<PAGE>
- -------------------------------------------------------------------------------
LKCM FUND
P.O. BOX 2798
BOSTON, MA 02208-2798
- -------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
J. Luther King, Jr. Jacqui Brownfield
Chairman of the Board, Secretary & Treasurer
President
John M. Corcoran
Paul W. Greenwell Assistant Treasurer
Vice President
Karl O. Hartmann
H. Kirk Downey Assistant Secretary
Trustee
Helen A. Robichaud
Earle A. Shields, Jr. Assistant Secretary
Trustee
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
Luther King Capital Management Corp.
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
- -------------------------------------------------------------------------------
ADMINISTRATOR
Chase Global Funds Services Company
73 Tremont Street Boston, MA 02108-3913
- -------------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
770 Broadway New York, NY 10003-9598
- -------------------------------------------------------------------------------
LEGAL COUNSEL
Gardere & Wynne
3000 Thanksgiving Tower Dallas, TX 75201
Kirkpatrick & Lockhart
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
- -------------------------------------------------------------------------------
DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300 Boston, MA 02109
- -------------------------------------------------------------------------------
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
- -------------------------------------------------------------------------------
LKCM FUND
- -------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
LKCM FUND
---------------------
---------------------
DEAR FELLOW SHAREHOLDER:
We are pleased to report the following performance information for the LKCM
portfolios:
<TABLE>
<CAPTION>
ONE AVERAGE RUSSELL 2000 S&P 500
YEAR ANNUAL ONE YEAR ONE YEAR
TOTAL TOTAL TOTAL TOTAL
NET ASSET RETURN RETURN RETURN RETURN
INCEPTION VALUE AT ENDED SINCE ENDED ENDED
PORTFOLIOS DATES 12/31/96 12/31/96* INCEPTION 12/31/96 12/31/96*
- ---------- --------- --------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
LKCM Small Cap
Equity 7/14/94 $16.20 25.67% 25.10% 16.55% 22.96%
LKCM Equity 1/3/96 $11.70 17.00% N/A N/A 22.01%
</TABLE>
- --------
* LKCM Equity and its Benchmark total returns are measured since the inception
date of January 3, 1996.
After an extraordinary advance in 1995, the stock market, once again, posted
exceptional gains in 1996. The year witnessed an increased level of
volatility, however stock prices proved resilient, as the S&P 500 posted gains
in all but two months. That resiliency was especially impressive in the year's
first half as stock prices climbed higher despite rising interest rates.
Indeed, the first half established the platform for stocks to propel
dramatically higher, after a brief mid-year correction, as the strong earnings
that characterized the entire year were fueled by falling interest rates. Of
course, stock prices also benefited from a positive supply/demand dynamic
driven by enormous cash flows into equity mutual funds and active share
repurchase programs by many corporations. In 1996, merger and acquisition
activity rose to the highest level in history and acted as another catalyst
that pushed stocks to record highs. In fact, both LKCM portfolios benefited
from consolidation activity.
The LKCM Small Cap Equity Portfolio, despite a year in which the market
favored stocks of large companies, continued to demonstrate strong and steady,
yet exciting, performance. The Portfolio's return exceeded that of both the
benchmark Russell 2000 and the S&P 500. The investment selection process,
which emphasizes identifying companies, at a fair price, that can sustain
above-average profitability, continued to add significant value to the
management of the Portfolio. Among the most successful of the Portfolio's
investments were those companies, originally discovered through broad industry
knowledge, that serve a very narrow and specific niche within a given
industry. Additionally, the stocks of several good companies that were
previously out-of-favor gained recognition on Wall Street and were re-valued
as growth stocks. Among specific industry concentrations, real estate
investment trusts were big winners as yield-seeking investors fled electric
utilities. As of year-end, important sector concentrations included a wide
variety of Consumer & Commercial Services (8%), Manufacturing (9%), the Energy
sector (14%), and Financial Services (14%). The total net assets of the
Portfolio as of December 31, 1996 were $199,087,887 of which $184,976,282
(93%) were invested in common and preferred stocks with the balance held in
cash reserves.
The LKCM Equity Portfolio, which was funded on January 3 of 1996, trailed
the benchmark S&P 500 as heavy cash balances early in the year dragged on
robust equity returns. The Portfolio is comprised of high quality medium and
large company stocks and is well diversified across industries. The Portfolio
especially benefited from positions in a number of companies focused on
restructuring their current operations. Also important were companies that
generated large amounts of free cash flow which was used to aggressively
repurchase shares. The Portfolio's conservative exposure to the higher growth,
large technology companies diluted performance relative to the overall market.
As of year end, the Portfolio's largest industry positions included Health
Care
1
<PAGE>
(12%), Energy (15%), and Beverage & Personal Products (12%). As of December
31, 1996, the total net assets of the Portfolio were $34,607,888 of which
$33,005,825 (95%) were invested in common stocks with the balance held in cash
reserves.
After several years of strong corporate profits, earnings expectations for
1997 are likely to be too optimistic. As a result, the market could be
expected to suffer some earnings-related set backs during the new year.
