P R O S P E C T U S
September 29, 2000
LKCM FUNDS
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TEXAS 76102
1-800-688-LKCM
THE LKCM SMALL CAP EQUITY FUND - seeks to maximize long-term capital
appreciation
THE LKCM EQUITY FUND - seeks to maximize long-term capital appreciation
THE LKCM BALANCED FUND - seeks current income and long-term capital appreciation
THE LKCM FIXED INCOME FUND - seeks current income
THE LKCM INTERNATIONAL FUND - seeks a total return in excess of the total
return of the Morgan Stanley Capital
International Europe, Australasia and Far East
Index
This Prospectus contains information you should consider before you invest
in the funds. Please read it carefully and keep it for future reference.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED BY
THIS PROSPECTUS, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY............................................................3
FEES AND EXPENSES OF THE FUNDS................................................11
INVESTMENT OBJECTIVES.........................................................13
HOW THE FUNDS INVEST..........................................................13
FUND MANAGEMENT...............................................................16
PURCHASE OF SHARES............................................................18
REDEMPTION OF SHARES..........................................................20
VALUATION OF SHARES...........................................................21
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES......................................22
MASTER-FEEDER STRUCTURE.......................................................23
FINANCIAL HIGHLIGHTS..........................................................24
In deciding whether to invest in a fund, you should rely on information in
this Prospectus or the Statement of Additional Information (the "SAI"). The
funds have not authorized others to provide additional information. The funds do
not authorize the use of this Prospectus in any state or jurisdiction in which
such offering may not legally be made.
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RISK/RETURN SUMMARY
GOALS AND PRINCIPAL STRATEGIES OF THE FUNDS
Each fund has its own goal. This goal is sometimes referred to as a fund's
investment objective. The funds are managed by Luther King Capital Management
Corporation (the "Adviser").
THE SMALL CAP EQUITY FUND'S goal is to maximize long-term capital
appreciation. The fund attempts to achieve this goal by primarily choosing
investments that the Adviser believes are likely to have above-average growth in
revenue and/or earnings and potential for above-average capital appreciation.
The fund invests primarily in equity securities of smaller companies (those with
market values at the time of investment of less than $1.5 billion). These equity
securities include common stocks, preferred stocks, securities convertible into
common stock, rights and warrants. The Adviser's primary strategy in managing
the fund is to identify high quality companies based on various financial and
fundamental criteria such as consistently high profitability, strong balance
sheets and prominent market share positions.
THE EQUITY FUND'S goal is to maximize long-term capital appreciation. The
fund attempts to achieve this goal by primarily choosing investments that the
Adviser believes are likely to have above-average growth in revenue and/or
earnings, above average returns on shareholders' equity and under-leveraged
balance sheets, and potential for above-average capital appreciation. The fund
invests primarily in equity securities. These equity securities include common
stocks, preferred stocks, securities convertible into common stocks, rights and
warrants. The Adviser's primary strategy in managing the fund is to identify
high quality companies based on various financial and fundamental criteria such
as consistently high profitability, strong balance sheets and prominent market
share positions.
THE BALANCED FUND'S goal is current income and long-term capital
appreciation. The fund attempts to achieve this goal by investing 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 fund's investments in fixed
income securities will consist of investment grade corporate and government
issues with intermediate maturities from one to ten years. The Adviser's primary
strategy in managing the fund is to identify high quality companies based on
various financial and fundamental criteria such as consistently high
profitability, strong balance sheets and prominent market share positions.
THE FIXED INCOME FUND'S goal is current income. The fund attempts to
achieve this goal by investing primarily in a diversified portfolio of
investment grade corporate and government debt securities with intermediate
maturities from one to ten years, and cash equivalent securities. The Adviser's
primary strategy in managing the fund is to select debt securities based on
factors such as price, yield and credit quality.
THE INTERNATIONAL FUND'S goal is total return in excess of the total
return of the Morgan Stanley Capital International Europe, Australasia and Far
East ("EAFE") Index. The fund currently intends to attempt to achieve its goal
by operating under a master-feeder structure. This means that the fund currently
intends to seek its investment objective by investing all of its investable
assets in the TT EAFE Portfolio ("Portfolio"), a series of the TT International
U.S.A. Master Trust (the "Master Trust"). The Portfolio has an identical
investment objective to the Fund. The Portfolio is managed by TT International
Investment Management ("TT International"). Throughout this Prospectus,
statements regarding investments by the International Fund refer to investments
made by the Portfolio. For easier reading, the term "International Fund" is used
throughout the Prospectus to refer to either the International Fund or the
Portfolio, unless stated otherwise.
The INTERNATIONAL FUND attempts to achieve its goal by investing primarily
in equity and equity-related securities in non-U.S. markets that TT
International believes represent value in the form of assets and earnings. These
equity and equity-related securities include securities listed on recognized
exchanges, convertible bonds, warrants, equity and stock index futures contracts
and options, including options on equity securities. The fund is not required to
seek to invest in the same companies that are included in the EAFE Index or any
other index.
The Portfolio in which the INTERNATIONAL FUND invests is advised by TT
International. TT International invests primarily in equity securities listed on
recognized exchanges and uses a top-down and a bottom-up approach in selecting
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those securities. TT International analyzes various countries and chooses to
invest in countries that in its view indicate growth potential of their
economies and securities markets, as well as positive currency and taxation
policies. Further, TT International selects those companies within a country
that in its view display fundamental investment value.
The funds cannot guarantee that they will achieve their goals. For more
information, see "How the Funds Invest."
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
The principal risks of investing in Small Cap Equity, Equity, Balanced and
International Funds are discussed below. You should be aware that you may lose
money by investing in the funds.
o Stock Market Risk: Funds that invest in equity securities are
subject to stock market risks and significant
fluctuations in value. If the stock market
declines in value, a fund is likely to decline
in value. Decreases in the value of stocks are
generally greater than for bonds or other debt
investments.
o Stock Selection Risk: Value stocks selected by the Adviser may
decline in value or not increase in value when
the stock market in general is rising.
In addition, the SMALL CAP EQUITY FUND is subject to additional principal
risks:
o Small-Cap Risk: Small capitalization companies may not have the
size, resources or other assets of large
capitalization companies. These small
capitalization companies may be subject to
greater market risks and fluctuations in value
than large capitalization companies and may not
correspond to changes in the stock market in
general.
