" .. '.'­

:~ OCT I ì 1995
 

, !... -. .. '...':' ~. .,.' 

Our Ref. No. 95-496-CC 

The DFA Investment Trost 

REPONSE OF TH OFFCE OF CHI COUNSEL Compay DIVSION OF INTM MAAGEM File No. 132-3 

By letr date August 23, 1995, you reues ou assuce tht we would not

remmend enforcment acon to the Comsion un seon 17(a) of the Invesent 

Company Act of 1940 ("Invesent ComplY Ac") or ni 17a-7 thereder 11 with
 

ret to the sae of portolio seti by'lh ta-exem gr tnst ("Group

Trosts") '1/ to cert series of The DFA Invesent Trost Compay ("DFAIC"), a 

regire invesent company, in exchage for sha of thse series ("Series"), as 

describe in your letr. . .....
 

Diensiona Fund Advirs, Inc. ("DFA") sees as th invesent adisr to th
 

Series, each of which is a masr fud in a masr fud-feer fund relationship. DFA al 

spnsors and advises the Group Trost, which ar divi into varous subtnst
 

("Subtnsts"). The Subtnsts hold asse of private and public employee benefit plas, 

You reresent tht DFA (as fiducia) believes tht it would be in the best interests of 

the employee benefit plas tht have investè in the Subtnsts, and DFAIC's Bo of 

Trostes believes it would be in the best interests of DFAIC's feeer funds and their 

sharholders, if cert Subtnsts sell their portolio seurities to those Series tht have the 

sae investment objectives and consistent policies, in exchage for shas of the "¥

corrspndig Series. The sae would ocur at the currnt net asse value of such shas, '-­

caculate as of the close of the New York Stok Exchage on the day of the trsation. ;'J 

You anticipate that the prose trsaction would very substtiy incre the siz of
 

each Series and should result in spreg the fied, and relatively fixed, costs of opration
 

over a lager asset base, thereby decreing such costs on a per shaholder basis. 

You also reresent tht, excet for the reuirment tht the trsaction be a purchas iI',.:;..

or sae for no consideration other than cash, it would comply with the reuirments of role 

i 7a-7 under the Investment Company Act. Speifcay, you st that (i) seurities 

purchas and shas issued would be valued in acrdce with DFAIC's stda 

valuation methods use to caculate net asset value, as describe in its registtion statement, 

-1 

. , 

,..'). 

11 Section 17(a) generay prohibits af persns of a regire invesent compay .j

~... 

"., ~.. from sellg seurities to, or purchaing seurities frm, the registre compay. 

Rule 17a-7 conditionay exempts from the prohibitions of seon 17(a) cert
 

purchas and saes of seurities beeen afte regire investent compas, 

and between regitere invesent compaes and other af persns when the ..­;:J,'. .

A'j

aftion ars solely by ren of having a common investient advir, common
 

ditors and/or common offcers.
 I 

-f 21 The Group Trosts have not registere under the Investment Company Act in relice '"'~':." on setion 3(c)(1) of that Act. Telephone converstion with Lisa Duda, Strdley ,.~ 

Ronon Stevens & Young, on September 26, 1995. 
and would be consistent with the reuirments of role 17a-7(b) 3./; (n) a Subtnst wil sell 

its portolio seurities to the Series tht ha the sae investment objectives and consistent
 

investent policies, as reuir by role 17a-7(c); (il) the prose trsacton wil not 

involve the payment of any brokerae comion, fee (otr th custmar trsfer fee),
 

or other remuneratio~, in accrdce with rue 17a-7(d); and (iv) eah Series wil comply 

with parhs (e) and (f) of role 17a-7 in connecon with the prose trsactons. In


addtion, you reresent th, othr th DF A in its cait as invesent advir, no pen


who is an afil persn of DFAI, or an af persn of an af persn of

DFAIC, with the meag of seon 2(a)(3) of the Invesent Compay Ac, ha any

beneficia mtere in the Subtst of th Gr Tn pa in the prose

trsaon. 

Without necssay aging with your lega anysi, we would not remmend enorcment acon to th Common UD leon 17(a) or ni 17a-7 threndr if th 

Series and Subtnsts engae in the trsactons deribe in your ler. Beuse th position
 

is ba on the fact and rerentaons in you ler, dieret fa and ,reretaons
 

might lead to a dierent result. Ths rens only expreses the Division's position on
 

enforcement action and does not purprt to express any legal conclusions on the quesons 

presented. 

