As filed with the Securities and Exchange Commission on September 5, 2003
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8352
LKCM Funds
(Exact name of registrant as specified in charter)
c/o Luther King Capital Management
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
(Address of principal executive offices) (Zip code)
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, DC 20036
(Name and address of agent for service)
1-800-688-LKCM
Registrant's telephone number, including area code
Date of fiscal year end: December 31, 2003
Date of reporting period: June 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
================================================================================
LKCM
FUNDS
================================================================================
LKCM SMALL CAP EQUITY FUND
LKCM EQUITY FUND
LKCM BALANCED FUND
LKCM FIXED INCOME FUND
LKCM INTERNATIONAL FUND
Semi-Annual Report
June 30, 2003
DEAR FELLOW SHAREHOLDERS:
We are pleased to report the following performance information for the LKCM
Funds:
FIVE YEAR AVG.
SIX MONTH ONE YEAR AVERAGE ANNUAL
TOTAL TOTAL ANNUALIZED TOTAL
RETURN RETURN RETURN RETURN
INCEPTION NAV @ ENDED ENDED ENDED SINCE
FUNDS DATES 6/30/03 6/30/03* 6/30/03* 6/30/03* INCEPT.*
- --------------------------------------------------------------------------------------------
LKCM Equity Fund -
Institutional Class 1/3/96 $10.82 8.42% (0.51)% 1.39% 7.62%
S&P 500 Index1 11.76% 0.25% (1.61)% 7.87%
LKCM Small Cap Equity Fund -
Institutional Class 7/14/94 $16.83 10.43% (5.75)% 4.34% 11.88%
Russell 2000 Index2 17.88% (1.64)% 0.97% 8.45%
LKCM Small Cap Equity Fund -
Adviser Class 6/5/03 $16.83 N/A N/A N/A (0.12)%#
Russell 2000 Index2 N/A N/A N/A (1.70)%#
LKCM International Fund 12/30/97 $7.14 11.39% (5.15)% (3.82)% (1.93)%
MSCI/EAFE Index3 9.85% (6.03)% (3.68)% (0.70)%
LKCM Balanced Fund 12/30/97 $10.37 6.44% 0.22% 1.95% 3.02%
S&P 500 Index1 11.76% 0.25% (1.61)% 1.49%
Lehman Bond Index4 4.27% 10.84% 7.65% 7.63%
LKCM Fixed Income Fund 12/30/97 $10.66 2.87% 7.07% 6.54% 6.52%
Lehman Bond Index4 4.27% 10.84% 7.65% 7.63%
* Performance does not guarantee future results. Performance data quoted
represents past performance and the investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
# Cumulative return
1 The S&P 500 Index consists of 500 stocks chosen for market size, liquidity,
and industry group representation. It is a market-value weighted index (stock
price times number of shares outstanding), with each stock's weight in the Index
proportionate to its market value. The "500" is one of the most widely used
benchmarks of U.S. equity performance.
2 The Russell 2000 Index is an unmanaged index consisting of the 2,000 smallest
of the 3,000 largest stocks. The average market capitalization was approximately
$490 million.
3 The Morgan Stanley Capital International Europe Australasia, Far East Index
("MSCI/EAFE") is an unmanaged index composed of 21 European and Pacific Basin
countries. The MSCI/EAFE Index is the most recognized international index and is
weighted by market capitalization.
4 The Lehman Brothers Intermediate Government/Credit 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 $150 million; rated investment grade or higher by
Moody's Investors Service or equivalent; must be dollar denominated and
non-convertible; and must be publicly issued.
The first half of 2003 benefited from a renewed confidence in the United
States and its economic prospects. This was converted into positive performance
by the major stock market indices. The S&P 500 advanced almost 12% during the
six months and was up an astonishing 21% from its low in March. There are
several reasons for this improvement; the ending of the "official war" with
Iraq, continued economic growth and improving corporate profitability. A
significant tax cut on capital, reducing both the capital gains and dividend
income tax rates, was embraced by the markets and should prove to be a
significant positive for investors for years to
2
come. Monetary policy continues to be stimulative as interest rates remain at
historically low levels. Concerns remain about the high level of consumer debt
and rising home prices, just to name a couple, but investors have chosen instead
to focus on the positives.
The recovery in the stock market was typical for a market that had
experienced a significant, multi-year correction. The early winners tend be
stocks that lost the most during the decline as concerns about their competitive
position and weaker balance sheets, which initially had investors selling,
recede. They also tend to have smaller market capitalizations. This was the case
in the first half of 2003. The smaller, lower quality stocks performed the best.
Historically, it only takes one or two quarters before the leadership rotates
back towards competitively advantaged companies that generate higher financial
returns and are better capitalized.
Interest rates fell to a 45-year low during the first half of 2003 and the
spread between highly rated debt and lower-rated debt continued to narrow. We
believe that the narrowing of spreads and the improvement in stock prices are
forecasting more improvement in the economy and in corporate profitability. If
this is true, then the government bond market is overvalued and yields will rise
as the economy continues to improve. Moreover, an expanding supply of Treasury
Bonds resulting from a larger U.S. budget deficit could put further pressure on
bond prices. At this time, we believe the stock market is positioned to
outperform the bond market.
The LKCM Equity Fund is managed to provide long-term capital appreciation
and is primarily invested in common stocks of mid-sized and large companies. The
Fund focuses its investments in quality companies with above-average
profitability and reasonable valuations. During the first half of 2003, the Fund
returned 8.42% vs. the S&P 500's 11.76% return. As of June 30, 2003, the total
net assets in the portfolio were $29.7 million with 91.6% of the net assets
invested in common stocks and 8.4% in cash reserves, net of liabilities. Our
performance was impacted by our limited exposure to the big winners of the first
half: the lower quality and lower market cap companies. In addition, our results
were held back due to our positions in the Consumer Staples and Energy Sectors.
Strong gains from our Technology sector investments added to performance. The
Fund remains positioned with a broadly diversified portfolio of quality
companies.
The LKCM Small Cap Fund is managed to maximize capital appreciation through
investment primarily in the common stocks of smaller companies. The performance
of the Fund's Institutional Class during the first half of 2003 was 10.43% vs.
the Russell 2000's 17.88% return. The Fund's strategy focuses on investing in
shares of reasonably valued niche companies with above average growth and return
prospects. Stock selection and a focus on valuation remain an important
component of our success. As of June 30, 2003, the total net assets of the
portfolio were $226.7 million with 93.5% of the net assets invested in common
stocks and 6.5% in cash reserves, net of liabilities. Our performance was
impacted by our limited exposure to the big winners of the first half: the lower
quality and lower market cap companies. In the Russell 2000, these tended to be
unprofitable companies with market capitalizations below $100 million. We
believe the companies held in our portfolio contain both attractive growth
prospects and valuations.
The LKCM Balanced Fund emphasizes current income and long-term capital
appreciation. In order to attain the desired reward/risk profile, the Fund
invests in a blend of common stocks,
3
convertible securities, government and corporate bonds and cash. We were pleased
with our diversified, total return approach as, during the first half of 2003,
the Fund returned 6.44% vs. the 11.76% return in the S&P 500 and 4.27% vs. the
Lehman Bond Index. As of June 30, 2003, total net assets were $8.7 million and
the asset mix contained 66.1% common stocks, 3.6% convertible securities, 24.2%
corporate bonds, 3.6% in government bonds, and 2.5% in cash reserves net of
liabilities. We increased the equity position in the Fund to coincide with our
view that stocks will perform better than bonds. Our bond positions and lack of
lower quality stocks impacted our overall return during the period. We feel the
"total return" philosophy of controlling risk via a blend of asset classes
remains an attractive investment alternative for volatile market environments.
The LKCM Fixed Income Fund's main objective is current income. The Fund's
strategy is to invest in a combination of non-callable bonds for their offensive
characteristics and callable bonds as defensive investments in order to create a
high quality, low volatility, short-intermediate maturity portfolio. Our focus
is to identify corporate bonds with strong credit profiles and attractive
yields. The average effective maturity of the Fund at year-end was approximately
three years and with an "A" average quality rating. Relative to the comparative
benchmark, the Fund had a higher percentage of its assets invested in corporate
bonds and held bonds that had shorter maturities. Both detracted from the Fund's
performance but should have us better positioned for a rising interest rate
environment. As of June 30, 2003, total net assets were $62.9 million and the
asset mix was 73.2% in corporate bonds, 20.9% in government bonds and 5.9% in
cash and cash equivalents net of liabilities.
The LKCM International Fund currently owns shares of the TT EAFE Fund and
comments from TT International Investment Management follow this letter.
Our investment strategy is focused on our fundamental research effort
combined with adequate diversification and a keen eye on valuation. As always,
we focus on attractively valued, competitively advantaged companies with
business models supporting high and/or rising returns on invested capital,
strong and growing cash flows and solid balance sheets. We believe this
investment process is consistent in all of our Fund offerings and should keep us
well positioned for the future. We appreciate the opportunity to exercise our
investment talents on your behalf and the trust you have placed in LKCM by your
investment in these Funds.
/s/ J. Luther King Jr.
J. Luther King, Jr., CFA
August 4, 2003
Please refer to the Schedule of Investments found in the following report for
more information on Fund holdings. Fund holdings and sector allocations are
subject to change and are not recommendations to buy or sell any securities.
4
TT INTERNATIONAL INVESTMENT MANAGEMENT
The LKCM International Fund is managed in a style that seeks absolute returns.
1Q03
LKCM INTERNATIONAL FUND -7.64% MSCI EAFE -8.13%
Markets - The build up to the war in Iraq dominated market sentiment and price
action. Uncertainty over the timing of the conflict together with solvency fears
in the insurance sector combined to send stock markets to new lows. They bounced
back strongly in March once it became clear that military action was imminent.
Portfolio - Having been relatively cautious in the latter part of last year, we
used market weakness in the pre-war period to increase the risk profile of the
European portfolio on the premise that a quick and decisive conflict would lead
to a sharp relief rally. We also increased our exposure to Japan in February
ahead of the financial year-end book closing when public funds are traditionally
used to prop up the market. However, we reduced Asia almost to nothing given the
deteriorating geopolitical situation in North Korea and the SARS outbreak that
threatened to have a material impact on regional growth rates.
Performance - The Fund ended marginally ahead of MSCI EAFE. Allocation to cash
was significantly positive given sharp market falls and this accounted for the
small positive relative return over 1Q. European markets were particularly badly
affected by the uncertainty in 1Q and were responsible for most of the
portfolio's fall. Europe also underperformed the benchmark because of
disappointing stock selection (mainly in Financials, Energy and Materials).
Japan and Asia suffered too, but relative to the broad index, these markets
performed well. Our underweight position (despite increasing Japan over 1Q)
meant allocation returns in both regions were negative. Our early positioning in
more economically sensitive sectors hurt performance in 1Q's volatile markets
but produced strong returns in 2Q as markets bounced back.
2Q03
LKCM INTERNATIONAL FUND +20.61% MSCI EAFE +19.57%
Markets - After the battering that equities endured in 1Q, 2Q provided some
welcome relief. Markets rebounded following a short and decisive war in Iraq and
continued to rally for much of 2Q, buoyed by better economic data and greater
policy stimulus, before consolidating at quarter-end. Bond market weakness in
late June prompted fears that rising yields would choke off the economic
recovery and the sell-off spread to equities.
Portfolio - Having raised the risk profile of the European portfolio in 1Q, we
maintained a more aggressive stance for most of 2Q but started to reduce our
weighting at quarter-end given that Europe had enjoyed the best of the rally and
there were, in our view, better opportunities further east. We remained
underweight Japan and Asia throughout 2Q but began to increase our exposure (at
the expense of Europe) at the end of June. These markets tend to be highly
cyclical and we believe will respond to improving US/China growth and global
reflation.
Performance - The Fund ended a very strong quarter up more than 20% and over 1%
ahead of MSCI EAFE. Having fallen furthest over 1Q, markets in Europe saw the
sharpest rises in 2Q and were responsible for almost all the positive return.
The portfolio's strong performance relative to
5
the index was also chiefly attributable to Europe - stock selection
(particularly in Financials) was the biggest positive factor. The Japanese
market recovered impressively after a shaky start and small positives in
allocation, stock selection and currency helped Japan produce a respectable
relative return. Despite a strong run in the latter part of Q2, markets in Asia
performed poorly in relative terms - our low weighting to the region was a
further positive factor.
The Fund posted a net return of 11.39% vs. 9.85% for MSCI EAFE during the first
half of 2003. At the end of the first half of 2003, the asset base of the Fund
was US$29.6m (US$54.2m at December 31, 2002).