However, the drivers underpinning the positive aspects of strong mutual fund
cash flows, heavy share repurchase activity, and active industry consolidation
are intact and should provide support to the market in the short-term and bode
well for its long-term outlook. Throughout 1996, large-cap growth stocks
dominated the ranks of the top performers as valuation considerations were
swept aside in favor of consistency. As 1997 dawns, investors are likely to
continue to favor high-quality stocks as long as any concern about the
sustainability of earnings exists. On the small-cap front, attractive
valuations, compelling growth opportunities, and a stronger dollar could lead
to a broadening in small stock performance. We believe both Portfolios are
well positioned, at the start of 1997, to capitalize on the aforementioned
trends. The team of experienced investment professionals at LKCM looks forward
to meeting the challenges of a changing investment landscape as it unfolds
throughout the year.
Regards,
/s/ Luther King
J. Luther King, Jr., CFA
January 15, 1997
2
<PAGE>
PERFORMANCE COMPARISON
- -------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000
PURCHASE IN THE LKCM SMALL CAP EQUITY PORTFOLIO
AND THE STANDARD & POOR'S 500 (S&P 500) AND RUSSELL 2000 INDICES.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN ONE YEAR ENDED SINCE
FOR PERIOD ENDED DECEMBER 31, 1996 DECEMBER 31, 1996 JULY 14, 1994*
- ------------------------------------------------------------------------------
<S> <C> <C>
LKCM SMALL CAP EQUITY PORTFOLIO** 25.67% 25.10%
- ------------------------------------------------------------------------------
S&P 500 INDEX 22.96% 25.67%
- ------------------------------------------------------------------------------
RUSSELL 2000 INDEX 16.55% 17.84%
- ------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
LKCM SMALL CAP S&P 500 RUSSELL 2000
EQUITY PORTFOLIO INDEX+ INDEX+
---------------- ------- ------------
<S> <C> <C> <C>
7/14/94 10,000 10,000 10,000
4/30/95 11,480 11,722 10,926
6/30/95 12,170 12,472 11,642
12/31/95 13,840 14,257 12,970
6/30/96 16,158 15,697 14,332
12/31/96 17,393 17,530 15,117
</TABLE>
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate.
When shares are redeemed, they may be worth more or less than the original
cost.
* Commencement of Operations.
** Total return reflects expenses waived and reimbursed by the Adviser.
Without such waivers or reimbursement, total return would be lower.
+ The comparative indices are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the Portfolio's performance.
Definition of the Comparative Indices
-------------------------------------
The S&P 500 Index is an unmanaged index of 500 stocks designed to mimic the
overall equity market's industry weightings. Most, but not all, large
capitalization stocks are in the Index.
The Russell 2000 Index is an unmanaged index consisting of the 2,000 smallest
of the 3,000 largest stocks. Market capitalization is typically between $57
million and $610 million.
Please note that one can not invest in an unmanaged index.
3
<PAGE>
Performance Comparison
- --------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000
PURCHASE IN THE LKCM EQUITY PORTFOLIO
AND THE STANDARD & POOR'S 500 (S&P 500) INDEX
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN SINCE
FOR PERIOD ENDED DECEMBER 31, 1996 JANUARY 3, 1996*
- -----------------------------------------------------------------------
<S> <C>
LKCM EQUITY PORTFOLIO** 17.00%
- -----------------------------------------------------------------------
S&P 500 INDEX 22.01%
- -----------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
LKCM EQUITY PORTFOLIO S&P 500 INDEX+
--------------------- --------------
<S> <C> <C>
1/3/96 10,000 10,000
6/30/96 10,800 10,924
12/31/96 11,700 12,201
</TABLE>
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate.
When shares are redeemed, they may be worth more or less than the original
cost.
* Commencement of Operations.
** Total return reflects expenses waived and reimbursed by the Adviser. Without
such waivers or reimbursement, total return would be lower.
+ The comparative indices are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the Portfolio's performance.
Definition of the Comparative Indices
-------------------------------------
The S&P 500 Index is an unmanaged index of 500 stocks designed to mimic the
overall equity market's industry weightings. Most, but not all, large
capitalization stocks are in the Index.
Please note that one can not invest in an unmanaged index.