The INTERNATIONAL FUND is also subject to additional principal risks:
o Foreign Investment Risk: The INTERNATIONAL FUND'S investments in foreign
securities involve risks relating to adverse
political, social and economic developments
abroad, as well as risks resulting from the
differences between the regulations to which
U.S. and foreign companies and markets are
subject. Foreign companies may not be subject
to accounting standards or governmental
supervision comparable to U.S. companies, and
there may be less public information about
their operations.
Foreign markets may offer less protection to
investors. Enforcing legal rights may be
difficult, costly and slow. There may be
special problems enforcing claims against
foreign governments.
Since foreign securities often trade in
currencies other than the U.S. dollar, changes
in currency exchange rates will affect the
Fund's net asset value, the value of dividends
and interest earned, and gains and losses
realized on the sale of securities. An increase
in the U.S. dollar relative to these other
currencies will adversely affect the value of
the Fund. In addition, some foreign currency
values may be volatile and there is the
possibility of governmental controls on
currency exchanges or governmental intervention
in currency markets. Controls or intervention
could limit or prevent the Fund from realizing
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value in U.S. dollars from its investment in
foreign securities. The Fund could also be
adversely affected by the conversion of
European currencies to the Euro.
Foreign markets may be less liquid and more
volatile than U.S. markets. Rapid increases in
money supply may result in speculative
investing, contributing to volatility. Also,
equity securities may trade at price-earnings
multiples that are higher than those of
comparable U.S. companies, and that may not be
sustainable. As a result, there may be rapid
changes in the value of foreign securities.
o Risk of Derivatives: The INTERNATIONAL FUND'S use of derivatives
(such as futures contracts, options and forward
foreign currency exchange contracts) may
represent a significant portion of the fund's
investments and may be risky. This practice
could result in losses that are not offset by
gains on other portfolio assets. Losses would
cause the fund's share price to go down. There
also is the risk that the counterparty may fail
to honor its contract terms. The fund's ability
to use derivatives successfully depends on the
portfolio managers' ability to accurately
predict movements in stock prices, interest
rates and currency exchange rates. If the
portfolio managers' predictions are wrong, the
fund could suffer greater losses than if the
fund had not used derivatives.
o Risk of Investing in Convertible securities, which are debt
Convertible Securities: securities or preferred stock that may be
converted into common stock, are subject to the
market risk of stocks, and, like debt
securities, also are subject to interest rate
risk and the credit risk of their issuers. Call
provisions may allow the issuer to repay the
debt before it matures.
o Portfolio Turnover Risk: TT International may engage in active trading
of its portfolio securities to achieve the
fund's investment goals. This practice could
result in the fund experiencing a high turnover
rate (100% or more). High portfolio turnover
rates lead to increased costs, could cause you
to pay higher taxes and could negatively affect
the fund's performance.
The principal risks of investing in the FIXED INCOME FUND and additional
principal risks of the BALANCED FUND and INTERNATIONAL FUND are:
o Interest Rate Risk: The market values of fixed income securities
are inversely related to actual changes in
interest rates. When interest rates rise, the
market value of the funds' fixed-income
securities will decrease. If this occurs, the
funds' net asset values also may decrease.
Moreover, the longer the remaining maturity of
a security, the greater the effect of interest
rate changes on the market value of the
security.
o Credit Risk: If issuers of fixed income securities in which
a fund invests experience unanticipated
financial problems, the issue is likely to
decline in value. In addition, the funds are
subject to the risk that the issuer of a fixed
income security will fail to make timely
payments of interest or principal..
PAST PERFORMANCE
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The performance information that follows gives some indication of how each
fund's performance can vary. The bar charts indicate the risks of investing in
the funds by showing the performance of each fund from year to year (on a
calendar year basis). The tables show each fund's average annual returns
compared to a broad-based securities market index. Please remember that a fund's
past performance does not reflect how the fund may perform in the future.
Small Cap Equity Fund
Calendar Year Returns as of 12/31
1995 31.81%
1996 25.67%
1997 23.07%
1998 -6.26%
1999 16.83%
BEST AND WORST QUARTERLY RETURNS
15.87% (3rd quarter, 1997)
-18.98% (3rd quarter, 1998)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
SINCE
1 YEAR 5 YEARS INCEPTION(1)
------ ------- ---------
Small Cap Equity Fund 16.83% 17.43% 16.85%
Russell 2000 Index(2) 21.26% 16.69% 15.71%
S&P 500 Index(3) 21.04% 28.56% 26.42%
(1) The fund commenced operations on July 14, 1994.
(2) The Russell 2000 Index is comprised of the smallest 2000 companies in
the Russell 3000 Index, representing approximately 8% of the Russell
3000 total market capitalization.
(3) The S&P 500 Index is a capitalization-weighted index of 500 stocks.
The Index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries.
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Equity Fund
Calendar Year Returns as of 12/31
1996 17.00%
1997 23.57%
1998 13.11%
1999 23.07%
BEST AND WORST QUARTERLY RETURNS
17.83% (4th quarter, 1999)
-11.93% (3rd quarter, 1998)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
1 YEAR SINCE Inception(1)
------------ ---------
Equity Fund 23.07% 19.11%
The S&P 500 Index(2) 21.04% 26.40%
(1) The fund commenced operations on January 3, 1996.
(2) The S&P 500 Index is a capitalization-weighted index of 500 stocks.
The Index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries.
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Balanced Fund
Calendar Year Returns as of 12/31
1996 17.00%
1999 13.53%
BEST AND WORST QUARTERLY RETURNS
11.07% (4th quarter, 1998)
-5.39% (3rd quarter, 1999)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
SINCE
1 YEAR INCEPTION(1)
------ ---------
Balanced Fund 13.53% 13.18%
Lehman Bond Index(2) 0.39% 4.33%
S&P 500 Index (3) 21.04% 24.75%
(1) The fund commenced operations on December 30, 1997.
(2) The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged market value weighted index measuring both the principal
price changes of, and income provided by, the underlying universe of
securities that comprise the index. Securities included in the index
must meet the following criteria: fixed as opposed to variable rate;
remaining maturity of one to ten years; minimum outstanding par value
of $100 million; and rated investment grade or higher by Moody's,
Standard & Poor's or Fitch, in that order.
(3) The S&P 500 Index is a capitalization-weighted index of 500 stocks.
The Index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries.