Past performance does not guarantee future results. Performance data quoted
represents past performance and the investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
6
LKCM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
COMMON STOCKS - 93.46% SHARES VALUE
- ----------------------------------------
BANKS - 8.52%
City Bank 50,000 $1,353,000
Cullen/Frost
Bankers, Inc. 100,000 3,210,000
Glacier Bancorp,
Inc. 99,000 2,437,380
Hibernia
Corporation -
Class A 125,000 2,270,000
Southwest Bancorporation
of Texas, Inc. # 85,000 2,763,350
Texas Regional Bancshares,
Inc. - Class A 210,000 7,287,000
-----------
19,320,730
-----------
BASIC MATERIALS - 7.01%
Airgas, Inc. 100,000 1,675,000
Boise Cascade
Corporation 100,000 2,390,000
Freeport-McMoRan Copper
& Gold, Inc. -
Class B 107,000 2,621,500
Louisiana-Pacific
Corporation # 330,000 3,577,200
NL Industries, Inc. 50,000 850,000
Packaging Corp of
America # 145,000 2,672,350
Pope & Talbot, Inc. 190,000 2,099,500
-----------
15,885,550
-----------
CONSUMER DISCRETIONARY - 21.01%
Arctic Cat Inc. 100,000 1,916,000
Blue Rhino
Corporation # 100,000 1,199,000
Bunge Limited(1) 66,000 1,887,600
CEC Entertainment
Inc. # 65,000 2,400,450
Emmis Communications
Corporation -
Class A # 150,000 3,442,500
Gray Television,
Inc. 214,600 2,661,040
InterTAN, Inc. # 279,700 2,293,540
Iron
Mountain, Inc. # 75,000 2,781,750
La Quinta Properties, Inc. -
Paired #(2) 450,000 1,939,500
Lin TV Corp -
Class A # 100,000 2,355,000
Mobile Mini,
Inc. # 210,000 3,429,300
Office Depot,
Inc. # 125,000 1,813,750
Peet's Coffee &
Tea Inc. # 100,000 1,746,000
Penn National
Gaming, Inc. # 85,000 1,746,750
Sonic Corp. # 95,000 2,415,850
Sylvan Learning Systems,
Inc. # 140,000 3,197,600
Tractor Supply
Company # 120,000 5,730,000
Viad Corp 124,000 2,776,360
West Marine, Inc. # 108,000 1,891,080
-----------
47,623,070
-----------
- ----------------------------------------
COMMON STOCKS SHARES VALUE
- ----------------------------------------
CONSUMER STAPLES - 6.39%
Columbia Sportswear
Company # 60,000 $3,084,600
Cott
Corporation #(1) 125,000 2,586,250
Foot Locker, Inc. 190,000 2,517,500
Jos. A. Bank
Clothiers, Inc. # 100,000 3,343,000
United Natural
Foods, Inc. # 105,000 2,954,700
-----------
14,486,050
-----------
ENERGY - 9.38%
Cabot Oil & Gas Corporation -
Class A 105,000 2,899,050
Denbury Resources
Inc. # 129,100 1,733,813
Encore Acquisition
Company # 100,000 1,915,000
Evergreen Resources,
Inc. # 60,000 3,258,600
Hanover Compressor
Company # 400,000 4,520,000
St. Mary Land & Exploration
Company 80,000 2,184,000
Tom Brown, Inc. # 125,000 3,473,750
Varco International,
Inc. # 65,500 1,283,800
-----------
21,268,013
-----------
FINANCIAL SERVICES - 1.40%
PRG-Schultz International,
Inc. # 185,000 1,091,500
Triad Guaranty Inc. #55,000 2,087,250
-----------
3,178,750
-----------
HEALTH CARE - 8.63%
Apogent Technologies
Inc. # 120,000 2,400,000
Bentley Pharmaceuticals,
Inc. # 154,000 2,025,100
Cyberonics, Inc. # 90,000 1,935,900
Henry Schein, Inc. # 50,000 2,617,000
Hooper Holmes, Inc. 100,000 644,000
Patterson Dental
Company # 40,000 1,815,200
Sybron Dental Specialties,
Inc. # 180,000 4,248,000
Triad Hospitals,
Inc. # 80,000 1,985,600
Wright Medical
Group, Inc. # 100,000 1,902,000
-----------
19,572,800
-----------
INDUSTRIALS - 10.92%
Albany International Corp. -
Class A 33,800 926,120
Allied Waste Industries,
Inc. # 299,272 3,007,684
EMCOR Group, Inc. # 50,000 2,468,000
Gentex Corporation # 70,000 2,142,700
See notes to the financial statements.
7
LKCM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
COMMON STOCKS SHARES VALUE
- ----------------------------------------
INDUSTRIALS - 10.92% (CONTINUED)
Hydril Company # 70,000 $1,907,500
Lindsay Manufacturing
Company 225,000 5,224,500
Reliance Steel & Aluminum
Company 131,250 2,716,875
Veridian
Corporation # 112,000 3,907,680
Waste Connections,
Inc. # 70,000 2,453,500
-----------
24,754,559
-----------
REAL ESTATE INVESTMENT TRUST - 0.87%
American Financial Realty
Trust 132,000 1,968,120
-----------
TECHNOLOGY - 9.74%
Activision, Inc. # 187,500 2,422,500
Cognos, Inc. #(1) 50,000 1,350,000
Cymer, Inc. # 60,000 1,893,600
Harris Corporation 80,000 2,404,000
Kopin Corporation # 280,000 1,713,600
Pegasus Solutions
Inc. # 100,000 1,625,000
The Reynolds and Reynolds
Company - Class A 110,000 3,141,600
SERENA Software,
Inc. # 110,000 2,296,800
Tekelec # 150,000 1,695,000
Vishay Intertechnology,
Inc. # 100,000 1,320,000
Zoran Corporation # 115,000 2,209,150
-----------
22,071,250
-----------
TELECOMMUNICATIONS - 0.72%
Advanced Fibre
Communications,
Inc. # 100,000 1,627,000
-----------
TRANSPORTATION - 8.87%
EGL, Inc. # 200,000 3,040,000
J.B. Hunt Transport
Services, Inc. # 73,000 2,755,750
Kirby Corporation # 280,000 7,896,000
Landstar System,
Inc. # 35,000 2,199,750
RailAmerica, Inc. # 290,500 2,454,725
RailAmerica, Inc. # r
(Acquired 2/19/99,
Cost $1,846,219) 209,500 1,770,275
-----------
20,116,500
-----------
TOTAL COMMON STOCKS
(cost $155,459,947) 211,872,392
-----------
- ----------------------------------------
SHORT-TERM
INVESTMENTS - 5.87% SHARES VALUE
- ----------------------------------------
MONEY MARKET FUNDS - 1.02%
Federated Cash Trust
Series II - Treasury
Cash Series II 1,157,259 $1,157,259
SEI Daily Income Trust
Government Fund -
Class B 1,157,259 1,157,259
-----------
TOTAL MONEY MARKET FUNDS
(cost $2,314,518) 2,314,518
-----------
- ----------------------------------------
PRINCIPAL
- ----------------------------------------
U.S. GOVERNMENT & AGENCY
ISSUES - 4.85%
U.S. Treasury Bill,
1.19%,
7/24/03 $11,000,000 10,994,377
-----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(cost $10,994,377) 10,994,377
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $13,308,895) 13,308,895
-----------
TOTAL INVESTMENTS - 99.33%
(cost $168,768,842) 225,181,287
-----------
Assets, less Other
Liabilities - 0.67% 1,512,656
-----------
Total Net Assets - 100.00% $226,693,943
============
# - Non-income producing security.
(1) - Foreign security.
(2) - Security represents equal ownership of LaQuinta Properties, Inc. - Class
B and La Quinta Corp. common stock.
r - Restricted Security. Purchased shares in a private placement
transaction; resale to the public may require registration or may extend
only to qualified institutional buyers.
See notes to the financial statements.
8
LKCM EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
COMMON STOCK - 91.60% SHARES VALUE
- ----------------------------------------
BANKS - 9.56%
Bank of America
Corporation 7,000 $ 553,210
The Bank of New York
Company, Inc. 11,000 316,250
Charter One
Financial, Inc. 12,000 374,160
Cullen/Frost Bankers,
Inc. 17,000 545,700
Mellon Financial
Corporation 12,500 346,875
Northern Trust
Corporation 6,000 250,740
Wells Fargo Company 9,000 453,600
-----------
2,840,535
-----------
BASIC MATERIALS - 3.85%
E.I. du Pont de Nemours
and Company 13,000 541,320
Temple-Inland Inc. 14,000 600,740
-----------
1,142,060
-----------
CONSUMER DISCRETIONARY - 11.14%
Clear Channel
Communications,
Inc. # 24,000 1,017,360
Gannett Company, Inc. 8,000 614,480
Home Depot, Inc. 20,000 662,400
Newell Rubbermaid
Inc. 10,500 294,000
Tiffany & Co. 22,000 718,960
-----------
3,307,200
-----------
CONSUMER STAPLES - 9.52%
CVS Corporation 6,500 182,195
Kimberly-Clark
Corporation 11,500 599,610
Kraft Foods Inc. -
Class A 14,000 455,700
McCormick & Company,
Incorporated(2) 12,600 342,720
PepsiCo, Inc. 15,000 667,500
The Procter & Gamble
Company 6,500 579,670
-----------
2,827,395
-----------
ENERGY - 7.23%
Anadarko Petroleum
Corporation 12,000 533,640
BJ Services Company # 6,300 235,368
BP PLC - ADR(1) 3,280 137,825
EOG Resources, Inc. 7,000 292,880
Exxon Mobil
Corporation 18,000 646,380
Noble Energy, Inc. 8,000 302,400
-----------
2,148,493
-----------
- ----------------------------------------
COMMON STOCKS SHARES VALUE
- ----------------------------------------
FINANCIAL SERVICES - 6.42%
Automatic Data
Processing, Inc. 10,000 $ 338,600
Citigroup, Inc. 6,000 256,800
First Data
Corporation 9,000 372,960
Lehman Brothers
Holdings Inc. 5,000 332,400
Prudential
Financial, Inc. 18,000 605,700
-----------
1,906,460
-----------
HEALTH CARE - 9.14%
Medtronic, Inc. 5,000 239,850
Merck & Company, Inc. 8,000 484,400
Pfizer Inc. 21,900 747,885
Schering-Plough
Corporation 35,000 651,000
Teva Pharmaceutical
Industries
Ltd. - ADR(1) 4,000 227,720
Wyeth 8,000 364,400
-----------
2,715,255
-----------
INDUSTRIALS - 13.98%
Allied Waste
Industries, Inc. # 60,000 603,000
General Dynamics
Corporation 6,000 435,000
General Electric
Company 20,000 573,600
Honeywell International
Inc. 24,000 644,400
Masco Corporation 15,000 357,750
Raytheon Company -
Class B 22,000 722,480
Tyco International
Ltd.(1) 15,000 284,700
Waste Management,
Inc. 22,000 529,980
-----------
4,150,910
-----------
TECHNOLOGY - 17.47%
AOL Time Warner
Inc. # 30,000 482,700
Cisco Systems,
Inc. # 35,000 584,150
Dell Computer
Corporation # 25,700 821,372
EMC Corporation # 30,000 314,100
Intel Corporation 27,000 561,168
International Business
Machines
Corporation 5,000 412,500
Microsoft
Corporation 18,000 460,980
Motorola, Inc. 34,000 320,620
Oracle Corporation # 45,000 540,900
Sun Microsystems,
Inc. # 35,000 161,000
Texas Instruments
Incorporated 30,000 528,000
-----------
5,187,490
-----------
See notes to the financial statements.
9
LKCM EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
COMMON STOCKS SHARES VALUE
- ----------------------------------------
TELECOMMUNICATIONS - 3.29%
ALLTEL Corporation 8,000 $ 385,760
Verizon Communications
Inc. 15,000 591,750
-----------
977,510
-----------
TOTAL COMMON STOCKS
(cost $25,427,978) 27,203,308
-----------
- ----------------------------------------
SHORT-TERM
INVESTMENTS - 8.24%
- ----------------------------------------
MONEY MARKET FUNDS - 1.84%
Federated Cash Trust
Series II -
Treasury Cash
Series II 273,389 273,389
SEI Daily Income Trust
Government Fund -
Class B 273,390 273,390
-----------
TOTAL MONEY MARKET FUNDS
(cost $546,779) 546,779
-----------
- ----------------------------------------
PRINCIPAL
- ----------------------------------------
U.S. GOVERNMENT & AGENCY
ISSUES - 6.40%
U.S. Treasury Bill,
1.19%, 7/24/03 $1,900,000 1,899,029
-----------
TOTAL U.S. GOVERNMENT &
AGENCY ISSUES
(cost $1,899,029) 1,899,029
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,445,808) 2,445,808
-----------
TOTAL INVESTMENTS - 99.84%
(cost $27,873,786) 29,649,116
-----------
Assets, less Other
Liabilities - 0.16% 48,504
-----------
Total Net Assets - 100.00% $29,697,620
===========
# - Non-income producing security.
(1) - Foreign security.
(2) - Non-voting shares.
ADR - American Depository Receipts.
See notes to the financial statements.