Having state our views on severa ocions with ret to the abilty of a registere 

investment company, in the context of a rergni7aton, to issue shas as consideration for .;
 

the purcha of portolio seurities frm persns af with the company by ren of 

having a common investment adviser, ~I we wil no longer respnd to reuests for no-


action relief in ths ar unless they present novel or unusua issues. 5.1
 ~~'ti~ 

Senior Counsel 

'J/ :You also reresent tht if it is not possible to derme a price for a parcula
 

seurity using the methodology set fort in role 17a-7(b), tht seurity wil remai in
 

the Subtnst. 

M E.g., Fedra Investors (pub. avai. Apr. 21, 1994) (regire invesent compay 

advised by a ba th was al a fiducia of a common tnst fund); The Fir
 

Nationa Ba of Chicao (pub. avai. Sep. 22, 199) (tnste, fiducia or agent ,..~

,g;

cause cert accunts to purcha frm, an sell seurities to, cert af
 

regitere investent compaes); Coullor Caita Apreiaon Fund (pub. avai.
 

June 22, 1987) (no acon relif de where th possibilty of overrhig exi).
 

As these letrs ilustrte, we have permtt the rue to be aplied when the af .:,' 

. -.:1 persn serves in a role with re to the cote to the .tron th is .f. substatiy sim to tht of an invesent advir. -~: :1

5./ The stas analysis in these letrs would al aply to a sim trsaction beeen ,~ 

two registere investment companes if the trsaon met al the reuir conditions.
 
Andrew B. "ount	 Kevin R. 8l1'lf" Niclinla.. Bt"l'IiÎti Jameii D. Morris 

Thoma. B. Harper~ HI David F. Scranton Keith H. Dulil Bunna M. J)f'v"r 

S. Lisa A. Iluna Gordon Elkins Lee A. ROKngard Bruct" G. lA!tn "T. Doul:llil' lluJdrl"n STLE Daniel S. Kni,dtt Harry J. J. O~Nl:iI Brian P. Kind..liin

Aiiii M. Juhn...ii 

G~orJ:e S. Furtl,'. Jr. JMltt" I..ndell Fnstl"r Brian S. \"aq~" ~lariullU' .lnlinsiiin Frl"fl C. Alòrid¡re. Jr. "'iIialn S. Pilin,:. III Jamr.ii E. (l~l'ill. III 

Ileuq' G. HIIl,t"r Stephen R. Harri" Crail' n, nlud.iiaii MidHU"1 J. \liln RONON

Herbert G. Kt"ene, Jr. Todd C. VaneU Alan R. Gt"CJi'ii.h Stl'i~hl'n It ,"ulull SfVES Mark H. PI.I'l'r Arnold S, Block John C. lIunk Mllrc A, Pull

C, CI.rk-Y~Il. Jr, Edwin R. Bovnton David M. ApliiituliC'j) Farrah Lni \\alkt'r 

John ¡.: 'õo~rty~ Jr. Lind. Aiin Galante Daniel T. "'ilf"h l\Mry F. ,~IHIt"I'Mlii tXOUNG M. Alic'ia J)u,i., Steiihf'1t \l. Kline Dean M. Schwart7. n.vid E. FI'('I7. 

David S. Hopt' Stephen C. B.ker Tim D. Nurrii- l1ariunnfO Giiul 

John P. 0.0... David C. Franceski. Jr. Tinioth,. J. Ciimphrll ',",'mh' G. ~\lan

Attorneys At Law	 And~ L. nf'nnii Sandra A. Girifal("o Chrii:toph"r E. \.lIl1n1Înt.. '\"ïlli~m E. )I'-hun..,'. Jr. 

David R. Laudre). Jame. t: Podheiicr Thum8ti G. Harri,. Naiiq' i'inor" ~larF~Ii, 

Lane Ta,.lor. Jr. Gary R Scharmeu Rohr.ri 1-: H"dit JUlccrh J. :\("Hal..