4
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (92.6%)
- --------------------------------------------------------------------------------
BASIC RESOURCES (6.0%)
Lawter International, Inc............................... 127,000 $ 1,603,375
Longview Fibre Co. ..................................... 160,000 2,940,000
Mississippi Chemical Corp............................... 110,000 2,640,000
Reliance Steel & Aluminum Co............................ 50,000 1,750,000
Sante FE Pacific Gold Corp. ............................ 50,000 768,750
* Titanium Metals Corp................................... 70,000 2,301,250
------------
12,003,375
------------
- --------------------------------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (0.9%)
* Carson, Inc. .......................................... 75,000 1,040,625
* Twinlab Corp. ......................................... 60,000 727,500
------------
1,768,125
------------
- --------------------------------------------------------------------------------
CONSUMER & COMMERCIAL SERVICES (7.8%)
Boykin Lodging Co....................................... 77,000 1,848,000
* CapStar Hotel Co....................................... 75,000 1,471,875
* Caribiner International, Inc........................... 15,000 753,750
* Carmike Cinemas, Inc., Class A......................... 91,700 2,326,888
* Kent Electronics Corp.................................. 115,300 2,968,975
La Quinta Motor Inns, Inc. ............................. 100,000 1,912,500
* Romac International, Inc............................... 46,000 1,012,000
Starwood Lodging Trust.................................. 50,000 2,756,250
U.S. Franchise Systems, Inc............................. 40,000 405,000
------------
15,455,238
------------
- --------------------------------------------------------------------------------
CONSUMER DURABLES (3.9%)
Centex Corp. ........................................... 50,000 1,881,250
* Cross-Continent Auto Retailers, Inc. .................. 15,000 313,125
* Dal-Tile International, Inc............................ 86,000 1,752,250
* Kevco, Inc............................................. 50,300 704,200
Lawson Products, Inc.................................... 78,500 1,717,188
TJ International, Inc................................... 61,000 1,418,250
------------
7,786,263
------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
ENERGY (14.0%)
* Brown (Tom), Inc. ..................................... 83,000 $ 1,732,625
* Cairn Energy USA, Inc.................................. 106,000 1,060,000
* Carbo Ceramics, Inc.................................... 40,000 840,000
* Diamond Offshore Drilling, Inc......................... 40,000 2,280,000
* Encal Energy Ltd....................................... 487,500 1,527,220
* HS Resources, Inc. .................................... 100,000 1,650,000
ICO, Inc. .............................................. 169,300 1,036,963
* Input/Output, Inc. .................................... 65,000 1,202,500
* Noble Affiliates, Inc.................................. 80,000 3,830,000
* Seacor Holdings, Inc................................... 8,000 504,000
* Seagull Energy Corp. .................................. 65,000 1,430,000
Snyder Oil Corp......................................... 80,600 1,400,425
* Titan Exploration, Inc. ............................... 70,500 846,000
Tidewater, Inc.......................................... 41,133 1,861,268
* Trico Marine Services, Inc. ........................... 50,000 2,400,000
Union Pacific Resources Group, Inc. .................... 50,000 1,462,500
* United Meridian Corp................................... 30,000 1,552,500
* Varco International, Inc............................... 32,000 740,000
* Weatherford Enterra, Inc............................... 20,000 600,000
------------
27,956,001
------------
- --------------------------------------------------------------------------------
ENVIRONMENT (2.0%)
Cuno Incorporated....................................... 70,000 1,041,250
* U.S. Filter Corp. ..................................... 90,000 2,857,500
------------
3,898,750
------------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (14.0%)
Arden Realty Group, Inc................................. 45,000 1,248,750
* Atlantic Gulf Communities Corp......................... 107,000 461,438
Bank United Corp., Class A.............................. 39,000 1,043,250
Brandywine Realty Trust................................. 56,100 1,093,950
* Capsure Holdings Corp.................................. 180,000 2,047,500
Chartwell Re Corp....................................... 80,400 2,150,700
Conseco, Inc............................................ 15,000 956,250
Crescent Real Estate Equities, Inc...................... 23,000 1,213,250
Cullen/Frost Bankers, Inc. ............................. 70,000 2,327,500
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--(CONTINUED)
* E*TRADE Group, Inc..................................... 20,000 $ 230,000
* Fairfield Communities, Inc............................. 30,000 742,500
First Colorado Bancorp, Inc............................. 120,000 2,040,000
First Victoria National Bank............................ 19,000 452,437
Gainsco, Inc............................................ 60,637 583,631
Klamath First Bancorp, Inc.............................. 100,000 1,575,000
Mercantile Bancorp...................................... 12,000 616,500
Prentiss Properties Trust............................... 75,000 1,875,000
Sterling Bancorp........................................ 100,000 1,475,000
* Symons International Group, Inc........................ 38,000 636,500
Terra Nova (Bermuda) Holdings Ltd., Class A............. 69,100 1,485,650
Texas Regional Bancshares Inc., Class A................. 100,000 3,400,000
Titan Holdings, Inc..................................... 15,000 247,500
------------
27,902,306
------------
- --------------------------------------------------------------------------------
FOOD, TOBACCO & OTHER (0.6%)
* Armanino Foods Of Distinct............................. 200,000 268,750
* Suiza Foods Corp....................................... 47,000 951,750
------------
1,220,500
------------
- --------------------------------------------------------------------------------
HEALTH CARE (10.8%)
Bard (C.R.), Inc........................................ 100,000 2,800,000
* Emcare Holdings, Inc................................... 91,200 2,120,400
Fisher Scientific International, Inc.................... 100,000 4,712,500
Kinetic Concepts, Inc................................... 115,000 1,408,750
* Magellan Health Services, Inc.......................... 30,000 671,250
* Maxxim Medical, Inc.................................... 120,000 1,500,000
* Patterson Dental Co.................................... 42,500 1,200,625
* Prime Medical Services, Inc............................ 60,000 652,500
* Scherer R.P. Corp...................................... 35,000 1,758,750
