As filed with the Securities and Exchange Commission on October 31,1997
Securities Act File No. 33-75116
Investment Company Act of 1940 File No. 811-8352
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 7
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 7
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LKCM FUND
(Exact Name of Registrant)
c/o Luther King Capital Management
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102
(Address of Principal Executive Office)
Registrant's Telephone Number (817) 332-3235
Mary S. Kraft
c/o Firstar Trust Company
615 E. Michigan Street, Milwaukee, WI 53202
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to Paragraph (b)
[_] on _____________________ pursuant to Paragraph (b)
[X] 75 days after filing pursuant to Paragraph (a)(2)
[_] on ________________ pursuant to Paragraph (a) of Rule 485
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LKCM FUND
CONTENTS OF REGISTRATION STATEMENT
This registration statement is comprised of the following:
Cover Sheet Contents of Registration Statement
Cross Reference Sheet
Prospectus for the LKCM International Fund.
Statement of Additional Information for the LKCM International Fund.
Part C
Signature Page
Exhibits
This filing is made to add one new series, the LKCM International Fund. No
changes are hereby made to the prospectuses or statements of additional
information of LKCM Small Cap Equity Fund, LKCM Equity Fund, LKCM Balanced Fund
and LKCM Fixed Income Fund, the other four series of LKCM Fund.
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<TABLE>
<CAPTION>
CROSS REFERENCE SHEET FOR THE LKCM INTERNATIONAL FUND
Form N-1A Item Number Location in Prospectus
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<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary;
Fund Expenses
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of Registrant Investment Objective and Policies;
Investment Limitations; General Information
Item 5. Management of the Fund Management
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption of Shares;
Valuation of Shares; Dividends, Other
Distributions, and Taxes; General
Information
Item 7. Purchase of Securities Being Offered Purchase of Shares; Valuation of Shares;
Shareholder Services
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement
Form N-1A Item Number of Additional Information
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Investment Objective and Policies; General
Information
Item 13. Investment Objectives and Policies Investment Objective and Policies;
Investment Limitations
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of Management
Securities
Item 16. Investment Advisory and Other Services Management
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities General Information
Item 19. Purchase, Redemption and Pricing of Securities Purchase, Redemption, and Pricing of Shares
Being Offered
Item 20. Tax Status Dividends, Other Distributions, and Taxes
Item 21. Underwriters Management
Item 22. Calculations of Performance Data Performance Information
Item 23. Financial Statements Not Applicable
</TABLE>
Part C
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Information required to be included in Part C is set forth under the appropriate
item so numbered in Part C to this Registration Statement.
<PAGE>
PART A
LKCM FUND
POST-EFFECTIVE AMENDMENT NO. 7
PRELIMINARY PROSPECTUS
DATED DECEMBER __,1997
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER, SOLICITATION OR SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
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LKCM FUNDS
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P R O S P E C T U S
December __, 1997
LKCM INTERNATIONAL FUND
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TEXAS 76102
FOR INFORMATION CALL 800-688-LKCM
LKCM Funds (the "Trust") is an open-end, management investment company having
five separate diversified portfolios (the "Funds"), each of which is treated as
a separate mutual fund. This Prospectus describes one of these Funds, the LKCM
International Fund (the "Fund"). The Trust also offers the following additional
Funds: LKCM Small Cap Equity Fund, LKCM Equity Fund, LKCM Balanced Fund and LKCM
Fixed Income Fund, which are described in and offered through separate
prospectuses.
The Fund's investment objective is to provide investors with a total return in
excess of the total return of the Morgan Stanley Capital International Europe,
Australasia, Far East Index. The Fund will seek to achieve this objective by
investing primarily in equity and equity-related securities in non-U.S. markets
and, to a limited extent, by investing in U.S. markets through the use of
American Depository Receipts and similar instruments issued by non-U.S.
corporations.
This Prospectus sets forth concisely information about the Fund that a
prospective investor should know before investing. It should be retained for
future reference. A Statement of Additional Information dated December __, 1997
containing additional information about the Trust and the Fund has been filed
with the Securities and Exchange Commission (the "SEC"). The Statement of
Additional Information, as it may be supplemented from time to time, is
incorporated by reference into this Prospectus. A copy of the Statement of
Additional Information may be obtained, without charge, by writing or calling
the Trust at the address or telephone number shown above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INVESTMENT COMPANY SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR BANK AFFILIATE AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC'), THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF THE FUND WILL BE
ACHIEVED.
<PAGE>
TABLE OF CONTENTS
PAGE
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FUND EXPENSES.................................................................3
PROSPECTUS SUMMARY............................................................4
INVESTMENT OBJECTIVE AND POLICIES.............................................4
PERFORMANCE INFORMATION.......................................................5
SUBADVISER'S INVESTMENT PHILOSOPHY............................................5
INVESTMENT OBJECTIVES AND POLICIES............................................5
DESCRIPTION OF SECURITIES AND OTHER INVESTMENT POLICIES.......................6
INVESTMENT LIMITATIONS........................................................8
PURCHASE OF SHARES............................................................9
REDEMPTION OF SHARES.........................................................11
SHAREHOLDER SERVICES.........................................................12
VALUATION OF SHARES..........................................................13
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES....................................13
MANAGEMENT...................................................................14
FUND TRANSACTIONS............................................................17
GENERAL INFORMATION..........................................................17
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR ITS REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
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FUND EXPENSES
The following table illustrates the various expenses and fees that a shareholder
of the Fund may incur either directly or indirectly. These fees and expenses are
based on estimated amounts for the fiscal year ending December 31, 1998.
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases..................................... None
Deferred Sales Load................................................. None
Sales Load Imposed on Reinvested Dividends.......................... None
Redemption Fees..................................................... None+
Exchange Fees ...................................................... None
+ The Funds' transfer agent imposes a $12.00 fee for each wire redemption. SEE
"REDEMPTION OF SHARES - BY TELEPHONE OR WIRE."
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Investment Advisory Fee (after waivers)............................ 0.00%
12b-1 Fees......................................................... None
Other Expenses (after expenses reimbursements)..................... 1.20%
Total Operating Expenses (after waivers and expense reimbursements) 1.20%
For the fiscal year ending December 31, 1998, Luther King Capital Management
Corporation, the investment adviser to the Fund (the "Adviser"), voluntarily has
agreed to waive its advisory fees and/or reimburse operating expenses to the
extent necessary to cap "Total Operating Expenses" at 1.20% for the Fund. "Other
Expenses" have been estimated for the current fiscal year (because the Fund had
not commenced operations as of the date of this Prospectus) and are presented
net of any fee waivers and expense reimbursements. Absent these fee waivers and
expense reimbursements, "Investment Advisory Fee" would be 1.00% and "Other
Expenses" and "Total Operating Expenses" are estimated to be 2.20% and 3.20%,
respectively. In addition to the fee waivers and expense reimbursements set
forth above, the Adviser from time to time voluntarily may waive all or a
portion of the Fund's advisory fee and/or reimburse expenses for the Fund. Any
such waivers and/or reimbursements will have the effect of increasing investment
returns for such periods. For additional information, SEE "MANAGEMENT -
INVESTMENT ADVISER."
EXAMPLE
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You would pay the following expenses on a $1,000 investment over various time
periods, assuming:
(1) 5% annual return and
(2) redemption at the end of each time period:
==========================================================================
One Year......................................................... $12
Three Years...................................................... $37
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL FUND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
ASSUMPTION IN THE EXAMPLE OF A 5% ANNUAL RETURN IS REQUIRED BY REGULATIONS OF
THE SEC APPLICABLE TO ALL MUTUAL FUNDS. THE ASSUMED 5% ANNUAL RETURN IS A NOT A
PREDICTION OF, AND DOES NOT REPRESENT, THE PROJECTED OR ACTUAL PERFORMANCE OF
ANY FUND.
3
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PROSPECTUS SUMMARY
THE FUND
The Fund is an individual series of the Trust, which is an open-end,
diversified, management investment company.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide investors with a total
return in excess of the total return of the Morgan Stanley Capital International
Europe, Australasia, Far East Index (the "EAFE Index"). The Fund will seek to
achieve this objective by investing primarily in equity and equity-related
securities in non-U.S. markets and, to a limited extent, by investing in U.S.
markets through the use of American Depository Receipts and similar instruments
issued by non-U.S. corporations.
INVESTMENT ADVISER
Luther King Capital Management Corporation ("Adviser") serves as the
investment adviser to the Fund. Founded in 1979, the Adviser provides investment
counseling services to the Funds, employee benefit plans, endowment funds,
foundations and high net-worth individuals. As of the date of this Prospectus,
the Adviser had in excess of $5 billion in assets under management. SEE
"MANAGEMENT--INVESTMENT ADVISER."
INVESTMENT SUBADVISER
TT International Investment Management, doing business as TT
International ("Subadviser"), is the investment subadviser to the Fund. Founded
in 1993, the Subadviser offers investment counseling services to investment
companies, pension plans, trusts and charitable organizations. As of the date of
this Prospectus, the Subadviser had in excess of $1.5 billion in assets under
management. SEE "MANAGEMENT - INVESTMENT SUBADVISER."
HOW TO INVEST
Shares of the Fund are offered directly to investors without a sales
commission at the net asset value of the Fund next determined after receipt of
the order. Share purchases may be made by sending investments directly to the
Fund, subject to acceptance by the Fund. The minimum initial investment is
$10,000 and the minimum for subsequent investments is $1,000. The Trust's
officers are authorized to waive the minimum initial and subsequent investment
requirements. SEE "PURCHASE OF SHARES."
HOW TO REDEEM
Shares of the Fund may be redeemed at any time at the net asset value of
the Fund next determined after receipt of the redemption request. The redemption
price may be more or less than the purchase price. SEE "REDEMPTION OF SHARES."
ADMINISTRATOR
Firstar Trust Company provides the Funds with administrative, dividend
disbursing, transfer agency and custodial services. SEE
"MANAGEMENT--ADMINISTRATOR."
RISK FACTORS
The investment policies of the Fund involve certain risks and
considerations of which an investor should be aware. The portfolio securities
held by the Funds and the value of the Funds' shares will fluctuate with market
and other economic conditions, so that an investor's shares, when redeemed, may
be worth more or less than their original cost. There can be no assurance that
the Fund will achieve its investment objective. For a discussion of the Fund's
risks, SEE "DESCRIPTION OF SECURITIES AND OTHER INVESTMENT POLICIES."
4
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PERFORMANCE INFORMATION
From time to time the Fund's total return may be quoted in
advertisements or in communications to shareholders. Total return figures are
based on historical earnings and are not intended to indicate future
performance. The "average annual" total return shows the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period to the end of the measuring period. Such figures reflect
changes in the price of the Fund's shares and assume that any income dividends
and/or other distributions made by the Fund during the period were reinvested in
additional shares of the Fund. Figures will be given for recent one, five- and
ten-year periods (if applicable), and may be given for other periods as well
(such as from commencement of the Fund's operations). When considering "average"
total return figures for periods longer than one year, it is important to note
that the Fund's annual total return for any one year in the period might have
been greater or less than the average for the entire period. In addition to
"average annual" total return, the Fund also may quote a "cumulative" total
return for various periods representing the cumulative change in value of an
investment in each Fund for a specific period (again reflecting changes in the
Fund's share price and assuming reinvestment of dividends and other
distributions).
As of the date of this Prospectus, the Fund has no prior investment
performance history. However, the Subadviser has managed several other private
accounts with investment objectives, policies and strategies substantially
similar to those of the Fund. From _______________, 19__ through September 30,
1997, these private accounts had a composite annualized total return of ___%.
This performance does not represent the historical performance of the Fund and
is not indicative of the Fund's future performance. Certain investment
restrictions that apply to registered investment companies such as the Fund, and
not applicable to the private accounts, may have adversely affected the
performance results of the private account composite if these restrictions had
been applicable.
SUBADVISER'S INVESTMENT PHILOSOPHY
The Subadviser bases its approach to investment in international equity
markets on its assessment of the political situation and economic fundamentals
in the markets in which it invests. To implement its approach, the Subadviser
utilizes a three-part stock selection process. First, the Subadviser seeks
companies that display value in the form of assets or earnings. Second, the
Subadviser seeks to verify its valuation through the use of various models and
information obtained from academic or industrial experts. Finally, the
Subadviser assesses the potential for realizing the value it has identified.