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Fixed Income Fund
Calendar Year Returns as of 12/31
1998 7.27%
1999 -0.34%
BEST AND WORST QUARTERLY RETURNS
4.23% (3rd quarter, 1998)
-0.87% (2nd quarter, 1999)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
SINCE
1 YEAR INCEPTION(1)
------ ---------
Fixed Income Fund -0.34% 3.40%
Lehman Bond Index(2) 0.39% 4.33%
Index(2)
(1) The fund commenced operations on December 30, 1997.
(2) The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged market value weighted index measuring both the principal
price changes of, and income provided by, the underlying universe of
securities that comprise the index. Securities included in the index
must meet the following criteria: fixed as opposed to variable rate;
remaining maturity of one to ten years; minimum outstanding par value
of $100 million; and rated investment grade or higher by Moody's,
Standard & Poor's or Fitch, in that order.
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International Fund
Calendar Year Return as of 12/31
1998 10.10%
1999 42.71%
BEST AND WORST QUARTERLY RETURNS
36.27% (4th quarter, 1999)
-12.82% (3rd quarter, 1998)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
SINCE
1 YEAR INCEPTION(1)
------ ------------
International Fund 42.71% 25.35%
Morgan Stanley Capital International 26.96% 23.43%
Europe, Australasia and Far East Index(2)
(1) The fund commenced operations on December 30, 1997.
(2) The Morgan Stanley Capital International Europe, Australasia and Far
East Index ("MSCI/EAFE") is an unmanaged index composed of securities
from 20 European and Pacific Basin countries. The MSCI/EAFE Index is
the most recognized international index and is weighted by market
capitalization.
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FEES AND EXPENSES OF THE FUNDS
The following table illustrates the fees and expenses that you may pay if
you buy and hold shares of the funds.
SHAREHOLDER FEES (fees paid directly from your investment)
None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)(1)
Small Cap Equity Balanced Fixed Income International
Equity Fund Fund Fund Fund Fund(2)
----------- ---- ---- ---- ----
Management Fees(3) 0.75% 0.70% 0.65% 0.50% 1.00%
Distribution and
Service
(12b-1) Fees(4) None None None None None
Other Expenses(3) 0.15% 0.23% 1.30% 0.39% 0.52%
----- ----- ----- ----- -----
Total Annual Fund
Operating
Expenses(3) 0.90% 0.93% 1.95% 0.89% 1.52%
===== ===== ===== ===== =====
(1) Fund operating expenses are deducted from fund assets before computing the
daily share price or making distributions. As a result, they will not appear
on your account statement, but instead reduce the amount of total return you
receive.
(2) The expense table and the example below reflect the expenses of both the
International Fund and the Portfolio.
(3) The Adviser has agreed to waive all or a portion of its management fee
and/or reimburse the Small Cap Equity, Equity, Balanced and Fixed Income
Funds' other expenses to limit the total annual operating expenses. With
respect to the International Fund, the Adviser has voluntarily agreed to
waive all or a portion of its advisory fees and/or reimburse the
International Fund's other expenses to limit the total annual operating
expenses. In addition, TT International has contractually agreed that
subject to certain conditions for so long as the International Fund invests
all of its investable assets in the Portfolio, TT International will
reimburse the International Fund's other expenses to limit the total annual
operating expenses. The Adviser may choose to terminate these waivers or
revise the limits on total annual operating expenses at any time. If the
waivers or reimbursements were included in the calculation above,
"Management Fees", "Other Expenses" and "Total Net Annual Operating
Expenses" would be as follows:
<TABLE>
<CAPTION>
SmallCap Equity Balance Fixed Income International
Equity Fund Fund Fund Fund Fund
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees 0.75% 0.57% 0.00% 0.26% 0.68%
Other Expenses 0.15% 0.23% 0.80% 0.39% 0.52%
----- ----- ----- ----- -----
Total Net Annual Fund
Operating Expenses 0.90% 0.80% 0.80% 0.65% 1.20%
===== ===== ===== ===== =====
</TABLE>
(4) The funds have adopted a Rule 12b-1 Plan under which each fund may pay up to
0.75% of its average daily net assets for distribution and other services.
The funds have not implemented the plan and, thus, are neither accruing nor
paying any fees under the plan.
EXAMPLE
The following Example is intended to help you compare the costs of
investing in a fund with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in a fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year, that all dividends and
distributions have been reinvested, and that a fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
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ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
Small Cap Equity Fund $92 $288 $500 $1,110
Equity Fund $95 $297 $515 $1,144
Balanced Fund $198 $612 $1,052 $2,274
Fixed Income Fund $91 $284 $493 $1,096
International Fund $155 $481 $829 $1,812
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INVESTMENT OBJECTIVES
The investment objective of the SMALL CAP EQUITY FUND is to maximize long-term
capital appreciation.
The investment objective of the EQUITY FUND is to maximize long-term capital
appreciation.
The investment objective of the BALANCED FUND is current income and long-term
capital appreciation.
The investment objective of the FIXED INCOME FUND is current income.
The investment objective of the INTERNATIONAL FUND is total return in excess of
the total return of the Morgan Stanley Capital International Europe, Australasia
and Far East Index (MSCI/EAFE).
HOW THE FUNDS INVEST
SMALL CAP EQUITY, EQUITY, BALANCED AND FIXED INCOME FUNDS
For the SMALL CAP EQUITY, EQUITY, AND BALANCED FUNDS, 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:
o Consistently high profitability levels;
o Strong balance sheet quality;
o Prominent market share positions;
o Ability to generate excess cash flow after capital expenditures;
o Management with a significant ownership stake in the company; and
o Under-valuation based upon various quantitative criteria.
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.
For the BALANCED and FIXED INCOME FUNDS, the Adviser's fixed-income
approach concentrates on investment grade corporate and government issues with
intermediate effective maturities. The Adviser's fixed-income philosophy
combines noncallable bonds with 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 various early
redemption features. These defensive issues can offer high levels of current
income with limited price volatility due to the possibility that they will be
retired by the issuer much sooner than the final maturity. Callable bonds 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.
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THE LKCM SMALL CAP EQUITY FUND. THE SMALL CAP EQUITY FUND seeks to achieve
its investment objective by investing primarily in equity securities of smaller
companies which the Adviser believes are likely to have above-average growth in
revenue and/or earnings and potential for above-average capital appreciation.
Smaller companies are those with market values at the time of investment of less
than $1.5 billion. Under normal market conditions, 65% or more of the fund's
total assets will consist of equity securities of smaller companies. These
equity securities include common stocks, preferred stocks, securities
convertible into common stock, rights and warrants.
