As filed with the Securities and Exchange Commission on October 15,1997
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. 6
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
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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 Balanced Fund and the LKCM Fixed Income Fund
Statement of Additional Information for the LKCM Balanced Fund and the
LKCM Fixed Income Fund
Part C
Signature Page
Exhibits
This filing is made to add two new series, the LKCM Balanced Fund and the LKCM
Fixed Income Fund. No changes are hereby made to the prospectuses of the LKCM
Small Cap Equity Fund and the LKCM Equity Fund, the other series of LKCM Fund.
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CROSS REFERENCE SHEET FOR THE LKCM BALANCED FUND AND LKCM FIXED INCOME FUND
Form N-1A Item Number Location in Prospectus
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Item 1. Cover Page............................Cover Page
Item 2. Synopsis..............................Prospectus Summary; Estimated
Fund Expenses
Item 3. Condensed Financial Information.......Not Applicable
Item 4. General Description of Registrant.....Investment Objectives and
Policies; Investment
Limitations; Description of Securities and
Other Investment Policies; 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 Objectives 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 Securities.................Management
Item 16. Investment Advisory and
Other Services........................Management
Item 17. Brokerage Allocation and
Other Practices.......................Fund Transactions and
Brokerage
Item 18. Capital Stock and Other Securities....General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered..............Purchase, Redemption, and
Pricing of Shares
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
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.
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<PAGE>
PART A
LKCM FUNDS
POST-EFFECTIVE AMENDMENT NO. 6
Prospectus included in this filing:
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>
. P R O S P E C T U S
DECEMBER___, 1997
LKCM FUNDS
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
four separate diversified funds (the "Funds"), each of which is treated as a
separate mutual fund. This Prospectus describes two of these Funds: LKCM
Balanced Fund and LKCM Fixed Income Fund (collectively, the "Funds"). LKCM Funds
offers two additional equity funds, the LKCM Small Cap Equity Fund and the LKCM
Equity Fund, which are described in and offered through separate prospectuses.
THE LKCM BALANCED FUND
The Balanced Fund seeks to provide investors with current income and capital
appreciation. The Fund invests primarily in a diversified portfolio of equity
and fixed-income securities, including common stocks, income producing
securities convertible into common stocks, fixed-income securities, and cash
equivalent securities.
THE LKCM FIXED INCOME FUND
The Fixed Income Fund seeks to provide investors with current income. The Fund
invests primarily in a diversified portfolio of investment grade,
intermediate-term debt securities issued by corporations, the U.S. Government,
agencies or instrumentalities of the U.S. Government, and cash equivalent
securities. The Fund will have a dollar-weighted average expected maturity
between 3 to 10 years under normal market and economic conditions.
This Prospectus sets forth concisely the information about each 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 Funds 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.
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 ANY FUND WILL BE
ACHIEVED.
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TABLE OF CONTENTS
PAGE
Fund Expenses.......................... 3
Prospectus Summary..................... 4
Performance Information 4
Adviser's Investment Philosophy 5
Investment Objectives and Policies 5
Description of Securities and Other
Investment Policies.................. 7
Investment Limitations 10
Purchase of Shares..................... 11
Redemption of Shares................... 13
Shareholder Services................... 14
Valuation of Shares.................... 14
Dividends, Other Distributions and
Taxes ........................... 15
Management............................. 15
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.
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FUND EXPENSES
The following table illustrates the various expenses and fees that a shareholder
of each Fund may incur either directly or indirectly. The fees and expenses are
based on estimated amounts for the fiscal year ending December 31, 1998.
FIXED INCOME
SHAREHOLDER TRANSACTION EXPENSES BALANCED FUND FUND
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Sales Load Imposed on Purchases................................................................None None
Deferred Sales Load ...........................................................................None None
Sales Load Imposed on Reinvested Dividends.....................................................None None
Redemption Fees................................................................................None+ None+
Exchange Fees..................................................................................None None
+ The Funds' transfer agent imposes a $12.00 fee for each wire redemption.
See "Redemption of Shares - By Telephone or Wire."
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ANNUAL FUND OPERATING EXPENSES FIXED INCOME
(AS A PERCENTAGE OF AVERAGE NET ASSETS) BALANCED FUND FUND
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Investment Advisory Fee........................................... .65% .50%
12b-1 Fees ....................................................... None None
Other Expenses (after expense reimbursement)...................... .15% .15%
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Total Operating Expenses (after expense reimbursement).... .80% .65%
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For the fiscal year ending December 31, 1998, Luther King Capital Management
Corporation, the investment adviser to the Funds, (the "Adviser"), has
voluntarily agreed to waive its advisory fees and/or reimburse operating
expenses to the extent necessary to cap "Total Operating Expenses" at .80% for
the Balanced Fund and .65% for the Fixed Income Fund. "Other Expenses" have been
estimated for the 1998 fiscal year because the Funds did not begin operations
prior to the date of this Prospectus, and are presented net of reimbursements.
Absent these reimbursements, "Other Expenses" and "Total Operating Expenses" for
the Balanced Fund are estimated to be 1.03% and 1.68%, respectively, and "Other
Expenses" and "Total Operating Expenses" for the Fixed Income Fund are estimated
to be 1.04% and 1.54%, respectively. In addition to the advisory fee
waiver/expense reimbursement set forth above, the Adviser may from time to time
voluntarily waive all or a portion of any Fund's advisory fee and/or reimburse
expenses for a Fund and, in such case, such waivers and/or reimbursements will
have the effect of increasing returns for such periods. For additional
information, see "Management - Investment Adviser."
EXAMPLE
You would pay the following expenses on a $1,000 investment over various time
periods, assuming:
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(1) 5% annual return
(2) redemption at the end of each time period: BALANCED FUND FIXED INCOME FUND
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One Year.........................................................$8 $7
Three Years.....................................................$26 $21
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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.
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PROSPECTUS SUMMARY
THE FUNDS
The Funds are each an individual series of the Trust, which is an open-end,
diversified, management investment company.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has its own investment objective. See "Investment Objectives and
Policies" and "Description of Securities and Other Investment Policies" of the
Prospectus for a full discussion of the respective investment objectives and
policies of the Balanced Fund and the Fixed Income Fund.
The Balanced Fund seeks to provide investors with current income and
capital appreciation. The Fund invests primarily in a diversified portfolio of
equity and fixed-income securities, including common stocks, income producing
securities convertible into common stocks, fixed-income securities, and cash
equivalent securities.
The Fixed Income Fund seeks to provide investors with current income. The
Fund invests primarily in a diversified portfolio of investment grade,
intermediate-term debt securities issued by corporations, the U.S. Government,
agencies or instrumentalities of the U.S. Government, and cash equivalent
securities. The Fund will have a dollar-weighted average expected maturity
between 3 to 10 years under normal market and economic conditions.
INVESTMENT ADVISER
Luther King Capital Management Corporation ("Adviser") serves as the
investment adviser to the Funds. Founded in 1979, the Adviser provides
investment counseling services to 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."
HOW TO INVEST
Shares of each 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 each 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 each 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 investors' shares, when redeemed, may be
worth more or less than their original cost. For a discussion of these risks,
see "Description of Securities and Other Investment Policies."
PERFORMANCE INFORMATION
From time to time total return and yield data 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 Funds from the beginning date of the
measuring period to the end of the measuring period. Such figures reflect
changes in the price of each Fund's shares and assume that any income dividends
and/or other distributions made by the applicable Fund during the period were
reinvested in additional shares of the Fund. Figures will be given for
<PAGE>
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 Funds may also 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 a Fund's share price and assuming reinvestment of dividends and other
distributions).
Yield is computed based on the net income of the Fixed Income Fund's shares
during a 30-day (or one-month) period, which will be identified in connection
with the particular yield quotation. More specifically, yield of the Fixed
Income Fund is computed by dividing the net income per share of the Fixed Income
Fund during a 30-day (or one-month) period and annualizing the result on a
semiannual basis.
ADVISER'S INVESTMENT PHILOSOPHY
The Adviser follows a long-term investment philosophy grounded in the
fundamental analysis of individual companies. The Adviser's primary approach to
equity-related investing has two distinct but complementary components. First,
the Adviser seeks to identify high quality companies based on various financial
and fundamental criteria. Companies meeting these criteria will exhibit most of
the following characteristics: consistently high profitability levels, strong
balance sheet quality, prominent market share positions, the ability to generate
excess cash flow after capital expenditures, and management with a significant
ownership stake in the company. Second, the Adviser imposes a value discipline
on the selected securities. In making value determinations, the Adviser utilizes
quantitative criteria in conjunction with judgment and experience.
The Adviser also invests in companies whose assets the Adviser has
determined are undervalued in the marketplace. These include companies with
tangible assets as well as companies that own valuable intangible assets. As
with the primary approach described above, both qualitative as well as
quantitative factors are important criteria in the investment analysis.
The Adviser's fixed-income approach complements the equity approach by
concentrating on high quality corporate and government issues with intermediate
effective maturities. The Adviser's fixed-income philosophy combines the
offensive characteristics of noncallable bonds with the defensive attributes of
callable bonds in an attempt to enhance returns while controlling the level of
risk. The security selection process for noncallable corporate bonds is heavily
credit driven and focuses on the issuer's earning trends, its competitive
positioning and the dynamics of its industry. A second component of the
Adviser's fixed-income philosophy is the identification of undervalued
securities with a combination of high coupons and early redemption features,
including refunding and sinking fund call provisions. These defensive issues can
offer high levels of current income with limited price volatility and are used
as alternatives to traditional short-term noncallable issues. Maturity decisions
are primarily a function of the Adviser's macroeconomic analysis and are
implemented utilizing intermediate maturity, noncallable securities. Finally,
the credit analysis performed by the Adviser on individual companies, as well as
industries, is enhanced by the Adviser's experience in the equity market. The
analytical effort concentrates on market dominant, consistently profitable, well
financed debt issuers.
While the Funds' securities will generally be selected using the strategies
discussed above, the Adviser may also select investments based on other
criteria.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The following descriptions are designed to help you choose the Fund
that best fits your investment objective. You may want to pursue more than one
objective by investing in more than one of the Funds or in other Funds of the
Trust. Each Fund's investment objective is a fundamental policy, which 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 a Fund's investment objective will
be met. For a discussion of certain risks and additional investment techniques
associated with the investment in the Funds, see "Description of Securities and
Other Investment Policies."
THE LKCM BALANCED FUND
The Balanced Fund seeks to achieve its investment objective by
investing primarily in a blend of equity and fixed-income securities, including
common stocks, income producing securities convertible into common stocks, and
fixed-income securities. The Fund will primarily invest in equity and debt
securities of companies with established operating histories and strong
fundamental characteristics. By utilizing both equity and fixed-income
securities, the Fund will normally achieve an income yield in excess of the
<PAGE>
dividend income yield of the Standard & Poor's 500 Composite Stock Price Index
(TM) ("S&P 500"). It is anticipated that a minimum of 25% of the Fund's assets
will be invested in fixed-income securities, which includes debt securities and
preferred stocks.
In selecting equity and fixed-income securities for the Fund, the
Adviser typically seeks companies which exhibit strong fundamental
characteristics and considers fundamental factors such as cash flow generation,
earnings and dividend growth record and outlook, balance sheet quality, and
profitability levels. However, the Adviser may select securities based on
factors other than those described above. For example, some securities may be
purchased at a discount to the Adviser's perception of fair value. The Adviser's
intention, in such situations, is to identify undervalued securities and to
purchase these securities at a discount to fair value and have the investment
accrue to that value over time.
The Fund does not presently intend to invest more than 20% of its total
assets in equity securities that do not pay a dividend. It is anticipated that a
majority of the equity securities in which the Fund invests will be listed on a
national securities exchange or traded on The Nasdaq Stock Market ("Nasdaq") or
in the U.S. over-the-counter markets.
The Fund may increase its cash position when the Adviser determines
that investment opportunities with desirable risk/reward characteristics are
unavailable.
The Fund may invest up to 10% of its total assets in foreign securities
not publicly traded in the United States. In addition, the Fund may invest in
American Depository Receipts ("ADRs").
The Fund may also invest in U.S. and foreign government securities,
corporate bonds and debentures, high-grade commercial paper, preferred stocks,
certificates of deposit or other securities of U.S. issuers when the Adviser
perceives attractive opportunities from such securities, or so that the Fund may
receive a competitive return on its uninvested cash. The Fund may invest in debt
securities of U.S. and foreign issuers. The Fund may invest up to 15% of its net
assets in illiquid securities.
Corporate debt securities in which the Fund invests will generally have
a rating within the four highest grades as determined by Moody's Investor
Services, Inc. ("Moody's") or Standard & Poor's (S&P's).
THE LKCM FIXED INCOME FUND
The investment objective of the Fixed Income Fund is to provide
investors with current income. The Fund invests primarily in a diversified
portfolio of investment grade, intermediate-term debt securities providing
current income. Under normal market conditions, at least 65% of its total assets
will be invested in such fixed-income securities. Investment grade debt
securities are generally considered to be those rated Baa or better by Moody's
or BBB or better by S&P's. See "Description of Securities and Other Investment
Policies" for discussion of the characteristics of securities rated Baa by
Moody's or BBB by S&P's. There is no assurance that the Fund will meet its
objective.
The Fund will have a dollar-weighted average expected maturity between
3 and 10 years under normal market and economic conditions. The expected
maturity of securities with sinking fund or other early redemption features
shall be estimated by the Adviser, based upon prevailing interest rate trends
and the issuer's financial position. The average expected maturity may be less
than three years if the Adviser believes a temporary defensive posture is
appropriate.
The Fund may invest in all types of domestic or U.S. dollar denominated
foreign fixed-income securities in any proportion, including bonds, notes,
convertible bonds, mortgage-backed and asset-backed securities, government and
government agency securities, zero coupon bonds, and short-term obligations such
as commercial paper and notes, bank deposits and other financial obligations,
and repurchase agreements.
Bonds, notes, and other corporate debt instruments include obligations
of varying maturities within the overall maturity range noted above over a cross
section of industries. The value of a debt security changes as interest rates
fluctuate. The magnitude of the change is dependent upon the maturity of the
security. See "Description of Securities and Other Investment Policies" for a
discussion of interest rate risks.
For a description of temporary investment securities in which the Fund
may invest, government and government agency securities, asset-backed
securities, and other investments and techniques the Fund may use, see
"Description of Securities and Other Investment Policies".
In determining whether or not to invest in a particular debt security,
the Adviser considers factors such as the price, coupon, yield to maturity, the
credit quality of the issuer, the issuer's cash flow and related coverage
ratios, the property, if any, securing the obligation and the terms of the debt
instrument, including subordination, default, sinking fund and early redemption
provisions.
<PAGE>
The Fund will invest in securities consistent with its investment
objective, and which meet the quality and maturity characteristics established
for the Fund. In doing so, it will consider the ratings of Moody's and S&P's
assigned to various obligations.
The Fund intends to purchase securities that are rated investment grade
subsequent to its purchase, the rating of an issue of securities may be reduced
below the current minimum rating required for its purchases. This event does not
require the sale of such an issue, but the Adviser will consider such an event
in determining whether to continue to hold the obligation. The Statement of
Additional Information contains a description of Moody's and S&P's ratings.
DESCRIPTION OF SECURITIES AND OTHER INVESTMENT POLICIES
INTEREST RATES
Each Fund may invest in fixed-income securities, the market value of
which are 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.
RATINGS
The Funds will generally limit investments in fixed-income securities
to those that are rated at the time of purchase as investment grade by a
national rating organization, such as S&P or Moody's, [or, if unrated, are
determined to be of equivalent quality by the Adviser.] Investment grade
fixed-income securities include:
o U.S. government securities;
o Bonds or bank obligations rated in one of the four highest
categories (such as BBB or higher by S&P);
o Short-term notes rated in one of the two highest categories (such
as SP-2 or higher by S&P);
o Commercial paper or short-term bank obligations rated in one of
the three highest categories (such as A-3 or higher by S&P); and
o Repurchase agreements involving investment grade fixed-income
securities.
Investment grade fixed-income securities are generally believed to have a lower
degree of credit risk. However, certain investment grade securities with lower
ratings are considered medium quality and may be subject to greater credit risk
than the highest rated securities. If a security's rating falls below that
required at the time of purchase, the Adviser will consider what action, if any,
should be taken consistent with the Fund's investment objective. Additional
information concerning securities ratings is contained in the Appendix to the
SAI.
CORPORATE FIXED-INCOME SECURITIES
Each Fund may invest in corporate fixed-income securities, which include
corporate bonds, debentures, notes and other similar corporate debt instruments,
including convertible securities. Fixed-income securities may be acquired with
warrants attached. Corporate income-producing securities may also include forms
of preferred or preference stock.
TEMPORARY INVESTMENTS
For temporary defensive purposes and/or pending investment, each Fund may
invest in the following securities:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a commercial
bank or savings and loan association;
(2) Commercial paper rated in the highest rating category by a Nationally
Recognized Statistical Rating Organization ("NRSRO") at time of purchase or, if
not rated, issued by a corporation having an outstanding unsecured debt issue
that meets such rating requirement;
(3) Short-term corporate obligations rated in the highest rating category
by a NRSRO at time of purchase;
(4) U.S. Government obligations, including bills, notes, bonds and other
debt securities issued by the U.S. Treasury. These are direct obligations of
the U.S. Government and differ mainly in interest rates, maturities and dates
of issue;
<PAGE>
(5) U.S. Government agency securities issued or guaranteed by U.S.
Government sponsored instrumentalities and Federal agencies. These include
securities issued by the Federal Home Loan Banks, Federal Land Bank, Farmers
Home Administration, Farm Credit Banks, Federal Intermediate Credit Bank,
Federal National Mortgage Association, Federal Financing Bank, the Tennessee
Valley Authority, and others; and
(6) Repurchase agreements collateralized by those securities listed above.
FOREIGN SECURITIES
Each Fund may invest to a limited degree in securities of foreign issuers.
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 Funds' 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 Funds 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 Funds' foreign securities will be somewhat greater
than the expenses for the custodian arrangements for handling the U.S.
securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. 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 Funds.
However, these foreign withholding taxes are not expected to have a significant
impact on the Funds.
ADRS
The Funds may invest in ADRs, which are receipts issued by an American
bank or trust company evidencing ownership of underlying securities issued by a
foreign issuer. ADRs may be listed on a national securities exchange or may
trade in the over-the-counter market. ADR prices are denominated in U.S.
dollars; the underlying security is denominated in a foreign currency.
SECURITIES LENDING
The Funds may lend their portfolio securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. Such loans will not be made if, as a result, the
aggregate of all outstanding loans of the respective Fund exceeds one-third of
the value of its total assets. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the Adviser to be of good
standing and when, in the Adviser's judgment, the income to be earned from the
loan justifies the attendant risks.
MORTGAGE AND ASSET-BACKED SECURITIES
Mortgage-backed securities represent mortgage loans or interests in
such loans secured by real property, and include single- and multi- class
pass-through securities and collateralized mortgage obligations. Mortgage-backed
securities are characterized by monthly payments to the holder of the security,
reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans. The payments to the holders of these securities (such
as a Fund), like the payments on the underlying loans, represent both principal
and interest. Although the underlying mortgage loans are for specified periods
of time, such as 15 or 30 years, the borrowers can and may pay them off sooner.
Thus, the holders of these securities frequently receive prepayments of
principal, in addition to the principal which is part of the regular monthly
payment. A borrower is more likely to prepay a mortgage which bears a relatively
high interest rate. This means that in times of declining interest rates, some
of a Fund's higher yielding securities might be converted to cash, and the Fund
will be forced to accept
<PAGE>
lower interest rates when that cash is used to purchase additional securities.
The increased likelihood of prepayment when interest rates decline also limits
market price appreciation of mortgage-backed securities. If a Fund buys
mortgage-related securities at a premium, mortgage foreclosures or mortgage
prepayments may result in a loss to the Fund of up to the amount of the premium
paid since only timely payment of principal and interest is guaranteed.
Asset-backed securities have characteristics similar to mortgage-backed
securities. However, the underlying assets are not first-lien mortgage loans or
interests in these loans, but are assets such as motor vehicle installment sales
contracts, other installment loan contracts, home equity loans, leases of
various types of property and receivables from credit card or other revolving
credit arrangements. Similar to mortgage-backed securities, asset-backed
securities are subject to prepayment, which may reduce the overall return to
holders (such as a Fund) of the security. Asset-backed securities may also be
subject to the risks relating to the underlying assets, which may be subject to
the risk of non-payment, depreciation or damage to the underlying collateral
(such as automobiles) or certain other factors. Asset-backed securities may be
supported by non-governmental credit enhancements.
The Funds may invest in stripped mortgage- or asset-backed securities,
which receive differing proportions of the interest and principal payments from
the underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases the market
value may be extremely volatile. With respect to certain stripped securities,
such as interest only ("IO") and principal only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in a Fund
failing to recover all or a portion of its investment, even though the
securities are investment grade.
ZERO-COUPON SECURITIES
The Funds may invest in zero-coupon securities. These securities are debt
securities that do not make regular cash interest payments. Zero-coupon
securities are sold at a deep discount to their face value. Because such
securities do not pay current cash income, the price of these securities can be
volatile when interest rates fluctuate. While these securities do not pay
current cash income, federal income tax law requires the holders of zero-coupon
securities to include in income each year the portion of the original issue
discount (or deemed discount) and other non-cash income on such securities
accruing that year. In order to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended, (the "Code") and avoid a
certain excise tax, each Fund may be required to distribute a portion of such
discount and may be required to dispose of other portfolio securities, which may
occur in periods of adverse market prices, in order to generate cash to meet
these distribution requirements.
REPURCHASE AGREEMENTS
The Funds 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, a 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 Funds 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.
REVERSE REPURCHASE AGREEMENTS
The Funds may enter into reverse repurchase agreements with brokers,
dealers, domestic and foreign banks or other financial institutions. In a
reverse repurchase agreement, a Fund sells a security and agree to repurchase it
at a mutually agreed upon date and price, reflecting the interest rate effective
for the term of the agreement. It may also be viewed as the borrowing of money
by the Fund. The Funds' investment of the proceeds of a reverse repurchase
agreement is the speculative factor known as leverage. The Funds may enter into
a reverse repurchase agreement only if the interest income from investment of
the proceeds is greater than the interest expense of the transaction and the
proceeds are invested for a period no longer than the term of the agreement. The
Funds will maintain with Firstar Trust Company (the "Custodian") a separate
account with a segregated portfolio of cash or liquid securities having an
aggregate value, measured on a daily basis, at least equal to their purchase
obligations under these agreements.
WHEN-ISSUED SECURITIES
The Funds may purchase securities on a "when-issued" basis. In buying
"when-issued" securities, a Fund commits to buy securities at a certain price
even though the securities may not be delivered for up to 120 days. 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.
<PAGE>
The Funds will maintain with 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.
ILLIQUID INVESTMENTS
The Funds may invest up to 15% of their 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 resale. This policy does not limit the
acquisition of restricted securities eligible for resale (i) to qualified
institutional purchasers pursuant to Rule 144A under the Securities Act of 1933
or (ii) commercial paper issued pursuant to Section 4(2) under the Securities
Act of 1933 that are determined to be liquid by the Adviser under guidelines
established by the Board of Trustees of the Fund. If there is a lack of trading
interest in particular Rule 144A securities, a Fund's holdings of those
securities may be illiquid. There may be delays in selling illiquid securities
and sales may be made at less favorable prices.
CORPORATE REORGANIZATIONS
The Funds may invest a portion of their respective assets in securities for
which a tender or exchange offer has been made or announced if, in the judgment
of the Adviser, there is a reasonable prospect of capital appreciation
significantly greater than the added portfolio turnover expenses inherent in the
short-term nature of such transactions. The primary risk is that such offers or
proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless such offers or
proposals are replaced by equivalent or increased offers of proposals which are
consummated, the Funds may sustain a loss.
OTHER INVESTMENT COMPANIES
The Funds may invest up to 10% of their total assets in other investment
companies. Not more than 5% of each Fund's total assets may be invested in the
securities of any one investment company nor may the Funds acquire more than 3%
of the voting securities of any other investment company. In addition to the
advisory fees and other expenses the Funds 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 Funds' shareholders would indirectly bear
the expenses of the Funds and the other investment company, some or all of which
would be duplicative.
OTHER INVESTMENTS
Any remaining assets not invested as described above may be invested in
securities or obligations, including derivative securities. Options, futures and
options on futures are derivative securities in which the Funds may invest 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
Funds will not enter into futures contracts to the extent that their outstanding
obligations to purchase securities under these contracts in combination with
their outstanding obligations with respect to options transactions would exceed
5% of each Fund's total assets. For additional discussion of derivative
instruments, see the Statement of Additional Information.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if the
Adviser 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 net short-term capital gains are
realized, distributions resulting from such gains will be ordinary income for
federal tax purposes. The Funds' portfolio turnover rate will generally not
exceed 100% per year.
INVESTMENT LIMITATIONS
Each Fund has adopted certain limitations designed to reduce its exposure
to specific situations. Specifically, among other restrictions, neither Fund
may:
(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;
<PAGE>
(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 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 33 1/3% 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 each Fund may be purchased at the net asset value per share next
determined after receipt of the purchase order. Each Fund determines net asset
value as of the normal close of trading of the New York Stock Exchange ("NYSE")
(currently 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 applicable 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
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.
<PAGE>
BY WIRE. Subject to acceptance by the applicable 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:
o Telephone the Fund at 800-688-LKCM (option 1) for instructions
and to receive an account number.
o 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 Funds
[Name of Fund]
Account #[Shareholder account number]
o Notify the Fund by calling the telephone number listed above
prior to 4:00 P.M. (Eastern Time) on the wire date.
o 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.
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
<PAGE>
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 Funds 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 Funds.
BY MAIL
The Funds will redeem their 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 Funds, 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
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 Funds reserve 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 Funds and their
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.
<PAGE>
Due to the relatively high cost of maintaining small accounts, the Funds
reserve 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 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 a 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 Funds make available individual retirement account plans, including
Simplified Employee Pension Plans, Individual Retirement Accounts ("IRA") and
IRA "Rollover Accounts," offered by Firstar Trust Company. Detailed information
on these plans is available from the Funds by calling the Funds at 800-688-LKCM
(option 1). Investors should consult with their own tax advisers before
establishing a retirement plan.
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 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. 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.
Unlisted foreign securities are valued at fair value as determined in accordance
with policies established by the Board of Trustees.
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 Funds intend to declare and pay income dividends on a quarterly basis.
The Funds intend 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 Funds unless the shareholder elects otherwise. Such election must be made in
writing to the Funds.
<PAGE>
TAXES
The Funds intend to qualify for taxation as "regulated investment
companies" ("RICs") under the Code, so that neither Fund will be subject to
federal income tax to the extent it distributes its income and gains to
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, for the 70%
dividends-received deduction for corporations, but the portion of a Fund's
dividends so qualified will depend on the aggregate qualifying dividend income
received by the Fund from domestic (U.S.) sources.
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. Under the Taxpayer
Relief Act of 1997 ("Tax Act"), different maximum tax rates apply to net capital
gain depending on the taxpayer's holding period and marginal rate of federal
income tax -- generally, 28% for gain on capital assets held for more than one
year but not more than 18 months and 20% (10% for taxpayers in the 15% marginal
tax bracket) on capital assets held for more than 18 months. The Tax Act,
however, does not address the application of these rules to distributions of net
capital gain by a RIC, including whether those distributions may be treated by
its shareholders in accordance with the RIC's holding period for the assets it
sold that generated the gain. Accordingly, shareholders should consult their tax
advisers as to the effect of the Tax Act on distributions by a Fund to them of
net capital gain. Capital gain distributions are not eligible for the
dividends-received deduction for corporations. Shareholders are notified
annually as to the federal tax status of dividends and other distributions paid
by the Funds. If a shareholder is not required to pay taxes on income, such
shareholder is generally 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 Funds and received by shareholders on December 31 if the distributions
are paid before February 1 of the following year.
When a shareholder redeems shares of a Fund, 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.
Each Fund is required by federal law to withhold 31% of reportable payments
(which includes dividends, capital gain distributions, and redemptions) payable
to individual and certain other non-corporate shareholders who have not complied
with certain Internal Revenue Service ("IRS") 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 each Fund, as well as
redemptions of shares, may also be subject to state and local taxes.
The foregoing summarizes some of the important income tax considerations
generally affecting each Fund and its shareholders. POTENTIAL INVESTORS IN THE
FUNDS 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.
Under an Investment Advisory Agreement ("Agreement") with the Funds,
the Adviser, subject to the control and supervision of the Board of Trustees of
the Trust and in conformance with the stated investment objective and policies
of the Funds, manages the investment and reinvestment of the assets of the
Funds. In this regard, it is the responsibility of the Adviser to make
investment decisions for the Funds and to place the Funds' purchase and sales
orders. As compensation for the services rendered by the Adviser under the
Agreement, the Funds pay the Adviser an advisory fee calculated by applying a
quarterly rate, equal on an annual basis to .65% of the Balanced Fund's average
daily net assets for the quarter and to .50% of the Fixed Income Fund's average
daily net assets for the quarter. For the fiscal year ending December 31, 1998,
the Adviser has voluntarily agreed to waive its advisory fee and/or reimburse
operating expenses to the extend necessary to keep total operating expenses at
.80% for the Balanced Fund and .65% for the Fixed Income Fund.