10
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
COMMON STOCKS - 66.10% SHARES VALUE
- ----------------------------------------
BANKS - 7.07%
The Bank of New York
Company, Inc. 5,400 $ 155,250
Charter One Financial,
Inc. 4,000 124,720
Cullen/Frost Bankers,
Inc. 3,500 112,350
Mellon Financial
Corporation 3,440 95,460
Wells Fargo Company 2,500 126,000
-----------
613,780
-----------
BASIC MATERIALS - 3.91%
Boise Cascade
Corporation 6,400 152,960
E.I. du Pont de Nemours
and Company 2,400 99,936
Temple-Inland Inc. 2,000 85,820
-----------
338,716
-----------
CONSUMER DISCRETIONARY - 7.62%
Clear Channel
Communications,
Inc. # 2,900 122,931
Harte-Hanks, Inc. 4,500 85,500
Home Depot, Inc. 3,700 122,544
Newell Rubbermaid
Inc. 2,500 70,000
Viacom, Inc. -
Class B # 2,887 126,046
Wal-Mart Stores, Inc. 2,500 134,175
-----------
661,196
-----------
CONSUMER STAPLES - 7.41%
Altria Group, Inc. 1,600 72,704
The Coca-Cola Company 2,300 106,743
Colgate-Palmolive
Company 2,300 133,285
Kimberly-Clark
Corporation 2,100 109,494
Kraft Foods Inc. -
Class A 3,500 113,925
PepsiCo, Inc. 2,400 106,800
-----------
642,951
-----------
ENERGY - 6.37%
Anadarko Petroleum
Corporation 2,500 111,175
EOG Resources, Inc. 2,000 83,680
Exxon Mobil
Corporation 4,000 143,640
Schlumberger
Limited(1) 2,450 116,547
Unocal Corporation 3,400 97,546
-----------
552,588
-----------
- ----------------------------------------
COMMON STOCKS SHARES VALUE
- ----------------------------------------
FINANCIAL SERVICES - 4.79%
American International
Group, Inc. 1,852 $ 102,193
Automatic Data
Processing, Inc. 3,000 101,580
Citigroup, Inc. 2,066 88,425
Fannie Mae 1,000 67,440
H&R Block, Inc. 1,300 56,225
-----------
415,863
-----------
HEALTH CARE - 9.84%
Alcon, Inc. #(1) 3,400 155,380
Medtronic, Inc. 2,800 134,316
Pfizer Inc. 4,000 136,600
Schering-Plough
Corporation 3,500 65,100
Teva Pharmaceutical
Industries
Ltd. - ADR(1) 2,300 130,939
Triad Hospitals,
Inc. # 4,200 104,244
Wyeth 2,800 127,540
-----------
854,119
-----------
INDUSTRIALS - 5.61%
Allied Waste Industries,
Inc. # 10,000 100,500
General Dynamics
Corporation 1,000 72,500
General Electric
Company 6,500 186,420
Waste Management,
Inc. 5,300 127,677
-----------
487,097
-----------
TECHNOLOGY - 10.85%
Cisco Systems, Inc. # 5,900 98,471
Dell Computer
Corporation # 2,900 92,684
First Data
Corporation 2,600 107,744
Harris Corporation 3,400 102,170
International Business
Machines
Corporation 1,000 82,500
Intel Corporation 2,900 60,273
Microsoft Corporation 5,600 143,416
Motorola, Inc. 4,500 42,435
Oracle Corporation # 5,440 65,389
SunGard Data Systems
Inc. # 3,000 77,730
Texas Instruments
Incorporated 3,900 68,640
-----------
941,452
-----------
TELECOMMUNICATIONS - 2.63%
ALLTEL Corporation 2,200 106,084
Verizon Communications
Inc. 3,100 122,295
-----------
228,379
-----------
TOTAL COMMON STOCKS
(cost $5,931,112) 5,736,141
-----------
See notes to the financial statements.
11
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
CORPORATE
BONDS - 24.23% PRINCIPAL VALUE
- ----------------------------------------
BANKS - 2.23%
Bancwest Corporation,
8.30%, 1/15/2011 $ 75,000 $ 88,705
The Bank of New York
Company, Inc.,
3.90%, 9/1/2007 100,000 105,190
-----------
193,895
-----------
CONSUMER DISCRETIONARY - 4.18%
CBS Corporation,
7.15%, 5/20/2005 100,000 109,821
J.C. Penney Company, Inc.,
6.50%, 12/15/2007 60,000 60,300
Target Corporation,
7.50%, 2/15/2005 100,000 109,307
Wal-Mart Stores, Inc.,
5.45%, 8/1/2006 75,000 82,879
-----------
362,307
-----------
CONSUMER STAPLES - 1.18%
Scott Paper Company,
Callable 8/15/2003,
7.00%, 8/15/2023 100,000 102,693
-----------
ENERGY - 3.80%
Anadarko Petroleum
Corporation,
3.25%, 5/1/2008 100,000 100,210
Burlington Resources
Finance Company(1),
6.68%, 2/15/2011 100,000 117,535
EOG Resources, Inc.,
6.50%, 12/1/2007 100,000 111,999
-----------
329,744
-----------
FINANCIAL SERVICES - 8.40%
American General Corporation,
6.75%, 6/15/2005 100,000 109,564
Block Financial Corporation,
6.75%, 11/1/2004 152,000 161,817
Citicorp,
6.75%, 8/15/2005 100,000 110,346
Lehman Brothers Holdings, Inc.,
8.25%, 6/15/2007 100,000 119,519
Morgan Stanley Group, Inc.,
6.875%, 3/1/2007 100,000 114,700
Pitney Bowes Credit Corporation,
5.75%, 8/15/2008 100,000 112,983
-----------
728,929
-----------
- ----------------------------------------
CORPORATE
BONDS PRINCIPAL VALUE
- ----------------------------------------
TECHNOLOGY - 2.96%
Harris Corporation,
6.35%, 2/1/2028 $110,000 $ 119,085
Motorola, Inc.,
6.75%, 2/1/2006 100,000 109,500
Oracle Corporation,
6.91%, 2/15/2007 25,000 28,557
-----------
257,142
-----------
TELECOMMUNICATIONS - 1.48%
GTE North, Inc.,
6.00%, 1/15/2004 125,000 128,179
-----------
TOTAL CORPORATE BONDS
(cost $1,956,003) 2,102,889
-----------
- ----------------------------------------
U.S. GOVERNMENT &
AGENCY ISSUES - 3.57%
- ----------------------------------------
Freddie Mac,
3.00%, 7/15/2004 100,000 101,958
U.S. Treasury Notes:
2.125%, 8/31/2004 100,000 101,254
5.875%,
11/15/2004 100,000 106,457
-----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(cost $308,245) 309,669
-----------
- ----------------------------------------
CONVERTIBLE PREFERRED
STOCKS - 3.61% SHARES
- ----------------------------------------
CONSUMER STAPLES - 0.81%
Tribune Company, Convertible,
2.00%, 5/15/2029 830 70,094
-----------
FINANCIAL SERVICES - 1.48%
Prudential Financial,
Inc., 6.75% 2,300 128,800
-----------
INDUSTRIALS - 1.32%
Raytheon Co., 8.25% 2,000 114,480
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $326,871) 313,374
-----------
See notes to the financial statements.
12
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
SHORT-TERM
INVESTMENTS - 4.94% SHARES VALUE
- ----------------------------------------
MONEY MARKET FUNDS - 4.94%
Federated Cash Trust
Series II -
Treasury Cash
Series II 214,027 $ 214,027
SEI Daily Income Trust
Government Fund -
Class B 214,027 214,027
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $428,054) 428,054
-----------
TOTAL INVESTMENTS - 102.45%
(cost $8,950,285) 8,890,127
-----------
Other Liabilities, less
Assets - (2.45)% (212,181)
-----------
Total Net Assets - 100.00% $8,677,946
===========
# - Non-income producing security.
(1)- Foreign security.
ADR - American Depository Receipts.
See notes to the financial statements.
13
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
CORPORATE
BONDS - 69.72% PRINCIPAL VALUE
- ----------------------------------------
BANKS - 8.29%
Bancwest Corporation,
8.30%, 1/15/2011 $750,000 $ 887,052
The Bank of New York
Company, Inc.,
5.20%, 7/1/2007 1,000,000 1,099,016
Nationsbank Corporation:
6.875%,
2/15/2005 1,000,000 1,084,567
6.375%, 2/15/2008 350,000 401,224
State Street Boston
Corporation,
5.95%, 9/15/2003 795,000 802,835
SunTrust Banks, Inc.,
6.25%, 6/1/2008 811,000 939,069
-----------
5,213,763
-----------
CONSUMER DISCRETIONARY - 12.94%
CBS Corporation,
7.15%,
5/20/2005 1,045,000 1,147,628
Clear Channel
Communications, Inc.:
7.25%, 9/15/2003 490,000 494,940
7.875%,
6/15/2005 1,000,000 1,101,134
4.25%, 5/15/2009 400,000 405,627
Gannett Co, Inc.,
5.50%, 4/1/2007 1,000,000 1,100,993
J.C. Penney Company, Inc.,
6.50%, 12/15/2007 650,000 653,250
Masco Corporation,
6.00%, 5/3/2004 1,000,000 1,035,351
Target Corporation,
7.50%,
2/15/2005 1,000,000 1,093,074
Wal-Mart Stores, Inc.,
5.45%, 8/1/2006 1,000,000 1,105,055
-----------
8,137,052
-----------
CONSUMER STAPLES - 5.34%
Anheuser-Busch Companies, Inc.,
Callable 1/15/2006,
5.75%, 1/15/2011 588,000 636,381
Kimberly-Clark Corporation,
7.10%, 8/1/2007 500,000 585,767
PepsiCo, Inc.,
5.75%, 1/15/2008 730,000 827,228
Scott Paper Company,
Callable 8/15/2003,
7.00%,
8/15/2023 1,270,000 1,304,205
-----------
3,353,581
-----------
- ----------------------------------------
CORPORATE
BONDS PRINCIPAL VALUE
- ----------------------------------------
ENERGY - 8.02%
Anadarko Petroleum
Corporation,
3.25%,
5/1/2008 $1,150,000 $1,152,417
BP Capital Markets
PLC(1),
4.625%, 5/27/2005 530,000 561,275
Burlington Resources
Finance Company(1),
6.68%,
2/15/2011 1,000,000 1,175,353
Conoco Inc.,
5.90%,
4/15/2004 1,000,000 1,034,588
EOG Resources, Inc.,
6.50%,
12/1/2007 1,000,000 1,119,989
-----------
5,043,622
-----------
FINANCIAL SERVICES - 13.95%
Block Financial Corporation:
6.75%,
11/1/2004 1,000,000 1,064,585
8.50%, 4/15/2007 330,000 390,395
Citigroup, Inc.,
5.80%,
3/15/2004 1,000,000 1,032,376
The Goldman Sachs Group, Inc.,
5.25%, 4/1/2013 1,000,000 1,068,312
Lehman Brothers Holdings, Inc.,
8.25%,
6/15/2007 1,000,000 1,195,187
Mellon Funding Corporation,
6.00%, 3/1/2004 375,000 386,946
Morgan Stanley Group, Inc.,
6.875%,
3/1/2007 1,000,000 1,146,999
Pitney Bowes Credit Corporation,
5.75%,
8/15/2008 1,000,000 1,129,828
Wells Fargo Financial, Inc.,
6.125%,
2/15/2006 1,231,000 1,356,372
-----------
8,771,000
-----------
HEALTHCARE - 3.16%
Becton, Dickinson and Company,
Callable 1/15/2005,
8.70%,
1/15/2025 1,030,000 1,170,447
Cardinal Health, Inc.:
6.50%, 2/15/2004 504,000 520,097
6.75%, 2/15/2011 250,000 297,147
-----------
1,987,691
-----------
INDUSTRIALS - 5.29%
General Dynamics Corporation,
4.25%,
5/15/2013 1,000,000 1,006,777
General Electric Capital
Corporation,
6.80%,
11/1/2005 1,000,000 1,114,468
Waste Management, Inc.,
7.375%, 8/1/2010 999,000 1,200,427
-----------
3,321,672
-----------
See notes to the financial statements.