* Sybron International Corp.............................. 47,500 1,567,500
* TECNOL Medical Products, Inc........................... 169,100 2,557,638
Teva Pharmaceutical Industries Ltd...................... 5,000 251,250
* VOXEL.................................................. 100,000 337,500
------------
21,538,663
------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- -------------------------------------------------------------------------------
HEAVY INDUSTRY/ TRANSPORTATION (5.8%)
* AirNet Systems, Inc................................... 108,500 $ 1,600,375
* Covenant Transport, Inc., Class A..................... 90,000 1,293,750
* Genesee & Wyoming, Inc., Class A...................... 70,500 2,449,875
*/#/++ Railamerica, Inc. (Acquired 12/31/1996, cost
$1,687,500)............................................ 375,000 1,828,125
* Railtex, Inc.......................................... 103,700 2,618,425
* Swift Transportation Co., Inc......................... 75,000 1,762,500
------------
11,553,050
------------
- -------------------------------------------------------------------------------
MANUFACTURING (8.6%)
AGCO Corp.............................................. 10,000 286,250
Blount International, Inc.............................. 71,000 2,724,625
Chart Industries, Inc.................................. 50,000 856,250
ESCO Electronics Corp.................................. 67,000 670,000
* Figgie International, Inc., Class A................... 105,000 1,260,000
* Foamex International, Inc............................. 70,000 1,155,000
Keystone International, Inc............................ 60,000 1,207,500
* Kirby Corp............................................ 280,000 5,530,000
Lindsay Manufacturing Co............................... 58,000 2,711,500
* UNC, Inc.............................................. 60,000 720,000
------------
17,121,125
------------
- -------------------------------------------------------------------------------
RETAIL (9.6%)
* Borders Group, Inc.................................... 70,000 2,511,250
CML Group, Inc......................................... 200,000 675,000
* Cameron Ashley Building Products...................... 151,000 2,114,000
* Coleman Co., Inc...................................... 140,000 1,925,000
Justin Industries, Inc................................. 218,300 2,510,450
* Noodle Kidoodle, Inc.................................. 100,000 512,500
O'Sullivan Industries Holdings......................... 45,000 630,000
Pier 1 Imports, Inc.................................... 70,000 1,233,750
* Play By Play Toys & Novelties, Inc.................... 101,500 1,218,000
* Proffitt's Inc........................................ 20,000 737,497
* Taco Cabana, Class A.................................. 174,100 1,283,988
* Tractor Supply Co..................................... 90,500 1,866,563
* Tuesday Morning Corp.................................. 90,000 1,923,750
------------
19,141,748
------------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
PUBLISHING & BROADCASTING (3.6%)
Belo (A.H.) Corp., Class A.............................. 50,000 $ 1,743,750
* Chancellor Broadcasting Corp., Class A................. 40,000 950,000
* Granite Broadcasting Corp. ............................ 70,000 743,750
* Heftel Broadcasting Corp. ............................. 63,800 2,009,700
* Heritage Media Corp.................................... 98,000 1,102,500
* Saga Communication, Inc., Class A...................... 34,375 670,313
------------
7,220,013
------------
- --------------------------------------------------------------------------------
TECHNOLOGY (4.3%)
* Arch Communications Group, Inc......................... 20,000 187,500
* BBN Corp............................................... 40,000 900,000
* Black Box Corp......................................... 20,000 825,000
Cascade Communications Corp. ........................... 5,000 275,625
* Computer Products, Inc................................. 20,000 390,000
Dallas Semiconductor.................................... 47,000 1,081,000
* Intellicall, Inc....................................... 100,000 575,000
* Interphase Corp........................................ 48,500 485,000
* Objective Systems Integrators, Inc. ................... 25,000 596,875
* Physican Computer Network, Inc. ....................... 115,000 977,500
* Rational Software Corp................................. 20,000 791,250
* Segue Software Inc. ................................... 17,500 319,375
* Tekelec................................................ 70,000 1,102,500
------------
8,506,625
------------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (0.7%)
* PageMart Wireless, Inc., Class A....................... 110,000 728,750
* Paging Network, Inc.................................... 13,000 198,250
* Pronet, Inc............................................ 100,000 437,500
------------
1,364,500
------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $150,709,716).................. 184,436,282
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.3%)
- --------------------------------------------------------------------------------
ENTERTAINMENT (0.3%)
AMC Entertainment, Inc., $1.75 (COST $746,638).......... 20,000 540,000
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE+
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT (7.2%)
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.95%, dated 12/31/96, due
1/2/97, to be repurchased at $14,341,674
collateralized by $13,700,000 U.S. Treasury Bond
7.25%, due 5/15/16, valued at $14,337,000.
(COST $14,337,000)................................. $14,337,000 $ 14,337,000
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%) (COST $165,793,354)...... 199,313,282
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.1%)
- -------------------------------------------------------------------------------
Cash............................................................ 979
Dividends Receivable............................................ 203,225
Receivable for Investments Sold................................. 27,934
Interest Receivable............................................. 2,370
Other Assets.................................................... 35,062
Payable for Investment Advisory Fees............................ (364,278)
Payable for Investments Purchased............................... (60,810)
Payable for Administrative Fees................................. (27,165)
Payable for Trustees' Fees...................................... (530)
Other Liabilities............................................... (42,182)
------------
(225,395)
- -------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 12,289,204 outstanding shares of beneficial in-
terest (unlimited authorization, no par value)................. $199,087,887
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE.. $ 16.20
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
+ See Note A to Financial Statements.
