As filed with the Securities and Exchange Commission on March 10, 2006.
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 Nicholson Graham LLP
1800 Massachusetts Avenue, NW
Washington, DC 20036
(Name and address of agent for service)
1-800-688-LKCM and 1-800-423-6369
Registrant's telephone number, including area code
Date of fiscal year end: December 31
Date of reporting period: December 31, 2005
ITEM 1. REPORT TO STOCKHOLDERS.
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LKCM
FUNDS
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LKCM SMALL CAP EQUITY FUND
LKCM EQUITY FUND
LKCM BALANCED FUND
LKCM FIXED INCOME FUND
LKCM INTERNATIONAL FUND
Annual Report
December 31, 2005
DEAR FELLOW SHAREHOLDERS:
We are pleased to report the following performance information for the LKCM
Funds:
FIVE YEAR TEN YEAR AVG.
ONE YEAR AVERAGE AVERAGE ANNUAL
TOTAL ANNUALIZED ANNUALIZED TOTAL
RETURN RETURN RETURN RETURN
INCEPTION NAV @ ENDED ENDED ENDED SINCE
FUNDS DATES 12/31/05 12/31/05 12/31/05 12/31/05 INCEPT.*
LKCM Equity Fund - Institutional Class 1/3/96 $13.30 4.80% 1.26% N/A 8.36%
S&P 500 Index1 4.91% 0.54% N/A 8.98%
LKCM Small Cap Equity Fund - Institutional Class 7/14/94 $21.12 14.42% 12.28% 12.91% 14.36%
Russell 2000 Index2 4.55% 8.22% 9.26% 10.67%
LKCM Small Cap Equity Fund - Adviser Class 6/5/03 $20.95 14.16% N/A N/A 22.66%
Russell 2000 Index2 4.55% N/A N/A 17.65%
LKCM International Fund 12/30/97 $11.10 20.49% 0.80% N/A 4.85%
MSCI/EAFE Index3 14.02% 4.94% N/A 6.67%
LKCM Balanced Fund 12/30/97 $12.42 5.87% 3.18% N/A 4.87%
S&P 500 Index1 4.91% 0.54% N/A 4.78%
Lehman Bond Index4 1.58% 5.50% N/A 5.79%
LKCM Fixed Income Fund 12/30/97 $10.24 1.79% 4.93% N/A 5.07%
Lehman Bond Index4 1.58% 5.50% N/A 5.79%
Performance data quoted represents past performance and does not guarantee
future results. 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 that the original cost. Current performance of the fund may be lower
or higher that the performance quoted. Performance data current to the most
recent month end may be obtained by calling 1-800-688-LKCM. Returns shown
reflect voluntary fee waivers in effect. In the absence of such waivers,
performance would be reduced.
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 $665 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 $250 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 stock market provided investors with a third year of positive returns,
although the gains were modest. The Standard & Poor's 500 Index, the Dow Jones
Industrial Average, and the Nasdaq Composite Index all advanced on a total
return basis. The positive influence of stronger than expected earnings growth,
stable bond prices, a robust global economy, continued strong housing and
consumer trends, improved corporate balance sheets, increased capital spending,
and the rising dollar were offset by concerns over high energy costs, rising
short-term interest rates, the overhang of the war in Iraq, worry over a housing
bubble, and a general hesitation by corporate management toward the reinvestment
of cash flows. As a result, the market's volatility was low and showed little
movement for the year. The energy area was by far the most rewarding and, to the
extent investors did well in 2005, it is likely that investments in that sector
of the market played an important role.
We believe the U.S. economy will continue to grow in 2006. The rate of gain is
likely to slow however as the impact of a weakening rate of growth in the
housing sector should cause less robust consumer activity than in 2005. This
slowdown will likely be offset by greater capital spending in the corporate
sector, where business is good and balance sheets are healthy. Increased capital
spending, in turn, should stimulate the hiring of new employees.
The Federal Reserve is likely to end the move to higher short-term interest
rates during the first half of 2006 at a level of 5.0% or perhaps lower. We
believe the Federal Reserve is unlikely to implement a highly restrictive policy
unless inflation moves higher than most economists are forecasting. Much higher
rates could cause significant weakness in housing as well as the overall
economy, a situation the Federal Reserve would like to avoid.
The global economy for 2006 looks positive and should offset the expected
slowdown in U.S. consumer activity. The global economic and liquidity conditions
look healthy and opportunities for U.S. companies to participate in this
environment are good.
We continue to forecast that bond yields will rise across the curve. However,
the structural forces which have been a factor in holding down long-term yields
are likely to persist, given excess global liquidity, low inflation, and, in
some cases, the expectations of a mid-cycle economic slowdown in the U.S.
The value of the dollar, while stronger in 2005, is likely to weaken in 2006.
However, we would not anticipate significant deterioration unless the U.S.
economy is much weaker than we expect.
Some of the risks to our 2006 forecast would be a sharp increase in the price of
oil, significant weakness in the value of the U.S. dollar, a discernible
increase in the rate of inflation or a collapse in real estate values. While
these conditions could occur they are not in our forecast.
We believe the stock market will generate positive returns again in 2006. While
the rate of gain in corporate profits is expected to slow to normal historical
levels of 6.0% to 8.0%, we believe the peaking of short-term interest rates
coupled with low inflation and a strong global economy will produce a rising
stock market. Corporate merger activity should remain strong. Increasing
dividends and share repurchases will be an additional positive for the market.
The valuation of share prices based on a forward P/E and historically low bond
yield creates an attractive environment for investing in the public stock
markets.
2
The LKCM Equity Fund is managed to provide long-term capital appreciation and is
primarily invested in common stocks of mid to large sized companies. The Fund
focuses its investments in quality companies with above-average profitability
and reasonable valuations. For 2005, the Fund returned 4.8% vs. the S&P 500's
4.9% return. As of December 31, 2005, the total net assets in the portfolio were
$46.5 million with 93.3% of the net assets invested in common stocks and 6.7% in
cash reserves, net of liabilities. During the year, our performance benefited
from stock selection and an overweight position in the Energy sector while our
Technology investments were a drag to our investments. The Fund remains well
positioned with a broadly diversified portfolio of quality companies.
The LKCM Small Cap Equity 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 year was 14.4% vs. the
Russell 2000's 4.6% 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 December 31, 2005, the total net assets of the
portfolio were $379.6 million with 94.5% of the net assets invested in common
and preferred stocks and 5.5% in cash reserves, net of liabilities. We generated
positive returns for our investors in the year as we added value from both our
stock selection as well as from our sector allocation decisions. Our stock
selection in Technology and our decision to overweight the Energy sector was
beneficial to our results. Stock selection in the Industrial sector and our
overweight in the Consumer sectors were slightly negative to our performance.
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, convertible securities, government and
corporate bonds and cash. We believe our diversified, total return approach
proved successful during the year as the Fund returned 5.9% vs. the 4.9% return
in the S&P 500 and the 1.6% return in the Lehman Index. As of December 31, 2005,
total net assets were $9.2 million and the asset mix contained 70.7% common
stocks, 26.1% corporate bonds, 1.6% in government bonds, and 1.6% in cash
reserves, net of liabilities. The equity sector of the Fund contributed the
majority of the Fund's returns for the year. Within the equity sector, our
Energy exposure added significantly to our performance while Technology was a
slight drag. We believe the "total return" philosophy of controlling risk via a
blend of asset classes remains an attractive investment strategy for long-term
investors.
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 to intermediate maturity portfolio. Our
primary focus is to identify corporate bonds with strong credit profiles and
attractive yields. The Fund had an average duration at December 31, 2005, of 2.9
years and an average quality rating by Standard &Poor's Corporation of Single A.
Relative to the comparable benchmark, the portfolio had a higher percentage of
its assets invested in corporate bonds and had a shorter average duration. The
Fund's shorter duration focus on higher credit quality issues was additive to
our results. During the year, the Fund returned 1.8% vs. 1.6% for the Lehman
Government Credit Intermediate Index. As of December 31, 2005, total net assets
were $115.6 million and the asset mix was 78.2% in corporate bonds and first
mortgage bonds, 1.7% in preferred stocks, 13.5% in U.S. Government and Agency
Issues, and 6.6% in cash and cash equivalents, net of liabilities.
At LKCM, our investment objective is to utilize our proprietary research
capabilities in order to achieve superior returns over the market cycle in
accordance with the specific objectives of each of the Funds. 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 that
can be used to reinvest back into the business, and solid balance sheets. 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 through
your investment in these Funds.
/s/ J. Luther King, Jr.
J. Luther King, Jr., CFA
February 1, 2006
Please refer to the Schedule of Investments found on pages 15-27 of the 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.
The LKCM Small Cap Equity Fund invests in smaller companies, which involve
additional risks such as limited liquidity and greater volatility. The LKCM
International Fund invests in foreign securities which involve greater
volatility and political, economic and currency risks and differences in
accounting methods.
Investments in debt securities typically decrease in value when interest rates
rise. This risk is usually greater for longer-term debt securities.
Mutual fund investing involves risk. Principal loss is possible.
The Price to Earnings (P/E) Ratio reflects the multiple of earnings at which a
stock sells.
3
TT INTERNATIONAL INVESTMENT MANAGEMENT
The LKCM International Fund is managed in a style that seeks absolute returns.
2005
LKCM INTERNATIONAL FUND: 20.49% MSCI EAFE: 14.02%
Performance - The portfolio had a very strong year both in absolute and relative
terms and ended 2005 over 6% ahead of the benchmark. International equity
markets produced positive returns in local currencies but dollar-based investors
suffered negative absolute returns as a result of the strengthening U.S. dollar.
Hedging a portion of the portfolio's Japanese Yen exposure back to the U.S.$ was
also a significant positive in the fourth quarter of 2005. The pro-cyclical
stance of the portfolio (especially within Europe) was also rewarded by positive
returns from stock selection in the Industrials, Consumer Discretionary and
Materials sectors. The portfolio benefited from being overweight Japan and from
being exposed to Japanese stocks geared to the reviving domestic Japanese
economy.
Markets - Stock markets around the world rallied sharply in 2005 despite a
number of potentially negative issues which seemed poised to dampen investor
sentiment for much of the year. If one theme dominated the headlines during the
year, it was the surge in the price of oil, which reached a series of record
highs before finally breaching the $70 per barrel in August in the wake of the
hurricanes that devastated the southern states of the U.S. The `higher for
longer' oil price compounded concerns over slowing global growth, which came to
a head in April when equity markets suffered a sharp correction.
Despite concerns that oil would be a large drag on the global economy, growth
was actually stronger than anticipated, driven by loose monetary conditions and
boosted by strong demand from the world's new powerhouse, China. This in turn
pushed many equity markets to multi-year highs with some of the more
economically sensitive areas of the market (Basic Industries, General
Industrials) leading the gains. However, while global growth, and in particular
U.S. growth, has been better than many anticipated, it came with the threat of
higher inflation and consequently the worry of tighter financial conditions.
Past performance does not guarantee future results.
4
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5
PERFORMANCE:
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The following information illustrates the historical performance of LKCM Small
Cap Equity Fund compared to the Fund's representative market indices. The LKCM
Small Cap Equity Fund invests in smaller companies, which may involve additional
risks such as limited liquidity and greater volatility.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-688-LKCM.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
AVERAGE ANNUAL TOTAL RETURN
====================================================================================================================================
PAST PAST PAST SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION(1)
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LKCM SMALL CAP EQUITY FUND -
INSTITUTIONAL CLASS 14.42% 12.28% 12.91% 14.36%
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Russell 2000 Index 4.55% 8.22% 9.26% 10.67%
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Lipper Small-Cap Core Fund
Index 7.56% 9.19% 10.80% 12.43%
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(1) July 14, 1994
Line Chart:
A Hypothetical $10,000 Investment in LKCM Small Cap Equity Fund - Institutional
Class
LKCM Small Cap Equity
Fund - Institutional Russell 2000 Total Lipper Small Cap Core
Class $33,662 Return Index $24,253 Fund Index $27,889
12/95 10000 10000 10000
12/96 12567 11649 11871
12/97 15467 14255 14510
12/98 14499 13892 13982
12/99 16938 16845 16803
12/00 18864 16336 17968
12/01 20279 16742 19249
12/02 17889 13313 15547
12/03 24098 19603 21907
12/04 29420 23196 25929
12/05 33662 24253 27889
6
AVERAGE ANNUAL TOTAL RETURN
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PAST SINCE
1 YEAR INCEPTION(1)
====================================================================================================================================
LKCM SMALL CAP EQUITY FUND - ADVISER CLASS 14.16% 22.66%
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Russell 2000 Index 4.55% 17.65%
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Lipper Small-Cap Core Fund Index 7.56% 20.19%
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(1) June 5, 2003
A Hypothetical $10,000 Investment in LKCM Small Cap Equity Fund - Adviser Class
Line Chart:
LKCM Small Cap Russell 2000 Lipper Small Cap
Equity Fund - Total Return Core Fund Index
Advisor Class $16,911 Index $15,192 $16,051
6/03 10000 10000 10000
12/03 12165 12280 12228
6/04 13489 13405 13350.5
12/04 14813 14530 14473
6/05 15862 14861 15262
12/05 16911 15192 16051
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
$665 million. The Lipper Small-Cap Core Fund Index is an unmanaged index
consisting of small-cap core funds that, by portfolio practice, invest at least
75% of their equity assets in companies with market capitalizations (on a
three-year weighted basis) of less than 250% of the dollar-weighted median
market capitalization of the smallest 500 of the middle 1,000 securities of the
S&P SuperComposite 1500 Index. Small-Cap core funds have more latitude in the
companies in which they invest. These funds will normally have an average
price-to-earnings ratio, price-to-book ratio and three-year sales-per-share
growth figure, compared to the S&P Small Cap 600 Index.
7
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Equity
Fund compared to the Fund's representative market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-688-LKCM.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
AVERAGE ANNUAL TOTAL RETURN
====================================================================================================================================
PAST PAST PAST SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION(1)
====================================================================================================================================
LKCM EQUITY FUND -
INSTITUTIONAL CLASS 4.80% 11.73% 1.26% 8.36%
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S&P 500 Index 4.91% 14.39% 0.54% 8.98%
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Lipper Large-Cap
Core Fund Index 5.72% 12.63% (0.38)% 7.87%
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(1) January 3, 1996
A Hypothetical $10,000 Investment in LKCM Equity Fund - Institutional Class
Line Chart:
LKCM Equity Fund - S&P Lipper Large-Cap
Institutional Class Total Return Core Fund
$22,307 Index $23,625 Index $21,318
1/96 10000 10000 10000
10800 10924 10904
12/96 11700 12201 11988
13491 14715 13817
12/97 14457 16272 15137
16179 19154 17256
12/98 16352 20922 17965
18522 23513 19875
12/99 20124 25324 21695
20597 25217 22567
12/00 20957 23019 20972
19612 21477 19896
12/01 18731 20283 18714
17425 17594 16603
12/02 15992 15782 14921
17340 17640 16436
12/03 19735 20311 18622
20500 21400 19300
12/04 21285 22519 20050
21334 22337 19962
12/05 22307 23625 21318
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.
The Lipper Large-Cap Core Fund Index is an unmanaged index consisting of
large-cap core funds that, by portfolio practice, invest at least 75% of their
equity assets in companies with market capitalizations (on a three-year weighted
basis) greater than 300% of the dollar-weighted median market capitalization of
the middle 1,000 securities of the S&P SuperComposite 1500 Index. Large-cap core
funds have more latitude in the companies in which they invest. These funds
typically have an average price-to-earnings ratio, price-to-book ratio and
three-year sales-per-share growth value, compared to the S&P 500 Index.
8
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM
Balanced Fund compared to the Fund's representative market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-688-LKCM.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
AVERAGE ANNUAL TOTAL RETURN
====================================================================================================================================
PAST PAST PAST SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION(1)
====================================================================================================================================
LKCM BALANCED FUND 5.87% 9.75% 3.18% 4.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Bond Index(2) 1.58% 2.97% 5.50% 5.79%
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index 4.91% 14.39% 0.54% 4.78%
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper Balanced Fund Index 5.20% 11.20% 3.51% 5.42%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) December 30, 1997
(2) Lehman Brothers Intermediate Government/Credit Bond Index
A Hypothetical $10,000 Investment in LKCM Balanced Fund
Line Chart:
LKCM Balanced Lehman Bond Lipper Balanced S&P 500
Fund $14,628 Index $15,688 Fund $15,260 Index $14,530
1/98 10000 10000 10000 10000
10694 10417 10955 11771
12/98 11283 10947 11508 12858
12206 10698 12218 14450
12/99 12809 10712 12541 15564
12685 11159 12759 15498
12/00 12510 11981 12841 14147
12381 12401 12626 13199
12/01 12569 13000 12426 12465
11751 13519 11675 10825
12/02 11065 14369 11098 9706
11777 14980 12083 10843
12/03 12901 14984 13310 12491
13400 15200 13900 13100
12/04 13817 15444 14544 13850
14117 15690 13738 14578
12/05 14628 15688 15260 14530
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 $250 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 Lipper Balanced Fund Index is an unmanaged index consisting of funds that,
by portfolio practice, conserve principal by maintaining at all times a balanced
portfolio of both equities and bonds, with at least 50% in equity securities and
at least 25% in fixed income securities. Typically, the stock/bond ratio ranges
around 60%/40%.
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.
9
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Fixed
Income Fund compared to the Fund's representative market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-688-LKCM.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
AVERAGE ANNUAL TOTAL RETURN
====================================================================================================================================
PAST PAST PAST SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION(1)
====================================================================================================================================
LKCM FIXED INCOME FUND 1.79% 2.60% 4.93% 5.07%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Bond Index(2) 1.58% 2.97% 5.50% 5.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper Short Intermediate Investment-Grade
Debt Fund Index 1.35% 2.61% 4.53% 5.02%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) December 30, 1997
(2) Lehman Brothers Intermediate Government/Credit Bond Index
A Hypothetical $10,000 Investment in LKCM Fixed Income Fund
Line Chart:
Lipper Short Intermediate
Investment-Grade
LKCM Fixed Income Lehman Bond Debt Fund
Fund $14,858 Index $15,688 Index $14,804
1/98 10000 10000 10000
12/98 10727 10947 10788
12/99 10690 10712 10682
12/00 11679 11981 11813
12/01 12925 13000 12784
12/02 13756 14369 13844
12/03 14203 14988 14137
12/04 14596 15444 14527
12/05 14858 15688 14804
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 $250 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 Lipper Short Intermediate Investment-Grade Debt Fund Index is an unmanaged
index consisting of funds that, by portfolio practice, invest at least 65% of
their assets in investment-grade debt issues (rated in the top four grades) with
dollar weighted average maturities of one to five years.
10
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM
International Fund compared to the Fund's representative market index. The LKCM
International Fund invests in foreign securities which may involve greater
volatility and political, economic and currency risks and differences in
accounting methods.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-688-LKCM.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
AVERAGE ANNUAL TOTAL RETURN
====================================================================================================================================
PAST PAST PAST SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION(1)
====================================================================================================================================
LKCM INTERNATIONAL FUND 20.49% 21.89% 0.80% 4.85%
- ------------------------------------------------------------------------------------------------------------------------------------
EAFE Index(2) 14.02% 24.18% 4.94% 6.67%
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper International Fund Index 15.65% 23.10% 5.34% 6.99%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) December 30, 1997
(2) Morgan Stanley Capital International Europe, Australasia, Far East Index
A Hypothetical $10,000 Investment in LKCM International Fund
Line Chart:
LKCM International EAFE Index Lipper International
Fund $14,607 $16,773 Fund Index $12,175
1/98 10000 10000 10000
12/98 11010 12033 11266
12/99 15712 15317 15527
12/00 14035 13179 13243
12/01 9942 10385 10683
12/02 8067 8758 9206
12/03 10869 12189 12520
12/04 12123 14711 14830
12/05 14607 16773 17175
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.
The Lipper International Fund Index is an unmanaged index consisting of funds
that, by portfolio practice, invest their assets in securities whose primary
trading markets are outside of the United States.
11
LKCM FUNDS EXPENSE EXAMPLE -- DECEMBER 31, 2005
As a shareholder of the Funds, you incur two types of costs: (1)
transaction costs, including redemption fees; and (2) ongoing costs, including
management fees and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Funds and to
compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (7/1/05-12/31/05).
ACTUAL EXPENSES
The first line of the tables below provides information about actual
account values and actual expenses. Although the Funds charge no sales load, you
will be assessed fees for outgoing wire transfers, returned checks and stop
payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC,
the Funds' transfer agent. If you request that a redemption be made by wire
transfer, currently a $15.00 fee is charged by the Funds' transfer agent. You
will be charged a redemption fee equal to 1.00% of the net amount of the
redemption if you redeem your shares of the LKCM Small Cap Equity, Equity,
Balanced, Fixed Income and International Funds within 30 days of purchase. To
the extent the Funds invest in shares of other investment companies as part of
its investment strategy, you will indirectly bear your proportionate share of
any fees and expenses charged by the underlying funds in which the Funds invest
in addition to the expenses of the Funds. Actual expenses of the underlying
funds are expected to vary among the various underlying funds. These examples
are not included in the example below. The example below includes management
fees, registration fees and other expenses. However, the example below does not
include portfolio trading commissions and related expenses and other
extraordinary expenses as determined under generally accepted accounting
principles. You may use the information in this line, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLES
FOR COMPARISON PURPOSES
The second line of the tables below provides information about hypothetical
account values and hypothetical expenses based on the Funds' actual expense
ratios and an assumed rate of return of 5% per year before expenses, which are
not the Funds' actual returns. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds. Please note that the expenses shown in the table are meant
to highlight your ongoing costs only and do not reflect any transactional costs,
such as redemption fees. Therefore, the second line of the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactions costs were
included, your costs would have been higher.
LKCM SMALL CAP EQUITY FUND -
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- --------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,108.50 $5.26
Hypothetical (5% return before expenses) $1,000.00 $1,020.21 $5.04
* Expenses are equal to the Fund's annualized expense ratio of 0.99%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
LKCM SMALL CAP EQUITY FUND- ADVISER CLASS
- --------------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- --------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,107.40 $6.59
Hypothetical (5% return before expenses) $1,000.00 $1,018.95 $6.31
* Expenses are equal to the Fund's annualized expense ratio of 1.24%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
12
LKCM EQUITY FUND
- --------------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- --------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,045.60 $4.12
Hypothetical (5% return before expenses) $1,000.00 $1,021.17 $4.08
* Expenses are equal to the Fund's annualized expense ratio of 0.80%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
LKCM BALANCED FUND
- --------------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- --------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,036.20 $4.11
Hypothetical (5% return before expenses) $1,000.00 $1,021.17 $4.08
* Expenses are equal to the Fund's annualized expense ratio of 0.80%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
LKCM FIXED INCOME FUND
- --------------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- --------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,006.60 $3.29
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 $3.31
* Expenses are equal to the Fund's annualized expense ratio of 0.65%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
LKCM INTERNATIONAL FUND
- --------------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- --------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,219.10 $6.71
Hypothetical (5% return before expenses) $1,000.00 $1,019.16 $6.11
* Expenses are equal to the Fund's annualized expense ratio of 1.20%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period. Expenses include those directly
related to the Fund and other operating expenses of the Master Portfolio.
13
ALLOCATION OF PORTFOLIO HOLDINGS -- LKCM FUNDS -- DECEMBER 31, 2005
Percentages represent market value as a percentage of total investments.