<PAGE>
Thereafter, the Adviser may from time to time waive advisory fees and/or
reimburse expenses for a portfolio. Any waivers or reimbursements will have the
effect of lowering the overall expense ratio for the applicable Fund and
increasing its overall return to investors at the time any such amounts were
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.
PORTFOLIO MANAGERS
J. Luther King, Jr., Scot C. Hollmann and Robert M. Holt, Jr. are
primarily responsible for the day-to-day management of the
Balanced Fund.
J. Luther King, Jr., Robert M. Holt, Jr. and Joan M. Maynard are
primarily responsible for the day-to-day management of the Fixed Income Fund.
Mr. King has been President, Principal, and Portfolio Manager of the
Adviser since 1979. Mr. Hollmann and Mr. Holt have been Portfolio Managers of
the Adviser since 1983. Ms. Maynard has been a Portfolio Manager of the Adviser
since 1986.
ADMINISTRATOR
Firstar Trust Company (the "Administrator") provides each 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 officers, and include day-to-day administration of matters
necessary to the Funds' operations, maintenance of their records, preparation of
reports, compliance testing of the Funds' activities, and preparation of
periodic updates of the registration statement under federal and state laws. For
the foregoing, the Administrator receives from each Fund a fee, paid monthly at
an annual rate of 0.06% of the Fund's first $200 million of average daily net
assets, plus 0.05% of the Fund's next $500 million of average daily net assets,
plus 0.03% of the Fund's average 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 each Fund pursuant to the Fund Administration Agreement.
TRUSTEES
The Board of Trustees of the Trust has overall responsibility for the
management of the Funds. 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
<PAGE>
Shares of the Funds are distributed through First Data Distributor, Inc.
(the "Distributor"), 4400 Computer Drive, Westboro, 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
Each 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 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 Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for each Fund and directs the Adviser 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 Adviser'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 Adviser 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 each Fund may also be
appropriate for other clients served by the Adviser. 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 Adviser. The various
allocation methods used by the Adviser, 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
Each Fund is a series of the 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 four series, which include the Balanced Fund and the
Fixed Income Fund. 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
Funds.
The Funds are not required, and do not intend, to hold regular annual
shareholder meetings. The Funds 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 Funds will assist in shareholder communication in such matters to
the extent required by law.
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.
DIVIDEND DISBURSING AND TRANSFER AGENT
<PAGE>
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 auditors,
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
<PAGE>
LKCM FUNDS
THE LKCM BALANCED FUND
THE LKCM FIXED INCOME FUND
LUTHER KING CAPITAL MANAGEMENT
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. 6
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
LKCM FUNDS
LKCM BALANCED FUND
LKCM FIXED INCOME 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 BALANCED AND LKCM FIXED INCOME
FUNDS 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>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES B- 4
Equity Securities B- 4
Preferred Stock B- 4
Warrants and Rights B- 4
Convertible Securities B- 4
Securities Subject to Reorganization B- 5
Fixed-Income Securities B- 6
U.S. Government Securities B- 6
Corporate Debt Securities B- 6
Mortgage-Related Securities B- 6
Asset-Backed Securities B- 9
Factors Relating to Investing in Mortgage-Related and
Asset-Backed Securities B- 9
Temporary Investments B-10
Derivative Instruments B-11
Options B-11
Options on Foreign Currencies B-12
Futures Contracts B-12
Forward Foreign Currency Exchange Contracts B-13
Risk Factors in Futures Transactions B-14
Risks of Options on Futures, Forward Contracts, and Options on Foreign B-14
Currencies
Combined Transactions B-15
Asset Coverage for Futures and Options Positions B-15
Illiquid Investments, Restricted Securities and Private Placement Offerings B-15
Illiquid Investments B-15
Restricted Securities B-16
Private Placement Offerings B-16
Securities Lending B-16
INVESTMENT LIMITATIONS B-16
MANAGEMENT B-18
Investment Adviser B-18
Custodian B-18
Distributor B-19
Trustees and Officers B-19
FUND TRANSACTIONS AND BROKERAGE B-19
PURCHASE, REDEMPTION, AND PRICING OF SHARES B-20
Purchase of Shares B-20
Redemption of Shares B-20
Pricing of Shares B-21
<PAGE>
<CAPTION>
<S> <C>
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES B-21
General B-21
Taxes - Investments in Foreign Securities B-22
PERFORMANCE INFORMATION B-23
Total Return B-23
Yield B-23
Other Information B-23
Comparison of Portfolio Performance B-23
GENERAL INFORMATION B-24
Description of Shares and Voting Rights B-24
Shareholder and Trustee Liability B-24
Auditors B-25
Code of Ethics B-25
APPENDIX B-26
Description of Bond Ratings B-26
</TABLE>
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 FUNDS.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL
SECURITIES.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the LKCM Balanced Fund (the "Balanced Fund") is
to seek to provide investors with current income and capital appreciation. The
investment objective of the LKCM Fixed Income Fund (the "Fixed Income Fund") is
to seek to provide investors with current income.
The investment objective and policies of each Fund are described in detail
in the Prospectus under the captions "Investment Objectives and Policies" and
"Description of Securities and Other Investment Policies."
EQUITY SECURITIES
The equity securities in which the Funds 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. (These are also included in the category of
"Fixed-Income Security" in the Prospectus.) 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.
As disclosed in the Prospectus, up to 5% of the Balanced Fund's assets may
be invested in non-investment grade debt securities. The market values of these
securities tend to be less sensitive to changes in prevailing interest rates
than high-quality securities, but more sensitive to individual corporate
developments than higher-quality securities. Such securities also tend to be
more sensitive to economic conditions than are higher-quality securities.
Accordingly, these securities are considered predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
<PAGE>
accordance with the terms of the obligation and will generally involve more
credit risk than securities in the higher-quality categories.
Even securities rated Baa or BBB by Moody's Investor Services Inc.
("Moody's") and Standard & Poor's ("S&P") respectively, which ratings are
considered investment grade, possess some speculative characteristics. There are
risks involved in applying credit ratings as a method for evaluating high yield
obligations in that credit ratings evaluate the safety of principal and interest
payments, not market value risk. In addition, credit rating agencies may not
change credit ratings on a timely basis to reflect changes in economic or
company conditions that affect a security's market value. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case for higher grade bonds.
The Funds will rely on the judgment, analysis and experience of Luther King
Capital Management Corporation, the investment adviser to the Funds (the
"Adviser"), in evaluating the creditworthiness of an issuer. In this evaluation,
the Adviser will take into consideration, among other things, the issuer's
financial resources and ability to cover its interest and fixed charges, factors
relating to the issuer's industry and its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters.
The risk of loss due to default by the issuer is significantly greater for
the holders of lower quality securities because such securities are generally
unsecured and are often subordinated to other obligations of the issuer. During
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower quality securities may experience financial stress
and may not have sufficient revenues to meet their interest payment obligations.
An issuer's ability to service its debt obligations may also be adversely
affected by specific corporate developments, its inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Factors adversely affecting the market value of securities will adversely
affect a Fund's net asset value. In addition, a Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal of or interest on its portfolio holdings.
The secondary trading market for lower-quality fixed-income securities is
generally not as liquid as the secondary market for higher-quality securities
and is very thin for some securities. The relative lack of an active secondary
market may have an adverse impact on market price and a Fund's ability to
dispose of particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The relative lack of an active secondary market
for certain securities may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio. Market
quotations are generally available on many high yield issues only from a limited
number of dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During such times, the responsibility of the Trust's
Board of Trustees or its Adviser to value the securities becomes more difficult
and judgment plays a greater role in valuation because there is less reliable,
objective data available.
SECURITIES SUBJECT TO REORGANIZATION. The Funds may invest in equity
securities for which a tender or exchange offer has been made or announced and
in securities of companies for which a merger, consolidation, liquidation or
reorganization proposal has been announced if, in the judgment of the Adviser,
there is a reasonable prospect of capital appreciation significantly greater
than the brokerage and other transaction expenses involved. Generally,
securities which are the subject of such an offer or proposal sell at a premium
to their historic market price immediately prior to the announcement of the
offer or may also discount what the stated or appraised value of the security
would be if the contemplated transaction were approved or consummated. Such
investments may be advantageous when the discount significantly overstates the
risk of the contingencies involved, significantly undervalues the securities,
assets or cash to be received by shareholders of the target company as a result
of the contemplated transaction, or fails adequately to recognize the
possibility that the offer or proposal may be replaced or superseded by an offer
or proposal of greater value. The evaluation of such contingencies requires
broad knowledge and experience on the part of the Adviser which must appraise
not only the value of the issuer and its component businesses as well as the
assets or securities to be received as a result of the contemplated transaction
but also the financial resources and business motivation of the offeror and the
dynamics and business climate when the offer or proposal is in process. Since
such investments are ordinarily short-term in nature, they will tend to increase
the turnover ratio of a Fund thereby increasing its brokerage and other
transaction expenses. The
<PAGE>
Adviser intends to select investments of the type described which, in its view,
have a reasonable prospect of capital appreciation which is significant in
relation to both risk involved and the potential of available alternate
investments.
FIXED-INCOME SECURITIES
The fixed-income securities in which the Funds may invest include U.S.
Government securities, corporate debt, mortgage-backed securities and
asset-backed securities.
US. 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
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. A 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); provided,
however, that the Balanced Fund may invest up to 5% of its total assets in
non-investment grade securities. 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.
MORTGAGE-RELATED SECURITIES. The Funds may invest in residential or
commercial mortgage-related securities, including mortgage pass-through
securities, collateralized mortgage obligations ("CMO"), adjustable rate
mortgage securities, CMO residuals, stripped mortgage-related securities,
floating and inverse floating rate securities and tiered index bonds.
Mortgage Pass-Through Securities. Mortgage pass-through securities
represent interests in pools of mortgages in which payments of both principal
and interest on the securities are generally made monthly, in effect "passing
through" monthly payments made by borrowers in the residential or commercial
mortgage loans which underlie the securities (net of any fees paid to the issuer
or guarantor of the securities). Mortgage pass-through securities differ form
other forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at
<PAGE>
maturity or specified call dates. Early repayment of principal on mortgage
pass-through securities (arising form prepayments of principal due to the sale
of underlying property, refinancing, or foreclosure, net of fees and costs which
may be incurred) may expose a Fund to a lower rate of return upon reinvestment
of principal. Also, if a security subject to repayment has been purchased at a
premium, in the event of prepayment, the value of the premium would be lost.
There are currently three types of mortgage pass-through securities: (1)
those issued by the U.S. Government or one of its agencies or instrumentalities,
such as the GNMA, the FNMA, and the FHLMC; (2) those issued by private issuers
that represent an interest in or are collateralized by pass-through securities
issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities; and (3) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or pass-through
securities without a government guarantee but usually having some form of
private credit enhancement.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued
the institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage banks), and backed by pools of FHA-insured or
VA-guaranteed mortgages.
Obligations of FNMA and FHLMC are not backed by the full faith and credit
of the U.S. Government. In the case of obligations not backed by the full faith
and credit of the U.S. Government , the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment. FNMA and FHLMC
may borrow form the U.S. Treasury to meet its obligations, but the U.S. Treasury
is under no obligation to lend to FNMA or FHLMC.
Private mortgage pass-through securities are structured similarly to GNMA,
FNMA, and FHLMC mortgage pass-through securities and are issued by originators
of and investors in mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the foregoing.
Pools created by private mortgage pass-through issuers generally offer a
higher rate of interest than government and government-related pools because
there are no direct or indirect government or agency guarantees of payments in
the private pools. However, timely payment of interest and principal of these
pools may be supported by various forms of insurance or insured by governmental
entities, private insurers and the mortgage poolers.
Collateralized Mortgage Obligations. CMOs are debt obligations
collateralized by residential or commercial mortgage loans or residential or
commercial mortgage pass-through securities. Interest and prepaid principal are
generally paid monthly. CMOs may be collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. The issuer of a
series of CMOs may elect to be treated as a Real Estate Mortgage Investment
Conduit ("REMIC"). All future references to CMOs also include REMICs.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral which is ordinarily unrelated to the stated
maturity date. CMOs often provide for a modified form of call protection through
a de facto breakdown of the underlying pool of mortgages according to how
quickly the loans are repaid. Monthly payment of principal received form the
pool of underlying mortgages, including prepayments, is first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes usually receive principal only after the first class has been
retired. An investor may be partially protected against a sooner than desired
return of principal because of the sequential payments.
Certain issuers of CMOs are not considered investment companies pursuant to
a rule adopted by the Securities and Exchange Commission ("SEC"), and the Funds
may invest in the securities of such issuers without the limitations imposed by
the Investment Company Act of 1940 ("1940 Act), as investments by the Funds in
other investment companies. In addition, in reliance on earlier SEC
interpretations, the Funds' investments in certain other qualifying CMOs, which
cannot or do not rely on the rule, are also not subject to the limitation of the
1940 Act on acquiring interests in other investment companies. In order to be
able to rely on the SEC's interpretation, these CMOs must be unmanaged, fixed
assets issuers, that: (1) invest primarily in mortgage-backed securities; (2) do
not issue redeemable securities; (3) operate under general exemptive orders
exempting them form all provisions of the 1940 Act; and (4) are not registered
or regulated under the 1940 Act as investment companies. To the extent that the
Funds select CMOs that cannot rely on the rule or do not meet the above
requirements, the Funds may not invest more than 10% of their total assets in
all such
<PAGE>
entities. In addition, not more than 5% of each Fund's total assets may be
invested in the securities of any one investment company nor may either Fund
acquire more than 3% of the voting securities of any single such entity.
The Funds may also invest in, among other things, parallel pay CMOs,
Planned Amortization Class CMOs ("PAC bonds"), sequential pay CMOs, floating
rate CMOs. Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. PAC bonds generally require payments
of a specified amount of principal on each payment date. Sequential pay CMOs
generally pay principal to only one class while paying interest to several
classes. Floating rate CMOs are securities whose coupon rate fluctuates
according to some formula related to an existing marketing index or rate.
Typical indices would include the eleventh district cost-of-funds index
("COFI"), the London Interbank Offered Rate ("LIBOR"), one-year U.S. Treasury
yields, and ten-year U.S. Treasury yields.
Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities
("ARMs") are pass-through securities collateralized by mortgages with adjustable
rather than fixed rates. ARMs eligible for inclusion in a mortgage pool
generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve, thirteen, thirty-six, or sixty scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes to a designated benchmark index.
The ARMs contain maximum and minimum rates beyond which the mortgage
interest rate may not vary over the lifetime of the security. In addition,
certain ARMs provide for additional limitations on the maximum amount by which
the mortgage interest rate may adjust for any single adjustment period. In the
event that market rates of interest rise to levels above that of the ARMs
maximum rate, the ARM's coupon may represent a below market rate of interest. In
these circumstances, the market value of the ARM security will likely fall.
Certain ARMs contain limitations on changes in the required monthly
payment. In the event that a monthly payment is not sufficient to pay the
interest accruing on an ARM, any such excess interest is added to the principal
balance of the mortgage loan, which is repaid through future monthly payments.
If the monthly payment for such an instrument exceeds the sum of the interest
accrued at the applicable mortgage interest rate and the principal payment
required at such point to amortize the outstanding principal balance over the
remaining term of the loan, the excess is then utilized to reduce the
outstanding principal balance of the ARM.
CMO Residuals. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks, and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayments experience on the mortgage assets.
In part, the yield to maturity on the CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-related securities. See
"Stripped Mortgage-Related Securities" below. In addition, if a series of a CMO
included a class that bears interest at an adjustable rate, the yield to
maturity on the related CMO residual will also be extremely sensitive to changes
in the level of the index upon which interest rate adjustments are based. As
described below with respect to stripped mortgage-related securities, in certain
circumstances a Fund may fail to recoup fully its initial investment in a CMO
residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has recently developed and CMO residuals currently may not have
the liquidity of other more established securities trading in other markets.
Transactions in CMO residuals are generally completed only after careful review
of the characteristics of the securities in question. In addition, CMO residuals
may or, pursuant to an exemption therefrom, may not have been registered under
the Securities Act of 1933, as amended (the "Securities Act"). CMO residuals,
whether or not registered under the Securities Act, may be subject to certain
<PAGE>
restrictions on transferability, and may therefore be deemed "illiquid" and
subject to Funds' limitations on investment in illiquid securities as discussed
herein.
Stripped Mortgage-Related Securities. Stripped mortgage-related securities
("SMRS") are derivative multi-class mortgage securities. SMRS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks, and special purpose entities
of the foregoing.
SMRS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMRS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all or the principal (the PO class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Fund's yield
to maturity form these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in these securities even if the security is in one
of the highest rated categories of investment-grade securities.
Although SMRS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently introduced. As a result, established trading markets have not
yet been fully developed and accordingly, these securities may be deemed
"illiquid" and subject to the Funds' limitations on investment in illiquid
securities as discussed herein.
Inverse Floaters. An inverse floater is a debt instrument with a floating
or variable interest rate that moves in the opposite direction to the interest
rate on another security or index level. Changes in the interest rate on the
other security or index inversely affect the residual interest rate paid on the
inverse floater, with result that the inverse floater's price will be
considerably more volatile than that of a fixed rate bond. Inverse floaters may
experience gains when interest rates fall and may suffer losses in periods of
rising interest rates. The market for inverse floaters is relatively new.
Tiered Index Bonds. Tiered index bonds are relatively new forms of
mortgage-related securities. The interest rate on a tiered index bond is tied to
a specified index or market rate. So long as this index or market rate is below
a predetermined "strike" rate, the interest rate on the tiered index bond
remains fixed. If, however, the specified index or market rate rises above the
"strike" rate, the interest rate of the tiered index bond will decrease. Thus,
under these circumstances, the interest rate on a tiered index bond, like an
inverse floater, will move in the opposite direction of prevailing interest
rates, with the result that the price of the tiered index bond may be
considerably more volatile than that of a fixed-rate bond.
ASSET-BACKED SECURITIES. The Funds may invest in various types of
asset-backed securities. Through the use of trusts and special purpose
corporations, various types of assets, primarily automobile and credit card
receivables and home equity loans, are being securitized in pass-through
structures similar to the mortgage pass-through structure similar to the CMO
structure. Investments in these and other types of asset-backed securities must
be consistent with the investment objectives and policies of the Funds.
RISK FACTORS RELATING TO INVESTING IN MORTGAGE-RELATED AND ASSET-BACKED
SECURITIES. The yield characteristics of mortgage-related and asset-backed
securities differ from traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if a Fund purchases such a security at a premium, a prepayment rate that
is faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have opposite effect of increasing yield to
maturity. Alternatively, if the Fund purchases these securities at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments will reduce, yield to maturity. The Adviser will seek to manage
these risks (and potential benefits) by diversifying its investments in such
securities and through hedging techniques.
<PAGE>
During periods of declining interest rates, prepayment of mortgage-related
securities can be expected to accelerate. Accordingly, a Fund's ability to
maintain positions in higher-yielding mortgage-related securities will be
affected by reductions in the principal amount of such securities resulting form
such prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time. Conversely, slower than expected prepayments may effectively change a
security that was considered short or intermediate-term at the time of purchase
into a long-term security. Long-term securities tend to fluctuate more in
response to interest rate changes, leading to increased net asset value
volatility. Prepayments may also result in the realization of capital losses
with respect to higher yielding securities that had been bought at a premium or
the loss of opportunity to realize capital gains in the future from possible
future appreciation.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a security interest in the
related collateral. For example, credit card receivables generally are unsecured
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, some of which may reduce the ability to obtain full
payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds form repossessed collateral may not always be
sufficient to support payment on these securities.
TEMPORARY INVESTMENTS
The temporary investments that the Funds may make include:
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances issued by a
commercial bank or savings and loan association. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits maturing in more
than seven days will not be purchased by the Funds. Certificates of deposit
are negotiable short-term obligations issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution.
Variable rate certificates of deposit are certificates of deposit on which
the interest rate is periodically adjusted prior to their stated maturity
based upon a specified market rate. A bankers' acceptance is a time draft
drawn on a commercial bank by a borrower usually in connection with an
international commercial transaction (to finance the import, export,
transfer or storage of goods).
The Funds will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, or, in the case of domestic banks which do
not have total assets of at least $1 billion, the aggregate investment made
in any one such bank is limited to $100,000 and the principal amount of
such investment is insured in full by the Federal Deposit Insurance
Corporation and (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation.
(2) Commercial paper which at the time of purchase is rated in the
highest rating category by a Nationally Recognized Statistical Rating
Organization ("NRSRO") or, if not rated, issued by a corporation having an
outstanding unsecured debt issue that meets such rating requirement at time
of purchase;
(3) Short-term corporate obligations rated in the highest rating
category by a NRSRO, at time of purchase;
(4) U.S. Government obligations including bills, notes, bonds and other
debt securities issued by the U.S. Treasury. These are direct obligations
of the U.S. Government and differ mainly in interest rates, maturities
and dates of issue;
(5) U.S. Government agency securities issued or guaranteed by U.S.
Government sponsored instrumentalities and Federal agencies. These include
securities issued by the Federal Home Loan Banks, Federal Land Bank,
Farmers Home Administration, Farm Credit Banks, Federal Intermediate
Credit Bank, FNMA, Federal Financing Bank, the Tennessee Valley Authority,
and others; and
(6) Repurchase agreements collateralized by those securities
listed above.
<PAGE>
DERIVATIVE INSTRUMENTS
In pursuing their respective investment objectives, the Funds may, to a
limited extent, 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 a 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 a 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 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.
<PAGE>
OPTIONS ON FOREIGN CURRENCIES. The Funds 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, a 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, a 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 Funds may write options on foreign currencies for the same types of
hedging purposes. For example, where a 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, a 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.
The Funds may write covered call options on foreign currencies. A call
option written on a foreign currency by a 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 Funds also may 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 are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC").
<PAGE>
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 Funds require that they use
futures contracts and options on futures contracts only for bona fide hedging
purposes, or to the extent that a 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 a Fund's
risk to 5% of the Fund's assets. A 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.
As evidence of this hedging intent, the Funds expect that approximately 75% of
the futures contracts purchased will be "completed;" that is, equivalent amounts
of related securities will have been purchased or in the process of being
purchased by a Fund upon sale of open futures contracts. Although techniques
other than the sale and purchase of futures contracts could be used to control a
Fund's exposure to market fluctuations, the use of futures contracts may be a
more effective means of hedging this exposure. While the Funds 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
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 Funds may 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 Funds may also 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.
<PAGE>
The Funds' custodian will place cash or other liquid assets in a separate
account having a value equal to the aggregate amount of the Funds' 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 Funds' commitments
with respect to such contracts. Alternatively, a Fund may 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 a
Fund may 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 Funds than if they 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, a 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, a 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 a Fund's ability to effectively hedge. The Funds will minimize
the risk that they will be unable to close out a futures contract by only
entering into futures which are traded on national futures exchanges and 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 a 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 Funds 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 a 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
a 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.
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 a 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.
<PAGE>
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.
In addition, 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 a 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.
COMBINED TRANSACTIONS. The Funds may 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
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, RESTRICTED SECURITIES AND PRIVATE PLACEMENT OFFERINGS.
ILLIQUID INVESTMENTS. The Funds 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 Adviser determines the liquidity
of a Fund's investments and, through reports from the Adviser and the Funds'
administrator, the Board monitors investments in illiquid securities. In
determining the liquidity of the Funds' investments, the Adviser 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 Funds 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 a 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 Funds will treat as illiquid an amount of assets used to cover
written OTC options, equal to the formula price at which the Funds would have
the absolute right to purchase the option less the amount by which the option is
"in-the-money." The absence
<PAGE>
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 Adviser
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(s) 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(s) may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less favorable
price than prevailed at the time it decided to seek registration of the
security.
PRIVATE PLACEMENT OFFERINGS. Investments in private placement offerings are
made in reliance on the "private placement" exemption from registration afforded
by Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1933 Act ("Section 4(2)
securities"). Section 4 (2) securities are restricted as to disposition under
the federal securities law and generally are sold to institutional investors
such as the Funds that agree they are purchasing the securities for investment
and not with an intention to distribute to the public.
SECURITIES LENDING
Each 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 Adviser to be of good standing.
In addition, they will only be made if, in the Adviser'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 Adviser's understanding that the current view of the staff of the
SEC is that a Fund may engage in 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
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.
INVESTMENT LIMITATIONS
The Funds are 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, each Fund will not:
(1) invest in physical commodities or contracts on physical
commodities;
<PAGE>
(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);
(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 Funds are 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, each 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 33 1/3% 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;
<PAGE>
(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.
MANAGEMENT
INVESTMENT ADVISER
The investment adviser to the Funds, Luther King Capital Management
Corporation, was founded in 1979 and is located at 301 Commerce Street, Fort
Worth, Texas 76102. The Adviser provides investment counseling services to
employee benefit plans, endowment funds, foundations and high net-worth
investors.
Under the Investment Advisory Agreement ("Agreement") with the Funds, dated
__________, the Adviser, subject to the control and supervision of the Board of
Trustees and in conformance with the stated investment objectives and policies
of the Funds, manages the investment and reinvestment of the assets of the
Funds. In this regard, it is the responsibility of the Adviser to make
investment decisions for the Funds and to place the Funds purchase and sales
orders for investment securities. As compensation for the services rendered by
the Adviser under the Agreement and the assumption by the Adviser of the
expenses related thereto (other than the cost of securities purchased for the
Funds and the taxes and brokerage commissions, if any, payable in connection
with the purchase and/or sale of such securities), the Balanced Fund pays the
Adviser an advisory fee calculated by applying a quarterly rate, equal on an
annual basis to .65% of the Fund's average daily net assets for the quarter and
the Fixed Income Fund pays the Adviser an advisory fee equal on an annual basis
to .50% of the Fund's average daily net assets for the quarter. For the fiscal
year ended December 31, 1998, the Adviser has voluntarily agreed to waive its
advisory fees and/or reimburse expenses to the extent necessary to keep total
operating expenses from exceeding .80% for the Balanced Fund, and .65% for the
Fixed Income Fund. Thereafter, the Adviser may from time to time waive advisory
fees and/or reimburse expenses for a Fund.
The Agreement as it relates to the Balanced Fund was approved initially
by the Board of Trustees on ____________ and on _________ for the Fixed Income
Fund. By its terms, the 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 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 Agreement is
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 may terminate the Agreement with respect to
a Fund, without penalty, on 90 days' written notice. In addition, the 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).
CUSTODIAN
<PAGE>
As custodian of each 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 Funds are distributed through First Data Distributor Inc.
(the "Distributor"), 4400 Computer Drive, Westboro, 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.
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.
FUND TRANSACTIONS AND BROKERAGE
The Agreement authorizes the Adviser to select the brokers or dealers that
will execute the purchases and sales of investment securities for the Funds and
directs the Adviser to use its best efforts to obtain the best execution with
respect to all transactions for the Funds. As permitted by Section 28(e) of the
Securities Exchange Act of 1934, as amended, the Adviser may cause the Funds to
pay higher commission rates than the lowest available when the Adviser 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 Adviser in advising various clients,
including the Funds, although not all of these services are necessarily useful
and of value in managing the Funds.
<PAGE>
It is not the Adviser'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 Adviser 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 Funds may also be
appropriate for other clients served by the Adviser. 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 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 Adviser. Although there is
no specified formula for allocating such transactions, the various allocation
methods used by the Adviser, and the results of such allocations, are subject to
periodic review by the Board of Trustees.
The Adviser 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 a 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 Funds 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 Funds, (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 a 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
<PAGE>
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
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 applicable 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
As indicated under "Valuation of Shares" in the Prospectus, a Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at 4:00 p.m. (Eastern Time) on each day the Exchange is open for
trading. 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 policy of each Fund 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 both 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, a Fund (each
of which is treated as a separate corporation for federal income tax purposes)
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, a 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. For each Fund, 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 securi ties, with
these other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the
<PAGE>
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.
The Funds also intend to declare and pay dividends and capital gain
distributions so as to avoid imposition of federal excise tax.
Undistributed net investment income is included in each Fund's net assets
for the purpose of calculating net asset value per share. Therefore, on the
"ex-dividend" date, the net asset value per share excludes the dividend (i.e.,
is reduced by the per share amount of the dividend). 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 a 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
Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Because the Funds do not
currently anticipate that securities of foreign issuers will constitute more
than 10% of the Balanced Fund's total assets and 10% of the Fixed Income Fund's
total assets at the end of their fiscal year, shareholders should not expect to
claim a foreign tax credit or deduction on their federal income tax returns with
respect to foreign taxes withheld. In addition, special tax consequences apply
to investments 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 a
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, a 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 a
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 Funds to its 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. Each 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 a Fund's adjusted basis therein as of the end of that year. Pursuant
to the election, a Fund also will 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. A 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.
<PAGE>
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 a
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 a Fund for distribution
to its shareholders.
PERFORMANCE INFORMATION
TOTAL RETURN
Average annual total return quotations used in the Funds' advertising and
promotional materials are calculated according to the following formula:
P(1+T)n = 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.
YIELD
Annualized yield quotations used in a Fund's advertising and promotional
materials are calculated by dividing the Fund's interest income for a specified
thirty-day period, net of expenses, by the average number of shares outstanding
during the period, and expressing the result as an annualized percentage
(assuming semi-annual compounding) of the net asset value per share at the end
of the period. Yield quotations are calculated according to the following
formula:
YIELD = 2 [ ( A-B +1)6 - 1]
---------
cd
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends; and "d" equals the maximum offering price per share on the
last day of the period.
