LKCM FUNDS
P.O. BOX 701
MILWAUKEE, WI 53201-0701
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OFFICERS AND TRUSTEES
J. Luther King, Jr., CFA Jacqui Brownfield
Chairman of the Board, Secretary & Treasurer
President
Paul W. Greenwell Joseph C. Neuberger
Vice President Assistant Treasurer
H. Kirk Downey Mary S. Kraft
Trustee Assistant Secretary
Earle A. Shields, Jr. Robert Kern
Trustee Assistant Secretary
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INVESTMENT ADVISER
Luther King Capital Management Corporation
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
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ADMINISTRATOR, TRANSFER AGENT, DIVIDEND
PAYING AGENT, SHAREHOLDER SERVICING
AGENT & CUSTODIAN
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
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LEGAL COUNSEL
Gardere & Wynne
3000 Thanksgiving Tower
Dallas, TX 75201
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
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INDEPENDENT AUDITORS
Deloitte & Touche LLP
411 East Wisconsin Avenue
Milwaukee, WI 53202
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DISTRIBUTOR
First Data Distributors, Inc.
4400 Computer Drive
Westboro, MA 01581
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This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
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LKCM
FUNDS
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LKCM SMALL CAP EQUITY FUND
LKCM EQUITY FUND
LKCM BALANCED FUND
LKCM FIXED INCOME FUND
LKCM INTERNATIONAL FUND
Semi-Annual Report
June 30, 1998
<PAGE>
LKCM FUNDS
DEAR FELLOW SHAREHOLDERS:
We are pleased to report the following performance information for the LKCM
Funds:
<TABLE>
<CAPTION>
AVERAGE
SIX MONTH ANNUAL
TOTAL TOTAL
NET ASSET RETURN RETURN
INCEPTION VALUE AT ENDED SINCE
FUNDS DATES 6/30/98 6/30/98(1) INCEPTION
<S> <C> <C> <C> <C>
LKCM Equity Fund 1/3/96 $ 14.75 11.91% 21.26%
S&P 500 17.71% 30.15%
LKCM Small Cap Equity Fund 7/14/94 $ 17.44 3.26% 22.13%
Russell 2000 4.93% 19.11%
S&P 500 17.71% 28.84%
LKCM International Fund 12/30/97 $ 10.92 9.20% 9.20%
EAFE Index* 15.93% 15.93%
LKCM Balanced Fund 12/30/97 $ 10.58 6.94% 6.94%
S&P 500 17.71% 17.71%
Lehman Bond Index** 3.47% 3.47%
LKCM Fixed Income Fund 12/30/97 $ 10.11 3.08% 3.08%
Lehman Bond Index** 3.47% 3.47%
* Morgan Stanley Capital International Europe, Australasia, Far East Index
**Lehman Brothers Intermediate Government/Corporate Bond Index
(1) Not annualized
</TABLE>
The stock market, as measured by the bellwether indices - the Standard and
Poor's 500 Index (S&P 500) and the Dow Jones Industrial Average, continued to
march higher in the first half of 1998. However, the six-month period exhibited
two different trading environments. During the first quarter, the stock market
advance was broad-based, driven by strength in the domestic economy, low
inflation, and stable bond yields. Robust capital flows into U.S. stocks, which
included heavy mutual fund buying, persistent share repurchases, and a record
level of foreign participation, also played a dramatic role in pushing stocks
higher. The second quarter experienced more modest gains by the popular indices
but the stocks of small and mid-sized companies, in many instances, recorded
losses. In fact, the year-to-date performance differential between the S&P 500's
50 largest companies and the next 450 was among the most extreme of the last
five decades. In large part and for a number of reasons, the strong capital
flows into U.S. stocks have been attracted to the liquidity of large company
stocks. Bond yields declined moderately across the yield curve over the first
half of the year, but here again, first and second quarter performance differed
as short-term interest rates fell in the first quarter and long-term interest
rates caught up in the second quarter.
The LKCM Equity Fund is managed to provide long-term capital appreciation
via investment primarily in common stocks of mid-sized and large companies. The
LKCM Equity Fund posted a very attractive absolute total return in the first
half of 1998 despite being outpaced by its benchmark index, the S&P 500. The
Fund's performance was primarily impacted by two factors during the period.
First, our focus on both risk as well as reward, through a conscious valuation
discipline, capped some of the upside. Second, while the Fund selectively owned
a number of large-cap stocks, we continued to dedicate a material portion of
Fund assets to shares of mid-sized companies, which appeared to offer a better
reward/risk trade-off. As of June 30, 1998, the Fund had over-weight positions
in the Energy sector (11.8%) and the strong performing Health Care sector
(15.3%) when compared to the S&P 500. As of June 30, 1998, the total net assets
of the portfolio were $40,738,568 with 90.2% of net assets invested in common
stocks and 9.8% in cash reserves net of liabilities. As we evaluate the
investment opportunities going forward, the LKCM Equity Fund appears well
positioned with a mix of investments in the common stocks of larger companies
with strong free cash flow but at reasonable valuations and medium-sized
companies with niche growth opportunities.
The LKCM Small Cap Fund is managed to maximize capital appreciation through
investment primarily in common stocks of smaller companies. After three strong
years in which the Fund exceeded its benchmark, the Russell 2000, by generating
20%+ annual returns, the Fund modestly trailed its bogey in the first half of
1998. Over the years, the Fund's outstanding performance has been driven by
investment in shares of niche companies, purchased at reasonable prices, which
possessed a unique potential to grow their businesses at above-average returns
on invested capital. During the first half of 1998, an over-weight position in
the Energy sector (9.5%) and an under-weight position in the Technology sector
(4.7%) had a material impact on short-term performance. As of June 30, 1998,
total net assets of the portfolio were $284,250,962 with 84.0% of net assets
invested in common and preferred stocks and 16.0% in cash reserves net of
liabilities. The LKCM Small Cap Fund, primarily composed of the
compellingly-valued common stocks of niche companies with attractive growth
prospects, is solidly positioned to enter the second half of 1998.
The LKCM International Fund seeks absolute returns through the active
management of the International Equity markets, with a focus on mid/large cap
stocks. The Fund combines a geopolitical approach (avoiding risk) with a
detailed bottom up search for quality companies. The portfolio has been heavily
weighted toward Europe (average 91% of equity only) notably France, Italy and UK
as TT International (TTI) believes that Asia remains unsafe. In addition, the
situation in Japan is also difficult with consumer confidence at a very low
level and even the new Prime Minister seemingly unable to change policy. In
Europe the benign political environment combined with low interest rates has and
will continue to provide good opportunities on a stock specific basis. The Fund
has seen significant growth in the last six months and now has assets of over
$50 million; in a rising market the effect of this cash flow has been the main
cause of the underperformance. Looking ahead, while TTI remains confident about
the long term prospects for Europe, they also expect volatility brought about by
further concerns in Asia/Japan and a possible pull back in the U.S. from which
Europe will not be immune.
The LKCM Balanced Fund is managed using a total return approach, which
emphasizes capital appreciation, income generation, and protection against
excessive volatility. In order to attain the desired reward/risk profile, the
Fund invests in a blend of common stocks, convertible securities, government and
corporate bonds, and cash. As expected, the Fund's performance fell between that
of the S&P 500 and the Lehman Brothers Intermediate Government/Corporate Bond
Index. Given the strength in the stock market during the first half of the year,
the portfolio's equity investments provided the lion's share of the total return
during the first six months of 1998. The portfolio's bond investments generated
significant investment income and are an important part of managing volatility.
In fact, the fixed income component of the portfolio did serve to dampen
volatility in the more difficult equity market of the second quarter. As of June
30, 1998, total net assets were $1,515,982 with 59.6% invested in common stocks,
6.5% in convertible securities, 25.3% in corporate bonds, 5.2% in U.S. Treasury
obligations, and 3.5% in cash reserves net of liabilities. The "total return"
philosophy of controlling risk via a blend of asset classes remains an
attractive investment alternative for most market environments.
The LKCM Fixed Income Fund emphasizes current income and capital
preservation. The Fund's strategy is to invest in a combination of noncallable
bonds for their offensive characteristics and callable bonds as defensive
investments in order to create a high quality, low volatility, intermediate
maturity portfolio. The Fund modestly trailed its bogey, the Lehman Brothers
Intermediate Government/Corporate Bond Index, during the first half of 1998 due
primarily to timing issues related to securities purchases at the inception of
the Fund. We have relied upon our internal research capabilities in order to
identify corporate bonds with strong credit profiles and attractive yields. The
average effective maturity of the Fund at the end of the second quarter was
approximately 4.7 years and the average quality was AA. As of June 30, 1998,
total net assets were $10,574,033 and the asset mix was 59.0% in corporate
bonds, 35.5% in U.S. Treasury Notes, and 5.5% in cash and cash equivalents. The
portfolio is well positioned to benefit from the current environment of low
inflation and continued economic growth.
