[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Notices]
[Pages 55633-55634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27123]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21452; 812-9682]


Dimensional Fund Advisors Inc.; Notice of Application

October 25, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for an Order under Section 2(a)(9) of the 
Investment Company Act of 1940 (the ``1940 Act'').

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APPLICANT: Dimensional Fund Advisors Inc. (``DFA'').

RELEVANT ACT SECTION: Order requested under section 2(a)(9).

SUMMARY OF APPLICATION: DFA seeks an order under section 2(a)(9) of the 
1940 Act declaring that Rex A. Sinquefield, the Co-Chairman, Chief 
Investment Officer, and owner of 24.9% of the outstanding voting 
securities of DFA, ``controls'' DFA despite a presumptive lack of 
control under section 2(a)(9) by reason of his less than 25% share 
ownership. DFA seeks such a determination so that a proposed transfer 
of DFA securities causing Mr. Sinquefield's percentage ownership to 
increase to more than 25% will not result in the ``assignment,'' as 
such term is defined in section 2(a)(4) of the Act, of advisory 
agreements between DFA and its investment company clients.

FILING DATES: The application was filed on July 21, 1995 and amended on 
October 5, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving DFA 
with a copy of the request, personally or by mail. Hearing requests 
should be received by the SEC by 5:30 p.m. on November 20, 1995, and 
should be accompanied by proof of service on DFA, in the form of an 
affidavit or, for lawyers, a certificate of service. Hearing requests 
should state the nature of the writer's interest, the reason for the 
request, and the issues contested. Persons may request notification of 
a hearing by writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. DFA, 1299 Ocean Avenue, Santa Monica, California 90401.

FOR FURTHER INFORMATION CONTACT: H.R. Hallock, Jr., Special Counsel, at 
(202) 942-0564, or C. David Messman, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicant's Representations

    1. DFA, a Delaware corporation, is a registered investment adviser 
under the Investment Advisers Act of 1940. Among its other 
institutional clients, DFA serves as investment adviser to DFA 
Investment Dimensions Group Inc., The DFA Investment Trust Company and 
Dimensional Emerging Markets Fund Inc., each of which is a registered 
investment company under the 1940 Act (collectively, the ``Funds'').
    2. DFA's two founding principals are David G. Booth (``Booth'') and 
Rex A. Sinquefield (``Sinquefield''), who are the Chief Executive 
Officer and the Chief Investment Officer, respectively, and Co-Chairmen 
of DFA. Booth owns 26,000 shares, or 36.1% and Sinquefield, together 
with his wife, owns 18,000 shares, or 24.9%, of the 72,001 currently 
outstanding shares of common stock of DFA. Of the remaining outstanding 
shares, 16,879 shares, or about 23.4%, are owned by other individual 
stockholders, and 11,122 shares, or about 15.4%, are together owned by 
two institutional shareholders, Kemper Financial Services, Inc. 
(``Kemper''), and Schroders Capital Management International Inc. 
(``Schroders'').
    3. In connection with their purchases of DFA common stock, all the 
stockholders of DFA, other than Kemper and Schroders, have entered into 
voting agreements constituting irrevocable proxies to vote their shares 
in the election of directors in favor of Booth and Sinquefield and such 
other persons as the two principals jointly designate. The voting 
agreements effectively require Booth and Sinquefield to act in concert 
to exercise their voting control. Since Booth and Sinquefield together 
control about 85% of the vote in the election of directors, they have 
sufficient voting power to elect all the members of the board. There 
are currently six directors of DFA, but because DFA's certificate of 
incorporation provides for plurality voting in the election of 
directors, no stockholder other than Booth and Sinquefield has the 
power to elect even a single director.
    4. Since they started DFA in 1981, Booth and Sinquefield have 
shared the managerial responsibilities of DFA. Their executive duties 
are often interchangeable, and major business decisions are always made 
by their mutual agreement. They both have contributed significantly to 
the development of DFA's investment products, and they jointly 
determine DFA's management and investment policies. They also share 
responsibility for oversight of the administrative and operational 
functions of the business.
    5. Pursuant to a Stock Purchase Agreement among DFA, Kemper and 
Booth, dated July 20, 1995, DFA proposes to purchase 3,622 shares of 
its stock from Kemper. Such repurchase of shares of DFA would decrease 
the number of DFA shares outstanding and result in Sinquefield's 
percentage share ownership increasing from 24.9% to 26.3%. In addition 
to the pending Kemper transaction, DFA has from time to time considered 
or engaged in other share transactions that directly or indirectly 
affect Sinquefield's percentage share ownership. Pursuant to an 
outstanding warrant and note, for example, Schroders is entitled to 
receive shares of DFA stock equal to 15% of DFA's shares issued and 
outstanding immediately following its exercise of the warrant. If 
Schroders exercises the warrant after the proposed repurchase by DFA of 
its shares from Kemper, Sinquefield's percentage ownership of DFA 
shares would decrease from 26.3% to 21.8%.

