SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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LKCM FUNDS
LKCM International Fund
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LKCM INTERNATIONAL FUND ("LKCM FUND")
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301 COMMERCE STREET
FORTH WORTH, TEXAS 76102
SPECIAL MEETING OF SHAREHOLDERS
AUGUST 29, 2000
Dear Shareholder:
We are asking you to approve a new policy that has been unanimously
recommended by the Trustees of your LKCM Fund. This policy will allow LKCM Fund
to adopt a "master-feeder structure" under which it would be a "feeder" fund
that invests all of its investable assets into a separate "master" mutual fund
that performs portfolio management, fund accounting and custodial functions.
If you approve the new policy, LKCM Fund intends to invest in a new
master fund that is advised by TT International Investment Management ("TT"),
the current subadviser for LKCM Fund. At least one other mutual fund will invest
in this new master fund. The pooling of that fund's assets with LKCM Fund's
assets can result in economies of scale because certain of the expenses of
managing a pool of investment securities are relatively fixed and, thus, a
larger investment portfolio can achieve a lower ratio of operating expenses to
net assets. In addition, the proposed change in structure would allow LKCM Fund
to continue to use TT's expertise in managing its assets.
In order to adopt the master-feeder structure, you are being asked to
approve a new fundamental investment policy that allows the Fund to invest all
of its investable assets in a master fund having substantially identical
investment objectives and substantially similar investment policies to LKCM
Fund. You also are being asked to approve an amended investment advisory
agreement between LKCM Fund and Luther King Capital Management Corporation
("LKCM") under which the fees paid to LKCM by the Fund would be reduced to the
extent that LKCM Fund invests in a master fund.
Attached are the Notice and Proxy Statement for the Special Meeting of
Shareholders which describe in more detail the proposals on which you are being
asked to vote. YOUR BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
EACH OF THE PROPOSALS.
Your vote is important. Please take a moment now to sign and return
your proxy card(s) in the enclosed postage-paid envelope. Your prompt response
will help eliminate the cost of further proxy solicitations. Should you have any
questions about the proposals, please contact us.
Sincerely yours,
J. Luther King, Jr.
Chairman and President
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LKCM INTERNATIONAL FUND
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NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
A special meeting of the shareholders of the LKCM International Fund
("Fund"), a series of the LKCM Funds ("Trust"), will be held on August 29, 2000,
at 10:00 a.m. Central Standard Time at the offices of the Fund, at 301 Commerce
Street, Suite 1600, Fort Worth, Texas 76102 for the following purposes:
1. Approval of a new fundamental investment policy to allow the Fund
to invest all of its investable assets in an open-end management
investment company having substantially identical investment
objectives and substantially similar investment policies to the
Fund;
2. Approval of an amended Investment Advisory Agreement between the
Trust with respect to the Fund and Luther King Capital Management
Corporation ("LKCM"); and
3. Transaction of such other business as may properly come before
the meeting or any adjournments thereof.
You will be entitled to vote at the meeting and any adjournments
thereof if you owned shares of the Fund at the close of business on July 7,
2000. If you attend the meeting, you may vote your shares in person. IF YOU DO
NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By the order of the Board of Trustees
Jacqui Brownfield
Secretary
July 31, 2000
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card,
date and sign the card, and return the card in the envelope provided. If you
sign, date and return the proxy card but give no voting instructions, your
shares will be voted "FOR" the proposals noticed above. In order to avoid
additional expense to the Fund for further solicitation, management asks for
your cooperation in mailing your proxy card promptly. Unless proxies are signed
by the appropriate persons, they will not be voted.
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LKCM INTERNATIONAL FUND
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102
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PROXY STATEMENT
Special Meeting of Shareholders
To Be Held on August 29, 2000
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This document is a Proxy Statement for the LKCM International Fund
("Fund"), a series of the LKCM Funds ("Trust"). It is furnished in connection
with the solicitation of proxies made by, and on behalf of, the Board of
Trustees of the Fund ("Board of Trustees" or "Board") to be used at the Special
Meeting of Shareholders of the Fund and at any adjournments thereof ("Meeting"),
to be held at 10:00 a.m. Central Standard Time on August 29, 2000, at the
offices of Luther King Capital Management Corporation ("LKCM"). LKCM's address
is 301 Commerce Street, Suite 1600, Fort Worth, Texas 76102. The purpose of the
Meeting is set forth in the accompanying Notice.
This Proxy Statement and the accompanying proxy card will be mailed to
shareholders on or about July 31, 2000. The solicitation of proxies will be made
by mail, but also may include telephone or oral communications by employees of
LKCM, who will not receive any compensation from the Fund for such solicitation.
