchange Commission ("the SEC") on
December 7, 1998 and all amendments thereto (such
registration statement as presently effective and as it
shall from time to time be amended, is herein called the
"Registration Statement").
The Fund will furnish PFPC from time to time with copies,
properly certified or authenticated, of all amendments of
or supplements to the foregoing, if any.
2. The fee schedules of PFPC applicable to the Series shall be as agreed
to in writing, from time to time.
3. This Addendum supercedes all prior Amendments to the Agreement.
4. In all other respects, the Agreement shall remain unchanged and in
full force and effect.
5. This Addendum may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum Number One to
the Agreement to be executed by their duly authorized officers designated below
on the day and year first above written.
THE DFA INVESTMENT TRUST COMPANY
By: /s/ Irene R. Diamant
----------------------------------
IRENE R. DIAMANT
VICE PRESIDENT
PFPC INC.
By: /s/ Joseph Gramlich
----------------------------------
JOSEPH GRAMLICH
SENIOR VICE PRESIDENT
3
<PAGE>
AMENDED AND RESTATED
DECEMBER 7, 1998
APPENDIX A
THE DFA INVESTMENT TRUST COMPANY
I, Irene R. Diamant, Secretary of The DFA Investment Trust Company, a
Delaware business trust (the "Fund"), do hereby certify that:
The following individuals are duly authorized as Authorized Persons to
give Oral Instructions and Written Instructions on behalf of the Fund:
NAME SIGNATURE
---- ---------
4
<PAGE>
AMENDED AND RESTATED
DECEMBER 7, 1998
SCHEDULE B
SERIES OF
DFA INVESTMENT TRUST COMPANY
THE U.S. 9-10 SMALL COMPANY SERIES
THE U.S. 6-10 SMALL COMPANY SERIES
THE U.S. LARGE COMPANY SERIES
THE ENHANCED U.S. LARGE COMPANY SERIES
THE U.S. 6-10 VALUE SERIES
THE U.S. LARGE CAP VALUE SERIES
THE U.S. 4-10 VALUE SERIES
THE JAPANESE SMALL COMPANY SERIES
THE PACIFIC RIM SMALL COMPANY SERIES
THE UNITED KINGDOM SMALL COMPANY SERIES
THE EMERGING MARKETS SERIES
THE DFA INTERNATIONAL VALUE SERIES
THE EMERGING MARKETS SMALL CAP SERIES
THE CONTINENTAL SMALL COMPANY SERIES
THE DFA ONE-YEAR FIXED INCOME SERIES
THE DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
THE TAX-MANAGED U.S. MARKETWIDE VALUE SERIES
5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 17 (File No. 811-7436) under the Investment Company Act of 1940 to the
Registration Statement on Form N-1A of The DFA Investment Trust Company of
our report for The U.S. 9-10 Small Company Series, The U.S. 6-10 Small
Company Series, The U.S. Large Company Series, The Enhanced U.S. Large
Company Series, The U.S. 6-10 Value Series, The U.S. Large Cap Value Series,
The U.S. 4-10 Value Series, The Japanese Small Company Series, The Pacific
Rim Small Company Series, The United Kingdom Small Company Series, The
Emerging Markets Series, The DFA International Value Series, The Emerging
Markets Small Cap Series, The Continental Small Company Series, The DFA
One-Year Fixed Income Series, and The DFA Two-Year Global Fixed Income Series
(collectively, the "Portfolios"), dated January 15, 1999, on our audits of
the financial statements and financial highlights of the Portfolios of The
DFA Investment Trust Company as of November 30, 1998 and for the respective
periods then ended, which report is included in the Annual Reports to
Shareholders.
We also consent to the reference to our firm under the captions "Investment
Advisory and Other Services" and "Financial Statements" in the Statement of
Additional Information.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA
March 24, 1999
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