[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