Thoma. 'J. Rrneh.n~ Jr. Zachary P. Alex.ander John F. Licari Katheriii(" H. Auti,.ri

2600 One Commerce Square Willam R. Sapo John J, Murphy, III Cynthia G. McKever Danit'lIe B...ks."iliam. 

"iliam G. Srarborollb Audre C, T.lley "'iliam P. Zintmerman Su..n C. ßf'C'krrt 

Philadelphia, Pennsylvania 19103-7098 J.me. M, Papod.. III Jeffre A, Lui.ky Ann Marie Janue Michael P. Buiin..r 

Jamee R. Be... Ann Cuddy Rod. 'Franci. X. Mannini; Cathleen M. Slnkl"r 

(215) 564-8000	 Ch..i.. E, Coniff, Jr, Samuel J, Arna, Jr, Jennifer L. Reynoldi J.y C, Volk ' 

Stnen M. ~iHnnein Joph V, Del R.. P8uline C. Scalvino Eric R. Buot.ma 

John J. Hunter D..id M. Lokwo Raymond S. "ierrisze'l'"k¡ Vincl"nt Caro.l"la. Jr. 

Wiliam J. Barker~ Jr. Grelory J, Now.k Dorot hy M. A II ilUIl Mark A. H"Nh",' 

David E. Br.,.l"rl Steven A. Seolari Amy H. Cuh,,11 Mir.hal"1 II. (lHa'rf' Fax: (215) 564-8120 

~ial,'rrn. 1)"1l1~yl"aniø 

Chl"rry Hil. :\,.w Jt"nu'~' 

Affili.t..d OffiC"f'. \'inf'land. Nr.. Jrriil"~': 

GruC"C'o. ii,.ppt'r. Gio,'inaui. O~Santu & ....rll.ll~. 1'..". 

1940 Act/Section 17 (a) 

1940 Act/Rule 17a-7
 

August 23, ,.19,95--- .¡ -",~\-;",.,.~;,,,'\:.,~

Office of Chief Counsel
 _ ,~:1 \CrA

Division of Investment Management ;euk­ ;~~t ief. L -- - T 

Securities and Exchange Commission
 

450 Fifth Street, N.W.
 

Washington, D.C. 20549
 :'l.~

n.,' 1 !.(" '''¡ i,¡'" 10-1-1 _ ac.. ¿ 1:'-"'" :.:'.' :,C,_ .~ ..~_~,~_;_~.....~... ...; '._," ,__~._...... ,~'-i'. ,l.. ..~".._., 

Ladies and Gentlemen:
 

We respectfully request that the Staff of the Division of
 

Investment Management (IIStaffll) confirm that it will not
 

recommend enforcement action to the Securities and Exchange
 

Commission (IISECII) under Section 17 (a) of the Investment Company
 

Act of 1940 (111940 Actll) with respect to the sale of securities
 

by three tax-exempt group trusts to The DFA Investment Trust
 

Company (IIDFAITCII) in exchange for shares of certain series of
 

DFAITC. 

I. BACKGROUND
 

A. Dimensional Fund Advisors Inc.
 

Dimensional Fund Advisors Inc. (IIDFA"), a registered
 

investment advisor under the Investment Advisers Act of 1940,
 

serves as investment advisor of several registered investment
 

companies, collective investment vehicles and other institutional
 

clients, including all series of DFAITC.
 

B. Group Trusts
 

DFA sponsors three tax-exempt group trusts
 

(individually, a IIGroup Trust" and collectively, the IIGroup
 
Office of Chief Counsel
 

Division of Investment Management
 

August 23, 1995
 

Page 2
 

Trusts") and has full investment authority under such trusts.
 

The Group Trusts are divided into various subtrusts
 

(individually, a "Subtrust" and collectively, the "Subtrusts"),


each of which has its own investment objective and policies.
 

The Group Trusts hold assets of private and public
 

employee benefit plans for which DFAserves as investment
 

advisor. The private employee benefit plans are governed by the
 

Employee Retirement Income Security Act of 1974, as amended
 

("ERISA") and the public employee benefit plans are sUbject to
 state and/ or local laws and regulations. Each plan negotiates a 

fee agreement with DFA under which it pays DFA a fee for its
 

services as investment manager. DFA receives no fee from the
 

Group Trusts, but serves as investment advisor to the Group
 

Trusts. The initial decision and authorization to participate in
 

a Subtrust of the Group Trust is made by an independent fiduciary
 

of each employee benef it plan. The beneficial interests in the
 

Group Trusts do not include voting rights.
 

