<PAGE>
- --------------------------------------------------------------------------------
LKCM FUND
P.O. BOX 2798
BOSTON, MA 02208-2798
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
J. Luther King, Jr. Jacqui Brownfield
Chairman of the Board, Secretary & Treasurer
President
Paul W. Greenwell John M. Corcoran
Vice President Assistant Treasurer
H. Kirk Downey Raymond H. Edelman
Trustee Assistant Treasurer
Earle A. Shields, Jr. Karl O. Hartmann
Trustee Assistant Secretary
Helen A. Robichaud
Assistant Secretary
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Luther King Capital Management Corp.
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
- --------------------------------------------------------------------------------
ADMINISTRATOR
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108-3913
- --------------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
770 Broadway
New York, NY 10003-9598
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Gardere & Wynne
3000 Thanksgiving Tower
Dallas, TX 75201
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
- --------------------------------------------------------------------------------
DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, MA 02109
- --------------------------------------------------------------------------------
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
- --------------------------------------------------------------------------------
LKCM FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1996
<PAGE>
LKCM FUND
---------------------
---------------------
DEAR FELLOW SHAREHOLDER:
We are pleased to report the following performance information for the LKCM
Portfolios:
<TABLE>
<CAPTION>
RUSSELL 2000 S&P
SIX AVERAGE RUSSELL 2000 S&P 500 AVERAGE AVERAGE
MONTH ANNUAL SIX MONTH SIX MONTH ANNUAL ANNUAL
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
NET ASSET RETURN RETURN RETURN RETURN RETURN RETURN RETURN
INCEPTION VALUE AT SINCE ENDED SINCE ENDED ENDED SINCE SINCE
PORTFOLIOS DATES 6/30/96 INCEPTION 6/30/96* INCEPTION 6/30/96* 6/30/96* INCEPTION INCEPTION
- ---------- --------- --------- --------- -------- --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LKCM Small Cap Equity 7/14/94 $15.05 61.58% 16.75% 27.76% 10.50% 10.10% 20.13% 26.05%
LKCM Equity 1/3/96 $10.80 8.00% 8.00% N/A 10.20% 9.24% N/A N/A
</TABLE>
- --------
* LKCM Equity and its Benchmark total returns are measured since the inception
date of January 3, 1996.
During the first six months of 1996, the stock market gain was impressive
when one considers that interest rates increased, even though many forecasts
in January predicted a decline. The long-term interest rate on U.S. Government
bonds rose over one full percent during the first half of the year. This
increase was a result of a stronger than expected economy which in turn
created concern for rising future inflation rates.
The LKCM Small Cap Equity Portfolio continued to show strong and steady
performance. The results were better than both the Russell 2000 Index and the
Standard & Poor's 500 Index. The investment selection process continued to
emphasize companies that have good operating fundamentals and are reasonably
valued relative to their current operations and outlook. On June 30, 1996, the
important investment concentrations by sectors were Health Care (15.6%);
Retail (11.5%); Energy (10.7%); and Financial Services (10.5%). The exposure
to Technology, while important, was less than that of the overall market. The
cash investments equaled $21,814,000 which comprised 12.5% of the total net
assets on June 30, 1996. This reserve, while not large enough to brace the
Portfolio should a bear market occur, is large enough to provide good
flexibility to take advantage of lower prices in shares of individual
companies and give us the chance to be opportunistic should the general market
weaken or shares of individual companies decline. The total net assets of the
Small Cap Portfolio as of June 30, 1996 were $174,444,552 of which
$153,226,903 (87.8%) was invested in common stocks.
The LKCM Equity Portfolio, which was funded on January 3, 1996, had a
reasonable first six months. While the performance trailed the Standard &
Poor's 500 Index for the first six months, it outperformed the Index during
the second quarter of the period. This Portfolio is well balanced by industry
and we are very pleased with its current structure. The cash level on June 30,
1996 was $6,645,000 or 20.4% of the Portfolio's total net assets. We have
positioned the Portfolio in such a way so that it can take advantage of any
overall market weakness. The total net assets of the Equity Portfolio were
$32,607,240 of which $25,951,338 (79.6%) was invested in common stocks. The
largest industry holdings were Consumer Non-Durables (10.8%); Energy (10.2%);
and Health Care (9.2%).