Pie Chart:
LKCM SMALL CAP EQUITY FUND
Short-Term Investments 5.9%
Common Stocks 94.1%
Pie Chart:
LKCM Equity Fund
Short-Term Investments 6.8%
Common Stocks 93.2%
Pie Chart:
LKCM BALANCED FUND
U.S. Government Issues 1.7%
Common Stocks 71.1%
Corporate Bonds 26.2%
Short-Term Investments 1.0%
Pie Chart:
LKCM FIXED INCOME FUND
U.S. Government & Agency Issues 13.6%
Preferred Stocks 1.8%
Short-Term Investments 5.3%
First Mortgage Bonds 0.9%
Corporate Bonds 78.4%
Pie Chart:
LKCM INTERNATIONAL FUND
Short-Term Investments 2.4%
Preferred Stocks 1.3%
Common Stocks 96.3%
14
LKCM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS - 94.5% SHARES VALUE
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 5.6%
Aviall, Inc. (a) 205,300 $ 5,912,640
Axsys Technologies, Inc. (a) 152,848 2,743,621
Hexcel Corporation (a) 267,600 4,830,180
Ladish Co., Inc. (a) 198,000 4,425,300
Teledyne Technologies Incorporated (a) 111,200 3,235,920
-----------
21,147,661
-----------
AIR FREIGHT & LOGISTICS - 1.0%
Pacer International, Inc. 140,700 3,666,642
-----------
AUTO COMPONENTS - 1.0%
Drew Industries Incorporated (a) 135,000 3,805,650
-----------
BIOTECHNOLOGY - 0.8%
Serologicals Corporation (a) 158,100 3,120,894
-----------
BUILDING PRODUCTS - 0.5%
Jacuzzi Brands, Inc. (a) 243,400 2,044,560
-----------
COMMERCIAL BANKS - 5.7%
Cullen/Frost Bankers, Inc. 80,000 4,294,400
First State Bancorporation 156,400 3,752,036
Glacier Bancorp, Inc. 123,437 3,709,282
Hancock Holding Company 117,500 4,442,675
The South Financial Group, Inc. 61,100 1,682,694
Texas Regional Bancshares, Inc. -
Class A 128,500 3,636,550
-----------
21,517,637
-----------
COMMERCIAL SERVICES & SUPPLIES - 4.3%
Airgas, Inc. 103,200 3,395,280
John H. Harland Company 82,400 3,098,240
Mobile Mini, Inc. (a) 148,900 7,057,860
Waste Connections, Inc. (a) 83,500 2,877,410
-----------
16,428,790
-----------
COMMUNICATIONS EQUIPMENT - 0.7%
Tekelec (a) 184,300 2,561,770
-----------
CONSTRUCTION & ENGINEERING - 1.4%
EMCOR Group, Inc. (a) 77,500 5,233,575
-----------
CONSUMER FINANCE - 2.4%
Cash America International, Inc. 161,200 3,738,228
MoneyGram International, Inc. 203,100 5,296,848
-----------
9,035,076
-----------
DIVERSIFIED MANUFACTURING - 0.9%
Raven Industries, Inc. 117,900 3,401,415
-----------
EDUCATION SERVICES - 2.3%
Laureate Education, Inc. (a) 90,100 4,731,151
Universal Technical Institute Inc. (a) 127,500 3,944,850
-----------
8,676,001
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.7%
National Instruments Corporation 117,500 3,765,875
Photon Dynamics, Inc. (a) 158,000 2,888,240
Veeco Instruments Inc. (a) 203,800 3,531,854
-----------
10,185,969
-----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 3.3%
Dril-Quip, Inc. (a) 119,100 $ 5,621,520
Hydril (a) 62,900 3,937,540
Superior Well Services, Inc. (a) 118,600 2,817,936
-----------
12,376,996
-----------
FOOD & STAPLES RETAILING - 5.9%
Casey's General Stores, Inc. 200,000 4,960,000
The Pantry, Inc. (a) 103,000 4,839,970
Performance Food Group Company (a) 156,400 4,437,068
Reddy Ice Holdings, Inc. 189,100 4,124,271
United Natural Foods, Inc. (a) 153,200 4,044,480
-----------
22,405,789
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 3.2%
ArthroCare Corporation (a) 70,500 2,970,870
IntraLase Corp (a) 259,500 4,626,885
Sybron Dental Specialties, Inc. (a) 110,000 4,379,100
-----------
11,976,855
-----------
HEALTH CARE PROVIDERS & SERVICES - 2.2%
Dendrite International, Inc. (a) 248,500 3,580,885
PSS World Medical, Inc. (a) 327,000 4,852,680
-----------
8,433,565
-----------
HOTELS, RESTAURANTS & LEISURE - 2.4%
Landry's Restaurants, Inc. 129,000 3,445,590
LIFE TIME FITNESS, Inc. (a) 152,700 5,816,343
-----------
9,261,933
-----------
HOUSEHOLD DURABLES - 1.9%
La-Z-Boy Incorporated 154,300 2,092,308
Levitt Corp. - Class A 100,000 2,274,000
Tempur-Pedic International Inc. (a) 261,000 3,001,500
-----------
7,367,808
-----------
INFORMATION TECHNOLOGY SERVICES - 0.3%
Ness Technologies Inc. (a) 110,500 1,190,085
-----------
INSURANCE - 4.4%
American Equity Investment Life Holding
Company 244,100 3,185,505
Argonaut Group, Inc. (a) 177,725 5,824,048
Max Re Capital Ltd. (b) 170,700 4,433,079
Republic Companies Group, Inc. 203,400 3,148,632
-----------
16,591,264
-----------
INTERNET & CATALOG RETAIL - 1.2%
Blue Nile, Inc. (a) 113,700 4,583,247
-----------
LEISURE EQUIPMENT & PRODUCTS - 1.7%
Arctic Cat, Inc. 132,000 2,647,920
The Nautilus Group, Inc. 205,000 3,825,300
-----------
6,473,220
-----------
MACHINERY - 2.7%
Albany International Corp. - Class A 105,000 3,796,800
CLARCOR Inc. 105,470 3,133,514
Franklin Electric Co, Inc. 79,700 3,151,338
-----------
10,081,652
-----------
MARINE - 1.0%
Kirby Corporation (a) 73,800 3,850,146
-----------
MEDIA - 2.0%
Citadel Broadcasting Company 337,700 4,538,688
Entravision Communications
Corporation - Class A (a) 441,700 3,144,904
-----------
7,683,592
-----------
See notes to the financial statements.
15
LKCM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
METALS & MINING - 3.0%
Allegheny Technologies, Inc. 134,600 $ 4,856,368
Earle M. Jorgensen Company (a) 280,300 2,587,169
Reliance Steel & Aluminum Co. 63,550 3,884,176
-----------
11,327,713
-----------
OIL & GAS DRILLING - 1.1%
Todco - Class A 112,200 4,270,332
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 7.4%
Cabot Oil & Gas Corporation 101,350 4,570,885
Denbury Resources Inc. (a) 191,400 4,360,092
Encore Acquisition Company (a) 150,000 4,806,000
Petrohawk Energy Corporation (a) 299,353 3,957,447
Range Resources Corporation 167,950 4,423,803
St. Mary Land & Exploration Company 160,000 5,889,600
-----------
28,007,827
-----------
PHARMACEUTICALS - 1.5%
Bentley Pharmaceuticals, Inc. (a) 352,600 5,786,166
-----------
REAL ESTATE - 1.3%
FelCor Lodging Trust, Inc. 290,000 4,990,900
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.7%
Advanced Energy Industries, Inc. (a) 254,200 3,007,186
FormFactor, Inc. (a) 140,000 3,420,200
-----------
6,427,386
-----------
SOFTWARE - 6.1%
Ariba, Inc. (a) 433,100 3,183,285
Embarcadero Technologies, Inc. (a) 511,400 3,722,992
i2 Technologies, Inc. (a) 274,300 3,870,373
Micromuse Inc. (a) 646,200 6,390,918
Nuance Communications, Inc. (a) 787,900 6,011,677
-----------
23,179,245
-----------
SPECIALTY RETAIL - 6.0%
Charming Shoppes, Inc. (a) 293,200 3,870,240
Gamestop Corporation - Class A (a) 129,000 4,104,780
Jos. A. Bank Clothiers, Inc. (a) 131,775 5,720,353
The Sports Authority, Inc. (a) 111,600 3,474,108
Tractor Supply Company (a) 106,800 5,653,992
-----------
22,823,473
-----------
THRIFTS & MORTGAGE FINANCE - 0.6%
City Bank 69,455 2,470,514
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.5%
Anixter International, Inc. 115,900 4,534,008
Hughes Supply, Inc. 140,000 5,019,000
-----------
9,553,008
-----------
WIRELESS TELECOMMUNICATION SERVICES - 1.8%
SBA Communications Corporation -
Class A (a) 376,900 6,746,510
-----------
TOTAL COMMON STOCKS
(Cost $252,225,878) 358,684,866
-----------
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS - 6.4% SHARES VALUE
- ---------------------------------------------------------------
MONEY MARKET FUNDS - 6.4%
Columbia Money Market Reserves Fund -
Capital Shares 11,495,245 $11,495,245
Dreyfus Cash Management Fund -
Investor Shares 10,087,079 10,087,079
Federated Treasury Obligations Fund -
Institutional Shares 2,892,627 2,892,627
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $24,474,951) 24,474,951
-----------
TOTAL INVESTMENTS - 100.9%
(Cost $276,700,829) 383,159,817
Liabilities in Excess of Other Assets - (0.9)% (3,583,601)
-----------
TOTAL NET ASSETS - 100.0% $379,576,216
============
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
See notes to the financial statements.
16
LKCM EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS - 93.3% SHARES VALUE
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 6.5%
Honeywell International Inc. 24,000 $ 894,000
Raytheon Company 22,000 883,300
Rockwell Collins, Inc. 15,000 697,050
United Technologies Corporation 10,000 559,100
-----------
3,033,450
-----------
BEVERAGES - 3.1%
The Coca-Cola Company 14,000 564,340
PepsiCo, Inc. 15,000 886,200
-----------
1,450,540
-----------
BUILDING PRODUCTS - 0.9%
American Standard Companies Inc. 10,500 419,475
-----------
CHEMICALS - 2.1%
Air Products and Chemicals, Inc. 9,000 532,710
E. I. du Pont de Nemours & Company 10,000 425,000
-----------
957,710
-----------
COMMERCIAL BANKS - 6.8%
Bank of America Corporation 20,000 923,000
Compass Bancshares, Inc. 11,900 574,651
Cullen/Frost Bankers, Inc. 13,000 697,840
The South Financial Group, Inc. 20,000 550,800
Wells Fargo & Company 7,000 439,810
-----------
3,186,101
-----------
COMMERCIAL SERVICES & SUPPLIES - 2.5%
Allied Waste Industries, Inc. (a) 59,000 515,660
Waste Management, Inc. 22,000 667,700
-----------
1,183,360
-----------
COMMUNICATIONS EQUIPMENT - 2.8%
Cisco Systems, Inc. (a) 30,000 513,600
Motorola, Inc. 34,000 768,060
-----------
1,281,660
-----------
COMPUTERS & PERIPHERALS - 3.5%
Dell, Inc. (a) 15,000 449,850
EMC Corporation (a) 40,000 544,800
International Business Machines
Corporation 8,000 657,600
-----------
1,652,250
-----------
CONSTRUCTION & ENGINEERING - 1.0%
Chicago Bridge & Iron Company N.V. -
NY Shares - ADR (b) 18,000 453,780
-----------
CONTAINERS & PACKAGING - 2.4%
Temple-Inland Inc. 25,000 1,121,250
-----------
DIVERSIFIED FINANCIAL SERVICES - 1.7%
Citigroup Inc. 5,500 266,915
JPMorgan Chase & Co. 13,000 515,970
-----------
782,885
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.7%
ALLTEL Corporation 7,000 441,700
AT&T Inc. 30,000 734,700
Verizon Communications Inc. 18,500 557,220
-----------
1,733,620
-----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.9%
Noble Corporation 5,700 $ 402,078
-----------
FOOD & STAPLES RETAILING - 0.9%
CVS Corporation 16,000 422,720
-----------
FOOD PRODUCTS - 1.0%
McCormick & Company, Incorporated (c) 14,600 451,432
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 3.7%
Alcon, Inc. (a) (b) 4,800 622,080
Becton, Dickinson & Company 8,000 480,640
Fisher Scientific International Inc. (a) 10,000 618,600
-----------
1,721,320
-----------
HOTELS, RESTAURANTS & LEISURE - 0.9%
Starbucks Corporation (a) 14,000 420,140
-----------
HOUSEHOLD PRODUCTS - 3.1%
Kimberly-Clark Corporation 11,500 685,975
The Procter & Gamble Company 13,000 752,440
-----------
1,438,415
-----------
INDUSTRIAL CONGLOMERATES - 1.8%
General Electric Company 24,000 841,200
-----------
INSURANCE - 4.1%
American International Group, Inc. 9,000 614,070
Genworth Financial Inc. - Class A 20,000 691,600
Prudential Financial, Inc. 8,000 585,520
-----------
1,891,190
-----------
INTERNET & CATALOG RETAIL - 0.9%
eBay Inc. (a) 10,000 432,500
-----------
INVESTMENT BANK & BROKERAGE - 0.7%
Morgan Stanley 5,700 323,418
-----------
IT SERVICES - 1.2%
Accenture Ltd.- Class A (b) 20,000 577,400
-----------
MEDIA - 4.5%
CCE Spinco, Inc. (a) 2,500 32,750
Clear Channel Communications, Inc. 20,000 629,000
Gannett Co., Inc. 9,500 575,415
Time Warner Inc. 32,000 558,080
Viacom Inc. - Class B (c) 8,900 290,140
-----------
2,085,385
-----------
MULTILINE RETAIL - 0.8%
Kohl's Corporation (a) 7,500 364,500
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 8.1%
Anadarko Petroleum Corporation 7,000 663,250
Burlington Resources Inc. 6,000 517,200
EOG Resources, Inc. 7,000 513,590
Exxon Mobil Corporation 10,000 561,700
Kerr-McGee Corporation 6,313 573,599
Noble Energy, Inc. (b) 10,000 403,000
XTO Energy, Inc. 12,000 527,280
-----------
3,759,619
-----------
See notes to the financial statements.
17
LKCM EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.2%
International Paper Company 17,000 $ 571,370
-----------
PHARMACEUTICALS - 5.9%
Abbott Laboratories 18,000 709,740
Pfizer Inc. 26,000 606,320
Schering-Plough Corporation 45,000 938,250
Teva Pharmaceutical Industries, Ltd. -
ADR (b) 11,000 473,110
-----------
2,727,420
-----------
ROAD & RAIL - 1.1%
Burlington Northern Santa Fe Corporation 7,300 516,986
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 3.9%
ATI Technologies Inc. (a) (b) 40,000 679,600
Intel Corporation 20,000 499,200
Texas Instruments, Incorporated 20,000 641,400
-----------
1,820,200
-----------
SOFTWARE - 4.4%
Electronic Arts Inc. (a) 6,100 319,091
Microsoft Corporation 15,000 392,250
Oracle Corporation (a) 50,000 610,500
Symantec Corporation (a) 41,080 718,900
-----------
2,040,741
-----------
SOFTWARE & SERVICES - 0.8%
BEA Systems, Inc. (a) 37,500 352,500
-----------
SPECIALTY RETAIL - 6.4%
The Home Depot, Inc. 20,000 809,600
PETsMART, Inc. 31,000 795,460
RadioShack Corporation 33,000 693,990
Tiffany & Co. 18,000 689,220
-----------
2,988,270
-----------
TOTAL COMMON STOCKS
(Cost $35,325,033) 43,404,885
-----------
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS - 6.9% SHARES VALUE
- ---------------------------------------------------------------
MONEY MARKET FUNDS - 6.9%
Columbia Money Market Reserves Fund -
Capital Shares 1,330,990 $ 1,330,990
Dreyfus Cash Management Fund -
Investor Shares 1,360,355 1,360,355
Federated Treasury Obligations Fund -
Institutional Shares 486,987 486,987
-----------
TOTAL-SHORT TERM INVESTMENTS
(Cost $3,178,332) 3,178,332
-----------
TOTAL INVESTMENTS - 100.2%
(Cost $38,503,365) 46,583,217
Liabilities in Excess of Other Assets - (0.2)% (72,985)
-----------
TOTAL NET ASSETS - 100.0% $46,510,232
===========
ADR American Depository Receipt.
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
(c) Non-voting shares.
See notes to the financial statements.
18
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS - 70.7% SHARES VALUE
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 3.4%
General Dynamics Corporation 700 $ 79,835
Raytheon Company 3,132 125,750
United Technologies Corporation 2,000 111,820
-----------
317,405
-----------
ASSET MANAGEMENT - 2.7%
The Bank of New York Company, Inc. 4,000 127,400
Mellon Financial Corporation 3,440 117,820
-----------
245,220
-----------
BEVERAGES - 2.4%
The Coca-Cola Company 2,300 92,713
PepsiCo, Inc. 2,200 129,976
-----------
222,689
-----------
BUILDING PRODUCTS - 0.9%
American Standard Companies Inc. 2,000 79,900
-----------
CHEMICALS - 2.3%
Air Products and Chemicals, Inc. 1,800 106,542
E.I. du Pont de Nemours & Company 2,400 102,000
-----------
208,542
-----------
COMMERCIAL BANKS - 5.5%
Bank of America Corporation 2,500 115,375
Cullen/Frost Bankers, Inc. 2,600 139,568
The South Financial Group, Inc. 4,300 118,422
Wells Fargo & Company 2,200 138,226
-----------
511,591
-----------
COMMERCIAL SERVICES & SUPPLIES - 2.3%
H&R Block, Inc. 4,200 103,110
Waste Management, Inc. 3,500 106,225
-----------
209,335
-----------
COMMUNICATIONS EQUIPMENT - 3.0%
Cisco Systems, Inc. (a) 3,900 66,768
Harris Corporation 2,600 111,826
Motorola, Inc. 4,500 101,655
-----------
280,249
-----------
COMPUTERS & PERIPHERALS - 2.1%
Dell, Inc. (a) 2,900 86,971
International Business Machines
Corporation 1,300 106,860
-----------
193,831
-----------
CONSTRUCTION & ENGINEERING - 1.3%
Chicago Bridge & Iron Company N.V. -
NY Shares - ADR (b) 4,900 123,529
-----------
CONTAINERS & PACKAGING - 1.6%
Temple-Inland, Inc. 3,300 148,005
-----------
DIVERSIFIED FINANCIAL SERVICES - 1.3%
Citigroup Inc. 2,566 124,528
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.9%
ALLTEL Corporation 1,600 100,960
AT&T Inc. 3,800 93,062
Verizon Communications Inc. 2,600 78,312
-----------
272,334
-----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 2.6%
Noble Corporation (b) 1,500 $ 105,810
Schlumberger Ltd. (b) 1,350 131,153
-----------
236,963
-----------
FOOD & STAPLES RETAILING - 1.3%
Wal-Mart Stores, Inc. 2,500 117,000
-----------
FOOD PRODUCTS - 1.0%
Kraft Foods, Inc. - Class A 3,300 92,862
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 5.2%
Alcon, Inc. (a) (b) 1,000 129,600
Fisher Scientific International Inc. (a) 1,600 98,976
Medtronic, Inc. 2,300 132,411
Serologicals Corporation (a) 6,000 118,440
-----------
479,427
-----------
HEALTH CARE PROVIDERS & SERVICES - 0.7%
Triad Hospitals, Inc. (a) 1,600 62,768
-----------
HOUSEHOLD PRODUCTS - 3.9%
Colgate-Palmolive Co. 2,500 137,125
Kimberly-Clark Corporation 1,700 101,405
The Procter & Gamble Company 2,100 121,548
-----------
360,078
-----------
INDUSTRIAL CONGLOMERATES - 1.8%
General Electric Company 4,800 168,240
-----------
INSURANCE - 1.4%
Prudential Financial, Inc. 1,781 130,351
-----------
IT SERVICES - 3.6%
Accenture Ltd. - Class A (b) 4,200 121,254
Automatic Data Processing, Inc. 2,200 100,958
First Data Corp. 2,600 111,826
-----------
334,038
-----------
MEDIA - 2.7%
Harte-Hanks, Inc. 3,000 79,170
Viacom Inc. - Class B (c) 2,887 94,116
The Walt Disney Company 3,000 71,910
-----------
245,196
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 6.4%
Anadarko Petroleum Corporation 1,300 123,175
Chevron Corporation 1,495 84,871
EOG Resources, Inc. 1,600 117,392
Exxon Mobil Corporation 2,500 140,425
XTO Energy, Inc. 2,766 121,538
-----------
587,401
-----------
PHARMACEUTICALS - 3.8%
Abbott Laboratories 2,100 82,803
Schering-Plough Corporation 6,500 135,525
Teva Pharmaceutical Industries Ltd. -
ADR (b) 3,000 129,030
-----------
347,358
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.2%
Texas Instruments Incorporated 3,400 109,038
-----------
See notes to the financial statements.
19
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
SOFTWARE - 0.9%
Microsoft Corporation 3,100 $ 81,065
-----------
SPECIALTY RETAIL - 2.5%
The Home Depot, Inc. 3,100 125,488
PETsMART, Inc. 4,300 110,338
-----------
235,826
-----------
TOTAL COMMON STOCKS
(Cost $5,420,025) 6,524,769
-----------
- ---------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS - 26.1% AMOUNT
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 2.5%
General Dynamics Corporation
4.50%, 08/15/2010 $100,000 98,504
Raytheon Company
6.00%, 12/15/2010 26,000 26,926
United Technologies Corporation
4.875%, 11/01/2006 100,000 100,263
-----------
225,693
-----------
ASSET MANAGEMENT - 1.1%
The Bank of New York Company, Inc.
3.90%, 09/01/2007 100,000 98,524
-----------
BEVERAGES - 0.6%
Anheuser-Busch Companies, Inc.
5.75%, 04/01/2010 57,000 59,017
-----------
BUILDING PRODUCTS - 0.8%
Masco Corporation
5.75%, 10/15/2008 75,000 76,402
-----------
COMMERCIAL BANKS - 0.9%
Bancwest Corp.
8.30%, 01/15/2011 75,000 85,097
-----------
COMMERCIAL SERVICES & SUPPLIES - 1.2%
Waste Management, Inc.
7.375%, 08/01/2010 100,000 108,935
-----------
COMMUNICATIONS EQUIPMENT - 2.5%
Harris Corporation
6.35%, 02/01/2028 110,000 115,314
Motorola, Inc.
7.625%, 11/15/2010 100,000 111,277
-----------
226,591
-----------
COMPUTERS & PERIPHERALS - 0.5%
International Business Machines Corporation
4.375%, 06/01/2009 50,000 49,412
-----------
CONSUMER FINANCE - 1.1%
Pitney Bowes Credit Corp.
5.75%, 08/15/2008 100,000 102,024
-----------
- ---------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.2%
CIT Group Inc.
6.875%, 11/01/2009 $100,000 $ 106,162
Citigroup Inc.
4.25%, 07/29/2009 100,000 97,907
-----------
204,069
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
AT&T Inc.
5.875%, 02/01/2012 75,000 77,207
-----------
ELECTRICAL EQUIPMENT - 1.1%
Emerson Electric Co.
5.85%, 03/15/2009 100,000 103,145
-----------
FOOD & STAPLES RETAILING - 1.7%
CVS Corporation
3.875%, 11/01/2007 85,000 83,415
Wal-Mart Stores, Inc.
5.45%, 08/01/2006 75,000 75,334
-----------
158,749
-----------
INVESTMENT BANK & BROKERAGE - 2.2%
Lehman Brothers Holdings, Inc.
8.25%, 06/15/2007 100,000 104,580
Morgan Stanley Group, Inc.
6.875%, 03/01/2007 100,000 101,982
-----------
206,562
-----------
MULTILINE RETAIL - 0.7%
J.C. Penney Co., Inc.
6.50%, 12/15/2007 60,000 61,350
-----------
MULTI-UTILITIES & UNREGULATED POWER - 0.6%
Duke Energy Corp.
6.25%, 01/15/2012 50,000 52,763
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 3.3%
Anadarko Petroleum Corporation
3.25%, 05/01/2008 100,000 96,355
Burlington Resources Finance Co. (b)
6.68%, 02/15/2011 100,000 107,938
EOG Resources, Inc.
6.50%, 12/01/2007 100,000 102,544
-----------
306,837
-----------
PAPER & FOREST PRODUCTS - 1.1%
Weyerhaeuser Co.
5.95%, 11/01/2008 100,000 102,086
-----------
RESTAURANTS - 0.9%
McDonald's Corporation
6.00%, 04/15/2011 75,000 78,429
-----------
SOFTWARE - 0.3%
Oracle Corporation
6.91%, 02/15/2007 25,000 25,447
-----------
TOTAL CORPORATE BONDS
(Cost $2,407,739) 2,408,339
-----------
See notes to the financial statements.
20
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
U.S. GOVERNMENT & PRINCIPAL
AGENCY ISSUES - 1.6% AMOUNT/SHARES VALUE
- ---------------------------------------------------------------
U.S. TREASURY NOTE - 1.6%
3.00%, 12/31/2006 $50,000 $ 49,311
4.25%, 10/31/2007 50,000 49,869
5.00%, 08/15/2011 50,000 51,623
-----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(Cost $152,998) 150,803
-----------
SHORT-TERM
INVESTMENTS - 1.0%
- ---------------------------------------------------------------
MONEY MARKET FUND - 1.0%
Columbia Money Market Reserves Fund -
Capital Shares 95,090 95,090
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $95,090) 95,090
-----------
TOTAL INVESTMENTS - 99.4%
(Cost $8,075,852) 9,179,001
Other Assets in Excess of Liabilities - 0.6% 53,489
-----------
TOTAL NET ASSETS - 100.0% $ 9,232,490
===========
ADR American Depository Receipt
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
(c) Non-voting shares.
See notes to the financial statements.
21
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS - 77.3% AMOUNT VALUE
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 3.9%
Lockheed Martin Corporation:
8.20%, 12/01/2009 $ 820,000 $ 916,917
7.65%, 05/01/2016 1,000,000 1,193,533
Raytheon Company
6.00%, 12/15/2010 306,000 316,901
United Technologies Corporation:
4.875%, 11/01/2006 1,040,000 1,042,739
7.125%, 11/15/2010 250,000 273,951
6.10%, 05/15/2012 700,000 743,082
-----------
4,487,123
-----------
ASSET MANAGEMENT - 2.4%
The Bank of New York Company Inc.
5.20%, 07/01/2007 1,000,000 1,005,318
Mellon Funding Corporation:
6.70%, 03/01/2008 325,000 337,168
6.40%, 05/14/2011 1,292,000 1,378,589
-----------
2,721,075
-----------
BEVERAGES - 1.6%
Anheuser-Busch Cos., Inc.
Callable 01/15/2006
5.75%, 01/15/2011 588,000 588,566
PepsiCo, Inc.:
3.20%, 05/15/2007 500,000 490,497
5.75%, 01/15/2008 730,000 743,306
-----------
1,822,369
-----------
BUILDING PRODUCTS - 1.3%
Masco Corporation
6.75%, 03/15/2006 1,500,000 1,505,370
-----------
CHEMICALS - 3.2%
E.I. du Pont de Nemours & Company
4.125%, 04/30/2010 750,000 724,884
The Lubrizol Corporation
5.50%, 10/01/2014 1,400,000 1,406,135
Praxair, Inc.:
6.90%, 11/01/2006 552,000 560,700
6.375%, 04/01/2012 925,000 990,306
-----------
3,682,025
-----------
COMMERCIAL BANKS - 2.4%
Bank of America Corporation
6.375%, 02/15/2008 350,000 360,582
National City Bank
6.20%, 12/15/2011 335,000 354,906
SunTrust Banks, Inc.
6.25%, 06/01/2008 811,000 835,637
Wells Fargo Financial, Inc.
6.125%, 02/15/2006 1,231,000 1,232,753
-----------
2,783,878
-----------
COMMERCIAL SERVICES & SUPPLIES - 3.5%
Allied Waste Industries, Inc.
5.75%, 02/15/2011 1,000,000 952,500
Block Financial Corp.
8.50%, 04/15/2007 490,000 510,238
Ingersoll-Rand Company Ltd. (b)
6.25%, 05/15/2006 390,000 392,142
International Lease Finance Corporation
6.375%, 03/15/2009 700,000 727,579
Pitney Bowes Inc.
3.875%, 06/15/2013 400,000 373,278
Waste Management, Inc.
7.375%, 08/01/2010 1,049,000 1,142,731
-----------
4,098,468
-----------
- ---------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.4%
Motorola, Inc.
7.625%, 11/15/2010 $1,500,000 $ 1,669,161
-----------
COMPUTERS & PERIPHERALS - 2.8%
Dell, Inc.