For purposes of these calculations, the maturity of an obligation with one
or more call provisions is assumed to be the next date on which the obligation
reasonable can be expected to be called or, if none, the maturity date.
OTHER INFORMATION
Each 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.
<PAGE>
COMPARISON OF FUND PERFORMANCE
The performance of a 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.
The Funds may from time to time use the following unmanaged indices for
performance comparison purposes:
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.
Lehman Brothers Government/Corporate Index ("LB Govt/Corp") - The LB
Govt/Corp is a weighted index comprised of publicly-traded intermediate and
long-term government and corporate debt with an average maturity of 11
years.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
Each Fund is a series of the LKCM Funds which was established under
Delaware law by a Declaration of Trust dated February 10, 1994. Prior to
________ the LKCM Funds was known as the LKCM Fund. The Declaration of Trust
permits the Trustees of the Trust 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 four 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
<PAGE>
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.
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 Funds' independent auditors, whose services include examination of
the Funds' 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.
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc. Corporate Bond Ratings:
AAA: judged to be the best quality; carry the smallest degree of
investment risk; AA: judged to be of high quality by all standards; A: possess
many favorable investment attributes and are to be considered as higher medium
grade obligations; BAA: considered as lower medium grade obligations, i.e., they
are neither highly protected nor poorly secured; BA, B: protection of interest
and principal payments is questionable.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest. CA: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C: Bonds which are rated C are lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Excerpts from Standard & Poor's Corporation Corporate Bond Ratings:
AAA: highest grade obligations; possess the ultimate degree of protection
as to principal and interest; AA: also qualify as high grade obligations, and in
the majority of instances differs from AAA issues only in small degree; A:
regarded as upper medium grade; have considerable investment strength but are
not entirely free from adverse effects of changes in economic and trade
conditions. Interest and principal are regarded as safe; BBB: regarded as
borderline between definitely sound obligations and those where the speculative
element begins to predominate; this group is the lowest which qualifies for
commercial bank investments.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid. D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P's believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus(+) or Minus(-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Excerpts from Fitch Investors Services, Inc. Corporate Bond Ratings:
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and
<PAGE>
"AA" categories are not significantly vulnerable to foreseeable future
developments, short term debt of these issuers is generally rated "-,+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on the these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) MINUS(-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
Excerpts from Duff & Phelps Corporate Bond Ratings:
AAA: Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
<PAGE>
B+, B, B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protections factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP: Preferred stock with dividend arrearage.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements for the LKCM Fixed Income and LKCM Balanced Funds:
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.
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.
9. (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.
(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.
<PAGE>
(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.
<PAGE>
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
NUMBER OF RECORD HOLDERS
TITLE OF CLASS OR SERIES. SEPTEMBER 30, 1997
------------------------- -----------------
LKCM Small Cap Equity Fund 807
LKCM Equity Fund 101
LKCM Balanced Fund 0
LKCM Fixed Income 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
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" in the Prospectuses
constituting Part A of this Registration Statement and "Investment Adviser" in
Part B of this Registration Statement. The information required by this Item 28
with respect to each director, officer, or partner of Luther King Capital
Management Corporation is incorporated by reference to Form ADV filed by Luther
King Capital Management Corporation with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940, as amended (File No. 801-
14458).
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.
<PAGE>
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)
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 using financial statements which need not be
certified, within four to six months from the effective date
of this Post-Effective Amendment No. 6 to Registrant's 1933
registration statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 6 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 14th day of October, 1997.
By: ______________________________________________
J. Luther King, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 6 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
__________________________ Trustee, President and October 14, 1997
J. Luther King, Jr. Chief Executive Officer
__________________________ Trustee October 14, 1997
H. Kirk Downey
__________________________ Trustee October 14, 1997
Earle A. Shields, Jr.
___________________________ Treasurer and Secretary October 14, 1997
Jacqui Brownfield
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
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
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
10.1 Opinion of Stradley Ronon Stevens & Young dated June 2, 1994
<PAGE>
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
<PAGE>
EXHIBIT 1
LKCM FUND
AGREEMENT AND DECLARATION OF TRUST
FEBRUARY 10, 1994
<PAGE>
<TABLE>
<CAPTION>
AGREEMENT AND DECLARATION OF TRUST
<S> <C> <C>
ARTICLE I.........NAME AND DEFINITIONS...................................................... 1
Section 1.1.......Name and Principal Office................................................. 1
Section 1.2.......Definitions............................................................... 1
(a) "Act".............................................................. 1
(b) "By-laws".......................................................... 1
(c) "class"............................................................ 1
(d) "Commission"....................................................... 1
(e) "Declaration of Trust"............................................. 1
(f) "Majority of the Outstanding Voting Shares"........................ 1
(g) "1940 Act"......................................................... 1
(h) "person"........................................................... 2
(i) "Shareholder"...................................................... 2
(j) "Shares"........................................................... 2
(k) "Sub-Trust" or "Series"............................................ 2
(l) "Trust"............................................................ 2
(m) "Trustees"......................................................... 2
ARTICLE II. PURPOSE OF TRUST................................................... 2
ARTICLE III. THE TRUSTEES....................................................... 2
Section 3.1 Number, Designation, Election, Term, etc. ......................... 2
(a) Initial Trustees................................................... 2
(b) Number............................................................. 2
(c) Election and Term.................................................. 2
(d) Resignation and Retirement......................................... 3
(e) Removal............................................................ 3
(f) Vacancies.......................................................... 3
(g) Effect of Death, Resignation, etc. ................................ 3
(h) No Accounting...................................................... 3
Section 3.2 Powers of Trustees................................................. 3
(a) Investments........................................................ 4
(b) Disposition of Assets.............................................. 4
(c) Ownership Powers................................................... 4
(d) Subscription....................................................... 4
(e) Form of Holding.................................................... 4
(f) Reorganization, etc. .............................................. 4
(g) Voting Trusts, etc. ............................................... 4
(h) Compromise......................................................... 5
(i) Partnerships, etc. ................................................ 5
(j) Borrowing and Security............................................. 5
(k) Guarantees, etc. .................................................. 5
(l) Insurance.......................................................... 5
(m) Pensions, etc...................................................... 5
(n) Distribution Plans................................................. 5
-I-
<PAGE>
Section 3.3 Certain Contracts.................................................. 5
(a) Advisory........................................................... 5
(b) Administration..................................................... 5
(c) Distribution....................................................... 6
(d) Custodian and Depository........................................... 6
(e) Transfer and Dividend Disbursing Agency............................ 6
(f) Shareholder Servicing ............................................. 6
(g) Accounting......................................................... 6
Section 3.4 Payment of Trust Expenses and Compensation of Trustees............. 6
Section 3.5 Ownership of Assets of the Trust................................... 7
Section 3.6 Action by Trustees................................................. 7
ARTICLE IV. SHARES............................................................. 7
Section 4.1 Description of Shares.............................................. 7
Section 4.2 Establishment and Designation of Sub-Trusts and Classes............ 9
(a) Assets Belonging to Sub-Trusts..................................... 9
(b) Liabilities Belonging to Sub-Trusts................................ 9
(c) Dividends.......................................................... 9
(d) Liquidation........................................................ 10
(e) Voting............................................................. 10
(f) Redemption by Shareholder.......................................... 10
(g) Redemption of Trust................................................ 11
(h) Net Asset Value.................................................... 11
(i) Transfer........................................................... 11
(j) Equality........................................................... 11
(k) Fractions.......................................................... 11
(l) Conversion Rights.................................................. 11
(m) Class Differences.................................................. 12
Section 4.3 Ownership of Shares................................................ 12
Section 4.4 Investment in the Trust............................................ 12
Section 4.5 No Pre-emptive Rights.............................................. 12
Section 4.6 Status of Shares and Limitation of Personal Liability.............. 12
Section 4.7 No Appraisal Rights................................................ 12
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS........................... 12
Section 5.1 Voting Powers...................................................... 12
Section 5.2 Meetings........................................................... 13
Section 5.3 Record Dates....................................................... 13
Section 5.4 Quorum and Required Vote........................................... 13
-II-
<PAGE>
Section 5.5 Action by Written Consent.......................................... 13
Section 5.6 Inspection of Records.............................................. 14
Section 5.7 Additional Provisions.............................................. 14
ARTICLE VI. LIMITATION OF LIABILITY; INDEMNIFICATION........................... 14
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable; Notice......... 14
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or Surety...... 14
Section 6.3 Indemnification of Shareholders.................................... 15
Section 6.4 Indemnification of Trustees, Officers, etc. ....................... 15
Section 6.5 Compromise Payment................................................. 15
Section 6.6 Indemnification Not Exclusive, etc. ............................... 16
Section 6.7 Liability of Third Persons Dealing with Trustees................... 16
Section 6.8 Discretion......................................................... 16
ARTICLE VII. MISCELLANEOUS...................................................... 16
Section 7.1 Duration and Termination of Trust.................................. 16
Section 7.2 Reorganization .................................................... 16
Section 7.3 Amendments......................................................... 17
Section 7.4 Filing of Copies; References; Headings ............................ 17
Section 7.5 Applicable Law..................................................... 17
Section 7.6 Registered Agent................................................... 18
Section 7.7 Integration........................................................ 18
</TABLE>
-III-
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Fort Worth, Texas this 10th day
of February 1994, by the Trustee or Trustees hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an investment
company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest in
separate series, each separate series to be a Sub-Trust hereunder, and to issue
classes of Shares of any Sub-Trust or divide Shares of any Sub-Trust into two or
more classes, all in accordance with the provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into their hands
as trustees of a Delaware business trust in accordance with the provisions of
the Delaware Business Trust Act (12 Del. C. ss. 3801, et seq.), as from time to
time amended and including any successor statute of similar import (the "Act"),
and the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities, and other assets which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of shares of beneficial interest in this Trust and the Sub-Trusts created
hereunder as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 NAME AND PRINCIPAL OFFICE. This Trust shall be known as "LKCM
FUND" and the Trustees shall conduct the business of the Trust under that name
or any other name or names as they may from time to time determine. The
principal office of the Trust shall be located at such location as the Trustees
may from time to time determine.
Section 1.2 DEFINITIONS. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "Act" shall have the meaning given to it in the recitals of this
Declaration of Trust.
(b) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(c) "class" refers to any class of Shares of any Series or Sub-Trust
established and designated under or in accordance with the provisions of Article
IV;
(d) "Commission" shall have the meaning given it in the 1940 Act;
(e) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(f) "Majority of the Outstanding Voting Shares" of the Trust or Sub-Trust
shall mean the vote, at the annual or a special meeting of Shareholders duly
called, (A) of 67 per centum or more of the Shares of the Trust or Sub- Trust
present at such meeting, if holders of more than 50 per centum of the
outstanding Shares of the Trust or Sub- Trust are present or represented by
proxy; or (B) of more than 50 per centum of the outstanding voting Shares of the
Trust or Sub-Trust, whichever is the less.
(g) "1940" Act refers to the Investment Company Act of 1940 and the Rules
and Regulations hereunder, all as amended from time to time;
<PAGE>
(h) " person" means a natural person, corporation, limited liability
company, trust, association, partnership (whether general, limited, or
otherwise), joint venture, or any other entity;
(i) "Shareholder" means a beneficial owner of record of Shares;
(j) "Shares" refers to the transferable units of interest into which the
beneficial interest in the Trust and each Sub-Trust of the Trust and/or any
class of any Sub-Trust (as the context may require) shall be divided from time
to time;
(k) "Sub-Trust" or "Series" refers to a series of Shares established and
designated under or in accordance with the provisions of Article IV;
(1) "Trust" refers to the Delaware business trust established by this
Declaration of Trust, inclusive of each and every Sub-Trust established
hereunder; and
(m) "Trustees" refers to the trustees of the Trust and of each Sub-Trust
hereunder named herein or elected in accordance with Article III.
ARTICLE II
PURPOSE OF TRUST
The purposes of the Trust are (i) to operate as an investment company and
to offer Shareholders of the Trust and each Sub-Trust of the Trust one or more
investment programs primarily in securities and debt instruments, and (ii) to
engage in such activities that are necessary, suitable, incidental, or
convenient to the accomplishment of the foregoing.
ARTICLE III
THE TRUSTEES
Section 3.1 NUMBER, DESIGNATION, ELECTION, TERM, ETC.
(a) TRUSTEES. The initial Trustees hereof shall be J. Luther King, Jr. and
David M. May.
(b) NUMBER. The Trustees serving as such, whether named above or hereafter
becoming Trustees, may increase or decrease the number of Trustees to a number
other than the number theretofore determined. No decrease in the number of
Trustees shall have the effect of removing any Trustee from office prior to the
expiration of his term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to subsection (e) of this
Section 3. 1.
(c) ELECTION AND TERM. The Trustees shall be elected by the Shareholders of
the Trust at a meeting of the Shareholders held prior to the effective date of
the Registration Statement of the Trust under the 1940 Act, and the term of
office of any Trustees in office before such election shall terminate at the
time of such election. Each Trustee shall be a natural person and may, but need
not be a Shareholder. Each Trustee, whether named above or hereafter becoming a
Trustee, shall serve as a Trustee of the Trust and of each Sub-Trust hereunder
during the lifetime of this Trust and until its termination as hereinafter
provided except as such Trustee sooner dies, resigns, retires, or is removed or,
if sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his successor. The
Shareholders may fix the number of Trustees and elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose and to the extent required
by applicable law, including paragraph (a) and (b) of Section 16 of the 1940
Act. Subject to Section 16(a) of the 1940 Act, the Trustees may elect successors
and may, pursuant to Section 3.1 (f) hereof, appoint Trustees to fill vacancies.
(d) RESIGNATION AND RETIREMENT. Any Trustee may resign his trust or retire
as a trustee of the Trust, by written instrument signed by him and delivered to
the other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument and shall be effective as to the Trust and each
Sub-Trust hereunder.
<PAGE>
(e) REMOVAL. Any Trustee may be removed with or without cause at any time
by written instrument, signed by at least two-thirds of the number of Trustees
in office immediately prior to such removal, specifying the date upon which such
removal shall become effective. Any such removal shall be effective as to the
Trust and each Sub-Trust hereunder.
(f) VACANCIES. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of Trustees by the other Trustees may (but so long as there are at least
two remaining Trustees, need not unless required by the 1940 Act) be filled by a
majority of the remaining Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, through the appointment of such other person as such remaining
Trustees in their discretion shall determine. Such appointment shall be
evidenced by a written instrument signed by a majority of the Trustees then in
office, or by a recording in the records of the Trust, and shall be effective
upon such signing or recording and the acceptance of the person named therein to
serve as a trustee of the Trust and agreement by such person to be bound by the
provisions of this Declaration of Trust. Any such appointment in anticipation of
a vacancy to occur by reason of retirement, resignation or increase in number of
Trustees to be effective at a later date shall be deemed effective upon the
effective date of said retirement, resignation or increase in number of
Trustees.
(g) EFFECT OF DEATH, RESIGNATION, ETC. The death, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall cause a Trustee
to cease to be a trustee of the Trust but shall not operate to annual or
terminate the Trust or any Sub-Trust hereunder or to revoke or terminate any
existing agency or contract created or entered into pursuant to the terms of
this Declaration of Trust.
(h) NO ACCOUNTING. Except to the extent required by the 1940 Act or under
circumstances which would justify his removal for cause, no person ceasing to be
a trustee of the Trust as a result of his death, resignation, retirement,
removal or incapacity (nor the estate of any such person) shall be required to
make an accounting to the Shareholders or remaining Trustees upon such
cessation.
Section 3.2 POWERS OF TRUSTEES. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
and the purpose of the Trust. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not be bound or limited by present or future laws or customs with
regard to investment by trustees or fiduciaries, but shall have full authority
and absolute power and control over the assets of the Trust and the business of
the Trust to the same extent as if the Trustees were the sole owners of the
assets of the Trust and the business in their own right, including such
authority, power and control to do all acts and things as they, in their sole
discretion, shall deem proper to accomplish the purposes of this Trust. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business and affairs
of the Trust and may amend and repeal them to the extent that such By-Laws do
not reserve that right to the Shareholders; they may from time to time in
accordance with the provisions of Section 4.1 hereof establish Sub-Trusts, each
such Sub-Trust to operate as a separate and distinct investment medium and with
separately defined investment objectives and policies and distinct investment
purposes; they may from time to time in accordance with the provisions of
Section 4.1 hereof establish Series or establish classes of Shares of any Series
or Sub-Trust or divide the Shares of any Series or Sub- Trust into classes; they
may as they consider appropriate designate employees and agents who may be
denominated as officers with titles, including, but not limited to, "president",
"vice-president", "treasurer", "secretary", "assistant treasurer", "assistant
secretary", "managing director", "chairman of the board" and "vice chairman of
the board" and who in such capacity may act for and on behalf of the Trust, as
and to the extent authorized by the Trustees, and appoint and terminate agents
and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of all
of the foregoing; they may appoint from their own number, and terminate, any one
or more committees consisting of two or more Trustees, including without implied
limitation an executive committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 3.3 they may employ one or more advisers, administrators, depositories
and custodians and may authorize any depository or custodian to employ
subcustodians or agents and to deposit all or any part of such assets in a
system or systems for the central handling of securities and debt instruments,
retain
<PAGE>
transfer, dividend, accounting or Shareholder servicing agents or any of the
foregoing, provide for the distribution of Shares by the Trust through one or
more distributors, principal underwriters, or otherwise, and subject to Section
5.3 set record dates or times for the determination of Shareholders or various
of them with respect to various matters; they may compensate or provide for the
compensation of the Trustees, officers, advisers, administrators, custodians,
other agents, consultants and employees of the Trust or the Trustees on such
terms as they deem appropriate; and in general they may delegate to any officer
of the Trust, to any committee of the Trustees and to any employee, adviser,
administrator, distributor, depository, custodian, transfer and dividend
disbursing agent, or any other agent or consultant of the Trust such authority,
powers, functions and duties as they consider desirable or appropriate for the
conduct of the business and affairs of the Trust, including without implied
limitation the power and authority to act in the name of the Trust and any
Sub-Trust and of the Trustees, to sign documents and to act as attorney-in-fact
for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with the
1940 Act or other applicable law, the Trustees shall have power and authority
for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
(a) INVESTMENTS. To invest and reinvest cash and other property, and to
hold cash or other property uninvested without in any event being bound or
limited by any present or future law or custom in regard to investments by
trustees;
(b) DISPOSITION OF ASSETS. To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the Trust;
(c) OWNERSHIP POWERS. To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) SUBSCRIPTION. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) FORM OF HOLDING. To hold any security, debt instrument or property in a
form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust or of any
Sub-Trust or in the name of a custodian, subcustodian or other depository or a
nominee or nominees or otherwise;
(f) REORGANIZATION, ETC. To consent to or participate in any plan for the
reorganization, consolidation, or merger of any corporation or issuer, any
security or debt instrument of which is or was held in the Trust; to consent to
any contract, lease, mortgage, purchase, or sale of property by such corporation
or issuer, and to pay calls or subscriptions with respect to any security or
debt instrument held in the Trust;
(g) VOTING TRUSTS, ETC. To join with other holders of any securities or
debt instruments in acting through a committee, depository, voting trustee, or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depository, or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depository or
trustee as the Trustees shall deem proper;
(h) COMPROMISE. To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any Sub-Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) PARTNERSHIPS, ETC. To enter into joint ventures, general or limited
partnerships, limited liability companies, and any other combinations or
associations;
(j) BORROWING AND SECURITY. To borrow funds and to mortgage and pledge the
assets of the Trust or any part thereof to secure obligations arising in
connection with such borrowing;
(k) GUARANTEES, ETC. To endorse or guarantee the payment of any notes or
other obligations of any
<PAGE>
person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof; and to mortgage and pledge the Trust property or
any part thereof to secure any of or all such obligations;
(1) INSURANCE. To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, investment advisers, managers,
administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability;
(m) PENSIONS, ETC. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees, and agents of the Trust; and
(n) DISTRIBUTION PLANS. To adopt on behalf of the Trust or any Sub-Trust,
including with respect to any class thereof, a plan of distribution and related
agreements thereto pursuant to the terms of Rule 12b-1 of the 1940 Act and to
make payments from the assets of the Trust or the relevant Sub-Trust or
Sub-Trusts pursuant to said Rule 12b-1 Plan.
Section 3.3 CERTAIN CONTRACTS. Subject to compliance with the provisions of the
1940 Act, but notwithstanding any limitations of present and future law or
custom in regard to delegation of powers by trustees generally, the Trustees
may, at any time and from time to time and without limiting the generality of
their powers and authority otherwise set forth herein, enter into one or more
contracts with any one or more corporations, trusts, associations, partnerships,
limited partnerships, limited liability companies, other type of organizations,
or individuals (a "Contracting Party"), to provide for the performance and
assumption of some or all of the following services, duties, and
responsibilities to, for, or on behalf of the Trust and/or any Sub-Trust, and/or
the Trustees, and to provide for the performance and assumption of such other
services, duties, and responsibilities in addition to those set forth below as
the Trustees may determine appropriate:
(a) ADVISORY. Subject to the general supervision of the Trustees and in
conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2), to manage
such investments and assets, make investment decisions with respect thereto, and
to place purchase and sale orders for portfolio transactions relating to such
investments and assets;
(b) ADMINISTRATION. Subject to the general supervision of the Trustees and
in conformity with any policies of the Trustees with respect to the operations
of the Trust and each Sub-Trust (including each class thereof), to supervise all
or any part of the operations of the Trust and each Sub-Trust, and to provide
all or any part of the administrative and clerical personnel, office space, and
office equipment and services appropriate for the efficient administration and
operations of the Trust and each Sub-Trust;
(c) DISTRIBUTION. To distribute the Shares of the Trust and each Sub-Trust
(including any classes thereof), to be principal underwriter of such Shares,
and/or to act as agent of the Trust and each Sub-Trust in the sale of Shares and
the acceptance or rejection of orders for the purchase of Shares;
(d) CUSTODIAN AND DEPOSITORY. To act as depository for and to maintain
custody of the property of the Trust and each Sub-Trust and accounting records
in connection therewith;
(e) TRANSFER AND DIVIDEND DISBURSING AGENCY. To maintain record of the
ownership of outstanding Shares, the issuance and redemption and the transfer
thereof, and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
<PAGE>
(f) SHAREHOLDER SERVICING. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) ACCOUNTING. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the service,
duties, and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties, and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent, or limit the Trust or a Contracting Party from entering
into sub-contractual arrangements relating to any of the matters referred to in
Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor, or agent of or for any
Contracting Party, or of or for any parent or affiliate of any Contracting
Party or that the Contracting Party or any parent or affiliate thereof is
a Shareholder or has an interest in the Trust or any Sub-Trust, or that
(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships, limited
liability companies, or other organizations, or have other business or
interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties, and responsibilities to, for or of the Trust or any
Sub-Trust and/or the Trustees or disqualify any Shareholder, Trustee or officer
of the Trust from voting upon or executing the same or create any liability or
accountability to the Trust, any Sub-Trust, or its Shareholders, provided that
in the case of any relationship or interest referred to in the preceding clause
(i) on the part of any Trustee or officer of the Trust either (x) the material
facts as to such relationship or interest have been disclosed to or are known by
the Trustees not having any such relationship or interest and the contract
involved is approved in good faith by a majority of such Trustees not having any
such relationship or interest (even though such unrelated or disinterested
Trustees are less than a quorum of all of the Trustees), (y) the material facts
as to such relationship or interest and as to the contract have been disclosed
to or are known by the Shareholders entitled to vote thereon and the contract
involved is specifically approved in good faith by vote of the Shareholders, or
(z) the specific contract involved is fair to the Trust as of the time it is
authorized, approved, or ratified by the Trustees or by the Shareholders.
Section 3.4 PAYMENT OF TRUST EXPENSES AND COMPENSATION OF TRUSTEES. The Trustees
are authorized to pay or to cause to be paid out of the principal or income of
the Trust or any Sub-Trust, or partly out of principal and partly out of income,
and to charge or allocate the same to, between, or among such one or more of the
Sub-Trusts and/or one or more classes of Shares thereof that may be established
and designated pursuant to Article IV, as the Trustees deem fair, all expenses,
fees, charges, taxes, and liabilities incurred or arising in connection with the
Trust, any Sub-Trust and/or any class of Shares thereof, or in connection with
the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser, administrator, distributor, principal
underwriter, auditor, counsel, depository, custodian, transfer agent, dividend
disbursing agent, accounting agent, Shareholder servicing agent, and such other
agents, consultants, and independent contractors and such other expenses and
charges as the Trustees may deem necessary or proper to incur. Without limiting
the generality of any other provision hereof, the Trustees shall be entitled to
reasonable compensation from the Trust for their services as trustees of the
Trust and may fix the amount of such compensation. Nothing herein shall in any
way prevent the employment of any Trustee for special services, including legal,
accounting, advisory, management or other services and payment for the same by
the Trust. Except to the extent expressly provided in a written agreement with
the Trust, no Trustee resigning and no Trustee removed shall have any right to
any compensation for any period following his resignation or removal, or any
right to damages on account of such removal.
<PAGE>
The Trustees shall have the power, as frequently as they may determine, to cause
each Shareholder, or each Shareholder of any particular Sub-Trust, to pay
directly, in advance or arrears, for charges of the Trust's custodian or
transfer, Shareholder servicing or similar agent, an amount fixed from time to
time by the Trustees, by setting off such charges due from such Shareholder from
declared but unpaid dividends owed such Shareholder and/or by reducing the
number of Shares in the account of such Shareholder by that number of full
and/or fractional Shares which represents the outstanding amount of such charges
due from such Shareholder.
Section 3.5 OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets of the
Trust and of each Sub-Trust shall at all times be considered as vested in the
Trustees as joint tenants. The right, title and interest of the Trustees in such
assets shall vest automatically in each person who may hereafter become a
Trustee, and upon any Trustees' death, resignation or removal, such Trustee
shall automatically cease to have any fight, title or interest in such assets.
Vesting and cessation of title as set forth in this Section 3.5 shall be
effective notwithstanding the absence of execution and delivery of any
conveyancing documents.
Section 3.6 ACTION BY TRUSTEES. Except as otherwise provided by the 1940
Act or other applicable law, this Declaration of Trust or the By-Laws, any
action to be taken by the Trustees on behalf of or with respect to the Trust or
any Sub-Trust or class thereof may be taken by a majority of the Trustees
present at a meeting of Trustees (a quorum, consisting of at least a majority of
the Trustees then in office, being present), within or without Delaware,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office (or such larger or different number as
may be required by the 1940 Act or other applicable law).
ARTICLE IV
SHARES
Section 4.1 DESCRIPTION OF SHARES. The beneficial interest in the Trust shall be
divided into Shares, all without par value, but the Trustees shall have the
authority from time to time to issue Shares in one or more Series (each of which
Series of Shares shall represent the beneficial interest in a separate and
distinct Sub-Trust of the Trust, including without limitation each Sub-Trust
specifically established and designated in Section 4.2), as they deem necessary
or desirable. For all purposes under this Declaration of Trust or otherwise,
including, without implied limitation, (i) with respect to the rights of
creditors and (ii) for purposes of interpreting the relevant rights of each
Sub-Trust and the Shareholders of each Sub-Trust, each Sub-Trust established
hereunder shall be deemed to be a separate trust. Notice of the limitation of
liabilities of a Sub-Trust shall be set forth in the certificate of trust of the
Trust, and debts, liabilities, obligations and expenses incurred, contracted for
or otherwise existing with respect to a particular Sub-Trust shall be
enforceable against the assets of such Sub-Trust only, and not against the
assets of the Trust generally.
Notwithstanding any other provisions of this Declaration of Trust and
without limiting the power of the Trustees to amend the Declaration of Trust as
provided elsewhere herein, the Trustees shall have the power to amend this
Declaration of Trust, at any time and from time to time, in such manner as the
Trustees may determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust for the
purpose of responding to or complying with any regulations, orders, rulings or
interpretations of any governmental agency or any laws, now or hereafter
applicable to the Trust. The Trustees shall have exclusive power without the
requirement of Shareholder approval to establish and designate such separate and
distinct Sub-Trusts, and to fix and determine the relative rights and
preferences as between the shares of the separate Sub-Trusts as to fight of
redemption and the price, terms and manner of redemption, special and relative
rights as to dividends and other distributions and on liquidation, sinking or
purchase fund provisions, conversion rights, and conditions under which the
several Sub- Trusts shall have separate voting rights or no voting rights.
In addition, the Trustees shall have exclusive power, without the
requirement of Shareholder approval, to issue classes of Shares of any Sub-Trust
or divide the Shares of any Sub-Trust into classes, each class having such
different dividend, liquidation, voting and other rights as the Trustees may
determine in their sole discretion, and may establish and designate the specific
classes of Shares of each Sub-Trust. The fact that a Sub-Trust shall have
initially been established and designated without any specific establishment or
designation of classes (i.e., that all Shares of such Sub-Trust are initially of
a single class), or that a Sub-Trust shall have more than one established
<PAGE>
and designated class, shall not limit the authority of the Trustees to establish
and designate separate classes, or one or more further classes, of said
Sub-Trust without approval of the holders of the initial class thereof, or
previously established and designated class or classes thereof, provided that
the establishment and designation of such further separate classes would not
adversely affect the fights of the holders of the initial or previously
established and designated class or classes.