1
<PAGE>
In contrast with last year, when the stock market leadership was very
narrow, performance differences between various sectors were not as large
during the first half of 1996. In general, shares of companies with the proven
ability to consistently grow earnings and cash flow were favored over
companies with more cyclical earnings patterns. As overall corporate earnings
growth slowed during the first half of the year, investors were attracted to
the consistency of areas such as consumer products, retail and commercial
service companies. Because a number of our holdings in both Portfolios are in
these sectors, this market rotation has been beneficial.
Regards,
LOGO
July 18, 1996
DEFINITION OF THE COMPARATIVE INDICES
-------------------------------------
The S&P 500 Index is an unmanaged index of 500 stocks designed to mimic the
overall equity market's industry weightings. Most, but not all, large
capitalization stocks are in the Index.
The Russell 2000 Index is an unmanaged index consisting of the 2,000 smallest
of the 3,000 largest stocks. Market capitalization is typically between $57
million and $160 million.
Please note that one can not invest in an unmanaged index.
Total return reflects fees waived by the Adviser. Without such waivers total
return would be lower. Past performance is not predictive of future
performance. Your investment return and principal value will fluctuate. Thus
when shares are redeemed, they may be worth more or less than their original
cost. The comparative indices are not adjusted to reflect expenses or other
fees that the SEC requires to be reflected in the Portfolio's performance.
2
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (87.8%)
- --------------------------------------------------------------------------------
BASIC RESOURCES (5.4%)
Freeport McMoRan, Inc. ................................. 50,166 $ 1,780,893
Lawter International, Inc. ............................. 100,000 1,250,000
Longview Fibre Co. ..................................... 100,000 1,700,000
Mississippi Chemical Corp. ............................. 90,000 1,800,000
Reliance Steel & Aluminum Co. .......................... 45,000 1,642,500
* Titanium Metals Corp. .................................. 50,000 1,293,750
------------
9,467,143
------------
- --------------------------------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (0.4%)
Suiza Foods Corp. ...................................... 39,000 672,750
------------
- --------------------------------------------------------------------------------
CONSUMER & COMMERCIAL SERVICES (6.5%)
* Caribiner International, Inc. ......................... 15,000 481,875
* Carmike Cinemas, Inc., Class A......................... 71,200 1,922,400
* Donnkenny, Inc. ....................................... 40,000 780,000
* Interstate Hotels Co. ................................. 34,400 765,400
* Kent Electronics Corp. ................................ 115,300 3,603,125
National Service Industries, Inc. ..................... 65,300 2,554,863
Romac International, Inc. ............................. 46,000 1,173,000
------------
11,280,663
------------
- --------------------------------------------------------------------------------
CONSUMER DURABLES (1.8%)
* Alrenco, Inc. ......................................... 30,000 540,000
Centex Corp. .......................................... 50,000 1,556,250
TJ International, Inc. ................................ 61,000 1,098,000
------------
3,194,250
------------
- --------------------------------------------------------------------------------
ENERGY (10.7%)
* Brown (Tom), Inc. ..................................... 83,000 1,421,375
* Cairn Energy USA, Inc. ................................ 106,000 1,523,750
* Carbo Ceramics, Inc. .................................. 35,000 770,000
Diamond Offshore Drilling, Inc. ....................... 40,000 2,290,000
* Flores & Rucks, Inc. .................................. 44,500 1,535,250
* HS Resources, Inc. .................................... 75,000 871,875
ICO, Inc. ............................................. 169,300 952,312
* Nabors Industries, Inc. ............................... 50,000 812,500
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
ENERGY--(CONTINUED)
* Noble Affiliates, Inc. ................................ 60,000 $ 2,265,000
Noble Drilling Corp. .................................. 140,000 1,942,500
Tidewater, Inc. ....................................... 54,133 2,375,086
* United Meridian Corp. ................................. 35,000 1,260,000
* Varco International, Inc. ............................. 32,000 580,000
------------
18,599,648
------------
- --------------------------------------------------------------------------------
ENVIRONMENT (2.2%)
* U.S. Filter Corp. ..................................... 110,000 3,822,500
------------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (10.5%)
* Atlantic Gulf Communities Corp. ....................... 107,000 642,000
* Capsure Holdings Corp. ................................ 120,000 2,145,000
Chartwell Re Corp. .................................... 55,000 1,216,875
Cullen/Frost Bankers, Inc. ............................ 70,000 1,942,500
First Colorado Bancorp., Inc. ......................... 80,000 1,060,000
First Victoria National Bank........................... 19,000 439,375
Gainsco, Inc. ......................................... 60,637 598,790
Life Partners Group, Inc. ............................. 170,000 3,867,500
Mercantile Bancorp. ................................... 32,000 1,424,000
Northern Trust Corp. .................................. 20,000 1,155,000