As we enter the second half of 1998, a number of positive factors remain in
place for the equity market including strong cash flows into mutual funds,
stable to falling interest rates, favorable demographics, a high level of merger
activity, improving productivity, and robust corporate share repurchases.
However, we remain guarded about the high level of valuations relative to
historical standards, the threat to corporate profit margins as economic growth
slows, and the few number of stocks participating in the most recent stock
market advance. We remain sanguine about the direction of interest rates but we
have identified a number of "wild cards" that inject some uncertainty into our
outlook for flat to slightly lower interest rates. After balancing the positives
and negatives facing the equity market, we expect stock market returns to revert
back to the historical average of 8% to 10% total returns (including dividends)
laced with intermittent corrections and greater volatility. Interestingly,
despite our valuation concerns regarding the overall market environment, our
investment team continues to discover attractive investment opportunities.
Overall, the environment we foresee is favorable for firms that intensely focus
on the merits of individual stocks and the nearly twenty-year investment
heritage of LKCM prepares us well for such an environment.
Regards,
J. Luther King, Jr., CFA
July 29, 1998
<PAGE>
LKCM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
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COMMON STOCKS - 83.91% SHARES VALUE
- --------------------------------------------------------------------------------
BASIC RESOURCES - 2.34%
Longview Fibre Company 124,500 $ 1,774,125
Reliance Steel & Aluminum
Company 75,000 2,896,875
Titanium Metals Corporation # 90,000 1,985,625
-----------
6,656,625
-----------
CONSUMER & COMMERCIAL SERVICES - 7.10%
Carmike Cinemas, Inc. - Class A #91,700 2,470,169
G & K Services Inc. - Class A 65,000 2,835,625
La Quinta Inns, Inc. 200,000 4,225,000
Mac-Gray Corporation # 50,000 637,500
Media Arts Group, Inc. # 40,000 770,000
ResortQuest International, Inc. #70,000 1,141,875
Romac International, Inc. # 196,619 5,972,302
U.S. Filter Corporation # 76,000 2,132,750
-----------
20,185,221
-----------
CONSUMER DURABLES - 4.30%
Centex Corporation 100,000 3,775,000
CompX International, Inc. # 75,000 1,621,875
International Comfort Products
Corporation # 150,000 1,818,750
Kevco, Inc. # 50,300 1,109,743
Lawson Products, Inc. 65,100 1,676,325
Steelcase Inc. 85,000 2,210,000
-----------
12,211,693
-----------
EDUCATION - 2.34%
Career Education Corporation # 60,000 1,470,000
Computer Learning Center, Inc. #110,000 2,736,250
ITT Educational Services, Inc. # 76,050 2,452,612
-----------
6,658,862
-----------
ENERGY - 9.47%
Bayard Drilling
Technologies, Inc. # 128,000 1,040,000
Tom Brown, Inc. # 83,000 1,561,437
Carbo Ceramics, Inc. 40,000 1,365,000
Dril-Quip, Inc. # 36,000 945,000
Encal Energy Ltd. (1) 487,500 1,823,307
HS Resources, Inc. # 110,000 1,601,875
ICO, Inc. 549,300 2,368,856
Input/Output, Inc. # 95,000 1,692,187
IRI International Corporation # 100,000 1,075,000
<PAGE>
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COMMON STOCKS SHARES VALUE
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ENERGY - (CONTINUED)
Meridian Resource Corporation # 154,480 $ 1,091,015
Noble Affiliates, Inc. 97,000 3,686,000
Seagull Energy Corporation # 65,000 1,076,562
Snyder Oil Corporation 135,000 2,691,563
Tidewater, Inc. 46,133 1,522,389
Titan Exploration, Inc. # 100,000 887,500
Trico Marine Services, Inc. # 90,000 1,231,875
Varco International, Inc. # 64,000 1,268,000
-----------
26,927,566
-----------
FINANCIAL SERVICES - 12.54%
AmeriCredit Corporation # 30,000 1,070,625
AmerUs Life Holdings,
Inc. - Class A 117,412 3,801,214
Atlantic Gulf Communities
Corporation # 124,762 257,322
E.W. Blanch Holdings, Inc. 124,000 4,557,000
Chartwell Re Corporation 40,000 1,177,500
CNA Surety Corporation # 210,000 3,097,500
Crawford & Company - Class A 36,300 680,625
Cullen/Frost Bankers, Inc. 81,000 4,394,250
First Colorado Bancorp, Inc. 150,000 4,162,500
First United Bancshares, Inc. 38,000 1,857,250
First Victoria National Bank 19,000 764,750
INSpire Insurance
Solutions, Inc. # 50,000 1,662,500
Onyx Acceptance Corporation # 49,200 442,800
PawnMart, Inc. # 50,000 175,000
Sterling Bancorp 116,000 3,016,000
Texas Regional Bancshares, Inc. 138,000 4,519,500
-----------
35,636,336
-----------
FOOD, TOBACCO & OTHER - 0.52%
Suiza Foods Corporation # 25,000 1,492,188
-----------
HEALTH CARE - 9.05%
Cholestech Corporation # 90,000 607,500
Diagnostic Health
Services, Inc. # 140,000 1,207,500
Jones Medical Industries, Inc. 75,000 2,484,375
Maxxim Medical, Inc. # 179,400 5,202,600
Patterson Dental Company # 125,250 4,587,281
Prime Medical Services, Inc. # 150,000 1,406,250
ProMedCo Management
Company # 105,000 1,076,250
R.P. Scherer Corporation # 45,300 4,014,713
<PAGE>
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COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH CARE - (CONTINUED)
Somnus Medical
Technologies, Inc. # 147,500 $ 1,207,656
Sybron International
Corporation # 155,000 3,913,750
-----------
25,707,875
-----------
HEAVY INDUSTRY / TRANSPORTATION - 6.82%
Covenant Transport,
Inc. - Class A # 90,000 1,755,000
EVI Weatherford Inc. # 19,000 705,375
Genesee & Wyoming, Inc. # 90,500 1,719,500
Kirby Corporation # 280,000 7,070,000
RailAmerica, Inc. # 375,000 2,296,875
RailTex, Inc. # 80,000 1,060,000
Swift Transportation Co., Inc. #135,000 2,674,688
TJ International, Inc. 70,000 2,108,750
-----------
19,390,188
-----------
MANUFACTURING - 7.62%
Blount International,
Inc. - Class A 200,000 5,700,000
Chart Industries, Inc. 92,700 2,213,213
Happy Kids, Inc. # 110,200 1,515,250
Justin Industries, Inc. 320,000 5,160,000
Lindsay Manufacturing Company 165,000 4,475,625
Scott Technologies,
Inc. - Class A # 177,000 2,588,625
-----------
21,652,713
-----------
PUBLISHING & BROADCASTING - 2.92%
A.H. Belo Corporation -
Common Series A 160,000 3,900,000
Harte-Hanks, Inc. 170,000 4,388,125
-----------
8,288,125
-----------
REAL ESTATE INVESTMENT TRUSTS - 3.03%
Boykin Lodging Company 77,000 1,669,937
Brandywine Realty Trust 85,000 1,901,875
Crescent Real Estate
Equities Trust 62,000 2,084,750
Prentiss Properties Trust 75,000 1,823,438
Prime Group Realty Trust 15,000 256,875
Storage USA, Inc. 25,000 875,000
-----------
8,611,875
-----------
<PAGE>
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COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