The number of authorized Shares and the number of Shares of each Sub-Trust
or class thereof that may be issued is unlimited, and the Trustees may issue
Shares of any Sub-Trust or class thereof for such consideration and on such
terms as they may determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the Shareholders. All
Shares when so issued on the terms determined by the Trustees shall be fully
paid and non-assessable (but may be subject to mandatory contribution back to
the Trust as provided in subsection (h) of Section 4.2). The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Sub-Trusts or class thereof into one or more Sub-Trust or
classes thereof that may be established and designated from time to time. The
Trustees may hold as Shares, reissue for such consideration and on such terms as
they may determine, or cancel, at their discretion from time to time, any Shares
of any Sub-Trust or class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books or establish
record dates and times for the purposes of determining the holders of Shares
entitled to be treated as such, to the extent provided or referred to in Section
5.3.
The establishment and designation of any Sub-Trust or of any class of
Shares of any Sub-Trust in addition to those established and designated in
Section 4.2 shall be effective (i) upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation of
the relative fights and preferences of the Shares of such Sub-Trust or class,
(ii) upon the execution of an instrument in writing by an officer of the Trust
pursuant to the vote of a majority of the Trustees, or (iii) as otherwise
provided in either such instrument. At any time that there are no Shares
outstanding of any particular Sub-Trust or class previously established and
designated, the Trustees may by an instrument executed by a majority of their
number (or by an instrument executed by an officer of the Trust pursuant to the
vote of a majority of the Trustees) abolish that Sub-Trust or class and the
establishment and designation thereof. Each instrument establishing and
designating any Sub-Trust shall have the status of an amendment to this
Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization in which
any such person is interested may acquire, own, hold and dispose of Shares of
any Sub-Trust (including any classes thereof) of the Trust to the same extent as
if such person were not a Trustee, officer or other agent of the Trust; and the
Trust may issue and sell or cause to be issued and sold and may purchase Shares
of any Sub-Trust (including any classes thereof) from any such person or any
such organization subject only to the general limitations, restrictions or other
provisions applicable to the sale or purchase of Shares of such Sub-Trust
(including any classes thereof) generally.
Section 4.2 ESTABLISHMENT AND DESIGNATION OF SUB-TRUSTS AND CLASSES. Without
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Sub-Trusts, the Trustees hereby establish and designate
one Sub-Trust: "LKCM Small Cap Equity Portfolio" which shall consist of a single
class of Shares. The Shares of such Sub-Trust and any Shares of any further
Sub-Trust or class thereof that may from time to time be established and
designated by the Trustees shall (unless the Trustees otherwise determine with
respect to some further Sub-Trust at the time of establishing and designating
the same) have the following relative rights and preferences:
(a) ASSETS BELONGING TO SUB-TRUSTS. All consideration received by the Trust
for the issue or sale of Shares of a particular Sub-Trust or any classes
thereof, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of that Sub-Trust or class thereof and shall irrevocably
belong to that Sub-Trust (and be allocable to any classes thereof) for all
purposes, and shall be so recorded upon the books of account of the Trust.
Separate and distinct records shall be maintained for each Sub-Trust and the
assets associated with a Sub-Trust shall be held and accounted for separately
from the other assets of the Trust, or any other Sub-Trust. Such consideration,
assets, income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds, in whatever
<PAGE>
form the same may be, together with any General Items (as hereinafter defined)
allocated to that Sub-Trust as provided in the following sentence, are herein
referred to as "assets belonging to" that Sub-Trust (and allocable to any
classes thereof). In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Sub-Trust (collectively "General
Items"), the Trustees shall allocate such General Items to and among any one or
more of the Sub-Trusts established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items so allocated to a particular Sub-Trust shall
belong to that Sub-Trust (and be allocable to any classes thereof). Each such
allocation by the Trustees shall be conclusive and binding upon the holders of
all Shares of all Sub-Trusts (including any classes thereof) for all purposes.
(b) LIABILITIES BELONGING TO SUB-TRUSTS. The assets belonging to each
particular Sub-Trust shall be charged with the liabilities in respect of that
Sub-Trust and all expenses, costs, charges, and reserves belonging to that
Sub-Trust, and any general liabilities, expenses, costs, charges, or reserves of
the Trust which are not readily identifiable as belonging to any particular
Sub-Trust shall be allocated and charged by the Trustees to and among any one or
more of the Sub-Trusts established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion shall
determine. In addition, the liabilities in respect of a particular class of
Shares of a particular Sub-Trust and all expenses, costs, charges, and reserves
belonging to that class of Shares, and any general liabilities, expenses, costs,
charges or reserves of that particular Sub-Trust which are not readily
identifiable as belonging to any particular class of Shares of that Sub-Trust
shall be allocated and charged by the Trustees to and among any one or more of
the classes of Shares of that Sub-Trust established and designated from time to
time in such manner and on such basis as the Trustees in their sole discretion
shall determine. The liabilities, expenses, costs, charges, and reserves
allocated and so charged to a Sub-Trust or class thereof are herein referred to
as "liabilities belonging to" that Sub-Trust or class thereof. Each allocation
of liabilities, expenses, costs, charges, and reserves by the Trustees shall be
conclusive and binding upon the Shareholders, creditors and any other persons
dealing with the Trust or any Sub-Trust (including any classes thereof) for all
purposes. Any creditor of any Sub-Trust may look only to the assets of that
Sub-Trust to satisfy such creditor's debt. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
shareholders.
(c) DIVIDENDS. Dividends and distributions on Shares of a particular
Sub-Trust or any class thereof may be paid with such frequency as the Trustees
may determine, which may be daily or otherwise pursuant to a standing resolution
or resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Sub-Trust or class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Sub-Trust, or in the case of a class, belonging to that Sub-Trust and allocable
to that class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust or class. All dividends and
distributions on Shares of a particular Sub-Trust or class thereof shall be
distributed pro rata to the holders of Shares of that Sub-Trust or class in
proportion to the number of Shares of that Sub-Trust or class held by such
holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payment have not been received by the time or times established by
the Trustees under such program or procedure. Such dividends and distributions
may be made in cash or Shares of that Sub-Trust or class or a combination
thereof as determined by the Trustees or pursuant to any program that the
Trustees may have in effect at the time for the election by each Shareholder of
the mode of the making of such dividend or distribution to that Shareholder. Any
such dividend or distribution paid in Shares will be paid at the net asset value
thereof as determined in accordance with subsection (h) of this Section 4.2.
The Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(d) LIQUIDATION. In the event of the liquidation or dissolution of the
Trust, subject to Section 7.1 hereof, the holders of Shares of each Sub-Trust or
any class thereof that has been established and designated shall be entitled to
receive, when and as declared by the Trustees, the excess of the assets
belonging to that Sub-Trust, or in the case of a class, belonging to that
Sub-Trust and allocable to that class, over the liabilities belonging to that
Sub-Trust or class. The assets so distributable to the holders of Shares of any
particular Sub-Trust or class thereof shall be distributed among such holders in
proportion to the number of Shares of that Sub-Trust or class thereof held by
<PAGE>
them and recorded on the books of the Trust. The liquidation of any particular
Sub-Trust or class thereof may be authorized at any time by vote of a majority
of the Trustees then in office.
(e) VOTING. On each matter submitted to a vote of the Shareholders, each
holder of a Share shall be entitled to one vote for each whole Share standing in
his name on the books of the Trust irrespective of the Series thereof or class
thereof and all Shares of all Series and classes thereof shall vote together as
a single class; provided, however, that as to any matter (i) with respect to
which a separate vote of one or more Series or classes thereof is required by
the 1940 Act or the provisions of the writing establishing and designating the
Sub-Trust or class, such requirements as to a separate vote by such Series or
class thereof shall apply in lieu of all Shares of all Series and classes
thereof voting together; and (ii) as to any matter which affects the interests
of one or more particular Series or classes thereof, only the holders of Shares
of the one or more affected Series or classes shall be entitled to vote, and
each such Series or class shall vote as a separate class.
(f) REDEMPTION BY SHAREHOLDER. Each holder of Shares of a particular
Sub-Trust or any class thereof shall have the right at such times as may be
permitted by the Trust to require the Trust to redeem all or any part a of his
Shares of that Sub-Trust or class thereof at a redemption price equal to the net
asset value per Share of that Sub- Trust or class thereof next determined in
accordance with subsection (h) of this Section 4.2 after the Shares are properly
tendered for redemption, subject to any contingent deferred sales charge or
redemption charge in effect at the time of redemption. Payment of the redemption
price shall be in cash; provided, however, that if the Trustees determine, which
determination shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable, the Trust may, subject to the requirements
of the 1940 Act, make payment wholly or partly in securities or other assets
belonging to the Sub-Trust of which the Shares being redeemed are part at the
value of such securities or assets used in such determination of net asset
value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Sub-Trustor class thereof to require the Trust to redeem Shares of that
Sub-Trust during any period or at any time when and to the extent permissible
under the 1940 Act.
(g) REDEMPTION BY TRUST. Each Share of each Sub-Trust or class thereof that
has been established and designated is subject to redemption by the Trust at the
redemption price which would be applicable if such Share was then being redeemed
by the Shareholder pursuant to subsection (f) of this Section 4.2: (i) at any
time, in the sole discretion of the Trustees, or (ii) upon such other conditions
as may from time to time be determined by the Trustees and set forth in the then
current Prospectus or Statement of Additional Information of the Trust. Upon
such redemption the holders of the Shares so redeemed shall have no further
right with respect thereto other than to receive payment of such redemption
price.
(h) NET ASSET VALUE. The net asset value per Share of any Sub-Trust shall
be (i) in the case of a Sub-Trust whose Shares are not divided into classes, the
quotient obtained by dividing the value of the net assets of that Sub- Trust
(being the value of the assets belonging to that Sub-Trust less the liabilities
belonging to that Sub-Trust) by the total number of Shares of that Sub-Trust
outstanding, and (ii) in the case of a class of Shares of a Sub-Trust whose
Shares are divided into classes, the quotient obtained by dividing the value of
the net assets of that Sub- Trust allocable to such class (being the value of
the assets belonging to that Sub-Trust allocable to such class less the
liabilities belonging to such class) by the total number of Shares of such class
outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any
Sub-Trust at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 act for the continuing
declarations of income attributable to that Sub-Trust as dividend payable in
additional shares of the Sub- Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event of any loss each Shareholder shall be deemed to
have contributed to the capital of the Trust attributable to that Sub-Trust his
pro rata portion of the total number of Shares required to be canceled in order
to permit the net asset value per Share of that Sub-Trust to be maintained,
after reflecting such loss, at the designated constant dollar amount. Each
Shareholder of the Trust shall be deemed to have agreed, by his investment in
any Sub-Trust with respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the preceding sentence in the
event of any such loss.
<PAGE>
(i) TRANSFER. All Shares of each particular Sub-Trust or class thereof
shall be transferable, but transfers of Shares of a particular Sub-Trust or
class thereof will be recorded on the Share transfer records of the Trust
applicable to that Sub-Trust or class only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
(j) EQUALITY. Except as provided herein or in the instrument designating
and establishing any class of Shares or any Sub-Trust, all Shares of each
particular Sub-Trust or class thereof shall represent an equal proportionate
interest in the assets belonging to that Sub-Trust, or in the case of a class,
belonging to that Sub-Trust and allocable to that class, subject to the
liabilities belonging to that Sub-Trust or class and each share of any
particular Sub-Trust or class shall be equal to each other Share of that
Sub-Trust or class; but the provisions of this sentence shall not restrict any
distinctions permissible under subsection (c) of this Section 4.2 that may exist
with respect to dividends and distributions on Shares of the same Sub-Trust or
class. The Trustees may from time to time divide or combine the Shares of any
particular Sub-Trust or class into a greater or lesser number of Shares of that
Sub-Trust or class without thereby changing the proportionate beneficial
interest in the assets belonging to that Sub-Trust or class or in any way
affecting the rights of Shares of any other Sub-Trust or class.
(k) FRACTIONS. Any fractional Share of any Sub-Trust or class, if any such
fractional Share is outstanding, shall carry proportionately all the rights and
obligations of a whole Share of that Sub-Trust or class, including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust.
(1) CONVERSION OR EXCHANGE RIGHTS. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that holders of Shares of any Sub-Trust or class thereof shall have the right to
convert or exchange said Shares into Shares of one or more other Sub-Trust or
class thereof in accordance with such requirements and procedures as may be
established by the Trustees.
(m) CLASS DIFFERENCES. Subject to Section 4.1, the relative rights and
preferences of the classes of any Sub- Trust may differ in such other respects
as the Trustees may determine to be appropriate in their sole discretion,
provided that such differences are set forth in the instrument establishing and
designating such classes and executed by a majority of the Trustees (or by an
instrument executed by an officer of the Trust pursuant to a vote of a majority
of the Trustees).
Section 4.3 OWNERSHIP OF SHARES. The ownership of Shares shall be recorded
on the books of the Trust or of a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Sub- Trust and each
class thereof that has been established and designated. No certificates
certifying the ownership of Shares need be issued except as the Trustees may
otherwise determine from time to time. The trustees may make such rules as they
consider appropriate for the issuance of Share certificates, the use of
facsimile signature, the transfer of Shares and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as the
case may be, shall be conclusive as to who are the Shareholders and as to the
number of Shares of each Sub-Trust and class thereof held from time to time by
each such Shareholder.
Section 4.4 INVESTMENTS IN THE TRUST. The Trustees may accept investments
in the Trust and each Sub-Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.
Section 4.5 NO PRE-EMPTIVE RIGHTS. Shareholders shall have no pre-emptive
or other rights to subscribe to any additional Shares or other securities issued
by the Trust or any Sub-Trust, except as the Trustees in their sole discretion
shall have determined by resolution.
Section 4.6 STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
Declaration of Trust. Every Shareholder by virtue of acquiring Shares shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death, incapacity, dissolution, termination, or
bankruptcy of a Shareholder during the continuance of the Trust shall not
operate to dissolve or terminate the Trust or any Sub-Trust thereof nor entitle
the representative of such Shareholder to an accounting or to take any action in
court or elsewhere against the Trust or the Trustees, but only to the rights of
such Shareholder under this Trust. Ownership of Shares shall not entitle the
Shareholder to any tide
<PAGE>
in or to the whole or any part of the Trust property or right to call for a
partition or division of the same or for an accounting, nor shall the ownership
of Shares constitute the Shareholders partners. Neither the Trust nor the
Trustees nor any officer, employee or agent of the Trust shall have any power to
bind personally any Shareholder, nor except as specifically provided herein to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
Section 4.7 NO APPRAISAL RIGHTS. Shareholders shall have no right to demand
payment for their shares or to any other rights of dissenting shareholders in
the event the Trust participates in any transaction which would give rise to
appraisal or dissenters' rights by a shareholder of a corporation organized
under the General Corporation Law of the State of Delaware, or otherwise.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 VOTING POWERS. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Section 3.1, (ii) with respect to
any contract with a Contracting Party as provided in Section 3.3 as to which
Shareholder approval is required by the 1940 Act, (iii) with respect to any
termination or reorganization of the Trust to the extent and as provided in
Sections 7.1 and 7.2, (iv) with respect to any amendment of this Declaration of
Trust to the extent and as provided in Section 7.3, and (v) with respect to such
additional matters relating to the Trust as may be required by the 1940 act,
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. Proxies may be
given orally or in writing or pursuant to any computerized or mechanical data
gathering process specifically approved by the Trustees. A proxy with respect to
Shares held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. At any time when no Shares of a Series are
outstanding, the Trustees may exercise all fights of Shareholders of that Series
with respect to matters affecting that Series and may take any action required
by law, this Declaration of Trust, or the By-Laws to be taken by Shareholders.
Section 5.2 MEETINGS. No annual or regular meeting of Shareholders is
required. Special meetings of Shareholders may be called by the Trustees from
time to time for the purpose of electing Trustees as herein provided and for
such other purposes as may be prescribed by law, this Declaration of Trust or
the By-Laws, or for taking action upon any other matter deemed by the Trustees
to be necessary or desirable. Written notice of any meeting of Shareholders
shall be given or caused to be given by the Trustees by mailing such notice at
least seven days before such meeting, postage prepaid, stating the time, place,
and purpose of the meeting, to each Shareholder at the Shareholder's address as
it appears on the record of the Trust. Whenever notice of a meeting is required
to be given to a Shareholder under the Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by such Shareholder
or his attorney thereunto authorized and filed with the records of the meeting,
shall be deemed equivalent to such notice.
Section 5.3 RECORD DATES. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to participate in any dividend or distribution, or for the
purpose of any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 90 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any
<PAGE>
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action. Nothing in this section
shall be construed as precluding the Trustees from setting different record
dates for different Sub-Trusts.
Section 5.4 QUORUM AND REQUIRED VOTE. Except as otherwise provided by the
1940 Act or other applicable law, thirty percent of the Shares entitled to vote
shall be a quorum for the transaction of business at a Shareholders' meeting.
Any meeting of shareholders, whether or not a quorum is present, may be
adjourned from time to time by the majority of the Shares represented at the
meeting, either in person or by proxy. Any adjourned session or sessions may be
held, within a reasonable time after the date set for the original meeting
without the necessity of notice of the adjourned meeting or of the business to
be transacted at an adjourned meeting, other than by announcement at the meeting
at which the adjournment is taken, unless the Trustees fix a new record date for
the adjourned meeting . A majority of the Shares voted, at a meeting of which a
quorum is present, shall decide any questions and a plurality shall elect a
Trustee, except when a different vote is required or permitted by any provision
of the 1940 Act or other applicable law or by this Declaration of Trust or the
By-Laws.
Section 5.5 ACTION BY WRITTEN Consent. Subject to the provisions of the 1940 Act
and other applicable law, any action taken by Shareholders may be taken without
a meeting if a majority of Shareholders entitled to vote on the matter (or such
larger proportion thereof as shall be required by the 1940 Act or by any express
provision of this Declaration of Trust or the By-Laws) consent to the action in
writing and such written consents are filed with the record of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 5.6 INSPECTION OF RECORDS. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted stockholders of a
Delaware corporation under the Delaware General Law.
Section 5.7 ADDITIONAL PROVISIONS. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters not inconsistent with
the provisions hereof.
ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 6.1 TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE. All
persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Sub-Trust with which such person
dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Sub-Trust nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Sub-Trust
nor the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, nor any other Sub-Trust shall be personally liable
therefor. Every note, bond, contract, instrument, certificate, or undertaking
and every act or thing whatsoever executed or done by or on behalf of the Trust,
any Sub-Trust or the Trustees or any of them in connection with the Trust shall
be conclusively deemed to have been executed or done only by or for the Trust
(or the Sub-Trust) or the Trustees and not personally. The Trustees and the
Trust's officers, employees and agents shall not be liable to the Trust or the
Shareholders; provided however, that nothing in this Declaration of Trust shall
protect any Trustee or officer, employee or agent against any liability to the
Trust or the Shareholders to which such Trustee or officer, employee or agent
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 of Trustee or of such officer, employee or agent.
Every note, bond, contract, instrument, certificate, or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
the same was executed or made by or on behalf of the Trust or by them as
Trustees or Trustee or as officers or officer and not individually and that the
obligations of such instrument are not
<PAGE>
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust, or the particular Sub-Trust in
question, as the case may be, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually or otherwise invalidate any such note, bond, contract, instrument,
certificate, or undertaking.
Section 6.2 TRUSTEE'S GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR SURETY. The
exercise by the Trustees of their powers and discretion hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and the
Shareholders for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee, and for nothing else, and shall not be liable for errors of judgment or
mistakes of fact or law. Subject to the foregoing, (a) the Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, adviser, administrator, distributor or principal
underwriter, custodian or transfer, dividend disbursing, Shareholder servicing
or accounting agent of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee; (b) the Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust and their duties as Trustees, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice; and (c) in discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officer appointed by
them, any independent public accountant, and (with respect to the subject matter
of the contract involved) any officer, partner, or responsible employee of a
Contracting Party appointed by the Trustees pursuant to Section 3.3. The
Trustees as such shall not be required to give any bond or surety or any other
security for the performance of their duties. To the extent that, at law or in
equity, a Trustee has duties (including fiduciary duties) and liabilities
relating thereto to the Trust or to a shareholder any such Trustee acting under
this Declaration of Trust shall not be liable to the Trust or to any such
Shareholder for the Trustee's good faith reliance on the provisions of this
Declaration of Trust. The provisions of this Declaration of Trust, to the extent
that they restrict the duties and liabilities of a Trustee otherwise existing at
law or in equity, are agreed by the Shareholders to replace such other duties
and liabilities of such Trustee.
Section 6.3 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder (or
former Shareholder) of any Sub- Trust of the Trust shall be charged or held to
be personally liable for any obligation or liability of the Trust solely by
reason of being or having been a Shareholder and not because of such
Shareholder's acts or omissions or for some other reason, the Trust on behalf of
said Sub-Trust (upon proper and timely request by the Shareholder) shall assume
the defense against such charge and satisfy any judgment thereon, and, to the
fullest extent permitted by law, the Shareholder or former Shareholder (or his
heirs, executors, administrators, or other legal representatives or in the case
of a corporation or other entity, its corporate or other general successor)
shall be entitled out of the assets of said Sub-Trust estate to be held harmless
from and indemnified against all loss and expense arising from such liability.
Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. To the fullest
extent permitted by law, the Trust shall indemnify (from the assets of the
Sub-Trust or Sub-Trusts in question) each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers, or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action,
suit, or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter by reason of any alleged
act or omission as a Trustee or officer or, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such conduct
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against a Covered
Person for insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination based upon a review of the facts, that the Covered Person was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "Interested persons" of the Trust as defined in section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. Expenses, including accountants' and counsel
fees so incurred by any such Covered
<PAGE>
Person (but excluding amounts paid in satisfaction of judgments, in compromise,
or as fines or penalties), may be paid from time to time from funds attributable
to the Sub-Trust in question in advance of the final disposition of any such
action, suit, or proceeding, provided that the Covered Person shall have
undertaken to repay the amounts so paid to the Sub-Trust in question if it is
ultimately determined that indemnification of such expenses is not authorized
under this Article VI and (i) the Covered Person shall have provided security
for such undertaking, (ii) the Trust shall be insured against losses arising by
person of any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees who are not a party to the proceeding, or an independent
legal counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Covered Person ultimately will be found entitled to
indemnification.
Section 6.5 COMPROMISE PAYMENT. As to any matter disposed of by a compromise
payment by any such Covered Person referred to in Section 6.4, pursuant to a
consent decree or otherwise, no such indemnification either for said payment or
for any other expenses shall be provided unless such indemnification shall be
approved (a) by a majority of the disinterested Trustees who are not parties to
the proceeding or (b) by an independent legal counsel in a written opinion.
Approval by the Trustees pursuant to clause (a) or by independent legal counsel
pursuant to clause (b) shall not prevent the recovery from any Covered Person of
any amount paid to such Covered Person in accordance with any of such clauses as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction to have been liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The night of indemnification
provided by this Article VI shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As used in this Article VI,
"Covered Person" shall include such person's heirs, executors, and
administrators; an "Interested Covered Person" is one against whom the action,
suits, or other proceeding in question or another action, suit, or other
proceeding on the same or similar grounds is then or has been pending or
threatened; and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 6.8 DISCRETION. Whenever in this Declaration of Trust the Trustees are
permitted or required to make a decision (a) in their "sole discretion," "sole
and absolute discretion," "full discretion," or "discretion," or under a similar
grant of authority or latitude, the Trustees shall be entitled to consider only
such interests and factors as they desire, whether reasonable or unreasonable,
and may consider their own interests, and shall have no duty or obligation to
give any consideration to any interests of or factors affecting the Trust or the
Shareholders, or (b) in their "good faith" or under another express standard,
the Trustees shall act under such express standard and shall not be subject to
any other or different standards imposed by this Declaration of Trust or by law
or any other agreement contemplated herein. Each Shareholder and Trustee hereby
agrees that any standard of care or duty imposed in this Declaration of Trust or
any other agreement contemplated herein or under the Act or any other applicable
law, rule or regulation shall be modified, waived, or limited in each case as
required to permit the Trustees to act under this Declaration of Trust or any
other agreement contemplated herein and to make any decision pursuant to the
authority prescribed in this Declaration of Trust.
ARTICLE VII
MISCELLANEOUS
Section 7. 1 DURATION AND TERMINATION OF TRUST. Unless terminated as
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Sub-Trust or class thereof shall operate to
terminate the Trust. The Trust may be terminated at any time by a Majority of
the Outstanding Voting Shares of the Trust or by the Trustees by written notice
to the Shareholders.
<PAGE>
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due to accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2 REORGANIZATION. The Trustees may sell, convey, merge, and transfer
the assets of the Trust, or the assets belonging to any one or more Sub-Trusts,
to another trust, partnership, association, or corporation organized under the
laws of any state of the United States, or to the Trust to be held as assets
belonging to another Sub-Trust of the Trust in exchange for cash, shares or
other securities (including, in the case of a transfer to another Sub-Trust of
the Trust, Shares of such other Sub-Trust or any class thereof) with such
transfer either (1) being made subject to, or with the assumption by the
transferee of, the liabilities belonging to each Sub-Trust the assets of which
are so transferred, or (2) not being made subject to, or not with the assumption
of, such liabilities; provided, however, that no assets belonging to any
particular Sub-Trust shall be so transferred unless the terms of such transfer
shall have first been approved at a meeting called for the purpose by the
affirmative vote of the holders of a Majority of the Outstanding Voting Shares
of that Sub-Trust. Following such transfer, the Trustees shall distribute such
cash, shares, or other securities among the Shareholders of the Sub-Trust
(taking into account the differences among the classes of shares thereof, if
any) the assets belonging to which have been transferred; and if all of the
assets of the Trust have been so transferred, the Trust shall be terminated.
The Trust, or any one or more Sub-Trusts, may either as the successor,
survivor, or non-survivor, (1) consolidate with one or more other trusts,
partnerships, limited liability companies, associations, or corporations
organized under the laws of the State of Delaware or any other state of the
United States, to form a new consolidated trust, partnership, association or,
corporation under the laws of which any one of the constituent entities is
organized, or (2) merge into or transfer a substantial portion of its assets to
one or more other trusts, partnerships, associations, or corporations organized
under the laws of the State of Delaware or any other state of the United States,
or have one or more such trusts, partnerships, associations, or corporations
merged into or transfer a substantial portion of its assets to it, any such
consolidation as are specified in an agreement and plan of reorganization
entered into by the Trust, or one or more Sub-Trusts as the case may be, in
connection therewith. Any such consolidation, merger or transfer shall require
the affirmative vote of the holders of a Majority of the Outstanding Voting
Shares of the Trust (or each Sub-Trust affected thereby, as the case may be),
except that such affirmative vote of the holders of Shares shall not be required
if the Trust (or Sub-Trust affected thereby, as the case may be) shall be the
survivor of such consolidation or merger or transferee of such assets.
Section 7.3 AMENDMENTS. All rights granted to the Shareholders under this
Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not adversely affect the rights of any Shareholder with respect
to which such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940 Act, by
an instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to the vote of a majority of such Trustees). Any
amendment to this Declaration of Trust that adversely affects the rights of
Shareholders may be adopted at any time by an instrument in Writing signed by a
majority of the then Trustees (or by an officer of the Trust pursuant to a vote
of a majority of such Trustees) when authorized to do so by the vote in
accordance with subsection (e) of Section 4.2 of Shareholders holding a majority
of the Shares entitled to vote. Without limiting the generality of the
foregoing, amendments having the purposes of changing the name of the Trust or
any Sub-Trust or of supplying any omission, curing or curing, correcting or
supplementing any defective or inconsistent provision contained herein shall not
require authorization by Shareholder vote. Subject to the provisions of this
Section 7.3, any amendment shall be effective as provided in the instrument
containing the terms of such amendment or, if there is no provision therein with
respect to effectiveness, upon the execution of such instrument and of a
certificate (which may be a part of such instrument) executed by a Trustee or
officer of the Trust to the effect that such amendment has been duly adopted.
Section 7.4 FILLING OF COPIES; REFERENCES; HEADINGS. The original or a copy
of this instrument and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. Anyone
<PAGE>
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made, as to the identities of
the Trustees and officers, and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such amendment, references to
this instrument, and all expressions like "herein", "hereof", and "hereunder"
shall be deemed to refer to this instrument as a whole as the same may be
amended or affected by any such amendments. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction, or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 7.5 APPLICABLE LAW. This Declaration of Trust is created under and is to
be governed by the State of Delaware. The Trust shall be of the type referred to
in Section 3801 of the Delaware Business Trust Act and of the type commonly
called a business trust, and without limiting the provisions hereof, the Trust
may exercise all powers which are ordinarily exercised by such a trust.
Section 7.6 REGISTERED AGENT. The Corporation Trust Company is hereby
designated as the initial registered agent for service of process on the Trust
in Delaware. The address of the registered office of the Trust in the State of
Delaware is 1209 Orange Street, City of Wilmington, New Castle County, 19801.
Section 7.7 INTEGRATION. This Declaration of Trust constitutes the entire
agreement among the part hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
IN WITNESS WHEREOF, the undersigned hereunto set their hand and seal in
Fort Worth, Texas for themselves and their assigns, as of the day and year first
above written.