All reasonable out-of-pocket expenses incurred in connection with preparing
these proxy materials will be paid by TT International Investment Management,
the Fund's current investment subadviser ("TTI").
Thirty percent of the Fund's shares of beneficial interest outstanding
on July 7, 2000 ("Record Date"), represented in person or by proxy, must be
present at the Meeting for the transaction of business. If a quorum is present
at the Meeting but sufficient votes to approve any of the proposals are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares represented at the
Meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote FOR any such
proposal in favor of such an adjournment, and will vote those proxies required
to be voted AGAINST any such proposal against such adjournment. A shareholder
vote may be taken on one or more of the proposals in this proxy statement prior
to any such adjournment if sufficient votes have been received and it is
otherwise appropriate.
Abstentions and broker non-votes will be counted as shares present for
purposes of determining whether a quorum is present but will not be voted for or
against any adjournment. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve a proposal. Accordingly, abstentions and broker
non-votes effectively will be a vote against adjournment or against the proposal
where the required vote is a percentage of the shares present.
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The proxies named in the enclosed proxy card will vote in accordance
with your directions as indicated thereon if your proxy card is received
properly executed. If you give no voting instructions, your shares will be voted
in favor of the proposals described in this proxy statement. The proxy card may
be revoked by giving another proxy, by letter or telegram revoking your proxy if
received by the Fund prior to the Meeting or by appearing and voting at the
Meeting.
On the Record Date there were issued and outstanding 6,720,323.397 of
shares of the Fund. The following shareholders owned of record 5% or more of the
shares of the Fund as of the Record Date:
Boston Safe Deposit FBO 2,543,957.05 37.85%
Gannett 401K Savings Plan
135 Santilli Hwy
Everett, MA 02149
Hamill & Co FBO Sid 763,366.975 11.36%
Richardson Foundation
P.O. Box 2558
Houston, TX 77252
Balsa & Co C/O Chase 677,973.012 10.09%
Manhattan Bank
P.O. Box 1768
New York, NY 10163
Northern Trust FBO 486,388.358 7.24%
Gannett Deferred Comp
P.O. Box 92956
Chicago, IL 60675
Hamill & Co FBO Bass 381,683.488 5.68%
Enterprises Co
P.O. Box 2558
Houston, TX 77252
Northern Trust FBO Dallas 374,242.140 5.57%
Symphony Fund for Excellence
P.O. Box 92956
Chicago, IL 60675
Shareholders of record at the close of business on the Record Date will
be entitled to vote at the Meeting. Each full share of the Fund is entitled to
one vote and each fractional share is entitled to a proportionate share of one
vote. You may obtain a copy of the Fund's most recent annual report to
shareholders, free of charge, by writing to LKCM Funds c/o Firstar Mutual Fund
Services, LLC at P.O. Box 701, Milwaukee, Wisconsin 53201-0701, or by calling
1-800-688-LKCM.
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Approval of the Proposals outlined below requires the affirmative vote
of the holders of a majority of the outstanding voting securities of the Fund
entitled to vote on the particular proposal, as such term is defined in the
Investment Company Act of 1940, as amended ("1940 Act"). For that purpose, a
vote of the holders of a "majority of the outstanding voting securities" of the
Fund means the lesser of either (1) the vote of 67% or more of the shares of the
Fund present at the meeting if the holders of more than 50% of the outstanding
Fund shares are present or represented by proxy, or (2) the vote of the holders
of more than 50% of the outstanding shares of the Fund.
LKCM, 301 Commerce Street, Suite 1600, Fort Worth, Texas 76102, serves
as the investment adviser to the Fund. TTI, 5 Martin Lane, London, England EC4R
ODP, serves as the Fund's investment subadviser. Provident Distributors, Inc., 4
Falls Corporate Center, 6th Floor, West Conshohocken, Pennsylvania 19428, serves
as the Fund's distributor. Firstar Mutual Fund Services, LLC, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, serves as the Fund's administrator.
OVERVIEW
You will be asked to vote on certain proposals described below
necessary to enable the Fund to convert from a single-tiered mutual fund
structure into a two-tiered structure ("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.
The proposed conversion is a result of TTI's desire to establish its
own mutual funds in the United States. TTI has established a master fund that is
substantially similar to the Fund and has established a feeder fund
substantially identical to the Fund. Initially, TTI's feeder fund will be
offered primarily to its U.S. pension fund clients. Thus, either at or shortly
after the conversion, the Fund will be one of at least two feeder funds to
invest in TTI's master fund.