RETAIL - 8.20%
Boise Cascade Office
Products Corporation # 120,000 $ 1,860,000
The Bombay Company, Inc. # 100,000 475,000
Borders Group, Inc. # 140,000 5,180,000
Party City Corporation # 70,000 2,056,250
PETsMART, Inc. # 100,000 1,000,000
Pier 1 Imports, Inc. 165,000 3,939,375
Play By Play Toy &
Novelties, Inc. # 215,000 2,217,188
Proffitt's, Inc. # 40,000 1,615,000
Taco Cabana, Inc. - Class A # 190,100 1,200,006
Tractor Supply Company # 115,000 2,860,625
White Cap Industries, Inc. # 50,000 900,000
-----------
23,303,444
-----------
TECHNOLOGY - 4.65%
Bell & Howell Company # 100,000 2,581,250
Dallas Semiconductor
Corporation 52,500 1,627,500
Dunn Computer Corporation # 114,000 940,500
Intellicall, Inc. # 100,000 393,750
Intelligent Polymers Limited # 150,000 3,112,500
Kent Electronics Corporation # 135,900 2,488,669
RadiSys Corporation # 30,000 645,000
Telelec # 32,000 1,432,000
-----------
13,221,169
-----------
TELECOMMUNICATIONS - 3.01%
ITC DeltaCom, Inc. # 60,000 2,564,063
IXC Communication, Inc. # 5,000 242,500
Metrocall, Inc. # 252,450 1,530,478
MetroNet Communications
Corporation - Class B # 85,000 2,401,250
PageMart Wireless, Inc. -
Class A # 200,000 1,812,500
-----------
8,550,791
-----------
TOTAL COMMON STOCK
(cost $181,301,022 ) 238,494,671
-----------
<PAGE>
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PREFERRED STOCK - 0.09% SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 0.09%
Atlantic Gulf Communities
Corporation # @*(2) 4,221 $ 42,210
Atlantic Gulf Communities
Corporation # @* 21,796 215,344
-----------
TOTAL PREFERRED STOCK
(cost $295,233) 257,554
-----------
- --------------------------------------------------------------------------------
WARRANTS - 0.02%
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 0.02%
Atlantic Gulf Communities
Corporation - Class A # @* 17,345 1,041
Atlantic Gulf Communities
Corporation - Class B # @* 17,345 1,041
Atlantic Gulf Communities
Corporation - Class C # @* 17,344 1,041
PawnMart, Inc. - Class A,
expires 3/11/2003 # 50,000 35,937
PawnMart, Inc. - Class B,
expires 3/11/2004 # 50,000 18,750
-----------
TOTAL WARRANTS
(cost $10,848) 57,810
-----------
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CASH EQUIVALENT - 16.20% PRINCIPAL VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 16.20%
Firstar Bank Repo, 4.25%,
dated 6/30/1998, due 7/01/1998,
to be repurchased at $46,061,000
collateralized by $45,295,000
U.S. Treasury Note, 6.50%,
due 4/30/1999, valued at
$46,143,974
(cost $46,061,000) $ 46,061,000 46,061,000
-----------
TOTAL INVESTMENTS - 100.22%
(cost $227,668,103) 284,871,035
Liabilities in excess of
other assets - (0.22%) (620,073)
-----------
Total net assets - 100.00% $284,250,962
============
# - Non-income producing security.
(1) Foreign Security.
(2) Each share represents one share of preferred stock and warrants to purchase
two shares of common stock.
@ - Security issued as a private placement and is illiquid by virtue of the
absence of a readily available market.
* - Security valued at fair value - See Note A to the financial statements.
See notes to the financial statements.
<PAGE>
LKCM EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS - 90.19% SHARES VALUE
- --------------------------------------------------------------------------------
BASIC RESOURCES - 4.75%
ARCO Chemical Company 10,000 $ 573,750
du Pont (E.I.) de Nemours &
Company 14,000 1,044,750
Willamette Industries, Inc. 10,000 320,000
-----------
1,938,500
-----------
BERVERAGE & PERSONAL PRODUCTS - 6.87%
Colgate-Palmolive Company 12,000 1,056,000
Kimberly-Clark Corporation 20,000 917,500
PepsiCo, Inc. 20,000 823,750
-----------
2,797,250
-----------
CONSUMER & COMMERCIAL SERVICES - 12.60%
General Electric Company 10,000 910,000
H&R Block, Inc. 12,000 505,500
Hilton Hotels Corporation 15,000 427,500
Monsanto Company 14,000 782,250
Sherwin-Williams Company 26,000 861,250
U.S. Filter Corporation # 30,000 841,875
Waste Management, Inc. 23,000 805,000
-----------
5,133,375
-----------
ENERGY - 11.83%
Exxon Corporation 18,000 1,283,625
Halliburton Company 20,000 891,250
Mobil Corporation 12,000 919,500
Noble Affiliates, Inc. 18,000 684,000
Schlumberger, Limited 9,000 614,813
Western Atlas, Inc. # 5,000 424,375
-----------
4,817,563
-----------
FINANCIAL SERVICES - 8.94%
American General Corporation 17,000 1,210,187
C.I.T. Group, Inc. - Class A 27,000 1,012,500
Cullen/Frost Bankers, Inc. 11,000 596,750
Norwest Corporation 22,000 822,250
-----------
3,641,687
-----------
- --------------------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH CARE - 15.29%
Merck & Company, Inc. 8,000 $ 1,070,000
Pfizer, Inc. 7,000 760,813
R.P. Scherer Corporation # 15,000 1,329,375
Schering-Plough Corporation 16,000 1,466,000
SmithKline Beecham PLC ADR 14,000 847,000
Sybron International
Corporation # 30,000 757,500
-----------
6,230,688
-----------
HEAVY INDUSTRY/TRANSPORTATION - 1.08%
Providence And Worcest
Railroad Company 30,000 438,750
-----------
MANUFACTURING - 4.51%
Blount International, Inc. -
Class A 34,000 969,000
Corning, Inc. 25,000 868,750
-----------
1,837,750
-----------
PUBLISHING & BROADCASTING - 4.35%
A.H. Belo Corporation -
Common Series A 32,000 780,000
Gannett Company, Inc. 14,000 994,875
-----------
1,774,875
-----------
REAL ESTATE INVESTMENT TRUSTS - 1.07%
Starwood Hotels & Resorts 9,000 434,813
-----------
RETAIL - 6.18%
Home Depot, Inc. 17,000 1,412,062
Saks Holdings, Inc. # 40,000 1,105,000
-----------
2,517,062
-----------
TECHNOLOGY - 7.68%
Cisco Systems, Inc. # 15,000 1,380,937
Hewlett-Packard Company 16,000 958,000
Motorola, Inc. 15,000 788,438
-----------
3,127,375
-----------
- --------------------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 5.04%
ALLTEL Corporation 15,000 $ 697,500
WorldCom, Inc. # 28,000 1,356,250
-----------
2,053,750
-----------
TOTAL COMMON STOCK
(cost $25,996,493) 36,743,438
-----------
<PAGE>
- --------------------------------------------------------------------------------
CASH EQUIVALENT - 9.93% PRINCIPAL VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 9.93%
Firstar Bank Repo, 4.25%,
dated 6/30/1998, due 7/01/1998,
to be repurchased at $4,043,000
collateralized by $4,774,000
Fannie Mae, 6.00%, due
12/01/2009, valued at $4,123,510
(cost $4,043,000) $ 4,043,000
-----------
TOTAL INVESTMENTS - 100.12%
(cost $30,039,493) 40,786,438
Liabilities in excess of
other assets - (0.12)% (47,870)
-----------
Total net assets - 100.00% $40,738,568
===========
# - Non-income producing security.
ADR - American Depository Receipts.
See notes to the financial statements.