Terra Nova (Bermuda) Holdings Ltd., Class A............ 50,000 800,000
Texas Regional Bancshares Inc., Class A................ 100,000 2,500,000
Titan Holdings, Inc. .................................. 38,850 543,900
------------
18,334,940
------------
- --------------------------------------------------------------------------------
HEALTH CARE (15.6%)
Bard (C.R.), Inc. ..................................... 100,000 3,400,000
Emcare Holdings, Inc. ................................. 73,000 2,171,750
Fisher Scientific International, Inc. ................. 100,000 3,750,000
Kinetic Concepts, Inc. ................................ 115,000 1,782,500
* Magellan Health Services, Inc. ........................ 30,000 645,000
* Maxxim Medical, Inc. .................................. 120,000 2,055,000
OccuSystems, Inc. ..................................... 20,000 747,500
* Patterson Dental Co. .................................. 30,000 1,087,500
* Perrigo Co. ........................................... 32,500 365,625
* PhyCor, Inc. .......................................... 59,438 2,258,625
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
HEALTH CARE--(CONTINUED)
* Safeskin Corp. ........................................ 56,000 $ 2,324,000
* Scherer R.P. Corp. .................................... 35,000 1,588,125
* Steris Corp. .......................................... 33,200 1,062,400
* Sunrise Assisted Living, Inc. ......................... 27,200 652,800
* Sybron International Corp. ............................ 47,500 1,187,500
* TECNOL Medical Products, Inc. ......................... 110,000 2,117,500
------------
27,195,825
------------
- --------------------------------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (8.4%)
* AirNet Systems, Inc. .................................. 59,700 955,200
Chart Industries, Inc. ................................ 50,000 706,250
* Covenant Transport, Inc., Class A...................... 70,000 1,190,000
* Genesee & Wyoming, Inc., Class A....................... 22,200 455,100
* Kirby Corp. ........................................... 250,000 4,218,750
Lawson Products, Inc. ................................. 78,500 1,982,125
* Railtex, Inc. ......................................... 103,200 2,657,400
Roper Industries, Inc. ................................ 26,100 1,272,375
* Trico Marine Services, Inc. ........................... 33,800 752,050
* UNC, Inc. ............................................. 60,000 502,500
------------
14,691,750
------------
- --------------------------------------------------------------------------------
PUBLISHING & BROADCASTING (4.3%)
Belo (A.H.) Corp., Class A............................. 50,000 1,862,500
Chancellor Broadcasting, Class A....................... 30,000 939,375
* Heftel Broadcasting Corp., Class A..................... 66,800 1,978,950
* Saga Communication, Inc., Class A...................... 34,375 743,359
Thomas Nelson, Inc. ................................... 60,000 802,500
* World Color Press, Inc. ............................... 50,000 1,268,750
------------
7,595,434
------------
- --------------------------------------------------------------------------------
MANUFACTURING (3.5%)
* Figgie International, Inc., Class A.................... 80,000 1,210,000
* Foamex International, Inc. ............................ 100,000 1,225,000
Keystone International, Inc. .......................... 50,000 1,037,500
Lindsay Manufacturing Co. ............................. 50,000 2,012,500
* Strategic Distribution, Inc. .......................... 75,000 590,625
------------
6,075,625
------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
RETAIL (11.5%)
* Aviation Sales Co...................................... 100,000 $ 2,050,000
Borders Group, Inc. ................................... 70,000 2,257,500
* Cameron Ashley Building Products....................... 151,000 1,736,500
* Central Tractor Farm & Country, Inc. .................. 38,000 465,500
* Coleman Co., Inc. ..................................... 35,000 1,483,125
Cross (A.T.) Co., Class A.............................. 65,000 1,153,750
Justin Industries, Inc. ............................... 150,000 1,968,750
* Noodle Kidoodle, Inc. ................................. 100,000 762,500
O'Sullivan Industries Holdings......................... 60,000 442,500
Pier 1 Imports, Inc. .................................. 50,000 743,750
* Play By Play Toys & Novelties, Inc. ................... 50,000 712,500
* Proffitt's, Inc. ...................................... 20,000 710,000
* Tractor Supply Co. .................................... 65,000 1,478,750
* Tuesday Morning Corp. ................................. 90,000 1,203,750
* Tyco Toys, Inc. ....................................... 150,000 768,750
* Whole Foods Market, Inc. .............................. 80,000 2,120,000
------------
20,057,625
------------
- --------------------------------------------------------------------------------
TECHNOLOGY (4.5%)
* Applix, Inc. .......................................... 36,000 1,035,000
* BBN Corp. ............................................. 40,000 870,000
* Black Box Corp. ....................................... 40,000 950,000
* CFI Proservices, Inc. ................................. 30,000 765,000
* Computer Products, Inc. ............................... 20,000 342,500
Dallas Semiconductor................................... 17,000 308,125
* Physican Computer Network, Inc. ....................... 100,000 1,156,250
* Rational Software Corp. ............................... 40,000 2,150,000