----------------------------------
J. Luther King, Jr.
----------------------------------
David D. May
'The foregoing instrument was acknowledged before me this 8th day of February
1994 by J. Luther King, Jr. of Fort Worth, Texas and David D. May of Fort
Worth, Texas.
--------------------------------
Notary Public
[Notarial Seal]
<PAGE>
My commission expires:
<PAGE>
EXHIBIT 2
BY-LAWS
OF
LKCM FUND
ARTICLE 1
AGREEMENT AND DECLARATION OF TRUST
AND PRINCIPAL OFFICE
1.1 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect ("Declaration
of Trust"), of LKCM Fund, the Delaware business trust established by the
Declaration of Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust shall be
located in Fort Worth, Texas.
ARTICLE 2
MEETING OF TRUSTEES
2.1 REGULAR MEETINGS. Regular meetings of the trustees may be held without call
or notice at such places either within or without the State of Delaware and at
such times as the Trustees may from time to time determine, provided that notice
of the first regular meeting following any such determination shall be given to
absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman of the Board, the President the Treasurer or by two or more Trustees,
sufficient notice thereof being given to each Trustee by the Secretary or an
Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 NOTICE. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a Written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting.
2.4 QUORUM; ADJOURNMENT: VOTE REQUIRED FOR ACTION. At any meeting of the
Trustees a majority of the Trustees then in office shall constitute a quorum. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of Trustees, if any action taken is approved by a
majority of the required quorum for such meeting. Any meeting may be adjourned
from time to time by a majority of the votes cast upon the question, whether or
not a quorum is present, and the meeting may be held as adjourned without
further notice. At the adjourned meeting the Trustees may transact any business
which might have been transacted at the original meeting. Except in cases where
the Declaration of Trust or these By-Laws otherwise provide the vote of a
majority of the Trustees present at a meeting at which a quorum is present shall
be the act of the Trustees.
2.5 ACTION BY WRITING. Except as required by law, any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision to the Declaration of Trust or these
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meeting of Trustees. Such consent shall be treated for
all purposes as a vote taken at a meeting of Trustees.
<PAGE>
2.6 PARTICIPATION BY COMMUNICATIONS EQUIPMENT. One or more of the Trustees or of
any committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participation in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
OFFICERS
3.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a Chairman of
the Board, a President, a Treasurer, a Secretary and such other officers,
including Vice Presidents, if any, as the Trustees from time to time may in
their discretion elect. The Trust may also have such agents as the Trustees from
time to time may in their discretion appoint. The Chairman of the Board shall be
a Trustee and may, but need not be, a beneficial owner of the Trust (a
"Shareholder"); and any other officer may be but none need be a Trustee or
Shareholder. Any two or more offices may be held by the same person.
3.2 ELECTION; TENURE. The Chairman of the Board, the President, the Treasurer,
the Secretary and such other officers as the Trustees may in their discretion
from time to time elect shall hold office until their respective successors are
chosen and qualified, or in each case until he or he sooner dies, resigns, is
removed or becomes disqualified. Each officer shall hold office and each agent
shall retain authority at the pleasure of the Trustees.
3.3 POWERS. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the powers as the Trust were organized as a
Delaware business corporation and such other duties and powers as the Trustees
may from time to time designate.
3.4 CHAIRMAN. Unless the Trustees otherwise provide, the Chairman of the Board,
shall preside at all meetings of Trustees and exercise and perform such other
powers and duties as may be from time to time assigned to him or her by the
Trustees.
3.5 PRESIDENT. Unless otherwise provided by the Trustees, the President shall be
the Chief Executive Officer of the Trust and shall, subject to the control of
the Board of Trustees, have general supervision, direction and control of the
business of the Trust. The President shall preside at all meetings of
Shareholders and in the absence of the Chairman of the Board at all meetings of
the Board of Trustees.
3.6 VICE PRESIDENT. The Vice President, or if there be more than one Vice
President, the Vice Presidents in the order determined by the Trustees (or if
there be no such determination, then in the order of their election) shall in
the absence of the President or in the event of his or her inability or refusal
to act, perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. The
Vice Presidents shall perform such other duties and have such other powers as
the Trustees may from time to time prescribe.
3.7 TREASURER. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made by the Trustees with a custodian, investment adviser
or manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the President.
3.8 ASSISTANT TREASURER. The assistant Treasurer, or if there shall be more than
one, the Assistant Treasurers in the order determined by the Trustees (or if
there be no such determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Trustees
may from time to time prescribe.
3.9 SECRETARY. The Secretary shall record all proceedings of the shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the
Secretary from any meeting of the Shareholders or Trustees, an assistant
secretary, or if there be none or if he
<PAGE>
or she is absent, a temporary secretary chosen at such meeting shall record the
proceedings thereof in the aforesaid books. The Secretary shall have such other
duties and powers as the Trustees may from time to time prescribe.
3.10 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the Trustees (or if there
be no determination, then in the order of their election), shall, in the absence
of the Secretary or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.
3.11 RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at any time by
written instrument signed by him or her and delivered to the Chairman, the Vice
Chairman, the President or the Secretary or to a meeting of Trustees. Such
resignations shall be effective upon receipt unless specified to be effective at
some other time. The Trustees may remove any officer elected by them with or
without cause. Except to the extent expressly provided in a written agreement
with the Trust, no Trustee or officer resigning and no officer removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
COMMITTEES
4.1 GENERAL. The Trustees, by vote of a majority of the Trustees then in office,
may elect from their number an Executive Committee, Compensation Committee,
Audit Committee and Nomination Committee each of which shall consist of two or
more of the Trustee of the Trust which committee shall have and may exercise
some or all of the powers and authority of the Board with respect to all matters
except those which by law, by the Declaration of Trust, or by these By-Laws may
not be delegated.
4.2 OTHER COMMITTEES OF THE BOARD. The Board of Trustees may from time to
time, by resolution adopted by a majority of the whole Board, designate one or
more other committees of the Board, each such committee to consist of two or
more Trustees and to have such powers and duties as the Board of Trustees may,
by resolution, prescribe.
4.3 LIMITATION OF COMMITTEE POWERS. No committee of the Board shall have
power or authority to:
(a) recommend to shareholders any action requiring authorization of
shareholders pursuant to statute or the Agreement and Declaration of Trust;
(b) approve or terminate any contract with an investment adviser or
principal underwriter, as such terms are defined in the 1940 Act, or take any
other action required to be taken by the Board of Trustees by the 1940 Act;
(c) amend or repeal these By-laws or adopt new By-laws;
(d) declare dividends or other distributions or issue capital stock of the
Trust; and
(e) approve any merger or share exchange which does not require shareholder
approval.
4.4 GENERAL. One-Third, but not less than two members, of the members of any
committee shall be present in person at any meeting of such committee in order
to constitute a quorum for the transaction of business at such meeting, and the
act of a majority present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member or any
committee, the member or members thereof present disqualification of any member
or any committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or she or they constitute a quorum,
may unanimously appoint another member of the Board of Trustees to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the
<PAGE>
membership of any committee, to fill all vacancies, to designate alternate
members, to replace any absent or disqualified member, or to dissolve any such
committee.
ARTICLE 5
REPORTS
5.1 GENERAL. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
and Committees shall render such additional reports as they may deem desirable
or as may from time to time be required by the Trustees.
ARTICLE 6
FISCAL YEAR
6.1 GENERAL. The fiscal year of the Trust shall be fixed by resolution of
the Trustees.
ARTICLE 7
SEAL
7.1 GENERAL. The seal of the Trust shall consist of a flat-faced die with the
word "Delaware", together with the name of the Trust and the year of its
organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 GENERAL. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President or by the Treasurer or such other officers or
agents as shall be designated for that purpose by a vote of the Trustees.
ARTICLE 9
ISSUANCE OF SHARES CERTIFICATES
9.1 SHARE CERTIFICATES. In lieu of issuing certificates for shares of the Trust,
the Trustees or the transfer agent may either issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such shares,
who shall in either case be deemed, for all purposes hereunder, to be holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all Shareholders. In that event, a
Shareholder may receive a certificate stating the number of shares owned by him
or her, in such form as shall be prescribed from time to time by the Trustees.
Such certificate shall be signed by the president or a vice president and by the
treasurer or assistant treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrant other than a
Trustee, officer or employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall cease to be
such officer before such certificate is issued, is may be issued by the Trust
with the same effect as if he or she were such officer at the time of its issue.
9.2 LOSS OF CERTIFICATES. In case of the alleged loss or destruction the
mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe. The Trust may
require the owner of the lost, destroyed or mutilated share certificate, or his
or her legal representative, to give the Trust a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
destruction or mutilation of any such certificate or the issuance of such new
certificate.
<PAGE>
9.3 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of shares transferred
as collateral security shall be entitled to a new certificate if the instrument
of transfer substantially describes the debt or duty that is intended to be
secured thereby. Such new certificate shall express on its face that it is held
as collateral security, and the name of the pledgor shall be stated thereon, who
alone shall be liable as a Shareholder and entitled to vote thereon.
9.4 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trusses may at any time
discontinue the issuance of share certificates and may, by written notice to
each Shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
ARTICLE 10
DEALINGS WITH TRUSTEES AND OFFICERS
10.1 GENERAL. Any Trustee, officer or other agent of the Trust may acquire, own
and dispose of shares of the Trust to the same extent as if he or she were not a
Trustee, officer or agent; and the Trustees may accept subscriptions to shares
or repurchase shares from any firm or company in which any Trustee, officer or
other agent of the Trust may have an interest.
ARTICLE 11
AMENDMENTS TO THE BY-LAWS
11.1 GENERAL. These By-Laws may be amended or repealed, by a majority of the
Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such majority.
<PAGE>
EXHIBIT 5.1
LKCM FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the __ day of ________, 1994 between LKCM FUND, a
Delaware business trust (the "Fund") and LUTHER KING CAPITAL MANAGEMENT
CORPORATION, a Delaware corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Fund intends to engage in business as an open-end,
diversified management investment company and to so register under the
Investment Company Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Fund is authorized to issue shares of beneficial interests
("Shares") in separate series and classes, with each such series representing
the interests in a separate Fund of securities and other assets, and with each
class within a series representing interests in the Fund of securities and other
assets in the series; and
WHEREAS, THE LKCM SMALL CAP EQUITY FUND IS THE INITIAL SERIES OF THE
FUND AND THE FUND DESIRES TO RETAIN THE ADVISER TO RENDER INVESTMENT ADVISORY
SERVICES TO SUCH SERIES AND TO SUCH OTHER SERIES AS MAY BE OFFERED BY THE FUND
WHICH SHALL BE NAMED IN THE SCHEDULES TO THIS AGREEMENT (EACH A "FUND",
COLLECTIVELY, THE "FUNDS"), AND THE ADVISER IS WILLING TO RENDER SUCH SERVICES;
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. APPOINTMENT. The Fund hereby appoints the Adviser to act as
investment adviser to it with respect to the Funds. The Adviser accepts such
appointment and agrees to render the services herein set forth, for the
compensation set forth in the schedules which are attached hereto and made a
part of the Agreement (the "Fee Schedules").
2. SERVICES AS ADVISER. Subject to the supervision of the Board of
Trustees of the Fund, the Adviser will manage the investment and reinvestment of
the assets of each Fund subject to the following:
(a) The Adviser shall continuously review, supervise and administer the
investment program of each Fund and in so doing shall determine from time to
time what investments or securities will be purchased, retained or sold by each
Fund, and what portion of Fund assets will be invested or held uninvested as
cash;
(b) The Adviser shall use its best judgment in the performance of its
duties under this Agreement;
(c) The Adviser, in the performance of its duties and obligations under
this Agreement, (I) shall act in conformity with the Fund's Declaration of
Trust, the Investment Company Act, the Investment Advisers Act of 1940 and all
other applicable federal and state laws and regulations as the same may be from
time to time amended, and with the instructions and directions of the Board of
Trustees of the Fund and (ii) will manage each Fund in accordance with each
Fund's investment objective, policies and limitations as stated in the Fund's
Prospectus and Statement of Additional Information, as filed with the Securities
and Exchange Commission and from time to time in effect;
<PAGE>
(d) The Adviser shall determine the securities to be purchased or sold
by each Fund and as agent for a Fund will effect Fund transactions pursuant to
its determinations either directly with the issuer or with any broker and/or
dealer in such securities.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other investment companies or
other managed accounts served by the Adviser, the Adviser may, to the extent
permitted by applicable laws and regulations, but shall not be obligated to,
aggregate such securities to be sold or purchased for the Fund with those to be
sold or purchased for other customers in order to obtain best execution and
lower brokerage commissions, if any. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to all such customers, including the
Fund;
(e) The Adviser shall maintain books and records with respect to the
securities transactions of each Fund (other than those maintained by the Fund's
transfer agent, registrar, custodian or other agents);
(f) The Adviser shall render to the Fund's Board of Trustees such
periodic and special reports as the Board of Trustees may reasonably request;
(g) The Adviser will keep the Fund informed of developments materially
affecting the Funds; and will, on its own initiative, furnish the Fund from time
to time with whatever information the Adviser believes is appropriate for this
purpose;
(h) The Adviser will provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to perform the
services on the terms and for the compensation provided herein; and shall pay
the salaries and fees and expenses of all officers of the Fund who are
directors, officers or employees of the Adviser or its affiliates and of all
Trustees of the Fund who are "interested persons" (as that term is defined in
the Investment Company Act) of the Fund;
(i) The investment advisory services of the Adviser to the Funds under
this Agreement are not to be deemed exclusive, and the Adviser shall be free to
render similar services to others.
3. FUND TRANSACTIONS. The Adviser is authorized to select the brokers
or dealers that will execute the purchases and sales of Fund securities for the
Funds. The Adviser shall use its best efforts to seek to execute Fund
transactions at prices which are advantageous to the Funds and at commission
rates which are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction, brokers or
dealers may be selected who also provide brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of 1934)
to the Funds and/or the other accounts over with the Adviser exercised
investment discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for executing a Fund
transaction for a Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
Adviser determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities which the Adviser has
with respect to accounts over which it exercised investment discretion. The
Trustees of the Fund shall periodically review the commissions paid by the Funds
to determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Funds.
4. OTHER SERVICES. At the request of the Fund, the Adviser in its
discretion may make available to the Fund office facilities, equipment,
personnel and other services. Such office facilities, equipment, personnel and
services shall be provided for or rendered by the Adviser and billed to the Fund
at the Adviser's cost.
5. REPORTS. The Fund and the Adviser agree to furnish to each other
proxy statements, reports to shareholders, certified copies of their financial
statements, and such other information with regard to their affairs as each may
reasonably request.
6. RECORDS. The Adviser shall keep the Fund's books and records
relating to the Funds required to be maintained by it pursuant to paragraph 2(e)
of this Agreement. The Adviser agrees that all records which it maintains for
the Fund are the property of the Fund and it will promptly surrender any such
records to the Fund
<PAGE>
upon the Fund's request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the Investment Company Act any such records as
are required to be maintained by the Adviser with respect to the Funds by Rule
31a-1 under the Investment Company Act.
7. PERMISSIBLE INTERESTS. It is understood that trustees, officers,
agents and shareholders of the Fund are or may become interested in the Adviser
as directors, officers, agents, shareholders or otherwise; that directors,
officers, agents and shareholders of the Adviser are or may become interested in
the Fund as trustees, officers, agents, shareholders or otherwise; the Adviser
is or may become interested in the Fund as a shareholder or otherwise; and the
effect of any such interrelationships shall be governed by the Fund's
Declaration of Trust and the provisions of the Investment Company Act.
8. EXPENSES.
(a) During the term of this Agreement, the Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities and investments purchased for the Funds
(including taxes and brokerage commissions, if any).
(b) In the event the expenses of any Fund for any fiscal year
(including the fees payable to the Adviser and including the fees payable to the
Fund's administrative agent and custodian, but excluding interest, taxes,
brokerage commissions and litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business) exceed the lowest applicable annual expense limitation, if any,
established pursuant to the statutes or regulations of any jurisdictions in
which Shares are then qualified for offer and sale (such excess hereinafter
called the "Blue Sky Excess Expense"), the compensation due to the Adviser under
paragraph 9 of this Agreement for the fiscal year in question shall be reduced
by the Blue Sky Excess Expense and the Adviser shall, to the extent required by
such statutes or regulations, reimburse the Fund on behalf of such Fund for any
such Blue Shy Excess Expense previously paid to the Adviser. Any reduction in
the fee payable and any reimbursement by the Adviser to the Fund on behalf of
such Fund shall be made quarterly and subject to readjustment during the year.
9. COMPENSATION. For the services to be rendered, the facilities
furnished and the expenses assumed by the Adviser with respect to each Fund
pursuant to this Agreement, the Fund shall pay to the Adviser from the assets of
each such Fund as full compensation therefor, a fee in an amount stated in the
Fee Schedule which names such Fund. Compensation under this Agreement, as stated
in the Fee Schedules for all Funds, shall be calculated daily and payable
quarterly. If this Agreement becomes effective with respect to a Fund subsequent
to the first day of a quarter or shall terminate before the last day of a
quarter, compensation for that part of the quarter during which this Agreement
is in effect shall be prorated in a manner consistent with the calculation of
the fees as set fort in the Fee Schedule for such Fund.
<PAGE>
10. LIABILITY OF ADVISER. The Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by any Fund in connection
with the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set fort in Section 36(b)(3) of the Investment Company Act) or a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
11. TERM OF AGREEMENT. This Agreement shall become effective on the
date first written above, provided that, with respect to any Fund, this
Agreement shall not take effect unless it has first been approved (a) by a vote
of a majority of the Trustees, including a majority of those Trustees who are
not parties to this Agreement or "interested persons" (as that term is defined
in the Investment Company Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by vote of a majority
of that Fund's outstanding voting securities. Unless sooner terminated as herein
provided, this Agreement shall continue in effect until _______, 1996.
Thereafter, if not terminated, this Agreement shall continue from year to year,
provided that such continuance is approved at least annually by a vote of a
majority of the Trustees, including a majority of those Trustees who are not
parties to this Agreement or "interested persons" (as that term is defined in
the Investment Company Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval, or, with respect to any given
Fund, by vote of a majority of the outstanding voting securities of such Fund;
provided however, that if the holders of any Fund fail to approve this Agreement
as provided herein, the Adviser may continue to serve in such capacity in the
manner and to the extent permitted by the Investment Company Act and the Rules
thereunder.
12. TERMINATION. Termination of the Agreement with respect to any given
Fund, shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Fund. This Agreement may be
terminated by any Fund at any time, without the payment of any penalty, by vote
of the Board of Trustees of the Fund or by vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of such Fund on 60
days' written notice to the Adviser. This Agreement may be terminated by the
Adviser at any time, without the payment of any penalty, upon 90 days' written
notice to the Fund. This Agreement will automatically and immediately terminate
in the event of its assignment (as defined in the Investment Company Act).
13. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
consent, but no amendment shall be effective as to any given Fund until it is
approved (a) by vote of a majority of those Trustees of the Fund who are not
parities to this Agreement or "interested persons" (as defined in the Investment
Company Act) of any such party, cast in person at a meeting called for the
purpose of voting on such amendment, and (b) by vote of a majority of such
Fund's outstanding voting securities (as defined in the Investment Company Act).
14. STATUS OF ADVISER. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees of the Fund from time to
time, have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
15. USE OF NAME. The Fund agrees that if this Agreement is terminated
and the Adviser is no longer the adviser to any Fund of LKCM Fund, the Fund
shall, within a reasonable period of time, change the name of LKCM Fund to
delete reference to "LKCM".
<PAGE>
16. DECLARATION OF TRUST. The Adviser is hereby expressly put on notice
of the limitation of shareholder liability as set forth in the Fund's
Declaration of Trust and agrees that the obligations assumed by the Fund or a
Fund, as the case may be, pursuant to this Agreement shall be limited in all
cases to the Fund or a Fund, as the case may be, and its assets, and the Adviser
shall not seek satisfaction of any such obligation from the shareholders or any
shareholder of the Fund. In addition, the Adviser shall not seek satisfaction of
any such obligations from the Trustees or any individual Trustee. The Adviser
understands that the rights and obligations of any Fund under the Declaration of
Trust are separate and distinct from those of any and all other Funds. The
Adviser further understands and agrees that no Fund of the Fund shall be liable
for any claims against any other Fund of the fund and that the Adviser must look
solely to the assets of the pertinent Fund of the Fund for the enforcement or
satisfaction of any claims against the Fund.
17. NOTICES. Any notice under this Agreement shall be in writing, and
shall be duly given if addressed and delivered or mailed postpaid, to the other
party at the principal office of such party.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
19. SEVERABILITY. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
LKCM FUND
By: _______________________________________
LUTHER KING CAPITAL MANAGEMENT CORPORATION
By: _______________________________________
<PAGE>
EXHIBIT 5.2
FEE SCHEDULE
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
LKCM FUND ("Fund")
and
LUTHER KING CAPITAL MANAGEMENT CORPORATION ("Adviser")
which is Dated as of ______, 1994
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, the Small Cap Equity Fund of the Fund
(the "Fund") will pay the Adviser a fee, computed by applying a quarterly rate,
equal on an annual basis to .75% of the Fund's average daily net assets for the
quarter.
2. This Fee Schedule shall be attached to and made a part of the
captioned Investment Advisory Agreement and is subject to all of its terms and
conditions.
IN WITNESS WHEREOF, the parties hereto have caused the Fee Schedule to
be executed by their designated officers as of _____, 1994.
LKCM SMALL CAP EQUITY FUND
By:____________________________________________________
LUTHER KING CAPITAL MANAGEMENT CORPORATION
By:____________________________________________________
<PAGE>
EXHIBIT 5.3
FEE SCHEDULE
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
LKCM FUND ("Fund")
and
LUTHER KING CAPITAL MANAGEMENT CORPORATION ("Adviser")
which is Dated as of ______, 1994
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, the LKCM Equity Fund of the Fund (the
"Fund") will pay the Adviser a fee, computed by applying a quarterly rate, equal
on an annual basis to .70% of the Fund's average daily net assets for the
quarter.
2. This Fee Schedule shall be attached to and made a part of the
captioned Investment Advisory Agreement and is subject to all of its terms and
conditions.
IN WITNESS WHEREOF, the parties hereto have caused the Fee Schedule to
be executed by their designated officers as of _____, 1995.
LKCM EQUITY FUND
By:____________________________________________________
LUTHER KING CAPITAL MANAGEMENT CORPORATION
By:____________________________________________________
<PAGE>
EXHIBIT 5.4
FEE SCHEDULE
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
LKCM FUNDS ("Fund")
and
LUTHER KING CAPITAL MANAGEMENT CORPORATION ("Adviser")
which is Dated as of ______, 1994
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, the LKCM Fixed Income Fund of the Fund
(the "Fund") will pay the Adviser a fee, computed by applying a quarterly rate,
equal on an annual basis to .50% of the Fund's average daily net assets for the
quarter.
2. This Fee Schedule shall be attached to and made a part of the
captioned Investment Advisory Agreement and is subject to all of its terms and
conditions.
IN WITNESS WHEREOF, the parties hereto have caused the Fee Schedule to
be executed by their designated officers as of _____, 1997.
LKCM FIXED INCOME FUND
By:____________________________________________________
LUTHER KING CAPITAL MANAGEMENT CORPORATION
By:____________________________________________________
<PAGE>
EXHIBIT 5.5
FEE SCHEDULE
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
LKCM FUNDS ("Fund")
and
LUTHER KING CAPITAL MANAGEMENT CORPORATION ("Adviser")
which is Dated as of ______, 1994
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, the LKCM Balanced Fund of the Fund (the
"Fund") will pay the Adviser a fee, computed by applying a quarterly rate, equal
on an annual basis to .65% of the Fund's average daily net assets for the
quarter.
2. This Fee Schedule shall be attached to and made a part of the
captioned Investment Advisory Agreement and is subject to all of its terms and
conditions.
IN WITNESS WHEREOF, the parties hereto have caused the Fee Schedule to
be executed by their designated officers as of _____, 1997.
LKCM BALANCED FUND
By:____________________________________________________
LUTHER KING CAPITAL MANAGEMENT CORPORATION
By:____________________________________________________
<PAGE>
EXHIBIT 6.1
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this ____ day of ________, 1997 (the
"Agreement") by and between LKCM Funds, a Delaware business trust (the
"Company") and First Data Distributors, Inc. (the "Distributor"), a
Massachusetts corporation.
WHEREAS, the Company is registered as a diversified, open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and is currently offering units of beneficial interest
(such units of all series are hereinafter called the "Shares"), representing
interests in investment portfolios of the Company identified on Schedule A
hereto (the "Funds") which are registered with the Securities and Exchange
Commission (the "SEC") pursuant to the Company's Registration Statement on Form
N-1A (the "Registration Statement"); and
WHEREAS, the Distributor and Luther King Capital Management Corporation
have entered into a consulting agreement (the "Consulting Agreement") with
regard to the provision of certain services; and
WHEREAS, the Distributor has agreed to enter into this Agreement as
consideration for Luther King Capital Management Corporation entering into the
Consulting Agreement.
WHEREAS, the Company desires to retain the Distributor as distributor
for the Funds to provide for the sale and distribution of the Shares of the
Funds identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date first written above.
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby the parties hereto
agree as follows:
1. SERVICE AS DISTRIBUTOR
1.1 The Distributor will act on behalf of the Company for the distribution
of the Shares covered by the Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"). The Distributor
will have no liability for payment for the purchase of Shares sold
pursuant to this Agreement or with respect to redemptions or
repurchases of Shares.
1.2 The Distributor agrees to use efforts deemed appropriate by the
Distributor to solicit orders for the sale of the Shares and will
undertake such advertising and promotion as it believes reasonable in
connection with such solicitation; provided, however, that each Fund
will bear the expenses incurred and other payments made in accordance
with the provisions of the Agreement and any plan now or hereafter
adopted with respect to any Fund pursuant to Rule 12b-1 under the 1940
Act (the "Plans"). To the extent that the Distributor receives
shareholder services fees under any shareholder services plan adopted
by the Company, the Distributor agrees to furnish, and/or enter into
arrangements with others for the furnishing of, personal and/or account
maintenance services with respect to the relevant shareholders of the
Company as may be required pursuant to such plan. It is contemplated
that the Distributor will enter into sales or servicing agreements with
securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate
planning firms.
1.3 The Company understands that the Distributor is now, and may in the
future be, the distributor of the shares of several investment
companies or series (collectively, the "Investment Entities"),
including Investment Entities having investment objectives similar to
those of the Company. The Company further understands that investors
and potential investors in the Company may invest in shares of such
other Investment Entities. The Company agrees that the Distributor's
duties to such Investment Entities shall not be deemed in conflict with
its duties to the Company under this Section 1.3.
<PAGE>
1.4 The Distributor shall not utilize any materials in connection with
the sale or offering of Shares except the Company's prospectus and
statement of additional information and such other materials as the
Company shall provide or approve.
1.5 All activities by the Distributor and its employees, as distributor of
the Shares, shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations
made or adopted by the SEC or the National Association of Securities
Dealers.
1.6 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent for the Company.
1.7 Whenever in its judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind,
the Company may decline to accept any orders for, or make any sales of,
the Shares until such time as the Company deems it advisable to accept
such orders and to make such sales, and the Company advises the
Distributor promptly of such determination.
1.8 The Distributor may enter into selling agreements with selected dealers
or other institutions with respect to the offering of Shares to the
public. Each such selling agreement will provide (a) that all payments
for purchases of Shares will be sent directly from the dealer or such
other institution to the Funds' transfer agent and (b) that, if payment
is not made with respect to purchases of Shares at the customary or
required time for settlement of the transaction, the Distributor will
have the right to cancel the sale of the Shares ordered by the dealer
or such other institution, in which case the dealer or such other
institution will be responsible for any loss suffered by any Fund or
the Distributor resulting from such cancellation. The Distributor may
also act as disclosed agent for a Fund and sell Shares of that Fund to
individual investors, such transactions to be specifically approved by
an officer of that Fund.
1.9 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended,
and all expenses in connection with maintaining facilities for the
issue and transfer of Shares and for supplying information, prices and
other data to be furnished by the Fund hereunder, and all expenses in
connection with the preparation and printing of the Fund's prospectuses
and statements of additional information for regulatory purposes and
for distribution to shareholders.
1.10 The Company agrees at its own expense to execute any and all documents
and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the
qualification of the Shares for sale in such states as the Distributor
may designate. The Company shall notify the Distributor in writing of
the states in which the Shares may be sold and shall notify the
Distributor in writing of any changes to the information contained in
the previous notification.
1.11 The Company shall furnish from time to time, for use in connection with
the sale of the Shares, such information with respect to the Company
and the Shares as the Distributor may reasonably request; and the
Company warrants that the statements contained in any such information
shall fairly show or represent what they purport to show or represent.
The Company shall also furnish the Distributor upon request with: (a)
audited annual statements and unaudited semi-annual statements of a
Fund's books and accounts prepared by the Company, (b) quarterly
earnings statements prepared by the Company, (c) a monthly itemized
list of the securities in the Funds, (d) monthly balance sheets as soon
as practicable after the end of each month, and (e) from time to time
such additional information regarding the financial condition of the
Company as the Distributor may reasonably request.