<PAGE>
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS - 59.55% SHARES VALUE
- --------------------------------------------------------------------------------
BASIC/DIVERSIFIED INDUSTRIAL - 8.26%
du Pont (E.I.) de Nemours &
Company 200 $ 14,925
Emerson Electric Company 300 18,112
General Electric Company 200 18,200
MacMillan Bloedel Limited 1,400 14,875
Morton International, Inc 700 17,500
St. Joe Corporation 600 16,425
Tyco International Limited 400 25,200
-----------
125,237
-----------
BEVERAGE & PERSONAL PRODUCTS - 3.43%
Colgate-Palmolive Company 200 17,600
Kimberly-Clark Corporation 300 13,763
PepsiCo, Inc. 500 20,594
-----------
51,957
-----------
CONSUMER & COMMERCIAL SERVICES - 4.26%
H&R Block, Inc. 400 16,850
Hilton Hotels Corporation 500 14,250
Sherwin-Williams Company 500 16,563
U.S. Filter Corporation # 600 16,837
-----------
64,500
-----------
EDUCATION - 2.13%
ITT Educational Services, Inc. 1,000 32,250
-----------
ENERGY - 6.07%
Atlantic Richfield Company 200 15,625
Baker Hughes Inc. 200 6,912
Exxon Corporation 300 21,394
Mobil Corporation 250 19,156
Schlumberger Limited 300 20,494
Western Atlas Inc. # 100 8,488
-----------
92,069
-----------
FINANCIAL SERVICES - 9.48%
AEGON N.V. 201 17,386
American General Corporation 300 21,356
C.I.T. Group, Inc., Class A 600 22,500
Compass Bancshares, Inc. 400 18,050
First United Bancshares, Inc. 400 19,550
Mellon Bank Corporation 300 20,888
Waddell & Reed Financial, Inc. # 1,000 23,937
-----------
143,667
-----------
<PAGE>
- --------------------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
FOOD, TOBACCO & OTHER - 2.78%
H.J. Heinz Company 400 $ 22,450
Philip Morris Companies Inc. 500 19,688
-----------
42,138
-----------
HEALTH CARE - 8.55%
American Home Products 400 20,700
Covance, Inc. 700 15,750
Integrated Health Services, Inc. 400 15,000
R.P. Scherer Corporation # 300 26,588
Schering-Plough Corporation 200 18,324
SmithKline Beecham PLC ADR 300 18,150
Sybron International Corporation # 600 15,150
-----------
129,662
-----------
PUBLISHING & BROADCASTING - 2.54%
A.H. Belo Corporation,
Common Series A 800 19,500
CBS Corporation 600 19,050
-----------
38,550
-----------
REAL ESTATE INVESTMENT TRUSTS - 2.61%
Crescent Real Estate Equities
Company 600 20,175
Starwood Hotels & Resorts 400 19,325
-----------
39,500
-----------
RETAIL - 2.70%
Saks Holdings, Inc. # 600 16,575
Tandy Corporation 500 26,531
-----------
43,106
-----------
TECHNOLOGY - 2.70%
Cisco Systems, Inc. 200 18,412
Hewlett-Packard Company 200 11,975
Motorola, Inc. 200 10,513
-----------
40,900
-----------
TELECOMMUNICATIONS - 3.90%
ALLTEL Corporation 400 18,600
Corning, Inc. 300 10,425
Telecom Corporation of
New Zealand Limited 800 13,450
WorldCom, Inc. # 344 16,663
-----------
59,138
-----------
<PAGE>
- --------------------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(cost $828,599) $ 902,674
-----------
- --------------------------------------------------------------------------------
CORPORATE BONDS - 25.28% PRINCIPAL
- --------------------------------------------------------------------------------
CONSUMER & COMMERCIAL SERVICES - 5.61%
Bay Apartment Communities,
6.25%, 1/15/2003 $ 25,000 24,799
CapStar Hotel Corporation,
Callable 10/15/2000,
4.75%, 10/15/2004 25,000 20,562
ITT Corporation,
6.75%, 11/15/2005 15,000 14,396
WMX Technologies,
6.70%, 5/02/2001 25,000 25,251
-----------
85,008
-----------
ELECTRIC - 3.14%
Florida Power & Light,
Callable 7/17/1998, 25,000 26,042
7.625%, 12/01/2012
Old Domin Electric,
Callable 12/01/2003,
7.48%, 12/01/2013 20,000 21,566
-----------
47,608
-----------
ENVIRONMENT - 1.80%
USA Waste Services, Inc.,
Callable 2/01/2000,
4.00%, 2/01/2002 22,000 27,335
-----------
FINANCIAL SERVICES - 4.33%
Associates Corp N.A.,
6.25%, 9/15/2000 25,000 25,173
Morgan Stanley Group,
6.875%, 3/01/2007 15,000 15,525
Sears Roebuck Acceptance
Corporation,
6.00%, 3/20/2003 25,000 24,975
-----------
65,673
-----------
FOOD, TOBACCO & OTHER - 1.71%
Philip Morris Companies Inc.,
7.50%, 1/15/2002 25,000 25,934
-----------
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BONDS PRINCIPAL VALUE
- --------------------------------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION - 1.74%
Union Pacific Railroad
Corporation, Callable 7/31/1998,
8.50%, 1/15/2017 $ 25,000 $ 26,386
-----------
MANUFACTURING - 3.02%
Robbins & Myers, Inc.,
Callable 9/01/1999,
6.5%, 9/01/2003 16,000 20,320
Thomas & Betts Corporation,
6.5%, 1/15/2006 25,000 25,465
-----------
45,785
-----------
RETAIL - 2.22%
Tandy Corporation,
6.95%, 9/01/2007 25,000 26,003
Toys R Us, Callable 7/31/1998,
8.25%, 2/01/2017 7,000 7,543
-----------
33,546
-----------
TECHNOLOGY - 1.71%
Oracle Corporation,
6.91%, 2/15/2007 25,000 25,924
-----------
TOTAL CORPORATE BONDS
(cost $386,865) 383,199
-----------
- --------------------------------------------------------------------------------
PREFERRED STOCK - 6.54% SHARES
- --------------------------------------------------------------------------------
Merrill Lynch Strypes 400 29,000
Microsoft Corporation 300 28,500
Nextel Strypes Trust
(acquired 3/04/1998,
cost $15,565) r 600 13,350
Sinclair Broadcast Group 400 28,300
-----------
TOTAL PREFERRED STOCK
(cost $99,596) 99,150
-----------
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 5.12% PRINCIPAL VALUE
- --------------------------------------------------------------------------------
U.S. Treasury Notes:
6.50%, 5/31/2002 $ 25,000 $ 25,836
5.75%, 8/15/2003 25,000 25,273
6.50%, 10/15/2006 25,000 26,562
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(cost $77,064) 77,671
-----------
TOTAL INVESTMENTS - 96.49%
(cost $1,392,124) 1,462,694
Other assets in excess of
liabilities - 3.51% 53,288
-----------
Total net assets - 100.00% $ 1,515,982
===========
# - Non-income producing security.
ADR - American Depository Receipts.
r - Restricted security. Purchased in a private placement transaction; resale to
the public may require registration or may extend only to qualified
institutional buyers.
See notes to the financial statements.
<PAGE>
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CORPORATE BONDS - 59.03% PRINCIPAL VALUE
- --------------------------------------------------------------------------------
CHEMICALS - 3.06%
M.A. Hanna Company,
9.375%, 9/15/2003 $ 40,000 $ 45,647
Solutia, Inc.,
6.50%, 10/15/2002 275,000 278,175
-----------
323,822
-----------
CONSUMER & COMMERCIAL SERVICES - 8.91%
ITT Corporation,
6.75%, 11/15/2005 300,000 287,920
Tyco International Group,
6.375%, 6/15/2005 350,000 351,245
WMX Technologies,
6.70%, 5/01/2001 300,000 303,006
-----------
942,171
-----------
ELECTRIC - 6.78%
Florida Power & Light,
Callable 7/17/1998,
7.875%, 12/01/2012 300,000 312,499
Interstate Power Company,
Callable 7/31/1998,
8.625%, 9/15/2021 50,000 53,450
Old Domin Electric,
Callable 12/01/2003,
7.48%, 12/01/2013 325,000 350,444
-----------
716,393
-----------
ENERGY - 0.50%
Southwest Gas Corporation,
7.50%, 8/01/2006 50,000 53,255
-----------
FINANCIAL SERVICES - 21.98%
American General Finance,
6.875%, 1/15/2000 100,000 101,376
Associates Corp N.A.,
6.25%, 9/15/2000 150,000 151,040
Bay Apartment Communities,
6.25%, 1/15/2003 150,000 148,792
Banc One Corporation,
7.00%, 7/15/2005 150,000 156,821
Block Financial Corporation,
6.75%, 11/01/2004 300,000 308,188
Camden Property Trust,
7.00%, 11/15/2006 300,000 306,038
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BONDS PRINCIPAL VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - (CONTINUED)
Morgan Stanley Group,
6.875%, 3/01/2007 $ 335,000 $ 346,726
Sears Roebuck Acceptance
Corporation,
6.00%, 3/20/2003 300,000 299,705
State Street Boston Corporation,
5.95%, 9/15/2003 250,000 249,348
Wilmington Trust Corporation,
6.625%, 5/01/2008 250,000 255,931
-----------
2,323,965
-----------
FOOD, TOBACCO & OTHER - 2.94%
Phlip Morris Companies Inc.,
7.50%, 1/15/2002 300,000 311,206
-----------
HEAVY INDUSTRY/TRANSPORTATION - 3.00%
Union Pacific Railroad
Corporation, Callable 7/31/1998,
8.50%, 1/15/2017 300,000 316,626
-----------
MANUFACTURING - 1.44%
Thomas & Betts Corporation,
6.50%, 1/15/2006 150,000 152,793
-----------
RETAIL - 4.12%
Tandy Corporation,
6.95%, 9/01/2007 325,000 338,043
Toys R Us, Callable 7/31/1998,
8.25%, 2/01/2017 91,000 98,058
-----------
436,101
-----------
TECHNOLOGY - 1.72%
Oracle Corporation,
6.91%, 2/15/2007 175,000 181,466
-----------
TELECOMMUNICATIONS - 4.58%
GTE Hawaiian Telephone
7.375%, 9/01/2006 150,000 159,947
Worldcom, Inc.