The proposed change in operating structure should enable the Fund to
realize directly or indirectly certain economies of scale, based on the premise
that certain of the expenses of managing a pool of investment securities are
relatively fixed and that a larger investment portfolio thus may achieve a lower
ratio of operating expenses to net assets. LKCM and the Board of Trustees have
determined that the proposed conversion has the potential to bring substantial
additional benefits to the Fund and its shareholders.
PROPOSAL 1
APPROVAL OF A NEW FUNDAMENTAL INVESTMENT POLICY
INVESTMENT OF FUND ASSETS IN ANOTHER INVESTMENT COMPANY
The Board of Trustees recommends that shareholders of the Fund approve
a new fundamental investment policy to permit the Fund to invest all of its
investable assets in an open-end management investment company having
substantially identical investment objectives and substantially similar
investment policies to the Fund. If this policy is approved, the Board currently
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intends to invest all of the Fund's investable assets in the TT EAFE Portfolio
("Portfolio"), a series of the TT International U.S.A. Master Trust ("Master
Trust"). (Whenever the phrase "all of the Fund's investable assets" is used
herein, it means that the only investment securities that will be held by the
Fund will be the Fund's interest in the Portfolio.) The Portfolio is an open-end
management investment company having the same investment objective and
substantially similar investment policies as the Fund. TTI, which currently
serves as the Fund's investment subadviser, will be the investment manager of
the Portfolio.
Certain fundamental investment limitations of the Fund, such as those
policies regarding diversification, concentration and investing in other
investment companies, would prohibit, or could be deemed to prohibit, the Fund
from investing all of its investable assets in the Portfolio. On behalf of the
Fund, the Board of Trustees proposes that these limitations be modified by
adding the following new fundamental investment policy:
Notwithstanding any other limitation, the Fund may invest all
of its investable assets in an open-end management investment
company with a substantially identical investment objective
and substantially similar investment policies as the Fund.
For this purpose, "all of the Fund's investable assets" means
that the only investment securities that will be held by the
Fund will be the Fund's interest in the investment company.
If this Proposal 1 is approved by shareholders of the Fund, the Board
expects that on or about September 22, 2000, the Fund will invest all of its
investable assets in the Portfolio, unless the Board determines that it would
not be in the best interests of the Fund and its shareholders to do so. Under
this proposed operating structure, the Fund would seek its investment objectives
through its investment in the Portfolio, rather than through direct investments
in securities. The Portfolio in turn would invest in securities of the same
type, and in accordance with the same objectives, as the Fund. Shareholders
would continue to hold shares of the Fund and the Fund would hold a beneficial
interest in the Portfolio. This proposed operating structure will not alter the
rights and privileges of shareholders of the Fund. The value of a shareholder's
investment in the Fund will be the same immediately after the Fund's investment
in the Portfolio as immediately before that investment. To the extent that the
Fund's shareholders do not approve this Proposal 1, the Board of Trustees would
not proceed in the manner described above on behalf of the Fund, and the Fund
will continue to operate under its current operating structure.
TTI has agreed to reimburse the Fund for all reasonable out-of-pocket
expenses incurred by the Fund in connection with the proposed change in
operating structure.
INFORMATION ABOUT THE PORTFOLIO AND THE MASTER TRUST
The Master Trust was organized as a trust under Massachusetts law on
May 26, 2000. The Fund has been advised by the Master Trust that, while it is
not registered with the Securities and Exchange Commission ("SEC") as an
investment company as of the date of this Proxy Statement, it will register in
the near future and will be registered before the conversion. The beneficial
interests in the Master Trust are not available for purchase by members of the
general public. The Portfolio is a series of the Master Trust. If this Proposal
1 is approved by the shareholders, the Portfolio expects to commence operations
on or about September 22, 2000, when the Fund invests its investable assets in
the Portfolio.
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The Portfolio has been established to serve as the investment vehicle
for different entities that have substantially identical investment objectives.
These entities may include, among others, mutual funds, such as the Fund, and
other institutional investors. As of the date of this Proxy Statement, the Fund
and TTI's feeder fund, the TT EAFE Mutual Fund, have stated their interests in
investing in the Portfolio. The TT EAFE Mutual Fund's registration as an
investment company with the SEC is currently pending. Additional entities may
invest in the Portfolio in the future.