THE LKCM EQUITY FUND. THE EQUITY FUND seeks to achieve its investment
objective by investing primarily in equity securities of companies which the
Adviser believes are likely to have above-average growth in revenue and/or
earnings with above average returns on shareholders' equity and under-leveraged
balance sheets, and potential for above-average capital appreciation. The fund
invests a portion of its assets in companies whose public market value is less
than the Adviser's assessment of the companies' value. These equity securities
include common stocks, preferred stocks, securities convertible into common
stocks, rights and warrants.
THE LKCM BALANCED FUND. THE BALANCED FUND seeks to achieve its investment
objective by investing 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 fund primarily invests 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 dividend income yield of
the Standard & Poor's 500 Composite Stock Price Index(TM) ("S&P 500"). Under
normal circumstances, 25% or more of the fund's total assets will consist of
fixed-income securities. Corporate debt securities in which the fund invests
will 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 fund does not presently intend to invest more than 20% of its total
assets in equity securities that do not pay a dividend. A majority of the equity
securities in which the fund invests will typically be listed on a national
securities exchange or traded on the Nasdaq National Market ("Nasdaq") or in the
U.S. over-the-counter markets. 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 LKCM FIXED INCOME FUND. THE FIXED INCOME FUND seeks to achieve its
investment objective by investing 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. Under normal market conditions, 65% or more of the fund's
total assets will consist of such fixed-income securities. Investment grade debt
securities are considered to be those rated Baa or better by Moody's or BBB or
better by S&P.
The fund seeks to maintain a dollar-weighted average expected maturity
between three 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. 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. The fund intends to purchase securities
that are rated investment grade at the time of its purchase. If an issue of
securities is downgraded, the Adviser will consider whether to continue to hold
the obligation.
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INTERNATIONAL FUND
The INTERNATIONAL FUND currently intends to attempt to achieve its goal by
operating under a master-feeder structure. This means that the fund currently
intends to seek its investment objective by investing all of its investable
assets in the Portfolio, which has an identical investment objective to the
fund. The Portfolio is advised by TT International.
TT International uses both a "top-down" and a "bottom-up" investment
strategy in managing the fund's investment portfolio. TT International uses a
geopolitical analysis to eliminate countries where TT International believes it
is unsafe to invest and to highlight countries where change is likely to occur.
In conducting the geopolitical analysis, TT International may consider such
factors as the condition and growth potential of the various economies and
securities markets, currency and taxation policies and other pertinent
financial, social, national and political factors. Under certain adverse
investment conditions, the fund may restrict the number of securities markets in
which it invests, although under normal market circumstances the fund's
investments will involve securities principally traded in at least three
different countries. Otherwise, there are no prescribed limits on geographical
asset distribution.
TT International currently intends to focus the fund's investments in
securities of companies located in Denmark, France, Germany, Hong Kong, Italy,
Japan, the Netherlands, Sweden, Switzerland and the United Kingdom. This is a
non-exclusive list of countries in which the fund can invest. The fund also may
invest in companies located in Argentina, Australia, Austria, Belgium, Brazil,
Canada, China, the Czech Republic, Finland, Greece, Hungary, India, Ireland,
Israel, Korea, Malaysia, Mexico, New Zealand, Norway, Poland, Portugal,
Singapore, South Africa, Spain, Taiwan, and Thailand, and Turkey.
Once TT International has completed the geopolitical analysis, it
allocates fund assets among various sectors and industries. This primarily is
part of the its top-down strategy, but also may be part of its bottom-up
strategy, especially when analyzing a narrow sector or industry.
Within sectors and industries TT International applies its bottom-up
strategy to identify attractive companies for investment. This strategy involves
considering a wide range of factors, including:
o perceived value in a company's assets or earnings, and
o the potential for realizing a company's value.
In addition, as part of its bottom up strategy, TT International seeks to
verify its assessment of a company's value through research, economic modeling,
discussions with management, and other sources.
TT International may decide to sell fund investments under a wide range of
circumstances relating to the performance and potential of those investments and
to general, economic, sector or market conditions. These circumstances may
include:
o changes in its top-down geopolitical analysis,
o changes in its view of a sector or industry,
o changes in market conditions or perceptions,
o changes in a company's value in assets or earnings or the prospect for
realizing a company's value, and
o opportunities to realize a profit or mitigate a loss.
TT International then uses a systematic three-stage process to select
securities in which the fund will invest. First, TT International seeks
companies that display value in the form of assets or earnings. Second, TT
International seeks to verify a security's valuation through the use of various
models and information obtained from industry or academic experts. Finally, TT
International assesses the potential for realizing the value it has identified.
15
<PAGE>
PRINCIPAL INVESTMENT POLICIES AND STRATEGIES. The International Fund seeks
to achieve its investment objective by investing in a diversified portfolio of
equity securities issued by corporations located outside the United States and
that possess fundamental investment value. Under normal circumstances, 65% or
more of the fund's investments will consist of these securities.
The fund invests primarily in equity securities that are listed on
recognized exchanges. In pursuing its investment objective, the fund may also
invest in U.S. markets through American Depositary Receipts ("ADRs") and similar
instruments. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign security and denominated in U.S.
dollars.
The fund will not participate in initial public offerings or other "hot
issues" unless the market capitalization of the issuer exceeds a minimum
threshold determined by TT International from time to time and TT International
otherwise determines participation to be appropriate.
TT International may use foreign currency contracts to hedge the fund's
currency exposure at its discretion. Hedging is used to protect against price
movements in a security that the fund owns or intends to acquire that are
attributable to changes in the value of the currency in which the security is
denominated. In determining whether to engage in foreign currency contracts, TT
International carefully considers fundamental macro-economic factors, as well as
the geopolitical factors and capital flows. In addition, TT International may
purchase and sell stock index futures contracts to hedge against the fund's
exposure to the volatility of securities prices in a particular market or to
reallocate the fund's equity market exposure.
TEMPORARY INVESTMENTS
To respond to adverse market, economic, political or other conditions, the
SMALL CAP EQUITY, EQUITY, BALANCED AND FIXED INCOME FUNDS may invest in time
deposits, commercial paper, certificates of deposits, short term corporate and
government obligations, repurchase agreements and bankers' acceptances. To the
extent that a fund engages in a temporary, defensive strategy, the fund may not
achieve its investment objective.