6.55%, 04/15/2008 1,000,000 1,034,641
Hewlett-Packard Company
5.50%, 07/01/2007 1,500,000 1,512,655
International Business
Machines Corporation
4.875%, 10/01/2006 750,000 750,751
-----------
3,298,047
-----------
CONSUMER FINANCE - 3.4%
American Express Credit Corporation (a)
4.42%, 03/30/2006 1,000,000 1,000,190
Capital One Bank:
6.875%, 02/01/2006 1,215,000 1,216,984
5.125%, 02/15/2014 700,000 689,975
Pitney Bowes Credit Corp.
5.75%, 08/15/2008 1,000,000 1,020,236
-----------
3,927,385
-----------
CONTAINERS & PACKAGING - 1.3%
Packaging Corp of America
5.75%, 08/01/2013 1,500,000 1,475,347
-----------
DIVERSIFIED FINANCIAL SERVICES - 2.8%
Chase Manhattan Corporation
6.25%, 01/15/2006 1,021,000 1,021,460
Citicorp
7.00%, 07/01/2007 1,157,000 1,192,560
First Chicago Corporation
6.375%, 01/30/2009 1,000,000 1,040,248
-----------
3,254,268
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.4%
ALLTEL Corporation
7.00%, 07/01/2012 1,000,000 1,100,888
AT&T Inc.
6.25%, 03/15/2011 200,000 209,323
SBC Communications Inc.
5.75%, 05/02/2006 1,500,000 1,503,915
-----------
2,814,126
-----------
ELECTRIC UTILITIES - 3.1%
Progress Energy, Inc.
5.85%, 10/30/2008 1,000,000 1,016,967
Southern Company Capital Funding, Inc.
5.30%, 02/01/2007 1,000,000 999,933
TXU Corp.
6.375%, 06/15/2006 1,520,000 1,535,343
-----------
3,552,243
-----------
ELECTRICAL EQUIPMENT - 1.6%
Emerson Electric Co.:
5.00%, 10/15/2008 850,000 852,944
5.85%, 03/15/2009 1,025,000 1,057,241
-----------
1,910,185
-----------
ENERGY EQUIPMENT & SERVICES - 0.8%
Baker Hughes Incorporated
6.00%, 02/15/2009 857,000 885,264
-----------
See notes to the financial statements.
22
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
FOOD & STAPLES RETAILING - 1.3%
CVS Corporation
3.875%, 11/01/2007 $ 535,000 $ 525,023
Wal-Mart Stores, Inc.
5.45%, 08/01/2006 1,000,000 1,004,450
-----------
1,529,473
-----------
FOOD PRODUCTS - 0.9%
The Hershey Company
4.85%, 08/15/2015 1,000,000 993,505
-----------
HEALTH CARE PROVIDERS & SERVICES - 0.1%
HCA, Inc.
5.25%, 11/06/2008 160,000 158,692
-----------
HOUSEHOLD PRODUCTS - 1.3%
Kimberly-Clark Corporation:
7.10%, 08/01/2007 500,000 517,498
5.625%, 02/15/2012 1,000,000 1,043,862
-----------
1,561,360
-----------
INDUSTRIAL CONGLOMERATES - 1.6%
Tyco International Group SA (b):
6.375%, 02/15/2006 1,500,000 1,502,492
6.125%, 11/01/2008 254,000 259,443
6.00%, 11/15/2013 140,000 143,231
-----------
1,905,166
-----------
INVESTMENT BANK & BROKERAGE - 5.1%
The Bear Stearns Companies Inc.
6.75%, 12/15/2007 600,000 620,262
Lehman Brothers Holdings Inc.:
6.625%, 02/05/2006 1,350,000 1,352,214
8.25%, 06/15/2007 1,000,000 1,045,799
Morgan Stanley:
6.30%, 01/15/2006 1,850,000 1,850,827
6.875%, 03/01/2007 1,000,000 1,019,825
-----------
5,888,927
-----------
IT SERVICES - 0.6%
First Data Corporation:
4.70%, 11/01/2006 235,000 234,727
6.375%, 12/15/2007 400,000 408,953
-----------
643,680
-----------
MACHINERY - 0.9%
Dover Corporation
6.50%, 02/15/2011 925,000 990,981
-----------
MEDIA - 3.1%
Clear Channel Communications, Inc.:
4.625%, 01/15/2008 725,000 715,395
7.65%, 09/15/2010 775,000 830,399
Viacom Inc.
6.40%, 01/30/2006 2,000,000 2,002,222
-----------
3,548,016
-----------
METALS & MINING - 2.8%
Alcoa, Inc.:
4.25%, 08/15/2007 750,000 742,872
6.00%, 01/15/2012 1,310,000 1,373,555
Freeport-McMoRan Copper & Gold, Inc.
Callable 02/01/2007
10.125%, 02/01/2010 975,000 1,076,156
-----------
3,192,583
-----------
- ---------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
MULTILINE RETAIL - 3.1%
Dollar General Corp.
8.625%, 06/15/2010 $1,195,000 $ 1,317,487
J.C. Penney Co. Inc.
6.50%, 12/15/2007 915,000 935,588
Target Corporation:
5.50%, 04/01/2007 950,000 957,044
6.35%, 01/15/2011 300,000 320,060
-----------
3,530,179
-----------
MULTI-UTILITIES & UNREGULATED POWER - 0.9%
Duke Energy Corp.
6.250%, 01/15/2012 1,000,000 1,055,252
-----------
OIL & GAS DRILLING - 1.4%
Transocean Inc. (b)
6.625%, 04/15/2011 1,500,000 1,628,379
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 7.7%
Apache Corporation
6.25%, 04/15/2012 1,593,000 1,714,030
Burlington Resources Finance Company (b)
6.68%, 02/15/2011 1,370,000 1,478,750
Devon Financing Corp. ULC
6.875%, 09/30/2011 1,000,000 1,095,140
EOG Resources, Inc.
6.50%, 12/01/2007 1,000,000 1,025,442
Kerr-McGee Corporation
6.875%, 09/15/2011 1,000,000 1,073,501
Union Pacific Resources Group Inc.
7.00%, 10/15/2006 1,250,000 1,266,369
XTO Energy, Inc.
6.25%, 04/15/2013 1,150,000 1,220,582
-----------
8,873,814
-----------
REAL ESTATE - 2.4%
Camden Property Trust
7.00%, 11/15/2006 800,000 812,674
EOP Operating Limited Partnership
8.375%, 03/15/2006 2,000,000 2,013,792
-----------
2,826,466
-----------
RESTAURANTS - 0.9%
McDonald's Corporation
6.00%, 04/15/2011 1,000,000 1,045,723
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 0.9%
Applied Materials, Inc.
6.75%, 10/15/2007 1,000,000 1,027,274
-----------
SOFTWARE - 1.4%
Oracle Corporation
6.91%, 02/15/2007 1,550,000 1,577,719
-----------
SPECIALTY RETAIL - 2.2%
The Home Depot, Inc.
4.625%, 08/15/2010 1,175,000 1,168,683
Lowe's Companies, Inc.
8.25%, 06/01/2010 1,225,000 1,387,488
-----------
2,556,171
-----------
See notes to the financial statements.
23
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT/SHARES VALUE
- ---------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.8%
Hughes Supply, Inc.
5.50%, 10/15/2014 $1,000,000 $ 974,468
-----------
TOTAL CORPORATE BONDS
(Cost $89,984,877) 89,394,162
-----------
- ---------------------------------------------------------------
FIRST MORTGAGE BOND - 0.9%
- ---------------------------------------------------------------
ELECTRIC UTILITIES - 0.9%
PP&L, Inc.
6.55%, 03/01/2006 1,000,000 1,003,034
-----------
TOTAL FIRST MORTGAGE BOND
(Cost $998,192) 1,003,034
-----------
- ---------------------------------------------------------------
PREFERRED STOCKS - 1.7%
- ---------------------------------------------------------------
INVESTMENT BANK & BROKERAGE - 1.7%
The Goldman Sachs Group, Inc. 40,000 1,028,000
Merrill Lynch & Co., Inc.
Callable 11/28/2009 40,000 990,800
-----------
TOTAL PREFERRED STOCKS
(Cost $2,000,000) 2,018,800
-----------
- ---------------------------------------------------------------
U.S. GOVERNMENT & AGENCY ISSUES - 13.5%
- ---------------------------------------------------------------
FANNIE MAE - 2.6%
Callable 05/19/2006
4.15%, 11/19/2007 1,000,000 988,158
Callable 05/10/2006
5.01%, 11/10/2010 1,000,000 992,606
5.00%, 04/15/2015 1,000,000 1,016,958
-----------
2,997,722
-----------
FEDERAL HOME LOAN BANK - 1.8%
Callable 11/21/2006
4.90%, 11/21/2007 1,000,000 998,559
5.25%, 06/18/2014 1,000,000 1,032,387
-----------
2,030,946
-----------
FREDDIE MAC - 0.9%
4.20%, 12/28/2007 1,000,000 987,728
-----------
U. S. TREASURY INFLATION INDEXED BOND - 1.0%
3.375%, 01/15/2012 1,121,770 1,206,560
-----------
U.S. TREASURY NOTES - 7.2%
4.75%, 11/15/2008 1,000,000 1,009,922
5.75%, 08/15/2010 750,000 793,682
5.00%, 08/15/2011 1,000,000 1,032,461
4.875%, 02/15/2012 1,000,000 1,026,993
4.375%, 08/15/2012 1,000,000 1,000,196
4.75%, 05/15/2014 1,500,000 1,536,974
4.25%, 08/15/2014 1,000,000 989,376
4.00%, 02/15/2015 1,000,000 969,844
-----------
8,359,448
-----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(Cost $15,895,219) 15,582,404
-----------
- ---------------------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENTS - 5.2% AMOUNT/SHARES VALUE
- ---------------------------------------------------------------
CORPORATE PAPER - 3.9%
American General Finance Corporation (a)
4.28%, 02/01/2006 $2,500,000 $ 2,490,786
General Electric Capital Corporation (a)
4.29%, 01/06/2006 2,000,000 1,998,809
-----------
4,489,595
-----------
MONEY MARKET FUND - 1.3%
Columbia Money Market Reserves Fund -
Capital Shares 1,524,571 1,524,571
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $6,014,166) 6,014,166
-----------
TOTAL INVESTMENTS - 98.6%
(Cost $114,892,454) 114,012,566
Other Assets in Excess of Liabilities - 1.4% 1,586,330
-----------
TOTAL NET ASSETS - 100.0% $115,598,896
============
(a) Variable rate security. Rate shown is the yield in effect at December 31,
2005.
(b) Dollar-denominated foreign security.
See notes to the financial statements.
24
LKCM INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS - 94.8% SHARES VALUE (US$)
- ---------------------------------------------------------------
AUSTRALIA - 2.7%
- ---------------------------------------------------------------
CONTAINERS & PACKAGING - 0.4%
Amcor Limited 57,535 $ 315,077
-----------
DIVERSIFIED OPERATIONS - 0.7%
BHP Billiton Limited 11,966 199,570
Orica Limited 25,979 388,522
-----------
588,092
-----------
HOTELS RESTAURANTS & LEISURE - 0.3%
TABCORP Holdings Limited 25,992 296,682
-----------
INSURANCE - 0.3%
QBE Insurance Group Limited 19,064 273,926
-----------
METALS & MINING - 1.0%
Alumina Limited 145,300 790,374
-----------
TOTAL AUSTRALIA 2,264,151
-----------
- ---------------------------------------------------------------
AUSTRIA - 0.8%
- ---------------------------------------------------------------
OIL & GAS - 0.8%
OMV AG 11,024 646,037
-----------
TOTAL AUSTRIA 646,037
-----------
- ---------------------------------------------------------------
BELGIUM - 1.0%
- ---------------------------------------------------------------
COMMERCIAL BANKS - 1.0%
KBC GROEP NV 8,518 793,139
-----------
TOTAL BELGIUM 793,139
-----------
- ---------------------------------------------------------------
FRANCE - 10.8%
- ---------------------------------------------------------------
BEVERAGES - 1.0%
Pernod Ricard SA 4,880 851,589
-----------
CHEMICALS - 0.9%
Rhodia SA (a) 344,179 737,523
-----------
DIVERSIFIED TELECOMMUNICATIONS - 1.4%
France Telecom SA 47,051 1,169,215
-----------
ELECTRIC UTILITIES - 0.9%
Electricite de France (a) 19,043 720,986
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.2%
Alstom (a) 16,950 975,658
Schneider Electric SA 8,801 785,106
-----------
1,760,764
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 2.5%
Total SA 8,115 2,038,669
-----------
PHARMACEUTICALS - 1.9%
Sanofi-Aventis 17,807 1,560,039
-----------
TOTAL FRANCE 8,838,785
-----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- ---------------------------------------------------------------
GERMANY - 11.0%
- ---------------------------------------------------------------
AIR FREIGHT & LOGISTICS - 0.9%
Deutsche Post AG 30,823 $ 748,799
-----------
AUTOMOTIVE - 2.3%
Continental AG 9,000 798,063
DaimlerChrysler AG 20,322 1,036,466
-----------
1,834,529
-----------
CHEMICALS - 1.7%
Bayer AG 33,349 1,390,940
-----------
COMMERCIAL BANKS - 1.0%
Commerzbank AG 26,841 833,190
-----------
ELECTRIC UTILITIES - 3.0%
E.ON AG 23,592 2,442,796
-----------
INSURANCE - 2.1%
Allianz AG 11,502 1,742,315
-----------
TOTAL GERMANY 8,992,569
-----------
- ---------------------------------------------------------------
HONG KONG - 1.4%
- ---------------------------------------------------------------
COMMERCIAL BANKS - 0.4%
BOC Hong Kong (Holdings) Limited 153,500 294,977
-----------
DIVERSIFIED OPERATIONS - 0.3%
Hutchison Whampoa Limited 23,000 219,065
-----------
OIL & GAS - 0.5%
CNOOC Limited 642,500 435,037
-----------
REAL ESTATE - 0.2%
Cheung Kong (Holdings) Limited 18,000 184,674
-----------
TOTAL HONG KONG 1,133,753
-----------
- ---------------------------------------------------------------
ITALY - 1.8%
- ---------------------------------------------------------------
COMMERCIAL BANKS - 1.8%
Capitalia S.p.A 255,329 1,478,162
-----------
TOTAL ITALY 1,478,162
-----------
- ---------------------------------------------------------------
JAPAN - 29.1%
- ---------------------------------------------------------------
AUTOMOBILES - 0.4%
MITSUBISHI MOTORS CORPORATION (a) 173,000 359,393
-----------
CHEMICALS - 2.0%
NITTO DENKO CORPORATION 5,700 444,168
TORAY INDUSTRIES, INC. 147,000 1,199,084
-----------
1,643,252
-----------
COMMERCIAL BANKS - 5.3%
The Chiba Bank Ltd. 50,000 419,299
Mitsubishi UFJ Financial Group, Inc. 103 1,397,380
Mizuho Financial Group, Inc. 186 1,476,203
Sumitomo Mitsui Financial Group, Inc. 101 1,070,505
-----------
4,363,387
-----------
CONSTRUCTION & ENGINEERING - 0.6%
OBAYASHI CORPORATION 65,000 478,950
-----------
See notes to the financial statements.
25
LKCM INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
COMMON STOCKS SHARES VALUE (US$)
- ---------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 3.4%
FANUC LTD. 10,300 $ 874,236
MURATA MANUFACTURING COMPANY, LTD. 12,000 769,237
Sumitomo Electric Industries, Ltd. 50,500 766,910
YOKOGAWA ELECTRIC CORPORATION 21,700 369,839
-----------
2,780,222
-----------
FINANCIAL SERVICES - 2.3%
Credit Saison Co., Ltd. 13,800 689,210
ORIX Corporation 4,590 1,169,539
-----------
1,858,749
-----------
INSURANCE - 1.7%
Mitsui Sumitomo Insurance Company, Limited 52,000 636,249
T&D Holdings, Inc. 10,850 719,439
-----------
1,355,688
-----------
INVESTMENT BANK & BROKERAGE - 0.8%
Nomura Holdings, Inc. 33,700 645,796
-----------
MACHINERY - 4.7%
Hitachi Construction Machinery Co., Ltd. 46,200 1,077,288
KOMATSU LTD. 35,000 579,005
Mitsubishi Heavy Industries, Ltd. 209,000 921,525
Mitsui Engineering & Shipbuilding Co., Ltd.106,000 345,139
SMC CORPORATION 6,700 957,265
-----------
3,880,222
-----------
METALS & MINING - 0.4%
MITSUBISHI MATERIALS CORPORATION 70,000 357,909
-----------
PHARMACEUTICALS - 0.7%
Takeda Pharmaceutical Company Limited 10,400 562,615
-----------
REAL ESTATE - 1.9%
Mitsubishi Estate Company Ltd. 43,000 893,289
Mitsui Fudosan Co., Ltd. 33,000 670,157
-----------
1,563,446
-----------
ROAD & RAIL - 0.7%
TOKYU CORPORATION 77,000 544,520
-----------
SPECIALTY RETAIL - 0.7%
YAMADA DENKI CO., LTD. 4,600 575,707
-----------
TRADING COMPANIES & DISTRIBUTORS - 3.5%
Marubeni Corporation 143,000 767,533
Mitsubishi Corporation 35,600 787,858
MITSUI & CO., LTD. 103,000 1,323,144
-----------
2,878,535
-----------
TOTAL JAPAN 23,848,391
-----------
- ---------------------------------------------------------------
MALAYSIA - 0.2%
- ---------------------------------------------------------------
COMMERCIAL BANKS - 0.2%
Bumiputra-Commerce Holdings Bhd 135,000 203,598
-----------
TOTAL MALAYSIA 203,598
-----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- ---------------------------------------------------------------
NORWAY - 3.2%
- ---------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 3.2%
Norsk Hydro ASA 8,100 $ 831,686
Statoil ASA 77,900 1,789,001
-----------
TOTAL NORWAY 2,620,687
-----------
- ---------------------------------------------------------------
SINGAPORE - 0.5%
- ---------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.1%
Venture Corporation Limited 8,000 66,400
-----------
REAL ESTATE - 0.4%
City Developments Limited 62,000 324,422
-----------
TOTAL SINGAPORE 390,822
-----------
- ---------------------------------------------------------------
SOUTH KOREA - 1.1%
- ---------------------------------------------------------------
COMMERCIAL BANKS - 0.4%
Hana Financial Group Inc. 8,059 368,348
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.7%
LG Electronics Inc. 6,200 547,717
-----------
TOTAL SOUTH KOREA 916,065
-----------
- ---------------------------------------------------------------
SWEDEN - 2.5%
- ---------------------------------------------------------------
MACHINERY - 0.9%
Atlas Copco AB - A Shares 33,566 747,836
-----------
WIRELESS TELECOMMUNICATION SERVICES - 1.6%
Telefonaktiebolaget LM Ericsson - B Shares370,125 1,271,875
-----------
TOTAL SWEDEN 2,019,711
-----------
- ---------------------------------------------------------------
SWITZERLAND - 8.1%
- ---------------------------------------------------------------
BUILDING MATERIALS - 1.1%
Holcim Ltd. 13,224 900,687
-----------
COMMERCIAL BANKS - 1.7%
UBS AG 15,010 1,428,980
-----------
INSURANCE - 2.2%
Swiss Re 11,272 825,209
Zurich Financial Services AG 4,721 1,005,959
-----------
1,831,168
-----------
PHARMACEUTICALS - 3.1%
Roche Holding AG 16,719 2,510,299
-----------
TOTAL SWITZERLAND 6,671,134
-----------
- ---------------------------------------------------------------
TAIWAN - 0.3%
- ---------------------------------------------------------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 0.3%
Advanced Semiconductor Engineering
Inc. - ADR 51,600 231,684
-----------
TOTAL TAIWAN 231,684
-----------
See notes to the financial statements.
26
LKCM INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- ---------------------------------------------------------------
UNITED KINGDOM - 20.3%
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 2.3%
BAE Systems plc 284,649 $ 1,869,566
-----------
AIRLINES - 0.6%
British Airways plc (a) 79,906 459,175
-----------
BEVERAGES - 0.7%
SABMiller plc 30,328 553,619
-----------
COMMERCIAL BANKS - 2.5%
Standard Chartered plc 92,993 2,071,915
-----------
DIVERSIFIED OPERATIONS - 3.9%
BHP Billiton plc 88,494 1,445,642
Rolls-Royce Group plc 242,302 1,782,154
-----------
3,227,796
-----------
DIVERSIFIED FINANCIAL SERVICES - 1.0%
Man Group plc 24,367 800,732
-----------
FOOD & STAPLES RETAILING - 1.3%
Tesco plc 192,694 1,099,015
-----------
INSURANCE - 0.7%
Prudential plc 60,515 572,635
-----------
METALS & MINING - 2.6%
Xstrata plc 91,527 2,141,609
-----------
MULTILINE RETAIL - 0.9%
Next Plc 29,331 774,617
-----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- ---------------------------------------------------------------
PHARMACEUTICALS - 2.6%
AstraZeneca plc 43,075 $ 2,096,574
-----------
TOBACCO - 1.2%
Imperial Tobacco Group plc 32,214 962,712
-----------
TOTAL UNITED KINGDOM 16,629,965
-----------
TOTAL COMMON STOCKS
(Cost $71,860,412) 77,678,653
-----------
- ---------------------------------------------------------------
PREFERRED STOCKS - 1.3%
- ---------------------------------------------------------------
GERMANY - 1.3%
- ---------------------------------------------------------------
AUTOMOTIVE - 1.3%
Porsche AG 1,432 1,027,204
-----------
TOTAL GERMANY 1,027,204
-----------
TOTAL PREFERRED STOCKS
(Cost $1,056,496) 1,027,204
-----------
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.4%
- ---------------------------------------------------------------
MONEY MARKET FUND - 2.4%
Dreyfus Cash Management Fund -
Investor Shares 1,966,685 1,966,685
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,966,685) 1,966,685
-----------
TOTAL INVESTMENTS - 98.5%
(Cost $74,883,593) 80,672,542
Other Assets in Excess of Liabilities - 1.5% 1,227,904
-----------
TOTAL NET ASSETS - 100.0% $81,900,446
===========
ADR American Depository Receipt
(a) Non Income Producing
At December 31, 2005, the Fund had entered into forward currency exchange
contracts that obligated the Fund to deliver or receive currencies at a
specified future date. The contracts had net unrealized depreciation of
$223,792 as of December 31, 2005. The terms of the open contracts are as
follows:
SETTLEMENT CURRENCY TO U.S. $ VALUE AT CURRENCY TO U.S. $ VALUE AT
DATE BE DELIVERED DEC. 31, 2005 BE RECEIVED DEC. 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
1/6/06 1,350,000 EURO $ 1,598,694 913,037 KB $ 1,570,764
1/6/06 2,110,000 EURO 2,498,699 2,524,552 USD 2,524,552
1/6/06 650,000 EURO 769,741 90,220,000 JPY 765,543
1/6/06 251,034,000 JPY 2,130,097 2,780,000 AUD 2,037,536
1/6/06 425,700,000 JPY 3,612,189 3,000,000 EURO 3,552,653
1/6/06 1,113,211,000 JPY 9,445,921 9,350,000 USD 9,350,000
1/6/06 1,443,538 USD 1,443,538 830,000 KB 1,427,910
1/6/06 1,407,960 USD 1,407,960 1,200,000 EURO 1,421,061
1/6/06 6,661,000 USD 6,661,000 790,949,915 JPY 6,711,440
1/12/06 1,730,000 KB 2,976,004 2,979,680 USD 2,979,680
1/12/06 2,997,092 USD 2,997,092 1,730,000 KB 2,976,004
----------- -----------
$35,540,935 $35,317,143
=========== ===========
AUD -- Australian Dollar
EUR -- Euro
JPY -- Japanese Yen
KB -- British Pound
USD -- U.S. Dollar
See notes to the financial statements.
27
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value *.................................. $383,159,817 $46,583,217 $9,179,001 $114,012,566 $80,672,542
Cash..................................................... -- 405 860 -- --
Foreign currency **...................................... -- -- -- -- 1,478,172
Dividends and interest receivable........................ 547,158 58,922 47,035 1,745,106 52,440
Receivable for investments sold.......................... 1,868,517 -- -- -- 164,635
Receivable from Adviser.................................. -- -- 1,811 -- --
Receivable for fund shares sold.......................... 2,424,763 -- 20,000 13,692 --
Other assets............................................. 18,300 10,447 2,765 5,829 5,068
------------ ----------- ---------- ------------ -----------
Total assets........................................... 388,018,555 46,652,991 9,251,472 115,777,193 82,372,857
------------ ----------- ---------- ------------ -----------
LIABILITIES:
Payable for investments purchased........................ 5,564,057 -- -- -- 93,917
Unrealized loss on open forward foreign currency contracts -- -- -- -- 223,792
Payable for investment advisory fees..................... 692,382 45,673 -- 101,376 70,878
Payable for fund shares redeemed......................... 47,435 53,825 -- -- --
Payable to Custodian..................................... 1,904,895 1,482 873 2,999 22,611
Distribution expense payable............................. 5,211 -- -- -- --
Accrued expenses and other liabilities................... 228,359 41,779 18,109 73,922 61,213
------------ ----------- ---------- ------------ -----------
Total liabilities...................................... 8,442,339 142,759 18,982 178,297 472,411
------------ ----------- ---------- ------------ -----------
NET ASSETS............................................... $379,576,216 $46,510,232 $9,232,490 $115,598,896 $81,900,446
============ =========== ========== ============ ===========
NET ASSETS CONSIST OF:
Paid in capital.......................................... $262,014,228 $38,371,979 $8,139,886 $116,581,211 $80,714,116
Undistributed net investment income...................... -- 8,450 6,316 188,597 352,999
Accumulated net realized gain (loss) on .................
securities and foreign currency transactions........... 11,103,000 49,951 (16,861) (291,024) (4,726,632)
Net unrealized appreciation (depreciation) on:...........
Investments ........................................... 106,458,988 8,079,852 1,103,149 (879,888) 5,788,949
Other assets and liabilities
denominated in foreign currency......................... -- -- -- -- (228,986)
------------ ----------- ---------- ------------ -----------
Net assets............................................... $379,576,216 $46,510,232 $9,232,490 $115,598,896 $81,900,446
============ =========== ========== ============ ===========
INSTITUTIONAL CLASS***...................................