By investing all of its investable assets in the Portfolio, the Fund
may be in a position to realize directly or indirectly certain economies of
scale, based on the premise that certain of the expenses of managing a pool of
investment securities are relatively fixed and that a larger investment
portfolio thus may achieve a lower ratio of operating expenses to net assets. By
investing in the Portfolio, the Fund may realize other benefits resulting from
increased asset size, such as the ability to participate in transactions in
securities that may be offered in larger denominations than could be purchased
by the Fund alone. No such economies of scale or other benefits are anticipated
until other investors invest their assets in the Portfolio. Moreover, there can
be no assurance that additional entities will invest in or maintain investments
in the Portfolio so that the assets of the Portfolio will be larger than those
of the Fund or that these anticipated economies of scale and other benefits will
be realized.
The Fund would be able to withdraw its investment in the Portfolio at
any time if the Trust's Board of Trustees determines that it is in the best
interests of the Fund and its shareholders to do so. Upon any withdrawal, the
Board of Trustees would consider what action might be taken, including the
investment of all of the investable assets of the Fund in another pooled
investment entity having substantially the same investment objectives as the
Fund. Upon withdrawal, LKCM also could manage the Fund's direct investments in
securities under the Trust's existing investment advisory agreement.
The proposed transfer of assets of the Fund to the Portfolio is
expected to be tax free. In this connection, the Fund intends to obtain an
appropriate opinion of legal counsel to the effect that there will be no adverse
tax consequences as a result of the proposed change in operating structure. The
Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Code. In each taxable year that the Fund so
qualifies, the Fund (but not its shareholders) will be relieved of federal
income tax on that part of its investment company taxable income and net capital
gain that is distributed to its shareholders. However, distributions from the
Fund will continue to be taxable to the Fund's shareholders as ordinary income
or long-term capital gain, as the case may be, whether such distributions are
received in cash or paid in Fund shares.
The Portfolio will have investment objectives that are identical to
those of the Fund. The Portfolio will attempt to achieve its objectives through
investments made under investment policies and subject to investment limitations
that are substantially similar to those of the Fund. If the Fund invests all of
its investable assets in the Portfolio, the Fund's assets no longer would be
invested directly in investment securities. Nevertheless, in as much as the
assets of the Portfolio would be directly invested in investment securities, the
Fund believes the risks of investing in the Portfolio are not materially
different from those to which shareholders of the Fund currently are subject.
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The Fund's net asset value ("NAV") will be calculated at the same time
and on the same days that the NAV of the Portfolio is calculated. The Portfolio
will calculate its NAV as of the close of regular trading on the New York Stock
Exchange ("Exchange"), currently 4:00 p.m. eastern time, each day on which the
Exchange is open for trading. Securities held by the Portfolio will be valued as
described in the current prospectus of the Fund.
The Master Trust is not required by law to hold annual meetings of
interest holders. Investments in the Portfolio will have no preemptive or
conversion rights and will be fully paid and non-assessable, except as set forth
below. Each investor in the Portfolio will be entitled to vote in proportion to
its percentage of the aggregate beneficial interests in the Portfolio. Investors
in the Portfolio will not have cumulative voting rights. On any issue, the Fund
will vote its shares in the Portfolio in proportion to the votes cast by the
Fund's shareholders. Generally, the Fund will hold a meeting of its own
shareholders to obtain instructions as to how its interests in the Portfolio
should be voted when the Portfolio is conducting a meeting of its investors.
However, subject to applicable statutory and regulatory requirements, the Fund
would not request a vote of its shareholders with respect to any proposal
relating to the Portfolio, which proposal, if made with respect to the Fund,
would not require the vote of the shareholders of the Fund. To the extent that
there are other investors in the Portfolio, there can be no assurance that any
issue that receives approval of the Fund's shareholders will also be approved by
other investors in the Portfolio.
Investments in the Portfolio may not be transferred to another
investor, but an investor may withdraw all or any portion of its investment at
any time at NAV. Each investor in the Portfolio, including the Fund, will be
liable for all obligations of the Portfolio. However, the risk of an investor in
the Portfolio incurring financial loss on account of such liability would be
limited to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations. Upon liquidation of the
Portfolio, investors in the Portfolio would be entitled to share pro rata in the
net assets of the Portfolio available for distribution to investors.
THE PORTFOLIO'S INVESTMENT ADVISER
TTI currently serves as the investment subadviser to the Fund and will
serve as the investment manager to the Portfolio. TTI was founded in 1993 and
offers investment counseling services to investment companies, pension and
profit sharing plans, and trusts, estates and charitable organizations. As of
May 31, 2000, TTI had approximately $6.5 billion in assets under management. TTI
is a partnership controlled by Timothy A. Tacchi. TTI is registered as an
investment adviser under the Investment Advisers Act of 1940 and is regulated in
the conduct of its investment business in the United Kingdom by the Investment
Management Regulatory Organization Limited (IMRO).