The INTERNATIONAL FUND may, from time to time, take temporary defensive
positions that are not consistent with the fund's principal investment
strategies in attempting to respond to adverse market, political or other
conditions. When doing so, the fund may invest without limit in high quality
debt securities, and may not be pursuing its investment goal.
FUND MANAGEMENT
INVESTMENT ADVISER
Luther King Capital Management Corporation, 301 Commerce Street, Suite
1600, Fort Worth, Texas 76102, serves as the investment adviser to the funds.
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 $6.5 billion in assets under management.
Under an Investment Advisory Agreement ("Agreement") with the funds, the
funds pay the Adviser an advisory fee set forth below under "Contractual Fee,"
calculated by applying a quarterly rate, equal on an annual basis to the
following numbers shown as a percentage of average daily net assets for the
quarter. However, until further notice, the Adviser has voluntarily agreed to
waive its advisory fees and reimburse expenses to the extent necessary to keep
the total operating expenses from exceeding the respective caps also shown as a
percentage of average daily net assets for the quarter.
The advisory fees for the fiscal year ended December 31, 1999, were as
follows:
16
<PAGE>
CONTRACTUAL FEE FEE ACTUALLY CAP
--------------- ------------ ---
CHARGED
-------
Small Cap Equity Fund 0.75% 0.75% 1.00%
Equity Fund 0.70% 0.57% 0.80%
Balanced Fund 0.65% 0.00% 0.80%
Fixed Income Fund 0.50% 0.26% 0.65%
International Fund 1.00% 0.68% 1.20%
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.
To the extent that the International Fund invests all of its investable
assets in the Portfolio, the advisory fee paid to the Adviser is reduced from an
annual rate of 1.00% of the fund's average daily net assets to an annual rate of
0.50% of the fund's average daily net assets. The Adviser has agreed to continue
its voluntary expense limitation on the International Fund's total annual
operating expenses to ensure that the fund's expenses do not exceed 1.20%.
PORTFOLIO ADVISER
TT International, 5 Martin Lane, London, England EC4R ODP, serves as the
adviser to the Portfolio. TT International was founded in 1993 and offers
investment counseling services to investment companies, pension plans, trusts,
charitable organizations and other institutional investors. As of the date of
this Prospectus, TT International had in excess of $6.5 billion in assets under
management. TT International is registered as an investment adviser under the
Investment Advisers Act of 1940 and is authorized to conduct its investment
business in the United Kingdom by the Investment Management Regulatory
Organization Limited (IMRO). TT International also is registered as a commodity
pool operator and commodity trading adviser with the Commodity Futures Trading
Commission.
Pursuant to a Management Agreement ("Management Agreement") entered into
between TT International and the Master Trust on behalf of the Portfolio, the
Portfolio pays TT International a fee, which is accrued daily and paid monthly,
at an annual rate of 0.50% of the Portfolio's average daily net assets on an
annualized basis. With respect to the International Fund, the Adviser has
voluntarily agreed to waive all or a portion of its advisory fees and/or
reimburse the International Fund's other expenses to limit the total annual
operating expenses to 1.20%. In addition, TT International has contractually
agreed that subject to certain conditions for so long as the International Fund
invests all of its investable assets in the Portfolio, TT International will
reimburse the International Fund's other expenses to limit the total annual
operating expenses to 1.20%.
PORTFOLIO MANAGERS
J. LUTHER KING, JR. is primarily responsible for the day-to-day management
of the Small Cap Equity and Equity Funds and has been since the funds'
inception. Mr. King also shares day-to-day management responsibility of the
Balanced Fund and the Fixed Income Fund. Mr. King has been President, Principal
and Portfolio Manager of the Adviser since 1979.
SCOT C. HOLLMANN is primarily responsible for the day-to-day management of
the Balanced Fund together with Mr. King. Mr. Hollmann has been a portfolio
manager of the Adviser since 1983.
ROBERT M. HOLT, JR. is primarily responsible for the day-to-day management
of the Fixed Income Fund together with Mr. King and Joan M. Maynard. Mr. Holt
has been a portfolio manager of the Adviser since 1983.
JOAN M. MAYNARD is primarily responsible for the day-to-day management of
the Fixed Income Fund. Ms. Maynard has been a Portfolio Manager of the Adviser
since 1991 and employed by the Adviser since 1986.
TT International uses a team of individuals who are primarily responsible
for the day-to-day management of the International Fund. The individuals are
described below.
16
<PAGE>
TIMOTHY TACCHI has been the Controlling Partner of TT International since
its formation in 1993. Previously, he was the sole proprietor of TT
International's predecessor firm (1988-1993), and an Investment Manager at
Fidelity International Investment Advisers Ltd. (1983-1988).
MICHAEL BULLOCK has been a Partner, Portfolio Management Country
Selection, at TT International since 1999. Previously, he was employed as Group
Managing Director and Chief Investment Officer at Morgan Grenfell Asset
Management (1990-1998).
NGOR PONG has been an Investment Manager at TT International since 1996.
Previously, she was a Portfolio Manager at Dah Sing M&G Asset Management
(1984-1996). ]
DISTRIBUTOR
Provident Distributors, Inc., Four Falls Corporate Center, 6th Floor, West
Conshocken, PA 19428, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., distributes the funds' shares.
DISTRIBUTION PLAN
The funds have adopted a distribution plan under Rule 12b-1 of the
Investment Company Act of 1940 that allows the funds to pay distribution and
service fees for the sale and distribution of their shares and for services
provided to shareholders. The distribution plan allows the funds to finance
activities that promote the sale of the funds' shares such as printing
prospectuses and reports and preparing and distributing advertising material and
sales literature with fund assets.
The funds have not implemented the plan and as a result they are currently
neither accruing nor paying any fees under the plan. If the funds were using the
plan, the fees paid under the plan could, over time, increase the cost of your
investment and could cost you more than paying other types of sales charges.
PURCHASE OF SHARES
You may purchase shares of each fund at the net asset value per share next
determined after receipt of the purchase order. Each fund determines net asset
value as of the close of normal trading of the New York Stock Exchange ("NYSE")
(currently 4:00 P.M. Eastern Time) each day that the NYSE is open for business.
INITIAL INVESTMENTS
THROUGH YOUR FINANCIAL ADVISER. You may invest in shares of a fund by
contacting your financial adviser. Your financial adviser can help you open a
new account and help you review your financial needs and formulate long-term
investment goals and objectives. Investors may be charged a fee if they effect
transactions in fund shares through a broker or agent.