Net assets............................................... $370,987,536 $46,510,232 $9,232,490 $115,598,896 $81,900,446
Shares of beneficial interest outstanding................
(unlimited shares of no par value......................
authorized)............................................ 17,564,901 3,497,752 743,334 11,293,837 7,376,580
Net asset value per share................................
(offering and redemption price)........................ $ 21.12 $ 13.30 $ 12.42 $ 10.24 $ 11.10
============ =========== ========== ============ ===========
ADVISER CLASS............................................
Net assets............................................... $ 8,588,680
Shares of beneficial interest outstanding................
(unlimited shares of no par value......................
authorized)............................................ 409,921
Net asset value per share................................
(offering and redemption price)........................ $20.95
============
* Cost of Investments.................................... $276,700,829 $38,503,365 $8,075,852 $114,892,454 $74,883,593
============ =========== ========== ============ ===========
**Cost of Foreign Currency............................... $ -- $ -- $ -- $ -- $ 1,483,475
============ =========== ========== ============ ===========
***Currently, only the Small Cap Equity and Equity Funds offer a second class.
See notes to the financial statements.
28
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends *.............................................. $ 2,135,858 $ 617,818 $ 109,609 $ 52,369 $ 82,833
Dividends allocated from Master Portfolio*............... -- -- -- -- 380,924
Interest................................................. 407,690 92,323 121,641 4,158,528 31,920
Expenses allocated from Master Portfolio**............... -- -- -- -- (259,023)
----------- --------- ---------- ---------- ---------
Total income........................................... 2,543,548 710,141 231,250 4,210,897 236,654
----------- --------- ---------- ---------- ---------
EXPENSES:
Investment advisory fees ................................ 2,513,813 292,615 60,123 487,685 252,281
Distribution expense - Adviser Class..................... 19,444 -- -- -- --
Administrative fees...................................... 296,755 45,695 20,275 80,210 46,430
Accounting and transfer agent fees and expenses.......... 147,207 58,328 38,569 70,414 48,759
Professional fees........................................ 163,709 20,622 4,760 49,156 35,422
Federal and state registration........................... 47,970 27,403 5,921 13,068 12,960
Custody fees and expenses................................ 41,642 5,524 3,362 13,694 30,292
Reports to shareholders.................................. 22,427 2,624 680 5,996 2,468
Trustees' fees........................................... 37,790 4,437 1,019 10,530 3,944
Other ................................................... 34,733 4,159 1,014 9,541 3,921
----------- --------- ---------- ---------- ---------
Total expenses......................................... 3,325,490 461,407 135,723 740,294 436,477
Less, expense waiver and/or ...........................
reimbursement.......................................... -- (126,990) (61,725) (106,303) (275,419)
----------- --------- ---------- ---------- ---------
Net expenses........................................... 3,325,490 334,417 73,998 633,991 161,058
----------- --------- ---------- ---------- ---------
NET INVESTMENT INCOME (LOSS)............................. (781,942) 375,724 157,252 3,576,906 75,596
----------- --------- ---------- ---------- ---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments............................................ 58,677,426 1,451,791 123,600 (64,933) 492,763
Foreign currency transactions.......................... -- -- -- -- 330,132
Investments allocated from Master Portfolio............ -- -- -- -- 3,154,133
Foreign currency transactions allocated from
Master Portfolio .................................... -- -- -- -- 124,020
----------- --------- ---------- ---------- ---------
58,677,426 1,451,791 123,600 (64,933) 4,101,048
----------- --------- ---------- ---------- ---------
Net change in unrealized appreciation/depreciation on:
Investments............................................ (13,573,414) 218,882 249,872 (1,807,573) 3,751,225
Foreign currency transactions.......................... -- -- -- -- (290,356)
----------- --------- ---------- ---------- ---------
(13,573,414) 218,882 249,872 (1,807,573) 3,460,869
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS.................................. 45,104,012 1,670,673 373,472 (1,872,506) 7,561,917
----------- --------- ---------- ---------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.............................. $44,322,070 $2,046,397 $ 530,724 $1,704,400 $7,637,513
=========== ========== ========== ========== ==========
* Net of foreign taxes withheld.......................... $ -- $ 2,697 $ 730 $ -- $ 86,717
=========== ========== ========== ========== ==========
**The LKCM International Fund invested all of its investable assets in a master
portfolio, which had an identical investment objective, from January 1, 2005
through August 26, 2005. The amount reflected is for expenses allocated from
the master portfolio. Subsequently, the Fund invested directly in foreign
securities to meet its investment objective.
See notes to the financial statements.
29
STATEMENTS OF CHANGES IN NET ASSETS
LKCM LKCM
SMALL CAP EQUITY FUND EQUITY FUND
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ----------- -----------
OPERATIONS:
Net investment income (loss)............................................ $ (781,942) $ (1,174,444) $ 375,724 $ 319,860
Net realized gain on investments ...................................... 58,677,426 32,671,697 1,451,791 380,225
Net change in unrealized appreciation/depreciation
on investments....................................................... (13,573,414) 31,063,175 218,882 2,000,598
------------ ------------ ----------- -----------
Net increase in net assets
resulting from operations............................................ 44,322,070 62,560,428 2,046,397 2,700,683
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO INSTITUTIONAL CLASS SHAREHOLDERS:
Net investment income.................................................. -- -- (423,004) (322,328)
Net realized gain on investments....................................... (52,344,719) (34,744,980) (1,004,552) --
------------ ------------ ----------- -----------
...................................................................... (52,344,719) (34,744,980) (1,427,556) (322,328)
------------ ------------ ----------- -----------
DISTRIBUTIONS TO ADVISER CLASS SHAREHOLDERS:
Net realized gain on investments....................................... (1,219,242) (740,090) -- --
------------ ------------ ----------- -----------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (NOTE C)..................................... 36,498,922 54,765,784 8,651,868 1,131,995
------------ ------------ ----------- -----------
Total increase in net assets........................................... 27,257,031 81,841,142 9,270,709 3,510,350
NET ASSETS:
Beginning of period.................................................... 352,319,185 270,478,043 37,239,523 33,729,173
------------ ------------ ----------- -----------
End of period *........................................................ $379,576,216 $352,319,185 $46,510,232 $37,239,523
============ ============ =========== ===========
* Including undistributed net
investment income of:................................................ $ -- $ 42,586 $ 8,450 $ 55,730
============ ============ =========== ===========
See notes to the financial statements.
30
STATEMENTS OF CHANGES IN NET ASSETS
LKCM LKCM
BALANCED FUND FIXED INCOME FUND
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
---------- ---------- ------------ -----------
OPERATIONS:
Net investment income................................................... $ 157,252 $ 162,212 $ 3,576,906 $ 2,894,293
Net realized gain (loss) on investments................................. 123,600 168,179 (64,933) 111,740
Net change in unrealized appreciation/depreciation
on investments........................................................ 249,872 255,933 (1,807,573) (1,039,652)
---------- ---------- ------------ -----------
Net increase in net assets
resulting from operations......................................... 530,724 586,324 1,704,400 1,966,381
---------- ---------- ------------ -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................................................... (93,399) (170,801) (3,526,577) (2,857,352)
---------- ---------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FROM FUND SHARE TRANSACTIONS (NOTE C)................................. 387,342 (760,466) 24,138,125 25,819,968
---------- ---------- ------------ -----------
Total increase (decrease) in net assets............................. 824,667 (344,943) 22,315,948 24,928,997
NET ASSETS:
Beginning of period..................................................... 8,407,823 8,752,766 93,282,948 68,353,951
---------- ---------- ------------ -----------
End of period *......................................................... $9,232,490 $8,407,823 $115,598,896 $93,282,948
========== ========== ============ ===========
* Including undistributed net
investment income of:................................................... $ 6,316 $ 1,530 $ 188,597 $ 144,519
========== ========== ============ ===========
LKCM
INTERNATIONAL FUND
Year Ended Year Ended
December 31, December 31,
2005 2004
----------- -----------
OPERATIONS:
Net investment income................................................................................ $ 75,596 $ 189,931
Net realized gain on investments, futures contracts and foreign currency transactions................ 4,101,048 6,565,856
Net change in unrealized appreciation/depreciation................................................... 3,460,869 (2,451,614)
----------- -----------
Net increase in net assets resulting from operations............................................. 7,637,513 4,304,173
----------- -----------
DIVIDENDS TO SHAREHOLDERS:
Net investment income................................................................................ (1,646,490) (464,052)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (NOTE C).......................... 33,805,527 (2,925,690)
----------- -----------
Total increase in net assets......................................................................... 39,796,550 914,431
NET ASSETS:
Beginning of period.................................................................................. 42,103,896 41,189,465
----------- -----------
End of period *...................................................................................... $81,900,446 $42,103,896
=========== ===========
* Including undistributed net investment income of:.................................................. $ 352,999 $ 988,316
=========== ===========
See notes to the financial statements.
31
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM SMALL CAP EQUITY FUND
Institutional Institutional Institutional
Class Class Class*
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD................... $ 21.46 $ 19.54 $ 15.24 $ 17.29 $ 17.00
-------- -------- -------- -------- --------
Net investment income (loss)............................. (0.05)(1) (0.08)(1) (0.08)(1) (0.03)(2) 0.08
Net realized and unrealized gain (loss) on investments... 3.17 4.40 5.38 (2.01) 1.20
-------- -------- -------- -------- --------
Total from investment operations..................... 3.12 4.32 5.30 (2.04) 1.28
-------- -------- -------- -------- --------
Dividends from net investment income..................... -- -- -- (0.00)(3) (0.07)
Distributions from net realized gains.................... (3.46) (2.40) (1.00) (0.01) (0.92)
-------- -------- -------- -------- --------
Total dividends and distributions.................... (3.46) (2.40) (1.00) (0.01) (0.99)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD.......................... $ 21.12 .. $ 21.46 .. $ 19.54 . $ 15.24 $ 17.29
======== ======== ======== ======== ========
TOTAL RETURN............................................. 14.42% 22.09% 34.71% (11.79)% 7.50%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).................... $370,988 $344,990 $266,842 $206,886 $220,570
Ratio of expenses to average net assets.................. 0.99% 0.96% 0.97% 0.94% 0.92%
Ratio of net investment income (loss)
to average net assets.................................. (0.23)% (0.38)% (0.45)% (0.19)% 0.46%
Portfolio turnover rate(4)............................... 56% 53% 43% 52% 62%
* On May 1, 2003 the Adviser Class Shares were effective and the initial
class of shares were named Institutional Class Shares.
(1) Net investment loss per share represents net investment loss divided by the
average shares outstanding throughout the period.
(2) 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.
(3) Less than $(0.005).
(4) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
LKCM SMALL CAP EQUITY FUND - ADVISER CLASS
Year Year June 5, 2003
Ended Ended through
December 31, December 31, December 31,
2005 2004 2003*
------- ------- -------
NET ASSET VALUE -- BEGINNING OF PERIOD $ 21.36 $ 19.51 $ 16.85
------- ------- -------
Net investment loss(1).............................................................. (0.11) (0.13) (0.08)
Net realized and unrealized gain on investments..................................... 3.16 4.38 3.74
------- ------- -------
Total from investment operations................................................ 3.05 4.25 3.66
------- ------- -------
Distributions from net realized gains............................................... (3.46) (2.40) (1.00)
------- ------- -------
NET ASSET VALUE -- END OF PERIOD.................................................... $ 20.95 $ 21.36 $ 19.51
======= ======= =======
TOTAL RETURN ....................................................................... 14.16% 21.76% 21.66%(2)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)............................................... $8,589 $7,329 $3,636
Ratio of expenses to average net assets ............................................ 1.24% 1.21% 1.21%(3)
Ratio of net investment loss to average net assets ................................. (0.48)% (0.63)% (0.69)%(3)
Portfolio turnover rate(4).......................................................... 56% 53% 43%
* On May 1, 2003 the Adviser Class Shares were effective and the initial
class of shares were named Institutional Class Shares. Commencement of
sales of the Adviser Class occurred on June 5, 2003.
(1) Net investment loss per share represents net investment loss divided by the
average shares outstanding throughout the period.
(2) Not annualized.
(3) Annualized.
(4) 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.
32
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM EQUITY FUND
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD....................... $ 13.09 $ 12.24 $ 9.98 $ 11.76 $ 13.25
-------- -------- -------- -------- --------
Net investment income........................................ 0.11 0.11 0.07 0.06 0.08
Net realized and unrealized gain (loss)
on investments............................................. 0.52 0.85 2.26 (1.78) (1.49)
-------- -------- -------- -------- --------
Total from investment operations.......................... 0.63 0.96 2.33 (1.72) (1.41)
-------- -------- -------- -------- --------
Dividends from net investment income......................... (0.12) (0.11) (0.07) (0.06) (0.06)
Distributions from net realized gains........................ (0.30) -- -- -- (0.02)
-------- -------- -------- -------- --------
Total dividends and distributions......................... (0.42) (0.11) (0.07) (0.06) (0.08)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD............................. $ 13.30 $ 13.09 $ 12.24 $ 9.98 $ 11.76
======== ======== ======== ======== ========
TOTAL RETURN................................................. 4.80% 7.88% 23.38% (14.64)% (10.61)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........................ $ 46,510 $ 37,240 $ 33,729 $ 24,672 $ 26,822
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement................. 1.10% 1.18% 1.18% 1.05% 1.05%
After expense waiver and/or reimbursement.................. 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................. 0.60% 0.54% 0.33% 0.29% 0.53%
After expense waiver and/or reimbursement.................. 0.90% 0.92% 0.71% 0.54% 0.78%
Portfolio turnover rate...................................... 21% 28% 14% 44% 35%
LKCM BALANCED FUND
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD....................... $ 11.85 $ 11.29 $ 9.86 $ 11.44 $ 11.77
-------- -------- -------- -------- --------
Net investment income........................................ 0.21 0.22 0.19 0.23 0.30
Net realized and unrealized gain (loss)
on investments............................................ 0.48 0.57 1.42 (1.59) (0.26)
-------- -------- -------- -------- --------
Total from investment operations.......................... 0.69 0.79 1.61 (1.36) 0.04
-------- -------- -------- -------- --------
Dividends from net investment income......................... (0.12) (0.23) (0.18) (0.21) (0.32)
Distributions from net realized gains........................ -- -- -- (0.01) (0.05)
-------- -------- -------- -------- --------
Total dividends and distributions......................... (0.12) (0.23) (0.18) (0.22) (0.37)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD............................. $ 12.42 $ 11.85 $ 11.29 $ 9.86 $ 11.44
======== ======== ======== ======== ========
TOTAL RETURN................................................. 5.87% 7.10% 16.59% (11.97)% 0.47%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........................ $ 9,232 $ 8,408 $ 8,753 $ 7,298 $ 7,375
Ratio of expenses to average net assets:
Before expense reimbursement............................... 1.47% 1.49% 1.52% 1.66% 1.58%
After expense reimbursement................................ 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................. 1.03% 1.20% 1.09% 1.31% 1.83%
After expense waiver and/or reimbursement.................. 1.70% 1.89% 1.81% 2.17% 2.61%
Portfolio turnover rate...................................... 24% 19% 24% 17% 37%
See notes to the financial statements.
35
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM FIXED INCOME FUND
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD....................... $ 10.42 $ 10.52 $ 10.61 $ 10.48 $ 10.01
-------- -------- -------- -------- --------
Net investment income........................................ 0.36 0.39 0.42 0.51 0.60
Net realized and unrealized gain (loss)
on investments............................................ (0.18) (0.10) (0.08) 0.13 0.45
-------- -------- -------- -------- --------
Total from investment operations.......................... 0.18 0.29 0.34 0.64 1.05
-------- -------- -------- -------- --------
Dividends from net investment income......................... (0.36) (0.39) (0.43) (0.51) (0.58)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD............................. $ 10.24 $ 10.42 $ 10.52 $ 10.61 $ 10.48
======== ======== ======== ======== ========
TOTAL RETURN................................................. 1.79% 2.77% 3.25% 6.32% 10.76%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........................ $115,599 $ 93,283 $ 68,354 $ 56,565 $ 45,446
Ratio of expenses to average net assets:
Before expense reimbursement............................... 0.76% 0.75% 0.77% 0.75% 0.77%
After expense reimbursement................................ 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................. 3.56% 3.78% 3.98% 4.96% 5.81%
After expense waiver and/or reimbursement.................. 3.67% 3.88% 4.10% 5.06% 5.93%
Portfolio turnover rate...................................... 40% 27% 58% 40% 36%
See notes to the financial statements.
34
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM INTERNATIONAL FUND
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD....................... $ 9.40 $ 8.52 $ 6.41 $ 8.07 $ 11.44
-------- -------- -------- -------- --------
Net investment income........................................ 0.02(1) 0.04(1) 0.07(2) 0.08(1) 0.01(1)
Net realized and unrealized gain (loss)
on investments............................................. 1.91 0.95 2.13 (1.60) (3.35)
-------- -------- -------- -------- --------
Total from investment operations.......................... 1.93 0.99 2.20 (1.52) (3.34)
-------- -------- -------- -------- --------
Redemption fees.............................................. -- -- 0.02 -- --
-------- -------- -------- -------- --------
Dividends from net investment income......................... (0.23) (0.11) (0.11) (0.14) --
Distributions from net realized gains........................ -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Total dividends and distributions......................... (0.23) (0.11) (0.11) (0.14) (0.03)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD............................. $ 11.10 $ 9.40 $ 8.52 $ 6.41 $ 8.07
======== ======== ======== ======== ========
TOTAL RETURN................................................. 20.49% 11.59% 34.68% (18.86)% (29.16)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........................ $ 81,900 $ 42,104 $ 41,189 $ 31,542 $ 70,368
Ratio of expenses to average net assets:
Before expense reimbursement............................... 1.99% 1.67% 1.99% 1.55% 1.56%
After expense reimbursement................................ 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................. (0.57)% 0.01% 0.25% 0.68% (0.21)%
After expense waiver and/ or reimbursement................. 0.22% 0.48% 1.04% 1.03% 0.15%
Portfolio turnover rate...................................... 56%(3) N/A N/A N/A N/A
(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) On August 29, 2005, the Fund began investing directly in foreign securities
again instead of investing all of its investable assets into the TT EAFE
Portfolio. Portfolio turnover rate is provided for the period August 29,
2005 through December 31, 2005.
See notes to the financial statements.
35
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 nine diversified series, five of
which are presented herein and include 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 B. The Equity Fund Adviser Class Shares
have not yet commenced sales. Each Fund charges a 1% redemption fee for
redemptions on Fund shares held for less than 30 days.
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, short 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.
At the beginning of the year, the LKCM International Fund attempted to achieve
its goal by operating under a master-feeder structure, which means the Fund
followed 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 had an identical investment objective
as the LKCM International Fund and was managed by TT International Investment
Management ("TT International"). On August 29, 2005, the LKCM International Fund
received an in-kind distribution of securities from the Master Portfolio and
began to invest directly in foreign securities with TT International acting as
the Fund's sub-adviser.
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 taken from the exchange where the security is primarily traded.
Nasdaq National Market securities are valued at the Nasdaq Official Closing
Price ("NOCP"). 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. Debt
securities (other than obligations having a maturity of 60 days or less) are
normally valued at the last quoted bid price and/or by using a combination
of daily quotes and matrix evaluations provided by an independent pricing
service. 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. The Board has adopted specific
procedures for valuing portfolio securities and delegated the implementation
of these procedures to Luther King Capital Management Corporation (the
"Adviser"). The procedures authorize the Adviser to make all determinations
regarding the fair value of a portfolio security and to report such
determinations to the Board of Trustees. The Funds may also use independent
pricing services to assist in pricing portfolio securities.
Trading in securities on most foreign exchanges is normally completed before
the close of the domestic market and may also take place on days when the
domestic market is closed. If events materially affecting the value of
foreign securities occur between the time when the exchange on which they
are traded closes and the time when the portfolio's net assets are
calculated, such securities will be valued at fair value in accordance with
procedures adopted by the 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.
36
5. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the prevailing exchange rates, or at the mean of the current
bid and asked prices, of such currencies against the U.S. dollar as quoted
by a major bank, on the following basis:
1. Market value of investment securities and other assets and liabilities:
at the rate of exchange at the valuation date.
2. Purchases and sales of investment securities, income and expenses: at the
rates of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the periods, the Funds do not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of securities held or sold during the year.
Accordingly, such realized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.
Reported realized foreign currency gains or losses arise from disposition of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Funds' books on the transaction date and the U.S. dollar equivalent of
the amounts actually received or paid. Unrealized foreign exchange gains and
losses arise from changes (due to the changes in the exchange rate) in the
value of foreign currency and other assets and liabilities denominated in
foreign currencies which are held at period end. At December 31, 2005,
substantially all of the LKCMInternational Fund's net assets consist of
securities of issuers which are denominated in foreign currencies. Changes
in currency exchange rates will affect the value of and investment income
from such securities.
6. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Funds may enter into
forward foreign currency contracts (obligations to purchase or sell foreign
currency in the future on a date and price fixed at the time the contracts
are entered into) to manage the Fund's exposure to foreign currency exchange
fluctuations. Each day the forward contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to
market".
When the forward contract is closed, or the delivery of the currency is made
or taken, the Funds record a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the
Fund's basis in the contract. The Funds are subject to off-balance sheet
risk to the extent of the value of the contracts for purchases of currency
and in an unlimited amount for sales of currency. As of December 31, 2005,
the International Fund had outstanding forward foreign currency contracts as
shown on the Schedule of Investments.
7. 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. Expenses that are directly attributable to a
class of shares, such as Rule 12b-1 distribution fees, are charged to that
class. For multi-class Funds, income, unrealized and realized gains/losses
are generally allocated between the Fund's classes in proportion to their
respective net assets.
8. 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.
9. GUARANTEES AND INDEMNIFICATIONS: In the normal course of business, the
Funds enter into contracts with service providers that contain general
indemnification clauses. The Funds' maximum exposure under these
arrangements is unknown as this would involve future claims against the
Funds that have not yet occurred. Based on experience, the Funds expect the
risk of loss to be remote.
10. 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. Accordingly, at December 31, 2005,
reclassifications were recorded as follows.
LKCM LKCM LKCM LKCM
SMALL CAP BALANCED FIXED INTERNATIONAL
EQUITY FUND FUND INCOME FUND FUND
Undistributed net investment income $ 739,356 $(59,067) $(6,252) $ 352,999
Accumulated gains 158,833 9,854 5,738 26,024,902
Capital Stock (898,189) 49,213 514 (26,377,901)
The significant reclassifications for the LKCM International Fund were due
to an in-kind distribution of securities from the Master Portfolio.
11. RESTRICTED AND ILLIQUID SECURITIES: The Funds are permitted to invest in
securities that are subject to legal or contractual restrictions on resale
or are illiquid. Restricted securities generally may be resold in
transactions exempt from registration. A security may be considered illiquid
if it lacks a readily available market or if its valuation has not changed
for a certain period of time. Disposal of these securities may involve
time-consuming negotiations and expense, and prompt sale at the current
valuation may be difficult.
37
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 average daily net assets. The Adviser has voluntarily
agreed to pay operating expenses in excess of the annual cap rates presented
below as applied to each Fund's average daily net assets. For the year ended
December 31, 2005, 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% 1.00%(1)(2)
Annual Cap on Expenses 1.00% 0.80% 0.80% 0.65% 1.20%
Expenses Waived and/or
Reimbursed -- $126,990 $61,725 $106,303 $275,419
(1) To the extent that the Fund invested all of its investable assets in the
Portfolio, the advisory fee paid to the Adviser was 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 was entitled to receive a fee from the Portfolio,
calculated daily and payable monthly, at the annual rate of 0.50%. TT
International currently receives a fee, calculated daily and payable
quarterly, at an annual rate of 0.50%, net of fee waivers, as sub-adviser to
the LKCM International Fund.
U.S. Bancorp Fund Services, LLC serves as transfer agent and administrator for
the Trust and serves as accounting services agent for the Trust. During 2005,
total expenses of $852,642 related to such services that were performed by U.S.
Bancorp Fund Services, LLC. U.S. Bank, N.A. serves as custodian for the Trust.
Distribution services are performed pursuant to a distribution contract with
Quasar Distributors, LLC, the Trust's principal underwriter.
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 each Fund's average
daily net assets. For the year ended December 31, 2005, fees accrued by the
Small Cap Equity Fund pursuant to the 12b-1 Plan were $19,444.
C. FUND SHARES: At December 31, 2005, 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
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Shares sold 4,256,949 $ 94,597,895 1,746,881 $ 36,698,335
Shares issued to shareholders in
reinvestment of distributions 2,334,508 49,701,687 1,554,711 33,414,333
Shares redeemed (5,104,490) (109,225,518) (881,679) (18,659,138)
Redemption fee 2,051 1,775
---------- ------------ ---------- ------------
Net increase 1,486,967 $ 35,076,115 2,419,913 $ 51,455,305
============ ============
SHARES OUTSTANDING:
Beginning of period 16,077,934 13,658,021
---------- ----------
End of period 17,564,901 16,077,934
========== ==========
38
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
ADVISER CLASS ADVISER CLASS
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Shares sold 11,279 $ 253,781 122,160 $ 2,570,989
Shares issued to shareholders in
reinvestment of distributions 57,729 1,219,242 34,600 740,090
Shares redeemed (2,191) (50,216) (30) (600)
---------- ------------ ---------- ------------
Net increase 66,817 $ 1,422,807 156,730 $ 3,310,479
============ ============
SHARES OUTSTANDING:
Beginning of period 343,104 186,374
---------- ----------
End of period 409,921 343,104
========== ==========
Total Net Increase $ 36,498,922 $ 54,765,784
============ ============
EQUITY FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Shares sold 859,700 $ 11,415,671 394,455 $ 4,891,097
Shares issued to shareholders in
reinvestment of distributions 102,086 1,362,839 22,116 289,503
Shares redeemed (308,640) (4,126,877) (327,863) (4,048,693)
Redemption fee 235 88
---------- ------------ ---------- ------------
Net increase 653,146 $ 8,651,868 88,708 $ 1,131,995
============ ============
SHARES OUTSTANDING:
Beginning of period 2,844,606 2,755,898
---------- ----------
End of period 3,497,752 2,844,606
========== ==========
BALANCED FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Shares sold 140,838 $ 1,676,752 54,251 $ 618,337
Shares issued to shareholders in
reinvestment of distributions 7,631 91,684 14,683 168,816
Shares redeemed (114,606) (1,381,409) (134,638) (1,547,619)
Redemption fee 315 --
---------- ------------ ---------- ------------
Net increase (decrease) 33,863 $ 387,342 (65,704) $ (760,466)
============ ============
SHARES OUTSTANDING:
Beginning of period 709,471 775,175
---------- ----------
End of period 743,334 709,471
========== ==========
39
FIXED INCOME FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Shares sold 2,786,378 $ 28,740,295 2,950,207 $ 31,069,167
Shares issued to shareholders in
reinvestment of distributions 293,974 3,019,906 232,382 2,429,063
Shares redeemed (735,297) (7,622,076) (730,287) (7,678,302)
Redemption fee -- 40
---------- ------------ ---------- ------------
Net increase 2,345,055 $ 24,138,125 2,452,302 $ 25,819,968
============ ============
SHARES OUTSTANDING:
Beginning of period 8,948,782 6,496,480
---------- ----------
End of period 11,293,837 8,948,782
========== ==========
INTERNATIONAL FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Shares sold 4,906,583 $52,659,266 561,526 $ 5,015,238
Shares issued to shareholders in
reinvestment of distributions 139,773 1,564,054 46,196 434,242
Shares redeemed (2,148,904) (20,417,793) (962,361) (8,375,174)
Redemption fee -- 4
---------- ------------ ---------- ------------
Net increase (decrease) 2,897,452 $ 33,805,527 (354,639) $ (2,925,690)
============ ============
SHARES OUTSTANDING:
Beginning of period 4,479,128 4,833,767
---------- ----------
End of period 7,376,580 4,479,128
========== ==========
From time to time, the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Funds. At December 31,
2005, the LKCM International Fund had a shareholder that owned greater than
25% of the Fund.