7.75%, 4/01/2007 300,000 324,595
-----------
484,542
-----------
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE BONDS PRINCIPAL VALUE
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(cost $6,209,328) $ 6,242,340
-----------
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 35.51%
- --------------------------------------------------------------------------------
U.S. Treasury Notes:
5.625%, 10/31/1999 $ 200,000 200,250
7.875%, 11/15/1999 200,000 206,125
6.00%, 08/15/2000 900,000 908,719
5.625%, 02/28/2001 1,000,000 1,002,813
6.50%, 05/31/2002 1,000,000 1,033,438
5.75%, 11/30/2002 400,000 403,375
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(costs $3,748,441) 3,754,720
-----------
<PAGE>
- --------------------------------------------------------------------------------
CASH EQUIVALENT - 2.80% PRINCIPAL VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.80%
Firstar Bank, 3.75%, dated
6/30/1998, due 7/01/1998, to
be repurchased at $296,000,
collateralized by $296,031
U.S. Treasury Note, 7.875%,
8/15/2001
(cost $296,000) $296,000 $ 296,000
-----------
TOTAL INVESTMENTS - 97.34%
(cost $10,253,769) 10,293,060
-----------
Other assets in excess of
liabilities - 2.66% 280,973
-----------
Total net assets - 100.00% $10,574,033
===========
See notes to the financial statements.
<PAGE>
LKCM INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCK - 91.76% SHARES VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS - 1.56%
BioChem Pharma Inc.# 31,602 $ 837,447
CliniChem Development, Inc.# 770 4,428
-----------
TOTAL CANADA 841,875
-----------
- --------------------------------------------------------------------------------
DENMARK - 2.33%
- --------------------------------------------------------------------------------
TELECOMMUNICATION - 2.33%
Tele Danmark A/S 13,019 1,249,458
-----------
TOTAL DENMARK 1,249,458
-----------
- --------------------------------------------------------------------------------
FRANCE - 25.97%
- --------------------------------------------------------------------------------
CONSUMER & COMMERCIAL SERVICES - 6.58%
Essilor International SA 5,047 2,134,488
Vivendi 6,508 1,389,644
-----------
3,524,132
-----------
ENERGY - 2.18%
Primagaz Cie 13,313 1,169,231
-----------
FOOD, TOBACCO & OTHER - 3.99%
Casino Guichard-Perrachon SA 11,235 897,160
Sodexho Alliance 6,553 1,238,843
-----------
2,136,003
-----------
HEALTH - 2.89%
Sanofi SA 13,148 1,546,177
-----------
MANUFACTURING - 5.15%
Lafarge SA 4,712 487,097
Societe BIC SA 31,931 2,270,967
-----------
2,758,064
-----------
MISCELLANEOUS - 1.39%
Suez Lyonnaise des Eaux 4,517 743,366
-----------
PUBLISHING & BROADCASTING - 1.02%
Havas SA 6,449 547,192
-----------
TECHNOLOGY - 2.77%
Cap Gemini SA 9,463 1,486,902
-----------
TOTAL FRANCE 13,911,067
-----------
- --------------------------------------------------------------------------------
COMMON STOCK - 91.76% SHARES VALUE
- --------------------------------------------------------------------------------
GERMANY - 6.22%
- --------------------------------------------------------------------------------
CHEMICALS - 2.02%
Hoechst 21,515 $ 1,081,689
-----------
CONSUMER & COMMERCIAL SERVICES - 1.31%
Berliner Kraft-und Licht 16,492 703,524
-----------
FINANCIAL SERVICES - 0.60%
BHF-Bank AG 8,450 321,609
-----------
MANUFACTURING - 2.29%
Mannesmann AG 11,930 1,226,024
-----------
TOTAL GERMANY 3,332,846
-----------
- --------------------------------------------------------------------------------
ITALY - 15.25%
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 4.34%
Banca Intesa SpA 161,325 902,578
Credito Italiano 89,499 468,503
Instituto Bancario San Paolo
di Torino 65,850 950,214
-----------
2,321,295
-----------
FOOD, TOBACCO & OTHER - 3.68%
La Rinascente SpA 191,380 1,905,671
La Rinascente SpA - RNC 13,417 66,951
-----------
1,972,622
-----------
PUBLISHING-PERIODICALS - 0.78%
Seat SpA# 618,684 417,665
-----------
TELECOMMUNICATION - 4.92%
Telecom Italia SpA 283,876 2,089,684
Telecom Italia Mobile SpA 89,362 546,463
-----------
2,636,147
-----------
UTILITIES - 1.53%
Italgas 201,441 820,474
-----------
TOTAL ITALY 8,168,203
-----------
- --------------------------------------------------------------------------------
COMMON STOCK - 91.76% SHARES VALUE
- --------------------------------------------------------------------------------
JAPAN - 2.52%
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 0.69%
Nikko Securities Co., Ltd. 30,000 $ 124,293
Nomura Securities Co., Ltd. 21,000 244,371
-----------
368,664
-----------
MANUFACTURING - 0.14%
Pioneer Electronic Corporation 4,000 76,377
-----------
PRINTING - 0.44%
Toppan Forms Co., Ltd. 18,000 235,011
-----------
TECHNOLOGY - 0.48%
Hitachi Software Engineering
Co., Ltd. 9,700 257,204
-----------
TELECOMMUNICATION - 0.10%
Nippon Television Network
Corporation 180 52,138
-----------
TOYS - 0.67%
Nintendo Co., Ltd. 3,900 361,098
-----------
TOTAL JAPAN 1,350,492
-----------
- --------------------------------------------------------------------------------
NETHERLANDS - 8.16%
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 6.25%
Aegon N.V. 15,374 1,337,709
ING Groep N.V. 30,688 2,009,437
-----------
3,347,146
-----------
BEVERAGES - 1.91%
Heineken N.V. 26,074 1,024,132
-----------
TOTAL NETHERLANDS 4,371,278
-----------
- --------------------------------------------------------------------------------
NORWAY - 1.10%
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 1.10%
Storebrand ASA# 66,514 589,422
-----------
TOTAL NORWAY 589,422
-----------
<PAGE>
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
PORTUGAL - 0.18%
- --------------------------------------------------------------------------------
ELECTRICAL POWER - 0.18%
Electricidade de Portugal, S.A. 4,028 $ 93,635
-----------
TOTAL PORTUGAL 93,635
-----------
- --------------------------------------------------------------------------------
SWEDEN - 1.54%
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 1.50%
Investor AB 14,119 824,130
-----------
TOTAL SWEDEN 824,130
-----------
- --------------------------------------------------------------------------------
SWITZERLAND - 7.72%
- --------------------------------------------------------------------------------
BASIC RESOURCES - 3.15%
Holderbank Financiere Glarus AG 1,324 1,684,665
-----------
FINANCIAL SERVICES - 1.62%
Union Bank of Switzerland 2,330 866,370
-----------
FOOD, TOBACCO & OTHER - 2.95%
Nestle SA 740 1,583,611
-----------
TOTAL SWITZERLAND 4,134,646
-----------
- --------------------------------------------------------------------------------
UNITED KINGDOM - 19.21%
- --------------------------------------------------------------------------------
AEROSPACE - 2.43%
British Aerospace plc 90,818 695,522
Rolls Royce plc 146,411 604,609
-----------
1,300,131
-----------
BEVERAGE & PERSONAL PRODUCTS - 3.95%
Diageo plc 113,303 1,342,226
Unilever plc 72,876 775,767
-----------
2,117,993
-----------
ENERGY - 1.67%
Burmah Castrol plc 50,041 893,379
-----------
FOOD, TOBACCO & OTHER - 3.85%
Cadbury Schweppes plc 103,760 1,605,720
PIC International Group plc 121,264 457,263
-----------
2,062,983
-----------
- --------------------------------------------------------------------------------
COMMON STOCK SHARES VALUE
- --------------------------------------------------------------------------------
UNITED KINGDOM - (CONTINUED)
- --------------------------------------------------------------------------------
HEALTH - 1.29%
Scotia Holdings plc# 127,370 $ 688,554
-----------
INSURANCE - 1.72%
Britannic Assurance plc 48,790 923,959
-----------
RETAIL - 3.24%
Boots Company plc 24,588 407,379
Kingfisher plc 39,509 636,135
Signet Group plc# 960,571 689,166
-----------
1,732,680
-----------
TRANSPORTATION - 1.06%
Railtrack Group plc 23,242 569,667
-----------
TOTAL UNITED KINGDOM 10,289,346
-----------
TOTAL COMMON STOCK
(cost $47,958,855) 49,156,398
===========
- --------------------------------------------------------------------------------
PREFERRED STOCK - 4.79%
- --------------------------------------------------------------------------------
GERMANY - 2.52%
- --------------------------------------------------------------------------------
TECHNOLOGY - 2.52%
SAP AG 1,990 1,350,528
-----------
TOTAL GERMANY 1,350,528
-----------
- --------------------------------------------------------------------------------
ITALY - 2.27%
- --------------------------------------------------------------------------------
CONSUMER & COMMERCIAL SERVICES - 2.27%
IFI Istituto Finanziario 58,320 1,218,862