1.12 The Company represents to the Distributor that all Registration
Statements and prospectuses filed by the Company with the SEC under the
1933 Act with respect to the Shares have been prepared in conformity
with the requirements of the 1933 Act and the rules and regulations of
the SEC thereunder. As used in this Agreement, the term "Registration
Statement" shall mean any Registration Statement and any prospectus and
any statement of additional information relating to the Company filed
with the SEC and any amendments or supplements thereto at any time
filed with the SEC. Except as to information included in the
Registration Statement in reliance upon information provided to the
Company by the Distributor or any affiliate of the Distributor
expressly for use in the Registration Statement, the Company represents
and warrants to the Distributor that any Registration Statement, when
such Registration Statement becomes effective, will contain statements
required to be stated therein in conformity with the 1933 Act and the
<PAGE>
rules and regulations of the SEC; that all statements of fact contained
in any such Registration Statement will be true and correct when such
Registration Statement becomes effective; and that no Registration
Statement when such Registration Statement becomes effective will
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of the Shares. The
Company may but shall not be obligated to propose from time to time
such amendment or amendments to any Registration Statement and such
supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Company's counsel, be
necessary or advisable. The Company shall promptly notify the
Distributor of any advice given to it by its counsel regarding the
necessity or advisability of amending or supplementing such
Registration Statement. If the Company shall not propose such amendment
or amendments and/or supplement or supplements within fifteen days
after receipt by the Company of a written request from the Distributor
to do so, the Distributor may, at its option, terminate this Agreement.
The Company shall not file any amendment to any Registration Statement
or supplement to any prospectus without giving the Distributor
reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Company's right
to file at any time such amendments to any Registration Statements
and/or supplements to any prospectus, of whatever character, as the
Company may deem advisable, such right being in all respects absolute
and unconditional.
1.13 The Company authorizes the Distributor to use any prospectus or
statement of additional information in the form furnished from time to
time in connection with the sale of the Shares. The Company agrees to
indemnify and hold harmless the Distributor, its officers, directors,
and employees, and any person who controls the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless (a) from and
against any and all claims, costs, expenses (including reasonable
attorneys' fees) losses, damages, charges, payments and liabilities of
any sort or kind which the Distributor, its officers, directors,
employees or any such controlling person may incur under the 1933 Act,
under any other statute, at common law or otherwise, arising out of or
based upon: (i) any untrue statement, or alleged untrue statement, of a
material fact contained in the Company's Registration Statement,
prospectus, statement of additional information, or sales literature
(including amendments and supplements thereto), or (ii) any omission,
or alleged omission, to state a material fact required to be stated in
the Company's Registration Statement, prospectus, statement of
additional information or sales literature (including amendments or
supplements thereto), necessary to make the statements therein not
misleading, provided, however, that insofar as losses, claims, damages,
liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished to the Company
by the Distributor or its affiliated persons for use in the Company's
Registration Statement, prospectus, or statement of additional
information or sales literature (including amendments or supplements
thereto), such indemnification is not applicable; and (b) from and
against any and all such claims, demands, liabilities and expenses
(including such costs and counsel fees) which the Distributor, its
officers and directors, or such controlling person, may incur in
connection with this Agreement or the Distributor's performance
hereunder, unless such claims, demands, liabilities and expenses
(including such costs and counsel fees) arise by reason of the
Distributor's willful misfeasance, bad faith or negligence in the
performance of the Distributor's duties hereunder. The Company
acknowledges and agrees that in the event that the Distributor, at the
request of the Company, are required to give indemnification comparable
to that set forth in clause (a) of this Section 1.13 to any entity
selling Shares of the Company or providing shareholder services to
shareholders of the Company and such entity shall make a claim for
indemnification against the Distributor, the Distributor shall make a
similar claim for indemnification against the Company.
1.14 The Distributor agrees to indemnify and hold harmless the Company, its
several officers and Trustees and each person, if any, who controls a
Fund within the meaning of Section 15 of the 1933 Act against any and
all claims, costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind
which the Company, its officers, Trustees or any such controlling
person may incur under the 1933 Act, under any other statute, at common
law or otherwise, but only to the extent that such liability or expense
incurred by the Company, its officers or Trustees, or any controlling
person resulting from such claims or demands arose out of the
acquisition of any Shares by any person which may be based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in the Company's Registration Statement, prospectus or
statement of additional information (including amendments and
supplements thereto), or any omission, or alleged omission, to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement
<PAGE>
or omission was made in reliance upon information furnished or
confirmed in writing to the Company by the Distributor or its
affiliated persons (as defined in the 1940 Act), or as a result of the
Distributor's failure to comply with the terms of this Agreement.
1.15 In any case in which one party hereto (the "Indemnifying Party") may
be asked to indemnify or hold the other party hereto (the "Indemnified
Party") harmless, the Indemnified Party will notify the Indemnifying
Party promptly after identifying any situation which it believes
presents or appears likely to present a claim for indemnification (an
"Indemnification Claim") against the Indemnifying Party, although the
failure to do so shall not prevent recovery by the Indemnified Party,
and shall keep the Indemnifying Party advised with respect to all
developments concerning such situation. The Indemnifying Party shall
have the option to defend the Indemnified Party against any
Indemnification Claim which may be the subject of this indemnification,
and, in the event that the Indemnifying Party so elects, such defense
shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying
Party shall take over complete defense of the Indemnification Claim and
the Indemnified Party shall sustain no further legal or other expenses
in respect of such Indemnification Claim. The Indemnified Party will
not confess any Indemnification Claim or make any compromise in any
case in which the Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's prior written
consent. The obligations of the parties hereto under this Section 1.15
and Section 3.1 shall survive the termination of this Agreement.
In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such
suit, or in case the Distributor reasonably does not approve of counsel
chosen by the Company, or in case there is a conflict of interest
between the Company or the Distributor, the Company will reimburse the
Distributor, its officers, directors and employees, or the controlling
person or persons named as defendant or defendants in such suit, for
the fees and expenses of any counsel retained by the Distributor or
them. The Company's indemnification agreement contained in this Section
1.15 and Section 3.1 and the Company's representations and warranties
in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the
Distributor, its officers, directors and employees, or any controlling
person, and shall survive the delivery of any Shares. This agreement of
indemnity will inure exclusively to the Distributor's benefit, to the
benefit of its several officers, directors and employees, and their
respective estates and to the benefit of the controlling persons and
their successors. The Company agrees promptly to notify the Distributor
of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the
issue and sale of any Shares.
1.16 No Shares shall be offered by either the Distributor or the Company
under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company
if and so long as effectiveness of the Registration Statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b)(2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
Section 1.16 shall in any way restrict or have any application to or
bearing upon the Company's obligation to redeem Shares tendered for
redemption by any shareholder in accordance with the provisions of the
Company's Registration Statement, Declaration of Company, or bylaws.
1.17 The Company agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
(a) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement, prospectus
or statement of additional information then in effect or the initiation
by service of process on the Company of any proceeding for that
purpose;
(b) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement, prospectus or
statement of additional information then in effect or that requires the
making of a change in such Registration Statement, prospectus or
statement of additional information in order to make the statements
therein not misleading; and
<PAGE>
(c) of all actions of the SEC with respect to any amendments to any
Registration Statement, prospectus or statement of additional
information which may from time to time be filed with the SEC.
For purposes of this section, informal requests by or acts of the Staff
of the SEC shall not be deemed actions of or requests by the SEC.
2. TERM
2.1 This Agreement shall become effective on the date first written above
and, unless sooner terminated as provided herein, shall continue for an
initial two-year term and thereafter shall be renewed for successive
one-year terms, provided such continuance is specifically approved at
least annually by (i) the Company's Board of Trustees or (ii) by a vote
of a majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of
the outstanding voting securities of the Company, provided that in
either event the continuance is also approved by a majority of the
Trustees who are not parties to this Agreement and who are not
interested persons (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose
of voting on such approval. This Agreement is terminable without
penalty, on at least sixty days' written notice, by the Company's Board
of Trustees, by vote of a majority (as defined in the 1940 Act and Rule
18f-2 thereunder) of the outstanding voting securities of the Company,
or by the Distributor. This Agreement will also terminate automatically
in the event of its assignment (as defined in the 1940 Act and the
rules thereunder).
2.2 In the event a termination notice is given by the Company, all
reasonable expenses associated with movement of records and materials
and conversion thereof will be borne by the Company.
3. LIMITATION OF LIABILITY
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under
this Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its reckless disregard thereof.
3.2 Neither party may assert any cause of action against the other party
under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings)
alleging such cause of action.
3.3 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.4 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR LOST
PROFITS OR CONSEQUENTIAL DAMAGES.
4. EXCLUSION OF WARRANTIES
THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, THE DISTRIBUTOR DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE COMPANY, A FUND OR ANY
OTHER PERSON, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING
QUALITY, SUITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM OR USAGE OF
TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES
PROVIDED UNDER THIS AGREEMENT. THE DISTRIBUTOR DISCLAIMS ANY WARRANTY
OF TITLE OR NON- INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
5. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by
each party. No such writing shall be effective as against the
Distributor unless
<PAGE>
said writing is executed by a Senior Vice President, Executive Vice
President or President of the Distributor. A party's waiver of a breach
of any term or condition in the Agreement shall not be deemed a waiver
of any subsequent breach of the same or another term or condition.
6. NO PRESUMPTION AGAINST DRAFTER
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and
no presumptions arise favoring any party by virtue of the authorship of
any provision of this Agreement.
7. PUBLICITY
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating
to this Agreement or to the transactions contemplated by it without
prior review and written approval of the other party; provided,
however, that either party may make such disclosures as are required by
legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other
party.
8. SEVERABILITY
The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or
invalidity shall not affect the validity of the remainder of this
Agreement. In such case, the parties shall in good faith modify or
substitute such provision consistent with the original intent of the
parties. Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall
remain fully effective.
9. FORCE MAJEURE
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default
or delay is caused, directly or indirectly, by (i) fire, flood,
elements of nature or other acts of God; (ii) any outbreak or
escalation of hostilities, war, riots or civil disorders in any
country, (iii) any act or omission of the other party or any
governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to
satisfy); or (v) nonperformance by a third party or any similar cause
beyond the reasonable control of such party, including without
limitation, failures or fluctuations in telecommunications or other
equipment. In any such event, the non-performing party shall be excused
from any further performance and observance of the obligations so
affected only for so long as such circumstances prevail and such party
continues to use commercially reasonable efforts to recommence
performance or observance as soon as practicable.
10. MISCELLANEOUS
10.1 Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Company or the Distributor shall be
sufficiently given if addressed to the party and received by it at its
office set forth below or at such other place as it may from time to
time designate in writing.
To the Company:
LKCM Fund
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102
To the Distributor:
First Data Distributors, Inc.
4400 Computer Drive
<PAGE>
Westboro, Massachusetts 01581
Attention: President
with a copy to the Distributor's Chief Legal Officer
10.2 The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, and the applicable provisions of the 1940 Act shall
govern the interpretation, validity, and enforcement of this Agreement.
To the extent the provisions of Massachusetts law or the provisions
hereof conflict with the 1940 Act, the 1940 Act shall control.
10.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
10.4 The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
10.5 This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and is not intended
to confer upon any other person any rights or remedies hereunder.
11. CONFIDENTIALITY
11.1 The parties agree that the Proprietary Information (defined below) and
the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their
respective licensers. The Company and the Distributor shall exercise
reasonable care to safeguard the confidentiality of the Confidential
Information of the other. The Company and the Distributor may each use
the Confidential Information only to exercise its rights or perform its
duties under this Agreement. The Company and the Distributor shall not
duplicate, sell or disclose to others the Confidential Information of
the other, in whole or in part, without the prior written permission of
the other party. The Company and the Distributor may, however, disclose
Confidential Information to its employees who have a need to know the
Confidential Information to perform work for the other, provided that
each shall use reasonable efforts to ensure that the Confidential
Information is not duplicated or disclosed by its employees in breach
of this Agreement. The Company and the Distributor may also disclose
the Confidential Information to independent contractors, auditors and
professional advisors, provided they first agree in writing to be bound
by the confidentiality obligations substantially similar to this
Section 11. Notwithstanding the previous sentence, in no event shall
either the Company or the Distributor disclose the Confidential
Information to any competitor of the other without specific, prior
written consent.
11.2 Proprietary Information means:
(a) any data or information that is completely sensitive material, and
not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance,
operations, customer relationships, customer profiles, sales estimates,
business plans, and internal performance results relating to the past,
present or future business activities of the Company or the
Distributor, their respective subsidiaries and affiliated companies and
the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or the
Distributor a competitive advantage over its competitors: and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
11.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and
<PAGE>
models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the
other.
11.4 The Company acknowledges that breach of the restrictions on use,
dissemination or disclosure of any Confidential Information would
result in immediate and irreparable harm, and money damages would be
inadequate to compensate the Distributor for that harm. The Distributor
shall be entitled to equitable relief, in addition to all other
available remedies, to redress any such breach.
12. The Company and the Distributor agree that the obligations of the
Company under the Agreement shall not be binding upon any of the
Trustees, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Company individually, but are
binding only upon the assets and property of the Company, as provided
in the Declaration of Trust. The execution and delivery of this
Agreement have been authorized by the Directors of the Company, and
signed by an authorized officer of the Company, acting as such, and
neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of
them or any shareholder of the Company individually or to impose any
liability on any of them or any shareholder of the Company personally,
but shall bind only the assets and property of the Company as provided
in the Declaration of Trust.
13. ENTIRE AGREEMENT
This Agreement, including all Schedules hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous proposals, agreements,
contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
LKCM FUND
By:_________________________
Name:_______________________
Title:________________________
FIRST DATA DISTRIBUTORS, INC.
By:_________________________
Name:_______________________
Title:________________________
<PAGE>
SCHEDULE A
to the Distribution Agreement
between LKCM Fund and
First Data Distributors, Inc.
NAME OF FUNDS
LKCM Small Cap Equity Portfolio
LKCM Equity Portfolio
22
EXHIBIT 6.2
CONSULTING AGREEMENT
AGREEMENT made as of this ___ day of ________, 1997 between Luther King
Capital Management Corporation ("LKCM"), a Delaware corporation, and First Data
Distributors, Inc. ("FDDI"), a Massachusetts corporation.
WHEREAS, LKCM serves as investment adviser to certain investment
portfolios or series of one or more open-end management investment companies
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as listed on Schedule A, as such Schedule shall automatically be amended
from time to time (each a "Fund" and collectively the "Funds");
WHEREAS, certain employees of LKCM will be registered with the National
Association of Securities Dealers, Inc. ("NASD") as representatives of FDDI
)such persons shall hereinafter be referred to as "Registered Representatives");
WHEREAS, such Registered Representatives will be wholesaling the Funds'
Shares and will also be actively selling investment advisory services of LKCM, a
registered investment adviser to clients;
WHEREAS, LKCM and FDDI desire to enter into this Agreement pursuant to
which LKCM will perform certain services for FDDI with regard to monitoring the
performance of Registered Representatives and FDDI will perform certain services
for LKCM with respect to Shares of each Fund; and
WHEREAS, LKCM has agreed to enter into this Agreement as consideration
for FDDI entering into the Distribution Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties agree as follows:
1. SERVICES PROVIDED BY FDDI. FDDI will assist LKCM in providing
services with respect to each Fund as may reasonably by requested by LKCM from
time to time. At the direction of LKCM, specific assignments may include any of
the following:
(a) The forwarding of sales related complaints concerning the
Fund to LKCM;
(b) Coordination of registration of the Fund with the National
Securities Clearing Corporation ("NSCC") and filing of required
Fund/SERV reports with NSCC;
(c) The provision of advice and counsel to the Funds with
respect to regulatory matters, including monitoring regulatory and
legislative developments that may affect the Funds and assisting the
Funds in routine regulatory examinations or investigations;
(d) Assistance in the Funds' operations and provision of
general consulting services on a day to day, as needed, basis;
(e) Assistance in the preparation of quarterly board materials
with regard to sales and other distribution related data reasonably
requested by the board;
(f) Preparation of materials for the board supporting the
annual renewal of the Distribution Agreement;
(g) In connection with the foregoing activities, maintenance
of an office facility (which may be in the offices of LKCM or a
corporate affiliate); and
23
<PAGE>
(h) In connection with the foregoing activities, the
furnishing of clerical services and internal executive and
administrative services, stationery and office supplies.
FDDI will keep and maintain all books and records relating to its
services in accordance with Rule 31a-1 under the 1940 Act.
2. Services Provided by LKCM. In furtherance of the responsibilities
under this Agreement, LKCM will:
(a) monitor the performance of the Registered Representatives
with respect to compliance with the NASD's Rules of Conduct, and in
particular the NASD's interpretation of the applicability of Section
3040 of the NASD's Rules of Conduct to certain activities of persons
registered as representatives with an NASD member and an investment
adviser with the SEC, and who conduct their advisory activities away
from the NASD employer/member as described in the NASD's Special Notice
to Members 94-44;
(b) cause the registration of the Shares under the Securities
Act of 1933 (the "1933 Act") and the qualification for the Shares for
sale in those states that the Funds may designate;
(c) monitor or cause the Funds' transfer agent to monitor
sales of Shares with respect to compliance with applicable state
securities and Blue Sky laws;
(d) provide consulting services with regard to such
advertising, marketing and promotional activities as LKCM believes
reasonable, including but not limited to (i) development of
information, analyses and reports, (ii) preparing, printing and
distributing sales literature brochures, letters, training materials
and dealer guides and all similar materials and advertisements as
defined below; (iii) develop and implement audio and video advertising
programs; and (iv) arrange for the printing and distribution of
prospectuses and reports of the Funds to prospective shareholders;
provided that it is understood that FDDI shall have no responsibility
for strategic planning or development with respect to such matter. For
purposes of this Agreement, "sales literature" and "advertisements"
mean brochures, letters, electronic media, training materials and
dealers' guides materials for oral presentations and all other similar
materials, whether transmitted directly to potential shareholders or
published in print or audio visual media, but does not include generic
materials that do not mention the Funds or the Shares;
(e) submit all consulting related sales literature and
advertisements prepared pursuant to Section 1(d) above to FDDI for
legal/compliance review in advance of use, and incorporate such changes
as FDDI may reasonably request therein. FDDI will file such materials
and obtain such approvals for their use as may be required by the SEC,
NASD or state securities commissioners;
(f) identify persons employed by Luther king that will become
Registered Representatives and assist FDDI in ascertaining that such
persons meet all requirements established for being a Registered
Representative by the SEC, NASD and relevant state securities
commissions;
(g) report sales-related complaints to FDDI and consult with
FDDI concerning the manner in which such complaints will be addressed;
(h) to the extent applicable, cause the Funds' transfer agent
to give necessary information for the presentation of quarterly reports
in a form reasonably satisfactory to FDDI regarding any Rule 12b- 1
fees, front-end sales loads, back-end sales loads and other data
regarding sales and sales loads as required by the 1940 Act or as
requested by the board of trustees of the applicable investment
companies listed on Schedule A;
(i) to the extent applicable, cause the Funds' transfer agent
to provide FDDI with all necessary historical information so that FDDI
can calculate the maximum sales charges payable by the Funds pursuant
to the Rules of Conduct of the NASD and the actual sales charges paid
by the Funds; cause the Funds' transfer agent to provide FDDI with all
of the necessary information so that FDDI can
24
<PAGE>
calculate the maximum sales charges payable by the Funds pursuant to
the Rules of Conduct of the NASD and the actual sales charges paid by
the Funds; and cause the Funds' transfer agent to provide such
information in a form satisfactory to FDDI no less often than monthly
for every Fund and on a daily basis for any Fund for which FDDI
determines that the remaining limit is approaching zero;
(j) support or cause the Funds' transfer agent to support the
servicing of the shareholders; in connection therewith the Funds'
transfer agent or LKCM will provide one or more persons during normal
business hours to respond to telephone questions concerning the Funds;
(k) provide FDDI with copies of, or access to, any documents
that FDDI may reasonably request and notify FDDI as soon as possible of
any matter materially affecting FDDI's performance of services under
this Agreement;
(l) (i) identify persons to enter into agreements with FDDI
for the solicitation of Fund Shares, such as securities dealers,
financial institutions and other industry professionals such as
investment advisers and estate planning firms (collectively referred to
herein as "Selling Broker Dealers"); (ii) assist FDDI in ascertaining
that such persons meet any requirements established for Selling Broker
Dealers by law, the Funds or FDDI; (iii) request that FDDI enter into
selling agreements with each such Selling Broker Dealer ("Selling
Agreements") using a request form (the "Selling Agent Request Form")
substantially similar to the attached Exhibit B signed by a duly
authorized officer or employee of LKCM (who shall be a person listed on
Exhibit B until such time as LKCM amends or supplements such list) and
LKCM will assist in the performance of the necessary due diligence to
determine the qualification of the prospective Selling Broker Dealer
pursuant to clause (ii) above, (iv) submit such Selling Agent Request
Form and all related due diligence materials that LKCM may have to
FDDI; (v) assist FDDI in coordinating the execution of Selling
Agreements between FDDI and the Selling Broker Dealers; and (vi) use
its best efforts to insure that no sales are executed or processed
prior to obtaining an executed Selling Agreement from the Selling
Broker Dealer making the sale;
(m) provide administrative support (e.g. telemarketing and
fulfillment services) with regard to, and use its best efforts to
monitor the performance of, the Selling Broker Dealers in their
solicitation and execution of sales of the Shares and all activities
related thereto, including compliance with applicable law, the Selling
Agreements and the multi-class procedures;
(n) use reasonable efforts to monitor the Selling Broker
Dealers and the Registered Representatives in their resolution of as of
trades with respect to Shares of the Funds in order to mitigate the
risk of loss to FDDI and the Funds from such trades;
(o) report to FDDI, to the extent that LKCM is aware, any and
all actions or inactions by any Selling Broker Dealer or Registered
Representative that, to a material extent, (i) fail to comply with the
terms of any Selling Agreements; (ii) violate any applicable laws of
any governmental authorities, including the NASD's Rules of Conduct, or
(iii) violate any other agreements or procedures with which such
Selling Broker Dealer is required to comply; and
(p) (i) submit the form of confirmation statement to be used
for the sale of the Shares to FDDI for its approval and provide or
cause to be provided to customers of the Selling Broker Dealers
("Customers") and to Selling Broker Dealers such confirmations of all
transactions in the Shares as may be required by the 1934 Act and the
Selling Agreements; and (ii) use reasonable efforts to monitor the
Fund's transfer agent in its preparation and mailing of such
confirmations regarding the sales of the Shares and report to FDDI any
deficiencies of which LKCM is aware in the transfer agent's performance
of such activities.
3. DELIVERY OF DOCUMENTS. In order to assist FDDI in the performance
of its duties, LKCM has caused each Fund to furnish FDDI with, or provide FDDI
with access to, each of the following:
25
<PAGE>
(a) Each Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A (the "Registration Statement")
under the Securities Act of 1933, as amended, and under the 1940 Act as
filed with the SEC relating to each Fund's Shares;
(b) Each Fund's most recent Prospectus(es);
(c) Each Fund's most recent Statement(s) of Additional
Information;
(d) Each Fund's most recent annual and semi-annual financial
statements;
(e) Each Fund's most recent filings pursuant to Rule
24f-2/24e-2 under the 1940 Act;
(f) Each Fund's most recent SEC examination letter to the
extent that such information contained in the SEC letter (i) materially
affects FDDI's performance under this Agreement, or (ii) the issues
identified in the letter may result in FDDI incurring any loss, claim,
damage or liability or action in respect thereof; and
(g) The Trust's charter documents and by-laws.
LKCM will furnish FDDI from time to time with copies of, or access to,
all amendments of or supplements to the foregoing. Furthermore, LKCM will
provide FDDI with copies of, or access to, any other documents that FDDI may
reasonably request and will notify FDDI as soon as possible of any matter
materially affecting FDDI's performance of its services under this Agreement.
4. COMPENSATION; REIMBURSEMENT OF EXPENSES. LKCM shall pay FDDI for the
services provided under this Agreement an annual fee of $10,000 per Fund payable
in equal monthly installments of the first business day of each month; provided,
however, that in no event shall the annual fee be less than $25,000.
Compensation under this Agreement shall be calculated and accrued daily and the
amounts of the daily accruals shall be paid monthly in arrears. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees set forth above. In addition, LKCM agrees to
reimburse FDDI for FDDI's reasonable out-of-pocket expenses in providing
services hereunder, as mutually agreed to in writing by the parties from time to
time.
5. EFFECTIVE DATE. This Agreement shall become effective with respect
to a Fund as of the date first written above (or, if a particular Fund is nor in
existence on that date, on the date FDDI becomes the distributor of the Shares
of such Fund; Schedule A to this Agreement shall be deemed amended to include
such Fund from and after such date).
6. TERM.
(a) This Agreement shall continue for an initial two year
period and shall continue thereafter for successive one year terms
unless terminated pursuant to the provision of sub-section (b) of this
Section 6.
(b) This Agreement shall automatically terminate as it relates
to any Fund upon the termination of the Distribution Agreement between
such Fund and FDDI or this Agreement may be terminated with respect to
any Fund at any time without payment of any penalty, upon 60 days'
written notice, by vote of a majority of the Board of Trustees of a
Fund. In any event, the provisions of Section 8 shall survive
termination of this Agreement and continue in fill force and effect.
Compensation due FDDI and unpaid by LKCM upon such termination shall be
immediately due and payable upon and notwithstanding such termination.
7. STANDARD OF CARE; INDEMNIFICATION AND LIMITATION ON CONSEQUENTIAL
DAMAGES
26
<PAGE>
(a) LKCM will indemnify and hold FDDI harmless from and
against any losses, claims, damages or liabilities, or actions in
respect thereof, to which FDDI may become subject, including amounts
paid in settlement with the prior written consent of LKCM, insofar as
such losses, claims, damages or liabilities, or actions is respect
thereof, arise out of or result from:
(i) the failure of LKCM to comply with the terms of
this Agreement;
(ii) any use of sales materials or advertisements or
any oral or written misrepresentations or any unlawful sales
practices concerning the Shares by a Registered Representative
if such misrepresentations or unlawful sales practices were
the direct result of LKCM's bad faith, willful misfeasance,
negligence or reckless disregard of their duties and
obligations under this Agreement;
(iii) the failure of any Selling Broker Dealer (as
referenced in Exhibit C) to have entered into a Selling
Agreement with FDDI prior to the execution of any sale of
Shares of any Fund; and
(iv) the failure of any Selling Broker Dealer to
comply with the terms of any Selling Agreement to which it is
a party if such failure to comply was the direct result of
LKCM's bad faith, willful misfeasance, negligence or reckless
disregard of its duties and obligations under this Agreement.
(b) FDDI will indemnify and hold harmless LKCM from and
against any losses, claims, damages or liabilities, or actions in
respect thereof, to which LKCM may become subject, including amounts
paid in settlement with the prior written consent of FDDI, insofar as
such losses, claims, damages or liabilities, or actions in respect
thereof, arise out of or result from:
(i) the failure of FDDI to comply with the terms of
this Agreement;
(ii) the failure of FDDI to comply with the NASD's
Rules of Conduct;
(iii) any use of sales materials or advertisements or
any oral or written misrepresentations or any unlawful sales
practices concerning the Shares by a Registered Representative
if such misrepresentations or unlawful sales practices were
the direct result of FDDI's bad faith, willful misfeasance,
negligence or reckless disregard of their duties and
obligations under this Agreement; and
(iv) the failure of any Selling Broker Dealer to
comply with the terms of any Selling Agreement to which it is
a party if such failure to comply was the direct result of
FDDI's bad faith, willful misfeasance, negligence or reckless
disregard of its duties and obligations under this Agreement.
(c) LKCM will reimburse FDDI for reasonable legal or other
expenses reasonably incurred by FDDI in connection with investigating
or defending against any such loss, claims, damage, liability or
action. LKCM shall not be liable to FDDI for any action taken or
omitted by FDDI in bad faith, with willful misfeasance or negligence or
from reckless disregard by FDDI of its obligations and duties. The
indemnities in this Section shall, upon the same terms and conditions,
extend to and inure to the benefit of each of the directors and
officers of FDDI and any person controlling FDDI within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act.
(d) FDDI will reimburse LKCM for reasonable legal or other
expenses reasonably incurred by LKCM in connection with investigating
or defending against any such loss, claims, damage, liability or
action. FDDI shall not be liable to LKCM for any action taken or
omitted by LKCM in bad faith, with willful misfeasance or negligence or
from reckless disregard by LKCM of its obligations and duties. The
indemnities in this Section shall, upon the same terms and conditions,
extend to and inure to the benefit of
27
<PAGE>
each of the directors and officers of LKCM and any person controlling
LKCM within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act.
(e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, IN NO EVENT SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS
OR THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE
LIABLE FOR LOST PROFITS OR CONSEQUENTIAL DAMAGES.
8. RECORD RETENTION AND CONFIDENTIALITY. FDDI shall keep and maintain
on behalf of the Funds all books and records which the Funds and FDDI are, or
may be, required to keep and maintain in connection with the services to be
provided hereunder pursuant to any applicable statutes, rules and regulations,
including without limitation Rules 31a-1 and 31a-2 under the 1940 act. FDDI
further agrees that all such books and records shall be the property of the
Funds and to make such books and records available for inspection by or upon the
request of the Funds, by LKCM, or by the SEC at reasonable times and otherwise
to keep confidential all books and records and other information relative to the
Funds and its shareholders; except when requested to divulge such information by
duly constituted authorities or court process.