The funds have authorized certain broker-dealers to receive on their
behalf purchase and redemption orders of fund shares. These broker-dealers may
designate intermediaries to receive fund orders. The funds are deemed to have
received purchase and redemption orders for fund shares when an authorized
broker-dealer or its designee receives such orders. All such orders are executed
at the next net asset value calculated after the order is received by an
authorized broker-dealer or its designee.
BY MAIL. You may open an account by completing and signing an Account
Registration Form, and mailing it, together with a check ($10,000 minimum)
payable to LKCM Funds.
<TABLE>
<CAPTION>
BY REGULAR MAIL TO: BY EXPRESS, REGISTERED OR CERTIFIED MAIL TO:
------------------ -------------------------------------------
<S> <C> <C>
LKCM Funds LKCM Funds
18
<PAGE>
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
</TABLE>
Once the fund receives and accepts your application in the mail, your
payment for shares will be credited to your account at the net asset value per
share of the fund next determined after receipt. If you purchase shares using a
check and soon after request a redemption, LKCM will honor the redemption
request at the next determined NAV, but will not mail you the proceeds until
your purchase check has cleared (usually within 15 days). The funds will not
accept cash, drafts or third party checks. Payment should be made by check or
money order drawn on a U.S. bank, savings and loan or credit union. If your bank
does not honor your check, you could be liable for any loss sustained by the
funds, as well as a service charge imposed by the fund's transfer agent
("Transfer Agent") in the amount of $25.
BY WIRE. You may purchase shares of the fund by wiring Federal funds
($10,000 minimum) to the funds' custodian. To make an initial purchase by wire,
you should use the following procedures:
o Telephone the funds 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, N.A.
ABA #042000013
For credit to Firstar Mutual Fund Services, LLC
Account #112-952-137
For further credit to LKCM Funds
[Name of Fund]
[Shareholder account number]
o Notify the funds 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 "Initial Investments - By Mail."
Federal fund purchases will be accepted only on a day on which the funds
and the custodian are open for business. The funds are not responsible for the
consequences of delays resulting from the banking or Federal Reserve wire
system.
SUBSEQUENT INVESTMENTS
BY MAIL OR WIRE. You may make additional investments 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.
BY TELEPHONE. To make additional investments by telephone, you must check
the appropriate box on your Account Registration Form authorizing telephone
purchases. If you have given authorization for telephone transactions and your
account has been open for at least 15 days, you may call the fund toll free at
1-800-688-LKCM to move money from your bank account to your fund account upon
request. Only bank accounts held at U.S. institutions that are Automated
Clearing House ("ACH") members may be used for telephone transactions. For
security reasons, requests by telephone will be recorded.
19
<PAGE>
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. To establish the
Automatic Investment Program, an investor must complete the appropriate sections
of the Account Registration Form. For additional information on the Automatic
Investment Program, please call 1-800-688-LKCM.
RETIREMENT PLANS
The funds make available Individual Retirement Accounts ("IRAs"),
including Simplified Employee Pension Plans, traditional IRAs, Roth IRAs and IRA
"Rollover Accounts," offered by Firstar Mutual Fund Services, LLC. 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.
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 will not be
issued, however.
REDEMPTION OF SHARES
You may redeem shares of the funds by mail or, if authorized, by telephone
or wire. The funds do not charge a fee for making redemptions, except with
respect to wire redemptions.
BY MAIL. You may redeem your shares by mailing a written request to:
LKCM Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
After your request is in "good order" the fund will redeem your shares at
the next NAV. 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; 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
Mutual Fund Services, LLC 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, (2) share transfer
requests, and (3) any redemption request if a change of address request has been
20
<PAGE>
received by the funds' Transfer Agent within the last 15 days. Please contact
the funds at 800-688-LKCM (option 1) for further details.
BY TELEPHONE OR WIRE. If you indicated on your Account Registration Form,
or have subsequently arranged in writing to do so, you may redeem shares by
calling the funds and requesting that the redemption proceeds be mailed to the
primary registration address or wired directly to your bank. 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 will be paid to the same
bank and account as designated on the Account Registration Form or in written
instructions subsequently received by the funds. No telephone redemptions may be
made within 15 days of any address change.
If you would like to arrange for redemption by wire or telephone or change
the bank or account designated to receive redemption proceeds, you must send a
written request to the funds at the address listed above under "Redemption of
Shares--By Mail." The investor must sign such requests, with signatures
guaranteed. 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 the 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."
Redemption proceeds for shares of the funds purchased by check may not be
distributed until payment for the purchase has been collected, which may take up
to fifteen business days. Such funds are invested and earn dividends during this
holding period. Shareholders can avoid this delay by utilizing the wire purchase
option.
Due to the relatively high cost of maintaining small accounts, the 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. You 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 funds have reserved the right to redeem in kind (i.e., in securities)
any redemption request during any 90-day period in excess of the lesser of: (i)
$250,000 or (ii) 1% of a fund's net asset value being redeemed.
TRANSFER OF REGISTRATION
The registration of fund shares may be transferred by writing to LKCM
Funds, c/o Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee,
Wisconsin, 53202-0701. As in the case of redemptions, the written request must
be received in "good order."
VALUATION OF SHARES
Net asset value per share is computed by dividing the total value of the
investments and other assets of a fund, less any liabilities, by the total
outstanding shares of the fund. The net asset value per share is determined as
of the close of normal trading on the NYSE (currently 4:00 p.m. Eastern Time) on
21
<PAGE>
each day that the NYSE is open for business. Net asset value is not determined
on days the NYSE is closed. The price at which a purchase order or redemption
request is effected is based on the next calculation of net asset value after
the order is received by the fund. A fund's net asset value may not be
calculated on days during which the fund receives no orders to purchase shares
and no shares are tendered for redemption. Because the International Fund
invests in securities that are primarily listed on foreign exchanges that trade
on weekends or other days when the International Fund does not price its shares,
the net asset value of the International Fund may change on days when
shareholders will not be able to purchase or redeem shares of the International
Fund. In determining net asset value, expenses are accrued and applied daily and
investments for which market values are readily available are valued at market
value.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
The Small Cap Equity, Equity and International Funds intend to declare and
pay income dividends at least on an annual basis. The Balanced and Fixed Income
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. The funds may make an
additional distribution if necessary, to avoid income or excise taxes. 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.