C. The DFA Investment Trust Company
 

DFAITC is a Delaware business trust which is registered
 

as an open-end management investment company. DFAITC consists of
 

several series of shares ("Series"), each of which serves as a
 

master fund in a master fund-feeder fund relationship. For
 

certain Subtrusts of the Group Trusts, there are corresponding
 

Series of DFAITC with the same investment objectives and
 

consistent investment policies.
 

Current investors in each Series include, primarily,
 

DFA-administered publicly-held registered investment companies.
 

They, and the Group Trusts and Subtrusts, are "accredited .
 

investors" as such term is defined in Regulation D under the
 

Securities Act of 1933, as amended.
 

D. Master Fund-Feeder Fund Arranqement
 

As previously stated, each Series of DFAITC serves as a


master fund in a master fund-feeder fund arrangement. In such an 

arrangement, mul tiple institutional investors with identical
 

investment objectives ("feeder funds") pool their assets by
 

investing in a single master registered investment company having
 

the same investment objective, which directly acquires and
 

manages a portfolio of securities.
 
Off ice of Chief Counsel
 

Di vision of Investment Management
 

August 23, 1995
 

Page 3
 

II. THE PROPOSED TRASACTION
 

DFA believes it would be in the best interests of the
 

pension and profit sharing plans that have invested in the
 

SUbtrusts, and the Board of Trustees of DFAITC believe it would
 

be in the best interests of DFAITC's feeder funds and their
 

public stockholders, if those Subtrusts that have the same
 

investment objectives and consistent policies to certain
 

corresponding Series of DFAITC sell their portfolio securities to
 

such corresponding Series in return for shares of beneficial
 

interest of such Series, at the current net asset value of such
 

shares (the "Transaction"), calculated as of the close of the New
 

York Stock Exchange on the day of the Transaction. The
 

Transaction would very substantially increase the size of the
 

Series and should result in spreading the fixed, and relatively
 

fixed, costs of operation over a larger asset base, thereby
 

decreasing such costs on a per shareholder basis.
 

Except for the requirement that the transaction be a
 

purchase or sale for no consideration other than cash, the
 

Transaction would comply with the requirements of Rule 17a-7 and
 

would be subj ect to the procedures adopted by the Board of
 

Trustees of DFAITC to ensure compliance with the requirements of
 

the Rule. Securities purchased and shares issued in the
 

Transaction would be valued in accordance with DFAITC's standard
 

valuation methods used to calculate net asset value, as stated in
 

its registration statement and, in particular, would be
 

consistent with the requirements of Rule 17a-7 (b). Because the


securi ties held by a Subtrust and the corresponding Series of 

DFAITC are largely the same, there will be no disruption of
 

portfolio management and valuation of the securities transferred
 

will accurately reflect their value to the buyer and seller.. To
 

the extent that it is not possible to determine a price for a
 

particular security using the methodology set forth in Rule
 

17a-7 (b), such security will remain in the Subtrust. The
 

Transaction would not involve payment of any brokerage
 

commission, fee (other than customary transfer fees), or other
 

remuneration. Other than DFA in its capacity as investment
 

advisor, no person who is an affiliated person of DFAITC, or an
 

affiliated person of an affiliated person of DFAITC, within the


meaning of section 2 (a) (3) of the 1940 Act, has any beneficial 

interest in the Group Trusts.
 

In addition to this no-action request, DFA has submitted to
 

the Department of Labor ("DOL"), Division of Fiduciary
 

Interpretation and Regulation, a prohibited transaction exemption
 

application pursuant to section 408 (a) of ERISA. The Transaction
 

will not be effected unless and until such exemption is granted
 
Office of Chief Counsel
 

Division of Investment Management
 

August 23, 1995
 

Page 4
 

by the DOL. As a condition to any exemptive relief granted by 

the DOL, a second fiduciary who is independent of, and unrelated
 

to, DFA will be provided with advance written notice of the sale
 

of the assets of the Subtrusts, full written disclosure of
 

information concerning DFAITC and certain additional financial
 

information. On the basis of the foregoing information, the
 

second fiduciary would then authorize in writing the transfer of
 

the participating plan's Subtrust assets to DFAITC in exchange
 

for shares of the corresponding Series priced at net asset value
 

of such shares.
 