D. SECURITY TRANSACTIONS: Purchases and sales of investment securities, other
than short-term investments, for the year ended December 31, 2005 were as
follows:
PURCHASES SALES
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
------------ ------------ ---------- ------------
LKCM Small Cap Equity Fund $ -- $183,204,793 $ -- $207,571,899
LKCM Equity Fund -- 14,960,430 -- 7,973,129
LKCM Balanced Fund 149,412 2,399,288 49,270 2,089,117
LKCM Fixed Income Fund 16,150,095 33,134,147 7,311,129 24,205,969
LKCM International Fund* -- 66,750,649 -- 20,120,640
* Activity reflected from August 29, 2005 through December 31, 2005. Prior to
that, the Fund's only investment was in the Master Portfolio.
40
E. TAX INFORMATION: At December 31, 2005, the components of accumulated earnings
(losses) on a tax basis were as follows:
LKCM LKCM LKCM LKCM LKCM
SMALL CAP EQUITY BALANCED FIXED INTERNATIONAL
EQUITY FUND FUND FUND INCOME FUND FUND
------------ ----------- ---------- ------------ ------------
Cost of investments $276,988,087 $38,504,023 $8,075,048 $114,780,584 $ 63,136,038*
============ =========== ========== ============ ============
Gross unrealized appreciation $112,178,388 $ 9,408,199 $1,529,868 $ 583,576 18,343,062
Gross unrealized depreciation (6,006,658) (1,329,005) (425,915) (1,351,594) (806,558)
------------ ----------- ---------- ------------ ------------
Net unrealized appreciation $106,171,730 $ 8,079,194 $1,103,953 $ (768,018) 17,536,504
============ =========== ========== ============ ============
Undistributed ordinary income $ -- $ 8,450 $ 5,512 $ 46,612 $ 714,411
Undistributed long-term
capital gain 11,390,258 50,609 -- -- --
------------ ----------- ---------- ------------ ------------
Total distributable earnings $ 11,390,258 $ 59,059 $ 5,512 $ 46,612 $ 714,411
------------ ----------- ---------- ------------ ------------
Other accumulated losses $ -- $ -- $ (16,861) $ (260,909) $(17,064,585)
------------ ----------- ---------- ------------ ------------
Total accumulated
earnings (losses) $117,561,988 $ 8,138,253 $1,092,604 $ (982,315) $ 1,186,330
============ =========== ========== ============ ============
* The significant difference between book and tax cost of investments is due
to an in-kind distribution of securities from the Master Portfolio. At
December 31, 2005 the accumulated capital loss carryforwards were as
follows:
LKCM LKCM LKCM
BALANCED FIXED INTERNATIONAL
FUND INCOME FUND FUND
-------- --------- -----------
Expiring in 2009 $ -- $ -- $ 5,339,246
Expiring in 2010 -- 191,023 11,720,144
Expiring in 2011 4,803 -- --
Expiring in 2013 -- 38,877 --
-------- --------- -----------
Total capital loss
carryforwards $ 4,803 $ 229,900 $17,059,390
======== ========= ===========
To the extent the Funds realize future net capital gains, taxable distributions
will be reduced by any unused capital loss carryforwards as permitted by the
Internal Revenue Code. For the year ended December 31, 2005, capital loss
carryforwards of $396,630, $125,223, and $17,614,855 were utilized by the LKCM
Equity Fund, the LKCM Balanced Fund and the LKCM International Fund,
respectively. At December 31, 2005, the LKCM Balanced Fund and LKCM Fixed Income
Fund had net realized losses from transactions between November 1, 2005 and
December 31, 2005 of $12,058 and $31,009, respectively, which are deferred for
tax purposes and will be recognized in 2006.
The tax components of dividends paid during the year ended December 31, 2005
were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
---------- -----------
LKCM Small Cap Equity Fund $ -- $53,563,961
LKCM Equity Fund 423,004 1,004,552
LKCM Balanced Fund 93,399 --
LKCM Fixed Income Fund 3,526,577 --
LKCM International Fund 1,646,490 --
The tax components of dividends paid during the year ended December 31, 2004
were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
---------- -----------
LKCM Small Cap Equity Fund $ -- $35,485,070
LKCM Equity Fund 322,328 --
LKCM Balanced Fund 170,801 --
LKCM Fixed Income Fund 2,857,352 --
LKCM International Fund 464,052 --
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of LKCM Funds
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of LKCM Small Cap Equity Fund, LKCM
Equity Fund, LKCM Balanced Fund, LKCM Fixed Income Fund and LKCM International
Fund (constituting the LKCM Funds, hereafter referred to as the "Funds") at
December 31, 2005, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended
and the financial highlights for each of the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
March 2, 2006
42
LKCM FUNDS
ADDITIONAL INFORMATION
DECEMBER 31, 2005
TAX INFORMATION: For the fiscal year 2005, the LKCM Equity, Balanced, Fixed
Income and International Funds designate 100.00%, 99.23%, 1.47% and 82.11%,
respectively, of dividends from net investment income as qualified dividend
income under the Jobs & Growth Tax Reconciliation Act of 2003.
For the fiscal year 2005, 100.00%, 99.20% and 1.50% of the ordinary
distributions paid by the LKCM Equity, Balanced and Fixed Income Funds,
respectively, qualify for the dividend received deduction available to corporate
shareholders.
ADDITIONAL TAX INFORMATION APPLICABLE TO FOREIGN SHAREHOLDERS ONLY: For the
fiscal year 2005, the LKCM Equity, Balanced, Fixed Income and International
Funds designate 11.29%, 81.37%, 99.06% and 0.36%, respectively, of dividends
from ordinary income as interest related dividends under the Internal Revenue
Code Section 871(k)(l)(C).
AVAILABILITY OF PROXY VOTING INFORMATION: A description of the policies and
procedures that the Funds use to determine how to vote proxies relating to their
portfolio securities, as well as the proxy voting record, is available without
charge, upon request, by calling toll-free 1-800-688-LKCM or on the SEC website
at http://www.sec.gov.
The actual voting records relating to portfolio securities during the twelve
month period ended June 30, 2004 (as filed with the SEC on Form N-PX) are
available without charge, upon request, by calling the Funds toll free at
1-800-688-LKCM or by accessing the SEC's website at www.sec.gov.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE: The Funds' are required to file
complete schedules of portfolio holdings with the SEC for the first and third
fiscal quarters on Form N-Q. Once filed, the Funds' Form N-Q is available
without charge upon request on the SEC's website (http://www.sec.gov) and may be
available by calling 1-800-688-LKCM. You can also obtain copies of Form N-Q by
(i) visiting the SEC's Public Reference Room in Washington, DC (information on
the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330); (ii) sending your request and a duplicating fee to the SEC's
Public Reference Room, Washington, DC 20549; or (iii) sending your request
electronically to publicinfosec.gov.
43
INFORMATION ABOUT THE FUNDS' TRUSTEES
The business and affairs of the Funds are managed under the direction of the
Funds' Board of Trustees. Information pertaining to the Trustees of the Funds is
set forth below. The Statement of Additional Information includes additional
information about the Funds' Trustees and officers and is available, without
charge, upon request by calling 1-800-688-LKCM.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
TERM OF PORTFOLIOS
OFFICE & PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME DURING PAST OVERSEEN DIRECTORSHIPS
AND AGE THE FUND SERVED1 FIVE YEARS BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
H. Kirk Downey Chairman Since 2004 CEO, Texassystems, 9 Non-executive chairman
301 Commerce Street of the LLC and CEO, of the board of AZZ
Suite 1600 Board of Trustees Texaslearningsystems Incorporated, a
Fort Worth, Texas 76102 LLC since 1999; Dean, manufacturing company.
Age: 63 Trustee Since 1994 M.J. Neeley School of
Business, Texas
Christian University
Business School from
1987 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Earle A. Shields, Jr. Trustee Since 1994 Consultant; formerly 9 Priests Pension Fund
301 Commerce Street Consultant for of the Catholic Diocese
Suite 1600 NASDAQ Corp. and of Fort Worth, Lay
Fort Worth, TX 76102 Vice President, Workers Pension Fund of
Age: 85 Merrill Lynch & the Catholic Diocese
Co., Inc. of Fort Worth,
St. Joseph Health
Care Trust, Catholic
Schools Trust and
Catholic Foundation
of North Texas.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Howell Trustee Since 2005 Consulting Services, 9 Red Robin Gourmet
301 Commerce Street CPA Burgers, Inc.
Suite 1600
Fort Worth, TX 76102
Age: 63
INTERESTED TRUSTEE:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Luther King, Jr.2 Trustee, President Since 1994 Chairman, President and 9 DK Leasing Corp (private
301 Commerce Street Director, plane), Employee
Fort Worth, TX 76102 Luther King Capital Retirement Systems of
Age: 65 Management Corporation Texas, 4K Land & Cattle
since 1979. Company, Hunt Forest
Products (lumber),
Ruston Industrial Corp.
(forest products),
Investment Company
Association of America
(trade organization),
JLK Venture Corp
(private equity),
Southwestern Exposition
& Livestock, Southwest
JLK, Texas Christian
University, Texas
Southwestern
Cattleraisers
Foundation and
Tyler Technologies
(information
management company
for government
agencies).
1 Each Trustee holds office during the lifetime of the Trust until that
individual resigns, retires or is otherwise removed or replaced.
2 Mr. King is an "interested person" of the Trust (as defined in the 1940 Act)
because he controls the Adviser.
44
TERM OF
OFFICE & PRINCIPAL
POSITION(S) LENGTH OCCUPATION
NAME, ADDRESS HELD WITH OF TIME DURING PAST
AND AGE THE FUND SERVED FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Luther King, Jr. President and Since Chairman, President and Director,
301 Commerce Street Chief Executive 1994 Luther King Capital Management
Fort Worth, Texas 76102 Officer Corporation since 1979.
Age: 65
- ------------------------------------------------------------------------------------------------------------------------------------
Paul W. Greenwell Vice President Since Vice President, Luther King Capital
301 Commerce Street 1996 Management since 1983.
Fort Worth, Texas 76102
Age: 55
- ------------------------------------------------------------------------------------------------------------------------------------
Jacqui Brownfield Vice President, Since Luther King Capital
301 Commerce Street Chief Compliance Officer, 1994 Management since 1987.
Fort Worth, Texas 76102 Secretary and Treasurer
Age: 44
- ------------------------------------------------------------------------------------------------------------------------------------
Steven R. Purvis Vice President Since Director of Research, Luther King
301 Commerce Street 2000 Capital Management since 1996.
Fort Worth, Texas 76102
Age: 40
- ------------------------------------------------------------------------------------------------------------------------------------
45
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46
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47
LKCM FUNDS
P.O. BOX 701
MILWAUKEE, WI 53201-0701
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
J. Luther King, Jr., CFA Jacqui Brownfield
Trustee, Vice President, Chief Compliance Officer
President Secretary & Treasurer
Paul W. Greenwell Richard Lenart
Vice President Assistant Treasurer
Steven R. Purvis, CFA Jeffrey T. Rauman
Vice President Assistant Secretary
H. Kirk Downey James Tiegs
Chairman of the Board Assistant Secretary
Trustee
Richard J. Howell
Trustee
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
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
- --------------------------------------------------------------------------------
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue, Suite 1800
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.
U.S. Bancorp Fund Services, LLC ----------------
P.O. Box 701 PRESORTED
Milwaukee, WI 53201-0701 STANDARD
USPOSTAGE PAID
PERMIT #3602
BERWYN, IL60402
----------------
- --------------------------------------------------------------------------------
LKCM
FUNDS
- --------------------------------------------------------------------------------
LKCM AQUINAS VALUE FUND
LKCM AQUINAS GROWTH FUND
LKCM AQUINAS SMALL CAP FUND
LKCM AQUINAS FIXED INCOME FUND
Annual Report
December 31, 2005
DEAR FELLOW SHAREHOLDERS:
We are pleased to report the following performance information for the LKCM
Aquinas Funds:
TOTAL
RETURN
INCEPTION NAV @ SINCE
FUNDS DATES 12/31/05 INCEPT.*
LKCM Aquinas Value Fund 7/11/05 $12.24 2.60%
Russell 1000 Value Index1 3.49%
LKCM Aquinas Growth Fund 7/11/05 $15.61 2.61%
Russell 1000 Growth Index2 4.91%
LKCM Aquinas Small Cap Fund 7/11/05 $5.82 3.74%
Russell 2000 Index3 2.26%
LKCM Aquinas Fixed Income Fund 7/11/05 $9.84 (0.03)%
Lehman Bond Index4 0.48%
Performance data quoted represents past performance and does not guarantee
future results. 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 that the original cost. Current performance of the fund may be lower
or higher than the performance quoted. Performance data current to the most
recent month end may be obtained by calling 1-800-423-6369. Returns shown
reflect voluntary fee waivers in effect. In the absence of such waivers,
performance would be reduced.
* On July 11, 2005, the Aquinas Funds merged into the LKCM Aquinas Funds. Due
to the change in adviser and investment technique, performance is being
quoted for the period after the merger.
1 The Russell 1000 Value Index is an unmanaged index which measures the
performance of those Russell 1000 companies with lower price-to-book ratios
and lower forecasted growth values.
2 The Russell 1000 Growth Index is an unmanaged index which measures the
performance of those Russell 1000 companies with higher price-to-book ratios
and higher forecasted growth values.
3 The Russell 2000 Index is an unmanaged index which measures the performance
of the 2000 smallest companies in the Russell 3000 Index. The average market
capitalization was approximately $665 million.
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 $250 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 stock market provided investors with a third year of positive returns,
although the gains were modest. The Standard & Poor's 500 Index, the Dow Jones
Industrial Average, and the Nasdaq Composite Index all advanced on a total
return basis. The positive influence of stronger than expected earnings growth,
stable bond prices, a robust global economy, continued strong housing and
consumer trends, improved corporate balance sheets, increased capital spending,
and the rising dollar were offset by concerns over high energy costs, rising
short-term interest rates, the overhang of the war in Iraq, worry over a housing
bubble, and a general hesitation by corporate management toward the reinvestment
of cash flows. As a result, the market's volatility was low and showed little
movement for the year. The energy area was by far the most rewarding and, to the
extent investors did well in 2005, it is likely that investments in that sector
of the market played an important role.
We believe the U.S. economy will continue to grow in 2006. The rate of gain is
likely to slow however as the impact of a weakening rate of growth in the
housing sector should cause less robust consumer activity than in 2005. This
slowdown will likely be offset by greater capital spending in the corporate
sector, where business is good and balance sheets are healthy. Increased capital
spending, in turn, should stimulate the hiring of new employees.
The Federal Reserve is likely to end the move to higher short-term interest
rates during the first half of 2006 at a level of 5.0% or perhaps lower. We
believe the Federal Reserve is unlikely to implement a highly restrictive policy
unless inflation moves higher than most economists are forecasting. Much higher
rates could cause significant weakness in housing as well as the overall
economy, a situation the Federal Reserve would like to avoid.
The global economy for 2006 looks positive and should offset the expected
slowdown in U.S. consumer activity. The global economic and liquidity conditions
look healthy and opportunities for U.S. companies to participate in this
environment are good.
We continue to forecast that bond yields will rise across the curve. However,
the structural forces which have been a factor in holding down long-term yields
are likely to persist, given excess global liquidity, low inflation, and, in
some cases, the expectations of a mid-cycle economic slowdown in the U.S.
The value of the dollar, while stronger in 2005, is likely to weaken in 2006.
However, we would not anticipate significant deterioration unless the U.S.
economy is much weaker than we expect.
Some of the risks to our 2006 forecast would be a sharp increase in the price of
oil, significant weakness in the value of the U.S. dollar, a discernible
increase in the rate of inflation or a collapse in real estate values. While
these conditions could occur they are not in our forecast.
We believe the stock market will generate positive returns again in 2006. While
the rate of gain in corporate profits is expected to slow to normal historical
levels of 6.0% to 8.0%, we believe the peaking of short-term interest rates
coupled with low inflation and a strong global economy will produce a rising
stock market. Corporate merger activity should remain strong. Increasing
dividends and share repurchases will be an additional positive for the market.
The valuation of share prices based on a forward P/E and historically low bond
yield creates an attractive environment for investing in the public stock
markets.
The LKCM Aquinas Small Cap Fund is managed to maximize capital appreciation
through investment primarily in the common stocks of smaller companies. The
performance of the Fund since inception was 3.74% vs. the Russell 2000's 2.26%
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
December 31, 2005, the total net assets of the portfolio were $7.1 million with
96.2% of the net assets invested in common stocks and 3.8%
2
in cash reserves, net of liabilities. We generated positive returns for our
investors since the Fund's inception as we added value from both our stock
selection as well as from our sector allocation decisions. Our stock selection
in Technology and our decision to overweight the Energy sector was beneficial to
our results. Stock selection in the Industrial sector and our overweight in the
Consumer sectors were slightly negative to our performance.
The LKCM Aquinas Growth Fund is managed to provide long-term capital
appreciation by choosing investments that generally have above-average growth in
revenue and/or earnings, above average return on equity, and under-leveraged
balance sheets. The Fund's strategy is to identify quality companies of any
market capitalization size based on various financial and fundamental criteria,
which are constantly updated. The Fund is in the process of transitioning from
the previous manager. As of December 31, 2005, the total net assets in the
portfolio were $74.6 million with 93.3% of the net assets invested in common
stocks and 6.7% invested in cash reserves, net of liabilities. Since the Fund's
inception, the Fund advanced 2.61% versus 4.91% for the Russell 1000 Growth
Index. The portfolio maintained an over-weight position in the Energy Sector and
returns were enhanced by good stock selection in both the Financial and
Technology sectors of the market. The Fund maintains a broadly diversified
portfolio and is well positioned for the market conditions the firm anticipates
in 2006.
The LKCM Aquinas Value Fund is managed to provide long-term capital appreciation
through investment in mid to large sized companies. These holdings typically
sell at a discount to their growth rate, have low price to cash flow
characteristics, an attractive dividend yield, or a lower price to book value
than the overall market. As of December 31, 2005, the total net assets in the
portfolio were $42.7 million, with 97.4% invested in common stocks and 2.6%
invested in cash reserves, net of liabilities. Since the transition to our
management in mid-July, the Fund advanced 2.60% versus 3.49% for the Russell
1000 Value Index. The portfolio benefited from its overweighting in Industrials
and Materials while the underweight versus the Financials hindered our
performance somewhat. The Fund remains well positioned with a broadly
diversified portfolio of quality companies.
The LKCM Aquinas Fixed Income Fund's primary objective is to generate current
income consistent with the preservation of capital and Catholic values. The
Fund's principal strategy is to invest in a combination of non-callable bonds
for their offensive characteristics and callable bonds and floating rate issues
as defensive investments in order to create a high quality, low volatility,
short-to-intermediate duration portfolio. Our main focus is to identify
corporate bonds with strong credit profiles and attractive yields. The Fund had
an average duration of 3.3 years on December 31, 2005 versus 3.6 years for its
benchmark, the Lehman Intermediate Government/Credit Index, and an average
quality rating of single A+* versus the benchmark quality rating of double A*.
The Fund's higher exposure to credit, specifically the single A* sector as well
as the avoidance of the auto area, were additive to our results, while the
shorter duration and portfolio restructuring out of less liquid mortgage and
asset backed issues detracted from results. The Fund's total return during the
transitional period beginning July 11, 2005, through year-end and during the
fourth quarter were (0.03%) and 0.47%, respectively, versus 0.48% and 0.51%,
respectively, for the Lehman Intermediate Government/Credit Index over the same
periods. As of December 31, 2005, the Fund's total net assets were $42.8 million
and the asset mix was as follows: 78.7% in corporate bonds, 13.5% in U. S.
Treasury and government agency issues, 3.2% in municipal bonds, 1.3% in mortgage
and asset-backed issues, 1.2% in preferred stock and 2.1% in cash equivalents
(net of liabilities).
At LKCM, our investment objective is to utilize our proprietary research
capabilities in order to achieve superior returns over the market cycle in
accordance with the specific objectives of each of the Funds. 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 that
can be used to reinvest back into the business, and solid balance sheets. This
investment process is consistent in all of our Fund offerings and should keep us
well positioned for the future.
The LKCM Aquinas Funds have a mission to generally follow the investment
guidelines as outlined by the United States Conference of Catholic Bishops and
to achieve its investment objective of superior returns with lower volatility.
By prudently applying traditional moral teachings and employing traditional
principles on cooperation and toleration, as well as the duty to avoid scandal,
we believe that we can carry out our mission and exercise faithful, competent
and socially responsible stewardship of the Fund assets. We appreciate the
opportunity to exercise our investment talents on your behalf and trust you have
placed in LKCM Aquinas through your investment in these Funds.
*Ratings provided by Standard &Poor's Corporation. AAA: highest grade
obligations; possess the ultimate degree of protection as to principal and
interest; AA: also qualify as high grade obligations, and in the majority of
instances differs from AAA issues only in small degree; A: regarded as upper
medium grade; have considerable investment strength but are not entirely free
from adverse effects of changes in economic and trade conditions. Interest and
principal are regarded as safe; BBB: regarded as borderline between definitely
sound obligations and those where the speculative element begins to predominate;
this group is the lowest which qualifies for commercial bank investments.
/s/ J. Luther King, Jr.
J. Luther King, Jr., CFA
February 1, 2006
Please refer to the Schedule of Investments found on pages 10-17 of the 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.
The LKCM Aquinas Small Cap Fund invests in smaller companies, which involve
additional risks such as limited liquidity and greater volatility.
Investments in debt securities typically decrease in value when interest rates
rise. This risk is usually greater for longer-term debt securities.
Mutual fund investing involves risk. Principal loss is possible.
The Price to Earnings (P/E) Ratio reflects the multiple of earnings at which a
stocks sells.
Return on Equity is a measure of corporation's profitability.
3
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Value Fund compared to the Fund's representative market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-423-6369.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
TOTAL RETURN
- --------------------------------------------------------------------------------
SINCE
INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS VALUE FUND 2.60%
- --------------------------------------------------------------------------------
Russell 1000 Value Index 3.49%
- --------------------------------------------------------------------------------
Lipper Large-Cap Value Fund Index 5.74%
- --------------------------------------------------------------------------------
(1) The assets of the Aquinas Value Fund were acquired by the LKCM Aquinas Value
Fund on July 11, 2005. At the time of the reorganization, the Adviser also
changed from Aquinas Investment Advisers, Inc. to Luther King Capital
Management Corporation. The previous Adviser's performance is found in the
Financial Highlights.
A Hypothetical $10,000 Investment in LKCM Aquinas Value Fund
Line Chart:
LKCM Aquinas Value Russell 1000 Value Lipper Large Cap
Fund $10,260 Index $10,349 Value Fund Index $10,574
7/05 10000 10000 10000
12/05 10260 10349 10574
The Russell 1000 Value Index is an unmanaged index consisting of those Russell
1000 companies with lower price-to-book ratios and lower forecasted growth
values.
The Lipper Large-Cap Value Fund Index is an unmanaged index consisting of
large-cap value funds that, by portfolio practice, invest at least 75% of their
equity assets in companies with market capitalizations (on a three-year weighted
basis) greater than 300% of the dollar-weighted median market capitalization of
the middle 1,000 securities of the S&P SuperComposite 1500 Index. Large-cap
value funds typically have a below-average price-to-earnings ratio,
price-to-book ratio and three-year sales-per-share growth value, compared to the
S&P 500 Index.
4
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Growth Fund compared to the Fund's representative market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-423-6369.
An index is an unmanaged portfolio and does not trade or incur any expenses.
One can not invest in an unmanaged index.
TOTAL RETURN
- --------------------------------------------------------------------------------
SINCE
INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS GROWTH FUND 2.61%
- --------------------------------------------------------------------------------
Russell 1000 Growth Index 4.91%
- --------------------------------------------------------------------------------
Lipper Large-Cap Growth Fund Index 8.97%
- --------------------------------------------------------------------------------
(1) The assets of the Aquinas Growth Fund were acquired by the LKCM Aquinas
Growth Fund on July 11, 2005. At the time of the reorganization, the Adviser
also changed from Aquinas Investment Advisers, Inc. to Luther King Capital
Management Corporation. The previous Adviser's performance is found in the
Financial Highlights.
A Hypothetical $10,000 Investment in LKCM Aquinas Growth Fund
Line Chart:
LKCM Aquinas Russell 1000 Growth Lipper Large-Cap Growth
Growth Fund $10,261 Index $10,491 Fund Index $10,897
7/05 10000 10000 10000
12/05 10261 10491 10897
The Russell 1000 Growth Index consists of those Russell 1000 companies with
higher price-to-book ratios and higher forecasted growth values.