-----------
TOTAL ITALY 1,218,862
-----------
TOTAL PREFERRED STOCK
(cost $2,366,893) 2,569,390
-----------
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS - 5.56% VALUE
- --------------------------------------------------------------------------------
Chase United States, 4.5468%
(cost $2,976,264) $ 2,976,264
-----------
TOTAL INVESTMENTS - 102.11%
(cost $53,302,012) 54,702,052
-----------
Liabilities in excess of
other assets - (2.11)% (1,129,583)
-----------
Total net assets - 100.00% $53,572,469
===========
# - Non-income producing security.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value* .................. $284,871,035 $ 40,786,438 $ 1,462,694 $ 10,293,060 $ 54,702,052
Cash .................................... 119 486 26,500 632 0
Foreign currency ** ..................... 0 0 0 0 2,245,607
Dividends and interest receivable ....... 235,064 27,466 9,507 161,723 122,336
Receivable from Advisor ................. 0 0 24,554 7,761 0
Receivable for investments sold ......... 562,893 0 0 0 30,385,009
Receivable for Fund shares sold ......... 0 0 0 130,000 60,000
Organizational expenses,
net of accumulated amortization ....... 11,101 0 14,671 14,671 26,079
Prepaid expenses ........................ 29,612 7,544 633 1,406 6,059
------------ ------------ ------------ ------------ ------------
Total assets .......................... 285,709,824 40,821,934 1,538,559 10,609,253 87,547,142
------------ ------------ ------------ ------------ ------------
LIABILITIES:
Payable for foreign
currency contracts .................... 0 0 0 0 29,653,150
Bank overdraft .......................... 0 0 0 0 1,163,663
Payable for investments purchased ....... 804,685 0 0 0 2,978,466
Payable for investment advisory fees .... 551,625 47,548 0 0 128,054
Payable for Fund shares repurchased ..... 0 0 0 0 16,536
Accrued expenses and other liabilities .. 102,552 35,818 22,577 35,220 34,804
------------ ------------ ------------ ------------ ------------
Total liabilities .................... 1,458,862 83,366 22,577 35,220 33,974,673
------------ ------------ ------------ ------------ ------------
NET ASSETS .............................. $284,250,962 $ 40,738,568 $ 1,515,982 $ 10,574,033 $ 53,572,469
============ ============ ============ ============ ============
NET ASSETS CONSIST OF:
Paid in capital ......................... $213,334,912 $ 26,919,479 $ 1,442,834 $ 10,531,787 $ 52,882,411
Undistributed net investment income ..... 318,948 109,741 57 1,533 265,588
Undistributed net realized gain
(loss) on securities and foreign
currency transactions ................. 13,394,170 2,962,403 2,521 1,422 (993,745)
Net unrealized appreciation of
securities and foreign
currency transactions ................. 57,202,932 10,746,945 70,570 39,291 1,418,215
------------ ------------ ------------ ------------ ------------
NET ASSETS .............................. $284,250,962 $ 40,738,568 $ 1,515,982 $ 10,574,033 $ 53,572,469
============ ============ ============ ============ ============
Shares of beneficial interest
outstanding (unlimited shares
of no par value authorized) .......... 16,295,165 2,761,150 143,296 1,046,283 4,906,849
Net asset value per share
(offering and redemption price) ....... $ 17.44 $ 14.75 $ 10.58 $ 10.11 $ 10.92
============ ============ ============ ============ ============
* Cost of Investment..................... $227,668,103 $ 30,039,493 $ 1,392,124 $ 10,253,769 $ 53,302,012
============ ============ ============ ============ ============
** Cost of Foreign Currency.............. $ 0 $ 0 $ 0 $ 0 $ 2,242,107
============ ============ ============ ============ ============
See notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<CAPTION>
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income* .............................. $ 993,505 $ 209,834 $ 5,850 $ 0 $ 311,335
Interest ...................................... 596,112 67,932 12,405 210,364 101,891
------------ ------------ ------------ ------------ ------------
Total income ................................ 1,589,617 277,766 18,255 210,364 413,226
------------ ------------ ------------ ------------ ------------
EXPENSES:
Investment advisory fees ...................... 1,071,025 147,728 3,892 17,622 125,461
Administrative fees ........................... 75,084 14,858 7,968 7,968 13,990
Custody fees and expenses ..................... 27,587 10,253 4,268 3,224 5,312
Accounting and transfer
agent fees and expenses ..................... 43,270 23,324 17,549 18,024 20,204
Federal and state registration ................ 21,263 9,975 476 1,896 1,804
Professional fees ............................. 15,925 6,057 3,944 3,725 5,070
Trustees' fees ................................ 2,900 1,810 0 0 0
Amortization of deferred charges .............. 5,332 0 1,625 1,625 2,916
Reports to shareholders ....................... 4,646 3,078 476 476 710
Other ......................................... 10,636 3,341 335 1,027 1,489
------------ ------------ ------------ ------------ ------------
Total expenses ............................. 1,277,668 220,424 40,533 55,587 176,956
Less, expense reimbursement ................ 0 (52,798) (35,742) (32,679) (26,402)
------------ ------------ ------------ ------------ ------------
Net expenses ............................... 1,277,668 167,626 4,791 22,908 150,554
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME ......................... 311,949 110,140 13,464 187,456 262,672
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on investments
and foreign currency transactions ........... 12,672,261 2,344,601 2,521 1,422 (993,745)
Net change in unrealized
appreciation of securities and
foreign currency transactions ............... (4,070,443) 2,372,645 70,570 39,291 1,418,215
------------ ------------ ------------ ------------ ------------
NET GAIN ON INVESTMENTS ....................... 8,601,818 4,717,246 73,091 40,713 424,470
------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 8,913,767 $ 4,827,386 $ 86,555 $ 228,169 $ 687,142
============ ============ ============ ============ ============
* Net of Foreign Taxes Withheld ............... $ 0 $ 790 $ 68 $ 0 $ 109,746
============ ============ ============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
LKCM
SMALL CAP EQUITY FUND LKCM EQUITY FUND
Six months ended Six months ended
June 30, 1998 Year ended June 30, 1998 Year ended
(Unaudited) December 31, 1997 (Unaudited) December 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .......................... $ 311,949 $ 537,200 $ 110,140 $ 365,363
Net realized gain (loss) on investments
and foreign currency transactions ............ 12,672,261 20,905,657 2,344,601 2,403,120
Net change in unrealized appreciation of
securities and foreign currency
transactions ................................. (4,070,443) 27,753,447 2,372,645 5,155,823
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ................ 8,913,767 49,196,304 4,827,386 7,924,306
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income .......................... 0 (923,766) 0 (815,908)
Net realized gain on investments ............... 0 (36,263,585) 0 (3,031,073)
------------- ------------- ------------- -------------
Total dividends and distributions .......... 0 (37,187,351) 0 (3,846,981)
------------- ------------- ------------- -------------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold .................. 15,000,100 42,633,318 3,621,819 21,410,408
Shares issued in connection with payment
of dividends and distributions ............... 0 35,233,556 0 2,945,834
Cost of shares redeemed ........................ (14,450,182) (14,176,437) (20,102,411) (10,649,681)
------------- ------------- ------------- -------------
Net increase (decrease) in net asset
from Fund share transactions ............. 549,918 63,690,437 (16,480,592) 13,706,561
------------- ------------- ------------- -------------
Total increase (decrease) ...................... 9,463,685 75,699,390 (11,653,206) 17,783,886
NET ASSETS:
Beginning of period ............................ 274,787,277 199,087,887 52,391,774 34,607,888
------------- ------------- ------------- -------------
End of period* ................................. $ 284,250,962 $ 274,787,277 $ 40,738,568 $ 52,391,774
============= ============= ============= =============
*Including undistributed net
investment income of: ........................ $ 318,948 $ 0 $ 109,741 $ 0
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares sold .................................... 852,831 2,573,250 258,334 1,614,397