At present, pursuant to an Investment Subadvisory Agreement
("Subadvisory Agreement") dated December 30, 1997, entered into between LKCM and
TTI, TTI is responsible for making investment decisions and placing purchase and
sale orders for the Fund. As compensation for services rendered by TTI, LKCM --
and not the Fund -- pays TTI a subadvisory fee calculated by applying a
quarterly rate, equal on an annual basis to 0.50% of the Fund's average daily
net assets for the quarter.
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The Subadvisory Agreement would be terminated should the Fund invest
all of its investable assets in the Portfolio. TTI would manage the assets of
the Portfolio pursuant to a management agreement with the Master Trust relating
to the Portfolio ("Management Agreement"). TTI would manage the securities of
the Portfolio and make investment decisions for the Portfolio. Under the
Management Agreement, the Portfolio would pay fees to TTI at an annual rate
equal to 0.50% of the Portfolio's average daily net assets. In addition, LKCM
and TTI have agreed to continue their voluntary expense limitation on the Fund's
total annual operating expenses should the Fund invest all of its assets in the
Portfolio as proposed. Accordingly, the maximum expenses the Fund would directly
and indirectly (through the Portfolio) pay for the provision of investment
management services would not change at the time of such investment. See
Proposal 2 below for more information on the proposed amendment to the
Investment Advisory Agreement relating to the Fund's fee and expense structure.
CONSIDERATIONS BY THE FUND'S BOARD OF TRUSTEES
At a meeting on May 31, 2000, the Board of Trustees of the Fund
considered and determined to seek shareholder authorization to adopt a new
fundamental investment policy to allow the Fund to invest all of its investable
assets in the Portfolio. In recommending this action to the Board, LKCM reviewed
the potential benefits associated with the proposed change in the Fund's
operating structure.
For example, LKCM believes that, because this operating structure will
potentially enable several institutional investors to pool their assets with the
Fund in the Portfolio, it has the possibility to achieve a variety of operating
economies not currently available to the Fund. In general, to the extent that
certain operating costs are relatively fixed and currently are borne by the Fund
alone, these expenses would instead be borne by the Portfolio and shared by the
Fund and other investors in the Portfolio. The larger asset size of the
Portfolio, in LKCM's view, also could permit the purchase of investments in
larger denominations than the Fund currently is able to purchase, which will
reduce certain custodial and transactional expenses borne by the Fund's
shareholders. Certain of these benefits would likely arise only if assets of the
Portfolio were to grow through investments in the Portfolio by investors in
addition to the Fund. Even if other entities invest in the Portfolio, there is
no assurance that such expense savings or other benefits will be realized.
In addition, the Board considered the benefits to the Fund and its
shareholders of continuing employment of TTI to make investment decisions with
respect to Fund assets. The Board considered that investing the Fund's assets in
the Portfolio would be the most efficient way to continue to utilize TTI's
expertise to manage the Fund's assets in lieu of having TTI serve as the Fund's
subadviser. The Board believes that this will provide continuity for the Fund
and its shareholders and is in their best interests.
The Board also considered the risks associated with an investment in
the Portfolio. The Trustees believe that the Portfolio's investment policies and
limitations will involve substantially the same risks as are associated with the
Fund's direct investment in investment securities, under its policies and
limitations.
The Board also considered the following factors: (1) the relative past
growth in assets and investment performance of the Fund; (2) the future
prospects of the Fund both under circumstances where it is not converted and if
the conversion is effected; (3) the current expense ratios of the Fund as
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compared to the anticipated pro forma expense ratio of the Fund and the
Portfolio; (4) the costs of the proposed change in operating structure; (5) the
tax free nature of the proposed change; (6) other options to the proposed change
in operating structure; and (7) the potential benefits to the Fund's affiliates,
including LKCM.
After consideration of these and other relevant factors, the Board of
Trustees, including a majority of the those Board members who are not considered
"interested persons" as that term is defined in the 1940 Act ("Independent
Trustees"), determined that (1) participation in the proposed transaction is in
the best interests of the Fund and (2) the interests of existing shareholders of
the Fund will not be diluted as a result of effecting the transaction. If this
Proposal 1 is approved by the Fund's shareholders, the Board will retain the
right not to proceed in this manner if it determines that it would not be in the
best interests of the Fund and its shareholders to do so.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE PROPOSAL 1.