The Lipper Large-Cap Growth Fund Index is an unmanaged index consisting of
large-cap growth funds that, by portfolio practice, invest at least 75% of their
equity assets in companies with market capitalizations (on a three-year weighted
basis) greater than 300% of the dollar-weighted median market capitalization of
the middle 1,000 securities of the S&P SuperComposite 1500 Index. Large-cap
growth funds typically have an above-average price-to-earnings ratio,
price-to-book ratio, and three-year sales-per-share growth value, compared to
the S&P 500 Index.
5
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Small Cap Fund compared to the Fund's representative market indices. The LKCM
Aquinas Small Cap Fund invests in smaller companies, which may involve
additional risks such as limited liquidity and greater volatility.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-423-6369.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
TOTAL RETURN
- --------------------------------------------------------------------------------
SINCE
INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS SMALL CAP FUND 3.74%
- --------------------------------------------------------------------------------
Russell 2000 Index 2.26%
- --------------------------------------------------------------------------------
Lipper Small-Cap Core Funds Index 7.73%
- --------------------------------------------------------------------------------
(1) The assets of the Aquinas Small-Cap Fund were acquired by the LKCM Aquinas
Small Cap Fund on July 11, 2005. At the time of the reorganization, the
Adviser also changed from Aquinas Investment Advisers, Inc. to Luther King
Capital Management Corporation. The previous Adviser's performance is found
in the Financial Highlights.
A Hypothetical $10,000 Investment in LKCM Aquinas Small Cap Fund
Line Chart:
LKCM Aquinas Lipper Small-Cap
Small Cap Russell 2000 Core Funds
Fund $10,374 Index $10,226 Index $10,773
7/05 10000 10000 10000
12/05 10374 10226 10773
The Russell 2000 Index is an unmanaged index consisting of the 2,000 smallest
companies in the Russell 3000 Index. The average market capitalization was
approximately $665 million.
The Lipper Small-Cap Core Fund Index is an unmanaged index consisting of
small-cap core funds that, by portfolio practice, invest at least 75% of their
equity assets in companies with market capitalizations (on a three-year weighted
basis) of less than 250% of the dollar-weighted median of the smallest 500 of
the middle 1,000 securities of the S&P Super Composite 1500 Index. Small-Cap
core funds have more latitude in the companies in which they invest. These funds
typically have an average price-to-earnings ratio, price-to-book ratio and
three-year sales-per-share growth value, compared to the S&P Small Cap 600
Index.
6
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Fixed Income Fund compared to the Fund's representative market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. 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. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH END MAY BE OBTAINED BY CALLING 1-800-423-6369.
An index is an unmanaged portfolio and does not trade or incur any expenses. One
can not invest in an unmanaged index.
TOTAL RETURN
- --------------------------------------------------------------------------------
SINCE
INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS FIXED INCOME FUND (0.03)%
- --------------------------------------------------------------------------------
Lehman Bond Index(2) 0.48%
- --------------------------------------------------------------------------------
Lipper Short Intermediate Investment-Grade Debt Fund Index 0.03%
- --------------------------------------------------------------------------------
(1) The assets of the Aquinas Fixed Income Fund were acquired by the LKCM
Aquinas Fixed Income Fund on July 11, 2005. At the time of the
reorganization, the Adviser also changed from Aquinas Investment Advisers,
Inc. to Luther King Capital Management Corporation. The previous Adviser's
performance is found in the Financial Highlights.
(2) Lehman Brothers Intermediate Government/Credit Bond Index
A Hypothetical $10,000 Investment in LKCM Aquinas Fixed Income Fund
Line Chart:
LKCM Aquinas Lipper Short Intermediate
Fixed Income Lehman Bond Investment-Grade Debt Fund
Fund $9,997 Index $10,048 Index $10,003
7/05 10000 10000 10000
12/05 9997 10048 10003
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 $250 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 Lipper Short Intermediate Investment-Grade Debt Fund Index is an unmanaged
index consisting of funds that, by portfolio practice, invest at least 65% of
their assets in investment-grade debt issues (rated in the top four grades) with
dollar weighted average maturities of one to five years.
7
LKCM AQUINAS FUNDS EXPENSE EXAMPLE -- DECEMBER 31, 2005
As a shareholder of the Funds, you incur two types of costs: (1) transaction
costs, including redemption fees; and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Funds and to compare these
costs with the ongoing costs of investing in other mutual funds. The Example is
based on an investment of $1,000 invested at the beginning of the period and
held for the entire period (7/1/05-12/31/05).
ACTUAL EXPENSES
The first line of the tables below provides information about actual account
values and actual expenses. Although the Funds charge no sales load, you will be
assessed fees for outgoing wire transfers, returned checks and stop payment
orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the
Funds' transfer agent. If you request that a redemption be made by wire
transfer, currently a $15.00 fee is charged by the Funds' transfer agent. You
will be charged a redemption fee equal to 1.00% of the net amount of the
redemption if you redeem your shares of the LKCM Aquinas Value, Aquinas Growth,
Aquinas Small Cap and Aquinas Fixed Income Funds within 30 days of purchase. To
the extent the Funds invest in shares of other investment companies as part of
its investment strategy, you will indirectly bear your proportionate share of
any fees and expenses charged by the underlying funds in which the Funds invest
in addition to the expenses of the Funds. Actual expenses of the underlying
funds are expected to vary among the various underlying funds. These examples
are not included in the example below. The example below includes management
fees, registration fees and other expenses. However, the example below does not
include portfolio trading commissions and related expenses and other
extraordinary expenses as determined under generally accepted accounting
principles. You may use the information in this line, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLES
FOR COMPARISON PURPOSES
The second line of the tables below provides information about hypothetical
account values and hypothetical expenses based on the Funds' actual expense
ratios and an assumed rate of return of 5% per year before expenses, which are
not the Funds' actual returns. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds. Please note that the expenses shown in the table are meant
to highlight your ongoing costs only and do not reflect any transactional costs,
such as redemption fees. Therefore, the second line of the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactions costs were
included, your costs would have been higher.
LKCM AQUINAS VALUE FUND
- ----------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- ----------------------------------------------------------------------------------------------
Actual $1,000.00 $1,048.80 $7.75
Hypothetical (5% return before expenses) $1,000.00 $1,017.64 $7.63
* Expenses are equal to the Fund's annualized expense ratio of 1.50%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
LKCM AQUINAS GROWTH FUND
- ----------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- ----------------------------------------------------------------------------------------------
Actual $1,000.00 $1,044.90 $7.68
Hypothetical (5% return before expenses) $1,000.00 $1,017.69 $7.58
* Expenses are equal to the Fund's annualized expense ratio of 1.49%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
8
LKCM AQUINAS SMALL CAP FUND
- ----------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- ----------------------------------------------------------------------------------------------
Actual $1,000.00 $1,058.20 $7.89
Hypothetical (5% return before expenses) $1,000.00 $1,017.54 $7.73
* Expenses are equal to the Fund's annualized expense ratio of 1.52%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
LKCM AQUINAS FIXED INCOME FUND
- ----------------------------------------------------------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
- ----------------------------------------------------------------------------------------------
Actual $1,000.00 $ 993.80 $4.07
Hypothetical (5% return before expenses) $1,000.00 $1,021.12 $4.13
* Expenses are equal to the Fund's annualized expense ratio of 0.81%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
ALLOCATION OF PORTFOLIO HOLDINGS -- LKCM AQUINAS FUNDS -- DECEMBER 31, 2005
Percentages represent market value as a percentage of total investments.
Pie Chart:
LKCM AQUINAS VALUE FUND
Short-Term Investments 3.3%
Common Stocks 96.7%
Pie Chart:
LKCM AQUINAS GROWTH FUND
Short-Term Investments 7.5%
Common Stocks 92.5%
Pie Chart:
LKCM AQUINAS SMALL CAP FUND
Short-Term Investments 4.2%
Common Stocks 95.8%
Pie Chart:
LKCM AQUINAS FIXED INCOME FUND
Municipal Bonds 3.2%
U.S. Government & Agency Issues 13.7%
Preferred Stocks 1.2%
Short-Term Investments 0.8%
Mortgage & Asset-Backed Securities 1.3%
Corporate Bonds 79.8%
9
LKCM AQUINAS VALUE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS - 97.4% SHARES VALUE
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 3.6%
General Dynamics Corporation 4,700 $ 536,035
Honeywell International Inc. 21,440 798,640
United Technologies Corporation 4,000 223,640
----------
1,558,315
----------
BEVERAGES - 2.5%
The Coca-Cola Company 15,000 604,650
PepsiCo, Inc. 7,660 452,553
----------
1,057,203
----------
BIOTECHNOLOGY - 1.3%
Genzyme Corporation (a) 7,800 552,084
----------
BUILDING PRODUCTS - 3.2%
American Standard Companies Inc. 17,500 699,125
Masco Corporation 22,500 679,275
----------
1,378,400
----------
CHEMICALS - 8.0%
Air Products and Chemicals, Inc. 15,000 887,850
The Dow Chemical Company 16,000 701,120
E.I. du Pont de Nemours and Company 15,000 637,500
Praxair, Inc. 22,080 1,169,357
----------
3,395,827
----------
COMMERCIAL BANKS - 4.3%
Bank of America Corporation 26,544 1,225,006
The South Financial Group, Inc. 22,500 619,650
----------
1,844,656
----------
COMMUNICATIONS EQUIPMENT - 1.8%
Cisco Systems, Inc. (a) 45,000 770,400
----------
COMPUTERS & PERIPHERALS - 2.6%
International Business Machines
Corporation 13,550 1,113,810
----------
CONSTRUCTION & ENGINEERING - 1.8%
Chicago Bridge & Iron Company N.V. -
NY Shares - ADR (b) 30,000 756,300
----------
DIVERSIFIED FINANCIAL SERVICES - 5.7%
Citigroup Inc. 29,487 1,431,004
JPMorgan Chase & Co. 25,000 992,250
----------
2,423,254
----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.9%
ALLTEL Corporation 6,400 403,840
AT&T Inc. 35,000 857,150
BellSouth Corporation 15,500 420,050
----------
1,681,040
----------
ENERGY EQUIPMENT & SERVICES - 1.3%
Hanover Compressor Company (a) 40,000 564,400
----------
FOOD & STAPLES RETAILING - 1.9%
CVS Corporation 30,000 792,600
----------
FOOD PRODUCTS - 1.7%
General Mills, Inc. 15,000 739,800
----------
HEALTH CARE EQUIPMENT & SUPPLIES - 2.8%
Baxter International Inc. 31,740 1,195,011
----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 3.2%
UnitedHealth Group Incorporated 8,600 $ 534,404
WellPoint Inc. (a) 10,200 813,858
----------
1,348,262
----------
HOTELS RESTAURANTS & LEISURE - 1.5%
McDonald's Corporation 19,600 660,912
----------
HOUSEHOLD DURABLES - 1.6%
Newell Rubbermaid Inc. 28,200 670,596
----------
HOUSEHOLD PRODUCTS - 1.1%
Kimberly-Clark Corporation 7,890 470,638
----------
INDUSTRIAL CONGLOMERATES - 3.9%
General Electric Company 22,500 788,625
Tyco International Ltd. (b) 30,000 865,800
----------
1,654,425
----------
INSURANCE - 7.3%
The Allstate Corporation 8,200 443,374
American International Group, Inc. 15,000 1,023,450
Genworth Financial Inc. - Class A 25,000 864,500
Lincoln National Corporation 15,000 795,450
----------
3,126,774
----------
INVESTMENT BANK & BROKERAGE - 5.6%
The Goldman Sachs Group, Inc. 10,000 1,277,100
Morgan Stanley 20,000 1,134,800
----------
2,411,900
----------
IT SERVICES - 3.6%
Accenture Ltd. - Class A (b) 30,000 866,100
Computer Sciences Corporation (a) 12,900 653,256
----------
1,519,356
----------
MACHINERY - 2.0%
Caterpillar Inc. 15,000 866,550
----------
MEDIA - 1.5%
The Walt Disney Company 27,120 650,066
----------
MULTILINE RETAIL - 3.1%
J.C. Penney Company, Inc. 4,000 222,400
Target Corporation 20,000 1,099,400
----------
1,321,800
----------
MULTI-UTILITIES & UNREGULATED POWER - 1.6%
Duke Energy Corporation 25,200 691,740
----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 7.9%
Burlington Resources Inc. 6,800 586,160
Chevron Corporation 21,926 1,244,739
ConocoPhillips 16,660 969,279
Devon Energy Corporation 8,900 556,606
----------
3,356,784
----------
PAPER & FOREST PRODUCTS - 2.3%
Weyerhaeuser Company 15,000 995,100
----------
PETROLEUM REFINING - 1.3%
Exxon Mobil Corporation 10,000 561,700
----------
See notes to the financial statements.
10
LKCM AQUINAS VALUE FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
SPECIALTY RETAIL - 1.9%
The Home Depot, Inc. 6,900 $ 279,312
PETsMART, Inc. 20,000 513,200
----------
792,512
----------
WIRELESS TELECOMMUNICATION SERVICES - 1.6%
America Movil S.A. de C.V. - ADR (b) 22,800 667,128
----------
TOTAL COMMON STOCKS
(Cost $35,209,033) 41,589,343
----------
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS - 3.4%
- ---------------------------------------------------------------
MONEY MARKET FUNDS - 3.4%
Columbia Money Market Reserves Fund -
Capital Shares 1,313,705 1,313,705
Dreyfus Cash Management Fund -
Investor Shares 127,524 127,524
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,441,229) 1,441,229
----------
TOTAL INVESTMENTS - 100.8%
(Cost $36,650,262) 43,030,572
Liabilities in Excess of Other Assets - (0.8)% (340,843)
----------
TOTAL NET ASSETS - 100.0% $42,689,729
===========
ADR American Depository Receipt.
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
See notes to the financial statements.
11
LKCM AQUINAS GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS - 93.3% SHARES VALUE
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 3.9%
Rockwell Collins, Inc. 32,000 $1,487,040
Teledyne Technologies Incorporated (a) 50,000 1,455,000
----------
2,942,040
----------
AIR FREIGHT & LOGISTICS - 2.1%
FedEx Corp. 15,000 1,550,850
----------
BEVERAGES - 2.4%
PepsiCo, Inc. 30,000 1,772,400
----------
BIOTECHNOLOGY - 2.6%
Amgen Inc. (a) 25,000 1,971,500
----------
CHEMICALS - 2.1%
Praxair, Inc. 30,000 1,588,800
----------
COMMUNICATIONS EQUIPMENT - 6.4%
Cisco Systems, Inc. (a) 60,000 1,027,200
Corning Incorporated (a) 55,000 1,081,300
Harris Corporation 20,000 860,200
Motorola, Inc. 80,000 1,807,200
----------
4,775,900
----------
COMPUTERS & PERIPHERALS - 3.8%
Apple Computer, Inc. (a) 20,000 1,437,800
EMC Corporation (a) 100,000 1,362,000
----------
2,799,800
----------
CONSTRUCTION & ENGINEERING - 2.0%
Chicago Bridge & Iron Company N.V. -
NY Shares - ADR (b) 60,000 1,512,600
----------
CONSUMER FINANCE - 1.4%
American Express Company 20,000 1,029,200
----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.9%
Sprint Nextel Corporation 60,000 1,401,600
----------
ELECTRIC UTILITIES - 5.8%
Consolidated Edison, Inc. 47,200 2,186,776
The Southern Company 62,100 2,144,313
----------
4,331,089
----------
FOOD & STAPLES RETAILING - 4.2%
United Natural Foods, Inc. (a) 60,000 1,584,000
Walgreen Co. 35,000 1,549,100
----------
3,133,100
----------
FOOD PRODUCTS - 1.8%
Wm. Wrigley Jr. Company 20,000 1,329,800
----------
HEALTH CARE EQUIPMENT & SUPPLIES - 4.1%
Alcon, Inc. (a) (b) 13,000 1,684,800
Sybron Dental Specialties, Inc. (a) 35,000 1,393,350
----------
3,078,150
----------
HEALTH CARE PROVIDERS & SERVICES - 3.5%
UnitedHealth Group Incorporated 42,200 2,622,308
----------
HOTELS RESTAURANTS & LEISURE - 2.6%
Starwood Hotels & Resorts Worldwide, Inc. 30,000 1,915,800
----------
INSURANCE - 4.0%
Genworth Financial Inc. - Class A 50,000 1,729,000
Prudential Financial, Inc. 17,000 1,244,230
----------
2,973,230
----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
INTERNET &CATALOG RETAIL - 1.7%
eBay Inc. (a) 30,000 $1,297,500
----------
INTERNET SOFTWARE & SERVICES - 2.1%
Yahoo!, Inc. (a) 40,000 1,567,200
----------
INVESTMENT BANK & BROKERAGE - 2.2%
Lehman Brothers Holdings Inc. 13,000 1,666,210
----------
MULTILINE RETAIL - 1.1%
Target Corporation 15,000 824,550
----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 13.3%
Burlington Resources Inc. 20,000 1,724,000
Chevron Corporation 30,000 1,703,100
Devon Energy Corporation 35,000 2,188,900
Occidental Petroleum Corporation 19,400 1,549,672
Sunoco, Inc. 35,000 2,743,300
----------
9,908,972
----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 4.5%
Intel Corporation 64,650 1,613,664
Texas Instruments Incorporated 55,000 1,763,850
----------
3,377,514
----------
SOFTWARE - 3.6%
Microsoft Corporation 61,100 1,597,765
Symantec Corporation (a) 60,000 1,050,000
----------
2,647,765
----------
SPECIALTY RETAIL - 6.1%
Chico's FAS, Inc. (a) 20,000 878,600
The Home Depot, Inc. 59,000 2,388,320
Urban Outfitters, Inc. (a) 50,000 1,265,500
----------
4,532,420
----------
TEXTILES, APPAREL & LUXURY GOODS - 2.3%
NIKE, Inc. - Class B 20,000 1,735,800
----------
WIRELESS TELECOMMUNICATION SERVICES - 1.8%
SBA Communications Corporation -
Class A (a) 75,000 1,342,500
----------
TOTAL COMMON STOCKS
(Cost $64,252,683) 69,628,598
----------
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS - 7.6% VALUE
- ---------------------------------------------------------------
MONEY MARKET FUNDS - 7.6%
Columbia Money Market Reserves Fund -
Capital Shares 2,255,269 2,255,269
Dreyfus Cash Management Fund -
Investor Shares 2,249,700 2,249,700
Federated Treasury Obligations Fund -
Institutional Shares 1,160,166 1,160,166
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,665,135) 5,665,135
----------
TOTAL INVESTMENTS - 100.9%
(Cost $69,917,818) 75,293,733
Liabilities in Excess of Other Assets - (0.9)% (687,740)
----------
TOTAL NET ASSETS - 100.0% $74,605,993
===========
ADR American Depository Receipt.
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
See notes to the financial statements.
12
LKCM AQUINAS SMALL CAP FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS - 96.2% SHARES VALUE
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 0.9%
Teledyne Technologies Incorporated (a) 2,100 $ 61,110
----------
AUTO COMPONENTS - 1.1%
Drew Industries Incorporated (a) 2,700 76,113
----------
BUILDING PRODUCTS - 0.7%
Jacuzzi Brands, Inc. 5,900 49,560
----------
CAPITAL MARKETS - 1.8%
Greenhill & Co., Inc. 2,300 129,168
----------
COMMERCIAL BANKS - 3.4%
First State Bancorporation 3,100 74,369
Glacier Bancorp, Inc. 2,400 72,120
Hancock Holding Company 2,300 86,963
The South Financial Group, Inc. 300 8,262
----------
241,714
----------
COMMERCIAL SERVICES & SUPPLIES - 5.6%
Airgas, Inc. 2,300 75,670
John H. Harland Company 1,700 63,920
Mobile Mini, Inc. (a) 2,800 132,720
Monster Worldwide Inc. (a) 3,100 126,542
----------
398,852
----------
CONSTRUCTION & ENGINEERING - 1.6%
EMCOR Group, Inc. (a) 1,700 114,801
----------
DIVERSIFIED MANUFACTURING - 1.0%
Raven Industries, Inc. 2,400 69,240
----------
EDUCATION SERVICES - 2.3%
Laureate Education Inc. (a) 1,700 89,267
Universal Technical Institute Inc. (a) 2,400 74,256
----------
163,523
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.7%
National Instruments Corporation 1,700 54,485
Photon Dynamics, Inc. (a) 3,300 60,324
Veeco Instruments Inc. (a) 4,400 76,252
----------
191,061
----------
ENERGY EQUIPMENT & SERVICES - 5.1%
Atwood Oceanics, Inc. (a) 1,600 124,848
Hornbeck Offshore Services, Inc. (a) 3,300 107,910
Hydril (a) 1,100 68,860
Superior Well Services, Inc. (a) 2,500 59,400
----------
361,018
----------
FOOD & STAPLES RETAILING - 5.7%
Casey's General Stores, Inc. 3,500 86,800
Central European Distribution Corporation (a)1,100 44,154
The Pantry, Inc. (a) 2,100 98,679
Performance Food Group Company (a) 3,100 87,947
Reddy Ice Holdings, Inc. 3,900 85,059
----------
402,639
----------
HEALTH CARE EQUIPMENT & SUPPLIES - 8.4%
ArthroCare Corporation (a) 3,500 147,490
Aspect Medical Systems, Inc. (a) 3,700 127,095
Hologic, Inc. (a) 3,500 132,720
IntraLase Corp (a) 5,600 99,848
Sybron Dental Specialties, Inc. (a) 2,200 87,582
----------
594,735
----------
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 4.2%
HealthExtras, Inc. (a) 3,600 $ 90,360
PSS World Medical, Inc. (a) 6,600 97,944
Psychiatric Solutions, Inc. (a) 1,800 105,732
----------
294,036
----------
HOTELS, RESTAURANTS & LEISURE - 1.7%
LIFE TIME FITNESS, Inc. (a) 3,200 121,888
----------
HOUSEHOLD DURABLES - 1.4%
La-Z-Boy Incorporated 2,800 37,968
Tempur-Pedic International Inc. (a) 5,300 60,950
----------
98,918
----------
INFORMATION TECHNOLOGY SERVICES - 0.3%
Ness Technologies Inc. (a) 2,100 22,617
----------
INSURANCE - 4.8%
American Equity Investment Life Holding Company4,500 58,725
Argonaut Group, Inc. (a) 3,700 121,249
Max Re Capital Ltd. (b) 3,600 93,492
Republic Companies Group, Inc. 4,400 68,112
----------
341,578
----------
MACHINERY - 3.2%
Axsys Technologies, Inc. (a) 3,200 57,440
Bucyrus International, Inc. - Class A 1,900 100,130
CLARCOR Inc. 2,400 71,304
----------
228,874
----------
MARINE - 1.2%
Kirby Corporation (a) 1,600 83,472
----------
MEDIA - 2.1%
Citadel Broadcasting Company 6,400 86,016
Entravision Communications Corporation -
Class A (a) 8,800 62,656
----------
148,672
----------
METALS & MINING - 2.1%
Allegheny Technologies, Inc. 2,500 90,200
Earle M. Jorgensen Company (a) 5,900 54,457
----------
144,657
----------
OIL & GAS DRILLING - 1.0%
Todco - Class A 1,800 68,508
----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 8.3%
Bill Barrett Corporation (a) 2,100 81,081
Denbury Resources Inc. (a) 3,600 82,008
Encore Acquisition Company (a) 2,800 89,712
Petrohawk Energy Corporation (a) 5,900 77,998
Quicksilver Resources, Inc. (a) 2,100 88,221
Range Resources Corporation 3,100 81,654
St. Mary Land & Exploration Company 2,300 84,663
----------
585,337
----------
PHARMACEUTICALS - 1.6%
Bentley Pharmaceuticals, Inc. (a) 7,000 114,870
----------
See notes to the financial statements.
13
LKCM AQUINAS SMALL CAP FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------
REAL ESTATE - 2.2%
CB Richard Ellis Group, Inc. - Class A (a) 2,600 $ 153,010
----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 2.7%
Advanced Energy Industries, Inc. (a) 5,700 67,431
Microsemi Corporation (a) 4,400 121,704
----------
189,135
----------
SOFTWARE - 6.7%
Ariba, Inc. (a) 8,800 64,680
Embarcadero Technologies, Inc. (a) 9,300 67,704
i2 Technologies, Inc. (a) 5,200 73,372
Micromuse Inc. (a) 14,100 139,449
Nuance Communications, Inc. (a) 17,100 130,473
----------
475,678
----------
SPECIALTY RETAIL - 5.1%
Gamestop Corporation - Class A (a) 2,100 66,822
Jos. A. Bank Clothiers, Inc. (a) 2,500 108,525
The Sports Authority, Inc. (a) 2,300 71,599
Tractor Supply Company (a) 2,100 111,174
----------
358,120
----------
THRIFTS & MORTGAGE FINANCE - 0.7%
City Bank 1,400 49,798
----------
TRADING COMPANIES & DISTRIBUTORS - 2.9%
Anixter International, Inc. 2,300 89,976
Hughes Supply, Inc. 3,100 111,135
----------
201,111
----------
WATER UTILITIES - 1.8%
Aqua America Inc. 4,700 128,310
----------
WIRELESS TELECOMMUNICATION SERVICES - 1.9%
SBA Communications Corporation - Class A (a)7,500 134,250
----------
TOTAL COMMON STOCKS
(Cost $5,638,593) 6,796,373
----------
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS - 4.2% SHARES VALUE
- ---------------------------------------------------------------
MONEY MARKET FUNDS - 4.2%
Columbia Money Market Reserves Fund -
Capital Shares 200,825 $ 200,825
Dreyfus Cash Management Fund -
Investor Shares 93,664 93,664
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $294,489) 294,489
----------
TOTAL INVESTMENTS - 100.4%
(Cost $5,933,082) 7,090,862
Liabilities in Excess of Other Assets - (0.4)% (26,779)
----------
TOTAL NET ASSETS - 100.0% $7,064,083
==========
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
See notes to the financial statements.