9. RIGHTS OF OWNERSHIP. All computer programs and procedures developed
to perform the services to be provided by FDDI under this Agreement are the
property of FDDI. All records and other data except such computer programs and
procedures are the exclusive property of the Funds and all such other records
and data will be furnished to LKCM and/or the funds in appropriate form as soon
as practicable after termination of this Agreement for any reason.
10. RETURN OF RECORDS. FDDI may at its option at any time, and shall
promptly upon the demand of LKCM and/or the Funds, turn over to LKCM and/or the
Funds and cease to retain FDDI's files, records and documents created and
maintained by FDDI pursuant to this Agreement which are no longer needed by FDDI
in the performance of its services or for its legal protection. If not so turned
over to LKCM and/or the Funds, such documents and records will be retained by
FDDI for six years from the year of creation. At the end of such six-year
period, such records and documents will returned over to LKCM and/or the
applicable Fund unless the applicable Fund authorizes in writing the destruction
of such records and documents.
11. REPRESENTATIONS OF LKCM. LKCM represents and warrants that this
Agreement has been duly authorized by LKCM and, when executed and delivered by
LKCM, will constitute a legal, valid and binding obligation of LKCM, enforceable
against LKCM in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
12. Representations of FDDI. (a) FDDI represents and warrants that this
Agreement has been duly authorized by FDDI and, when executed and delivered by
FDDI, will constitute a legal, valid and binding obligation of FDDI, enforceable
against FDDI in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
(b) FDDI further represents and warrants that it is a member
of the NASD and agrees to abide by all of the rules and regulations of the NASD.
FDDI agrees to comply with all applicable federal and state laws, rules and
regulations. FDDI agrees to notify LKCM immediately in the event of its
expulsion or suspension by the NASD. Expulsion of FDDI by the NASD will
automatically terminate this Agreement immediately without notice. Suspension of
FDDI by the NASD will terminate this Agreement effective immediately upon
written notice of termination to FDDI from LKCM.
13. Notices. Any notice provided hereunder shall be sufficiently given
when sent by registered or certified mail to the following:
To LKCM:
Luther King Capital Management Corporation
28
<PAGE>
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102
Attention: Chief Operating Officer
To FDDI:
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDDI's Chief Legal Officer
14. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
15. ASSIGNMENT. This Agreement and the rights and duties hereunder
shall not be assignable by either of the parties hereto except by the specific
written consent of the other party.
16. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the Common wealth of
Massachusetts.
29
<PAGE>
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
LUTHER KING CAPITAL
MANAGEMENT CORPORATION
By:_________________________
Name:_______________________
Title:________________________
FIRST DATA DISTRIBUTORS, INC.
By:_________________________
Name:_______________________
Title:________________________
31
<PAGE>
SCHEDULE A
NAME OF FUNDS
LKCM FUND
LKCM Small Cap Equity Portfolio
LKCM Equity Portfolio
<PAGE>
Exhibit B
SELLING AGREEMENT REQUEST FORM
To: ________________________________
From: ________________________________
Telephone #: ______________ Fax #: __________________
Proposed selling agent name and address:
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
Type of agreement (check one):
______ Bank Agreement
______ Bank Affiliated Broker-Dealer Agreement
______ Broker-Dealer Agreement
______ Registered Investment Adviser Agreement
- ---------------------------------
Authorized LKCM Representative
(Attached hereto as Attachment 1 is a list of Authorized LKCM Representatives)
<PAGE>
Attachment 1
AUTHORIZED LUTHER KING REPRESENTATIVES
The following individuals are authorized to request the issuance of
sales agreements to clients and/or potential clients of the LKCM Fund:
Jacqui Brownfield
<PAGE>
Exhibit C
SELLING AGENTS THAT HAVE ENTERED INTO SELLING
AGREEMENTS WITH FIRST DATA DISTRIBUTORS, INC.
<PAGE>
EXHIBIT 8.1
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT made on _______________, 1997, between LKCM Fund,
a Delaware Trust which currently consists of two Funds, the LKCM Equity Fund and
the LKCM Small Cap Equity Fund (hereinafter called the ("Funds"), and FIRSTAR
TRUST COMPANY, a corporation organized under the laws of the State of Wisconsin
(hereinafter called "Custodian"),
WHEREAS, the Funds desire that its securities and cash shall be
hereafter held and administered by Custodian pursuant to the terms of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
made, the Funds and Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares,
bonds, debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or
direction or certification in writing signed in the name of any one of the Funds
by any two of the President, a Vice President, the Secretary and the Treasurer
of any one of the Funds, or any other persons duly authorized to sign by the
Board of Trustees.
The word "Board" shall mean Board of Trustees of LKCM Fund.
2. NAMES, TITLES, AND SIGNATURES OF THE FUNDS' OFFICERS
An officer of each of the Funds will certify to Custodian the
names and signatures of those persons authorized to sign the officers'
certificates described in Section 1 hereof, and the names of the members of the
Board of Trustees, together with any changes which may occur from time to time.
The LKCM Fund is authorized to issue separate series of shares of
beneficial interest representing interests in separate investment Funds. The
parties intend that each Fund established by the trust, now or in the future, be
covered by the terms and conditions of this agreement.
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or
accounts in the name of each of the Funds, subject only to draft or order by
Custodian acting pursuant to the terms of this Agreement. Custodian shall hold
in such account or accounts, subject to the provisions hereof, all cash received
by it from or for the account of each of the Funds. Custodian shall make
payments of cash to, or for the account of, each of the Funds from such cash
only:
(a) for the purchase of securities for any one of the Funds
upon the delivery of such securities to Custodian,
registered in the name of any one of the Funds or of the
nominee of Custodian referred to in Section 7 or in proper
form for transfer;
<PAGE>
(b) for the purchase or redemption of shares of the common
stock of any one of the Funds upon delivery thereof to
Custodian, or upon proper instructions from the
LKCM Fund;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing
and custodian services and expenses for printing and
postage);
(d) for payments in connection with the conversion, exchange
or surrender of securities owned or subscribed to by
any one of the Funds held by or to be delivered to
Custodian; or
(e) for other proper corporate purposes certified by
authorized officer of the Fund.
Before making any such payment, Custodian shall receive (and may
rely upon) an officers' certificate requesting such payment and stating that it
is for a purpose permitted under the terms of items (a), (b), (c), or (d) of
this Subsection A, and also, in respect of item (e), upon receipt of an
officers' certificate specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom such payment
is to be made, provided, however, that an officers' certificate need not precede
the disbursement of cash for the purpose of purchasing a money market
instrument, or any other security with same or next-day settlement, if the
President, a Vice President, the Secretary or the Treasurer of any one of the
Funds issues appropriate oral or facsimile instructions to Custodian and an
appropriate officers' certificate is received by Custodian within two business
days thereafter.
B. Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by Custodian
for the account of each of the Funds.
C. Custodian shall, upon receipt of proper instructions, make
federal funds available to the Funds as of specified times agreed upon from time
to time by the Funds and the custodian in the amount of checks received in
payment for shares of the Funds which are deposited into any one of the Funds'
account.
4. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall
establish and maintain a segregated account(s) for and on behalf of the Fund,
into which account(s) may be transferred cash and/or securities.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any
securities of the Funds held by it pursuant to this Agreement. Custodian agrees
to transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of any one
of the Funds upon receipt by Custodian of payment
therefore;
(b) when such securities are called, redeemed or retired or
otherwise become payable;
(c) for examination by any broker selling any such securities
in accordance with "street delivery" custom;
<PAGE>
(d) in exchange for, or upon conversion into, other securities
alone or other securities and cash whether pursuant to
any plan of merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms
into other securities;
(f) upon exercise of subscription, purchase or other similar
rights represented by such securities;
(g) for the purpose of exchanging interim receipts or
temporary securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common
stock of any one of the Funds upon delivery thereof to
Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a),
(b), (d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian
shall receive (and may rely upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is for a purpose permitted
under the terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this
Section 5 and also, in respect of item (i), upon receipt of an officers'
certificate specifying the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom delivery of such
securities shall be made, provided, however, that an officers' certificate need
not precede any such transfer, exchange or delivery of a money market
instrument, or any other security with same or next-day settlement, if the
President, a Vice President, the Secretary or the Treasurer of the Funds issues
appropriate oral or facsimile instructions to Custodian and an appropriate
officers' certificate is received by Custodian within two business days
thereafter.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to
the contrary, Custodian shall: (a) present for payment all coupons and other
income items held by it for the account of any one of the Funds, which call for
payment upon presentation and hold the cash received by it upon such payment for
the account of any one of the Funds; (b) collect interest and cash dividends
received, with notice to any one of the Funds, for the account of the particular
Funds; (c) hold for the account of each of the Funds hereunder all stock
dividends, rights and similar securities issued with respect to any securities
held by it hereunder; and (d) execute, as agent on behalf of each of the Funds,
all necessary ownership certificates required by the Internal Revenue Code or
the Income Tax Regulations of the United States Treasury Department or under the
laws of any state now or hereafter in effect, inserting any one of the Funds'
name on such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so.
7. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate,
Custodian shall register all securities, except such as are in bearer form, in
the name of a registered nominee of Custodian as defined in the Internal Revenue
Code and any Regulations of the Treasury Department issued hereunder or in any
provision of any subsequent federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. Custodian shall use its best efforts
to the end that the specific securities held by it hereunder shall be at all
times identifiable in its records.
<PAGE>
The Funds shall from time to time furnish to Custodian
appropriate instruments to enable Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered nominee, any
securities which it may hold for the account of any one of the Funds and which
may from time to time be registered in the name of any one of the Funds.
8. VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of
the securities held hereunder by or for the account of the Funds, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Funds), but without
indicating the manner in which such proxies are to be voted.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
The Funds shall pay or reimburse Custodian from time to time for
any transfer taxes payable upon transfers of securities made hereunder, and for
all other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in
connection with securities delivered to it or by it under this Agreement as may
be required under the provisions of the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, or under the laws of
any state, to exempt from taxation any exemptable transfers and/or deliveries of
any such securities.
10. CONCERNING CUSTODIAN
Custodian shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto. .
Custodian shall not be liable for any action taken in good faith
upon any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.
The Funds agree to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the Funds for such
items.
In the event of any advance of cash for any purpose made by Custodian resulting
from orders or instructions of the Funds, or in the event that Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Agreement,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the Funds shall be security therefore.
Custodian agrees to indemnify and hold harmless each of the Funds from all
charges, expenses, assessments, and claims/liabilities (including counsel fees)
incurred or assessed against it in connection with the performance of this
agreement, except such as may arise from the Funds' own negligent action,
negligent failure to act, or willful misconduct.
<PAGE>
11. SUBCUSTODIANS
Custodian is hereby authorized to engage another bank or trust
company as a Subcustodian for all or any part of the Funds' assets, so long as
any such bank or trust company is a bank or trust company organized under the
laws of any state of the United States, having an aggregate capital, surplus and
undivided profit, as shown by its last published report, of not less than Two
Million Dollars ($2,000,000) and provided further that, if the Custodian
utilizes the services of a Subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to the Funds by the Subcustodian as fully
as if the Custodian was directly responsible for any such losses under the terms
of the Custodian Agreement.
Notwithstanding anything contained herein, if the Funds require
the Custodian to engage specific Subcustodians for the safekeeping and/or
clearing of assets, the Funds agree to indemnify and hold harmless Custodian
from all claims, expenses and liabilities incurred or assessed against it in
connection with the use of such Subcustodian in regard to the Funds' assets,
except as may arise from its own negligent action, negligent failure to act or
willful misconduct.
12. REPORTS BY CUSTODIAN
Custodian shall furnish the Funds periodically as agreed upon
with a statement summarizing all transactions and entries for the account of
each of the Funds. Custodian shall furnish to the Funds, at the end of every
month, a list of each of the Funds' securities showing the aggregate cost of
each issue. The books and records of Custodian pertaining to its actions under
this Agreement shall be open to inspection and audit at reasonable times by
officers of, and of auditors employed by, the Funds.
13. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by the Funds, or by Custodian,
on ninety (90) days notice, given in writing and sent by registered mail to:
Firstar Trust Company
615 E. Michigan St.
Milwaukee, WI 53202
or the Funds to:
LKCM Fund
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
as the case may be. Upon any termination of this Agreement, pending appointment
of a successor to Custodian or a vote of the shareholders of the Funds to
dissolve or to function without a custodian of its cash, securities and other
property, Custodian shall not deliver cash, securities or other property of the
Funds to the Funds, but may deliver them to a bank or trust company of its own
selection, having an aggregate capital, surplus and undivided profits, as shown
by its last published report of not less than Two Million Dollars ($2,000,000)
as a Custodian for the Funds to be held under terms similar to those of this
Agreement, provided, however, that Custodian shall not be required to make any
such delivery or payment until full payment shall have been made by the Funds of
all liabilities constituting a charge on or against the properties then held by
Custodian or on or against Custodian, and until full payment shall have been
made to Custodian of all its fees, compensation, costs and expenses, subject to
the provisions of Section 10 of this Agreement.
This Agreement may not be assigned by Custodian without the
consent of the Funds, authorized or approved by a resolution of its Board of
Trustees.
<PAGE>
14. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use
by Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Trustees of the Funds approve by resolution the
use of such central securities clearing agency or securities depository.
15. RECORDS
To the extent that Custodian in any capacity prepares or
maintains any records required to be maintained and preserved by the Funds
pursuant to the provisions of the Investment Company Act of 1940, as amended, or
the rules and regulations promulgated thereunder, Custodian agrees to make any
such records available to the Funds upon request and to preserve such records
for the periods prescribed in Rule 31a-2 under the Investment Company Act of
1940, as amended.
16. NOTICES
Notices of any kind to be given by either party to the other
party shall be in writing and shall be duly given if mailed or delivered as
follows: Notice to FTC shall be sent to:
Firstar Trust Company
615 E. Michigan St.
Milwaukee, WI 53202
and notice to Funds shall be sent to:
LKCM Fund
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
17. NOTIFICATION OF REGULATORY ACTION
Each party to this Agreement agrees to immediately notify the
other in the event any regulatory agency commences any action or proceeding
against either party.
18. DISCLAIMER OF LIABILITY
This Agreement is executed on behalf of LKCM Fund by its officers
in their capacities as officers, and not individually. The obligations of LKCM
Fund under this Agreement are not binding upon LKCM Fund's trustees, officers,
or shareholders individually, but are binding only upon the assets and property
of LKCM Fund, or of the Fund to which the services performed pursuant to this
Agreement relate.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and their respective corporate seals to be affixed hereto as of
the date first above-written by their respective officers thereunto duly
authorized.
Executed in several counterparts, each of which is an original.
LKCM FUND FIRSTAR TRUST COMPANY
<PAGE>
By: _____________________________ By: ___________________________
Vice President
Attest:___________________________ Attest: _________________________
Assistant Secretary
<PAGE>
CUSTODY SERVICES
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
ANNUAL FEE BASED UPON MARKET VALUE
1 basis point per year
Minimum annual fee per fund - $3,000
INVESTMENT TRANSACTIONS (purchase, sale, exchange, tender, redemption,
maturity, receipt, delivery): $12.00 per book entry security
(depository or Federal Reserve system) $25.00 per definitive
security (physical) $25.00 per mutual fund trade $75.00 per
Euroclear $ 8.00 per principal reduction on pass-through
certificates $35.00 per option/futures contract $15.00 per
variation margin $15.00 per Fed wire deposit or withdrawal
VARIABLE AMOUNT DEMAND NOTES: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is 1/4
of 1%, is deducted from the variable amount note income at the time it is
credited to your account.
PLUS OUT-OF-POCKET EXPENSES, AND EXTRAORDINARY EXPENSES BASED UPON COMPLEXITY
FEES ARE BILLED MONTHLY, BASED UPON MARKET VALUE AT THE BEGINNING OF THE MONTH
<PAGE>
EXHIBIT 8.2
CUSTODIAN SERVICING AGREEMENT
(Addition of LKCM Fixed Income Fund and LKCM Balanced Fund)
Firstar Trust Company
615 E. Michigan Street
Milwaukee, WI 53202
Gentlemen:
Pursuant to paragraph 2 of the CUSTODIAN SERVICING AGREEMENT dated as
of July 10, 1997, between you and LKCM Funds (the "Fund"), the Fund requests
that you render services as Custodian under the terms of said agreement with
respect to the LKCM Fixed Income Fund and the LKCM Balanced Fund, additional
Funds which the Fund is establishing. Your compensation for the services
provided under said agreement for said additional Funds shall be determined in
accordance with the original fee schedule subject to a 10% discount for the
first year or until the respective Fund's assets reach $10 million, whichever
comes first.
Please sign two copies of this letter where indicated to signify your
agreement to serve as Custodian and to compensation terms set forth on the
original fee schedule.
Sincerely,
LKCM FUNDS
By:_________________________ Dated:__________________, 1997
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:__________________________ Dated:___________________, 1997
(Authorized Officer)
<PAGE>
EXHIBIT 9.1A
FUND ADMINISTRATION SERVICING AGREEMENT
This Agreement is made and entered into on this _________ day of ______________,
1997, by and between LKCM Fund, a Delaware Trust which currently consists of two
Funds, the LKCM Equity Fund and the LKCM Small Cap Equity Fund (hereinafter
referred to as the "Funds") and Firstar Trust Company, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, The LKCM Fund is an open-ended management investment company which is
registered under the Investment Company Act of 1940;
WHEREAS, FTC is a trust company and, among other things, is in the business of
providing fund administration services for the benefit of its customers;
NOW, THEREFORE, the Funds and FTC do mutually promise and agree as follows:
I. APPOINTMENT OF ADMINISTRATOR
The Funds hereby appoint FTC as Administrator of the Funds on the terms
and conditions set forth in this Agreement, and FTC hereby accepts such
appointment and agrees to perform the services and duties set forth in
this Agreement in consideration of the compensation provided for
herein.
II. DUTIES AND RESPONSIBILITIES OF FTC
A. General Fund Management
1. Act as liaison among all fund service providers
2. Coordinate board communication by:
a. Assisting fund counsel in establishing meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director
and officers liability coverage, and making the
necessary SEC filings relating thereto
3. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. In consultation with Fund counsel and officers, will
provide information to SEC and facilitate audit
process
c. Provide office facilities
4. Assist in overall operations of the Funds
B. Compliance
1. Regulatory Compliance
a. Periodically monitor compliance with Investment
Company Act of 1940 requirements
1) Asset diversification tests
<PAGE>
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of ethics
b. Periodically monitor Fund's compliance with the
policies and investment limitations of the Fund as
set forth in its prospectus and statement of
additional information
2. Blue Sky Compliance
a. Prepare and file with the appropriate state securities
authorities any and all required compliance filings
relating to the registration of the securities of the
Fund so as to enable the Fund to make a continuous
offering of its shares
b. Monitor status and maintain registrations in each
state
3. SEC Registration and Reporting
a. Assisting Funds' counsel in updating prospectus and
statement of additional information; and in
preparing proxy statements, and Rule 24f-2 notice,
b. Annual and semiannual reports
4. IRS Compliance
a. Periodically monitor Funds' status as a regulated
investment company under Subchapter M through review
of the following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Monitor short short testing
c. Calculate required distributions (including excise
tax distributions)
C. Financial Reporting
1. Provide financial data required by fund prospectus and
statement of additional information
2. Prepare financial reports for shareholders, the board, the
SEC, and independent auditors
3. Supervise the Fund's Custodian and Fund Accountants in the
maintenance of the Fund's general ledger and in the
preparation of the Fund's financial statements including
oversight of expense accruals and payments, of the
determination of net asset value of the Fund's net assets
and of the Fund's shares, and of the declaration and payment
of dividends and other distributions to shareholders
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and
state tax returns including forms 1120/8610 with any
necessary schedules
2. Prepare state income breakdowns where relevant
3. File 1099 Miscellaneous for payments to directors and
other service providers
<PAGE>
4. Monitor wash losses
5. Calculate eligible dividend income for corporate
shareholders
III. COMPENSATION
The Funds agree to pay FTC for performance of the duties listed in this
Agreement and the fees and out-of-pocket expenses as set forth in the
attached Exhibit A.
These fees may be changed from time to time, subject to mutual written
Agreement between the Funds and FTC.
The Funds agree to pay all fees and reimbursable expenses within ten
(10) business days following the mailing of the billing notice.
IV. ADDITIONAL SERIES
In the event that LKCM Fund establishes one or more "additional" series
of shares with respect to which it desires to have FTC render fund
administration services, under the terms hereof, it shall so notify FTC
in writing, and FTC agrees in writing to provide such services, such
series will be subject to the terms and conditions of this Agreement,
and shall be maintained and accounted for by FTC on a discrete basis.
The funds currently covered by this Agreement are: the LKCM Equity Fund
and the LKCM Small Cap Equity Fund.
V. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FTC shall exercise reasonable care in the performance of its
duties under this Agreement. FTC shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
communication or power supplies beyond FTC's control, except a loss
resulting from FTC's refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or willful misconduct on
its part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless FTC from and against any and all claims,
demands, losses, expenses, and liabilities (including reasonable
attorneys' fees) which FTC may sustain or incur or which may be
asserted against FTC by any person arising out of any action taken or
omitted to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to FTC by any duly authorized
officer of the Fund, such duly authorized officer to be included in a
list of authorized officers furnished to FTC and as amended from time
to time in writing by resolution of the Board of Directors of the Fund.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FTC shall take all
reasonable steps to minimize service interruptions for any period that
such interruption continues beyond FTC's control. FTC will make every
reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of FTC. FTC
agrees that it shall, at all times, have reasonable contingency plans
with appropriate parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Fund shall be entitled
to inspect FTC's premises and operating capabilities at any time during
regular business hours of FTC, upon reasonable notice to FTC.
<PAGE>
Regardless of the above, FTC reserves the right to
reprocess and correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the Fund may
be asked to indemnify or hold FTC harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that FTC will use all reasonable
care to notify the Fund promptly concerning any situation which
presents or appears likely to present the probability of such a claim
for indemnification against the Fund. The Fund shall have the option to
defend FTC against any claim which may be the subject of this
indemnification. In the event that the Fund so elects, it will so
notify FTC and thereupon the Fund shall take over complete defense of
the claim, and FTC shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this
section. FTC shall in no case confess any claim or make any compromise
in any case in which the Fund will be asked to indemnify FTC except
with the Fund's prior written consent.
C. FTC shall indemnify and hold the Fund harmless from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which may be asserted against
the Fund by any person arising out of any action taken or omitted to be
taken by FTC or as a result of FTC's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence, or willful
misconduct.
VI. CONFIDENTIALITY
FTC shall handle, in confidence, all information relating to the Funds'
business which is received by FTC during the course of rendering any
service hereunder.
VII. DATA NECESSARY TO PERFORM SERVICE
The Funds or its agent, which may be FTC, shall furnish to FTC the data
necessary to perform the services described herein at times and in such
form as mutually agreed upon.
VIII. TERMS OF AGREEMENT
This Agreement shall become effective on _____________________ and,
unless sooner terminated as provided herein, shall continue
automatically in effect for successive annual periods. The Agreement
may be terminated by either party upon giving ninety (90) days prior
written notice to the other party or such shorter period as is mutually
agreed upon by the parties.
IX. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any
of FTC's duties or responsibilities hereunder is designated by the
Funds by written notice to FTC, FTC will promptly, upon such
termination and at the expense of the Funds, transfer to such successor
all relevant books, records, correspondence, and other data established
or maintained by FTC under this Agreement in a form reasonably
acceptable to the Funds (if such form differs from the form in which
FTC has maintained, the Funds shall pay any expenses associated with
transferring the data to such form), and will cooperate in the transfer
of such duties and responsibilities, including provision for assistance
from FTC's personnel in the establishment of books, records, and other
data by such successor.
X. CHOICE OF LAW
<PAGE>
This Agreement shall be construed in accordance with the laws of the
State of Wisconsin.
XI. NOTICES
Notices of any kind to be given by either party to the other party
shall be in writing and shall be duly given if mailed or delivered as
follows: Notice to FTC shall be sent to:
Firstar Trust Company
615 E. Michigan St.
Milwaukee, WI 53202
and notice to Funds shall be sent to:
LKCM Fund
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102.
XII. NOTIFICATION OF REGULATORY ACTION
Each party to this Agreement agrees to immediately notify the other in
the event any regulatory agency commences any action or proceeding
against either party.
XIII. DISCLAIMER OF LIABILITY
This Agreement is executed on behalf of LKCM Fund by its officers in
their capacities as officers, and not individually. The obligations of
LKCM Fund under this Agreement are not binding upon LKCM Fund's
trustees, officers, or shareholders individually, but are binding only
upon the assets and property of LKCM Fund, or of the Fund to which the
services performed pursuant to this Agreement relate.
XIV. RECORDS
FTC shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Funds but not inconsistent with the
rules and regulations of appropriate government authorities, in
particular, Section 31 of the Investment Company Act of 1940 as amended
(the "Investment Company Act"), and the rules thereunder. FTC agrees
that all such records prepared or maintained by FTC relating to the
services to be performed by FTC hereunder are the property of the Funds
and will be preserved, maintained, and made available with such section
and rules of the Investment Company Act and will be promptly
surrendered to the Funds on and in accordance with its request.
LKCM FUND FIRSTAR TRUST COMPANY
By: _____________________________ By:_______________________________
Vice President
Attest: _____________________________ Attest:___________________________
Assistant Secretary
<PAGE>
FUND ADMINISTRATION AND COMPLIANCE
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
ANNUAL FEE BASED UPON FUND ASSETS BY PORTFOLIO
6 basis points on the first $200 million
5 basis points on the next $500 million
3 basis points on the balance
Minimum annual fee: $30,000 first fund
$20,000 /fund next three funds
$15,000 /fund additional funds
PLUS OUT-OF-POCKET EXPENSES, INCLUDING BUT NOT LIMITED TO:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees Certain insurance
premiums Expenses from board of directors meetings
Auditing and legal expenses All other out-of-pocket
expenses
FEES AND OUT-OF-POCKET EXPENSES ARE BILLED MONTHLY
MULTIPLE CLASSES - EACH CLASS IS AN ADDITIONAL 25% OF THE CHARGE OF THE INITIAL
CLASS.
<PAGE>
EXHIBIT 9.1B
FUND ADMINISTRATION SERVICING AGREEMENT
(Addition of LKCM Fixed Income Fund and LKCM Balanced Fund)
Firstar Trust Company
615 E. Michigan Street
Milwaukee, WI 53202
Gentlemen:
Pursuant to paragraph IV of the FUND ADMINISTRATION SERVICING AGREEMENT
dated as of July 10, 1997, between you and LKCM Funds (the "Fund"), the Fund
requests that you render services as Fund Administrator under the terms of said
agreement with respect to the LKCM Fixed Income Fund and the LKCM Balanced Fund,
additional Funds which the Fund is establishing. Your compensation for the
services provided under said agreement for said additional Funds shall be
determined in accordance with the original fee schedule subject to a 10%
discount for the first year or until the respective Fund's assets reach $10
million, whichever comes first.
Please sign two copies of this letter where indicated to signify your
agreement to serve as Fund Administrator and to compensation terms set forth on
the original fee schedule.
Sincerely,
LKCM FUNDS
By:_________________________ Dated:__________________, 1997
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:_________________________ Dated:__________________, 1997
(Authorized Officer)
<PAGE>
EXHIBIT 9.2A
FUND ACCOUNTING SERVICING AGREEMENT
This contract between LKCM Fund, a Delaware trust which currently consists of
two Funds, the LKCM Equity Fund and the LKCM Small Cap Equity Fund, hereinafter
called the "Funds," and Firstar Trust Company, a Wisconsin corporation,
hereinafter called "FTC," is entered into on this _________ day of
____________________, 1997.
WHEREAS, LKCM Fund, is an open-ended management investment company
registered under the Investment Company Act of 1940; and
WHEREAS, FTC is in the business of providing, among other things, mutual
fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. SERVICES. FTC agrees to provide the following mutual fund accounting
services to the Funds:
A. Fund Accounting Services:
(1) Maintain Fund records on a trade date +1 basis using
security trade information communicated from the investment
manager on a timely basis.
(2) For each valuation date, obtain prices from a pricing
source approved by the Board of Trustees and apply those prices
to the Fund positions. For those securities where market
quotations are not readily available, the Board of Trustees shall
approve, in good faith, the method for determining the fair value
for such securities.
(3) Identify interest and dividend accrual balances as of
each valuation date and calculate gross earnings on investments
for the accounting period.
(4) Determine gain/loss on security sales and identify
them as to short-short, short-or long-term status; account for
periodic distributions of gains or losses to shareholders and
maintain undistributed gain or loss balances as of each valuation
date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Funds as to methodology, rate or
dollar amount.
(2) Record payments for Fund expenses upon receipt of
written authorization from the Funds.
(3) Account for fund expenditures and maintain expense
accrual balances at the level of accounting detail, as agreed
upon by FTC and the Funds.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
<PAGE>
(1) Account for fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other fund share activity
as reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the
Funds.
(3) Determine net investment income (earnings) for the
Funds as of each valuation date. Account for periodic
distributions of earnings to shareholders and maintain
undistributed net investment income balances as of each valuation
date.
(4) Maintain a general ledger for the Funds in the form
as agreed upon.
(5) For each day the Funds are open as defined in the
prospectuses, determine the net asset value of the according to
the accounting policies and procedures set forth in the
prospectuses.