14
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JUNE 30, 2003 (UNAUDITED)
- ----------------------------------------
CORPORATE
BONDS PRINCIPAL VALUE
- ----------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 2.80%
Camden Property Trust,
7.00%,
11/15/2006 $800,000 $ 886,596
Simon Property Group, Inc.,
7.125%, 2/9/2009 750,000 873,001
-----------
1,759,597
-----------
TECHNOLOGY - 6.31%
Electronic Data Systems
Corporation,
6.85%, 10/15/2004 450,000 471,550
First Data Corporation,
6.375%,
12/15/2007 400,000 458,801
Motorola, Inc.,
6.75%, 2/1/2006 1,100,000 1,204,500
Oracle Corporation,
6.91%, 2/15/2007 675,000 771,031
Texas Instruments, Inc.,
7.00%,
8/15/2004 1,000,000 1,058,205
-----------
3,964,087
-----------
TELECOMMUNICATIONS - 3.62%
ALLTEL Corporation,
6.75%,
9/15/2005 1,000,000 1,105,611
Verizon New York, Inc. -
Series A,
6.875%,
4/1/2012 1,000,000 1,170,000
-----------
2,275,611
-----------
TOTAL CORPORATE BONDS
(cost $41,299,411) 43,827,676
-----------
- ----------------------------------------
FIRST MORTGAGE BONDS - 1.84%
- ----------------------------------------
UTILITIES - 1.84%
Interstate Power Company,
Callable 9/15/2003,
8.625%, 9/15/2021 40,000 42,479
PP&L Resources, Inc.,
6.55%, 3/1/2006 1,000,000 1,110,533
-----------
TOTAL FIRST MORTGAGE BONDS
(cost $1,014,757) 1,153,012
-----------
- ----------------------------------------
U.S. GOVERNMENT &
AGENCY ISSUES - 20.91%
- ----------------------------------------
Fannie Mae:
3.00%, 8/7/2006 750,000 751,361
4.375%,
10/15/2006 1,000,000 1,078,304
3.34%, 2/6/2007 1,000,000 1,011,122
4.25%,
7/15/2007 1,000,000 1,077,090
2.50%,
11/26/2007 1,000,000 1,004,459
6.00%, 5/15/2011 500,000 585,488
5.375%,
11/15/2011 1,000,000 1,126,652
- ----------------------------------------
U.S. GOVERNMENT &
AGENCY ISSUES
(CONTINUED) PRINCIPAL VALUE
- ----------------------------------------
Freddie Mac,
5.125%,
10/15/2008 $1,000,000 $1,118,610
U.S. Treasury Notes:
7.25%,
8/15/2004 1,000,000 1,069,258
7.50%,
2/15/2005 1,000,000 1,101,563
6.50%,
5/15/2005 1,000,000 1,097,032
4.625%,
5/15/2006 1,000,000 1,084,336
4.00%,
11/15/2012 1,000,000 1,040,899
-----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(cost $12,637,141) 13,146,174
-----------
- ----------------------------------------
SHORT-TERM INVESTMENTS - 6.64%
- ----------------------------------------
CORPORATE BONDS - 3.23%
Associates Corporation of
North America,
5.50%,
2/15/2004 1,000,000 1,027,293
HCA Inc.,
8.125%,
8/4/2003 1,000,000 1,004,699
-----------
TOTAL CORPORATE BONDS
(cost $2,029,871) 2,031,992
-----------
- ----------------------------------------
SHARES
- ----------------------------------------
MONEY MARKET FUNDS - 2.61%
Federated Cash Trust
Series II -
Treasury Cash
Series II 821,798 821,798
SEI Daily Income Trust
Government Fund -
Class B 821,799 821,799
-----------
TOTAL MONEY MARKET FUNDS
(cost $1,643,597) 1,643,597
-----------
- ----------------------------------------
PRINCIPAL
- ----------------------------------------
U.S. GOVERNMENT & AGENCY
ISSUES - 0.80%
U.S. Treasury Bill,
1.18%, 7/3/03 $500,000 499,969
-----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(cost $499,969) 499,969
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,173,437) 4,175,558
-----------
TOTAL INVESTMENTS - 99.11%
(cost $59,124,746) 62,302,420
-----------
Other Assets, less
Liabilities - 0.89% $ 561,700
-----------
Total Net Assets - 100.00% $62,864,120
===========
(1) - Foreign security.
See notes to the financial statements.
15
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2003 (UNAUDITED)
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------
ASSETS:
Investments, at value*.... $225,181,287 $29,649,116 $8,890,127 $62,302,420 $29,645,060**
Dividends and interest
receivable.............. 53,095 22,753 45,306 929,078 --
Receivable for
investments sold ....... 3,665,259 -- -- 1,052,033 --
Receivable from Adviser... -- -- 1,095 -- --
Receivable for fund
shares sold .............. 161,175 49,900 -- 199,975 519,236
Other assets.............. 49,627 23,281 5,323 13,240 19,595
------------ ----------- ---------- ----------- -----------
Total assets............ 229,110,443 29,745,050 8,941,851 64,496,746 30,183,891
------------ ----------- ---------- ----------- -----------
LIABILITIES:
Payable for fund shares
redeemed ............... -- -- 167 50,159 --
Payable for investments
purchased .............. 1,924,808 -- 252,072 1,501,115 --
Payable for investment
advisory fees .......... 404,932 23,417 -- 54,200 20,166
Distribution expense
payable ................ 132 -- -- -- --
Accrued expenses and
other liabilities ...... 86,628 24,013 11,666 27,152 18,983
------------ ----------- ---------- ----------- -----------
Total liabilities....... 2,416,500 47,430 263,905 1,632,626 39,149
------------ ----------- ---------- ----------- -----------
NET ASSETS................ $226,693,943 $29,697,620 $8,677,946 $62,864,120 $30,144,742
============ =========== ========== =========== ===========
NET ASSETS CONSIST OF:
Paid in capital........... $169,121,416 $28,512,600 $9,132,136 $60,264,238 $71,912,048
Undistributed net
investment income ...... -- 140,397 1,466 26,898 444,987
Accumulated net realized
gain (loss) on
securities and foreign
currency transactions... 1,160,082 (730,707) (395,498) (604,690) (43,930,941)
Net unrealized appreciation
(depreciation) on:
Investments............. 56,412,445 1,775,330 (60,158) 3,177,674 1,877,612
Other assets and
liabilities denominated
in foreign currency .. -- -- -- -- (158,964)
------------ ----------- ---------- ----------- -----------
NET ASSETS................ $226,693,943 $29,697,620 $8,677,946 $62,864,120 $30,144,742
============ =========== ========== =========== ===========
INSTITUTIONAL CLASS***
Net assets................ 225,824,343 29,697,620 8,677,946 62,864,120 30,144,742
Shares of beneficial
interest outstanding
(unlimited shares
of no par value
authorized) ............ 13,417,706 2,744,689 836,858 5,895,211 4,219,153
Net asset value per share
(offering and redemption
price).................. $ 16.83 $ 10.82 $ 10.37 $ 10.66 $ 7.14
============ =========== ========== =========== ===========
ADVISER CLASS
Net assets................ 869,600
Shares of beneficial
interest outstanding
(unlimited shares of
no par value
authorized) ........... 51,673
Net asset value per
share (offering and
redemption price)...... $ 16.83
============
* Cost of Investments..... $168,768,842 $27,873,786 $8,950,285 $59,124,746
============ =========== ========== ===========
** Investments in the Master Portfolio.
***Currently, only the Small Cap Equity and Equity Funds offer a second class.
See notes to the financial statements.
16
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends*................ $ 434,040 $ 181,223 $ 47,633 $ -- $ 523,159
Interest.................. 69,293 11,058 57,078 1,412,004 3,932
Expenses allocated from
Master Portfolio........ -- -- -- -- (153,513)
----------- ---------- -------- ---------- -----------
Total income............ 503,333 192,281 104,711 1,412,004 373,578
----------- ---------- -------- ---------- -----------
EXPENSES:
Investment advisory fees.. 769,053 92,744 24,743 146,014 72,828
Distribution expense -
Adviser Class .......... 132 -- -- -- --
Administrative fees....... 73,940 16,133 9,955 19,872 20,913
Accounting and transfer agent
fees and expenses....... 46,831 23,764 17,394 30,301 18,972
Professional fees......... 43,433 5,410 1,458 12,332 9,548
Custody fees and expenses. 12,353 2,110 2,062 3,227 --
Federal and state
registration ........... 19,663 6,040 3,200 7,866 9,333
Reports to shareholders... 10,381 1,228 312 2,525 2,065
Trustees' fees............ 8,005 905 221 1,799 2,034
Other..................... 4,167 512 136 893 1,386
----------- ---------- -------- ---------- -----------
Total expenses.......... 987,958 148,846 59,481 224,829 137,079
Less, expense waiver
and/or
reimbursement......... -- (42,853) (29,028) (35,011) (116,081)
----------- ---------- -------- ---------- -----------
Net expenses............ 987,958 105,993 30,453 189,818 20,998
----------- ---------- -------- ---------- -----------
NET INVESTMENT INCOME
(LOSS) ................. (484,625) 86,288 74,258 1,222,186 352,580
----------- ---------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments............. 4,534,272 4,130 (82,458) (59,062) (2,071,527)**
Foreign currency
transactions ......... -- -- -- -- 267,444**
----------- ---------- -------- ---------- -----------
4,534,272 4,130 (82,458) (59,062) (1,804,083)
----------- ---------- -------- ---------- -----------
Net change in unrealized
appreciation/
depreciation on:
Investments............. 17,248,619 2,184,403 519,381 450,227 4,708,944**
Foreign currency
transactions ......... -- -- -- -- (64,228)**
----------- ---------- -------- ---------- -----------
17,248,619 2,184,403 519,381 450,227 4,644,716
----------- ---------- -------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS..... 21,782,891 2,188,533 436,923 391,165 2,840,633
----------- ---------- -------- ---------- -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS ............. $21,298,266 $2,274,821 $511,181 $1,613,351 $ 3,193,213
=========== ========== ======== ========== ===========
* Net of Foreign
Taxes Withheld ......... $ -- $ 406 $ 485 $ -- $ 78,563
=========== ========== ======== ========== ===========
** Allocated from the Master Portfolio
See notes to the financial statements.
17
STATEMENTS OF CHANGES IN NET ASSETS
LKCM
SMALL CAP EQUITY FUND LKCM EQUITY FUND
Six Months Six Months
Ended Year Ended Year
June 30, Ended June 30, Ended
2003 December 31, 2003 December 31,
(Unaudited) 2002 (Unaudited) 2002
------------ ------------ ----------- -----------
OPERATIONS:
Net investment income (loss)......... $ (484,625) $ (407,202) $ 86,288 $ 140,264
Net realized gain (loss) on
investments ....................... 4,534,272 (3,043,395) 4,130 (653,825)
Net change in unrealized
appreciation/depreciation
on investments..................... 17,248,619 (23,836,344) 2,184,403 (3,684,486)
------------ ------------ ----------- -----------
Net increase (decrease) in net
assets resulting from
operations..................... 21,298,266 (27,286,941) 2,274,821 (4,198,047)
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................ -- (67,958) -- (142,138)
Net realized gain on investments..... -- (93,234) -- --
------------ ------------ ----------- -----------
Total dividends and distributions.... -- (161,192) -- (142,138)
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS FROM FROM FUND SHARE
TRANSACTIONS (NOTE C) ............. (1,489,957) 13,763,763 2,750,945 2,190,437
------------ ------------ ----------- -----------
Total increase (decrease)
in net assets.................. 19,808,309 (13,684,370) 5,025,766 (2,149,748)
NET ASSETS:
Beginning of period.................. 206,885,634 220,570,004 24,671,854 26,821,602
------------ ------------ ----------- -----------
End of period *...................... $226,693,943 $206,885,634 $29,697,620 $24,671,854
============ ============ =========== ===========
* Including undistributed net
investment income of: ............. $ -- $ -- $ 140,397 $ 54,109
============ ============ =========== ===========
See notes to the financial statements.
18
STATEMENTS OF CHANGES IN NET ASSETS
LKCM LKCM
BALANCED FUND FIXED INCOME FUND
Six Months Six Months
Ended Year Ended Year
June 30, Ended June 30, Ended
2003 December 31, 2003 December 31,
(Unaudited) 2002 (Unaudited) 2002
------------ ------------ ----------- -----------
OPERATIONS:
Net investment income................ $ 74,258 $ 155,715 $ 1,222,186 $ 2,472,886
Net realized loss on investments..... (82,458) (313,787) (59,062) (429,327)
Net change in unrealized
appreciation/depreciation
on investments..................... 519,381 (754,716) 450,227 1,050,064
------------ ------------ ----------- -----------
Net increase (decrease) in net
assets resulting from
operations..................... 511,181 (912,788) 1,613,351 3,093,623
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................ (91,420) (146,346) (1,345,127) (2,423,086)
Net realized gain on investments..... -- (3,713) -- --
------------ ------------ ----------- -----------
Total dividends and
distributions.................. (91,420) (150,059) (1,345,127) (2,423,086)
------------ ------------ ----------- -----------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (NOTE C).... 960,593 985,687 6,031,302 10,447,856
------------ ------------ ----------- -----------
Total increase (decrease) in
net assets ........................ 1,380,354 (77,160) 6,299,526 11,118,393
NET ASSETS:
Beginning of period.................. 7,297,592 7,374,752 56,564,594 45,446,201
------------ ------------ ----------- -----------
End of period *...................... $8,677,946 $7,297,592 $62,864,120 $56,564,594
============ ============ =========== ===========
* Including undistributed net
investment income of: ............. $ 1,466 $ 18,629 $ 26,898 $ 149,839
============ ============ =========== ===========
See notes to the financial statements.