Segue Software, Inc. .................................. 12,500 371,875
------------
7,948,750
------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- -------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- -------------------------------------------------------
TELECOMMUNICATIONS (2.5%)
* A+ Network, Inc. ...... 50,000 $ 618,750
* Metrocall, Inc. ....... 130,000 1,446,250
* PageMart Wireless,
Inc., Class A.......... 100,000 1,000,000
* Pronet, Inc. .......... 100,000 1,225,000
------------
4,290,000
------------
- -------------------------------------------------------
TOTAL COMMON STOCKS (COST
$122,168,843)........... 153,226,903
- -------------------------------------------------------
CONVERTIBLE PREFERRED
STOCK (0.6%)............
- -------------------------------------------------------
ENTERTAINMENT (0.6%)
AMC Entertainment, Inc.,
$1.75 (COST $746,637).. 20,000 952,500
- -------------------------------------------------------
<CAPTION>
FACE
AMOUNT
- -------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT (12.5%)
- -------------------------------------------------------
REPURCHASE AGREEMENT
(12.5%)
Chase Securities, Inc.
5.15%, dated 6/28/96,
due 7/1/96, to be
repurchased at
$21,823,362
collateralized by
$21,430,000 U.S.
Treasury Notes 7.125%,
due 9/30/99, valued at
$21,908,746
(COST $21,814,000)........ $ 21,814,000 21,814,000
- -------------------------------------------------------
TOTAL INVESTMENTS
(100.9%) (COST
$144,729,480)........... 175,993,403
- -------------------------------------------------------
OTHER ASSETS AND
LIABILITIES (-0.9%)
- -------------------------------------------------------
Cash................................... 1,000
Receivable for Investments Sold........ 1,499,899
Dividends Receivable................... 77,335
Interest Receivable.................... 9,362
Other Assets........................... 51,086
Payable for Investments Purchased...... (2,818,750)
Payable for Investment Advisory Fees... (300,215)
Payable for Administrative Fees........ (23,274)
Other Liabilities...................... (45,294)
------------
(1,548,851)
- -------------------------------------------------------
NET ASSETS (100%)
Applicable to 11,591,003 outstanding
shares of beneficial interest
(unlimited authorization, no par
value)..................................$174,444,552
- -------------------------------------------------------
- -------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE............ $ 15.05
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (79.6%)
- --------------------------------------------------------------------------------
BASIC RESOURCES (2.3%)
Du Pont (E.I.) De Nemours & Co. .......................... 5,000 $ 395,625
Willamette Industries, Inc. .............................. 6,000 357,000
-----------
752,625
-----------
- --------------------------------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (9.8%)
Colgate-Palmolive Co. .................................... 7,000 593,250
Eastman Kodak Co. ........................................ 7,500 583,125
Estee Lauder Cos., Class A................................ 15,000 633,750
Kimberly Clark Corp. ..................................... 8,000 618,000
PepsiCo, Inc. ............................................ 22,000 778,250
-----------
3,206,375
-----------
- --------------------------------------------------------------------------------
CONSUMER & COMMERCIAL SERVICES (3.9%)
Manpower, Inc. ........................................... 16,000 628,000
National Service Industries, Inc. ........................ 16,000 626,000
-----------
1,254,000
-----------
- --------------------------------------------------------------------------------
CONSUMER DURABLES (7.3%)
Centex Construction Products, Inc. ....................... 18,000 560,250
General Electric Co. ..................................... 8,000 692,000
Masco Corp. .............................................. 21,000 635,250
Sherwin-Williams Co. ..................................... 10,500 488,250
-----------
2,375,750
-----------
- --------------------------------------------------------------------------------
ENERGY (10.2%)
Amoco Corp. .............................................. 7,000 506,625
Exxon Corp. .............................................. 5,000 434,375
Mobil Corp. .............................................. 4,500 504,562
* Nabors Industries, Inc. .................................. 37,000 601,250
Noble Affiliates, Inc. ................................... 16,000 604,000
Schlumberger, Ltd. ....................................... 8,000 674,000
-----------
3,324,812
-----------
- --------------------------------------------------------------------------------
ENVIRONMENT (1.5%)
WMX Technologies, Inc. ................................... 15,000 491,250
-----------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
ENGINEERING (1.4%)
* Jacobs Engineering Group................................. 17,000 $ 448,375
------------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (7.7%)
American International Group, Inc. ...................... 4,000 394,500
Cullen/Frost Bankers, Inc. .............................. 22,000 610,500
Donaldson, Lufkin & Jenrette, Inc. ...................... 11,000 341,000
Federal National Mortgage Association.................... 15,200 509,200
Marsh & McLennan Cos., Inc. ............................. 6,600 636,900
------------
2,492,100
------------
- --------------------------------------------------------------------------------
FOOD, TOBACCO & OTHER (1.7%)
Heinz (H.J.) Co. ........................................ 18,000 546,750
------------