Shares issued in connection with payment
of dividends and distributions ............... 0 2,228,307 0 240,087
Shares redeemed ................................ (827,921) (820,506) (1,473,376) (836,931)
------------- ------------- ------------- -------------
Net increase (decrease) ........................ 24,910 3,981,051 (1,215,042) 1,017,553
============= ============= ============= =============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
LKCM LKCM LKCM
BALANCED FIXED INCOME INTERNATIONAL
FUND FUND FUND
Six months ended Six months ended Six months ended
June 30, 1998(1) June 30, 1998(1) June 30, 1998(1)
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income ......................................... $ 13,464 $ 187,456 $ 262,672
Net realized gain (loss) on investments and
foreign currency transactions ............................... 2,521 1,422 (993,745)
Net change in unrealized appreciation of
securities and foreign currency transactions ................ 70,570 39,291 1,418,215
------------ ------------ ------------
Net increase in net assets resulting from operations ...... 86,555 228,169 687,142
------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income ......................................... (15,032) (187,549) 0
Net realized gain on investments .............................. 0 0 0
------------ ------------ ------------
Total dividends and distributions ......................... (15,032) (187,549) 0
------------ ------------ ------------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold ................................. 1,429,817 10,345,854 53,724,840
Shares issued in connection with payment
of dividends and distributions .............................. 15,032 187,549 0
Capital contributions ......................................... 0 0 0
Cost of shares redeemed ....................................... (400) 0 (839,523)
------------ ------------ ------------
Net increase in net asset from Fund share transactions .... 1,444,449 10,533,403 52,885,317
------------ ------------ ------------
Total increase ................................................ 1,515,972 10,574,023 53,572,459
NET ASSETS:
Beginning of period ........................................... 10 10 10
------------ ------------ ------------
End of period* ................................................ $ 1,515,982 $ 10,574,033 $ 53,572,469
============ ============ ============
*Including undistributed net investment income of: ............ $ 57 $ 1,533 $ 265,588
============ ============ ============
CHANGES IN SHARES OUTSTANDING:
Shares sold ................................................... 141,916 1,016,712 4,984,038
Shares issued in connection with payment
of dividends and distributions .............................. 1,417 29,570 0
Shares redeemed ............................................... (38) 0 (77,190)
------------ ------------ ------------
Net increase .................................................. 143,295 1,046,282 4,906,848
============ ============ ============
(1) The Funds commenced operations on December 30, 1997. At December 31, 1997
the Funds had no operations other than those relating to organizational
matters.
See notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<CAPTION>
LKCM SMALL CAP EQUITY FUND
Six months ended
June 30, 1998 Year ended Year ended May 1, 1995 to July 14, 1994(1)to
(Unaudited) December 31, 1997 December 31, 1996 December 31, 1995 April 30, 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD............ $16.89 $16.20 $13.84 $11.48 $10.00
------ ------ ------ ------ ------
Net investment income............ 0.02 0.02 0.05 0.03 0.04
Net realized gain (loss) and unrealized
appreciation (depreciation).... 0.53 3.38 3.26 2.33 1.44
------ ------ ------ ------ ------
Total from investment
operations................. 0.55 3.40 3.31 2.36 1.48
------ ------ ------ ------ ------
Dividends from net investment
income......................... -- (0.07) (0.07) -- --
Distributions from net realized gain
from investment transactions... -- (2.64) (0.88) -- --
------ ------ ------ ------ ------
Total distributions.......... -- (2.71) (0.95) -- --
------ ------ ------ ------ ------
NET ASSET VALUE-- END OF PERIOD.. $17.44 $16.89 $16.20 $13.84 $11.48
====== ====== ====== ====== ======
TOTAL RETURN..................... 3.26%(3) 23.07% 25.67% 20.56%(3) 14.80%(3)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $284,251 $274,787 $199,088 $121,430 $66,736
Ratio of expenses to average net
assets......................... 0.89%(2) 0.95% 1.00% 1.00%(2) 1.00%(2)
Ratio of net investment income to
average net assets............. 0.22%(2) 0.22% 0.39% 0.53%(2) 1.15%(2)
Portfolio turnover rate.......... 15%(3) 34% 66% 57% 53%
(1) Commencement of Operations
(2) Annualized
(3) Not Annualized
See notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
LKCM EQUITY FUND
<CAPTION>
Six months Period from
ended January 3,
June 30, Year ended 1996(1) to
1998 December 31, December 31,
(Unaudited) 1997 1996
<S> <C> <C> <C>
NET ASSET VALUE-- BEGINNING OF PERIOD............................ $13.18 $11.70 $10.00
------ ------ ------
Net investment income............................................ .04 0.10 0.15
Net realized gain (loss) and unrealized
appreciation (depreciation).................................... 1.53 2.52 1.55
------ ------ ------
Total from investment operations............................. 1.57 2.62 1.70
------ ------ ------
Dividends from net investment income............................. -- (0.25) --
Distributions from net realized gain from investment transactions -- (0.89) --
------ ------ ------
Total distributions.......................................... -- (1.14) --
------ ------ ------
NET ASSET VALUE-- END OF PERIOD.................................. $14.75 $13.18 $11.70
====== ====== ======
TOTAL RETURN..................................................... 11.91%(3) 23.57% 17.00%(3)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)............................ $40,739 $52,392 $34,608
Ratio of expenses to average net assets
Before expense reimbursement................................... 1.05%(2) 1.16% 1.32%(2)
After expense reimbursement.................................... 0.80%(2) 0.80% 0.80%(2)
Ratio of net investment income to average net assets
Before expense reimbursement................................... 0.27%(2) 0.57% 0.98%(2)
After expense reimbursement.................................... 0.52%(2) 0.93% 1.50%(2)
Portfolio turnover rate.......................................... 15%(3) 48% 79%
(1) Commencement of Operations
(2) Annualized
(3) Not Annualized
See notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LKCM LKCM LKCM
BALANCED FIXED INCOME INTERNATIONAL
FUND FUND FUND
Six months ended Six months ended Six months ended
June 30, 1998(1) June 30, 1998(1) June 30, 1998(1)
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
NET ASSET VALUE--BEGINNING OF PERIOD............................ $10.00 $10.00 $10.00
------ ------ ------
Net investment income............................................ 0.11 0.20 0.05
Net realized gain (loss) and unrealized
appreciation (depreciation).................................... 0.58 0.11 0.87
------ ------ ------
Total from investment operations............................. 0.69 0.31 0.92
------ ------ ------
Dividends from net investment income............................. (0.11) (0.20) --
------ ------ ------
Total distributions.......................................... (0.11) (0.20) --
------ ------ ------
NET ASSET VALUE-- END OF PERIOD.................................. $10.58 $10.11 $10.92
====== ====== ======
TOTAL RETURN(3).................................................. 6.94% 3.08% 9.20%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)............................ $1,516 $10,574 $53,572
Ratio of expenses to average net assets
Before expense reimbursement(2)................................ 6.79% 1.58% 1.41%
After expense reimbursement(2)................................. 0.80% 0.65% 1.20%
Ratio of net investment income to average net assets:
Before expense reimbursement(2)................................ (3.73)% 4.40% 1.88%
After expense reimbursement(2)................................. 2.26% 5.33% 2.09%
Portfolio turnover rate(3)....................................... 13% 64% 69%
(1) The Funds commenced operations on December 30, 1997. At December 31, 1997
the Funds had no operations other than those relating to organizational
matters.
(2) Annualized
(3) Not Annualized
</TABLE>
See Notes to the Financial Statements.