19
STATEMENTS OF CHANGES IN NET ASSETS
LKCM
INTERNATIONAL FUND
Six Months
Ended Year
June 30, Ended
2003 December 31,
(Unaudited) 2002
----------- -----------
OPERATIONS:
Net investment income........................................ $ 352,580 $ 688,860
Net realized loss on investments, futures contracts and
foreign currency transactions ............................. (1,804,083) (8,890,738)
Net change in unrealized appreciation/depreciation........... 4,644,716 (3,932,743)
----------- -----------
Net increase (decrease) in net assets resulting
from operations ....................................... 3,193,213 (12,134,621)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income........................................ -- (1,123,215)
Net realized gain on investments............................. -- --
----------- -----------
Total dividends and distributions........................ -- (1,123,215)
----------- -----------
----------- -----------
NET DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS
(NOTE C) .................................................. (4,590,114) (25,568,683)
----------- -----------
Total decrease in net assets................................. (1,396,901) (38,826,519)
NET ASSETS:
Beginning of period.......................................... 31,541,643 70,368,162
----------- -----------
End of period *.............................................. $30,144,742 $31,541,643
=========== ===========
* Including undistributed net investment income of: ......... $ 444,987 $ 92,408
=========== ===========
See notes to the financial statements.
20
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM SMALL CAP EQUITY FUND
Adviser Institutional
Class* Class*
June 5, 2003 Six Months Year Year Year Year Year
through Ended Ended Ended Ended Ended Ended
June 30, 2003 June 30, 2003 December 31, December 31, December 31, December 31, December 31,
(Unaudited) (Unaudited) 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE--
BEGINNING OF PERIOD ...... $ 16.85 $ 15.24 $ 17.29 $ 17.00 $ 18.08 $ 15.72 $ 16.89
-------- -------- -------- -------- -------- -------- --------
Net investment income
(loss) ................... (0.01)(1) (0.04)(1) (0.03)(1) 0.08 0.05 0.03 0.05
Net realized and unrealized
gain (loss)
on investments............ (0.01) 1.63 (2.01) 1.20 2.02 2.61 (1.10)
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations ........... (0.02) 1.59 (2.04) 1.28 2.07 2.64 (1.05)
-------- -------- -------- -------- -------- -------- --------
Dividends from net
investment income ........ -- -- (0.00)(2) (0.07) (0.05) (0.03) (0.07)
Distributions from net
realized gains ........... -- -- (0.01) (0.92) (3.10) (0.25) (0.05)
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions. ....... -- -- (0.01) (0.99) (3.15) (0.28) (0.12)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE--
END OF PERIOD ............ $ 16.83 $ 16.83 $ 15.24 $ 17.29 $ 17.00 $ 18.08 $ 15.72
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN ............... (0.12)%(3) 10.43%(3) (11.79)% 7.50% 11.37% 16.83% (6.26)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(thousands) .............. $ 870 $225,824 $206,886 $220,570 $211,001 $230,164 $284,018
Ratio of expenses to
average net assets ....... 1.18%(4) 0.96%(4) 0.94% 0.92% 0.93% 0.90% 0.91%
Ratio of net investment
income (loss) average
net assets................ (0.73)%(4) (0.47)%(4) (0.19)% 0.46% 0.32% 0.16% 0.35%
Portfolio turnover rate(5).. 20% 20% 52% 62% 79% 48% 35%
* On May 1, 2003 the Adviser Class Shares were effective and the initial class
of shares were named Institutional Shares. Commencement of sales of the
Adviser Class occurred on June 5, 2003.
(1) Net investment loss per share is calculated using the ending balance of
undistributed net investment loss prior to considerations of adjustments for
permanent book and tax differences.
(2) Less than $(0.005).
(3) Not Annualized.
(4) Annualized.
(5) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
See notes to the financial statements.
21
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM EQUITY FUND
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, 2003 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- BEGINNING
OF PERIOD ........................ $ 9.98 $ 11.76 $ 13.25 $ 14.91 $ 14.39 $ 13.18
-------- -------- -------- -------- -------- --------
Net investment income............... 0.03 0.06 0.08 0.40 0.10(1) 0.10
Net realized and unrealized
gain (loss) on investments........ 0.81 (1.78) (1.49) 0.24 2.97 1.63
-------- -------- -------- -------- -------- --------
Total from investment
operations.................... 0.84 (1.72) (1.41) 0.64 3.07 1.73
-------- -------- -------- -------- -------- --------
Dividends from net investment
income ........................... -- (0.06) (0.06) (0.40) (0.15) (0.10)
Distributions from net
realized gains ................... -- -- (0.02) (1.90) (2.40) (0.42)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions................. -- (0.06) (0.08) (2.30) (2.55) (0.52)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- END OF PERIOD..... $ 10.82 $ 9.98 $ 11.76 $ 13.25 $ 14.91 $ 14.39
======== ======== ======== ======== ======== ========
TOTAL RETURN........................ 8.42%(2) (14.64)% (10.61)% 4.14% 23.07% 13.11%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(thousands) ...................... $ 29,698 $ 24,672 $ 26,822 $ 24,800 $ 27,492 $41,069
Ratio of expenses to average net assets:
Before expense waiver and/or
reimbursement .................. 1.12%(3) 1.05% 1.05% 1.06% 0.93% 1.02%
After expense waiver and/or
reimbursement .................. 0.80%(3) 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to
average net assets:
Before expense waiver and/or
reimbursement .................. 0.33%(3) 0.29% 0.53% 2.33% 0.56% 0.49%
After expense waiver and/or
reimbursement .................. 0.65%(3) 0.54% 0.78% 2.59% 0.69% 0.71%
Portfolio turnover rate............. 4% 44% 35% 57% 59% 45%
(1) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(2) Not annualized.
(3) Annualized.
See notes to the financial statements.
22
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM BALANCED FUND
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, 2003 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- BEGINNING
OF PERIOD ........................ $ 9.86 $ 11.44 $ 11.77 $ 12.30 $ 11.05 $ 10.00
-------- -------- -------- -------- -------- --------
Net investment income............... 0.10 0.23 0.30 0.26 0.22 0.22
Net realized and unrealized gain (loss)
on investments................... 0.53 (1.59) (0.26) (0.55) 1.26 1.05
-------- -------- -------- -------- -------- --------
Total from investment
operations ................... 0.63 (1.36) 0.04 (0.29) 1.48 1.27
-------- -------- -------- -------- -------- --------
Dividends from net investment
income ........................... (0.12) (0.21) (0.32) (0.22) (0.22) (0.22)
Distributions from net realized
gains ............................ -- (0.01) (0.05) (0.02) (0.01) --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions ................ (0.12) (0.22) (0.37) (0.24) (0.23) (0.22)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- END OF PERIOD..... $ 10.37 $ 9.86 $ 11.44 $ 11.77 $ 12.30 $ 11.05
======== ======== ======== ======== ======== ========
TOTAL RETURN........................ 6.44%(1) (11.97)% 0.47% (2.34)% 13.53% 12.84%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(thousands) ...................... $ 8,678 $ 7,298 $ 7,375 $ 7,767 $ 6,851 $ 3,639
Ratio of expenses to average net assets:
Before expense reimbursement...... 1.56%(2) 1.66% 1.58% 1.72% 1.95% 4.59%
After expense reimbursement....... 0.80%(2) 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income
(loss) to average net assets:
Before expense waiver and/or
reimbursement .................. 1.19%(2) 1.31% 1.83% 1.24% 0.81% (1.38)%
After expense waiver and/or
reimbursement .................. 1.95%(2) 2.17% 2.61% 2.16% 1.96% 2.41%
Portfolio turnover rate............. 12% 17% 37% 48% 47% 39%
(1) Not annualized.
(2) Annualized.
See notes to the financial statements.
23
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM FIXED INCOME FUND
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, 2003 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- BEGINNING OF PERIOD $ 10.61 $ 10.48 $ 10.01 $ 9.69 $ 10.25 $ 10.00
-------- -------- -------- -------- -------- --------
Net investment income............... 0.22 0.51 0.60 0.56 0.52 0.54(1)
Net realized and unrealized gain (loss)
on investments................... 0.07 0.13 0.45 0.31 (0.55) 0.17
-------- -------- -------- -------- -------- --------
Net from investment
operations ................... 0.29 0.64 1.05 0.87 (0.03) 0.71
-------- -------- -------- -------- -------- --------
Dividends from net investment
income ........................... (0.24) (0.51) (0.58) (0.55) (0.52) (0.46)
Distributions from net realized
gains ............................ -- -- -- -- (0.01) --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions ................ (0.24) (0.51) (0.58) (0.55) (0.53) (0.46)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- END OF PERIOD..... $ 10.66 $ 10.61 $ 10.48 $ 10.01 $ 9.69 $ 10.25
======== ======== ======== ======== ======== ========
TOTAL RETURN........................ 2.87%(2) 6.32% 10.76% 9.26% (0.34)% 7.27%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(thousands) ...................... $ 62,864 $ 56,565 $ 45,446 $ 33,560 $ 26,016 $ 14,557
Ratio of expenses to average net assets:
Before expense reimbursement...... 0.77%(3) 0.75% 0.77% 0.84% 0.89% 1.28%
After expense reimbursement....... 0.65%(3) 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income to
average net assets:
Before expense waiver and/or
reimbursement ................... 4.07%(3) 4.96% 5.81% 5.63% 5.34% 4.66%
After expense waiver and/or
reimbursement ................... 4.19%(3) 5.06% 5.93% 5.82% 5.58% 5.29%
Portfolio turnover rate............. 29% 40% 36% 28% 68% 82%
(1) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(2) Not annualized.
(3) Annualized.
See notes to the financial statements.
24
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM INTERNATIONAL FUND
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, 2003 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- BEGINNING OF
PERIOD ........................... $ 6.41 $ 8.07 $ 11.44 $ 15.44 $ 11.01 $ 10.00
-------- -------- -------- -------- -------- --------
Net investment income............... 0.09 0.08(1) 0.01(1) 0.06(1) 0.00 0.04(2)
Net realized and unrealized gain (loss)
on investments.................... 0.64 (1.60) (3.35) (1.74) 4.70 0.97
-------- -------- -------- -------- -------- --------
Total from investment
perations .................... 0.73 (1.52) (3.34) (1.68) 4.70 1.01
-------- -------- -------- -------- -------- --------
Dividends from net investment
income ........................... -- (0.14) -- (0.01) -- --
Distributions from net realized
gains ............................ -- -- (0.03) (2.31) (0.27) --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions ................ -- (0.14) (0.03) (2.32) (0.27) --
-------- -------- -------- -------- -------- --------
NET ASSET VALUE-- END OF PERIOD..... $ 7.14 $ 6.41 $ 8.07 $ 11.44 $ 15.44 $ 11.01
======== ======== ========= ======== ======== ========
TOTAL RETURN........................ 11.39%(3) (18.86)% (29.16)% (10.68)% 42.71% 10.10%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(thousands) ...................... $ 30,145 $ 31,542 $ 70,368 $ 99,526 $ 83,892 $ 56,985
Ratio of expenses to average net assets:
Before expense reimbursement...... 2.00%(4) 1.55% 1.56% 1.51% 1.52% 1.40%
After expense reimbursement....... 1.20%(4) 1.20% 1.20% 1.20% 1.20% 1.20%
Ratio of net investment income (loss)
to average net assets:
Before expense waiver and/or
reimbursement ................... 1.63%(4) 0.68% (0.21)% 0.08% (0.28)% 0.34%
After expense waiver and/ or
reimbursement ................... 2.43%(4) 1.03% 0.15% 0.39% 0.04% 0.54%
Portfolio turnover rate............. N/A N/A N/A 186%(5) 205% 196%
(1) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(2) Net investment income per share is calculated using the ending balance of
undistributed net investment income prior to considerations of adjustments
for permanent book and tax differences.
(3) Not annualized.
(4) Annualized.
(5) On October 2, 2000, the Fund invested all of its investable assets into the
TT EAFE Portfolio, which has an identical investment objective as the Fund.
Portfolio turnover rate is provided for the period January 1, 2000 through
September 30, 2000.
See notes to the financial statements.
25
LKCM FUNDS
NOTES TO THE FINANCIAL STATEMENTS
A. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: LKCM Funds (the "Trust") is
registered under the Investment Company Act of 1940 ("1940 Act") as an open-end,
management investment company. The Trust was organized as a Delaware business
trust on February 10, 1994 and consists of five diversified series of shares
comprising the LKCM Small Cap Equity Fund, LKCM Equity Fund, LKCM Balanced Fund,
LKCM Fixed Income Fund and LKCM International Fund (collectively, the "Funds"),
the assets of which are invested in separate, independently managed portfolios.