- --------------------------------------------------------------------------------
HEALTH CARE (9.2%)
Bard (C.R.), Inc. ....................................... 17,000 578,000
Baxter International, Inc. .............................. 14,000 661,500
Johnson & Johnson........................................ 14,000 693,000
Pharmacia & Upjohn, Inc. ................................ 13,000 576,875
Schering-Plough Corp. ................................... 8,000 502,000
------------
3,011,375
------------
- --------------------------------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (3.7%)
* Kirby Corp. ............................................. 24,000 405,000
Raytheon Corp. .......................................... 10,000 516,250
Union Pacific Corp. ..................................... 4,000 279,500
------------
1,200,750
------------
- --------------------------------------------------------------------------------
MANUFACTURING (0.6%)
Keystone International, Inc. ............................ 10,000 207,500
------------
- --------------------------------------------------------------------------------
PUBLISHING & BROADCASTING (4.3%)
Belo (A.H.) Corp., Class A............................... 10,000 372,500
Gannett Co., Inc. ....................................... 6,700 474,025
Westinghouse Electric Corp. ............................. 30,000 562,500
------------
1,409,025
------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
RETAIL (4.0%)
Home Depot, Inc. ..................................... 15,600 $ 842,400
Tandy Corp. .......................................... 10,000 473,750
-----------
1,316,150
-----------
- --------------------------------------------------------------------------------
TECHNOLOGY (5.0%)
AMP, Inc. ............................................ 8,000 321,000
* Cisco Systems, Inc. .................................. 3,000 169,875
Electronic Data Systems Corp. ........................ 5,000 268,750
Hewlett Packard Co. .................................. 5,000 498,125
Intel Corp. .......................................... 5,000 367,188
-----------
1,624,938
-----------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (7.0%)
* Airtouch Communications, Inc. ........................ 15,500 437,875
Alltel Corp. ......................................... 10,000 307,500
Lucent Technologies, Inc. ............................ 25,000 946,875
Motorola, Inc. ....................................... 9,500 597,313
-----------
2,289,563
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $23,904,322)................. 25,951,338
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT (20.4%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (20.4%)
Chase Securities, Inc. 5.15%, dated 6/28/96, due
7/1/96, to be repurchased at $6,647,852,
collateralized by $6,530,000 U.S. Treasury Notes
7.125%, due 9/30/99, valued at $6,675,880 (COST
$6,645,000).......................................... $6,645,000 6,645,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%) (COST $30,549,322).......... 32,596,338
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
VALUE+
- -----------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (0.0%)
- -----------------------------------------------------
Cash.................................. $ 673
Dividends Receivable.................. 39,505
Interest Receivable................... 2,852
Other Assets.......................... 9,008
Payable for Investment Advisory Fees.. (14,742)
Payable for Administrative Fees....... (11,940)
Other Liabilities..................... (14,454)
-----------
10,902
- -----------------------------------------------------
NET ASSETS (100%)
Applicable to 3,017,817 outstanding
shares of beneficial interest
(unlimited authorization, no par
value)............................... $32,607,240
- -----------------------------------------------------
- -----------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE............ $ 10.80
- -----------------------------------------------------
- -----------------------------------------------------
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATEMENT OF OPERATIONS
For the Period Ended June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
LKCM
SMALL CAP LKCM
EQUITY EQUITY
PORTFOLIO PORTFOLIO**
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................... $ 380,249 $ 169,066
Interest........................... 448,996 146,808
- --------------------------------------------------------------------------------
TOTAL INCOME...................... 829,245 315,874
- --------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee......................... $543,365 $93,998
Less: Fee Waived.................. (3,440) 539,925 (75,273) 18,725
-------- -------
Administrative Fees--Note C........ 133,806 56,739
Audit Fees......................... 7,379 9,835
Trustees' Fees--Note E............. 3,306 4,415
Filing and Registration Fees....... 21,780 10,193
Other Expenses..................... 11,567 7,520
- --------------------------------------------------------------------------------
TOTAL EXPENSES.................... 717,763 107,427
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME............ 111,482 208,447
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS.... 4,744,347 26,014
NET CHANGE IN UNREALIZED
APPRECIATION ON INVESTMENTS........ 17,151,247 2,047,016
- --------------------------------------------------------------------------------
TOTAL NET REALIZED GAIN AND NET
CHANGE IN UNREALIZED APPRECIATION.. 21,895,594 2,073,030
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $22,007,076 $2,281,477