Although the Subadviser seeks to outperform the EAFE Index, it does not attempt
to track the country and sector weightings of the Index.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to provide investors with a total
return in excess of the EAFE Index. The EAFE Index is an unmanaged index
representing the market value weighted price of stocks of approximately 1100
companies screened for liquidity, cross-ownership, and industry representation
and listed on major stock exchanges in Europe, Australasia and the Far East.
5
<PAGE>
The Fund will seek to achieve its objective by investing primarily in
equity and equity-related securities in non-U.S. markets and, to a very limited
extent, by investing in U.S. markets through the use of American Depository
Receipts ("ADRs") and similar instruments issued by non-U.S. corporations. The
Fund currently intends to focus its investments in securities of issuers located
in Denmark, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Sweden,
Switzerland and the United Kingdom. This is a non-exclusive list of countries in
which the Fund can invest, and the Fund expects to invest in issuers located in
other countries as well. The Fund's investment objective is a fundamental policy
and cannot be changed without the approval of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There can be no assurance that the Fund's
investment objective will be met.
The Fund will invest primarily in equity securities that are listed on
recognized exchanges. The Fund also can invest in related securities, including
convertible bonds, warrants, equity and stock index futures contracts and
options, investment grade debt securities and forward currency exchange
contracts. In order to generate additional income, the Fund can lend its
portfolio securities to qualified borrowers. In addition, the Fund can invest in
cash and other short-term investment grade fixed income securities in order to
maintain liquidity.
In allocating the Fund's assets among the various securities markets of
the world, the Subadviser will consider such factors as the condition and growth
potential of the various economies and securities markets, currency and taxation
considerations and other pertinent financial, social, national and political
factors. Under certain adverse investment conditions, the Fund may restrict the
number of securities markets in which its assets will be invested, although
under normal market circumstances the Fund's investments will involve securities
principally traded in at least three different countries. Otherwise, there are
no prescribed limits on geographic asset distribution.
For a discussion of certain risks and additional investment techniques
associated with an investment in the Fund, SEE "DESCRIPTION OF SECURITIES AND
OTHER INVESTMENT POLICIES" below and "INVESTMENT OBJECTIVES AND POLICIES" and
"INVESTMENT LIMITATIONS" in the Statement of Additional Information.
5A
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DESCRIPTION OF SECURITIES AND OTHER INVESTMENT POLICIES
FOREIGN SECURITIES
Investing in foreign issuers involves certain special considerations
which are not typically associated with investing in U.S. issuers. Since the
securities of foreign issuers are frequently denominated in foreign currencies,
and since the Funds may temporarily hold invested reserves in bank deposits in
foreign currencies, the Funds will be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, and may incur
costs in connection with conversions between various currencies. The investment
policies of the Funds permit them to enter into forward foreign currency
exchange contracts in order to hedge the Fund's holdings and commitments against
changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries. Although the Fund will endeavor to achieve
most favorable execution costs in their portfolio transactions, fixed
commissions on many foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. In addition, it is expected that the expenses for
custodian arrangements of the Fund's foreign securities will be somewhat greater
than the expenses for the custodian arrangements for handling the U.S.
securities of equal value.
The governments of certain foreign countries may levy withholding or
other taxes against dividend and interest income paid by citizens or
corporations operating therein to investors in other countries. Although in some
countries a portion of these taxes are recoverable, the non-recovered portion of
foreign withholding taxes will reduce the income received from the companies
comprising the holdings of the Fund. However, these foreign withholding taxes
are not expected to have a significant impact on the Fund.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" basis. In buying
"when-issued" securities, the Fund commits to buy securities at a certain price
even though the securities may not be delivered for up to 120 days or longer. No
payment or delivery is made by the Fund in a "when-issued" transaction until the
Fund receives payment or delivery from the other party to the transaction.
Although the Fund receives no income from the above-described securities prior
to delivery, the market value of such securities is still subject to change. As
a consequence, it is possible that the market price of the securities at the
time of delivery may be higher or lower than the purchase price. The Fund will
maintain with Firstar Trust Company (the "Custodian") a separate account with
the segregated portfolio of cash or liquid securities having an aggregate value,
measured on a daily basis, at least equal to the amount of their outstanding
forward commitments.
FORWARD FOREIGN CURRENCY TRANSACTIONS
The Fund can buy and sell foreign currencies, foreign currency futures
contracts and forward contracts in order to adjust the risk/return
characteristics of the Fund's investment portfolio. A forward foreign currency
contract is an agreement between the Fund and a contra party to buy or sell a
specified currency at a specified price and future date. If a decline in the
value of a particular currency relative to the U.S. dollar is anticipated, the
Fund may enter into a futures contract or forward contract to sell that currency
6
<PAGE>
as a hedge. If it is anticipated that the value of a foreign currency will rise,
the Fund may purchase a currency futures contract or forward contract to protect
against an increase in the price of securities denominated in a particular
currency that the Fund intends to purchase. These practices, however, may
present risks different from or in addition to the risks associated with
investments in foreign currencies.
The Fund might not use any of the strategies described above, and there
can be no assurance that any strategy used will succeed. If the Subadviser
incorrectly forecasts stock market or currency exchange rates in utilizing a
strategy for the Fund, the Fund would be in a better position if it had not
hedged at all. Although futures contracts and forward contracts are intended to
replicate movements in the cash markets for the securities and currencies in
which the Fund invests without the large cash investments required for dealing
in such markets, they may subject the Portfolio to additional risks. The
principal risks associated with the use of futures and forward contracts are:
(1) imperfect correlation between movements in the market price of the portfolio
investment or currency (held or intended to be purchased) being hedged and in
the price of the futures contract or forward contract; (2) possible lack of a
liquid secondary market for closing out futures or forward contract positions;
(3) the need for additional portfolio management skills and techniques; (4) the
fact that, while hedging strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments; and (5) the possible inability
of the Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund to
sell a security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with hedging
transactions and the possible inability of the Fund to close out or liquidate a
hedged position.
For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security or currency being
hedged. Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is being
hedged. The Subadviser will attempt to crease a closely correlated hedge, but
hedging activity may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the case and futures
markets, due to differences in the nature of those markets, are subject to
distortion. Due to the possibility of distortion, a correct forecast of currency
exchange rate or stock market trends by the Subadviser may still not result in a
successful transaction. The Subadviser may be incorrect in its expectations as
to the extent of various currency exchange rate or stock market movements or the
time span within which the movement take place. Although hedging strategies are
intended to reduce fluctuations in Fund net asset value the Fund nonetheless
anticipates that its net asset value will fluctuate.
In connection with these hedging strategies, the Subadviser may seek to
hedge a foreign currency using a currency other than the U.S. dollar. In such
instances, the Subadviser may sell the foreign currency in favor of a different
foreign currency whose fundamentals are considered more attractive
("cross-hedging").
OPTIONS AND FUTURES CONTRACTS
The Fund may invest in options, futures contracts and options on futures
for hedging purposes, as well as to remain fully invested and to reduce
transaction costs. Investing for the latter two purposes may be considered
speculative. The Fund will not enter into futures contracts to the extent that
the aggregate initial margin and the premiums required to establish those
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) will exceed 5% of the value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the Fund
has entered into. (In general, a call option on a futures contract is
"in-the-money" if the value of the underlying futures contract exceeds the
strike, I.E., exercise, price of the call. A put option on a futures contract is
"in-the-money" if the value of the underlying futures contract is exceeded by
the strike price of the put.) This policy does not limit to 5% the percentage of
the Fund's assets that are at risk in options, futures contracts and options on
futures. For additional discussion of derivative instruments, see the Statement
of Additional Information.
7
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PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if
the Subadviser believes that such disposition is consistent with attaining the
investment objective of the Fund. Portfolio investments may be sold for a
variety of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover (over 100%) may involve
correspondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by the Fund and ultimately by its
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; to the extent that net short-term capital gains
are realized, distributions resulting from such gains will be ordinary income
for federal tax purposes. The Subadviser estimates that the Fund's portfolio
turnover rate for 1998 will be approximately 200%.
FIXED INCOME SECURITIES
For liquidity purposes, temporary defensive purposes and/or pending
investment, the Fund may invest without limit in cash or investment grade fixed
income securities. The market value of such securities is generally inversely
related to actual changes in interest rates, I.E., a decline in interest rates
produces an increase in market value, while an increase in interest rates
produces a decrease in market value of these securities. Moreover, the longer
the remaining maturity of a security, the greater the effect of interest rate
changes on the market value of the security. In addition, changes in the ability
of an issuer to make payments of interest and principal and in the market's
perception of an issuer's creditworthiness affect the market value of the fixed
income securities of that issuer. The Fund will limit investments in
fixed-income securities to those that are rated at the time of purchase as
investment grade by a recognized rating organization, or, if unrated, are
determined to be of equivalent quality by the Subadviser.
OTHER INVESTMENTS
Although it has no current intention to do so, the Fund also may: lend
its portfolio securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of realizing additional income; enter
into repurchase agreements with brokers, dealers or banks that meet the credit
guidelines established by the Board of Trustees; invest up to 15% of its net
assets in securities that are illiquid by virtue of the absence of a readily
available market, or because of legal or contractual restrictions on resales;
and invest up to 10% of its total assets in other investment companies. SEE THE
STATEMENT OF ADDITIONAL INFORMATION FOR A FURTHER DESCRIPTION OF THESE
PRACTICES.
INVESTMENT LIMITATIONS
The Fund has adopted certain limitations designed to reduce its exposure
to specific situations. Specifically, among other restrictions, the Fund may
not:
(a) with respect to 75% of its assets, invest more than 5% of its
total assets in the securities of any single issuer (other than
obligations issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities);
(b) with respect to 75% of its assets, purchase more than 10% of
any class of the outstanding voting securities of any issuer;
(c) acquire any securities of companies within one industry if,
as a result of such acquisition, more than 25% of the value of the
Fund's total assets would be invested in securities of companies within
such industry; provided, however, that there shall be no limitation on
the purchase of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities;
(d) make loans except (i) by purchasing debt securities in
accordance with its investment objective and policies or entering into
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repurchase agreements; or (ii) by lending its portfolio securities to
banks, brokers, dealers and other financial institutions, so long as
such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder;
(e) borrow money, except (i) from banks and as a temporary
measure for extraordinary or emergency purposes (not for leveraging or
investment) or (ii) in connection with reverse repurchase agreements
provided that (i) and (ii) in combination do not exceed 331/3% of the
Fund's total assets (including the amount borrowed) less liabilities
(exclusive of borrowings);
(f) pledge, mortgage, or hypothecate any of its assets to an
extent greater than 33 1/3% of their total assets at fair market value;
(g) invest its assets in securities of any investment company,
except by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the 1940 Act;
and
(h) issue senior securities, except that this limitation shall
not apply to: (i) evidence of indebtedness which the Fund is permitted
to incur; (ii) shares of the separate classes or series of the Trust; or
(iii) collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted investments,
including deposits of initial and variation margin.
Limitations (a), (b), (c), (d), (e) and (h) and certain other
limitations described in the Statement of Additional Information are fundamental
and may be changed only with the approval of the holders of a majority of the
outstanding voting securities of the respective Fund (SEE "GENERAL
INFORMATION--SHAREHOLDER APPROVAL"). The other investment limitations described
here and in the Statement of Additional Information are not fundamental policies
and the Board of Trustees of the Trust may change them without shareholder
approval. With the exception of (e), if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Fund's assets will not require the sale of securities.
PURCHASE OF SHARES
Shares of the Fund can be purchased at the net asset value per share
next determined after receipt of the purchase order. The Fund determines its net
asset value as of the close of regular trading on the New York Stock Exchange
("NYSE") (normally 4:00 P.M. Eastern Time) each day that the NYSE is open for
business. SEE "VALUATION OF SHARES."
INITIAL INVESTMENTS
BY MAIL. Subject to acceptance by the applicable Fund, an account may be
opened by completing and signing an Account Registration Form, and mailing it,
together with a check ($10,000 minimum) payable to LKCM Funds, by regular mail
to:
LKCM Funds
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
or by express, registered or certified mail to:
LKCM Funds
c/o Firstar Trust Company
615 East Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53202
Subject to acceptance by the Fund, payment for the purchase of shares
received by mail will be credited to your account at the net asset value per
share of the Fund next determined after receipt. Such payment need not be
converted into Federal Funds (monies credited to the Fund's Custodian by a
Federal Reserve Bank) before acceptance by the Fund. Please note that purchases
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<PAGE>
made by check are not permitted to be redeemed until payment of the purchase has
been collected, which may take up to fifteen business days after purchase. The
Trust will not accept cash, drafts or third party checks. In the event a check
is not honored by the investor's bank, the investor will be liable for any loss
sustained by the Trust, as well as a service charge imposed by the Transfer
Agent in the amount of $20.