++ The Portfolio owns 5% or more of this company's outstanding voting
securities (Note G).
* Non-Income Producing Security.
# Restricted security--total market value of restricted securities owned at
December 31, 1996 was $1,828,125 or 0.9% of the net assets.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.4%)
- --------------------------------------------------------------------------------
BASIC RESOURCES (6.2%)
Du Pont (E.I.) De Nemours & Co............................ 8,000 $ 755,000
Morton International, Inc. ............................... 15,000 611,250
Willamette Industries, Inc................................ 11,000 765,875
-----------
2,132,125
-----------
- --------------------------------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (12.1%)
Colgate-Palmolive Co...................................... 8,500 784,125
Eastman Kodak Co. ........................................ 8,500 682,125
Estee Lauder Cos., Class A................................ 10,000 508,750
Kimberly Clark Corp....................................... 8,500 809,625
PepsiCo, Inc.............................................. 22,000 643,500
Tupperware Corp........................................... 14,000 750,750
-----------
4,178,875
-----------
- --------------------------------------------------------------------------------
CONSUMER & COMMERCIAL SERVICES (5.4%)
Manpower, Inc............................................. 20,000 650,000
National Service Industries, Inc.......................... 18,000 672,750
* Univision Communications Inc., Class A................... 15,000 555,000
-----------
1,877,750
-----------
- --------------------------------------------------------------------------------
CONSUMER DURABLES (4.4%)
General Electric Co....................................... 8,000 791,000
Sherwin-Williams Co. ..................................... 13,000 728,000
-----------
1,519,000
-----------
- --------------------------------------------------------------------------------
ENERGY (14.7%)
Amoco Corp................................................ 9,000 724,500
Burlington Resources, Inc................................. 10,000 503,750
Exxon Corp. .............................................. 8,000 784,000
Mobil Corp................................................ 6,000 733,500
Schlumberger, Ltd......................................... 10,000 998,750
Tidewater, Inc. .......................................... 10,000 452,500
Union Pacific Resources Group, Inc. ...................... 30,000 877,500
-----------
5,074,500
-----------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
ENVIRONMENT (2.0%)
WMX Technologies, Inc..................................... 21,000 $ 685,125
-----------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (4.6%)
Cullen/Frost Bankers, Inc................................. 22,000 731,500
Norwest Corp.............................................. 20,000 870,000
-----------
1,601,500
-----------
- --------------------------------------------------------------------------------
FOOD, TOBACCO & OTHER (1.6%)
Nabisco Holdings Corp., Class A........................... 14,000 544,250
-----------
- --------------------------------------------------------------------------------
HEALTH CARE (12.1%)
Bard (C.R.), Inc.......................................... 19,000 532,000
Baxter International, Inc................................. 20,000 820,000
Merck & Co., Inc.......................................... 7,000 554,750
Pfizer, Inc............................................... 10,000 828,750
Pharmacia & Upjohn, Inc................................... 19,000 752,875
Schering-Plough Corp...................................... 11,000 712,250
-----------
4,200,625
-----------
- --------------------------------------------------------------------------------
HEAVY INDUSTRY / TRANSPORTATION (1.7%)
Union Pacific Corp........................................ 10,000 601,250
-----------
- --------------------------------------------------------------------------------
MANUFACTURING (6.4%)
Corning, Inc.............................................. 17,000 786,250
Keystone International, Inc............................... 30,000 603,750
* Kirby Corp............................................... 42,000 829,500
-----------
2,219,500
-----------
- --------------------------------------------------------------------------------
PUBLISHING & BROADCASTING (5.5%)
Belo (A.H.) Corp., Class A................................ 20,000 697,500
Gannett Co., Inc.......................................... 8,000 599,000
Westinghouse Electric Corp................................ 30,000 596,250
-----------
1,892,750
-----------
- --------------------------------------------------------------------------------
RETAIL (2.2%)
Home Depot, Inc........................................... 15,600 781,950
-----------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
TECHNOLOGY (14.2%)
AMP, Inc............................................. 16,000 $ 614,000
* Cisco Systems, Inc. ................................ 5,000 318,125
Electronic Data Systems Corp......................... 14,000 605,500
Fisher Scientific International, Inc................. 15,000 706,875
Hewlett Packard Co................................... 19,000 954,750
Motorola, Inc........................................ 16,000 982,000
Raytheon Corp........................................ 15,000 721,875
-----------
4,903,125
-----------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (2.3%)
* Airtouch Communications, Inc. ...................... 19,000 479,750
Alltel Corp.......................................... 10,000 313,750
-----------
793,500
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $29,787,348)................ 33,005,825
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT (5.4%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (5.4%)
Chase Securities, Inc. 5.95%, dated 12/31/96, due
1/2/97, to be repurchased at $1,879,613
collateralized by $1,800,000 U.S. Treasury Bond
7.25%, due 5/15/16, valued at $1,879,000 (COST
$1,879,000)......................................... $1,879,000 1,879,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.8%) (COST $31,666,348)......... 34,884,825
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.8%)
- --------------------------------------------------------------------------------
Cash.............................................................. 471
Receivable for Investments Sold................................... 246,592
Dividends Receivable.............................................. 55,605
Interest Receivable............................................... 310
Other Assets...................................................... 1,095
Payable for Investments Purchased................................. (522,859)
Payable for Investment Advisory Fees.............................. (17,683)
Payable for Administrative Fees................................... (9,308)
Payable for Trustees' Fees........................................ (500)
Other Liabilities................................................. (30,660)
-----------
(276,937)
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF NET ASSETS--(CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
VALUE+
- -----------------------------------------------------------------------------
<S> <C>
NET ASSETS (100%)
Applicable to 2,958,639 outstanding shares of bene-
ficial interest (unlimited authorization, no par
value)........................................................ $34,607,888