14
LKCM AQUINAS FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
- ---------------------------------------------------------------
SHARES OR
ASSET BACKED PRINCIPAL
SECURITIES - 0.1% AMOUNT VALUE
- ---------------------------------------------------------------
FedEx Corp.
Sinkable 01/15/2006
Series 1981, Class C,
7.02%, 01/15/2016 $ 52,028 $ 55,789
----------
TOTAL ASSET BACKED SECURITIES
(Cost $56,217) 55,789
----------
- ---------------------------------------------------------------
CORPORATE BONDS - 78.7%
- ---------------------------------------------------------------
AEROSPACE & DEFENSE - 3.0%
General Dynamics Corporation
4.50%, 08/15/2010 500,000 492,519
Raytheon Company
5.50%, 11/15/2012 447,000 457,819
United Technologies Corporation
6.35%, 03/01/2011 300,000 320,075
----------
1,270,413
----------
ASSET MANAGEMENT - 1.0%
Mellon Funding Corporation
6.70%, 03/01/2008 400,000 414,976
----------
BUILDING PRODUCTS - 1.7%
Masco Corporation:
6.75%, 03/15/2006 625,000 627,238
5.75%, 10/15/2008 100,000 101,869
----------
729,107
----------
CHEMICALS - 1.8%
The Lubrizol Corporation
5.50%, 10/01/2014 750,000 753,286
----------
COMMERCIAL BANKS - 1.4%
Landesbank Baden-Wuerttemberg (b)
6.35%, 04/01/2012 45,000 49,160
National City Bank
6.20%, 12/15/2011 500,000 529,711
----------
578,871
----------
COMMERCIAL SERVICES & SUPPLIES - 6.4%
CP&L, Inc.
6.80%, 08/15/2007 300,000 308,308
Ingersoll-Rand Company Ltd. (b)
6.25%, 05/15/2006 650,000 653,570
International Lease Finance Corporation:
6.375%, 03/15/2009 540,000 561,275
5.00%, 04/15/2010 40,000 39,824
Pitney Bowes Inc.
3.875%, 06/15/2013 600,000 559,918
R. R. Donnelley & Sons Co.
4.95%, 05/15/2010 20,000 19,521
Waste Management, Inc.
7.00%, 10/15/2006 565,000 572,873
----------
2,715,289
----------
COMMUNICATIONS EQUIPMENT - 1.9%
Motorola, Inc.
7.625%, 11/15/2010 740,000 823,453
----------
COMPUTERS & PERIPHERALS - 2.9%
Hewlett-Packard Company
5.50%, 07/01/2007 750,000 756,328
International Business Machines Corporation
4.375%, 06/01/2009 500,000 494,115
----------
1,250,443
----------
- ---------------------------------------------------------------
SHARES OR
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.1%
Centex Corporation
7.50%, 01/15/2012 $ 40,000 $ 43,552
----------
CONSUMER FINANCE - 5.6%
American General Finance Corporation:
4.625%, 05/15/2009 490,000 485,455
4.00%, 03/15/2011 35,000 33,148
ASIF Global Financing XVIII (a)
3.850%, 11/26/2007 325,000 318,868
(Acquired 01/06/2004, Cost $327,961)
Capital One Bank
6.875%, 02/01/2006 1,000,000 1,001,633
General Electric Capital Corporation
4.25%, 12/01/2010 30,000 29,315
HSBC Finance Corporation
6.50%, 11/15/2008 510,000 531,140
----------
2,399,559
----------
DIVERSIFIED FINANCIAL SERVICES - 1.2%
AXA Financial, Inc.
7.75%, 08/01/2010 25,000 27,709
CIT Group Inc.:
4.125%, 02/21/2006 200,000 199,923
6.875%, 11/01/2009 150,000 159,243
4.75%, 12/15/2010 30,000 29,532
Textron Financial Corporation:
5.875%, 06/01/2007 60,000 60,744
6.00%, 11/20/2009 40,000 41,481
----------
518,632
----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.8%
360 Communications Company
6.65%, 01/15/2008 430,000 443,998
ALLTEL Corporation
7.00%, 07/01/2012 150,000 165,133
GTE Corporation
6.36%, 04/15/2006 765,000 768,055
SBC Communications Inc.:
5.75%, 05/02/2006 1,000,000 1,002,610
5.10%, 09/15/2014 50,000 48,929
Sprint Capital Corp.
8.375%, 03/15/2012 45,000 52,218
Verizon Global Funding Corp.
7.25%, 12/01/2010 10,000 10,862
----------
2,491,805
----------
ELECTRIC UTILITIES - 1.5%
TXU Corp.
6.375%, 06/15/2006 120,000 121,211
TXU Energy Co.
7.00%, 03/15/2013 500,000 533,587
----------
654,798
----------
ELECTRICAL EQUIPMENT - 0.7%
Arrow Electronics, Inc.
9.15%, 10/01/2010 40,000 45,770
Emerson Electric Co.
5.75%, 11/01/2011 250,000 261,706
----------
307,476
----------
ENERGY EQUIPMENT & SERVICES - 1.2%
Baker Hughes Incorporated
6.00%, 02/15/2009 455,000 470,006
Halliburton Company
5.50%, 10/15/2010 40,000 40,897
----------
510,903
----------
See notes to the financial statements.
15
LKCM AQUINAS FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
SHARES OR
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
FOOD PRODUCTS - 1.2%
The Hershey Company
4.85%, 08/15/2015 $ 500,000 $ 496,752
----------
HOUSEHOLD PRODUCTS - 3.6%
Kimberly-Clark Corporation
5.625%, 02/15/2012 600,000 626,317
The Procter & Gamble Company
Putable 09/01/2014
8.00%, 09/01/2024 675,000 900,358
----------
1,526,675
----------
INDUSTRIAL CONGLOMERATES - 1.4%
Tyco International Group SA (b)
6.375%, 02/15/2006 600,000 600,997
----------
INSURANCE - 1.8%
The Hartford Financial Services Group, Inc.
4.70%, 09/01/2007 100,000 99,452
John Hancock Global Funding II (a)
5.625%, 06/27/2006 365,000 366,349
(Acquired 01/27/2004 and 06/06/2005,
Cost $369,617)
Massmutual Global Funding II (a)
3.25%, 06/15/2007 285,000 278,324
(Acquired 12/03/2003, Cost $284,399)
----------
744,125
----------
INVESTMENT BANK & BROKERAGE - 5.5%
The Bear Stearns Companies Inc.
6.75%, 12/15/2007 500,000 516,885
Credit Suisse First Boston USA
6.50%, 01/15/2012 45,000 48,200
The Goldman Sachs Group, Inc.
5.15%, 01/15/2014 30,000 29,851
Lehman Brothers Holdings Inc.:
6.625%, 02/05/2006 500,000 500,820
7.00%, 02/01/2008 540,000 562,413
Merrill Lynch & Co., Inc
3.125%, 07/15/2008 195,000 186,926
Morgan Stanley
4.75%, 04/01/2014 545,000 523,568
----------
2,368,663
----------
IT SERVICES - 1.2%
First Data Corporation
4.95%, 06/15/2015 550,000 521,689
----------
MACHINERY - 1.1%
Dover Corporation
6.50%, 02/15/2011 450,000 482,099
----------
MEDIA - 3.3%
Viacom Inc.
6.40%, 01/30/2006 750,000 750,833
The Walt Disney Company
6.375%, 03/01/2012 635,000 672,506
----------
1,423,339
----------
METALS & MINING - 1.5%
Alcoa, Inc.
6.00%, 01/15/2012 600,000 629,109
----------
- ---------------------------------------------------------------
SHARES OR
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
MULTILINE RETAIL - 1.5%
Target Corporation:
6.35%, 01/15/2011 $ 100,000 $ 106,687
5.875%, 03/01/2012 500,000 525,914
----------
632,601
----------
MULTI-UTILITIES & UNREGULATED POWER - 0.1%
Sempra Energy
4.621%, 05/17/2007 60,000 59,594
----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 10.4%
Apache Corporation
6.25%, 04/15/2012 690,000 742,423
Burlington Resources Finance Company (b)
6.68%, 02/15/2011 400,000 431,752
Occidental Petroleum Corporation
6.75%, 01/15/2012 648,000 712,131
Ocean Energy Inc.
4.375%, 10/01/2007 238,000 235,400
ONEOK, Inc.
5.20%, 06/15/2015 40,000 39,352
Texaco Capital Inc.
8.25%, 10/01/2006 500,000 509,333
Union Pacific Resources Group Inc.
7.00%, 10/15/2006 750,000 759,821
USX Corporation
9.125%, 01/15/2013 409,000 502,231
XTO Energy, Inc.
6.25%, 04/15/2013 500,000 530,688
----------
4,463,131
----------
REAL ESTATE - 1.6%
EOP Operating Limited Partnership:
7.75%, 11/15/2007 105,000 110,038
4.65%, 10/01/2010 525,000 509,211
Health Care Property Investors, Inc.
6.45%, 06/25/2012 20,000 20,990
Health Care REIT, Inc.
8.00%, 09/12/2012 50,000 55,827
----------
696,066
----------
RESTAURANTS - 1.5%
McDonald's Corporation
6.00%, 04/15/2011 610,000 637,891
----------
ROAD & RAIL - 0.1%
Burlington Northern Santa Fe Corporation
6.125%, 03/15/2009 40,000 41,401
----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.2%
Applied Materials, Inc.
6.75%, 10/15/2007 500,000 513,637
----------
SOFTWARE - 1.4%
Oracle Corporation
6.91%, 02/15/2007 600,000 610,730
----------
SPECIALTY RETAIL - 2.9%
The Home Depot, Inc.
4.625%, 08/15/2010 500,000 497,312
Lowe's Companies, Inc.
8.25%, 06/01/2010 650,000 736,218
----------
1,233,530
----------
See notes to the financial statements.
16
LKCM AQUINAS FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2005
- ---------------------------------------------------------------
SHARES OR
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ---------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 1.2%
Hughes Supply, Inc.
5.50%, 10/15/2014 $ 530,000 $ 516,468
----------
TOTAL CORPORATE BONDS
(Cost $33,848,442) 33,661,060
----------
- ---------------------------------------------------------------
MORTGAGE BACKED SECURITIES - 1.2%
- ---------------------------------------------------------------
Chase Commercial Mortgage Securities Corp.
Series 1997-1, Class A-2,
7.37%, 06/19/2029 136,562 138,545
Heller Financial Commercial Mortgage
Series 2000-PH-1, Class A-1,
7.715%, 01/15/2034 198,897 201,637
Morgan Stanley Capital I
Series 1997-WF1, Class A-2,
7.22%, 07/15/2029 165,921 169,040
----------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $517,939) 509,222
----------
- ---------------------------------------------------------------
MUNICIPAL BONDS - 3.2%
- ---------------------------------------------------------------
California Statewide Communities Development
4.00%, 11/15/2006 655,000 650,926
Fiscal Year 2005 Securitization Corp. NY
3.40%, 08/15/2008 330,000 325,650
Southern California Public Power Authority
Power Project
6.93%, 05/15/2017 330,000 386,549
----------
TOTAL MUNICIPAL BONDS
(Cost $1,366,912) 1,363,125
----------
- ---------------------------------------------------------------
PREFERRED STOCKS - 1.2%
- ---------------------------------------------------------------
INVESTMENT BANK & BROKERAGE - 1.2%
The Goldman Sachs Group, Inc. 20,000 510,500
----------
TOTAL PREFERRED STOCKS
(Cost $500,000) 510,500
----------
- ---------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY ISSUES - 13.5%
- ---------------------------------------------------------------
FANNIE MAE - 0.3%
6.00%, 05/15/2011 120,000 127,062
----------
FEDERAL HOME LOAN BANK - 3.5%
3.50%, 08/15/2006 125,000 124,154
5.75%, 10/15/2007 855,000 871,568
Putable 04/15/2006
4.90%, 11/21/2007 500,000 499,280
Callable 11/21/2006
----------
1,495,002
----------
FREDDIE MAC - 4.3%
5.25%, 01/15/2006 750,000 750,140
3.00%, 09/29/2006 130,000 128,367
4.20%, 12/28/2007 1,000,000 987,728
----------
1,866,235
----------
- ---------------------------------------------------------------
SHARES OR
U.S. GOVERNMENT & PRINCIPAL
AGENCY ISSUES AMOUNT VALUE
- ---------------------------------------------------------------
U.S. TREASURY INFLATION INDEXED BONDS - 1.3%
3.625%, 01/15/2008 $ 326,729 $ 335,599
1.625%, 01/15/2015 219,064 211,114
----------
546,713
----------
U.S. TREASURY NOTES - 4.1%
3.00%, 12/31/2006 250,000 246,553
6.50%, 02/15/2010 115,000 124,088
5.00%, 08/15/2011 1,335,000 1,378,335
----------
1,748,976
----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(Cost $5,875,613) 5,783,988
----------
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.7%
- ---------------------------------------------------------------
MONEY MARKET FUND - 0.7%
Columbia Money Market Reserves Fund -
Capital Shares 320,373 320,373
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $320,373) 320,373
----------
TOTAL INVESTMENTS - 98.6%
(Cost $42,485,496) 42,204,057
Other Assets in Excess of Liabilities - 1.4% 577,692
----------
TOTAL NET ASSETS - 100.0% $42,781,749
===========
(a) Restricted security. Purchased shares in a private placement transaction.
Resale to the public may require registration or may extend only to
qualified institutional buyers. The aggregate amount was $963,541
representing 2.25% of the Portfolio.
(b) Dollar-denominated foreign security.
See notes to the financial statements.
17
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
LKCM LKCM LKCM LKCM
AQUINAS AQUINAS AQUINAS AQUINAS
VALUE FUND GROWTH FUND SMALL CAP FUND FIXED INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value *................................................ $43,030,572 $75,293,733 $ 7,090,862 $42,204,057
Dividends and interest receivable...................................... 79,078 71,491 8,558 633,506
Receivable for investments sold........................................ -- -- 123,747 --
Receivable from Adviser................................................ -- -- 3,768 --
Receivable for fund shares sold........................................ 73,187 49,230 9,460 130,786
Other assets........................................................... 8,264 11,311 12,179 14,440
----------- ----------- ----------- -----------
Total assets......................................................... 43,191,101 75,425,765 7,248,574 42,982,789
----------- ----------- ----------- -----------
LIABILITIES:
Payable for investments purchased...................................... -- -- 157,506 --
Payable for investment advisory fees................................... 84,790 169,589 -- 32,013
Payable for fund shares redeemed....................................... 325,523 496,296 400 119,625
Distribution expense payable........................................... 47,814 84,299 8,505 --
Accrued expenses and other liabilities................................. 43,245 69,588 18,080 49,402
----------- ----------- ----------- -----------
Total liabilities.................................................... 501,372 819,772 184,491 201,040
----------- ----------- ----------- -----------
NET ASSETS............................................................. $42,689,729 $74,605,993 $ 7,064,083 $42,781,749
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Paid in capital........................................................ $38,188,878 $68,853,588 $ 7,163,854 $43,099,590
Undistributed net investment income.................................... 118,223 -- -- 8,793
Accumulated net realized gain (loss) on securities..................... (1,997,682) 376,490 (1,257,551) (45,195)
Net unrealized appreciation (depreciation) on investments.............. 6,380,310 5,375,915 1,157,780 (281,439)
----------- ----------- ----------- -----------
Net assets............................................................. $42,689,729 $74,605,993 $ 7,064,083 $42,781,749
=========== =========== =========== ===========
NET ASSETS............................................................. $42,689,729 $74,605,993 $ 7,064,083 $42,781,749
Shares of beneficial interest outstanding
(unlimited shares of no par value
authorized).......................................................... 3,488,024 4,779,055 1,212,995 4,345,642
Net asset value per share
(offering and redemption price)...................................... $ 12.24 $ 15.61 $ 5.82 $ 9.84
=========== =========== =========== ===========
* Cost of Investments.................................................. $36,650,262 $69,917,818 $ 5,933,082 $42,485,496
=========== =========== =========== ===========
See notes to the financial statements.
18
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
LKCM LKCM LKCM LKCM
AQUINAS AQUINAS AQUINAS AQUINAS
VALUE FUND GROWTH FUND SMALL CAP FUND FIXED INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends *............................................................ $ 765,890 $ 1,023,579 $ 33,522 $ --
Interest............................................................... 41,677 185,740 7,078 2,053,032
----------- ----------- ---------- ----------
Total income......................................................... 807,567 1,209,319 40,600 2,053,032
----------- ----------- ---------- ----------
EXPENSES:
Investment advisory fees............................................... 405,965 653,080 81,661 276,521
Distribution expense................................................... 51,340 91,164 18,085 --
Administrative fees.................................................... 58,009 90,027 18,019 63,718
Accounting and transfer agent fees and expenses........................ 68,383 106,015 45,451 91,432
Professional fees...................................................... 27,980 40,829 5,065 30,486
Federal and state registration......................................... 17,763 17,472 11,477 23,554
Custody fees and expenses.............................................. 7,705 8,546 7,748 10,409
Reports to shareholders................................................ 6,878 10,350 1,309 7,755
Trustees' fees......................................................... 4,101 6,200 745 4,498
Other.................................................................. 14,278 17,122 2,294 3,596
----------- ----------- ---------- ----------
Total expenses....................................................... 662,402 1,040,805 191,854 511,969
Less, expense waiver and/or
reimbursement...................................................... (12,204) (2,516) (66,559) (81,750)
----------- ----------- ---------- ----------
Net expenses......................................................... 650,198 1,038,289 125,295 430,219
----------- ----------- ---------- ----------
NET INVESTMENT INCOME (LOSS)........................................... 157,369 171,030 (84,695) 1,622,813
----------- ----------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments....................................... 3,082,006 472,796 328,021 104,162
Net change in unrealized appreciation/depreciation on investments...... (1,537,265) 5,338,281 (35,568) (901,763)
----------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS....................................................... 1,544,741 5,811,077 292,453 (797,601)
----------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............................................ $ 1,702,110 $ 5,982,107 $ 207,758 $ 825,212
=========== =========== ========== ==========
* Net of foreign taxes withheld........................................ $ 4,661 $ 900 $ -- $ --
=========== =========== ========== ==========
See notes to the financial statements.
19
STATEMENTS OF CHANGES IN NET ASSETS
LKCM AQUINAS LKCM AQUINAS
VALUE FUND GROWTH FUND
--------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
OPERATIONS:
Net investment income (loss)............................................ $ 157,369 $ 85,487 $ 171,030 $ (275,424)
Net realized gain on investments........................................ 3,082,006 3,596,010 472,796 12,380,564
Net change in unrealized appreciation/depreciation on investments....... (1,537,265) 2,393,100 5,338,281 (7,734,783)
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations......................................... 1,702,110 6,074,597 5,982,107 4,370,357
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................................................... (54,531) (70,254) (173,759) --
Net realized gain on investments........................................ -- -- (1,731,877) --
----------- ----------- ----------- -----------
(54,531) (70,254) (1,905,636) --
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (NOTE C)...................................... (1,722,864) (3,709,191) 12,095,490 (3,754,649)
----------- ----------- ----------- -----------
Total increase (decrease) in net assets............................. (75,285) 2,295,152 16,171,961 615,708
NET ASSETS:
Beginning of period..................................................... 42,765,014 40,469,862 58,434,032 57,818,324
----------- ----------- ----------- -----------
End of period *......................................................... $42,689,729 $42,765,014 $74,605,993 $58,434,032
=========== =========== =========== ===========
* Including undistributed net
investment income of:................................................. $ 118,223 $ 15,385 $ -- $ --
=========== =========== =========== ===========
LKCM AQUINAS LKCM AQUINAS
SMALL CAP FUND FIXED INCOME FUND
--------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
---------- ---------- ----------- -----------
OPERATIONS:
Net investment income (loss)............................................ $ (84,695) $ (125,751) $ 1,622,813 $ 1,497,756
Net realized gain on investments........................................ 328,021 311,210 104,162 864,922
Net change in unrealized appreciation/depreciation
on investments........................................................ (35,568) 62,760 (901,763) (512,123)
---------- ---------- ----------- -----------
Net increase in net assets
resulting from operations......................................... 207,758 248,219 825,212 1,850,555
---------- ---------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................................................... -- -- (1,626,609) (1,675,211)
Net realized gain on investments........................................ -- -- (151,578) (653,362)
---------- ---------- ----------- -----------
-- -- (1,778,187) (2,328,573)
---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FROM FUND SHARE TRANSACTIONS (NOTE C)................................. (719,033) 44,461 (2,381,653) 1,834,202
---------- ---------- ----------- -----------
Total increase (decrease) in net assets............................. (511,275) 292,680 (3,334,628) 1,356,184
NET ASSETS:
Beginning of period..................................................... 7,575,358 7,282,678 46,116,377 44,760,193
---------- ---------- ----------- -----------
End of period *......................................................... $7,064,083 $7,575,358 $42,781,749 $46,116,377
========== ========== =========== ===========
* Including undistributed net
investment income of:................................................. $ -- $ -- $ 8,793 $ --
========== ========== =========== ===========
See notes to the financial statements.
20
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM AQUINAS VALUE FUND
--------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
20051 2004 2003 2002 2001
------- ------- ------ ------- -------
NET ASSET VALUE - BEGINNING OF PERIOD................... $ 11.77 $ 10.17 $ 7.95 $ 10.22 $ 10.91
------- ------- ------ ------- -------
Net investment income................................... 0.04 0.02 0.03 0.01 --
Net realized and unrealized gain (loss) on investments.. 0.44 1.60 2.22 (2.27) (0.69)
------- ------- ------ ------- -------
Total from investment operations.................... 0.48 1.62 2.25 (2.26) (0.69)
------- ------- ------ ------- -------
Dividends from net investment income.................... (0.01) (0.02) (0.03) (0.01) --
------- ------- ------ ------- -------
NET ASSET VALUE - END OF PERIOD......................... $ 12.24 $ 11.77 $ 10.17 $ 7.95 $ 10.22
======= ======= ======= ====== =======
TOTAL RETURN............................................ 4.13% 15.93% 28.29% (22.11)% (6.29)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................... $42,690 $42,765 $40,470 $33,783 $45,155
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement............ 1.55% 1.57% 1.59% 1.55% 1.49%
After expense waiver and/or reimbursement............. 1.52%2 1.53% 1.50% 1.50% 1.49%
Ratio of net investment income to average net assets:
Before expense waiver and/or reimbursement............ 0.34% 0.17% 0.21% 0.06% 0.01%
After expense waiver and/or reimbursement............. 0.37% 0.21% 0.30% 0.11% 0.01%
Portfolio turnover rate................................. 71% 61% 70% 45% 64%
1 The financial highlights set forth herein include the historical financial
highlights of the Aquinas Value Fund. The assets of the Aquinas Value Fund
were acquired by the LKCM Aquinas Value Fund on July 11, 2005. At the time
of the reorganization, the Adviser also changed from Aquinas Investment
Advisers, Inc. to Luther King Capital Management Corporation.
2 The LKCM Aquinas Value Fund implemented a voluntary expense cap of 1.50%
effective July 11, 2005.
LKCM AQUINAS GROWTH FUND
--------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
20051 2004 2003 2002 2001
------- ------- ------ ------- -------
NET ASSET VALUE - BEGINNING OF PERIOD................... $ 14.67 $ 13.58 $ 11.26 $ 14.61 $ 17.41
------- ------- ------- ------- -------
Net investment income (loss)............................ 0.03 (0.07) (0.08) (0.10) (0.12)
Net realized and unrealized gain (loss) on investments.. 1.31 1.16 2.40 (3.25) (2.68)
------- ------- ------- ------- -------
Total from investment operations.................... 1.34 1.09 2.32 (3.35) (2.80)
------- ------- ------- ------- -------
Dividends from net investment income.................... (0.03) -- -- -- --
Distributions from net realized gains................... (0.37) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions................... (0.40) -- -- -- --
------- ------- ------- ------- -------
NET ASSET VALUE - END OF PERIOD......................... $ 15.61 $ 14.67 $ 13.58 $ 11.26 $ 14.61
======= ======= ======= ======= =======
TOTAL RETURN............................................ 9.15% 8.03% 20.60% (22.93)% (16.08)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................... $74,606 $58,434 $57,818 $48,773 $60,961
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement............ 1.51% 1.55% 1.58% 1.54% 1.50%
After expense waiver and/or reimbursement............. 1.51%2 1.53% 1.50% 1.50% 1.50%
Ratio of net investment income (loss) to
average net assets:
Before expense waiver and/or reimbursement............ 0.25% (0.50)% (0.70)% (0.86)% (0.81)%
After expense waiver and/or reimbursement............. 0.25% (0.48)% (0.62)% (0.82)% (0.81)%
Portfolio turnover rate................................. 114% 196% 105% 94% 99%
1 The financial highlights set forth herein include the historical financial
highlights of the Aquinas Growth Fund. The assets of the Aquinas Growth
Fund were acquired by the LKCM Aquinas Growth Fund on July 11, 2005. At the
time of the reorganization, the Adviser also changed from Aquinas
Investment Advisers, Inc. to Luther King Capital Management Corporation.
2 The LKCM Aquinas Growth Fund implemented a voluntary expense cap of 1.50%
effective July 11, 2005.
See notes to the financial statements.
21
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM AQUINAS SMALL CAP FUND
--------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
20051 2004 2003 2002 2001
------ ------ ------ ------ ------
NET ASSET VALUE - BEGINNING OF PERIOD................... $ 5.66 $ 5.50 $ 4.21 $ 6.08 $ 6.85
------ ------ ------ ------ ------
Net investment loss..................................... (0.07)2 (0.09) (0.08) (0.08) (0.08)
Net realized and unrealized gain (loss) on investments.. 0.23 0.25 1.37 (1.79) (0.66)
------ ------ ------ ------ ------
Total from investment operations.................... 0.16 0.16 1.29 (1.87) (0.74)
------ ------ ------ ------ ------
Distributions from net realized gains................... -- -- -- -- (0.03)
------ ------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD......................... $ 5.82 $ 5.66 $ 5.50 $ 4.21 $ 6.08
====== ====== ====== ====== ======
TOTAL RETURN............................................ 2.83% 2.91% 30.64% (30.76)% (10.83)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................... $7,064 $7,575 $7,283 $5,419 $6,208
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement............ 2.65% 2.76% 2.99% 2.91% 2.81%
After expense waiver and/or reimbursement............. 1.73%3 1.95% 1.95% 1.95% 1.95%
Ratio of net investment loss to average net assets:
Before expense waiver and/or reimbursement............ (2.09)% (2.62)% (2.74)% (2.72)% (2.32)%
After expense waiver and/or reimbursement............. (1.17)% (1.81)% (1.70)% (1.76)% (1.46)%
Portfolio turnover rate................................. 148% 260% 161% 113% 102%
1 The financial highlights set forth herein include the historical financial
highlights of the Aquinas Small-Cap Fund. The assets of the Aquinas
Small-Cap Fund were acquired by the LKCM Aquinas Small Cap Fund on July 11,
2005. At the time of the reorganization, the Adviser also changed from
Aquinas Investment Advisers, Inc. to Luther King Capital Management
Corporation.