BY WIRE. Subject to acceptance by the Fund, shares of the Fund may be
purchased by wiring Federal Funds ($10,000 minimum) to the Fund's Custodian. To
make an initial purchase by wire, investors should use the following procedures:
. Telephone the Fund at 800-688-LKCM (option 1) for instructions and to
receive an account number.
. Instruct a Federal Reserve System member bank to wire funds to:
. Firstar Bank
ABA #0750-00022
For credit to Firstar Trust Company
Account #112-952-137
For further credit to LKCM International Fund
Account #[Shareholder account number]
. Notify the Fund by calling the telephone number listed above prior to
4:00 P.M. (Eastern Time) on the wire date.
. Promptly complete and mail an Account Registration Form to the address
shown above under purchases by mail.
Federal Fund purchases will be accepted only on a day on which the Fund
and the Custodian are open for business.
SUBSEQUENT INVESTMENTS
Additional investments may be made at any time (minimum subsequent
investment $1,000) by mailing a check payable to LKCM Funds to the address noted
under "INITIAL INVESTMENTS--BY MAIL." Additional investments may also be made by
instructing your bank to wire monies as outlined above and notifying the
applicable Fund prior to 4:00 P.M. (Eastern Time) on the wire date.
OTHER PURCHASE INFORMATION
Each Fund reserves the right, in its sole discretion, to suspend the
offering of its shares, to reject any purchase order, or to waive any minimum
investment requirements when, in the judgment of management, such action is in
the best interests of the Fund.
Purchases of each Fund's shares will be made in full and fractional
shares of the Fund calculated to three decimal places. In the interest of
economy and convenience, certificates for shares will not be issued except at
the written request of the shareholder. Certificates for fractional shares,
however, will not be issued.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits investors who own shares of a
Fund with a value of $10,000 or more, to purchase shares (minimum of $100 per
transaction) at regular intervals selected by the investor. Provided the
investor's financial institution allows automatic withdrawals, shares are
purchased by transferring funds from an investor's checking, bank money market
or NOW account. The financial institution must be a member of the Automatic
Clearing House network. There is no charge for this service. A $20 fee will be
charged by the Transfer Agent if there are insufficient funds in the investor's
account at the time of the scheduled transaction. At the investor's option, the
account designated will be debited in the specified amount, and shares will be
purchased on a specified day or days of a month.
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The Automatic Investment Program is one means by which an investor may
use "Dollar Cost Averaging" in making investments. Instead of trying to time
market performance, a fixed dollar amount is invested in shares at predetermined
intervals. This may help investors to reduce their average cost per share
because the agreed upon fixed investment amount allows more shares to be
purchased during periods of lower share prices and fewer shares during periods
of higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware,
however, that shares bought using Dollar Cost Averaging are purchased without
regard to their price on the day of investment or market trends. In addition,
while investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an investor ultimately redeems his or her shares at a price
which is lower than their purchase price.
To establish the Automatic Investment Program, an investor must complete
the supplemental application contained in this Prospectus and mail it to Firstar
Trust Company. An investor may cancel his or her participation in this Program
or change the amount of purchase at any time by mailing written notification to:
Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.
Notification will be effective three business days following receipt. The Trust
may modify or terminate this privilege at any time or charge a service fee,
although no such fee currently is contemplated. An investor may also implement
the Dollar Cost Averaging method on his or her own initiative or through other
entities.
REDEMPTION OF SHARES
Shares of the Fund may be redeemed by mail, or, if authorized, by
telephone or wire. No charge is made for redemptions, except with respect to
wire redemptions. The value of shares redeemed may be more or less than the
purchase price, depending on the market value of the investment securities held
by the Fund.
BY MAIL
The Fund will redeem its shares at the net asset value next determined
after the request is received in "good order" (as defined below). On days that
the NYSE is open for business, the net asset value per share of the Funds is
determined as of the normal close of trading of the NYSE (currently 4:00 P.M.
Eastern Time). Redemption requests should be sent to LKCM Funds, c/o Firstar
Trust Company, P.O. Box 701, Milwaukee, Wisconsin, 53201-0701.
To be in "good order", redemption requests must include the following
documentation:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment
specifying the number of shares or dollar amount to be redeemed, signed
by all registered owners of the shares in the exact names in which they
are registered;
(c) Any required signature guarantees (SEE "SIGNATURE GUARANTEES"
below); and
(d) Other supporting legal documents, if required, in the case of
estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans, and other organizations.
SIGNATURE GUARANTEES. To protect your account, the Fund, and Firstar
Trust Company from fraud, signature guarantees are required to enable the Funds
to verify the identity of the person who has authorized a redemption from an
account. Signature guarantees are required for (1) redemptions where the
proceeds are to be sent to someone other than the registered shareholder(s) or
the registered address, and (2) share transfer requests. Please contact the
Funds at 800-688-LKCM (option 1) for further details.
BY TELEPHONE OR WIRE
Investors who have so indicated on the Account Registration Form, or
have subsequently arranged in writing to do so, may redeem shares by calling the
Funds and requesting that the redemption proceeds be mailed to the primary
registration address or wired directly to the investor's account at any
commercial bank in the United States. The Funds' Transfer Agent imposes a $12.00
fee for each wire redemption which is deducted from the proceeds of the
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<PAGE>
redemption. The redemption proceeds for an investor must be paid to the same
bank and account as designated on the Account Registration Form or in written
instructions subsequently received by the Funds.
In order to arrange for redemption by wire or telephone after an account
has been opened or to change the bank or account designated to receive
redemption proceeds, an investor must send a written request to the Funds at the
address listed above under "REDEMPTION OF SHARES--BY MAIL." Such requests must
be signed by the investor, with signatures guaranteed (SEE "REDEMPTION OF
SHARES--BY MAIL" above, for details regarding signature guarantees). Further
documentation may be requested.
The Fund reserves the right to refuse a wire or telephone redemption if
it is believed advisable to do so. Procedures for redeeming shares by wire or
telephone may be modified or terminated at any time. The Fund and its transfer
agent will not be liable for any loss, liability, cost or expense for acting
upon telephone instructions that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, the Funds will
use such procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration. To the
extent that the Funds fail to use reasonable procedures as a basis for their
belief, they may be liable for instructions that prove to be fraudulent or
unauthorized.
OTHER REDEMPTION INFORMATION
Payment of the redemption proceeds will be made within seven days after
receipt of a redemption request in "good order" (as defined above under
"REDEMPTION OF SHARES--BY Mail"). Redemption proceeds for shares of the `Funds
purchased by check may not be distributed until payment for the purchase has
been collected, which may take up to fifteen business days. Such funds are
invested and earn dividends during this holding period. Shareholders can avoid
this delay by utilizing the wire purchase option.
Due to the relatively high cost of maintaining small accounts, the Fund
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to redemption
by the investor, the shares in the account do not have a value of at least
$1,000. A shareholder will receive advance notice of a mandatory redemption and
will be given at least 30 days to bring the value of the account up to at least
$1,000.
The Funds may suspend the right of redemption or postpone the date of
payment at times when the NYSE is closed (other than customary weekend and
holiday closings) or under any emergency circumstances as determined by the SEC.
The Trust has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Redemptions in excess of the above limits may be
paid in whole or in part in investment securities or in cash, as the Trustees
may deem advisable. Investors may incur brokerage charges on the sale of Fund
securities so received in payment of redemptions.
SHAREHOLDER SERVICES
RETIREMENT PLANS
The Fund makes available individual retirement account plans, including
Simplified Employee Pension Plans, Individual Retirement Accounts ("IRAs") and
IRA "Rollover Accounts," offered by Firstar Trust Company. Detailed information
on these plans is available from the Fund by calling the Fund at 800-688-LKCM
(option 1). Investors should consult with their own tax advisers before
establishing a retirement plan.
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TRANSFER OF REGISTRATION
The registration of Fund shares may be transferred by writing to LKCM
Funds, c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin,
53202-0701. As in the case of redemptions, the written request must be received
in "good order" as defined above under "REDEMPTION OF SHARES--BY MAIL."
VALUATION OF SHARES
Net asset value per share is computed by dividing the total value of the
investments and other assets of the Fund, less any liabilities, by the total
outstanding shares of the Fund. The net asset value per share is determined as
of the normal close of the NYSE (currently 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.
Securities listed on a foreign exchange for which market quotations are
readily available are valued at the latest quoted sales price available before
the time when assets are valued. Quotations of foreign securities in foreign
currency are converted to U.S. dollar equivalents using net foreign exchange
quotations received from independent dealers at the time of valuation. Unlisted
foreign securities are valued at fair value as determined in accordance with
policies established by the Board of Trustees. Although the Fund values its
assets in U.S. dollars on a daily basis, it does not intend to convert holdings
of foreign currencies into U.S. dollars on a daily basis.
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. Options,
futures, 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.
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, which take into account appropriate factors such as
institutional-sized trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data. Fixed-income securities purchased with remaining maturities of 60 days or
less are valued at amortized cost if it reflects fair value. In the event that
amortized cost does not reflect market, market prices as determined above will
be used. 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 of the Trust.
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to declare and pay income dividends on a quarterly
basis. The Fund intends to distribute net capital gains and net gains from
foreign currency transactions, if any, on an annual basis in December. Dividends
and other distributions, if any, will automatically be paid in additional shares
of the Fund unless the shareholder elects otherwise. Such election must be made
in writing to the Fund.
TAXES
The Fund intends to qualify for taxation as a "regulated investment
company" ("RIC") under the Internal Revenue Code of 1986, as amended, so that it
will not be subject to federal income tax to the extent it distributes its
income and gains to its shareholders. Dividends, whether paid in cash or
reinvested in additional shares, from net investment income, net short-term
capital gains and net gains from certain foreign currency transactions, if any,
will be taxable to shareholders as ordinary income (unless a shareholder is
exempt from income tax or entitled to a tax deferral) and will qualify, in part,
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for the 70% dividends-received deduction for corporations, but the portion of
the Fund's dividends so qualified will depend on the aggregate qualifying
dividend income received by the Fund from U.S. corporations.
Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss) are taxable to shareholders as long-term
capital gain, whether paid in cash or additional shares, and regardless of the
length of time the shares have been owned by the shareholder.
Shareholders are notified annually as to the federal income tax status
of dividends and other distributions paid by the Fund. The annual tax notice
designates the portions of capital gain distributions that are subject to (1)
the 20% maximum rate of tax (10% for investors in the 15% marginal tax bracket)
enacted by the Taxpayer Relief Act of 1997 ("Tax Act"), which applies to
non-corporate taxpayers' net capital gain on securities and other capital assets
held for more than 18 months, and (2) the 28% maximum tax rate, applicable to
such gain on capital assets held for more than one year and up to 18 months
(which, prior to enactment of the Tax Act, applied to all such gain on capital
assets held for more than one year). If a shareholder is not required to pay
taxes on income, such shareholder generally is not required to pay federal
income tax on the amounts distributed to him or her.
Any dividends and capital gain distributions declared in December to
shareholders of record on a date in that month will be deemed to have been paid
by the Fund and received by those shareholders on December 31 if the
distributions are paid before February 1 of the following year.
When a shareholder redeems Fund shares, the redemption may result in a
taxable gain or loss, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the shares. In addition, if Fund
shares are bought within thirty days before or after selling other Fund shares
at a loss, all or a portion of the loss will not be deductible and will increase
the basis of the newly purchased shares. Capital gain on redeemed shares held
for more than one year will be long-term capital gain, in which event it will be
subject to federal income tax at the rates indicated above.
The Fund is required by federal law to withhold 31% of reportable
payments (which includes dividends, capital gain distributions and redemptions)
payable to individuals and certain other non-corporate shareholders who have not
complied with certain federal income tax regulations. In order to avoid this
withholding requirement, you must certify on the Account Registration Form that
your Social Security or other taxpayer identification number provided is correct
and that you are not currently subject to back-up withholding, or that you are
exempt from back-up withholding.