Applicant's Legal Analysis

    1. Section 2(a)(9) of the 1940 Act defines ``control'' to mean 
``the power to exercise a controlling influence over the management or 
policies of a company, unless such power is solely the result of an 
official position with such company.'' The section provides that any 
person who owns beneficially less than 25% of the outstanding voting 
securities of a company shall be presumed not to control such company. 
Section 2(a)(9) further provides that any such presumption may be 
rebutted by evidence, but shall continue until the SEC makes a 
determination to the contrary by order on application by an interested 
person.
    2. DFA seeks a determination that the presumption created under 
section 2(a)(9) has been rebutted by the evidence with respect to 
Sinquefield. DFA further seeks a determination that, if Sinquefield's 
percentage ownership is caused to exceed 25%, the subsequent issuance 
of additional shares of DFA 

[[Page 55634]]
common stock, such as upon the anticipated exercise by Schroders of its 
warrant, or such other share transactions having the effect of reducing 
Sinquefield's percentage of stock ownership to 25% or less, would not 
cause any actual change in Sinquefield's existing control over DFA.
    3. As a result of the principals' shared voting power created by 
the voting agreements and in light of the other factual circumstances 
described above, DFA submits that Sinquefield, acting in concert with 
Booth, does now and always has exerted a controlling influence over the 
management and policies of DFA. Under any currently contemplated or 
envisioned scenario in the future, DFA's two controlling principals 
would continue to exert controlling influence over the management of 
DFA and no other person would acquire control.
    4. DFA further submits that, as the presumption of section 2(a)(9) 
that Sinquefield does not now ``control'' DFA arguably has been 
rebutted by the facts set forth above, neither the pending share 
transaction with Kemper, nor any other such transaction directly or 
indirectly resulting in an increase or decrease in Sinquefield's 
percentage stock ownership, will cause a change of ``control'' within 
the meaning of section 2(a)(9). Nor will such transactions constitute a 
``transfer of a controlling block'' of DFA shares resulting in an 
``assignment'' within the meaning of section 2(a)(4). Under section 
15(a)(4) of the 1940 Act, any such assignment would result in the 
automatic termination of DFA's investment advisory agreements with the 
Funds. If the agreements were terminated, new investment advisory 
agreements would have to be approved by each Fund's directors and 
shareholders under section 15(a).
    5. DFA agrees that any order granted on the application will remain 
in effect only so long as Sinquefield continues to have substantially 
the same (or greater) management responsibilities and responsibility 
for oversight of the administrative and operational functions of DFA. 
Sinquefield also will continue to own, jointly or solely, at least 
12.5% of DFA's outstanding shares. In addition, while it currently is 
contemplated that no share transactions will be effected by DFA that 
would have the effect of reducing Booth and Sinquefield's aggregate 
ownership to less than 50%, in no event would any share transactions be 
effected by DFA during the pendency of the requested order that would 
have the effect of reducing Booth and Sinquefield's aggregate ownership 
to less than 25%. Finally, DFA agrees that any order granted on the 
application will remain in effect only so long as Sinquefield, either 
jointly or solely, continues to control at least a majority of the 
voting power of DFA's outstanding common stock with respect to the 
election of directors through the above-described voting agreements or 
similar binding contractual arrangements.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27123 Filed 10-31-95; 8:45 am]
BILLING CODE 8010-01-M