PROPOSAL 2
APPROVAL OF AN AMENDED INVESTMENT ADVISORY AGREEMENT BETWEEN LKCM AND THE TRUST
WITH RESPECT TO THE FUND
Shareholders are being asked to approve an amendment to the Investment
Advisory Agreement between LKCM and the Trust with respect to the Fund which
will authorize a change in the structure of LKCM's fee with respect to advisory
services provided to the Fund. As explained above in Proposal 1, to the extent
that the Fund invests all of its investable assets in the Portfolio, the Fund
would have a reduced need for direct investment management services by LKCM. For
this reason, the Trust's current Investment Advisory Agreement with respect to
the Fund would be revised to provide that, to the extent that the Fund invests
all of its investable assets in the Portfolio, the advisory fee paid under the
Investment Advisory Agreement would be 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. Under the Fund's current arrangement with LKCM, LKCM
and TTI have voluntarily agreed to waive their advisory fees and/or reimburse
the Fund to the extent necessary to ensure that the Fund's total annual
operating expenses do not exceed 1.20%. LKCM and TTI have agreed to continue
this voluntary expense limitation on the Fund's total annual operating expenses
should the Fund invest all of its assets in the Portfolio as proposed. Thus, the
maximum expenses the Fund would directly or indirectly pay for the provision of
investment management services would not change at the time of such investment.
THE CURRENT INVESTMENT ADVISORY AGREEMENT
Pursuant to the Investment Advisory Agreement dated June 21, 1994, as
supplemented on December 30, 1997 ("Advisory Agreement") with the Trust, LKCM,
subject to the control and supervision of the Trust's Board of Trustees and in
conformance with the stated investment objectives and policies of the Fund,
manages the investment and reinvestment of the assets of the Fund. In this
regard, it is the responsibility of LKCM to make investment decisions for the
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Fund and to place the Fund's purchase and sales orders or, subject to any
approvals required by the 1940 Act, to delegate its duty to make investment
decisions and to place purchase and sales orders to one or more investment
subadvisers with respect to some or all of the Fund's assets. In the event of
such a delegation, LKCM is obligated to monitor the activities of the
subadvisers, review the activities of the subadvisers to ensure compliance with
applicable investment objectives and guidelines, render such reports to the
Board of Trustees as may be requested and provide to the subadvisers such advice
as they may reasonably request. As described above, LKCM has exercised its
authority to delegate certain duties with respect to all of the Fund's assets to
TTI.
The Advisory Agreement continues in effect for a period of two years
from the date of the Agreement, and thereafter for successive one year periods,
only if each renewal is specifically approved by a vote of the Board of
Trustees, including the affirmative votes of a majority of the Trustees who are
not parties to the agreement or "interested persons" (as defined in the 1940
Act) of any such party in person at a meeting called for the purpose of
considering such approval. In addition, the question of continuance of the
Advisory Agreement may be presented to the shareholders of the Fund; in such
event, continuance shall be effective only if approved by the affirmative vote
of a majority of the outstanding voting securities of the Fund. The Advisory
Agreement can be terminated, without penalty, with respect to the Fund on 60
days' written notice by the Board of Trustees or by vote of a majority of the
outstanding voting securities. LKCM can terminate the Advisory Agreement with
respect to the Fund, without penalty, on 90 days' written notice. In addition,
the Advisory Agreement will terminate automatically in the event of its
assignment.
As compensation for the services rendered by LKCM under the Advisory
Agreement, the Fund pays LKCM an advisory fee calculated by applying a quarterly
rate, equal on an annual basis to 1.00% of the Fund's average daily net assets
for the quarter. LKCM -- and not the Fund -- is solely responsible for paying
the fees of any subadvisers to whom LKCM delegates any duties as described
above. For the fiscal year ended December 31, 1999, LKCM voluntarily agreed to
waive its advisory fees and reimburse the Fund's operating expenses to the
extent necessary to ensure that the Fund's total operating expenses do not
exceed 1.20%. Thereafter, LKCM, at its discretion, from time to time may waive
advisory fees and/or reimburse expenses for the Fund. Any waivers and/or
reimbursements will have the effect of lowering the overall expense ratio for
the Fund and increasing its overall return to investors at the time any such
amounts are waived and/or reimbursed. For the fiscal year ended December 31,
1999, such fees paid by the Fund to LKCM were $399,935. For the same period,
management fees and/or expenses in the amount of $186,212 were waived and/or
reimbursed by LKCM.
THE PROPOSED AMENDMENT TO THE INVESTMENT ADVISORY AGREEMENT
The amended Advisory Agreement will be identical to the current
Advisory Agreement described above with the exception of the proposed revision
to the fee schedule. Under the proposed amendment, the Advisory Agreement would
be revised to add that, to the extent that the Fund invests all of its
investable assets (ie., securities and cash) in another registered investment
company, the advisory fee paid under the Advisory Agreement during the period
that the Fund's assets are so invested would be 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.