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
** The Portfolio commenced operations on January 3, 1996.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD FROM ENDED
MAY 1, 1995 JUNE 30,
TO DECEMBER 31, 1996
1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income........................... $ 347,510 $ 111,482
Net Realized Gain............................... 7,183,720 4,744,347
Net Change in Unrealized Appreciation........... 10,133,249 17,151,247
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations.................................... 17,664,479 22,007,076
- --------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income........................... -- (596,495)
Net Realized Gain............................... -- (7,691,095)
- --------------------------------------------------------------------------------
Total Distributions............................ -- (8,287,590)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued--Regular................................. 44,760,462 47,644,679
--In Lieu of Cash Distributions............... -- 7,948,741
Redeemed........................................ (7,731,384) (16,298,378)
- --------------------------------------------------------------------------------
Net Increase from Capital Share Transactions... 37,029,078 39,295,042
- --------------------------------------------------------------------------------
Total Increase.................................. 54,693,557 53,014,528
Net Assets:
Beginning of Period............................. 66,736,467 121,430,024
- --------------------------------------------------------------------------------
End of Period (2)............................... $121,430,024 $174,444,552
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Shares Issued and Redeemed:
Shares Issued................................. 3,540,654 3,383,681
In Lieu of Cash Distributions................. -- 619,542
Shares Redeemed............................... (584,213) (1,183,999)
------------ ------------
2,956,441 2,819,224
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital............................... $ 99,066,140 $138,361,182
Undistributed Net Investment Income........... 596,886 111,873
Accumulated Net Realized Gain................. 7,654,322 4,707,574
Unrealized Appreciation....................... 14,112,676 31,263,923
------------ ------------
$121,430,024 $174,444,552
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 3, 1996**
TO
JUNE 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income........................................ $ 208,447
Net Realized Gain............................................ 26,014
Net Change in Unrealized Appreciation........................ 2,047,016
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations........ 2,281,477
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued--Regular.............................................. 31,452,522
Redeemed..................................................... (1,126,759)
- --------------------------------------------------------------------------------
Net Increase from Capital Share Transactions................ 30,325,763
- --------------------------------------------------------------------------------
Total Increase............................................... 32,607,240
Net Assets:
Beginning of Period.......................................... --
- --------------------------------------------------------------------------------
End of Period (2)............................................ $32,607,240
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Shares Issued and Redeemed:
Shares Issued.............................................. 3,128,436
Shares Redeemed............................................ (110,619)
-----------
3,017,817
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital............................................ $30,325,763
Undistributed Net Investment Income........................ 208,447
Accumulated Net Realized Gain.............................. 26,014
Unrealized Appreciation.................................... 2,047,016
-----------
$32,607,240
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
** Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD FROM PERIOD FROM ENDED
JULY 14, 1994** MAY 1, 1995 JUNE 30,
TO APRIL 30, TO DECEMBER 31, 1996
1995 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 10.00 $ 11.48 $ 13.84
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income+............ 0.04 0.03 0.01
Net Realized and Unrealized Gain
on Investments................... 1.44 2.33 2.15
- -------------------------------------------------------------------------------
Total From Investment Operations. 1.48 2.36 2.16
- -------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income............. -- -- (0.07)
Net Realized Gain................. -- -- (0.88)
- -------------------------------------------------------------------------------
Total Distributions.............. -- -- (0.95)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $ 11.48 $ 13.84 $ 15.05
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL RETURN++..................... 14.80% 20.56% 16.75%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands)....................... $66,736 $121,430 $174,445
Ratio of Expenses to Average Net
Assets............................ 1.00%* 1.00%* 0.99%*
Ratio of Net Investment Income to
Average Net Assets................ 1.15%* 0.53%* 0.15%*
Portfolio Turnover Rate............ 53% 57% 32%
Average Commission Rate#........... N/A N/A $ 0.0582
- -------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Commencement of Operations.