Dividends and other distributions declared by the Fund, as well as
redemptions of shares, also may be subject to state and local taxes.
The foregoing summarizes some of the important income tax considerations
generally affecting the Fund and its shareholders. POTENTIAL INVESTORS IN THE
FUND SHOULD CONSULT THEIR TAX ADVISERS WITH SPECIFIC REFERENCE TO THEIR OWN TAX
SITUATION.
MANAGEMENT
INVESTMENT ADVISER
Luther King Capital Management Corporation (the "Adviser"), 301 Commerce
Street, Suite 1600, Fort Worth, Texas, 76102, serves as the investment adviser
to the Trust. The Adviser was founded in 1979 and provides investment counseling
services to employee benefit plans, endowment funds, foundations, common trust
funds, and high net-worth individuals. As of the date of this Prospectus, the
Adviser had in excess of $5 billion in assets under management. J. Luther King,
Jr. is the controlling shareholder of the Adviser.
Pursuant to an Investment Advisory Agreement ("Advisory Agreement") with
the Fund, the Adviser, subject to the control and supervision of the Trust's
Board of Trustees and in conformance with the stated investment objectives and
policies of the Fund, manages the investment and reinvestment of the assets of
the Fund. In this regard, it is the responsibility of the Adviser to make
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investment decisions for the Fund and to place the Fund's purchase and sales
orders or, subject to any approvals required by the 1940 Act, to delegate its
duty to make investment decisions and to place purchase and sales orders to one
or more investment subadvisers with respect to some or all of the Fund's assets.
In the event of such a delegation, the Adviser is obligated to monitor the
activities of the subadvisers, review the activities of the subadvisers to
ensure compliance with applicable investment objectives and guidelines, render
such reports to the Board of Trustees as may be requested and provide to the
subadvisers such advice as they may reasonably request. As described below, the
Adviser has exercised its authority to delegate certain duties with respect to
all of the Fund's assets to a subadviser.
As compensation for the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser an advisory fee calculated by
applying a quarterly rate, equal on an annual basis to 1.00% of the Fund's
average daily net assets for the quarter. The Adviser -- and not the Fund -- is
solely responsible for paying the fees of any subadvisers to whom the Adviser
delegates any duties as described above. For the fiscal year ended December 31,
1998, the Adviser voluntarily has agreed to waive its advisory fee and/or
reimburse the Fund's operating expenses to the extend necessary to ensure that
the Fund's total operating expenses do not exceed 1.20%. Thereafter, the
Adviser, at its discretion, from time to time may waive advisory fees and/or
reimburse expenses for the Fund. Any waivers and/or reimbursements will have the
effect of lowering the overall expense ratio for the Fund and increasing its
overall return to investors at the time any such amounts are waived and/or
reimbursed.
Certain managed account clients of the Adviser may purchase shares of
the Funds. To avoid the imposition of duplicative fees, the Adviser may make
adjustments in the management fees charged separately by the Adviser to these
clients to offset the generally higher level of management fees and expenses
resulting from a client's investment in the Funds.
INVESTMENT SUBADVISER
TT International Investment Management, doing business as TT
International, 5 Martin Lane, London, England EC4R ODP, serves as the investment
subadviser to the Fund. The Subadviser was founded in 1993 and offers investment
counseling services to investment companies, pension plans, trusts and
charitable organizations. As of the date of this Prospectus, the Subadviser had
in excess of $1.5 billion in assets under management. The Subadviser is
registered as an investment adviser under the Investment Advisers Act of 1940
and is authorized to conduct its investment business in the United Kingdom by
the Investment Management Regulatory Organization Limited (IMRO).
Pursuant to an Investment Subadvisory Agreement ("Subadvisory
Agreement") entered into between the Adviser and the Subadviser, the Subadviser
is responsible for making investment decisions for the Fund and placing purchase
and sale orders. These responsibilities are subject to the control and
supervision of the Fund's Board of Trustees and the Adviser and must be in
accordance with the Fund's stated investment objective and policies. As
compensation for services rendered by the Subadviser, the Adviser -- and not the
Fund -- pays the Subadviser a subadvisory fee calculated by applying a quarterly
rate, equal on an annual basis to .50% of the Fund's average daily net assets
for the quarter. To the extent that the advisory fee received by the Adviser is
reduced pursuant to the fee waiver and/or expense reimbursement arrangements
described above, the subadvisory fee to be paid to the Subadviser will be
reduced proportionately. However, the Subadviser will have no obligation to
otherwise reimburse the Fund in order to maintain the operating expense
limitations described above.
PORTFOLIO MANAGERS
The co-managers of the Fund and their backgrounds are as follows:
TIMOTHY ALEXANDER TACCHI has been the Controlling Partner of the
Subadviser since its formation in 1993. Previously, he was the sole proprietor
of the Subadviser's predecessor firm (1988-1993), and an Investment Manager at
Fidelity International Investment Advisers Ltd. (1983-1988).
JAMES ELLIOT TONNER has been a Partner and Investment Manager at the
Subadviser since 1993. Previously, he was an Investment Manager at Chemical
Investment Group (1989-90) and President of Fidelity International Investment
Advisers Ltd. (1976-1988).
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DUNCAN NEIL ROBERTSON has been an Investment Manager at the Subadviser
since 1996. Previously he was Chief Executive Officer of Dah Sing M&G Asset
Management (1995-96) and Director of M&G Investment Management (1972-1995).
PAULINE SAU NGOR PONG has been an Investment Manager at the Subadviser
since 1996. Previously, she was a Portfolio Manager at Dah Sing M&G Asset
Management (1984-1996) and Gartmore [Management] (19__-1984).
ADMINISTRATOR
Firstar Trust Company (the "Administrator") provides the Fund with
administrative and fund accounting and dividend services pursuant to a Fund
Administration Agreement and a Fund Accounting Service Agreement. The services
under these Agreements are subject to the supervision of the Board of Trustees
of the Trust and its officers, and include day-to-day administration of matters
necessary to the Fund's operations, maintenance of its records, preparation of
reports, compliance testing of the Fund's activities, and preparation of
periodic updates of the registration statement under federal and state laws. For
the foregoing, the Administrator receives from the Fund a fee, paid monthly at
an annual rate of 0.06% of the Trust's first $200 million of average aggregate
daily net assets, plus 0.05% of the Trust's next $500 million of average
aggregate daily net assets, plus 0.03% of the Trust's average aggregate daily
net assets in excess of $700 million. Notwithstanding the foregoing, the minimum
annual fee payable to the Administrator by the Funds is $20,000 per Fund subject
to a 10% discount in the first year or until the Fund reaches $10 million in net
assets, whichever comes first. The Administrator is located at 615 East Michigan
Street, Milwaukee, Wisconsin, 53202.
From time to time, subject to review by the Board of Trustees of the
Trust, the Administrator may make certain adjustments to the fees it is entitled
to receive from the Fund pursuant to the Fund Administration Agreement.
TRUSTEES
The Board of Trustees of the Trust has overall responsibility for the
management of the Fund. The officers of the Trust conduct and supervise its
daily business. Each Trustee who is not also an officer or affiliated person
receives an annual fee plus a meeting fee for each meeting attended and is
reimbursed for expenses incurred in attending Board meetings. Trustees who are
also officers or affiliated persons receive no remuneration for their service as
Trustees. The Trust's officers and employees are paid by the Adviser or the
Administrator.
The following is a list of the Trustees of the Trust and a brief
statement of their present positions and principal occupations during the past
five years:
J. LUTHER KING, JR., Chairman of the Board of Trustees and President and
Manager of the Trust; President, Luther King Capital Management Corporation.
H. KIRK DOWNEY, Trustee; Dean, M. J. Neeley School of Business, Texas
Christian University Business School.
EARLE A. SHIELDS, JR., Trustee; Consultant; and formerly Consultant for
NASDAQ Corp. and Vice President of Merrill Lynch & Co., Inc.
DISTRIBUTOR
Shares of the Fund are distributed through First Data Distributor, Inc.
(the "Distributor"), 4400 Computer Drive, Westborough, Massachusetts, 01581, a
registered broker-dealer. Jacqui Brownfield, an employee of the Adviser and an
officer of the LKCM Funds, is a registered representative of the Distributor.
FUND EXPENSES
The Fund is responsible for its own expenses, including: interest
charges; taxes; brokerage commissions; organizational expenses; expenses of the
registering or qualifying shares for sale with the states and the Securities and
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Exchange Commission ("SEC"); expenses of issue, sale, repurchase, or redemption
of shares; expenses of printing and distributing reports and prospectuses to
existing shareholders; charges of custodians; expenses for accounting,
administrative, audit, and legal services; fees for outside directors; expenses
of fidelity bond coverage and other insurance; expenses of indemnification;
extraordinary expenses; and costs of shareholder and director meetings.
FUND TRANSACTIONS
The Investment Subadvisory Agreement authorizes the Subadviser to select
the brokers or dealers that will execute the purchases and sales of investment
securities for the Fund and directs the Subadviser to use its best efforts to
obtain the best available price and most favorable execution with respect to all
transactions for each Fund.
It is not the Subadviser's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through intermediary
broker-dealers. However, the Subadviser may place orders with qualified
broker-dealers who recommend the Funds or who act as agents in the purchase of
shares of the Fund for their clients.
Some securities considered for investment by the Fund may also be
appropriate for other clients served by the Subadviser. If the purchase or sale
of securities consistent with the investment policies of the Funds and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Funds and
clients in a manner deemed fair and reasonable by the Subadviser. The various
allocation methods used by the Subadviser, and the results of such allocations,
are subject to periodic review by the Board of Trustees of the Funds.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund is a series of LKCM Funds, which was established as a Delaware
business trust by a Declaration of Trust dated February 10, 1994. The Trust is
authorized to issue an unlimited number of shares of beneficial interest,
without par value, from an unlimited number of series of shares. Currently, the
Trust offers five series. The shares have non-cumulative voting rights, meaning
that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees if they choose to do so. A shareholder
is entitled to one vote for each full share held (and a fractional vote for each
fractional share held), then standing in his or her name on the books of the
Fund.
The Fund is not required, and does not intend, to hold regular annual
shareholder meetings. The Fund may hold special meetings for consideration of
proposals requiring shareholder approval, such as changing fundamental policies,
or upon the written request of 10% of the Trust's shares to replace their
Trustees. The Fund will assist in shareholder communication in such matters to
the extent required by law. As of December 31, 1997 the Adviser was the sole
shareholder.
SHAREHOLDER APPROVAL
Other than election of Trustees, which is by plurality, any matter for
which shareholder approval is required by the 1940 Act requires the affirmative
vote of at least a majority of the outstanding voting securities of the affected
Fund or Funds at a meeting called for the purpose of considering such approval.
A majority of a Fund's outstanding voting securities is the lesser of (1) 67% of
the shares represented at a meeting at which more than 50% of the outstanding
shares are present in person or by proxy or (2) more than 50% of the outstanding
shares.
CUSTODIAN
Firstar Trust Company serves as Custodian of the Trust's assets.
17
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DIVIDEND DISBURSING AND TRANSFER AGENT
Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin,
53202, acts as Dividend Disbursing and Transfer Agent for the Funds.
REPORTS
Shareholders receive semi-annual and annual financial statements. Annual
financial statements are audited by Deloitte & Touche LLP, independent
accountants, 411 East Wisconsin Avenue, Milwaukee, Wisconsin, 53202.
18
<PAGE>
LKCM FUNDS
THE LKCM INTERNATIONAL FUND
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TEXAS 76102
800-688-LKCM
PROSPECTUS
DECEMBER __, 1997
INVESTMENT ADVISER
LUTHER KING CAPITAL MANAGEMENT CORPORATION
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TEXAS 76102
<PAGE>
Part B
LKCM FUNDS
POST-EFFECTIVE AMENDMENT NO. 7
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER ___, 1997
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER, SOLICITATION OR SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
LKCM FUNDS
LKCM INTERNATIONAL FUND
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TEXAS 76102
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER __, 1997
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE LKCM INTERNATIONAL FUND DATED DECEMBER
__, 1997, AS SUCH PROSPECTUS MAY BE SUPPLEMENTED OR REVISED FROM TIME TO TIME. A
COPY OF THE PROSPECTUS MAY BE OBTAINED WITHOUT CHARGE BY CALLING THE LKCM FUNDS
AT (800) 688-LKCM (OPTION 1).