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE.. $ 11.70
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STATEMENT OF OPERATIONS
For the Period Ended December 31, 1996
<TABLE>
<CAPTION>
LKCM SMALL
CAP EQUITY LKCM EQUITY
PORTFOLIO PORTFOLIO**
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................... $ 1,366,265 $ 454,884
Interest........................ 899,595 235,036
- --------------------------------------------------------------------------------
TOTAL INCOME................... 2,265,860 689,920
- --------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee...................... $1,229,534 $ 209,560
Less: Fee Waived............... -- 1,229,534 (156,207) 53,353
---------- ---------
Administrative Fees--Note C..... 290,710 109,280
Audit Fees...................... 15,042 20,000
Trustees' Fees--Note E.......... 7,530 9,500
Filing and Registration Fees.... 59,050 33,517
Legal Fees...................... 9,438 3,215
Other Expenses.................. 22,670 10,731
- --------------------------------------------------------------------------------
TOTAL EXPENSES................. 1,633,974 239,596
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME......... 631,886 450,324
- --------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS. 16,081,149 1,245,994
NET CHANGE IN UNREALIZED
APPRECIATION ON INVESTMENTS..... 19,407,252 3,218,477
- --------------------------------------------------------------------------------
TOTAL NET REALIZED GAIN AND NET
CHANGE IN UNREALIZED
APPRECIATION.................... 35,488,401 4,464,471
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $36,120,287 $4,914,795
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
** The Portfolio commenced operations on January 3, 1996.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995 YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income........................... $ 347,510 $ 631,886
Net Realized Gain............................... 7,183,720 16,081,149
Net Change in Unrealized Appreciation........... 10,133,249 19,407,252
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations.................................... 17,664,479 36,120,287
- -------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income........................... -- (596,495)
Net Realized Gain............................... -- (7,691,095)
- -------------------------------------------------------------------------------
Total Distributions............................ -- (8,287,590)
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued--Regular................................. 44,760,462 59,310,732
--In Lieu of Cash Distributions................. -- 7,948,741
Capital Contributions (Note B).................. -- 72,187
Redeemed........................................ (7,731,384) (17,506,494)
- -------------------------------------------------------------------------------
Net Increase from Capital Share Transactions... 37,029,078 49,825,166
- -------------------------------------------------------------------------------
Total Increase.................................. 54,693,557 77,657,863
Net Assets:
Beginning of Period............................. 66,736,467 121,430,024
- -------------------------------------------------------------------------------
End of Period (2)............................... $121,430,024 $199,087,887
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Shares Issued and Redeemed:
Shares Issued................................. 3,540,654 4,161,147
In Lieu of Cash Distributions................. -- 619,542
Shares Redeemed............................... (584,213) (1,263,264)
------------ ------------
2,956,441 3,517,425
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital............................... $ 99,066,140 $148,880,523
Undistributed Net Investment Income........... 596,886 642,526
Accumulated Net Realized Gain................. 7,654,322 16,044,910
Unrealized Appreciation....................... 14,112,676 33,519,928
------------ ------------
$121,430,024 $199,087,887
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
LKCM EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 3, 1996**
TO DECEMBER 31,
1996
- --------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income........................................ $ 450,324
Net Realized Gain............................................ 1,245,994
Net Change in Unrealized Appreciation........................ 3,218,477
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations........ 4,914,795
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued--Regular.............................................. 34,492,749
Redeemed..................................................... (4,799,656)
- --------------------------------------------------------------------------------
Net Increase from Capital Share Transactions................ 29,693,093
- --------------------------------------------------------------------------------
Total Increase............................................... 34,607,888
Net Assets:
Beginning of Period.......................................... --
- --------------------------------------------------------------------------------
End of Period (2)............................................ $34,607,888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Shares Issued and Redeemed:
Shares Issued.............................................. 3,403,217
Shares Redeemed............................................ (444,578)
-----------
2,958,639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital............................................ $29,693,093
Undistributed Net Investment Income........................ 450,305
Accumulated Net Realized Gain.............................. 1,246,013
Unrealized Appreciation.................................... 3,218,477
-----------
$34,607,888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
** Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
LKCM SMALL CAP EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM YEAR
JULY 14, 1994** MAY 1, 1995 ENDED
TO APRIL 30, TO DECEMBER 31, DECEMBER 31,
1995 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PE-
RIOD............................. $ 10.00 $ 11.48 $ 13.84
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............ 0.04+ 0.03+ 0.05
Net Realized and Unrealized Gain
on Investments.................. 1.44 2.33 3.26
- --------------------------------------------------------------------------------
Total From Investment Opera-
tions.......................... 1.48 2.36 3.31
- --------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income............ -- -- (0.07)
Net Realized Gain................ -- -- (0.88)
- --------------------------------------------------------------------------------
Total Distributions............. -- -- (0.95)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.... $ 11.48 $ 13.84 $ 16.20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN...................... 14.80%++ 20.56%++ 25.67%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thou-
sands)........................... $66,736 $121,430 $199,088
Ratio of Expenses to Average Net
Assets........................... 1.00%* 1.00%* 1.00%
Ratio of Net Investment Income to
Average Net Assets............... 1.15%* 0.53%* 0.39%
Portfolio Turnover Rate........... 53% 57% 66%
Average Commission Rate#.......... N/A N/A $ 0.0564
- --------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Commencement of Operations.