TAXES
GENERAL. Dividends, whether paid in cash or reinvested in additional
shares, from net investment income, net realized 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). Distributions of net realized long-term capital
gains in excess of net realized short-term capital losses, whether paid in cash,
reinvested in additional shares or retained by the fund, will be taxable as
long-term capital gain. The classification of a capital gain distribution (and
the applicable tax rate) is determined by the length of time that a fund has
held the securities that generated the gain and not the length of time you have
held shares in the fund. Shareholders are notified annually as to the federal
tax status of dividends and other distributions paid by the funds.
Any dividends and other distributions declared by a fund in the months of
November or December to shareholders of record on a date in that month will be
deemed to have been paid by the fund and received by those shareholders on
December 31 if the distributions are paid before February 1 of the following
year. If you purchase shares of a fund shortly before a distribution, you will
be subject to income tax on the distribution, even though the value of your
investment (plus cash received, if any) remains the same.
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 30 days before or after selling other fund shares at a
loss, all or a portion of the loss will be deferred 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.
Each fund is required by federal law to withhold 31% of reportable
payments (which includes dividends, capital gain distributions, and redemption
proceeds) payable to individuals and certain other non-corporate shareholders
who have not complied with certain federal tax law requirements. To avoid this
withholding, 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
redemption proceeds of shares, may also be subject to state and local taxes.
22
<PAGE>
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.
MASTER-FEEDER STRUCTURE
Under a master-feeder structure, the functions of a traditional mutual
fund are divided into two parts - a master fund and one or more feeder funds.
The master fund performs the portfolio management, fund accounting and custodial
functions. The feeder fund performs the distribution, shareholder servicing and
transfer agent functions. With respect to the INTERNATIONAL FUND, the
International Fund is a "feeder" fund that invests all of its investable assets
in a "master" fund with the same investment objective. The "master" fund
purchases securities for investment. The master-feeder structure works as
follows:
-------------------
Investor
-------------------
PURCHASES SHARES OF
-------------------
Feeder Fund
-------------------
WHICH INVESTS IN
-------------------
Master Fund
-------------------
WHICH BUYS
-------------------
Investment
Securities
-------------------
The International Fund can withdraw its investment in the Portfolio at any
time if the Board determines that it is in the best interest of the
International Fund and its shareholders to do so. If this happens, the fund's
assets will be invested according to the investment policies and restrictions
described in this Prospectus.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables set forth below are intended to help you
understand the funds' financial performance for their periods of operations.
Certain information reflects financial results for a single fund share. The
total returns in the tables represent the rates that an investor would have
earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). The 1999 information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the funds' financial
statements, are included in the funds' annual report, which is available upon
request. The information for periods prior to 1999 has been audited by other
independent accountants who expressed an unqualified opinion on such financial
highlights. The information for the six-month period ended June 30, 2000 is
unaudited.
SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Six-Month Year Year Year Year May 1, July 14,
Period ended ended ended ended 1995 to 1994 (1)
ended December December December December December to April
June 30, 31, 31, 31, 31, 31, 30,
2000 1999 1998 1997 1996 1995(2) 1995(2)
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of
Period $18.08 $15.72 $16.89 $16.20 $13.84 $11.48 $10.00
------ ------ ------ ------ ------ ------ ------
Net investment income 0.02 0.03 0.05 0.02 0.05 0.03 0.04
Net realized gain (loss) and
unrealized appreciation
(depreciation) 1.13 2.61 (1.10) 3.38 3.26 2.33 1.44
---- ---- ------ ---- ---- ---- ----
Total from investment operations
1.15 2.64 (1.05) 3.40 3.31 2.36 1.48
---- ---- ------ ---- ---- ---- ----
Dividends from net investment
income ---_ (0.03) (0.07) (0.07) (0.07) -- --
---- --
Distributions from net realized
gain from investment
transactions
_--__ (0.25) (0.05) (2.64) (0.88) -- --
----- ------ ------ ------ ------ --
Total distributions _--__ (0.28) (0.12) (2.71) (0.95) -- --
----- ------ ------ ------ ------ --
Net Asset Value - End of Period $19.23 $18.08 $15.72 $16.89 $16.20 $13.84 $11.48
====== ====== ===== ===== ===== ===== =====
TOTAL RETURN 6.36%(3) 16.83% (6.26)% 23.07% 25.67% 20.56%(3) 14.80%(3)
Ratios and Supplemental Data:
Net assets, end of period $204,721 $230,164 $284,018 $274,787 $199,088 $121,430 $66,736
(thousands)
Ratio of expenses to average
net assets: 0.93%(4) 0.90% 0.91% 0.95% 1.00% 1.00% (4) 1.00% (4)
Ratio of net investment income
to average net assets: 0.15%(4) 0.16% 0.35% 0.22% 0.39% 0.53% (4) 1.15% (4)
Portfolio turnover rate 37% 48% 35% 34% 66% 57% 53%
</TABLE>
(1) Commencement of Operations.
(2) Effective April 30, 1995, the fund changed its fiscal year end to December
31.
(3) Not Annualized.
(4) Annualized.
24
<PAGE>
EQUITY FUND
<TABLE>
<CAPTION>
Six-Month Year Year Year January 3,
Period ended ended ended 1996 (1)
ended December December December to
June 30, 31, 31, 31, December 31
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $14.91 $14.39 $13.18 $11.70 $10.00
------ ------ ------ ------ ------
Net investment income 0.32 0.10(2) 0.10 0.10 0.15
Net realized gain and unrealized 0.03 2.97 1.63 2.52 1.55
appreciation ---- ---- ---- ---- ----
Total from investment operations 0.35 3.07 1.73 2.62 1.70
---- ---- ---- ---- ----
Dividends from net investment income _--__ (0.15) (0.10) (0.25) --
----- --
Distributions from net realized gain
from investment transactions _--__ (2.40) (0.42) (0.89) --
----- ------ ------ ------ --
Total distributions _--__ (2.55) (0.52) (1.14) --
----- ------ ------ ------ --
Net Asset Value - End of Period $15.26 $14.91 $14.39 $13.18 $11.70
====== ====== ====== ====== ======
Total Return 2.35%(3) 23.07% 13.11% 23.57% 17.00% (3)
Ratios and Supplemental Data:
Net assets, end of period (thousands) $25,995 $27,492 $41,069 $52,392 $34,608
Ratio of expenses to average net
assets:
Before expense waiver and/or 1.07%(4) 0.93% 1.02% 1.16% 1.32% (4)
reimbursement
After expense waiver and/or 0.80%(4) 0.80% 0.80% 0.80% 0.80% (4)
reimbursement
Ratio of net investment income to
average net assets:
Before waiver and/or expense 3.92%(4) 0.56% 0.49% 0.57% 0.98% (4)
reimbursement
After expense waiver and/or 4.19%(4) 0.69% 0.71% 0.93% 1.50% (4)
reimbursement
Portfolio turnover rate 32% 59% 45% 48% 79%
</TABLE>
(1) Commencement of Operations.