Investment operations of the Funds began on July 14, 1994 (LKCM Small Cap Equity
Fund), January 3, 1996 (LKCM Equity Fund), and December 30, 1997 (LKCM Balanced
Fund, LKCM Fixed Income Fund and LKCM International Fund). The Small Cap Equity
Fund and the Equity Fund issued a second class of shares, Adviser Class Shares,
and renamed the initial class as Institutional Class Shares on May 1, 2003. The
Small Cap Equity Adviser Class Shares were initially sold on June 5, 2003 and
are subject to expenses pursuant to the Rule 12b-1 plan described in Note C. The
LKCM Small Cap Equity Fund seeks to maximize capital appreciation by investing
primarily in equity securities of small companies (those with market values less
than $2.0 billion) which the Adviser believes are likely to have above-average
growth in revenue and/or earnings and potential for above-average capital
appreciation. The LKCM Equity Fund seeks to maximize long-term capital
appreciation 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 the shareholders' equity and
under-leveraged balance sheets, and potential for above-average capital
appreciation. The LKCM Balanced Fund seeks to provide investors with current
income and capital appreciation by investing primarily in a diversified
portfolio of equity and debt securities of companies with established operating
histories and strong fundamental characteristics. The LKCM Fixed Income Fund
seeks to provide investors with current income 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. The LKCM International Fund
seeks to provide investors with a total return in excess of the Morgan Stanley
Capital International EAFE Index.
The LKCM International Fund currently intends to attempt to achieve its goal by
operating under a master-feeder structure. This means that the LKCM
International Fund currently intends to seek its investment objective by
investing all of its investable assets in the TT EAFE Portfolio ("Portfolio" or
"Master Portfolio"), a series of the TT International U.S.A. Master Trust, which
has an identical investment objective as the LKCM International Fund and is
managed by TT International Investment Management ("TT International"). On
October 2, 2000, the International Fund invested all of its investable assets
into the Portfolio. At June 30, 2003, the LKCM International Fund has a 38.1%
ownership interest in the Portfolio, which is recorded at value. The Portfolio's
financial statements are included within this annual report and should be read
in conjunction with the financial statements of the LKCM International Fund. The
LKCM International Fund records its daily pro-rata share of the Portfolio's
income, expenses, and realized and unrealized gains and losses. In addition, the
LKCM International Fund accrues its own expenses daily as incurred. Accounting
policies of the Portfolio, including valuation of investments, are more fully
described in the Portfolio's financial statements.
26
The following is a summary of significant accounting policies followed by the
Funds in preparation of the financial statements.
1. SECURITY VALUATION: Securities listed on a U.S. securities exchange for
which market quotations are readily available are valued at the last quoted
sale price on the day the valuation is made. Nasdaq National Market
securities are valued at the Nasdaq Official Closing Price ("NOCP"). Price
information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted U.S. securities and listed U.S.
securities not traded on the valuation date for which market quotations are
readily available are valued at the mean of the most recent quoted bid and
asked price. Securities listed on a foreign exchange for which market
quotations are readily available are valued at the last quoted sales price
available before the time when assets are valued. Debt securities (other
than obligations having a maturity of 60 days or less) are normally valued
on the basis of quotes obtained from pricing services. Debt securities
purchased with remaining maturities of 60 days or less are valued at
amortized cost which reflects fair value. Other assets and securities for
which no quotations are readily available (including restricted securities)
are valued in good faith at fair value using methods determined by the Board
of Trustees.
2. FEDERAL INCOME TAXES: It is each Fund's policy to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies
and each Fund intends to distribute substantially all of its investment
company net taxable income and net capital gains to shareholders. Therefore,
no federal income tax provision is recorded.
3. DISTRIBUTIONS TO SHAREHOLDERS: The LKCM Small Cap Equity, LKCM Equity and
LKCM International Funds generally intend to pay dividends and net capital
gain distributions, if any, at least on an annual basis. The LKCM Balanced
and LKCM Fixed Income Funds generally intend to pay dividends on a quarterly
basis and net capital gain distributions, if any, at least on an annual
basis.
4. FOREIGN SECURITIES: Investing in securities of foreign companies and
foreign governments involves special risks and considerations not typically
associated with investing in U.S. companies and securities of the U.S.
government. These risks include revaluation of currencies and future adverse
political and economic developments. Moreover, securities of many foreign
companies and foreign governments and their markets may be less liquid and
their prices more volatile than those of securities of comparable U.S.
companies and securities of the U.S. government.
5. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency transactions are translated
into U.S. dollars on the following basis: (i) market value of investment
securities, assets and liabilities at the daily rates of exchange, and (ii)
purchases and sales of investment securities, dividend and interest income
and certain expenses at the rates of exchange prevailing on the respective
dates of such transactions. For financial reporting purposes, the Funds do
not isolate changes in the exchange rate of investment securities from the
fluctuations arising from changes in the market prices of securities.
However, for federal income tax purposes the Funds do isolate and treat as
ordinary income the effect of changes in foreign exchange rates on currency,
currency contracts and payables and receivables arising from trade date and
settlement date differences.
27
6. EXPENSE ALLOCATION: Expenses incurred by the Funds are allocated among
the Funds based upon (i) relative average net assets, (ii) a specific
identification basis as incurred, or (iii) evenly among the Funds, depending
on the nature of the expense.
7. USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
8. OTHER: Security and shareholder transactions are recorded on the trade
date. Realized gains and losses on sales of investments are calculated on
the identified cost basis. Dividend income and dividends and distributions
to shareholders are recorded on the ex-dividend date. Interest income is
recognized on the accrual basis. All discounts and premiums are amortized on
the effective interest method for tax and financial reporting purposes.
Generally accepted accounting principles require that certain components of
net assets be adjusted to reflect permanent differences between financial
and tax reporting. These reclassifications have no effect on net assets or
net asset values per share.
B. INVESTMENT ADVISORY AND OTHER AGREEMENTS: Luther King Capital Management
Corporation (the "Adviser"), serves as the investment adviser to the Funds under
an Investment Advisory Agreement (the "Agreement"). The Adviser receives a fee,
computed daily and payable quarterly, at the annual rates presented below as
applied to each Fund's daily net assets. The Adviser has voluntarily agreed to
pay operating expenses in excess of the annual rates presented below as applied
to each Fund's daily net assets. For the six months ended June 30, 2003, the
Adviser waived and/or reimbursed the following expenses:
LKCM LKCM LKCM LKCM LKCM
SMALL CAP EQUITY BALANCED FIXED INTERNATIONAL
EQUITY FUND FUND FUND INCOME FUND FUND
Annual Advisory Rate 0.75% 0.70% 0.65% 0.50% (1)(2)
Annual Cap on Expenses 1.00% 0.80% 0.80% 0.65% 1.20%
Expenses Waived and/or
Reimbursed -- $42,853 $29,028 $35,011 $116,081
(1) To the extent that the 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.
(2) TT International is entitled to receive a fee from the Portfolio, calculated
daily and payable monthly, at the annual rate of 0.50%.
U.S. Bancorp Fund Services, LLC serves as transfer agent and administrator for
the Trust and serves as accounting services agent for all LKCM Funds except LKCM
International Fund. U.S. Bank, N.A. serves as custodian for all LKCM Funds
except LKCM International Fund. Investors Bank & Trust Company serves as
custodian, accounting services agent and sub-administrator of the LKCM
International Fund.
Distribution services are performed pursuant to a distribution contract with
Quasar Distributors, LLC, the Trust's principal underwriter.
28
The Small Cap Equity Fund and the Equity Fund have adopted a Rule 12b-1 plan
under which the Adviser Class of each Fund may pay up to 1.00% of its average
daily net assets for distribution and other services. However, the Board of
Trustees has currently only authorized a fee of 0.25% of the Fund's average
daily net assets. For the period June 5, 2003 through June 30, 2003, fees
accrued by the Small Cap Equity Fund pursuant to the 12b-1 Plan were $132.
C. FUND SHARES: At June 30, 2003, there was an unlimited number of shares of
beneficial interest, no par value, authorized. The following table summarizes
the activity in shares of each Fund:
SMALL CAP EQUITY FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
----------------------- -----------------------
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 400,883 $ 6,322,067 4,240,612 $ 69,712,550
Shares issued to shareholders
in reinvestment
of distributions -- -- 9,705 147,221
Shares redeemed (556,566) (8,680,324) (3,437,426) (56,096,008)
---------- ---------- ---------- ------------
Net increase (decrease) (155,683) $(2,358,257) 812,891 $ 13,763,763
========== ============
SHARES OUTSTANDING:
Beginning of period 13,573,389 12,760,498
---------- ----------
End of period 13,417,706 13,573,389
========== ==========
SIX MONTHS ENDED
JUNE 30, 2003
-----------------------
ADVISER CLASS
SHARES AMOUNT
---------- -----------
Shares sold 51,673 $ 868,300
Shares issued to shareholders
in reinvestment
of distributions -- --
Shares redeemed -- --
---------- ----------
Net increase 51,673 $ 868,300
==========
SHARES OUTSTANDING:
Beginning of period --
----------
End of period 51,673
==========
Total Net Decrease $(1,489,957)
==========
29
EQUITY FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 444,826 $ 4,544,120 553,758 $ 5,985,628
Shares issued to shareholders
in reinvestment
of distributions -- -- 13,437 133,296
Shares redeemed (173,381) (1,793,175) (374,987) (3,928,487)
---------- ---------- ---------- -----------
Net increase 271,445 $ 2,750,945 192,208 $ 2,190,437
========== ===========
SHARES OUTSTANDING:
Beginning of period 2,473,244 2,281,036
---------- ----------
End of period 2,744,689 2,473,244
========== ==========
BALANCED FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 120,942 $1,197,552 137,766 $1,432,240
Shares issued to shareholders
in reinvestment
of distributions 9,117 90,224 14,196 146,929
Shares redeemed (33,064) (327,183) (56,684) (593,482)
---------- ---------- ---------- ----------
Net increase 96,995 $ 960,593 95,278 $ 985,687
========== ==========
SHARES OUTSTANDING:
Beginning of period 739,863 644,585
---------- ----------
End of period 836,858 739,863
========== ==========
FIXED INCOME FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 698,098 $ 7,452,831 1,996,263 $ 20,963,357
Shares issued to shareholders
in reinvestment
of distributions 105,255 1,115,130 185,727 1,934,879
Shares redeemed (238,230) (2,536,659) (1,186,475) (12,450,380)
---------- ---------- ---------- ------------
Net increase 565,123 $ 6,031,302 995,515 $ 10,447,856
========== ============
SHARES OUTSTANDING:
Beginning of period 5,330,088 4,334,573
---------- ----------
End of period 5,895,211 5,330,088
========== ==========
30
INTERNATIONAL FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 1,998,823 $ 12,854,136 23,090,610 $ 163,700,336
Shares issued to shareholders
in reinvestment
of distributions -- -- 173,345 1,092,076
Shares redeemed (2,698,633) (17,444,250) (27,065,717) (190,361,095)
---------- ----------- ----------- ------------
Net decrease (699,810) $ (4,590,114) (3,801,762)$ (25,568,683)
=========== ============
SHARES OUTSTANDING:
Beginning of period 4,918,963 8,720,725
---------- -----------
End of period 4,219,153 4,918,963
========== ===========
D. SECURITY TRANSACTIONS: Purchases and sales of investment securities, other
than short-term investments, for the six months ended June 30, 2003 were as
follows:
PURCHASES SALES
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ------- ---------- --------
LKCM Small Cap Equity Fund $ -- $45,243,559 $ -- $36,646,285
LKCM Equity Fund -- 4,664,028 -- 836,283
LKCM Balanced Fund -- 1,973,152 -- 851,002
LKCM Fixed Income Fund 10,577,105 11,877,343 6,640,568 9,461,891
At June 30, 2003, cost and unrealized appreciation (depreciation) of investments
for federal income tax purposes were:
NET
APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ ----------- -------------- -----------
LKCM Small Cap Equity Fund $168,768,842 $59,114,425 $(2,701,980) $56,412,445
LKCM Equity Fund 27,877,341 3,945,218 (2,173,443) 1,771,775
LKCM Balanced Fund 8,944,946 755,703 (810,522) (54,819)
LKCM Fixed Income Fund 59,041,947 3,300,754 (40,281) 3,260,473
At December 31, 2002, undistributed ordinary income and long-term capital gains
are as follows:
UNDISTRIBUTED
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
------------- -------------
LKCM Small Cap Equity Fund $ -- $ --
LKCM Equity Fund 54,109 --
LKCM Balanced Fund 6,922 --
LKCM Fixed Income Fund 56,349 --
LKCM International Fund 140,209 --
31
At December 31, 2002, the LKCM Small Cap Equity Fund, the LKCM Equity Fund, the
LKCM Balanced Fund, the LKCM Fixed Income Fund, and the LKCM International Fund
had accumulated capital loss carryforwards of $1,968,360 expiring in the year
2010; $553,830, of which $64,154 expires in 2009 and $489,676 expires in 2010;
$309,137 expiring in the year 2010; $534,938, of which $121,987 expires in 2008
and $412,951 expires in 2010 and $40,677,051, of which $28,956,907 expires in
2009 and $11,720,144 expires in 2010, respectively. To the extent the Funds
realize future net capital gains, those gains will be offset by any unused
capital loss carryforwards. At December 31, 2002, the LKCM Small Cap Equity
Fund, the LKCM Equity Fund, the LKCM Balanced Fund and the LKCM International
Fund had net realized capital losses from transactions between November 1, 2002
and December 31, 2002 of $520,774, $177,453, $3,904 and $852,877, respectively,
which are deferred for tax purposes and will be recognized in 2003.