(6) Calculate per share net asset value, per share net
earnings, and other per share amounts reflective of fund
operation at such time as required by the nature and
characteristics of the Funds.
(7) Communicate, at an agreed upon time, the per share
price for each valuation date to parties as agreed upon from time
to time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment Funds
of the Funds to support the tax reporting required for
IRS-defined regulated investment companies.
(2) Maintain tax lot detail for the investment Fund.
(3) Calculate taxable gain/loss on security sales using
the tax lot relief method designated by the Funds.
(4) Provide the necessary financial information to support
the taxable components of income and capital gains distributions
to the transfer agent to support tax reporting to the
shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support
financial statement preparation by making the fund accounting
records available to LKCM Fund, the Securities and Exchange
Commission, and the outside auditors.
(2) Maintain accounting records according to the
Investment Company Act of 1940 and regulations provided
thereunder.
2. PRICING OF SECURITIES. For each valuation date, obtain prices from a
pricing source selected by FTC but approved by the Funds' Board and apply those
prices to the Fund positions. For those securities where market quotations are
not readily available, the Funds' Board shall approve, in good faith, the method
for determining the fair value for such securities.
<PAGE>
If the Funds desire to provide a price which varies from the
pricing source, the Funds shall promptly notify and supply FTC with the
valuation of any such security on each valuation date. All pricing changes made
by the Funds will be in writing and must specifically identify the securities to
be changed by CUSIP, name of security, new price or rate to be applied, and, if
applicable, the time period for which the new price(s) are effective.
3. CHANGES IN ACCOUNTING PROCEDURES. Any resolution passed by the Board
of Trustees that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by the FTC.
4. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC. FTC reserves the right
to make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Funds under
this Agreement.
5. COMPENSATION. FTC shall be compensated for providing the services
set forth in this Agreement in accordance with the Fee Schedule attached hereto
as Exhibit A and as mutually agreed upon and amended from time to time.
6. PERFORMANCE OF SERVICE.
A. FTC shall exercise reasonable care in the performance
of its duties under this Agreement. FTC shall not be liable for
any error of judgment or mistake of law or for any loss suffered
by the Funds in connection with matters to which this Agreement
relates, including losses resulting from mechanical breakdowns or
the failure of communication or power supplies beyond FTC's
control, except a loss resulting from FTC's refusal or failure to
comply with the terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in the performance
of its duties under this Agreement. Notwithstanding any other
provision of this Agreement, the Funds shall indemnify and hold
harmless FTC from and against any and all claims, demands,
losses, expenses, and liabilities (including reasonable
attorneys' fees) which FTC may sustain or incur or which may be
asserted against FTC by any person arising out of any action
taken or omitted to be taken by it in performing the services
hereunder (i) in accordance with the foregoing standards, or (ii)
in reliance upon any written or oral instruction provided to FTC
by any duly authorized officer of the Funds, such duly authorized
officer to be included in a list of authorized officers furnished
to FTC and as amended from time to time in writing by resolution
of the Board of Directors of the Funds.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FTC shall
take all reasonable steps to minimize service interruptions for
any period that such interruption continues beyond FTC's control.
FTC will make every reasonable effort to restore any lost or
damaged data and correct any errors resulting from such a
breakdown at the expense of FTC. FTC agrees that it shall, at all
times, have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use of
electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Funds shall be
entitled to inspect FTC's premises and operating capabilities at
any time during regular business hours of FTC, upon reasonable
notice to FTC.
Regardless of the above, FTC reserves the right to
reprocess and correct administrative errors at its own expense.
B. In order that the indemnification provisions contained
in this section shall apply, it is understood that if in any
case the Funds may be asked to indemnify or hold FTC
<PAGE>
harmless, the Funds shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is
further understood that FTC will use all reasonable care to
notify the Funds promptly concerning any situation which presents
or appears likely to present the probability of such a claim for
indemnification against the Funds. The Funds shall have the
option to defend FTC against any claim which may be the subject
of this indemnification. In the event that the Funds so elects,
it will so notify FTC and thereupon the Funds shall take over
complete defense of the claim, and FTC shall in such situation
initiate no further legal or other expenses for which it shall
seek indemnification under this section. FTC shall in no case
confess any claim or make any compromise in any case in which the
Funds will be asked to indemnify FTC except with the Funds' prior
written consent.
C. FTC shall indemnify and hold the Funds harmless from
and against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any
and every nature (including reasonable attorneys' fees) which may
be asserted against the Funds by any person arising out of any
action taken or omitted to be taken by FTC or as a result of
FTC's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
7. RECORDS. FTC shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Funds but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act of 1940 as amended (the "Investment Company Act"),
and the rules thereunder. FTC agrees that all such records prepared or
maintained by FTC relating to the services to be performed by FTC hereunder are
the property of the Funds and will be preserved, maintained, and made available
with such section and rules of the Investment Company Act and will be promptly
surrendered to the Funds on and in accordance with its request.
8. CONFIDENTIALITY. FTC shall handle in confidence all information
relating to the Funds' business, which is received by FTC during the course of
rendering any service hereunder.
9. DATA NECESSARY TO PERFORM SERVICES. The Funds or its agent, which
may be FTC, shall furnish to FTC the data necessary to perform the services
described herein at times and in such form as mutually agreed upon.
10. NOTIFICATION OF ERROR. The Funds will notify FTC of any balancing or
control error caused by FTC within thirty (30) business days after receipt of
any reports rendered by FTC to the Funds, or within thirty (30) business days
after discovery of any error or omission not covered in the balancing or control
procedure, or within thirty (30) business days of receiving notice from any
shareholder.
11. ADDITIONAL SERIES. In the event that the LKCM Fund establishes one
or more series of shares with respect to which it desires to have FTC render
accounting services, under the terms hereof, it shall so notify FTC in writing,
and if FTC agrees in writing to provide such services, such series will be
subject to the terms and conditions of this Agreement, and shall be maintained
and accounted for by FTC on a discrete basis. The Funds currently covered by
this Agreement are: The LKCM Equity Fund and the LKCM Small Cap Equity Fund.
12. TERM OF AGREEMENT. This Agreement may be terminated by either party
upon giving ninety (90) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
13. DUTIES IN THE EVENT OF TERMINATION. In the event that in connection
with termination a Successor to any of FTC's duties or responsibilities
hereunder is designated by LKCM Fund by written
<PAGE>
notice to FTC, FTC will promptly, upon such termination and at the expense of
LKCM Fund, transfer to such Successor all relevant books, records,
correspondence and other data established or maintained by FTC under this
Agreement in a form reasonably acceptable to LKCM Fund (if such form differs
from the form in which FTC has maintained the same, LKCM Fund shall pay any
expenses associated with transferring the same to such form), and will cooperate
in the transfer of such duties and responsibilities, including provision for
assistance from FTC's personnel in the establishment of books, records and other
data by such successor.
14. NOTICES. Notices of any kind to be given by either party to the
other party shall be in writing and shall be duly given if mailed or delivered
as follows: Notice to FTC shall be sent to:
Firstar Trust Company
615 E. Michigan St.
Milwaukee, WI 53202
and notice to Funds shall be sent to:
LKCM Fund
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
15. NOTIFICATION OF REGULATORY ACTION. Each party to this Agreement
agrees to immediately notify the other in the event any regulatory agency
commences any action or proceeding against either party.
16. DISCLAIMER OF LIABILITY. This Agreement is executed on behalf of
LKCM Fund by its officers in their capacities as officers, and not individually.
The obligations of LKCM Fund under this Agreement are not binding upon LKCM
Fund's trustees, officers, or shareholders individually, but are binding only
upon the assets and property of LKCM Fund, or of the Fund to which the services
performed pursuant to this Agreement relate.
17. CHOICE OF LAW. This Agreement shall be construed in accordance with
the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
LKCM FUND FIRSTAR TRUST COMPANY
By: _______________________________ By: ___________________________
Vice President
Attest: ____________________________ Attest: _________________________
Assistant Secretary
<PAGE>
FUND ACCOUNTING SERVICES
ANNUAL FEE SCHEDULE
EXHIBIT A
DOMESTIC EQUITY FUNDS
$22,000 for the first $40 million 1 basis points on the next
$200 million 1/2 basis point on the balance
ALL FEES ARE BILLED MONTHLY PLUS OUT-OF-POCKET EXPENSES, INCLUDING PRICING
SERVICE:
Domestic and Canadian Equities $.15
Options $.15
Corp/Gov/Agency Bonds $.50
CMO's $.80
International Equities and Bonds $.50
Municipal Bonds $.80
Money Market Instruments $.80
MULTIPLE CLASSES - EACH CLASS IS AN ADDITIONAL 25% OF THE CHARGE OF THE INITIAL
CLASS.
<PAGE>
EXHIBIT 9.2B
FUND ACCOUNTING SERVICING AGREEMENT (Addition
of LKCM Fixed Income Fund and LKCM Balanced Fund)
Firstar Trust Company
615 E. Michigan Street
Milwaukee, WI 53202
Gentlemen:
Pursuant to paragraph 11 of the FUND ACCOUNTING SERVICING AGREEMENT
dated as of July 10, 1997, between you and LKCM Funds (the "Fund"), the Fund
requests that you render services as Fund Accountant under the terms of said
agreement with respect to the LKCM Fixed Income Fund and the LKCM Balanced Fund,
additional Funds which the Fund is establishing. Your compensation for the
services provided under said agreement for said additional Funds shall be
determined in accordance with the original fee schedule subject to a 10%
discount for the first year or until the respective Fund's assets reach $10
million, whichever comes first.
Please sign two copies of this letter where indicated to signify your
agreement to serve as Fund Accountant and to compensation terms set forth on the
original fee schedule.
Sincerely,
LKCM FUNDS
By:_________________________ Dated:__________________, 1997
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:_________________________ Dated:__________________, 1997
(Authorized Officer)
<PAGE>
EXHIBIT 9.3A
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into on this ___________________ day
of ______________________, 1997, by and between LKCM Fund, a Delaware Trust
which currently consists of two Funds, the LKCM Equity Fund and the LKCM Small
Cap Equity Fund (hereinafter referred to as the "Funds") and Firstar Trust
Company, a corporation organized under the laws of the State of Wisconsin
(hereinafter referred to as the "Agent").
WHEREAS, the LKCM Fund is an open-ended management investment company
which is registered under the Investment Company Act of 1940; and
WHEREAS, the Agent is a trust company and, among other things, is in the
business of administering transfer and dividend disbursing agent functions for
the benefit of its customers;
NOW, THEREFORE, LKCM Fund and the Agent do mutually promise and agree as
follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE AGENT
Subject to the terms and conditions set forth in this Agreement, LKCM
Fund hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent.
The Agent shall perform all of the customary services of a transfer
agent and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated
shares being held in the appropriate shareholder account;
C. Process redemption requests received in good order;
D. Pay monies in accordance with the instructions of redeeming
shareholders;
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between Funds within the same family of Funds;
G. Issue or cancel certificates as instructed; replace lost, stolen
or destroyed certificates upon receipt of satisfactory
indemnification or surety bond;
H. Prepare and transmit payments for dividends and distributions
declared by the Funds;
<PAGE>
I. Make changes to shareholder records, including, but not limited
to, address changes in plans (i.e., systematic withdrawal,
automatic investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Funds and maintain,
pursuant to Securities Exchange Act of 1934 Rule 17ad-10(e), a
record of the total number of shares of the Funds which are
authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to current
shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to
dividends and distributions for all shareholders;
N. Provide shareholder account information upon request and prepare
and mail confirmations and statements of account to shareholders
for all purchases, redemptions and other confirmable transactions
as agreed upon with the Funds; and
O. Provide a Blue Sky System which will enable the Funds to monitor
the total number of shares sold in each state. In addition, the
Funds shall identify to the Agent in writing those transactions
and assets to be treated as exempt from the Blue Sky reporting to
the Funds for each state.
2. COMPENSATION
The Funds agree to pay the Agent for performance of the duties listed in
this Agreement in accordance with the Fee Schedule attached hereto in Exhibit A.
The fees and out-of-pocket expenses include, but are not limited to the
following: printing, postage, forms, stationery, record retention, mailing,
insertion, programming, labels, shareholder lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Funds and the Agent.
The Funds agree to pay all fees and reimbursable expenses within ten
(10) business days following the mailing of the billing notice.
3. REPRESENTATIONS OF AGENT
The Agent represents and warrants to the LKCM Fund that:
A. It is a trust company duly organized, existing and in good
standing under the laws of Wisconsin;
B. It is a registered transfer agent under the Securities Exchange
Act of 1934 as amended.
C. It is duly qualified to carry on its business in the state of
Wisconsin;
D. It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to
authorize it to enter and perform this Agreement; and
F. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its
duties and obligations under this Agreement.
<PAGE>
G. It will comply with all applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, the Investment Company Act of 1940, as amended, and
any laws, rules, and regulations of governmental authorities
having jurisdiction.
4. REPRESENTATIONS OF THE LKCM FUND
The LKCM Fund represents and warrants to the Agent that:
A. The LKCM Fund is an open-ended diversified investment company
under the Investment Company Act of 1940;
B. The LKCM Fund is a business trust organized, existing, and in
good standing under the laws of Delaware;
C. The LKCM Fund is empowered under applicable laws and by its
Declaration of Trust and bylaws to enter into and perform this
Agreement;
D. All necessary proceedings required by the Declaration of Trust
have been taken to authorize it to enter into and perform this
Agreement;
E. The LKCM Fund will comply with all applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, the Investment Company Act of 1940, as amended, and
any laws, rules, and regulations of governmental authorities
having jurisdiction; and
F. A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to
be made, with respect to all shares of the Funds being offered
for sale.
5. COVENANTS OF FUNDS AND AGENT
The LKCM Fund shall furnish the Agent a certified copy of the resolution
of the Board of Trustees of the LKCM Fund authorizing the appointment of the
Agent and the execution of this Agreement. The LKCM Fund shall provide to the
Agent a copy of the Declaration of Trust, bylaws of the Trust and all
amendments.
<PAGE>
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Funds and will be preserved, maintained and
made available in accordance with such section and rules and will be surrendered
to the Funds on and in accordance with its request.
6. INDEMNIFICATION; REMEDIES UPON BREACH
The Agent shall exercise reasonable care in the performance of its
duties under this Agreement. The Agent shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power supplies beyond
the Agent's control, except a loss resulting from the Agent's refusal or failure
to comply with the terms of this Agreement or from bad faith, negligence, or
willful misconduct on its part in the performance of its duties under this
Agreement. Notwithstanding any other provision of this Agreement, the Funds
shall indemnify and hold harmless the Agent from and against any and all claims,
demands, losses, expenses, and liabilities (including reasonable attorneys'
fees) which the Agent may sustain or incur or which may be asserted against the
Agent by any person arising out of any action taken or omitted to be taken by it
in performing the services hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral instruction provided to
the Agent by any duly authorized officer of the Funds, such duly authorized
officer to be included in a list of authorized officers furnished to the Agent
and as amended from time to time in writing by resolution of the Board of
Trustees of the Funds.
Further, the Funds will indemnify and hold the Agent harmless as a
result of the Agent acting upon telephone instructions relating to the exchange
or redemption of shares received by the Agent and reasonably believed by the
Agent under a standard of care customarily used in the industry to have
originated from the record owner of the subject shares; or as a result of acting
in reliance upon any genuine instrument or stock certificate signed,
countersigned, or executed by any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond the Agent's control. The Agent will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Funds
shall be entitled to inspect the Agent's premises and operating capabilities at
any time during regular business hours of the Agent, upon reasonable notice to
the Agent.
Regardless of the above, the Agent reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the Funds may be asked to
indemnify or hold the Agent harmless, the Funds shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Agent will use all reasonable care to notify the
Funds promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Funds.
The Funds shall have the option to defend the Agent against any claim which may
be the subject of this indemnification. In the event that the Funds so elect,
they will so notify the Agent and thereupon the Funds shall take over complete
defense of the claim, and the Agent shall in such situation initiate no further
legal or other expenses for which it shall seek indemnification under this
section. The Agent shall in no case confess any claim or make any compromise in
any case in which the Funds will be asked to indemnify the Agent except with the
Funds' prior written consent.
The Agent shall indemnify and hold the Funds harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which may be asserted against the Funds by any person arising
out of any action taken or omitted to be
<PAGE>
taken by the Agent as a result of the Agent's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence, or willful misconduct.
7. CONFIDENTIALITY
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Funds and the
shareholders and shall not be disclosed to any other party, except after prior
notification to and approval in writing by the Funds, which approval shall not
be unreasonably withheld and may not be withheld where the Agent may be exposed
to civil or criminal contempt proceedings for failure to comply after being
requested to divulge such information by duly constituted authorities.
8. ADDITIONAL SERIES
The LKCM Fund is authorized to issue separate classes of shares of
beneficial interest representing interests in separate investment Funds. The
parties intend that each Fund established by the trust, now or in the future, be
covered by the terms and conditions of this agreement.
9. RECORDS
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem advisable
and is agreeable to the Funds but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act of 1940 as amended (the "Investment Company Act"),
and the rules thereunder. The Agent agrees that all such records prepared or
maintained by The Agent relating to the services to be performed by the Agent
hereunder are the property of the Funds and will be preserved, maintained, and
made available with such section and rules of the Investment Company Act and
will be promptly surrendered to the Funds on and in accordance with its request.
10. WISCONSIN LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the state of Wisconsin.
11. AMENDMENT, ASSIGNMENT, TERMINATION AND NOTICE
A. This Agreement may be amended by the mutual written consent of
the parties.
B. This Agreement may be terminated upon ninety (90) day's written
notice given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of
the other party.
D. Any notice required to be given by the parties to each other
under the terms of this Agreement shall be in writing, addressed
and delivered, or mailed to the principal Place of business of
the other party. If to the agent, such notice should to be sent
to:
Firstar Trust Company
615 E. Michigan St.
Milwaukee, WI 53202
If to the Funds, such notice should be sent to:
LKCM Fund
301 Commerce Street, Suite 1600
<PAGE>
Fort Worth, TX 76102
E. Each party to this Agreement agrees to immediately notify the
other in the event any regulatory agency commences any action
or proceeding against either party.
F. In the event that the Funds give to the Agent their written
intention to terminate and appoint a successor transfer agent,
the Agent agrees to cooperate in the transfer of its duties and
responsibilities to the successor, including any and all relevant
books, records and other data established or maintained by the
Agent under this Agreement.
G. Should the Funds exercise its right to terminate, all
out-of-pocket expenses associated with the movement of
records and material will be paid by the Funds.
12. DISCLAIMER OF LIABILITY
This Agreement is executed on behalf of LKCM Fund by its officers in
their capacities as officers and not individually. The obligations of LKCM Fund
under this Agreement are not binding upon LKCM Fund's trustees, officers, or
shareholders individually, but are binding only upon the assets and property of
LKCM Fund, or of the Fund to which the services performed pursuant to this
Agreement relate.
LKCM FUND FIRSTAR TRUST COMPANY
By:______________________________ By:______________________________
Vice President
Attest:___________________________ Attest:____________________________
Assistant Secretary
<PAGE>
TRANSFER AGENT AND SHAREHOLDER SERVICING
NO-LOAD FUND ANNUAL FEE SCHEDULE
EXHIBIT A
$14.00 PER SHAREHOLDER ACCOUNT
MINIMUM ANNUAL FEES OF $22,500 FOR THE FIRST FUND AND $10,000 FOR EACH
ADDITIONAL FUND
PLUS OUT-OF-POCKET EXPENSES, INCLUDING BUT NOT LIMITED TO: Telephone -
toll-free lines Postage Programming Stationery/envelopes Mailing
Insurance Proxies Retention of records Microfilm/fiche of records
Special reports ACH fees NSCC charges All other out-of-pocket
expenses
ACH SHAREHOLDER SERVICES $125.00 per month per fund group $ .50 per
account setup and/or change $ .50 per item for AIP purchases
$ .35 per item for EFT payments and purchases
$3.50 per correction, reversal, return item
QUALIFIED PLAN FEES (BILLED TO INVESTORS)
Annual maintenance fee per $12.50 / acct
account (Cap at $25.00 per SSN)
Transfer to successor trustee $15.00 / trans.
Distribution to participant $15.00 / trans.
(Exclusive of SWP)
Refund of excess contribution $15.00 / trans.
ADDITIONAL SHAREHOLDER FEES (BILLED TO INVESTORS)
Any outgoing wire transfer $12.00 / wire
Telephone exchange $ 5.00 / exch.
Return check fee $20.00 / item
Stop payment $20.00 / stop
(Liquidation, dividend, draft check)
Research fee $ 5.00 / item
(For requested items of the second calendar year [or previous]
to the request)(Cap at $25.00)
FEES AND OUT-OF-POCKET EXPENSES ARE BILLED TO THE FUND MONTHLY
<PAGE>
EXHIBIT 9.3B
TRANSFER AGENT SERVICING AGREEMENT
(Addition of LKCM Fixed Income Fund and LKCM
Balanced Fund)
Firstar Trust Company
615 E. Michigan Street
Milwaukee, WI 53202
Gentlemen:
Pursuant to paragraph 8 of the TRANSFER AGENT SERVICING AGREEMENT dated
as of July 10, 1997, between you and LKCM Funds (the "Fund"), the Fund requests
that you render services as Transfer Agent under the terms of said agreement
with respect to the LKCM Fixed Income Fund and the LKCM Balanced Fund,
additional Funds which the Fund is establishing. Your compensation for the
services provided under said agreement for said additional Funds shall be
determined in accordance with the original fee schedule subject to a 10%
discount for the first year or until the respective Fund's assets reach $10
million, whichever comes first.
Please sign two copies of this letter where indicated to signify your
agreement to serve as Transfer Agent and to compensation terms set forth on the
original fee schedule.
Sincerely,
LKCM FUNDS
By:_________________________ Dated:__________________, 1997
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:_________________________ Dated:__________________, 1997
(Authorized Officer)
<PAGE>
EXHIBIT 10.1
June 2, 1994
LKCM Fund
301 Commerce Street
Suite 1600
Fort Worth, TX 76102
Gentlemen:
You have requested our opinion with respect to the shares of beneficial
interest to be offered upon effectiveness of your registration statement filed
with the Securities and Exchange Commission under the Securities Act of 1933 and
the Investment Company Act of 1940.
Based upon our review of such records, documents, and representations
as we have deemed relevant, it is our opinion that the shares of beneficial
interest to be sold and issued by LKCM Fund, upon issuance, sale and payment in
accordance with the terms of sale contained in the Prospectus, will be legally
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement covering the registration of the said shares under the
Securities Act of 1933 and the Investment Company Act of 1940, and amendments
thereto, and registration statements filed in accordance with the securities
laws of the various states in which shares of LKCM Fund will be offered, and we
further consent to reference in the Prospectus of LKCM to the fact this opinion
concerning the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG
By: __________________________________
Audrey C. Talley, a Partner
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Accountants" in the Prospectus and the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 to the LKCM Funds
registration statement on Form N- 1A.
Deloitte & Touch LLP
Milwaukee, Wisconsin
October 14, 1997
EXHIBIT 13
PURCHASE AGREEMENT
LKCM Fund (the "Trust"), a Delaware business trust, and Luther King
Capital Management Corporation, a Delaware Corporation, hereby agree as follows:
1. The Trust hereby offers and Luther King Capital Management
Corporation hereby purchases 10,000 shares of beneficial interest (representing
an interest in the LKCM Small Cap Equity Fund) of the Trust (the "Shares") at a
price of $10 per share. Luther King Capital Management Corporation hereby
acknowledges purchase of the Shares and the Trust hereby acknowledges receipt
from Luther King Capital Management Corporation of the funds in the amount of
$100,000 in full payment of the Shares. It is further agreed that no certificate
for the Shares will be issued by the Trust.
2. Luther King Capital Management Corporation represents and warrants
to the Trust that the Shares are being acquired for investment purposes and not
with a view to the distribution thereof.
3. The names "LKCM Fund" and "Trustees of LKCM Fund" refer,
respectively, to the Trust created and the Trustees as Trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated February 10, 1994, to which reference is hereby made,
and to any and all amendments thereto. The obligations of LKCM Fund entered into
in the name or on behalf thereof by any of the Trustees, Shareholders or
representatives of the trust personally, by bind only the assets of the Trust,
and all persons dealing with any series of Shares of the Trust must look solely
to the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 6th day of June, 1994.
Attest: LKCM FUND
________________________________ By: ____________________________________
Attest: LUTHER KING CAPITAL MANAGEMENT CORPORATION
________________________________ By: ____________________________________
<PAGE>
EXHIBIT 15
LKCM Fund
DISTRIBUTION PLAN
INTRODUCTION
This Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by LKCM Fund (the
"Fund"), for its portfolios and classes of its portfolios. The Plan has been
approved by a majority of the Board of Trustees, including a majority of the
Trustees who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related thereto, cast in person at a meeting called for the purpose of voting on
such plan. Such approval by the Trustees included a determination that in the
exercise of reasonable business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit the portfolios and
classes of its portfolios and its shareholders. The Plan has also been approved
by a vote of the holders of a majority of the outstanding voting securities, as
defined in the Act of each portfolio or class of shares of a portfolio
distributed pursuant to the Plan, prior to the implementation of the Plan with
respect to such portfolio or such class of shares of a portfolio.
Each portfolio of the Fund is managed by an investment adviser
registered as such with the Securities and Exchange Commission under the
Investment Advisers Act of 1940. The investment adviser serves as manager of
certain portfolios pursuant to an investment advisory agreement approved by the
Board of Trustees and shareholders of the Fund.
The Fund is a Delaware business trust authorized to issue different
series of securities and is an open-end management investment company registered
under the Act. San Jacinto Securities, Inc. (the "Distributor") is the principal
underwriter and national distributor for the Fund's shares pursuant to a
Distribution Agreement approved by the Board of Trustees of the Fund.
The Distributor may enter into agreements with other registered
broker-dealers, consultants, recordkeepers, accounting agents and other Services
Providers in the implementation of this Plan and of the Distribution Agreement
between it and the Fund. The Fund may, in addition, enter into arrangements with
other than broker-dealers and Service Providers which are not "affiliated
persons" or "interested persons" of the Fund or the Distributor to provide to
the Fund services in the Fund's marketing of its shares (the "Service
Providers").
THE PLAN PROVIDES THAT:
1. The Fund may pay a monthly fee not to exceed 0.75% per annum of the
Fund's daily average net assets (the "Maximum Amount") to reimburse the
Distributor, other broker-dealers or Service Providers for amounts expended by
them under the terms of this Plan.
2. (a) The Distributor shall be reimbursed pursuant to paragraph 1
above for monies expended to furnish, or cause or encourage others to furnish,
services and incentives in connection with the promotion, offering and sale of
the Fund's shares and, where suitable and appropriate, the retention of the
Fund's shares by shareholders.
(b) To the extent that Service Providers are paid directly by
the Fund, such Service Providers shall use the monies paid respectively to them
to reimburse themselves for the actual cost they have incurred in providing
distribution-related services including but not limited to: advertising the
availability of services and products; designing material to send to customers
and developing methods of making such materials accessible to customers;
providing information about the product needs of customers; providing facilities
to solicit Fund sales and to answer questions from prospective and existing
investors, including requests for sales literature, prospectuses and statements
of additional information; displaying and making sales literature and
prospectuses available; acting as liaison between shareholders and the Fund,
including obtaining information from the Fund and providing performance and
other information about the Fund.
<PAGE>
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under the Plan. To the extent paid
directly by the Fund, the Service Providers shall inform the Fund monthly and in
writing of the amounts each claims under the Service Agreement and the Plan;
both the Distributor and the Service Providers shall furnish the Board of
Trustees of the request in connection with the payments made under the Plan and
the use thereof by the Distributor and the Service Providers, respectively, in
order to enable the Board to make an informed determination of the amount of the
Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of Trustees of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall remain in effect as to a portfolio or class of
shares of a portfolio of the Fund only if it is approved by the vote of a
majority of the respective portfolio's or class' outstanding voting securities
as defined in the Act; thereafter, it shall continue in effect for a period of
more that one year from the date of its execution or adoption only so long as
such continuance is specifically approved at least annually by a vote of the
Board of trustees of the Fund, and of the Trustees who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to the Plan ("non-interested
Trustees"), cast in person at a meeting called for the purpose of voting on such
Plan.
6. (a) The Plan may be terminated at any time by vote of a majority
of the non-interested Trustees or by vote of a majority of the respective
portfolio's or class' outstanding voting securities.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 2 thereof without approval by
the respective portfolio's or class' shareholders.
7. The Distribution Agreement between the Fund and the Distributor, and
the Service Agreement between the Fund and the Service Providers, shall
specifically have a copy of this Plan attached to, and its terms and provisions
incorporated respectively by reference in, such agreements.
8. All material amendments to this Plan shall be approved by the
on-interested Trustees in the manner described in paragraph 5 above.
9. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Trustees shall be committed to the discretion of such
non-interested Trustees.
10. The definitions contained in Sections 2(a)(42) of the Act shall
govern the meaning of "affiliated person," "assignment," "interested person(s)"
and "vote of a majority of the outstanding voting securities," respectively, for
purposes of this Plan.
This Plan shall take effect on the date of the public offering of the
respective portfolio or class of shares of a portfolio, unless a different date
has been designated as the Plan's effective date by the Board of Trustees.