+ Net of voluntarily waived fees and/or reimbursed expenses of $0.04, $0.003
and $0.00 per share for the periods ended April 30, 1995, December 31, 1995,
and the six months ended June 30, 1996, respectively.
++ Total return would have been lower had the Adviser not waived and/or
reimbursed certain expenses.
# For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
portfolio trades on which commissions were charged.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
LKCM EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 3,
1996** TO
JUNE 30,
1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................ $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income+............................................. 0.07
Net Realized and Unrealized Gain on Investments.................... 0.73
- --------------------------------------------------------------------------------
Total From Investment Operations.................................. 0.80
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD...................................... $ 10.80
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN++...................................................... 8.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)............................... $32,607
Ratio of Expenses to Average Net Assets............................. 0.80%*
Ratio of Net Investment Income to Average Net Assets................ 1.55%*
Portfolio Turnover Rate............................................. 43%
Average Commission Rate............................................. $0.0605
- --------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Commencement of Operations.
+ Net of voluntarily waived fees and/or reimbursed expenses of $0.02 per
share for the period ended June 30, 1996.
++ Total return would have been lower had the adviser not waived and/or
reimbursed certain expenses.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
LKCM FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
LKCM Fund (the "Fund") was established under Delaware law by a Declaration
of Trust dated February 10, 1994 and is registered under the Investment
Company Act of 1940 as an open-end, management investment company. The LKCM
Small Cap Equity Portfolio and LKCM Equity Portfolio (the "Portfolios"),
diversified portfolios of the Fund, commenced operations on July 14, 1994 and
January 3, 1996, respectively.
A. SIGNIFICANT ACCOUNTING POLICIES. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the
Portfolios in the preparation of their financial statements. Generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: Securities listed on a U.S. securities exchange or
NASDAQ for which market quotations are readily available are valued at the
last quoted sale price on the day the valuation is made. Price information
on listed securities is taken from the exchange where the security is
primarily traded. Unlisted U.S. securities and listed U.S. securities not
traded on the valuation date for which market quotations are readily
available are valued at the mean of the most recent quoted bid and asked
price. Securities listed on a foreign exchange for which market quotations
are readily available are valued at the latest quoted sale price available
before the time when assets are valued. Fixed-income securities (other than
obligations having a maturity of 60 days or less) are normally valued on
the basis of quotes obtained from pricing services. Fixed-income securities
purchased with remaining maturities of 60 days or less are valued at
amortized cost if it reflects fair value. Other assets and securities for
which no quotations are readily available (including restricted securities)
will be valued in good faith at fair value using methods determined by the
Board of Trustees.
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to qualify for
taxation as a regulated investment company under the Internal Revenue Code
so that the Portfolios will not be subject to Federal income tax to the
extent it distributes its income to its shareholders.
Paid in capital and undistributed net investment income, for the LKCM Small
Cap Equity Portfolio, have been adjusted for prior year permanent book tax
differences.