The tax components of dividends paid during the year ended December 31, 2002 was
as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
----------- -------------
LKCM Small Cap Equity Fund $ 67,958 $93,234
LKCM Equity Fund 142,138 --
LKCM Balanced Fund 146,353 3,706
LKCM Fixed Income Fund 2,423,086 --
LKCM International Fund 1,123,215 --
The tax components of dividends paid during the year ended December 31, 2001 was
as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
----------- -------------
LKCM Small Cap Equity Fund $ 896,538 $11,057,650
LKCM Equity Fund 137,241 53,420
LKCM Balanced Fund 222,832 31,124
LKCM Fixed Income Fund 2,101,100 --
LKCM International Fund -- 284,831
32
TT EAFE PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
VALUE
COMMON STOCKS - (NOTE 1)
93.20% SHARES US$
- ----------------------------------------
FINLAND - 3.43%
- ----------------------------------------
COMMUNICATIONS EQUIPMENT - 3.43%
Nokia Oyj 162,354 $ 2,677,845
-----------
TOTAL FINLAND 2,677,845
-----------
- ----------------------------------------
FRANCE - 4.86%
- ----------------------------------------
AUTOMOBILES - 2.02%
PSA Peugeot
Citroen 32,439 1,578,270
-----------
BANKS - 2.50%
Credit Agricole
SA 102,568 1,952,465
-----------
TEXTILES & APPAREL - 0.34%
Christian Dior SA 6,665 266,933
-----------
TOTAL FRANCE 3,797,668
-----------
- ----------------------------------------
GERMANY - 10.38%
- ----------------------------------------
AIRLINES - 0.84%
Deutsche
Lufthansa AG 56,100 658,167
-----------
BANKING - 1.36%
Deutsche Bank AG 16,356 1,062,540
-----------
CHEMICALS - 2.04%
Bayer AG 68,451 1,588,819
-----------
DIVERSIFIED TELECOMMUNICATIONS - 2.55%
Deutsche Telekom AG -
Registered# 130,075 1,988,347
-----------
INDUSTRIAL CONGLOMERATES - 1.77%
Siemens AG 28,107 1,381,081
-----------
INSURANCE - 1.82%
Munich Reinsurance AG -
Registered 13,874 1,416,740
-----------
TOTAL GERMANY 8,095,694
-----------
- ----------------------------------------
HONG KONG - 1.02%
- ----------------------------------------
DIVERSIFIED TELECOMMUNICATIONS - 0.53%
China Telecom Corp
Ltd 1,784,000 409,505
-----------
REAL ESTATE - 0.49%
Cheung Kong Holdings
Ltd 63,000 378,900
-----------
TOTAL HONG KONG 788,405
-----------
VALUE
(NOTE 1)
COMMON STOCKS SHARES US$
- ----------------------------------------
ITALY - 2.57%
- ----------------------------------------
OIL & GAS - 2.57%
ENI Spa 132,504 $ 2,007,188
-----------
TOTAL ITALY 2,007,188
-----------
- ----------------------------------------
JAPAN - 14.17%
- ----------------------------------------
AUTOMOBILES - 0.86%
Honda Motor Co Ltd
17,700 671,825
-----------
COMMERCIAL SERVICES - 0.47%
Secom Co Ltd 12,500 367,049
-----------
DIVERSIFIED FINANCIALS - 1.42%
Daiwa Securities
Group Inc 75,000 431,700
Nomura Securities
Company Ltd 53,000 673,802
-----------
1,105,502
-----------
DIVERSIFIED TELECOMMUNICATIONS - 2.36%
Nippon Telegraph And Telephone
Corporation (NTT) 468 1,838,815
-----------
ELECTRONIC EQUIPMENT &
INSTRUMENTS - 0.99%
Hitachi Ltd 91,000 386,394
Kyocera Corporation 6,700 383,975
-----------
770,369
-----------
ELECTRONICS - 0.67%
Seiko Epson
Corporation # 17,600 524,146
-----------
FINANCIAL SERVICES - 0.55%
Nikko Cordial
Corporation 107,000 430,232
-----------
HEAVY MACHINERY - 0.47%
Mitsubishi Heavy
Industries Ltd 142,000 368,400
-----------
HOUSEHOLD PRODUCTS - 0.10%
Kao Corporation 4,000 74,578
-----------
OFFICE ELECTRONICS - 1.59%
Canon Inc 27,000 1,241,043
-----------
PHARMACEUTICALS - 1.92%
Takeda Chemical
Industries Ltd 40,400 1,492,989
-----------
See notes to the financial statements.
33
TT EAFE PORTFOLIO
SCHEDULE OF INVESTMENTS, CONTINUED
JUNE 30, 2003 (UNAUDITED)
VALUE
(NOTE 1)
COMMON STOCKS SHARES US$
- ----------------------------------------
PHOTO EQUIPMENT & SUPPLIES - 0.52%
Fuji Photo Film Co 14,000 $ 405,256
-----------
SEMICONDUCTOR EQUIPMENT &
PRODUCTS - 2.25%
Advantest Corp. 2,800 122,829
Murata Manufacturing
Company Ltd 16,300 641,802
Rohm Company Ltd 6,000 655,182
Tokyo Electron Ltd 7,000 332,263
-----------
1,752,076
-----------
TOTAL JAPAN 11,042,280
-----------
- ----------------------------------------
NETHERLANDS - 6.94%
- ----------------------------------------
DIVERSIFIED FINANCIALS - 1.03%
ING Groep NV 45,989 800,325
-----------
FOOD & DRUG RETAILING - 0.59%
Royal Ahold NV 55,031 457,635
-----------
HOUSEHOLD DURABLES - 2.91%
Royal Philips
Electronics NV 118,900 2,264,725
-----------
OIL & GAS - 2.41%
Royal Dutch Petroleum
Co 40,411 1,878,751
-----------
TOTAL NETHERLANDS 5,401,436
-----------
- ----------------------------------------
SINGAPORE - 0.31%
- ----------------------------------------
COMMERCIAL BANKS - 0.20%
DBS Group Holdings
Ltd 27,000 157,962
-----------
MEDIA - BROADCASTING &
PUBLISHING - 0.11%
Singapore Press
Holdings Ltd 8,000 83,156
-----------
TOTAL SINGAPORE 241,118
-----------
- ----------------------------------------
SOUTH KOREA - 2.10%
- ----------------------------------------
FINANCIAL SERVICES - 0.29%
Daishin Securities
Co Ltd 13,020 225,629
-----------
SEMICONDUCTOR EQUIPMENT &
PRODUCTS - 1.81%
Samsung Electronics 4,740 1,408,707
-----------
TOTAL SOUTH KOREA 1,634,336
-----------
VALUE
(NOTE 1)
COMMON STOCKS SHARES US$
- ----------------------------------------
SPAIN - 3.65%
- ----------------------------------------
COMMERCIAL BANKS - 2.53%
Banco Santander Central
Hispano SA 224,334 $ 1,968,761
-----------
MULTI-UTILITIES - 1.12%
Iberdrola SA 50,303 872,506
-----------
TOTAL SPAIN 2,841,267
-----------
- ----------------------------------------
SWITZERLAND - 12.73%
- ----------------------------------------
BANKS - 8.04%
Credit Suisse
Group 123,452 3,254,864
UBS AG -
Registered 54,135 3,016,731
-----------
6,271,595
-----------
FOOD PRODUCTS - 3.19%
Nestle SA -
Registered 12,044 2,489,589
-----------
INSURANCE - 1.50%
Zurich Financial
Services AG # 9,815 1,172,298
-----------
TOTAL SWITZERLAND 9,933,482
-----------
- ----------------------------------------
TAIWAN - 1.14%
- ----------------------------------------
CHEMICALS - 0.53%
Nan Ya Plastic
Corporation 379,000 411,241
-----------
ELECTRONICS - 0.53%
Compal Electronics
Inc 309,000 414,861
-----------
SEMICONDUCTOR EQUIPMENT &
PRODUCTS - 0.08%
Winbond Electronics
Corp # 127,000 62,839
-----------
TOTAL TAIWAN 888,941
-----------
- ----------------------------------------
UNITED KINGDOM - 29.90%
- ----------------------------------------
BANKS - 13.79%
Abbey National
PLC 131,447 1,022,342
HBOS PLC 265,965 3,449,081
HSBC Holdings PLC 253,598 3,001,545
Royal Bank Of Scotland
PLC 56,174 1,578,593
Standard Chartered
PLC 139,505 1,697,280
-----------
10,748,841
-----------
See notes to the financial statements.
34
TT EAFE PORTFOLIO
SCHEDULE OF INVESTMENTS, CONTINUED
JUNE 30, 2003 (UNAUDITED)
VALUE
(NOTE 1)
COMMON STOCKS SHARES US$
- ----------------------------------------
DIVERSIFIED TELECOMMUNICATIONS - 1.70%
mmO2 PLC # 1,416,166 $ 1,328,514
-----------
FOOD & DRUG RETAILING - 0.03%
Tesco PLC 7,310 26,494
-----------
INSURANCE - 0.96%
Royal & Sun Alliance Insurance
Group PLC 327,405 750,938
-----------
MEDIA - 1.86%
British Sky Broadcasting
Group PLC # 130,443 1,447,947
-----------
METALS & MINING - 2.20%
Anglo American
PLC 112,354 1,717,973
-----------
MULTILINE RETAIL - 1.06%
Kingfisher PLC 179,749 823,804
-----------
PHARMACEUTICALS - 4.01%
Astrazeneca PLC 77,896 3,129,013
-----------
TOBACCO - 0.59%
British American
Tobacco PLC 40,665 462,146
-----------
WIRELESS TELECOMMUNICATION
SERVICES - 3.70%
Vodafone Group
PLC 1,473,493 2,886,373
-----------
TOTAL UNITED KINGDOM 23,322,043
-----------
TOTAL COMMON STOCKS
(cost $65,744,153) 72,671,703
-----------
- ----------------------------------------
EQUITY PERFORMANCE VALUE
(NOTE 1)
LINKED NOTE - 3.40% SHARES US$
- ----------------------------------------
JAPAN - 3.40%
- ----------------------------------------
MULTI-SECTOR - 3.40%
UBS AG, London Branch
Midcap Index),
due 3/13/06
273,500,000 $ 2,648,387
-----------
TOTAL JAPAN 2,648,387
-----------
TOTAL EQUITY PERFORMANCE LINKED NOTE
(cost $2,337,074) 2,648,387
-----------
TOTAL INVESTMENTS - 96.60%
(Cost $68,081,227) 75,320,090
-----------
Other Assets in excess
of Liabilities 3.40% 2,649,793
-----------
Total Net Assets 100.00% $77,969,883
===========
# Non-income producing security.
See notes to the financial statements.
35
TT EAFE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
US$
-----------
ASSETS:
Investments, at value*...............................................$75,320,090
Foreign currency**................................................... 2,160,823
Receivable for investments sold...................................... 1,911,386
Dividends and interest receivable.................................... 119,217
Recoverable foreign taxes............................................ 213,056
-----------
Total assets....................................................... 79,724,572
===========
LIABILITIES:
Payable for investments purchased.................................... 345,207
Payable for open forward foreign currency exchange contracts......... 99,866
Payable for investment advisory fees................................. 34,391
Payable to bank...................................................... 1,194,523
Accrued expenses and other liabilities............................... 80,702
-----------
Total liabilities.................................................. 1,754,689
-----------
NET ASSETS...........................................................$77,969,883
===========
* Cost of Investments................................................$68,081,227
===========
** Cost of Foreign Currency..........................................$ 2,136,919
===========
See notes to the financial statements.
36
TT EAFE PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
US$
-----------
INVESTMENT INCOME:
Interest income.....................................................$ 11,030
Dividend income*.................................................... 1,324,695
-----------
Total income...................................................... 1,335,725
-----------
EXPENSES:
Investment advisory fee............................................. 180,659
Accounting and custody fees......................................... 126,550
Administration fees................................................. 30,960
Insurance fees...................................................... 16,524
Audit fees.......................................................... 14,916
Trustees' fees and expenses......................................... 9,907
Legal services...................................................... 2,598
Printing and postage expense........................................ 2,172
-----------
Total expenses.................................................... 384,286
-----------
NET INVESTMENT INCOME............................................... 951,439
-----------
REALIZED/UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net realized gain/loss on:
Investment security transactions.................................. (5,204,195)
Foreign currency transactions and forward foreign currency
exchange contracts ............................................. 658,216
-----------
(4,545,979)
-----------
Net change in unrealized appreciation/(depreciation) on:
Investment securities............................................. 11,735,001
Foreign currency transactions and forward foreign currency
exchange contracts ............................................. (169,202)
-----------
11,565,799
-----------
NET GAIN ON INVESTMENTS............................................. 7,019,820
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................$ 7,971,259
===========
* Net of foreign taxes withheld.....................................$ 198,918
===========
See notes to the financial statements.