+ Net of voluntarily waived fees and/or reimbursed expenses of $0.04 and
$0.003 per share for the periods ended April 30, 1995, and December 31,
1995, respectively.
++ Total return would have been lower had the Adviser not waived and/or
reimbursed certain expenses.
# For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
portfolio trades on which commissions were charged.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
LKCM EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 3,
1996** TO
DECEMBER 31,
1996
- --------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................... $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income+............................................ 0.15
Net Realized and Unrealized Gain on Investments................... 1.55
- --------------------------------------------------------------------------------
Total From Investment Operations................................. 1.70
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..................................... $ 11.70
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN++..................................................... 17.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands).............................. $34,608
Ratio of Expenses to Average Net Assets............................ 0.80%*
Ratio of Net Investment Income to Average Net Assets............... 1.50%*
Portfolio Turnover Rate............................................ 79%
Average Commission Rate............................................ $0.0611
- --------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Commencement of Operations.
+ Net of voluntarily waived fees of $0.05 per share for the period ended
December 31, 1996.
++ Total return would have been lower had the adviser not waived certain
expenses.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
LKCM FUND
NOTES TO FINANCIAL STATEMENTS
LKCM Fund (the "Fund") was established under Delaware law by a Declaration
of Trust dated February 10, 1994 and is registered under the Investment
Company Act of 1940 as an open-end, management investment company. The LKCM
Small Cap Equity Portfolio and LKCM Equity Portfolio (the "Portfolios"),
diversified portfolios of the Fund, commenced operations on July 14, 1994 and
January 3, 1996, respectively.
A. SIGNIFICANT ACCOUNTING POLICIES. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the
Portfolios in the preparation of their financial statements. Generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: Securities listed on a U.S. securities exchange or
NASDAQ for which market quotations are readily available are valued at the
last quoted sale price on the day the valuation is made. Price information
on listed securities is taken from the exchange where the security is
primarily traded. Unlisted U.S. securities and listed U.S. securities not
traded on the valuation date for which market quotations are readily
available are valued at the mean of the most recent quoted bid and asked
price. Securities listed on a foreign exchange for which market quotations
are readily available are valued at the latest quoted sales price available
before the time when assets are valued. Fixed-income securities (other than
obligations having a maturity of 60 days or less) are normally valued on
the basis of quotes obtained from pricing services. Fixed-income securities
purchased with remaining maturities of 60 days or less are valued at
amortized cost if it reflects fair value. Other assets and securities for
which no quotations are readily available (including restricted securities)
will be valued in good faith at fair value using methods determined by the
Board of Trustees.
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to qualify for
taxation as a regulated investment company under the Internal Revenue Code
so that the Portfolios will not be subject to Federal income tax to the
extent it distributes its income to its shareholders.
Paid in capital, undistributed net investment income and accumulated net
realized gain for the Portfolios have been adjusted for permanent book to
tax differences.
At December 31, 1996, cost and unrealized appreciation (depreciation) of
investments for Federal income tax purposes were:
<TABLE>
<CAPTION>
NET
APPRECIATION
LKCM PORTFOLIOS COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
--------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Small Cap Equity.... $165,833,784 $40,484,350 $(7,004,852) $33,479,498
Equity.............. 31,674,778 3,547,872 (337,825) 3,210,047
</TABLE>
3. REPURCHASE AGREEMENTS: The Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
established by the Board of Trustees. In a repurchase agreement, a
Portfolio 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 the
Portfolio to the seller. The Portfolio always receives securities
20
<PAGE>
LKCM FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 Portfolio might incur a loss. If bankruptcy proceedings are commenced
with respect to the seller, the Portfolio's realization upon the collateral
may be delayed or limited.
4. DISTRIBUTION TO SHAREHOLDERS: The Portfolios intend to pay dividends and
net capital gains distributions, if any, on an annual basis. All
distributions will be recorded on the ex-dividend date.
The amount and character of income and capital gain distributions are
determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains
and losses on the sale of investment securities are those of specific
securities sold. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recognized using the
accrual basis.