<PAGE>
LKCM Funds
Notes to the Financial Statements (Unaudited)
A. ACCOUNTING POLICIES. LKCM Funds (the "Trust") is registered under the
Investment Company Act as a diversified open-end, management company. The Trust
was organized as a Delaware business trust on February 10, 1994 and consists of
five series of shares comprising the LKCM Small Cap Equity Fund, the LKCM Equity
Fund, the LKCM Balanced Fund, the LKCM Fixed Income Fund and the LKCM
International Fund (collectively, the "Funds"), the assets of which are invested
in separate, independently managed portfolios. Investment operations of the
Funds began on July 14, 1994 (the LKCM Small Cap Equity Fund), January 3, 1996
(the LKCM Equity Fund), and December 30, 1997 (the LKCM Balanced Fund, the LKCM
Fixed Income Fund and the LKCM International Fund). The LKCM Small Cap Equity
Fund seeks to maximize capital appreciation. The LKCM Equity Fund seeks to
maximize long-term capital appreciation. The LKCM Balanced Fund seeks to provide
investors with current income and capital appreciation. The LKCM Fixed Income
Fund seeks to provide investors with current income. The LKCM International Fund
seeks to provide investors with a total return in excess of the EAFE Index. The
following is a summary of significant accounting policies followed by the Funds
in preparation of the financial statements.
1. SECURITY VALUATION: Securities listed on a U.S. securities exchange or
the Nasdaq Stock Market for which market quotations are readily available
are valued at the last quoted sale price on the day the valuation is made.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted U.S. securities and listed U.S.
securities not traded on the valuation date for which market quotations are
readily available are valued at the mean of the most recent quoted bid and
asked price. Securities listed on a foreign exchange for which market
quotations are readily available are valued at the last quoted sales price
available before the time when assets are valued. Fixed-income securities
(other than obligations having a maturity of 60 days or less) are normally
valued on the basis of quotes obtained from pricing services. Fixed-income
securities purchased with remaining maturities of 60 days or less are valued
at amortized cost if it reflects fair value. Other assets and securities for
which no quotations are readily available (including restricted securities)
will be valued in good faith at fair value using methods determined by the
Board of Trustees.
2. FEDERAL INCOME TAXES: It is each Fund's policy to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies
and each Fund intends to distribute investment company net taxable income
and net capital gains to shareholders. Therefore, no federal income tax
provision is required.
3. REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements
with broker-dealers or banks that meet the credit guidelines established by
the Board of Trustees. In connection with transactions in repurchase
agreements, it is the Fund's policy that the custodian take possession of
the underlying collateral securities, the value of which exceeds the
principal amount of the repurchase transaction, including accrued interest.
If the seller defaults, and the value of the collateral declines,
realization of the collateral by the Funds may be delayed or limited.
4. DISTRIBUTIONS TO SHAREHOLDERS: The Small Cap Equity, Equity and
International Funds intend to pay dividends and net capital gains
distributions, if any, on an annual basis. The Balanced and Fixed Income
Funds intend to pay dividends on a quarterly basis and net capital gain
distributions, if any, on an annual basis.
5. FOREIGN SECURITIES: Investing in securities of foreign companies and
foreign governments involves special risks and considerations not typically
associated with investing in U.S. companies and the U.S. government. These
risks include revaluation of currencies and future adverse political and
economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
U.S. government.
<PAGE>
6. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency transactions are translated
into U.S. dollars on the following basis: (i) market value of
investment securities, assets and liabilities at the daily rates of
exchange, and (ii) purchases and sales of investment securities, dividend
and interest income and certain expenses at the rates of exchange prevailing
on the respective dates of such transactions. For financial reporting
purposes, the Funds do not isolate changes in the exchange rate of
investment securities from the fluctuations arising from changes in the
market prices of securities. However, for federal income tax purposes the
Funds do isolate and treat as ordinary income the effect of changes in
foreign exchange rates on realized gain or loss from the sale of investment
securities and payables and receivables arising from trade date and
settlement date differences.
7. FORWARD CURRENCY EXCHANGE CONTRACTS: The LKCM International Fund
utilizes forward currency exchange contracts for the purpose of hedging
foreign currency risk on unsettled trades. Under these contracts, they are
obligated to exchange currencies at specific future dates. Risks arise
from the possible inability of counter-parties to meet the terms of their
contracts and from movements in currency values.
8. EXPENSE ALLOCATION: Common expenses incurred by the Funds are allocated
among the Funds based upon (i) relative average net assets, (ii) as incurred
on a specific identification basis, or (iii) evenly among the Funds,
depending on the nature of the expenditure.
9. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
10. OTHER: Security and shareholder transactions are recorded on trade
date. Realized gains and losses on sales of investments are calculated on
the identified cost basis. Dividend income and dividends and distributions
to shareholders are recorded on the ex-dividend date. Interest income is
recognized on the accrual basis. Generally accepted accounting principles
required that permanent financial reporting and tax differences relating to
shareholder distributions be reclassified to paid in capital.
B. INVESTMENT ADVISORY AND OTHER AGREEMENTS: Luther King Capital Management
Corporation (the "Adviser"), serves as the investment adviser to the Funds under
an Investment Advisory Agreement (the "Agreement"). The Adviser receives a fee,
computed daily and payable quarterly, at the annual rates presented below as
applied to each Fund's daily net assets. The Advisor entered into a Subadvisory
Agreement with TT International Investment Management (the "Sub-Adviser") for
the LKCMInternational Fund. Pursuant to its Subadvisory Agreement with the
Adviser, the Sub-Adviser is entitled to recevice a fee from the Adviser,
calculated daily and payable quarterly, at the annual rate below as applied to
the LKCM International Fund's daily net assets. The Adviser has voluntarily
agreed to pay operating expenses in excess of the annual rates presented below
as applied to each Fund's daily net assets. For the six months ended June 30,
1998 the Adviser waived the following fees:
<TABLE>
<CAPTION>
LKCM LKCM LKCM LKCM LKCM
SMALL CAP EQUITY EQUITY BALANCED FIXED INCOME INTERNATIONAL
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Annual Advisory Rate 0.75% 0.70% 0.65% 0.50% (1)(2)
Annual Cap on Expenses 1.00% 0.80% 0.80% 0.65% 1.20%
Fees Waived -- 52,798 35,742 32,679 26,402
</TABLE>
(1) The Adviser is entitled to receive a fee, calculated daily and payable
quarterly, at the annual rate of 1.00% of the Fund's average daily net assets.
(2) Pursuant to its Subadvisory Agreement with the Adviser, the Sub-Adviser is
entitled to receive a fee from the Advisor, calculated daily and payable
quarterly, at the annual rate of 0.50%.
<PAGE>
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held
bank holding company, serves as custodian, transfer agent, administrator and
accounting services agent for the Trust. Distribution services are performed
pursuant to distribution contracts with First Data Distributors, Inc., the
Trust's principal underwriter, and other broker-dealers.
C. SECURITY TRANSACTIONS: Purchases and sales of investment securities, other
than short-term investments, for the six months ended June 30, 1998 were
as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
LKCM Small Cap Equity Fund -- $39,144,379 -- $66,179,772
LKCM Equity Fund -- 5,877,950 -- 23,758,720
LKCM Balanced Fund 127,395 1,396,332 50,199 82,595
LKCM Fixed Income Fund 7,254,918 6,735,726 3,503,711 519,311
LKCM International Fund -- 65,497,462 -- 14,582,662
</TABLE>
At June 30, 1998, cost and unrealized appreciation (depreciation) of investments
for Federal income tax purposes were:
<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
LKCM Small Cap Equity Fund 227,668,103 70,346,075 (13,143,143) 57,202,932
LKCM Equity Fund 30,039,493 11,182,223 (435,278) 10,746,945
LKCM Balanced Fund 1,392,123 110,979 (40,408) 70,571
LKCM Fixed Income Fund 10,254,897 50,262 (12,099) 38,163
LKCM International Fund 53,344,086 3,483,987 (2,130,449) 1,353,538
</TABLE>
D. OTHER: At June 30, 1998, the percentage of total shares outstanding and the
number of record shareholders owning 10% or greater of the Funds were
as follows:
NO. OF %
SHAREHOLDERS OWNERSHIP
------------- -------------
LKCM Small Cap Equity Fund 1 14.65%
LKCM Equity Fund 2 48.65%
LKCM Balanced Fund 2 63.53%
LKCM Fixed Income Fund 1 24.26%
LKCM International Fund 2 69.34%
<PAGE>
