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")
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. [You also can vote by
telephone or the Internet by following instructions that appear on the enclosed
proxy insert.] 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
("Manager"); 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 ________,
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
_________, 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 ("Manager"). 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 _______, 2000. The solicitation of proxies will be made
by mail, but also may include telephone or oral communications by employees of
the Manager, 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 ("Adviser").
Thirty percent of the Fund's shares of beneficial interest outstanding
on _______, 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 _____________
number 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:
[FUND TO PROVIDE]
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.
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.
The Manager, 301 Commerce Street, Suite 1600, Fort Worth, Texas 76102,
serves as the investment adviser to the Fund. The Adviser, 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 the Adviser's desire to
establish its own mutual funds in the United States. The Adviser has established
a master fund that is substantially similar to the Fund and has established a
feeder fund substantially identical to the Fund. Initially, the Adviser's feeder
fund will be offered primarily to its U.S. pension fund clients. Thus, either at
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or shortly after the conversion, the Fund will be one of at least two feeder
funds to the Adviser'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. The Manager 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
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. The Adviser, 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
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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.
The Adviser 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.
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 the Adviser'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, the Manager also could manage the Fund's direct
investments in securities under the Trust's existing investment advisory
agreement.
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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.
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.
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THE PORTFOLIO'S INVESTMENT ADVISER
The Adviser currently serves as the investment subadviser to the Fund
and will serve as the investment manager to the Portfolio. The Adviser 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, the Adviser had approximately $6.5 billion in
assets under management. The Adviser is a partnership controlled by Timothy A.
Tacchi. The Adviser 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 the
Manager and the Adviser, the Adviser is responsible for making investment
decisions and placing purchase and sale orders for the Fund. As compensation for
services rendered by the Adviser, the Manager -- and not the Fund -- pays the
Adviser 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.
The Subadvisory Agreement would be terminated should the Fund invest
all of its investable assets in the Portfolio. The Adviser would manage the
assets of the Portfolio pursuant to a management agreement with the Master Trust
relating to the Portfolio ("Management Agreement"). The Adviser would manage the
securities of the Portfolio and make investment decisions for the Portfolio.
Under the Management Agreement, the Portfolio would pay fees to the Adviser at
an annual rate equal to 0.50% of the Portfolio's average daily net assets. In
addition, the Manager and Adviser 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 Portoflio 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, the Manager
reviewed the potential benefits associated with the proposed change in the
Fund's operating structure.
For example, the Manager 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 the Manager'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
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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 the Adviser 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 the Adviser's expertise to manage the Fund's assets in lieu of having
the Adviser 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
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 the Manager.
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 THE MANAGER AND THE
TRUST WITH RESPECT TO THE FUND
Shareholders are being asked to approve an amendment to the Investment
Advisory Agreement between the Manager and the Trust with respect to the Fund
which will authorize a change in the structure of the Manager'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
the Manager. 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
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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 the Manager, the Manager and the Adviser 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%. The Manager
and the Adviser 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, the
Manager, 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 the Manager to make investment decisions for
the 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, the Manager 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, the Manager has exercised
its authority to delegate certain duties with respect to all of the Fund's
assets to the Adviser.
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. The Adviser 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 the Manager under the
Advisory Agreement, the Fund pays the Adviser 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. The Manager -- and not the Fund -- is
solely responsible for paying the fees of any subadvisers to whom the Manager
delegates any duties as described above. For the fiscal year ended December 31,
1999, the Manager voluntarily agreed to waive its advisory fees and reimburse
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the Fund's operating expenses to the extent necessary to ensure that the Fund's
total operating expenses do not exceed 1.20%. Thereafter, the Manager, 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 the Manager
were $399,935. For the same period, management fees and/or expenses in the
amount of $186,212 were waived and/or reimbursed by the Manager.
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
between the Trust and the Manager, 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
the [Manager] 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 THE [MANAGER] 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
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<PAGE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)(1)
<TABLE>
<CAPTION>
DISTRIBUTION OTHER TOTAL ANNUAL
MANAGEMENT AND SERVICE EXPENSES(2) FUND
FEES (2) (12B-1)FEES ----------- EXPENSES(2)
-------- (3) ------------
------------
<S> <C> <C> <C> <C>
International Fund 1.00% None 0.52% 1.52%
International Fund
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) The Manager 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%. The Manager 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
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, except for the first year which reflects any fee waiver or
-10-
<PAGE>
expense reimbursement. Although your actual costs may be higher or lower, under
these assumptions your costs would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
International Fund $155 $481 $829 $1,812
International Fund PRO FORMA
</TABLE>
ABOUT THE MANAGER
Luther King Capital Management Corporation serves as the investment
adviser to the Fund. The Manager 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, the
Manager had in excess of $__ billion in assets under management. J. Luther King,
Jr. is the controlling shareholder of the Manager.
The principal executive officers and each director of the Manager,
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 the Manager 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 the
Manager and analyzed the factors they deemed relevant, including the nature,
quality and scope of services provided to the Fund as well as the Manager's
investment performance. The Board reviewed the ability of the Manager to
continue to provide its services to the Fund and they reviewed the compensation
received by the Manager 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.
-11-
<PAGE>
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.
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, the Manager and Adviser 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, the Manager and Adviser 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, the Manager, the Adviser or their
affiliates. The Manager and Adviser 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
the Manager or Adviser, 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 the Manager and
Adviser 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.
-12-
<PAGE>
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
__________, 2000
-13-
<PAGE>
PROXY
LKCM INTERNATIONAL FUND
Special Meeting of Shareholders
August 29, 2000
The undersigned hereby appoints as proxies ____________, _________ and
_________, each with the power of substitution, and hereby authorizes each of
them 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 __________, 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 ("Manager") and the Trust with respect to
the Fund.
FOR _____________ AGAINST ____________ ABSTAIN ___________
-------------- ------------
Signature Date
-------------- -------------
Signature Date