B. ADVISORY SERVICES: Luther King Capital Management Corporation (the
"Adviser"), serves as the investment adviser to the Portfolios under an
Investment Advisory Agreement (the "Agreement"). Under the Agreement the LKCM
Small Cap Equity Portfolio and LKCM Equity Portfolio pay the Adviser an
advisory fee calculated by applying a quarterly rate, equal on an annual basis
to .75% and .70%, respectively, of the Portfolio's average daily net assets
for the quarter. Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees and reimburse expenses to the extent necessary to keep
total operating expenses from exceeding 1.00% and .80%, respectively. During
the year ended December 31, 1996, the Adviser voluntarily contributed capital
to the LKCM Small Cap Equity Portfolio in the aggregate amount of $72,187. The
capital contribution was intended to offset capital losses realized by the
LKCM Small Cap Equity Portfolio on certain transactions during the year ended
December 31, 1996.
C. ADMINISTRATIVE SERVICES: Chase Global Funds Services Company (the
"Administrator"), a subsidiary of The Chase Manhattan Bank ("Chase"), provides
the Fund with administrative, fund accounting, dividend disbursing and
transfer agency services pursuant to a fund administration agreement. Chase
provides the Fund with custodial services pursuant to a custodial agreement.
Pursuant to the fund administration agreement and custody agreement, the
Administrator receives an aggregate monthly fee, which on an annualized basis
equals .215% of the first $75 million of the net assets of the Small Cap
Equity Portfolio, plus .135% of the next $75 million of the net assets of the
Small Cap Equity Portfolio, plus .095% of the net assets of the Small Cap
Equity Portfolio in excess of $150 million (with a minimum annual fee of
$145,000 plus .015% of average daily net assets); and .185% of the first $75
million of the net assets of the Equity Portfolio, plus .135% of the next $75
million of the net assets of the Equity Portfolio, plus .095% of the net
assets of the Equity Portfolio in excess of $150 million (with a minimum
annual fee of $100,000 in the first year, $145,000 subsequent years, plus
.015% of average daily net assets).
D. PURCHASES AND SALES: For the period ended December 31, 1996, the cost of
purchases and sales of investment securities other than long-term U.S.
Government Securities and short term securities were:
<TABLE>
<CAPTION>
LKCM PORTFOLIOS PURCHASES SALES
- --------------- ------------ -----------
<S> <C> <C>
Small Cap Equity....................................... $141,168,076 $96,385,395
Equity................................................. 49,277,586 20,736,232
</TABLE>
21
<PAGE>
LKCM FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
There were no purchases or sales of long-term U.S. Government securities for
the Portfolios.
E. BOARD OF TRUSTEES: Trustees, other than those who are officers or
affiliates of the Adviser, receive an annual fee plus a meeting fee for each
meeting attended and are reimbursed for expenses incurred in attending Board
Meetings.
F. CHANGE IN FISCAL YEAR: Effective May 1, 1995, the LKCM Small Cap Equity
Portfolio changed its fiscal year end from April 30 to December 31.
G. INVESTMENT IN AFFILIATES: The market value of investments in affiliates (as
defined in the Investment Company Act of 1940, "Affiliated Companies" are
those in which the LKCM Small Cap Equity Portfolio holds 5% or more of the
outstanding voting securities) at December 31, 1996 aggregated $1,828,125.
H. OTHER: During the year ended December 31, 1996, the LKCM Small Cap Equity
Portfolio incurred $2,413 in brokerage commission fees paid to San Jacinto
Securities, Inc., an affiliated broker/dealer of the Portfolios'. Effective
June 20, 1996, San Jacinto Securities, Inc. is no longer an affiliated
broker/dealer of the Portfolios'.
At December 31, 1996, the percentage of total shares outstanding and the
number of record shareholders owning 10% or greater of the Portfolios were as
follows:
<TABLE>
<CAPTION>
NO. OF %
LKCM PORTFOLIOS SHAREHOLDERS OWNERSHIP
- --------------- ------------ ---------
<S> <C> <C>
Small Cap Equity......................................... 1 15.28%
</TABLE>
I. DIVIDEND DISTRIBUTION: During December 1996, the Board declared a
distribution in LKCM Small Cap Equity Portfolio and LKCM Equity Portfolio of
$0.05 and $0.15 per share, respectively, derived from net investment income
and $1.31 and $0.42 per share, respectively, derived from net realized gains,
payable on January 7, 1997, to shareholders of record on December 31, 1996.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
LKCM Small Cap Equity Portfolio and
LKCM Equity Portfolio:
We have audited the accompanying statements of net assets of LKCM Small Cap
Equity Portfolio and LKCM Equity Portfolio (two of the Portfolios constituting
LKCM Fund) as of December 31, 1996, and the related statements of operations,
the statements of changes in net assets and the financial highlights for each
of the respective periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at December 31, 1996 by correspondence with the custodian and
brokers; where replies were not received from the brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of LKCM Small Cap
Equity Portfolio and LKCM Equity Portfolio at December 31, 1996, the results
of their operations, the changes in their net assets, and their financial
highlights for the respective periods presented in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 31, 1997
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
At December 31, 1996 the LKCM Small Cap Equity Portfolio hereby designated
$8,299,000 as a long term capital gain dividend for the purpose of the
dividend paid deduction on its Federal Income tax return.
For the year ended December 31, 1996, the percentage of dividends, as
reported on Form 1099-DIV, that qualify for the 70% dividend received
deduction for corporate shareholders was 14%, and 27% for the LKCM Small Cap
Equity and LKCM Equity Portfolios, respectively.
23