37
TT EAFE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
TT EAFE
PORTFOLIO
Six Months Year
Ended Ended
June 30, 2003 December 31,
(Unaudited) 2002
US$ US$
------------- ------------
OPERATIONS:
Net investment income........................................ $ 951,439 $ 1,617,014
Net realized loss............................................ (4,545,979) (16,193,659)
Net change in unrealized appreciation/(depreciation)......... 11,565,799 (6,658,951)
------------ ------------
Net increase (decrease) in net assets resulting
from operations ......................................... 7,971,259 (21,235,596)
------------ ------------
CAPITAL TRANSACTIONS
Contributions.............................................. 27,563,060 168,468,799
Withdrawals................................................ (56,319,056) (172,438,004)
------------ ------------
Net decrease in net assets from capital transactions....... (28,755,996) (3,969,205)
------------ ------------
Total decrease in net assets................................. (20,784,737) (25,204,801)
------------ ------------
NET ASSETS:
Beginning of period.......................................... 98,754,620 123,959,421
------------ ------------
End of period................................................ $ 77,969,883 $ 98,754,620
============ ============
See notes to the financial statements.
38
TT EAFEPORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
A. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
TT EAFE Portfolio (the "Portfolio") is a series of TT International U.S.A.
Master Trust (the "Portfolio Trust"). The Portfolio Trust is registered under
the Investment Company Act of 1940, as an open-end management investment
company. The Portfolio Trust was organized as a business trust under the laws of
the Commonwealth of Massachusetts, pursuant to a Declaration of Trust dated as
of May 26, 2000. TT Active International Mutual Fund held 61.9% and the LKCM
International Fund held 38.1% of the Portfolio as of June 30, 2003.
The following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
1. SECURITY VALUATION
The equity securities of the Portfolio are valued at the last reported sales
price on the primary securities exchange or national securities market on
which such securities are traded. Securities not listed on an exchange or
national securities market, or securities in which there was no last
reported sales price, are valued at the most recent bid prices. Debt
securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in those securities or by an independent pricing source. U.S.
Government obligations are valued at the last reported bid price. Debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Any securities, restricted securities or other
assets for which market quotations are not readily available are valued at
fair value as determined in good faith in accordance with policies approved
by the Portfolio Board of Trustees.
2. SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Dividend income is recognized on the
ex-dividend date, and interest income is recognized on a daily accrual
basis. Realized gains or losses are reported on the basis of identified cost
of securities delivered. Premium and discount on securities purchased are
amortized as a component of interest income using a constant yield to
maturity method.
3. FEDERAL INCOME TAXES
The Portfolio intends to qualify as a partnership for U.S. federal income
tax purposes. The Portfolio therefore believes that it will not be subject
to any U.S. federal income tax on its income and net realized capital gains
(if any). However, each investor in the Portfolio will be subject to U.S.
federal income taxation on its allocable share of the Portfolio's income and
capital gains for the purposes of determining its federal income tax
liability. The determination of such share will be made in accordance with
the applicable sections of the U.S. Internal Revenue Code of 1986 (the
"Code").
39
It is intended that the Portfolio's assets, income and allocations will be
managed in such a way that a regulated investment company investing in the
Portfolio will be able to satisfy the requirements of Subchapter M of the
Code, assuming that the investment company invested all of its assets in the
corresponding Portfolio.
4. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in U.S. companies and securities of the U.S. government. These
risks include devaluation of currencies and future adverse political and
economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and
securities of the U.S. government.
Since foreign securities often trade in currencies other than U.S. dollars,
changes in currency exchange rates will affect the Portfolio's net assets,
the value of dividends and interest earned, and gains and losses realized on
the sale of securities. An increase in the U.S. dollar exchange rate
relative to these other currencies will adversely affect the value of the
Portfolio. In addition, some foreign currency values may be volatile and
there is the possibility of government controls on currency exchanges or
government intervention in currency markets. Controls or intervention could
limit or prevent the Portfolio from realizing value in U.S. dollars from its
investment in foreign securities.
5. FOREIGN CURRENCY TRANSLATION
For financial reporting purposes, the Portfolio does not isolate changes in
the exchange rate of investment securities from the fluctuations arising
from changes in the market prices of securities. However, for financial
reporting and federal income tax purposes the Portfolio does isolate and
treat as ordinary income the effect of changes in foreign exchange rates on
currency, currency contracts and payables and receivables arising from trade
date and settlement date differences.
At June 30, 2003, the Portfolio had the following open forward foreign
currency and cross currency exchange contracts outstanding:
FORWARD CURRENCY CONTRACTS
GROSS
FOREIGN U.S. DOLLAR UNREALIZED
CURRENCY AND CURRENCY VALUE AT GAIN/LOSS
EXCHANGE DATE UNITS SOLD JUNE 30, 2003 US$
- --------------------------------------------------------------------------------
Sales Contracts
Australian Dollar, 07/01/03 650,000 436,507 (4,387)
Euro, 07/01/03 200,000 230,040 (1,780)
Japanese Yen, 07/01/03 65,835,000 549,197 803
Japanese Yen, 07/18/03 220,000,000 1,836,272 63,555
SwissFranc, 07/01/03 257,203 190,218 (218)
- --------------------------------------------------------------------------------
Net Unrealized Gain on Sales Contracts 57,973
================================================================================
40
FORWARD CROSS CURRENCY CONTRACTS
NET
DELIVER/UNITS RECEIVE/IN UNREALIZED
SETTLEMENT DATE OF CURRENCY EXCHANGE FOR APPRECIATION
7/09/03 British Sterling 3,820,000 Euro 5,336,015 (175,345)
7/09/03 Euro 3,533,619 British Sterling 2,470,000 17,506
- -------------------------------------------------------------------------------------------
Net Unrealized loss on cross currency contracts (157,839)
===========================================================================================
6. FUTURES CONTRACTS
The Portfolio may purchase long futures contracts to gain exposure to market
changes, as this may be more efficient or cost effective than actually
buying the securities. A futures contract is an agreement between two
parties to buy and sell a security at a set price on a future date and is
exchange traded. Upon entering into a futures contract, the Portfolio is
required to pledge to the broker an amount of cash, U.S. Government
securities or other high-quality debt securities equal to the minimum
"initial margin" requirements of the exchange. Pursuant to the contract, the
Portfolio agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in the value of the contract. Such receipts
or payments are known as "variation margin" and are recorded by the
Portfolio as unrealized gains or losses. When the contract is closed, the
Portfolio records a gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed. Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Portfolio is required to segregate cash or
liquid securities in connection with all futures transactions in an amount
generally equal to the entire futures contract amount. Risks of entering
into futures contracts include the possibility that there may be an illiquid
market and that a change in the value of the contracts may not correlate
with changes in the value of the underlying securities.
As of and for the six months ended June 30, 2003, there were no open long
futures contracts outstanding.
7. OPTIONS CONTRACTS
A purchased option contract gives the buyer the right, but not the
obligation, to buy (call) or sell (put) an underlying item at a fixed
exercise price during a specified period. These contracts are generally
used by the Portfolio to provide the return of an index without purchasing
all of the securities underlying the index or as a substitute for
purchasing or selling specific securities.
Purchases of put and call options are recorded as investments, the values of
which are marked-to-market daily. When a purchased option expires, the
Portfolio will realize a loss equal to the premium paid. When the Portfolio
enters into a closing sale transaction, the Portfolio will realize a gain or
loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. When the
Portfolio exercises a put option, it will realize a gain or loss from the
sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Portfolio exercises a
call option, the cost of the security which the Portfolio purchases upon
exercise will be increased by the premium originally paid.
41
The premium received for a written option is recorded as a liability. The
liability is marked-to-market daily based on the option's quoted market
price. When an option expires or the Portfolio enters into a closing
purchase transaction, the Portfolio realizes a gain (or loss if the cost of
the closing purchase transaction exceeds the premium received when the
option was sold) without regard to any unrealized gain or loss on the
underlying security and the liability related to such option is eliminated.
When a written call option is exercised, the Portfolio realizes a gain or
loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a written put
option is exercised, the amount of the premium originally received will
reduce the cost of the underlying security purchased.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a call option is that the Portfolio
may forego the opportunity for profit if the market value of the underlying
security increases and the option is exercised. The risk in writing a put
option is that the Portfolio may incur a loss if the market price of the
underlying security decreases and the option is exercised. In addition, the
Portfolio could be exposed to risks if the counterparties to the
transactions are unable to meet the terms of the contracts.
Ending June 30, 2003, there were no open options contracts outstanding.
B. INVESTMENT ADVISORY AGREEMENT
Pursuant to a Management Agreement with the Portfolio Trust, TT International
Investment Management ("TTI") provides investment guidance and policy direction
in connection with the management of the Portfolio's assets. For its services
under the Management Agreement with respect to the Portfolio, TTI is entitled to
receive fees, which are computed daily and paid monthly, at an annual rate equal
to 0.50% of the Portfolio's average net assets. Please see Note 5 of the TT
Active International Mutual Fund notes to financial statements for additional
information in respect to management fee reimbursements.
C. SECURITY TRANSACTIONS
Purchases and sales of investments for the Portfolio, exclusive of short-term
securities, for the six months ended June 30, 2003, were as follows:
COST OF PURCHASES PROCEEDS FROM SALES
US$ US$
- --------------------------------------------------------------------------------
59,944,837 79,200,414
At June 30, 2003, the Portfolio's aggregate unrealized appreciation and
depreciation on Investments based on cost for U.S. federal income tax purposes
were as follows:
UNREALIZED UNREALIZED NET UNREALIZED
TAX COST APPRECIATION DEPRECIATION APPRECIATION
US$ US$ US$ US$
- --------------------------------------------------------------------------------
68,081,227 7,780,866 (542,003) 7,238,863
42
D. FINANCIAL HIGHLIGHTS
The ratios of expenses and net investment income to average net assets and
portfolio turnover rates (excluding short-term securities) for the Portfolio are
as follows:
FOR THE FOR THE
SIX MONTHS YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000
- --------------------------------------------------------------------------------
Ratio of expenses 1.07%+ 0.85% 0.85% 0.92%+
Ratio of net investment income 2.64%+ 1.38% 0.51% 0.39%+
Portfolio Turnover 85%^ 231% 255% 37%
Total Return 11.26%^ (18.51)% (28.80)% (4.54)%^
* For the period October 2, 2000 (commencement of operations) through
December 31, 2000.
+ Annualized.
^ Not Annualized.
43
LKCM FUNDS
P.O. BOX 701
MILWAUKEE, WI 53201-0701
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
J. Luther King, Jr., CFA Jacqui Brownfield
Chairman of the Board, Vice President,
President Secretary & Treasurer
Paul W. Greenwell Joseph C. Neuberger
Vice President Assistant Treasurer
Steven R. Purvis, CFA Jeffrey T. Rauman
Vice President Assistant Secretary
H. Kirk Downey James Tiegs
Trustee Assistant Secretary
Earle A. Shields, Jr.
Trustee
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Luther King Capital Management Corporation
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
- --------------------------------------------------------------------------------
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND
PAYING AGENT & SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
- --------------------------------------------------------------------------------
CUSTODIAN FOR ALL FUNDS EXCEPT LKCM INTERNATIONAL FUND
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
- --------------------------------------------------------------------------------
CUSTODIAN & SUB-ADMINISTRATOR FOR LKCM INTERNATIONAL FUND
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02110
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Kirkpatrick &Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, DC 20036-1800
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, WI 53202
- --------------------------------------------------------------------------------
DISTRIBUTOR
Quasar Distributors, LLC
615 E. Michigan Street
Milwaukee, WI 53202
- --------------------------------------------------------------------------------
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
ITEM 2. CODE OF ETHICS.
Not applicable to annual reports filed for periods ending before July 15, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to annual reports filed for periods ending before July 15, 2003.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required for annual reports filed for periods ending before December 15,
2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to open-end investment companies.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the Registrant's Disclosure Controls and
Procedures as of a date within 90 days of the Filing Date, the Registrant's
President and Treasurer/CFO have determined that the Disclosure Controls
and Procedures (as defined in Rule 30a-2(c) under the Act) are designed to
ensure that information required to be disclosed by the Registrant is
recorded, processed, summarized and reported by the filing Date, and that
information required to be disclosed in the report is communicated to the
Registrant's management, as appropriate, to allow timely decisions
regarding required disclosure.
(b) There were no significant changes in the Registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their evaluation, and there were no corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
(a) Any code of ethics or amendment thereto. Not applicable to annual reports
for periods ending before July 15, 2003.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) LKCM Funds
----------
By (Signature and Title): /s/ J. Luther King, Jr., President
----------------------------------
J. Luther King, Jr., President
Date: August 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)*: /s/ J. Luther King, Jr., President
----------------------------------
J. Luther King, Jr., President
Date: August 22, 2003
By (Signature and Title)*: /s/ Jacqui Brownfield, Treasurer
--------------------------------
Jacqui Brownfield, Treasurer
Date: August 22, 2003