III. LEGAL CONSIDERATIONS
 

A. section 17 (a) of the 1940 Act
 

section 17 (a) (1) of the 1940 Act, in relevant part, 

prohibits an affiliated person, or an affiliated person of an 

affiliated person, of a registered investment company, acting as 

principal, to sell to or purchase from such investment company

any security or other property. Pursuant to Section 2 (a) (3) (E) 

of the 1940 Act, DFA is an affiliated person of DFAITC by virtue 

of being the investment advisor to eac~ of its Series. Pursuant

to Section 2 (a) (3) (C), the Group Trusts may be deemed to be 

affiliated persons of DFA because of the control DFA exercises 

over the Group Trusts and Subtrusts as investment manager. Thus, 

the Group Trusts and each Subtrust may be deemed to be affiliated 

persons of an affiliated person of DFAITC and, therefore, the

Transaction might violate section 17 (a) . 

B. Rule 17a-7 under the 1940 Act
 

Rule 17 a -7 under the 1940 Act, in re levant part,
 

provides that a purchase or sale transaction between a registered
 

investment company or series thereof and a person which is an
 

affiliated person of such registered investment company (or an
 

affiliated person of such person) solely by reason of having a
 

common investment advisor is exempt from section 17 (a) of the
 

1940 Act, provided that certain conditions are met. DFA serves
 

as investment advisor to each Series of DFAITC and each subtrust
 

of the Group Trusts and any affiliation between the Group Trusts
 

and DFAITC exists solely because they share a common investment
 

advisor. Therefore, the requirement of Rule 17a-7 that the
 

affiliation exists by virtue of having a common investment
 

advisor is satisfied.
 

Subsection (a) of Rule 17a-7 requires that the purchase
 

or sale transaction be "for no consideration other than cash
 

payment against prompt delivery of a security for which market
 
Off ice of Chief Counsel
 

oi vision of Investment Management
 

August 23, 1995
 

Page 5
 

quotations are readily available." The requirement of Rule 17a-7
 

that cash be the sole consideration for the Transaction would not
 

be satisfied. OFAITC woùld issue Series' shares to the Subtrusts
 

priced at the current net asset value of the shares. The
 

securities acquired by the Series would be valued in the
 

identical manner at the same time. However, as previously
 

indicated, Sections (b) through (f) of Rule 17a-7 will be
 

satisf ied by OFAITC and the Group Trusts.
 

As currently structured, the Transaction would benefit
 

the Group Trusts because they would permit the Subtrusts'
 

participating plans to achieve the substantial fixed cost savings ~
 

available through participation in the master fund-feeder fund
 

structure and, at the same time, lower the substantial
 

transaction costs involved in selling their assets and purchasing
 

master fund shares on the open market from the proceeds. No
 

brokerage costs or market maker's spread will be incurred and no
 

potentially adverse market consequences would result from the
 

Transaction. The savings generated by such in-kind purchases
 

would inure directly to the benef it of the Subtrusts whose assets
 

are being transferred and to their participants. OFAITC's feeder
 

funds and their pUblic shareholders will also benefit because the
 

Series' fixed and relatively fixed costs will be spread over a
 

much larger asset base.
 

c. Previous No-Action Letters
 

The Staff of the SEC has granted no-action relief in
 

reliance on Rule 17a-7 with respect to similar transactions where
 

cash was not the sole consideration. Such no-action relief
 

granted under Rule 17a-7 demonstrates that failure to comply
 

literally with the cash requirement of Rule 17a-7 (a) is not.
 fatal. 