(2) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the year.
(3) Not Annualized.
(4) Annualized.
25
<PAGE>
<TABLE>
<CAPTION>
FIXED FIXED FIXED
BALANCED BALANCED BALANCED INCOME INCOME INCOME
FUND FUND FUND FUND FUND FUND
Six-Month Year Year Six-Month Year Year
Period Ended Ended Period Ended Ended
Ended DECEMBER DECEMBER Ended DECEMBER DECEMBER
-------- -------- -------- --------
JUNE 31, 31, JUNE 31, 31,
---- --- --- ---- --- ---
30, 1999 1998 30, 1999 1998
--- ---- ---- --- ---- ----
2000 2000
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value -
Beginning of Period $12.30 $11.05 $10.00 $9.69 $10.25 $10.00
------ ------ ------ ----- ------ ------
Net investment income 0.13 0.22 0.22 0.27 0.52 0.54(1)
Net realized gain (loss)
and unrealized appreciation
(depreciation) (0.25) 1.26 1.05 0.02 (0.55) 0.17
------ ---- ---- ---- ------ ----
Total from investment
operations (0.12) 1.48 1.27 0.29 (0.03) 0.71
------ ---- ---- ---- ------ ----
Dividends from net
investment income (0.13) (0.22) (0.22) (0.27) (0.52) (0.46)
Distributions from net
realized gain from
investment transactions _--__ (0.01) -- _--__ (0.01) --
----- ------ -- ----- ------ --
Total distributions (0.13) (0.23) (0.22) (0.27) (0.53) (0.46)
------ ------ ------ ------ ------ ------
Net Asset Value - End of
Period $12.05 $12.30 $11.05 $9.71 $9.69 $10.25
====== ====== ====== ===== ===== ======
Total Return 0.97%(2) 13.53% 12.84% 3.05%(2) (0.34)% 7.27%
Ratios and Supplemental
Data:
Net assets, end of period
(thousands) $7,001 $6,851 $3,639 $30,189 $26,016 $14,557
Ratio of expenses to
average net assets:
Before expense waiver 1.78%(3) 1.95% 4.59% 0.85%(3) 0.89% 1.28%
and/or reimbursement
After expense waiver 0.80%(3) 0.80% 0.80% 0.65%(3) 0.65% 0.65%
and/or reimbursement
Ratio of net investment
income (loss) to average
net assets:
Before expense waiver 1.20%(3) 0.81% (1.38)% 5.65%(3) 5.34% 4.66%
and/or reimbursement
After expense waiver 2.18%(3) 1.96% 2.41% 5.85%(3) 5.58% 5.29%
and/or reimbursement
Portfolio turnover rate 38% 47% 39% 19% 68% 82%
</TABLE>
(1) Net investment income per share represents net investment income divided by
the average shares outstanding through the year.
(2) Not Annualized.
(3) Annualized.
26
<PAGE>
INTERNATIONAL FUND
<TABLE>
<CAPTION>
Six-Month Period
Ended Year Ended Year Ended
JUNE 30, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
------------- ----------------- -----------------
(UNAUDITED)
-----------
<S> <C> <C> <C>
Net Asset Value - Beginning of
Period $15.44 $11.01 $10.00
------ ------ ------
Net investment income 0.05 (1) 0.00 0.04 (2)
Net realized gain (loss) and
unrealized appreciation
(depreciation) (0.20) 4.70 0.97
------ ---- ----
Total from investment operations (0.15) 4.70 1.01
------ ---- ----
Distributions from net realized
gain from investment transactions _--__ (0.27) --
-- ------ --
Net Asset Value - End of Period $15.29 $15.44 $11.01
====== ====== ======
Total Return (0.97)% (3) 42.71% 10.10%
Ratios and Supplemental Data:
Net assets, end of period
(thousands) $103,096 $83,892 $56,985
Ratio of expenses to average
net assets:
Before expense waiver and/or 1.45% (4) 1.52% 1.40%
reimbursement
After expense waiver and/or 1.20% (4) 1.20% 1.20%
reimbursement
Ratio of net investment income
to average net assets:
Before expense waiver and/or 0.43%(4) (0.28)% 0.34%
reimbursement
After expense waiver and/or 0.68%(4) 0.04% 0.54%
reimbursement
Portfolio turnover rate 142% 205% 196%
</TABLE>
(1) Net investment income per share represents net investment income
divided by the average shares outstanding throughout the year.
(2) Net investment income per share is calculated using the ending balance
of undistributed net investment income prior to consideration of
adjustments for permanent book and tax differences.
(3) Not Annualized.
(4) Annualized.
27
<PAGE>
LKCM FUNDS
FOR MORE INFORMATION
YOU MAY OBTAIN THE FOLLOWING AND OTHER INFORMATION ON THE LKCM FUNDS FREE OF
CHARGE:
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The annual and semi-annual reports provide the funds' most recent financial
reports and portfolio listings. The annual report contains a discussion of the
market conditions and investment strategies that affected the funds' performance
during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) DATED SEPTEMBER 29, 2000
The SAI is incorporated into this prospectus by reference (i.e., legally made a
part of this prospectus). The SAI provides more details about the funds'
policies and management.
TO RECEIVE ANY OF THESE DOCUMENTS OR MAKE INQUIRIES TO THE FUNDS:
----------------------------------------------------------------
BY TELEPHONE:
1-800-688-LKCM
BY MAIL:
LKCM Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
ON THE INTERNET:
Text only versions of fund documents can be viewed online or downloaded from the
EDGAR database on the SEC's Internet site at: http://www.sec.gov
------------------
FROM THE SEC:
You may write to the SEC Public Reference Room at the regular mailing address or
the e-mail address below and ask them to mail you information about the funds,
including the SAI. They will charge you a fee for this duplicating service. You
can also visit the SEC Public Reference Room and copy documents while you are
there. For more information about the operation of the Public Reference Room,
call the SEC at the telephone number below.
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-0102
[email protected]
1-202-942-8090
Investment Company Act File # 811-8352