<PAGE>
TABLE OF CONTENTS
PAGE
----
INVESTMENT OBJECTIVE AND POLICIES.............................................4
EQUITY SECURITIES...........................................................4
PREFERRED STOCK...........................................................4
WARRANTS AND RIGHTS.......................................................4
CONVERTIBLE SECURITIES....................................................4
FIXED INCOME SECURITIES.....................................................4
U.S. GOVERNMENT SECURITIES................................................4
CORPORATE DEBT SECURITIES.................................................5
DERIVATIVE INSTRUMENTS......................................................5
OPTIONS...................................................................5
OPTIONS ON FOREIGN CURRENCIES.............................................6
FUTURES CONTRACTS.........................................................7
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS...............................7
RISK FACTORS IN FUTURES TRANSACTIONS......................................8
RISKS OF OPTIONS ON FUTURES, FORWARD CONTRACTS, AND OPTIONS ON FOREIGN
CURRENCIES..........................................................9
COMBINED TRANSACTIONS.....................................................9
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS..........................9
ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES.............................10
ILLIQUID INVESTMENTS.....................................................10
RESTRICTED SECURITIES....................................................10
SECURITIES LENDING.........................................................10
REPURCHASE AGREEMENTS......................................................11
OTHER INVESTMENT COMPANIES.................................................11
INVESTMENT LIMITATIONS.......................................................11
MANAGEMENT...................................................................13
INVESTMENT ADVISER.........................................................13
INVESTMENT SUBADVISER......................................................13
CUSTODIAN..................................................................13
DISTRIBUTOR................................................................13
TRUSTEES AND OFFICERS......................................................14
PRINCIPAL SHAREHOLDERS.....................................................14
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................14
PURCHASE, REDEMPTION, AND PRICING OF SHARES..................................15
PURCHASE OF SHARES.........................................................15
REDEMPTION OF SHARES.......................................................15
PRICING OF SHARES..........................................................16
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES....................................16
GENERAL....................................................................16
TAXES - INVESTMENTS IN FOREIGN SECURITIES..................................17
PERFORMANCE INFORMATION......................................................18
TOTAL RETURN...............................................................18
OTHER INFORMATION..........................................................18
COMPARISON OF FUND PERFORMANCE.............................................18
GENERAL INFORMATION..........................................................19
DESCRIPTION OF SHARES AND VOTING RIGHTS....................................19
SHAREHOLDER AND TRUSTEE LIABILITY..........................................19
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AUDITORS...................................................................20
CODE OF ETHICS.............................................................20
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THESE CONTAINED IN THIS STATEMENT OF ADDITIONAL
INFORMATION AND THE PROSPECTUS DATED DECEMBER __, 1997, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL
SECURITIES.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of LKCM International Fund (the
"Fund") are described in detail in the Prospectus under the captions "Investment
Objective and Policies" and "Description of Securities and Other Investment
Policies."
EQUITY SECURITIES
The equity securities in which the Fund may invest include common
stocks, preferred stocks, warrants and rights, and debt securities convertible
into or exchangeable for common stock or other equity securities.
PREFERRED STOCK. Preferred stock offers a stated dividend rate payable
from the corporation's earnings. These preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. The rights of preferred stocks are
generally subordinate to rights associated with a corporation's debt securities.
Dividends on some preferred stock may be "cumulative" if stated dividends from
prior periods have not been paid. Preferred stock also generally has a
preference over common stock on the distribution of a corporation's assets in
the event of liquidation of the corporation, and may be "participating," which
means that it may be entitled to a dividend exceeding the stated dividend in
certain cases. The rights of preferred stocks are generally subordinate to
rights associated with a corporation's debt securities.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities
at specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights are
similar to warrants but normally have a short duration and are distributed by
the issuer to its shareholders. Warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture,
note, or other security that entitles the holder to acquire common stock or
other equity securities of the same or a different issuer. A convertible
security generally entitles the holder to receive interest paid or accrued until
the convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
nonconvertible debt securities. Convertible securities rank senior to common
stock in a corporation's capital structure and, therefore, generally entail less
risk that the corporation's common stock, although the extent to which such risk
is reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed-income security. A convertible
security may be subject to redemption at the option of the issuer at a
predetermined price. If a convertible security held by a Fund is called for
redemption, the Fund would be required to permit the issuer to redeem the
security and convert it to underlying common stock, or would sell the
convertible security to a third party.
FIXED INCOME SECURITIES
The fixed-income securities in which the Funds may invest include U.S.
Government securities and corporate debt.
U.S. GOVERNMENT SECURITIES. U.S. Government agencies or
instrumentalities that issue or guarantee securities include, but are not
limited to, the Federal National Mortgage Association ("FNMA"), Government
National Mortgage Association ("GNMA"), Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal
Land Banks, Tennessee Valley Authority, Inter-American Development Bank, Asian
Development Bank, Student Loan Marketing Association ("SLMA") and the
International Bank for Reconstruction and Development.
Except for U.S. Treasury securities, obligations of U.S. Government
agencies and instrumentalities may or may not be supported by the full faith and
credit of the United States. Some are backed by the right of the issuer to
borrow from the Treasury; others by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while still others, such as
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the SLMA, are supported only by the credit of the instrumentality. In the case
of securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment. Each Fund will invest in
securities of such agencies or instrumentalities only when the Adviser is
satisfied that the credit risk is acceptable.
The Funds may invest in component parts of U.S. Treasury notes or bonds,
namely either the corpus (principal) of such Treasury obligations or one of the
interest payments scheduled to be paid on such obligations. These obligations
may take the form of: (1) Treasury obligations from which the interest coupons
have been stripped; (2) the interest coupons that are stripped; (3) book-entries
at a Federal Reserve member bank representing ownership of Treasury obligation
components; or (4) receipts evidencing the component parts (corpus or coupons)
of Treasury obligations that have not actually been stripped. Such receipts
evidence ownership of component parts of Treasury obligations ( corpus or
coupons) purchased by a third party (typically an investment banking firm) and
held on behalf of the third party in physical or book-entry form by a major
commercial bank or trust company pursuant to a custody agreement with the third
party. These custodial receipts are known by various names, including "Treasury
Receipts," "Treasury Investment Growth Receipts" ("TIGRs") and "Certificates of
Accrual on Treasury Securities" ("CATs"), and are not issued by the U.S.
Treasury; therefore they are not U.S. Government securities, although the
underlying bonds represented by these receipts are debt obligations of the U.S.
Treasury.
CORPORATE DEBT SECURITIES. The Fund's investments in U.S. dollar or
foreign currency-denominated corporate debt securities of domestic or foreign
issuers are limited to investment grade corporate debt securities (corporate
bonds, debentures, notes and other similar corporate debt instruments). The rate
of return or return of principal on some debt obligations may be linked or
indexed to the level of exchange rates between the U.S. dollar and a foreign
currency or currencies.
DERIVATIVE INSTRUMENTS
In pursuing its investment objectives, the Fund may purchase and sell
(write) options on securities, securities indices, and foreign currencies and
enter into interest rate, foreign currency and index futures contracts and
purchase and sell options on such futures contracts and enter into forward
foreign currency exchange contracts for hedging purposes.
OPTIONS. An option is a legal contract that gives the holder the right
to buy or sell a specified amount of the underlying instrument at a fixed or
determinable price upon the exercise of the option. A call option conveys the
right to buy, in return for a premium paid, and a put option conveys the right,
in return for a premium, to sell a specified quantity of the underlying
instrument. Options on indices are settled in cash and gain or loss depends on
changes in the index in question rather than on price movement in individual
securities.
There are certain risks associated with transactions in options on
securities and on indices. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. A decision as to whether, when, and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless. If the Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, the Fund
forgoes, during the life of the option, the opportunity to profit from increases
in the market value of the security covering the call option above the sum of
the premium and the exercise price of the call.
If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased. Except
to the extent that a call option on an index written by the Fund is covered by
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<PAGE>
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
The Fund is authorized to purchase and sell over-the-counter options
("OTC Options") in addition to exchange listed options. OTC Options are
purchased from or sold to securities dealers, financial institutions or other
parties ("Counterparties") through direct bilateral agreement with the
Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC Option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation between the parties. A Fund will
only sell OTC Options that are subject to a buy-back provision permitting the
Fund to require the Counterparty to sell the option back to the Fund at a
formula price within seven days. The Funds expect generally to enter into OTC
Options that have cash settlement provisions, although they are not required to
do so.
There is no central clearing or guaranty function in an OTC Option. As a
result, if the Counterparty fails to make or take delivery of the security,
currency or other instrument underlying an OTC Option it has entered into with a
Fund or fails to make a cash settlement payment due in accordance with the terms
of the option, the Fund will lose any premium it paid for the option as well as
any anticipated benefit of the transaction. Accordingly, the Adviser must assess
the creditworthiness of each such Counterparty or any guarantor of credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC Option will be satisfied. The Funds will engage in OTC Option
transactions only with U.S. government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers", or broker dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of "A-1" from S&P's or "P-1" from Moody's or an equivalent rating from
any other NRSRO.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options
on foreign currencies for hedging purposes. For example, a decline in the dollar
value of a foreign currency in which portfolio securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of portfolio securities, the Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options on the currency
involved. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Fund could sustain
losses on transaction in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.
The Fund can write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the anticipated decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if exchange rates move
in the expected direction. If this does not occur, the option may be exercised
and the Fund would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, a Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
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The Fund can write covered call options on foreign currencies. A call
option written on a foreign currency by the Fund is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Funds' custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Fund has a call on
the same foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash, or liquid
assets in a segregated account with the custodian.
The Fund also can write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline in the U.S.
dollar value of a security which the Fund owns or has the right to acquire and
which is denominated in the currency underlying the option due to an adverse
change in the exchange rate. In such circumstances, the Fund will collateralize
the option by maintaining in a segregated account with the custodian, cash or
liquid assets in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
FUTURES CONTRACTS. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific security
currency on index at a specified future time and at a specified price. Futures
contracts which are standardized as to maturity date and underlying financial
instrument are traded on national futures exchanges. Futures exchanges and
trading in the United States are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC").
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currency, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold. Futures contracts on indices are settled in cash.
Futures traders are required to make a good faith margin deposit in cash
or acceptable securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying securities)
if it is not terminated prior to the specified delivery date. Initial margin
requirements are established by the futures exchange and may be changed. Brokers
may establish deposit requirements which are higher than the exchange minimums.
After a futures contract position is opened, the value of the contract
is marked-to-market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required variation margin, resulting in a
repayment of excess variation margin to the contract holder. Variation margin
payments are made to and from the futures broker for as long as the contract
remains open.
Regulations of the CFTC applicable to the Fund require that it use
futures contracts and options on futures contracts only for bona fide hedging
purposes, or to the extent that the Fund's futures and options on futures
positions are for other than bona fide hedging purposes, as described by the
CFTC, the aggregate initial margins and premiums required to establish such
non-bona fide hedging positions other than the "in-the-money" amount in the case
of options that are "in-the-money" at the time of purchase, may not exceed 5% of
the Fund's net assets. Adherence to these guidelines does not limit the Fund's
risk to 5% of the Fund's assets. The Fund will only sell futures contracts to
protect securities owned by it against price declines or purchase contracts to
protect against an increase in the price of securities it intends to purchase.
Although techniques other than the sale and purchase of futures contracts could
be used to control the Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Fund will incur commission expenses in both opening and closing out futures
positions, these costs may be lower than transaction costs incurred in the
purchase and sale of the underlying securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("Forward Contract") is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
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the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders, usually large commercial banks, and their
customers. The Fund can use Forward Contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving Forward
Contracts that the Funds may use.
In connection with purchases and sales of securities denominated in
foreign currencies, the Funds may enter into Forward Contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date
("transaction hedge" or "settlement hedge").
The Fund also can use Forward Contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if a Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value ("position hedge"). A position
hedge would tend to offset both positive and negative currency fluctuations, but
would not offset changes in security values caused by other factors. The Fund
could also hedge the position by selling another currency expected to perform
similarly to the pound sterling ("proxy hedge"). A proxy hedge could offer
advantages in terms of cost, yield, or efficiency, but generally would not hedge
currency exposure as effectively as a simple hedge into U. S. dollars. Proxy
hedges may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
The Fund's custodian will place cash or other liquid assets in a
separate account having a value equal to the aggregate amount of the Fund's
commitments under Forward Contracts entered into with respect to position hedges
and proxy-hedges. If the value of the assets placed in a segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. Alternatively, the Fund can purchase
a call option permitting the Fund to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than the Forward
Contract price or the Fund can purchase a put option permitting the Fund to sell
the amount of foreign currency subject to a forward purchase contract at a price
as high or higher than the Forward Contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not entered into such contracts.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may
be closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the Fund's ability to effectively hedge. The Fund will
minimize the risk that it will be unable to close out a futures contract by only
entering into futures for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures trading. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the Fund. For example, if at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract.