Accordingly, on behalf of the Fund, the Board of Trustees proposes that
paragraph 1 of the Fee Schedule and Related Amendments to the Advisory Agreement
-9-
<PAGE>
between the Trust and LKCM, dated as of June 21, 1994 be amended by adding the
following new language (which is underlined):
1. For the services provided and the expenses assumed
pursuant to the captioned Investment Advisory Agreement, the
LKCM International Fund of the Trust (the "Fund") will pay
[LKCM] a fee, computed by applying a quarterly rate, equal to
an annual basis to 1.00% of the Fund's average daily net
assets for the quarter. TO THE EXTENT THAT THE FUND INVESTS
ALL OF ITS INVESTABLE ASSETS IN ANOTHER REGISTERED INVESTMENT
COMPANY, HOWEVER, FOR THE PERIOD THAT THE FUND'S ASSETS ARE
SO INVESTED, THE FUND WILL PAY [LKCM] A FEE, COMPUTED BY
APPLYING A QUARTERLY RATE, EQUAL TO AN ANNUAL BASIS TO 0.50%
OF THE FUND'S AVERAGE DAILY NET ASSETS FOR THE QUARTER.
Set forth below are tables which show the fees and expenses for the
Fund for the current fiscal year and a PRO FORMA adjustment thereof which
reflects the combined expenses of the Fund and the Portfolio, and assumes that
the Fund had invested all of its investable assets in the Portfolio for the
entire period then ending.
SHAREHOLDER FEES (fees paid directly from your investment)
None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)(1)
-10-
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT DISTRIBUTION OTHER TOTAL ANNUAL
FEES (2) ------------ ----- ------------
-------- AND SERVICE EXPENSES(2) FUND
----------- ----------- ----
(12B-1)FEES EXPENSES(2)
----------- -----------
(3)
---
<S> <C> <C> <C> <C>
International Fund 1.00% None 0.52% 1.52%
International Fund 1.00% None 0.52% 1.52%
PRO FORMA
</TABLE>
(1) Fund operating expenses are deducted from Fund assets before computing the
daily share price of making distributions. As a result, they will not appear on
your account statement, but instead reduce the amount of total return you
receive.
(2) LKCM voluntarily has agreed to waive all or a portion of its management fee
and/or reimburse the Fund's other expenses to limit the total annual operating
expenses to 1.20%. LKCM may choose to terminate the waiver or revise the limit
on total annual operating expenses at any time. If the waivers or reimbursements
were included in calculation above, "Management Fees," "Other Expenses" and
"Total Annual Operating Expenses" would be as follows:
MANAGEMENT OTHER TOTAL ANNUAL
FEES (2) ----- ------------
-------- EXPENSES(2) FUND
----------- ----
EXPENSES(2)
-----------
International Fund 0.68% 0.52% 1.20%
International Fund 0.68% 0.52% 1.20%
PRO FORMA
The portion of "Other Expenses" attributable to the Portfolio is estimated
because the Portfolio has not yet commenced operations.
(3) The Fund adopted a Rule 12b-1 Plan under which the Fund may pay up to 0.75%
of its average daily net assets for distribution and other services. The Fund
has not implemented the plan and, thus, is neither accruing nor paying any fees
under the plan.
EXAMPLE
This example is intended to help you to compare the current costs of
investing in the Fund and the costs of investing in the Fund where the Fund
invests all of its investable assets in the Portfolio. The example assumes that
(1) you invest $10,000 in the Fund for the time periods indicated; (2) your
investment has a 5% return each year; and (3) the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, under these
assumptions your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- --------
International Fund $155 $481 $829 $1,812
International Fund $155 $481 $829 $1,812
PRO FORMA
-11-
<PAGE>
ABOUT LKCM
Luther King Capital Management Corporation serves as the investment
adviser to the Fund. LKCM 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 May 1, 2000, LKCM had in excess of
$6.5 billion in assets under management. J. Luther King, Jr. is the controlling
shareholder of LKCM.
The principal executive officers and each director of LKCM, including
those officers and directors who are officers and Trustees of the Trust, are as
follows:
Name and Address Principal Occupation
---------------- --------------------
J. Luther King, Jr. President, Luther King Capital Management Corporation
since 1979; Chairman of the Board of Trustees,
President, Chief Executive Officer and Manager of the
Trust
Paul W. Greenwell Vice President, Luther King Capital Management
Corporation since 1983; Vice President of the Trust
Jacqui Brownfield Fund Administrator, Luther King Capital Management
Corporation since 1987; Vice President, Secretary and
Treasurer of the Trust
The business address of each individual listed above is 301 Commerce
Street, Suite 1600, Fort Worth, Texas 76102.