At June 30, 1996, cost and unrealized appreciation (depreciation) of
investments for Federal income tax purposes were:
<TABLE>
<CAPTION>
NET
APPRECIATION
LKCM PORTFOLIOS COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
--------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Small Cap Equity.... $144,729,480 $35,551,351 $(4,287,428) $31,263,923
Equity.............. 30,549,322 2,329,476 (282,460) 2,047,016
</TABLE>
3. REPURCHASE AGREEMENTS: Each Portfolio may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
established by the Board of Trustees. In a repurchase agreement, the
Portfolios buy a security from a seller that has agreed to repurchase it at
a mutually agreed upon date and price, reflecting the interest rate
effective for the term of the agreement. The term of these agreements is
usually from overnight to one week and never exceeds one year. A repurchase
agreement may be viewed as a fully collateralized loan of money by a
Portfolio to the seller. A Portfolio always receives securities as
17
<PAGE>
LKCM FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
collateral with a market value at least equal to the purchase price,
including accrued interest, and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, a
Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, a Portfolio's realization upon the collateral may be
delayed or limited.
4. DISTRIBUTION TO SHAREHOLDERS: The Portfolios intend to pay dividends and
net capital gain distributions, if any, on an annual basis. All
distributions will be recorded on ex-dividend date.
The amount and character of income and capital gain distributions to be
paid are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principals.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains
and losses on the sale of investment securities are those of specific
securities sold. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recognized using the
accrual basis.
B. ADVISORY SERVICES: Luther King Capital Management Corporation (the
"Adviser"), serves as the investment adviser to the Portfolios under an
Investment Advisory Agreement (the "Agreement"). Under the Agreement the LKCM
Small Cap Equity Portfolio and LKCM Equity Portfolio pay the Adviser an
advisory fee calculated by applying a quarterly rate, equal on an annual basis
to .75% and .70%, respectively, of the Portfolio's average daily net assets
for the quarter. Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees and reimburse expenses to the extent necessary to keep
total operating expenses from exceeding 1.00% and .80%, respectively.
C. ADMINISTRATIVE SERVICES: Chase Global Funds Services Company (the
"Administrator"), a subsidiary of The Chase Manhattan Bank ("Chase"), provides
the Fund with administrative, fund accounting, dividend disbursing and
transfer agency services pursuant to a fund administration agreement. Chase
provides the Fund with custodial services pursuant to a custodial agreement.
Pursuant to the fund administration agreement and custody agreement, the
Administrator receives an aggregate monthly fee, which on an annualized basis
equals .215% of the first $75 million of the net assets of the Small Cap
Equity Portfolio, plus .135% of the next $75 million of the net assets of the
Small Cap Equity Portfolio, plus .095% of the net assets of the Small Cap
Equity Portfolio in excess of $150 million (with a minimum annual fee of
$145,000 plus .015% of average daily net assets); and .185% of the first $75
million of the net assets of the Equity Portfolio, plus .135% of the next $75
million of the net assets of the Equity Portfolio, plus .095% of the net
assets of the Equity Portfolio in excess of $150 million (with a minimum
annual fee of $100,000 in the first year, $145,000 subsequent years, plus
.015% of average daily net assets).
D. PURCHASES AND SALES: For the period ended June 30, 1996, the cost of
purchases and sales of investment securities other than long-term U.S.
Government and short-term securities were:
<TABLE>
<CAPTION>
LKCM PORTFOLIOS PURCHASES SALES
- --------------- ----------- -----------
<S> <C> <C>
Small Cap Equity........................................ $67,713,279 $41,506,959
Equity.................................................. 33,471,599 9,593,290
</TABLE>
There were no purchases or sales of long-term U.S. Government securities for
the Portfolios.
18
<PAGE>
LKCM FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
E. BOARD OF TRUSTEES: Trustees, other than those who are officers or affiliates
of the Adviser, receive an annual fee plus a meeting fee for each meeting
attended and are reimbursed for expenses incurred in attending Board Meetings.
F. CHANGE IN FISCAL YEAR: Effective May 1, 1995, the LKCM Small Cap Equity
Portfolio changed its fiscal year end from April 30 to December 31.
G. OTHER: During the period ended June 30, 1996, the Portfolios incurred $2,413
in brokerage commission fees paid to San Jacinto Securities, Inc., an
affiliated broker/dealer of the Portfolios'. Effective June 20, 1996, San
Jacinto Securities, Inc. is no longer an affiliated broker/dealer of the
Portfolios'.
At June 30, 1996, the percentage of total shares outstanding and the number of
record shareholders owning 10% or greater of the Portfolios were as follows:
<TABLE>
<CAPTION>
NO. OF %
LKCM PORTFOLIOS SHAREHOLDERS OWNERSHIP
- --------------- ------------ ---------
<S> <C> <C>
Small Cap Equity......................................... 1 16.20%
Equity................................................... 2 82.70
</TABLE>
19