Utilization of futures transactions by the Fund involves the risk of
imperfect or no correlation where the securities underlying futures contracts
are different than the portfolio securities being hedged. It is also possible
that the Fund could both lose money on futures contracts and also experience a
decline in value of its portfolio securities. There is also the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or option on a futures contract.
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Most futures exchanges limit the amount of fluctuation permitted in
futures contract and options prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract or option on
a future contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of contract, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions. Futures contract
and options prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses.
RISKS OF OPTIONS ON FUTURES, FORWARD CONTRACTS, AND OPTIONS ON FOREIGN
CURRENCIES. Options on currencies may be traded over-the-counter and forward
currency contracts are always traded in the over-the-counter market. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchase of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. When the Fund enters into a forward currency
contract or purchases an over-the-counter option, it relies on its counterparty
to perform. Failure by the counterparty to do so would result in the loss of any
expected benefit of the transaction.
Futures contracts, options on futures contracts, forward contracts, and
options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. The purchase and sale of
exchange-traded foreign currency options, however, is subject to the risks of
the availability of a liquid secondary market described above, as well as the
risks regarding adverse market movements, margining of options written, the
nature of the foreign currency market, possible intervention by governmental
authorities and the effect of other political and economic events. In addition,
exchange-traded options of foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise and settlement
of such options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions or
taxes would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
COMBINED TRANSACTIONS. The Fund can enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
foreign currency transactions (including Forward Contracts) and any combination
of futures, options, and foreign currency transactions, instead of a single
transaction, as part of a single hedging strategy when, in the opinion of the
Adviser, it is in the best interest of the Funds to do so. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply
with guidelines established by the SEC with respect to coverage of options,
futures and forward contracts strategies by mutual funds, and if the guidelines
so require will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures, option or forward contract strategy is outstanding,
unless they are replaced with other suitable assets. Consequently, there is a
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possibility that segregation of a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES
ILLIQUID INVESTMENTS. The Fund may invest up to 15% of their securities
respective net assets in illiquid investments. Illiquid investments are
investments that cannot be sold or disposed of within seven days in the ordinary
course of business at approximately the prices at which they are valued. Under
the supervision of the Board of Trustees, the Subadviser determines the
liquidity of the Fund's investments and, through reports from the Subadviser and
the Fund's administrator, the Board monitors investments in illiquid securities.
In determining the liquidity of the Fund's investments, the Subadviser may
consider various factors, including the frequency of trades and quotations, the
number of dealers and prospective purchasers in the marketplace, dealer
undertakings to make a market, the nature of the security, and the nature of the
marketplace for trades. Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days, certain over-the-counter options, and
restricted securities (other than restricted securities pursuant to Rule 144A
under the Securities Act and commercial paper sold in reliance on Section 4(2)
of the Securities Act). With respect to over-the-counter ("OTC") options that
the Fund writes, all or a portion of the value of the underlying instrument may
be illiquid depending on the assets held to cover the option and the nature and
terms of any agreement the Fund may have to close out the option before
expiration. The Fund will treat as illiquid an amount of assets used to cover
written OTC options, equal to the formula price at which the Fund would have the
absolute right to purchase the option less the amount by which the option is
"in-the-money." The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. When no market quotations are
available, illiquid investments are priced at fair value as determined in good
faith by the Subadviser under the supervision of the Board of Trustees.
Disposing of these investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Funds to sell them
promptly at an acceptable price. If through a change in values, net assets, or
other circumstances, either Fund was in a position where more than 15% of its
net assets were invested in illiquid securities, it would take appropriate steps
to protect liquidity.
RESTRICTED SECURITIES. Restricted securities can generally be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the Securities Act or in a registered public offering. Where registration
is required, the Fund may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it or they decide
to seek registration and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed at the time it decided to seek registration of the security.
SECURITIES LENDING
The Fund may lend securities to qualified brokers, dealers, banks and
other financial institutions. Securities lending allows the Fund to retain
ownership of the securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned securities, or even
a loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by the Subadviser to be of good
standing. In addition, they will only be made if, in the Subadviser's judgment,
the consideration to be earned from such loans would justify the risk. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of a Fund exceed one-third of the value of its total assets.
It is the Fund's understanding that the current view of the staff of the
SEC is that the Fund can engage in securities loan transactions only under the
following conditions: (1) the Funds must receive 100% collateral in the form of
cash or cash equivalents (i.e., U.S. Treasury bills or notes) from the borrower;
(2) the borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Fund must be able to terminate the loan
at any time; (4) the Fund must receive reasonable interest on the loan (which
may include the Fund investing any cash collateral in interest bearing
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short-term investments) or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest, or other distributions on the securities
loaned and to any increase in market value; (5) the Fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees must
be able to vote proxies on the securities loaned, either by terminating the loan
or by entering into an alternative arrangement with the borrower.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines established by the Board of Trustees of
the Fund. In a repurchase agreement, the Fund buys 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
Fund to the seller. The Fund always receive securities as 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, the Funds might incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, the Funds'
realization upon the collateral may be delayed or limited.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in other investment
companies. Not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company nor may the Fund acquire more than 3%
of the voting securities of any other investment company. In addition to the
advisory fees and other expenses the Fund bear directly in connection with their
own operations, as shareholders of another investment company, the Funds would
bear their pro rata portion of the other investment company's advisory fees and
other expenses. As such, the Fund's shareholders would indirectly bear the
expenses of the Fund and the other investment company, some or all of which
would be duplicative.
INVESTMENT LIMITATIONS
The Fund is subject to the following restrictions which are fundamental
policies and may not be changed without the approval of the lesser of: (1) at
least 67% of the voting securities of a Fund present at a meeting if the holders
of more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of a Fund.
As a matter of fundamental policy, the Fund will not:
(1) invest in physical commodities or contracts on physical commodities;
(2) purchase or sell real estate, although it may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance
with its investment objective and policies or entering into repurchase
agreements; or (ii) by lending its portfolio securities to banks, brokers,
dealers and other financial institutions, so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or interpretations
of the SEC thereunder;
(4) with respect to 75% of its assets, purchase more than 10% of any
class of the outstanding voting securities of any issuer;
(5) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities of any single issuer (other than obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities);
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(6) borrow money, except (i) from banks and as a temporary measure for
extraordinary or emergency purposes (not for leveraging or investment) or (ii)
in connection with reverse repurchase agreements provided that (i) and (ii) in
combination do not exceed 331/3% of the Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings);
(7) underwrite the securities of other issuers (except to the extent
that the Fund may be deemed to be an underwriter within the meaning of the
Securities Act in the disposition of restricted securities);
(8) acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the Fund's total assets would be
invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; and
(9) issue senior securities, except that this limitation shall not apply
to: (i) evidence indebtedness which the Fund is permitted to incur; (ii) shares
of the separate classes or series of the Trust; or (iii) collateral arrangements
with respect to currency-related contracts, futures contracts, options or other
permitted investments, including deposits of initial and variation margin.
The Fund is also subject to the following restrictions which are
non-fundamental policies and may be changed by the Board of Trustees without
shareholder approval. As a matter of non-fundamental policy, the Fund will not:
(a) purchase securities on margin, except for use of short-term credit
as may be necessary for the clearance of purchases and sales of securities, but
it may make margin deposits in connection with transactions in options, futures,
and options on futures; or sell securities short unless, by virtue of its
ownership of other securities, it has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is conditional, the
sale is made upon the same conditions. Transactions in futures contracts,
options and options on futures are not deemed to constitute selling securities
short;
(b) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 331/3% of its total assets at fair market value;
(c) invest more than an aggregate of 15% of its net assets in securities
deemed to be illiquid, including securities which are not readily marketable,
the disposition of which is restricted (excluding securities that are not
registered under the Securities Act but which can be sold to qualified
institutional investors in accordance with Rule 144A under the Securities Act
and commercial paper sold in reliance on Section 4(2) of the Securities Act),
repurchase agreements having maturities of more than seven days and certain OTC
options;
(d) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act; and
(e) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases.
With the exception of fundamental investment limitation (6), if a
percentage limitation on the investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value or total cost of a Fund's assets
will not require the sale of securities.
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MANAGEMENT
INVESTMENT ADVISER
The investment adviser to the Fund is Luther King Capital Management
Corporation. The Fund and the Adviser have entered into an Investment Advisory
Agreement dated _________ __, 199_ (the "Advisory Agreement"). The Advisory
Agreement, as it relates to the Fund, was approved initially by the Board of
Trustees on November __, 1997. By its terms, the Advisory Agreement continues in
effect for a period of two years from the date of the Agreement, and thereafter
for successive one year periods, only if each renewal is specifically approved
by a vote of the Board of Trustees, including the affirmative votes of a
majority of the Trustees who are not parties to the agreement or "interested
persons" (as defined in the 1940 Act) of any such party in person at a meeting
called for the purpose of considering such approval. In addition, the question
of continuance of the Agreement may be presented to the shareholders of the
Fund; in such event, continuance shall be effective only if approved by the
affirmative vote of a majority of the outstanding voting securities of the Fund.
The Agreement can be terminated, without penalty, with respect to a Fund on 60
days' written notice by the Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund. The Adviser can terminate the
Advisory Agreement with respect to the Fund, without penalty, on 90 days'
written notice. In addition, the Advisory Agreement will terminate automatically
in the event of its assignment. The Adviser is a corporation of which J. Luther
King, Jr. is a "controlling person" (as that term is defined in the rules and
regulations of the SEC).
INVESTMENT SUBADVISER
The investment subadviser to the Fund is TT International Investment
Management, doing business as TT International. The Adviser and the Subadviser
have entered into an Investment Subadvisory Agreement ("Subadvisory Agreement")
dated December __, 1997. By its terms, the Subadvisory continues in effect for a
period of two years from the date of the Subadvisory Agreement, and thereafter
for successive one year periods, only if each renewal is specifically approved
by a vote of the Board of Trustees, including the affirmative votes of a
majority of the Trustees who are not parties to the agreement or "interested
persons" (as defined in the 1940 Act) of any such party in person at a meeting
called for the purpose of considering such approval. In addition, the question
of continuance of the Subadvisory Agreement may be presented to the shareholders
of a Fund; in such event, continuance shall be effective only if approved by the
affirmative vote of a majority of the outstanding voting securities of the Fund.
The Subadvisory Agreement can be terminated, without penalty, with respect to a
Fund on 60 days' written notice by the Board of Trustees, by the Adviser or by
vote of a majority of the outstanding voting securities of the Fund. The
Subadviser can terminate the Subadvisory Agreement with respect to the Fund,
without penalty, on 90 days' written notice. In addition, the Subadvisory
Agreement will terminate automatically in the event of its assignment. The
Subadviser is a partnership controlled by Timothy A. Tacchi, who owns 67% of the
partnership's participation interests. The Subadviser is registered as an
investment adviser under the Investment Advisers Act of 1940 and is authorized
to conduct its investment business in the United Kingdom by the Investment
Management Regulatory Organization Limited (IMRO).
CUSTODIAN
As custodian of the Fund's assets, Firstar Trust Company, 615 East
Michigan Street, Milwaukee, Wisconsin 53202, has custody of all securities and
cash of the Funds, delivers and receives payment for securities sold, receives
and pays for securities purchased, collects income from investments, and
performs other duties, all as directed by the officers of the Trust.
DISTRIBUTOR
Shares of the Fund are distributed through First Data Distributor Inc.
(the "Distributor"), 4400 Computer Drive, Westborough, Massachusetts 01581, a
registered broker-dealer. Jacqui Brownfield, an employee of the Adviser and an
officer of the Trust, is a registered representative of the Distributor.
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TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their ages, their business
addresses and principal occupations during the past five years are as follows:
J. LUTHER KING, JR.*; 57; 301 Commerce Street, Fort Worth, Texas 76102;
Chairman of the Board of Trustees, President, Chief Executive Officer and
Manager of the Trust; President, Luther King Capital Management Corporation.