In Federated Investors, SEC No-Action Letter, (pub.
 

avail. April 21, 1994), no-action relief was granted where
 

certain banks, which served as (1) investment advisors to
 

registered investment companies; and (2) fiduciaries with respect
 

to common trust funds and/ or commingled investment funds which
 

were not registered under the 1940 Act, proposed to have certain
 

investment companies purchase substantially all of the assets
 

held by certain of the common trusts, and then have the
 

investment companies issue their shares to the common trusts,
 

which shares would be distributed to the participating trust
 

accounts of the common trusts. No-action relief was conditioned
 

upon compliance with all of the requirements of Rule 17a-7 under
 

the 1940 Act, except for the requirement that the transaction be
 

a purchase or sale for cash and no affiliated person of the
 
Off ice of Chief Counsel
 

Division of Investment Management
 

August 23, 1995
 

Page 6
 

participating investment company having any beneficial interest,
 

other than the bank in its fiduciary capacity, in the common
 

trusts. The facts and circumstances described in the Federated
 

no-action letter are similar to the facts and circumstances of
 

the Transaction described herein. Moreover, the no-action relief
 

requested herein would be subject to the same conditions as those
 

to which the parties in Federated were subject.
 

No action positions also have been granted on similar
 

facts in American Medical Association Retirement Plan, SEC No-


Action Letter, (pub. avail. Jan. 15, 1987); The First National
 

Bank of Chicago, SEC No-Action Letter, (pub. avail. Sept. 22,
 

1992); The First National Bank of chicago, SEC No-Action Letter,
 

(pub. avail. Feb. 5, 1986); and Lincoln National Investment


Management Company, SEC No-Action Letter, (pub. avail. April 25,
 

1976). As a condition of the relief granted in each of these no-


action letters was the requirement that no affiliated person of
 

the participating investment company would have any beneficial
 

interest in the account or fund selling securities to the
 

registered investment company. As stated above, no affiliated
 

person of DFAITC or any affiliate of such person, other than DFA
 i.n its capacity as investment advisor, has any interest in the 

Group Trusts.
 

The Transaction, as structured, is consistent with
 

previous no-action relief granted under Rule 17a-7.
 

Specifically, except for the requirement that the Transaction be
 

a purchase or sale for cash, each proposed transaction will
 

comply with all of the requirements of Rule 17a-7 under the 1940
 

Act. In this regard, (1) securities purchased or sold in the
 

Transaction will be valued in accordance with each Series'
 

standard methods used to calculate net asset value and, in
 

particular, will be consistent with the requirements of Rule 17a7 (b); (2) the Transaction is consistent with the investment
 

objective and policies of the Series; (3) the Transaction will
 

not involve payment of any brokerage commission, fee (other than
 

customary transfer fees), or other remuneration; and (4) each
 

Series of DFAITC will comply with paragraphs (e) and (f) of Rule
 

17a-7 in connection with the Transaction.
 

iv. CONCLUSION
 

The conditions of Rule 17a-7 were designed to safeguard the
 

interests of investment company shareholders. An SEC Release
 

indicates that the conditions were intended "to limit the
 

exemption to those situations where the Commission, upon the
 

basis of its experience, considers that there is no likelihood of
 

overreaching of the investment companies participating in the
 
Office of Chief Counsel
 

Di vision of Investment Management
 

August 23, 1995
 

Page 7
 

transaction. .. Notice of Proposal to Adopt Rule 17a-7 to Provide
 

an Exemption from the Provisions of Section 17 (a) of the
 

Investment Company Act of 1940, Investment Company Act Release
 

No. 4604/ (1964-1966 Transfer Binder) Fed. Sec. L. Rep. (CCH)
 

!77,350 (May 20, 1966). By substantially complying with the


conditions of Rule 17a-7, the interests of the shareholders of
 

each Series of DFAITC are protected. Moreover, previous no-


action relief granted under Rule 17a-7 demonstrates that
 

compliance with the cash requirement of the Rule is not essential
 

for the protection of shareholders.
 

Accordingly, we respectfully request that the Staff advise
 

us that it will not recommend any enforcement action to the SEC
 

if DFAITC on behalf of its Series engages in the Transaction, as
 

described herein in reliance upon Rule 1 7a-7, subject to
 

compliance by each Series with all of the requirements of Rule
 

17a-7 except for its cash requirement. If the Staff intends to
 

issue a response that is adverse to this request, we respectfully
 

further request the opportunity to have a conference prior to the
 

issuance of such response. If you have any questions regarding
 

this request, please contact the undersigned at (215) 564-8143
 

or, in my absence, Stephen W. Kline, Esquire at (610) 640-5801.
 

Very truly yours,
 

Lisa A. Duda
 

linQ. ~

LAD/klb 

136319,1