CONSIDERATIONS BY THE FUND'S BOARD OF TRUSTEES
On May 31, 2000, the Board of Trustees, including the Independent
Trustees, unanimously approved, subject to the required shareholder approval
described herein, the amended Advisory Agreement between LKCM and the Trust with
respect to the Fund. In determining to recommend the amended Advisory Agreement
to shareholders, the Board reviewed the services provided by LKCM and analyzed
the factors they deemed relevant, including the nature, quality and scope of
services provided to the Fund as well as LKCM's investment performance. The
Board reviewed the ability of LKCM to continue to provide its services to the
Fund and they reviewed the compensation received by LKCM over the past fiscal
year. The Board also considered the relative past growth in assets and
investment performance of the Fund, and the current expense ratios of the Fund
as compared to the anticipated pro forma expense ratio of the Fund and
Portfolio.
After consideration of these and other relevant factors, the Board of
Trustees determined that the proposed amendment to the Advisory Agreement was in
the best interests of the Fund and its shareholders.
-12-
<PAGE>
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE PROPOSAL 2.
PORTFOLIO INFORMATION
In the selection of brokers and dealers to execute security
transactions, LKCM and TTI will endeavor to ensure that the chosen brokers and
dealers have the ability to obtain best execution. In selecting brokers or
dealers to execute particular transactions and in evaluating the best net price
and execution available, LKCM and TTI are authorized to consider the "brokerage
and research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934), statistical quotations, and other information
provided to the Fund, LKCM, TTI or their affiliates. LKCM and TTI also are
authorized to cause the Fund to pay a commission to a broker or dealer who
provides supplemental investment and market research and securities and economic
analysis and may pay these brokers a higher brokerage commission than may be
charged by other brokers, provided that LKCM or TTI, as applicable, determines
in good faith that such commission is reasonable in relation to the value of a
particular transaction or in terms of all the accounts over which they exercise
investment discretion. Research services furnished by brokers or dealers through
which LKCM and TTI effect securities transactions may be used in servicing all
accounts which they manage. Research services received from brokers or dealers
which execute transactions for a particular account will not necessarily be used
specifically in connection with the management of that account.
SHAREHOLDER PROPOSALS
As a general matter, the Fund does not hold annual or other regular
meetings of shareholders. Shareholders wishing to submit proposals for inclusion
in a proxy statement for a subsequent shareholders' meeting should send their
written proposals to the Fund at 301 Commerce Street, Suite 1600, Fort Worth,
Texas 76102. In addition, the Fund is required to call a special shareholders'
meeting upon written request for such a meeting by shareholders owning at least
ten percent of its outstanding shares.
OTHER BUSINESS
Management knows of no business to be presented to the meeting other
than the matters set forth in this Proxy Statement, but should any other matter
requiring a vote of shareholders arise, the proxies will vote thereon according
to their best judgment and in the best interests of the Fund.
By order of the Board of Trustees,
Jacqui Brownfield
Secretary
July 31, 2000
-13-
<PAGE>
PROXY
-----
LKCM INTERNATIONAL FUND
-----------------------
Special Meeting of Shareholders
August 29, 2000
The undersigned hereby appoints as proxy Jacqui Brownfield, with the
power of substitution, and hereby authorizes her to represent and to vote, as
designated below, all the shares of the LKCM International Fund ("Fund"), a
series of the LKCM Funds ("Trust"), held of record by the undersigned on July 7,
2000, at the meeting of shareholders to be held on August 29, 2000, or any
adjournment thereof, with discretionary power to vote upon such other business
as may properly come before the meeting. Unless indicated to the contrary, this
proxy shall be deemed to grant authority to vote "FOR" the proposal.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby acknowledges receipt of the Proxy Statement
prepared on behalf of the Board of Trustees with respect to the matter
designated below.
Please date and sign this proxy and return it in the enclosed
postage-paid envelope to Frank Guarino of MIS at 61 McCord Park Drive, Norwell,
MA, 02061. Please indicate your vote by an "X" in the appropriate box below.
1. Approve a new fundamental investment policy so that the Fund may
invest all of its investable assets in an open-end management investment company
having substantially identical investment objectives and substantially similar
investment policies to the Fund.
FOR _____________ AGAINST ____________ ABSTAIN ___________
2. Approve the amended Investment Advisory Agreement between Luther
King Capital Management Corporation ("LKCM") and the Trust with respect to the
Fund.
FOR _____________ AGAINST ____________ ABSTAIN ___________
-------------- ------------
Signature Date
-------------- ------------
Signature Date