H. KIRK DOWNEY; 55; 2900 Lubbock Street, Fort Worth, Texas 76109;
Trustee of the Trust; Dean, M.J. Neeley School of Business, Texas Christian
University Business School.
EARLE A. SHIELDS, JR.; 77; 53 Westover Terrace, Fort Worth, Texas 76107;
Trustee of the Trust; Consultant; formerly Consultant for NASDAQ Corp. and Vice
President, Merrill Lynch & Co., Inc.
PAUL W. GREENWELL; 47; 301 Commerce Street, Fort Worth, Texas 76102;
Vice President of the Trust; Vice President, Luther King Capital Management.
JACQUI BROWNFIELD; 37; 301 Commerce Street, Fort Worth, Texas 76102;
Secretary and Treasurer of the Trust; Fund Administrator, Luther King Capital
Management.
* Trustee Mr. King is an "interested person" of the Trust (as defined in the
1940 Act), because of his affiliation with the Adviser.
Trustees other than those who are officers or affiliated with the
Adviser receive an annual fee of $8,000 plus a meeting fee of $1,000 for each
meeting attended and are reimbursed for expenses incurred in attending Board
meetings. Trustees who are also officers or affiliated persons receive no
remuneration for their services as Trustees. The Trust's officers and employees
are paid by the Adviser or the Administrator.
PRINCIPAL SHAREHOLDERS
As of the date of this Statement of Additional Information, the Adviser
is the sole shareholder of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Subadvisory Agreement authorizes the Subadviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund and directs the Subadviser to use its best efforts to
obtain the best execution with respect to all transactions for the Fund. As
permitted by Section 28(e) of the Securities Exchange Act of 1934, as amended,
the Subadviser may cause the Fund to pay higher commission rates than the lowest
available when the Subadviser believes it is reasonable to do so in light of the
value of the research services provided by the broker effecting the transaction.
These services, which in some cases may also be purchased for cash, include such
matters as general economic and security market reviews, industry and company
reviews, evaluations of securities and recommendations as to the purchase and
sale of securities. Some of these services are of value to the Subadviser in
advising various clients, including the Funds, although not all of these
services are necessarily useful and of value in managing the Funds.
It is not the Subadviser's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through intermediary
brokers or dealers. However, the Subadviser may place orders with qualified
broker-dealers who recommend the Funds or who act as agents in the purchase of
shares of the Funds for their clients.
Some securities considered for investment by the Fund may also be
appropriate for other clients served by the Subadviser. If purchases or sales of
securities consistent with the investment policies of the Funds and one or more
of these other clients serviced by the Subadviser is considered at or about the
same time, transactions in such securities will be allocated among the Funds and
clients in a manner deemed fair and reasonable by the Subadviser. Although there
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is no specified formula for allocating such transactions, the various allocation
methods used by the Subadviser, and the results of such allocations, are subject
to periodic review by the Board of Trustees.
The Subadviser manages the Funds without regard generally to
restrictions on Fund turnover. The use of futures contracts and other derivative
instruments with relatively short maturities may tend to exaggerate the Fund
turnover rate for the Fund. Trading in fixed-income securities does not
generally involve the payment of brokerage commissions, but does involve
indirect transaction costs. The use of futures contracts may involve the payment
of commissions to futures commission merchants. The higher the rate of Fund
turnover of a Fund, the higher these transaction costs borne by a Fund generally
will be.
The Fund turnover rate of a Fund is calculated by dividing (i) the
lesser of purchases or sales of securities for the particular fiscal year by
(ii) the monthly average of the value of the securities owned by the Fund during
the particular fiscal year. In calculating the rate of Fund turnover, there is
excluded from both (i) and (ii) all securities, including options, whose
maturities or expiration dates at the time of acquisition were one year or less.
Proceeds from short sales and assets used to cover short positions undertaken
are included in the amounts of securities sold and purchased, respectively,
during the year.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
PURCHASE OF SHARES
Certain managed account clients of the Adviser may purchase shares of
the Funds. To avoid the imposition of duplicative fees, the Adviser may be
required to make adjustments in the management fees charged separately by the
Adviser to these clients to offset the generally higher level of management fees
and expenses resulting from a client's investment in a Fund.
Certain clients of the Adviser may, subject to the approval of the
Trust, purchase shares of the Funds with liquid securities that are eligible for
purchase by a Fund (consistent with the Fund's investment policies and
restrictions) and that have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
American Stock Exchange, the New York Stock Exchange, or The Nasdaq Stock
Market. These transactions will be effected only if the Adviser intends to
retain the security in the Funds as an investment. Assets so purchased by the
Funds will be valued in generally the same manner as they would be valued for
purposes of pricing a Fund's shares, if such assets were included in the Fund's
assets at the time of purchase.
Shares of the Fund are not qualified or registered for sale in all
states. Shares of the Funds may not be offered or sold in any state unless
registered or qualified in the jurisdiction unless an exemption from
registration or qualification is available.
The Trust reserves the right in its sole discretion (i) to suspend the
offering of Fund shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, (iii) to reduce
or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Fund's shares. The officers of
the Trust may from time to time waive the minimum initial and subsequent
investment requirements in connection with investments in a Fund by employees of
the Adviser.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange (the "Exchange")
is closed, or trading on the Exchange is restricted as determined by the SEC,
(ii) during any period when an emergency exists as defined by the rules of the
SEC as a result of which it is not reasonably practicable for a Fund to dispose
of securities owned by it, or fairly to determine the value of its assets, and
(iii) for such other periods as the SEC may permit.
The Trust has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the
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beginning of such period. Such commitment is irrevocable without the prior
approval of the SEC. Redemptions in excess of the above limits may be paid in
whole or in part in investment securities or in cash, as the Trustees may deem
advisable; however, payment will be made wholly in cash unless the Trustees
believe that economic or market conditions exist which would make such a
practice detrimental to the best interests of the Fund. If redemptions are paid
in investment securities the redeeming shareholders might incur brokerage
expenses if they converted these securities to cash. Securities used to make
such "in-kind" redemptions will be readily marketable. The method of valuing
such securities will be the same as the method of valuing Fund securities
described in the Prospectus under "Valuation of Shares," and such valuation will
be made as of the same time the redemption price is determined.
Due to the relatively high cost of maintaining smaller accounts, the
Trust reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the investor) if at any time, due to
shareholder redemption, the shares in the account do not have a value of at
least $1,000. Investors will be notified that the value of their account is less
than the minimum and allowed at least 30 days to bring the value of the account
up to at least the minimum before the redemption is processed. The Declaration
of Trust also authorizes the Trust to redeem shares under certain other
circumstances as may be specified by the Board of Trustees.
No fee is charged by the Trust for redemptions. Redemption proceeds may
be more or less than the shareholder's cost depending on the market value of the
securities held by a Fund.
PRICING OF SHARES
The Fund's net asset value per share for the purpose of pricing purchase
and redemption orders is determined as described in the Prospectus. Net asset
value will not be determined on the following holidays: New Year's Day, Martin
Luther King's Birthday, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES
GENERAL
It is the Fund's policy to distribute all of its net investment income,
if any, together with any net realized capital gains in the amount and at the
times that will avoid federal income tax on it and the imposition of the federal
excise tax on certain undistributed income and capital gain.
To avoid federal income tax on income and gains that are distributed,
the Fund must qualify for the special tax treatment afforded a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended.
To qualify for that treatment, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains,
and net gains from certain foreign currency transactions) and must meet several
additional requirements. These requirements include the following: (1) the Fund
must derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including gains from options, futures, and Forward Contracts) derived with
respect to its business of investing in securities or those currencies; and (2)
at the close of each quarter of the Fund's taxable year, (i) at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs, and other securities, with
these other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's voting securities, and (ii) not more
than 25% of the value of its total assets may be invested in securities (other
than U.S. Government securities or the securities of other RICs) of any one
issuer.
Any use of hedging strategies, such as writing (selling) and purchasing
options and futures and entering into Forward Contracts, involves complex rules
that will determine for income tax purposes the amount, character, and timing of
recognition of the gains and losses it realizes in connection therewith.
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The Fund also intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of federal excise tax.
Undistributed net investment income and net realized gains are included
in the Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-distribution" date, the net asset value per share
excludes the distribution (i.e., is reduced by the per share amount of the
distribution). Dividends and other distributions paid shortly after the purchase
of shares by an investor, although in effect a return of capital, are taxable to
the investor.
As stated in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and other distributions are automatically paid in
additional Fund shares at net asset value (as of the business day following the
record date). This will remain in effect until the Fund is notified by the
shareholder in writing at least three days prior to the record date that either
the Income Option (income dividends in cash and other distributions in
additional shares at net asset value) or the Cash Option (both income dividends
and other distributions in cash) has been elected. An account statement is sent
to shareholders whenever an income dividend or other distribution is paid.
TAXES - INVESTMENTS IN FOREIGN SECURITIES
Dividends and interest received by the Fund, and gains realized thereby,
may be subject to income, withholding, or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of the Fund's total assets
at the close of any taxable year consists of securities of foreign corporations,
it will be eligible to, and may, file an election with the Internal Revenue
Service that will enable its shareholders, in effect, to receive the benefit of
the foreign tax credit with respect to any foreign taxes paid by it. Pursuant to
any such election, the Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by the shareholder, the shareholder's proportionate
share of those taxes, (2) treat the shareholder's share of those taxes and of
any dividend paid by the Fund that represents income from foreign or U.S.
possessions sources as the shareholder's own income from those sources, and (3)
either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's federal income tax.
The Fund will report to its shareholders shortly after each taxable year their
respective shares of its income from sources within, and taxes paid to, foreign
countries and U.S. possessions if it makes this election. Pursuant to the
Taxpayer Relief Act of 1997, individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and have no foreign sources non-passive income will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that otherwise
is required.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (I.E., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which the Fund is a U.S. shareholder -- that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, the
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on the disposition
of the stock (collectively "PFIC income"), plus interest thereon, even if the
Fund distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. If the Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of
the foregoing tax and interest obligation, the Fund would be required to include
in income each year its PRO RATA share of the QEF's annual ordinary earnings and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which probably would have to be distributed by the Fund to its
B-17
<PAGE>
shareholders -- even if those earnings and gain were not distributed to the Fund
by the QEF. In most instances it will be very difficult, if not impossible, to
make this election because of certain requirements thereof.
The Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the PFIC's stock
over the Fund's adjusted basis therein as of the end of that year. Pursuant to
the election, the Fund also would be allowed to deduct (as an ordinary, not
capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the
fair market value thereof as of the taxable year-end, but only to the extent of
any net mark-to-market gains with respect to that stock included by the Fund for
prior taxable years. The Fund's adjusted basis in each PFIC's stock with respect
to which it makes this election will be adjusted to reflect the amounts of
income included and deductions taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) on
the disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends, or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time it actually
collects the receivables or pays the liabilities, generally are treated as
ordinary income or loss. These gains or losses may increase or decrease the
amount of investment company taxable income available to the Fund for
distribution to its shareholders.
PERFORMANCE INFORMATION
TOTAL RETURN
Average annual total return quotations used in the Fund's advertising
and promotional materials are calculated according to the following formula:
n
P(1+T) = ERV
where P equals a hypothetical initial payment of $1,000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1,000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.
OTHER INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount.
COMPARISON OF FUND PERFORMANCE
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc.,
the Donoghue Organization, Inc. or other independent services which monitor the
performance of investment companies, and may be quoted in advertising in terms
of its ranking in each applicable universe. In addition, the Funds may use
performance data reported in financial and industry publications, including
Barron's, Business Week, Forbes, Fortune, Investor's Daily, IBC/Donoghue's Money
Fund Report, Money Magazine, The Wall Street Journal and USA Today.
B-18
<PAGE>
The Fund may from time to time use various unmanaged indices for
performance comparison purposes, including the following indices:
S&P 500--The S&P 500 is a Fund of 500 stocks designed to mimic the
overall equity market's industry weightings. Most, but not all, large
capitalization stocks are in the index. There are also some small capitalization
names in the index. The list is maintained by Standard & Poor's Corporation. It
is market capitalization weighted. There are always 500 issuers in the S&P 500.
Changes are made by Standard & Poor's as needed.
EAFE Index--The EAFE Index is an unmanaged index representing the market
value weighted price of stocks of approximately 1100 companies screened for
liquidity, cross-ownership and industry representation and listed on major stock
exchanges in Europe, Australasia and the Far East. The Index is compiled by
Morgan Stanley Capital International.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund is a series of LKCM Funds, which was established under Delaware
law by a Declaration of Trust dated February 10, 1994. Prior to December __,
1997, the name of the Trust was LKCM Fund. The Trust's Declaration of Trust
permits the Trustees to issue an unlimited number of shares of beneficial
interest, without par value, from an unlimited number of series ("Funds") of
shares. Currently, the Trust offers five series. Pursuant to the Declaration of
Trust, the Trustees may also authorize the creation of additional series of
shares (the proceeds of which would be invested in separate, independently
managed Funds with distinct investment objectives and policies and share
purchase, redemption and net asset valuation procedures) with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. All consideration received by the Trust for shares of any additional
series, and all assets in which such consideration is invested, would belong to
that series and would be subject to the liabilities related thereto.
The Trustees, in their discretion, may authorize the division of shares
of the Funds into different classes permitting shares of different classes to be
distributed by different methods. Although shareholders of different classes
would have an interest in the same Fund of assets, shareholders of different
classes may bear different expenses in connection with different methods of
distribution. The Trustees have no present intention of taking the action
necessary to effect the division of shares into separate classes nor of changing
the method of distribution of shares of the Funds.
When issued, the shares of the Funds are fully paid and non-assessable,
have no preemptive or subscription rights and are fully transferable. There are
no conversion rights. The shares of the Funds have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Trustees can elect 100% of the Trustees if they choose to do so. A
shareholder is entitled to one vote for each full share held (and a fractional
vote for each fractional share held), then standing in his name on the books of
a Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees, but this disclaimer may not be effective
in some jurisdictions or as to certain types of claims. The Declaration of Trust
further provides for indemnification out of the Trust's property of any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Trust and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
B-19
<PAGE>
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
office.
AUDITORS
Deloitte & Touche LLP, 411 East Wisconsin Avenue, Milwaukee, Wisconsin,
serves as the Trust's independent auditors, whose services include examination
of the Trust' financial statements and the performance of other related audit
and tax services.
CODE OF ETHICS
The Trust has adopted a Code of Ethics which restricts to a certain
extent personal transactions by access persons of the Trust and imposes certain
disclosure and reporting obligations.
B-20
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements for LKCM International Fund:
1. None.
(b) Exhibits
1. Agreement and Declaration of Trust.*
2. By-Laws.*
3. None.
4. To be filed by subsequent amendment.
5. (a) Investment Advisory Agreement dated June 21, 1994.*
(b) Fee Schedule to the Investment Advisory Agreement Between
LKCM Funds and Luther King Capital Management Corporation
for the Small Cap Equity Fund dated June 21, 1994.*
(c) Fee Schedule to the Investment Advisory Agreement Between
LKCM Funds and Luther King Capital Management Corporation
for the LKCM Equity Fund dated December 5, 1995.*
(d) Form of Fee Schedule to the Investment Advisory Agreement
Between LKCM Funds and Luther King Capital Management
Corporation for the LKCM Fixed Income Fund.*
(e) Form of Fee Schedule to the Investment Advisory Agreement
Between LKCM Funds and Luther King Capital Management
Corporation for the LKCM Balanced Fund.*
(f) Form of Fee Schedule to the Subadvisory Agreement Between
Luther King Capital Management Corporation and TT
International Investment Management for the LKCM
International Fund. To be filed by subsequent amendment.
6. (a) Distribution Agreement between LKCM Funds and First Data
Distributors, Inc. dated September 1, 1997.*
(b) Consulting Agreement between Luther King Capital
Management and First Data Distributors, Inc. dated
September 1, 1997.*
7. None.
8. (a) Custodian Servicing Agreement between LKCM Funds and
Firstar Trust Company dated July 10, 1997.*
(b) Form of Letter Agreement with respect to the Custodian
Servicing Agreement with respect to the LKCM Fixed Income
Fund and LKCM Balanced Fund.*
(a)(i) Fund Administration Servicing Agreement between LKCM
Funds and Firstar Trust Company dated July 10, 1997.*
(a)(ii) Form of Letter Agreement with respect to the Fund
Administration Servicing Agreement with respect to the
LKCM Fixed Income Fund and LKCM Balanced Fund.*
(b)(i) Fund Accounting Servicing Agreement between LKCM Funds
and Firstar Trust Company dated July 10, 1997.*
<PAGE>
(b)(ii) Form of Letter Agreement with respect to the Fund
Accounting Servicing Agreement with respect to the LKCM
Fixed Income Fund and LKCM Balanced Fund.*
(c)(i) Transfer Agent Servicing Agreement between LKCM Funds and
Firstar Trust Company dated July 10, 1997.*
(c)(ii) Form of Letter Agreement with respect to the Transfer
Agent Servicing Agreement with respect to the LKCM Fixed
Income Fund and LKCM Balanced Fund.*
10. (a) Opinion of Stradley Ronon Stevens & Young dated June 2,
1994.*
(b) Opinion of Kirkpatrick & Lockhart, LLP dated February
21,1997 with respect to the LKCM Equity Portfolio and
LKCM Small Cap Equity Portfolio is incorporated by
reference to the Registrant's 24f-2 Notice filed on or
about February 28, 1997.
11. Consent of Deloitte & Touche, LLP.*
12. None.
13. Purchase Agreement dated June 6, 1994.*
14. None.
15. LKCM Fund Distribution Plan.*
16. To be filed by subsequent amendment.
17. None.
18. None.
* Incorporated by reference from Post-Effective Amendment No. 6 to the
Registration Statement of the Trust, SEC File No. 33-75116, filed previously by
EDGAR on Oct. 14, 1997, Accession No. 0000891804-97-000346.
ITEM 25. Persons controlled by or Under Common Control With Registrant.
--------------------------------------------------------------
Registrant is not controlled by or under common control with any person.
ITEM 26. Number of Holders of Securities
-------------------------------
TITLE OF CLASS OR SERIES NUMBER OF RECORD HOLDERS
- ------------------------ SEPTEMBER 30, 1997
------------------
LKCM Small Cap Equity Fund 807
LKCM Equity Fund 101
LKCM Balanced Fund 0
LKCM Fixed Income Fund 0
LKCM International Fund 0
ITEM 27. Indemnification
---------------
Reference is made to Article VI of the Registrant's Declaration of Trust,
incorporated by reference as Exhibit 1 hereto. Registrant hereby also makes the
undertaking consistent with Rule 484 under the Securities Act of 1933, as
amended.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
C-2
<PAGE>
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. Business and Other Connections of Investment Advisers
-----------------------------------------------------
Reference is made to the captions "Investment Adviser" and "Investment
Subadviser" in the Prospectuses constituting Part A of this Registration
Statement and in Part B of this Registration Statement. The information required
by this Item 28 with respect to Luther King Capital Management Corporation
("LKCM") is incorporated by reference to the Form ADV filed by LKCM with the
Securities and Exchange Commission ("SEC") (File No. 801-14458). The information
required by this Item 28 with respect TT International Investment Management
("TTI") is incorporated by reference to the Form ADV filed by TTI with the SEC
(File No. 801-45435).
ITEM 29. Principal Underwriters
----------------------
(a) First Data Distributor, Inc., is the general distributor of the
Registrant's shares.
(b) The information contained in the registration on Form BD of Funds
Distributor, Inc., filed under the Securities Exchange Act of 1934, is
incorporated herein by reference.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
--------------------------------
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act of 1940, as amended, and the rules promulgated thereunder
will be maintained at the offices of:
Luther King Capital Management Corporation
310 Commerce Street, Suite 1600
Fort Worth, Texas 76102
(records relating to its function as investment adviser)
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202
(records relating to its function as custodian,
administrator, transfer agent and dividend disbursing agent)
TT International Investment Management
Martin House, 2nd Floor
5 Martin Lane
London, England EC4 ODP
(records relating to its function as investment subadviser)
ITEM 31. Management Services
-------------------
Not applicable.
ITEM 32. Undertakings
- -------- ------------
(a) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(b) Registrant hereby undertakes to file a post-effective amendment with
respect to the LKCM International Fund using financial statements which
need not be certified, within four to six months from the effective date
of this Post-Effective Amendment No. 7 to Registrant's 1933 Act
registration statement.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Worth
and State of Texas on the 31st day of October, 1997.
/s/ Luther King, Jr.
By: _____________________________________
Luther King, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7 to the Registration Statement of the Registrant has been signed
below by the following persons in the capacities and on the date(s) indicated.
Name Title Date
---- ----- ----
/s/ Luther King, Jr.
- ------------------------ Trustee, President and October 31, 1997
J. Luther King, Jr. Chief Executive Officer
/s/H. Kirk Downey
- ------------------------ Trustee October 31, 1997
H. Kirk Downey
/s/Earle A. Shields, Jr.
- ------------------------ Trustee October 31, 1997
Earle A. Shields, Jr.
/s/Jacqui Brownfield
- ------------------------ Treasurer and Secretary October 31, 1997
Jacqui Brownfield
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
1 Agreement and Declaration of Trust*
2 By-Laws*
3 None
4 To be filed by subsequent amendment
5.1 Investment Advisory Agreement dated June 21, 1994*
5.2 Fee Schedule to the Investment Advisory Agreement Between
LKCM Funds and Luther King Capital Management Corporation
for the Small Cap Equity Fund dated June 21, 1994*
5.3 Fee Schedule to the Investment Advisory Agreement Between LKCM Funds
and Luther King Capital Management Corporation for the LKCM Equity Fund
dated December 5, 1995*
5.4 Form of Fee Schedule to the Investment Advisory Agreement Between LKCM
Funds and Luther King Capital Management Corporation for the LKCM Fixed
Income Fund*
5.5 Form of Fee Schedule to the Investment Advisory Agreement Between LKCM Funds and
Luther King Capital Management Corporation for the LKCM Balanced Fund*
5.6 Form of Fee Schedule to the Subadvisory Agreement Between
Luther King Capital Management Corporation and TT
International Management for the LKCM International Fund.
(To be filed by subsequent amendment.)
6.1 Distribution Agreement between LKCM Funds and First Data Distributors,
Inc. dated September 1, 1997*
6.2 Consulting Agreement between Luther King Capital Management and First
Data Distributors, Inc. dated September 1, 1997*
7 None
8.1 Custodian Servicing Agreement between LKCM Funds and Firstar
Trust Company dated July 10, 1997*
8.2 Form of Letter Agreement with respect to the Custodian Servicing
Agreement with respect to the LKCM Fixed Income Fund and LKCM Balanced
Fund*
9.1A Fund Administration Servicing Agreement between LKCM Funds and Firstar
Trust Company dated July 10, 1997*
9.1B Form of Letter Agreement with respect to the Fund
Administration Servicing Agreement with respect to the
LKCM Fixed Income Fund and LKCM Balanced Fund*
9.2A Fund Accounting Servicing Agreement between LKCM Funds and Firstar
Trust Company dated July 10, 1997*
9.2B Form of Letter Agreement with respect to the Fund
Accounting Servicing Agreement with respect to the LKCM
Fixed Income Fund and LKCM Balanced Fund*
9.3A Transfer Agent Servicing Agreement between LKCM Funds and Firstar
Trust Company dated July 10, 1997*
9.3B Form of Letter Agreement with respect to the Transfer
Agent Servicing Agreement with respect to the LKCM Fixed
Income Fund and LKCM Balanced Fund*
<PAGE>
10.1 Opinion of Stradley Ronon Stevens & Young dated June 2, 1994*
10.2 Opinion of Kirkpatrick & Lockhart, LLP dated February 21,
1997 with respect to the LKCM Equity Portfolio and LKCM
Small Cap Equity Portfolio is incorporated by reference to
the Registrant's 24f-2 Notice filed on or about February
28, 1997.
11 Consent of Deloitte & Touche, LLP*
12 None
13 Purchase Agreement dated June 6, 1994*
14 None
15 LKCM Fund Distribution Plan*
16 To be filed by subsequent amendment
17 None
18 None
</TABLE>
* Incorporated by reference from Post-Effective Amendment No. 6 to the
Registration Statement of the Trust, SEC File No. 33-75116, filed previously by
EDGAR on Oct. 14, 1997, Accession No. 0000891804-97-000346.