2 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.
3 The LKCM Aquinas Small Cap Fund implemented a voluntary expense cap of
1.50% effective July 11, 2005.
LKCM AQUINAS FIXED INCOME FUND
--------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
20051 2004 2003 2002 2001
------- ------- ------- ------- -------
------- ------- ------- ------- -------
NET ASSET VALUE - BEGINNING OF PERIOD................... $ 10.06 $ 10.16 $ 10.23 $ 10.07 $ 9.73
------- ------- ------- ------- -------
Net investment income................................... 0.37 0.34 0.35 0.50 0.55
Net realized and unrealized gain (loss) on investments.. (0.19) 0.09 0.14 0.21 0.34
------- ------- ------- ------- -------
Total from investment operations.................... 0.18 0.43 0.49 0.71 0.89
------- ------- ------- ------- -------
Dividends from net investment income.................... (0.36) (0.38) (0.40) (0.50) (0.55)
Distributions from net realized gains................... (0.04) (0.15) (0.16) (0.05) --
------- ------- ------- ------- -------
Total dividends and distributions................... (0.40) (0.53) (0.56) (0.55) (0.55)
------- ------- ------- ------- -------
NET ASSET VALUE - END OF PERIOD......................... $ 9.84 $ 10.06 $ 10.16 $ 10.23 $ 10.07
======= ======= ======= ======= =======
TOTAL RETURN............................................ 1.75% 4.35% 4.90% 7.29% 9.33%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................... $42,782 $46,116 $44,760 $47,688 $49,256
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement............ 1.11% 1.19% 1.20% 1.12% 1.09%
After expense waiver and/or reimbursement............. 0.93%2 1.02% 1.00% 1.00% 1.00%
Ratio of net investment income to average net assets:
Before expense waiver and/or reimbursement............ 3.34% 3.20% 3.23% 4.83% 5.34%
After expense waiver and/or reimbursement............. 3.52% 3.37% 3.43% 4.95% 5.43%
Portfolio turnover rate................................. 152% 147% 276% 168% 158%
1 The financial highlights set forth herein include the historical financial
highlights of the Aquinas Fixed Income Fund. The assets of the Aquinas
Fixed Income Fund were acquired by the LKCM Aquinas Fixed Income Fund on
July 11, 2005. At the time of the reorganization, the Adviser also changed
from Aquinas Investment Advisers, Inc. to Luther King Capital Management
Corporation.
2 The LKCM Aquinas Fixed Income Fund implemented a voluntary expense cap of
0.80% effective July 11, 2005.
See notes to the financial statements.
22
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 nine diversified series of
shares, four of which are the LKCM Aquinas Value, LKCM Aquinas Growth, LKCM
Aquinas Small Cap and LKCM Aquinas Fixed Income Funds (collectively, the
"Funds") and are reported here. As described in Note F, on July 11, 2005, the
Funds acquired the assets and assumed the liabilities of the Aquinas Funds. The
LKCM Aquinas Value, LKCM Aquinas Growth and LKCM Aquinas Small Cap Funds are
subject to expenses pursuant to the Rule 12b-1 plan described in Note B. Each
Fund charges a redemption fee for redemptions on Fund shares held for less than
30 days.
The LKCM Aquinas Value Fund seeks to maximize long-term capital appreciation by
investing primarily in equity securities that the Adviser believes to be
undervalued relative to a company's earnings growth rate. The LKCM Aquinas
Growth Fund seeks to maximize long-term capital appreciation by investing
primarily in equity securities that the Adviser believes generally have
above-average growth in revenue and/or earnings, above average returns on
shareholders' equity, under-leveraged balance sheets and potential for
above-average capital appreciation. The LKCM Aquinas Small Cap Fund seeks to
maximize long-term 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
Aquinas Fixed Income Fund seeks to provide investors with current income by
investing primarily in a diversified portfolio of investment grade, short and
intermediate-term debt securities issued by corporations, the U.S. Government,
agencies or instrumentalities of the U.S. Government and cash equivalent
securities.
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, taken from the exchange where the security is primarily traded.
Nasdaq National Market securities are valued at the Nasdaq Official Closing
Price ("NOCP"). 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 at
the last quoted bid price and/or by using a combination of daily quotes and
matrix evaluations provided by an independent pricing service. 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. The Board has adopted specific
procedures for valuing portfolio securities and delegated the
implementation of these procedures to Luther King Capital Management
Corporation (the "Adviser"). The procedures authorize the Adviser to make
all determinations regarding the fair value of a portfolio security and to
report such determinations to the Board of Trustees. The Funds may also use
independent pricing services to assist in pricing portfolio securities.
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 Aquinas Value, LKCM Aquinas
Growth and LKCM Aquinas Small Cap Funds generally intend to pay dividends
and net capital gain distributions, if any, at least on an annual basis.
The LKCM Aquinas Fixed Income Fund generally intends 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. 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.
6. 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.
7. GUARANTEES AND INDEMNIFICATIONS: In the normal course of business, the
Funds enter into contracts with service providers that contain general
indemnification clauses. The Funds' maximum exposure under these
arrangements is unknown as this would involve future claims against the
Funds that have not yet occurred. Based on experience, the Funds expect the
risk of loss to be remote.
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.
9. RESTRICTED AND ILLIQUID SECURITIES -- The Funds are permitted to invest
in securities that are subject to legal or contractual restrictions on
resale or are illiquid. Restricted securities generally may be resold in
transactions exempt from registration. A security may be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at the
current valuation may be difficult.
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
23
annual rates presented below as applied to each Fund's average daily net assets.
The Adviser has voluntarily agreed to pay operating expenses in excess of the
annual cap rates presented below as applied to each Fund's average daily net
assets.
LKCM LKCM LKCM LKCM
AQUINAS AQUINAS AQUINAS AQUINAS
VALUE GROWTH SMALL CAP FIXED
FUND FUND FUND INCOME FUND
Annual Advisory Rate 0.90% 0.90% 1.00% 0.60%
Annual Cap on Expenses 1.50% 1.50% 1.50% 0.80%
The Aquinas Value, Aquinas Growth, Aquinas Small-Cap and Aquinas Fixed Income
Funds were the predecessor funds of the LKCM Aquinas Value, LKCM Aquinas Growth,
LKCM Aquinas Small Cap and LKCM Aquinas Fixed Income Funds, respectively. All
performance and operations reported for periods before July 11, 2005 represent
the activity of the Aquinas Funds.
Prior to July 11, 2005, Aquinas Investment Advisers, Inc. was the adviser of the
Funds. Under terms of the former advisory agreement, the adviser received a
monthly fee at the following annual rate of the Funds' average daily net assets:
0.60% for the Fixed Income Fund, 1.00% for the Value and Growth Funds and 1.25%
for the Small-Cap Fund.
U.S. Bancorp Fund Services, LLC serves as transfer agent and administrator for
the Trust and serves as accounting services agent for all LKCM Aquinas Funds.
During 2005, total expenses of $168,802 related to such services that were
performed by U.S. Bancorp Fund Services, LLC. U.S. Bank, N.A. serves as
custodian for all LKCM Aquinas Funds. Prior to July 11, 2005 another company
served as transfer agent, administrator and accounting services agent for the
Funds. Total expenses of $194,475 were incurred for such services.
Distribution services are performed pursuant to a distribution contract with
Quasar Distributors, LLC, the Trust's principal underwriter.
The LKCMFunds have adopted a Rule 12b-1 plan for the LKCM Aquinas Value, LKCM
Aquinas Growth and LKCM Aquinas Small Cap Funds, under which 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 LKCM Aquinas Value, LKCMAquinas
Growth and LKCM Aquinas Small Cap Funds. For the year ended December 31, 2005,
fees accrued by the LKCM Aquinas Value, LKCMAquinas Growth and LKCM Aquinas
Small Cap Funds pursuant to the 12b-1 Plan were $51,340, $91,164 and $18,085,
respectively. The amount for the LKCMAquinas Small Cap Fund includes amounts
accrued by its predecessor Fund.
C. FUND SHARES: At December 31, 2005, 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:
AQUINAS VALUE FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 517,266 $ 6,199,674 597,157 $ 6,339,497
Shares issued to shareholders in
reinvestment of distributions 4,597 53,536 6,037 68,714
Shares redeemed (666,873) (7,976,246) (950,833) (10,117,402)
Redemption fee 172 --
---------- ----------- ---------- -----------
Net decrease (145,010) $(1,722,864) (347,639) $(3,709,191)
=========== ===========
SHARES OUTSTANDING:
Beginning of period 3,633,034 3,980,673
---------- ----------
End of period 3,488,024 3,633,034
========== ==========
AQUINAS GROWTH FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 1,599,321 $24,524,809 551,118 $ 7,599,318
Shares issued to shareholders in
reinvestment of distributions 119,414 1,869,173 -- --
Shares redeemed (923,905) (14,298,519) (823,813) (11,353,967)
Redemption fee 27 --
---------- ----------- ---------- -----------
Net increase (decrease) 794,830 $12,095,490 (272,695) $(3,754,649)
=========== ===========
SHARES OUTSTANDING:
Beginning of period 3,984,225 4,256,920
---------- ----------
End of period 4,779,055 3,984,225
========== ==========
24
AQUINAS SMALL CAP FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 144,954 $ 793,472 270,091 $ 1,404,145
Shares redeemed (269,227) (1,512,510) (256,963) (1,359,684)
Redemption fee 5 --
---------- ----------- ---------- -----------
Net increase (decrease) (124,273) $ (719,033) 13,128 $ 44,461
=========== ===========
SHARES OUTSTANDING:
Beginning of period 1,337,268 1,324,140
__________ __________
End of period 1,212,995 1,337,268
========== ==========
AQUINAS FIXED INCOME FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 651,383 $ 6,531,465 631,349 $ 6,407,355
Shares issued to shareholders in
reinvestment of distributions 168,655 1,681,749 223,611 2,263,062
Shares redeemed (1,060,527) (10,597,055) (676,174) (6,836,215)
Redemption fee 2,188 --
---------- ----------- ---------- -----------
Net increase (decrease) (240,489) $(2,381,653) 178,786 $ 1,834,202
=========== ===========
SHARES OUTSTANDING:
Beginning of period 4,586,131 4,407,345
---------- ----------
End of period 4,345,642 4,586,131
========== ==========
From time to time, the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Funds. At December 31,
2005, a foundation owns or is trustee for greater than 10% of the shares
outstanding for each of the Funds.
D. SECURITY TRANSACTIONS: Purchases and sales of investment securities, other
than short-term investments, for the year ended December 31, 2005 were as
follows:
PURCHASES SALES
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ------------ ---------- -----------
LKCM Aquinas Value Fund $____ $ 29,304,843 $____ $32,142,121
LKCM Aquinas Growth Fund 2,328,428 120,026,244 2,013,128 64,814,930
LKCM Aquinas Small Cap Fund ____ 10,227,552 ____ 11,206,279
LKCM Aquinas Fixed Income Fund 25,880,877 32,865,860 30,838,181 34,313,012
E. TAX INFORMATION: At December 31, 2005, the components of accumulated earnings
(losses) on a tax basis were as follows:
LKCM LKCM LKCM LKCM
AQUINAS AQUINAS AQUINAS AQUINAS
VALUE GROWTH SMALL CAP FIXED
FUND FUND FUND INCOME FUND
----------- ----------- ----------- -----------
Cost of investments $36,734,683 $69,997,231 $ 5,933,082 $42,487,278
=========== =========== =========== ===========
Gross unrealized appreciation $ 6,834,383 $ 7,374,855 $ 1,258,363 $ 187,259
Gross unrealized depreciation (538,494) (2,078,353) (100,583) (470,480)
----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) $ 6,295,889 $ 5,296,502 $ 1,157,780 $ (283,221)
=========== =========== =========== ===========
Undistributed ordinary income $ 118,223 $ 455,653 $ -- $ 8,793
Undistributed long-term capital gain -- 250 -- --
----------- ----------- ----------- -----------
Total distributable earnings $ 118,223 $ 455,903 $ -- $ 8,793
----------- ----------- ----------- -----------
Other accumulated losses $(1,913,261) $ -- $(1,257,551) $ (43,413)
----------- ----------- ----------- -----------
Total accumulated earnings (losses) $ 4,500,851 $ 5,752,405 $ (99,771) $ (317,841)
=========== =========== =========== ===========
25
At December 31, 2005 the accumulated capital loss carryforwards were as follows:
LKCM LKCM
AQUINAS AQUINAS
VALUE SMALL CAP
FUND FUND
---------- -----------
Expiring in 2010 $ 45,373 $ 1,257,551
Expiring in 2011 1,867,888 --
---------- -----------
Total capital loss
carryforwards $1,913,261 $ 1,257,551
========== ===========
To the extent the Funds realize future net capital gains, taxable distributions
will be reduced by any unused capital loss carryforwards as permitted by the
Internal Revenue Code. For the year ended December 31, 2005, capital loss
carryforwards of $3,081,715 and $319,311 were utilized by the LKCM Aquinas Value
Fund and the LKCM Aquinas Small Cap Fund, respectively. At December 31, 2005,
the LKCM Aquinas Fixed Income Fund had net realized losses from transactions
between November 1, 2005 and December 31, 2005 of $43,413, which are deferred
for tax purposes and will be recognized in 2006.
The tax components of dividends paid during the year ended December 31, 2005
were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
---------- -------------
LKCM Aquinas Value Fund $ 54,531 $ --
LKCM Aquinas Growth Fund 234,999 1,670,637
LKCM Aquinas Small Cap Fund -- --
LKCM Aquinas Fixed Income Fund 1,626,968 151,219
The tax components of dividends paid during the year ended December 31, 2004
were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
---------- -------------
LKCM Aquinas Value Fund $ 70,254 $ --
LKCM Aquinas Growth Fund -- --
LKCM Aquinas Small Cap Fund -- --
LKCM Aquinas Fixed Income Fund 1,823,952 504,621
F. FUND REORGANIZATIONS: On June 16, 2005 the shareholders of the Aquinas Value
Fund, Aquinas Growth Fund, Aquinas Small Cap Fund and Aquinas Fixed Income Fund
("Acquired Funds") approved an Agreement and Plan of Reorganization
("Reorganization Plan"), which qualified as tax-free exchanges for federal
income tax purposes, providing for the transfer of assets and the assumption of
liabilities of the respective Aquinas Funds to the LKCM Aquinas Value Fund, LKCM
Aquinas Growth Fund, LKCM Aquinas Small Cap Fund and the LKCM Aquinas Fixed
Income Fund ("Acquiring Funds"), newly created series of the Trust. The
Reorganization Plan provided for the acquisition by the Acquiring Funds of all
of the assets of the Acquired Funds in exchange solely for the assumption of all
of the liabilities of the respective Acquired Funds and the issuance of shares
of the newly created Acquiring Funds distributed pro rata by the Acquired Funds
to their respective shareholders in complete liquidation and termination of the
Acquired Funds ("Reorganization"). The Acquiring Funds adopted all of the
history of the respective Acquired Funds. Pursuant to the Reorganization Plan,
each shareholder of the Acquired Funds received shares of the respective
Acquiring Funds with the same net asset value as the shareholder had immediately
prior to the Reorganization. On July 11, 2005 the reorganizations were
completed. The following table illustrates the specifics of the reorganizations:
SHARES ISSUED TO
ACQUIRED FUND SHAREHOLDER OF ACQUIRING FUND COMBINED TAX STATUS
NET ASSETS ACQUIRED FUND NET ASSETS NET ASSETS OF TRANSFER
Aquinas Value $43,400,127 3,637,931 -- $43,400,127 Non-taxable
Aquinas Growth $76,552,698 4,917,492 -- $76,552,698 Non-taxable
Aquinas Small Cap $ 7,457,656 1,329,184 -- $ 7,457,656 Non-taxable
Aquinas Fixed Income $48,176,914 4,785,981 -- $48,176,914 Non-taxable
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of LKCM Aquinas Funds
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of LKCM Aquinas Value Fund, LKCM
Aquinas Growth Fund, LKCM Aquinas Small Cap Fund, and LKCM Aquinas Fixed Income
Fund (constituting the LKCM Aquinas Funds, hereafter referred to as the "Funds")
at December 31, 2005, the results of their operations, changes in their net
assets and financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The statements of changes in net assets for the year ended December
31, 2004 and the financial highlights for each of the years ended December 31,
2004 and prior were audited by another independent registered public accounting
firm whose opinion dated February 14, 2005 expressed an unqualified opinion on
those statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
March 2, 2006
27
LKCM FUNDS
ADDITIONAL INFORMATION
DECEMBER 31, 2005
TAX INFORMATION: For the fiscal year 2005, the LKCM Aquinas Value and Aquinas
Growth Funds designate 100.0% and 100.0%, respectively, of dividends from net
investment income as qualified dividend income under the Jobs & Growth Tax
Reconciliation Act of 2003. For the fiscal year 2005, 100.00% and 100.00% of the
ordinary distributions paid by the LKCM Aquinas Value and Aquinas Growth Funds,
respectively, qualify for the divided received deduction available to corporate
shareholders.
AVAILABILITY OF PROXY VOTING INFORMATION: A description of the policies and
procedures that the Funds use to determine how to vote proxies relating to their
portfolio securities, as well as the proxy voting record, is available without
charge, upon request, by calling toll-free 1-800-423-6369 or on the SEC website
at http://www.sec.gov.
The actual voting records relating to portfolio securities during the twelve
month periods ended June 30 (as filed with the SEC on Form N-PX) are available
without charge, upon request, by calling the Funds toll free at 1-800-423-6369
or by accessing the SEC's website at www.sec.gov.
AVAIABILITY OF QUARTERLY PORTFOLIO SCHEDULE: The Funds' are required to file
complete schedules of portfolio holdings with the SEC for the first and third
fiscal quarters on Form N-Q. Once filed, the Funds' Form N-Q is available
without charge upon request on the SEC's website (http://www.sec.gov) and may be
available by calling 1-800-423-6369. You can also obtain copies of Form N-Q by
(i) visiting the SEC's Public Reference Room in Washington, DC (information on
the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330); (ii) sending your request and a duplicating fee to the SEC's
Public Reference Room, Washington, DC 20549; or (iii) sending your request
electronically to publicinfosec.gov.
28
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29
INFORMATION ABOUT THE FUNDS' TRUSTEES:
The business and affairs of the Funds are managed under the direction of the
Funds' Board of Trustees. Information pertaining to the Trustees of the Funds is
set forth below. The Statement of Additional Information includes additional
information about the Funds' Trustees and officers and is available, without
charge, upon request by calling 1-800-423-6369.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
TERM OF PORTFOLIOS
OFFICE & PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME DURING PAST OVERSEEN DIRECTORSHIPS
AND AGE THE FUND SERVED1 FIVE YEARS BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
H. Kirk Downey Chairman Since 2004 CEO, Texassystems, 9 Non-executive chairman
301 Commerce Street of the LLC and CEO, of the board of AZZ
Suite 1600 Board of Trustees Texaslearningsystems Incorporated, a
Fort Worth, Texas 76102 LLC since 1999; Dean, manufacturing company.
Age: 63 Trustee Since 1994 M.J. Neeley School of
Business, Texas
Christian University
Business School from
1987 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Earle A. Shields, Jr. Trustee Since 1994 Consultant; formerly 9 Priests Pension Fund
301 Commerce Street Consultant for of the Catholic Diocese
Suite 1600 NASDAQ Corp. and of Fort Worth, Lay
Fort Worth, TX 76102 Vice President, Workers Pension Fund of
Age: 85 Merrill Lynch & the Catholic Diocese
Co., Inc. of Fort Worth,
St. Joseph Health
Care Trust, Catholic
Schools Trust and
Catholic Foundation
of North Texas.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Howell Trustee Since 2005 Consulting Services, 9 Red Robin Gourmet
301 Commerce Street CPA Burgers, Inc.
Suite 1600
Fort Worth, TX 76102
Age: 63
INTERESTED TRUSTEE:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Luther King, Jr.2 Trustee, President Since 1994 Chairman, President and 9 DK Leasing Corp (private
301 Commerce Street Director, plane), Employee
Fort Worth, TX 76102 Luther King Capital Retirement Systems of
Age: 65 Management Corporation Texas, 4K Land & Cattle
since 1979. Company, Hunt Forest
Products (lumber),
Ruston Industrial Corp.
(forest products),
Investment Company
Association of America
(trade organization),
JLK Venture Corp
(private equity),
Southwestern Exposition
& Livestock, Southwest
JLK, Texas Christian
University, Texas
Southwestern
Cattleraisers
Foundation and
Tyler Technologies
(information
management company
for government
agencies).
1 Each Trustee holds office during the lifetime of the Trust until that
individual resigns, retires or is otherwise removed or replaced.
2 Mr. King is an "interested person" of the Trust (as defined in the 1940
Act) because he controls the Adviser.
30
TERM OF
OFFICE & PRINCIPAL
POSITION(S) LENGTH OCCUPATION
NAME, ADDRESS HELD WITH OF TIME DURING PAST
AND AGE THE FUND SERVED FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Luther King, Jr. President and Since Chairman, President and Director,
301 Commerce Street Chief Executive 1994 Luther King Capital Management
Fort Worth, Texas 76102 Officer Corporation since 1979.
Age: 65
- ------------------------------------------------------------------------------------------------------------------------------------
Paul W. Greenwell Vice President Since Vice President, Luther King Capital
301 Commerce Street 1996 Management since 1983.
Fort Worth, Texas 76102
Age: 55
- ------------------------------------------------------------------------------------------------------------------------------------
Jacqui Brownfield Vice President, Since Luther King Capital
301 Commerce Street Chief Compliance 1994 Management since 1987.
Fort Worth, Texas 76102 Officer, Secretary
Age: 44 and Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Steven R. Purvis Vice President Since Director of Research, Luther King
301 Commerce Street 2000 Capital Management since 1996.
Fort Worth, Texas 76102
Age: 40
- ------------------------------------------------------------------------------------------------------------------------------------
31
LKCM FUNDS
P.O. BOX 701
MILWAUKEE, WI 53201-0701
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
J. Luther King, Jr., CFA Jacqui Brownfield
Trustee, Vice President, Chief Compliance Officer,
President Secretary & Treasurer
Paul W. Greenwell Richard Lenart
Vice President Assistant Treasurer
Steven R. Purvis, CFA Jeffrey T. Rauman
Vice President Assistant Secretary
H. Kirk Downey James Tiegs
Chairman of the Board Assistant Secretary
Richard J. Howell
Trustee
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
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
- --------------------------------------------------------------------------------
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue, Suite 1800
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.
U.S. Bancorp Fund Services, LLC ---------------
P.O. Box 701 PRESORTED
Milwaukee, WI 53201-0701 STANDARD
USPOSTAGE PAID
PERMIT #3602
BERWYN, IL60402
--------------
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer. The registrant has
not made any amendments to its code of ethics during the period covered by this
report. The registrant has not granted any waivers from any provisions of the
code of ethics during the period covered by this report.
A copy of the registrant's Code of Ethics is filed herewith.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of trustees has determined that there is at least one
audit committee financial expert serving on its audit committee. Richard J.
Howell is the "audit committee financial expert" and is considered to be
"independent" as each term is defined in Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The registrant has engaged its principal accountant to perform audit services,
audit-related services, tax services and other services during the past two
fiscal years. "Audit services" refer to performing an audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years. "Audit-related services" refer to the assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit. "Tax services" refer to professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning.
The following table details the aggregate fees billed for each of the last two
fiscal years for audit fees, audit-related fees, tax fees and other fees by the
principal accountant.
- ----------------------------- ----------------------- -----------------------
FYE 12/31/2005 FYE 12/31/2004
- ----------------------------- ----------------------- -----------------------
Audit Fees $130,400 $67,200
Audit-Related Fees $0 $0
Tax Fees $30,275 $18,150
All Other Fees $0 $0
- ----------------------------- ----------------------- -----------------------
The audit committee has adopted pre-approval policies and procedures that
require the audit committee to pre-approve all audit and non-audit services of
the registrant, including services provided to any entity affiliated with the
registrant. All of the principal accountant's hours spent on auditing the
registrant's financial statements were attributed to work performed by full-time
permanent employees of the principal accountant.
The following table indicates the non-audit fees billed or expected to be billed
by the registrant's accountant for services to the registrant and to the
registrant's investment adviser (and any
other controlling entity, etc.--not sub-adviser) for the last two years. The
audit committee of the board of trustees/directors has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser is compatible with maintaining the principal accountant's
independence and has concluded that the provision of such non-audit services by
the accountant has not compromised the accountant's independence.
- ------------------------------------ -------------------- -------------------
Non-Audit Related Fees FYE 12/31/2005 FYE 12/31/2004
- ------------------------------------ -------------------- -------------------
Registrant $30,275 $18,150
Registrant's Investment Adviser $0 $0
- ------------------------------------ -------------------- -------------------
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to open-end investment companies.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to open-end investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's President/Chief Executive Officer and Treasurer/Chief
Financial Officer have reviewed the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940 (the "Act")) as of a date within 90 days of the filing of this report,
as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b)
under the Securities Exchange Act of 1934. Based on their review, such
officers have concluded that the disclosure controls and procedures are
effective in ensuring that information required to be disclosed in this
report is appropriately recorded, processed,
summarized and reported and made known to them by others within the
Registrant and by the Registrant's service provider.
(b) There were no significant changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Any code of ethics or amendment thereto, that is subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy Item 2 requirements through filing an exhibit. Filed herewith.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act sent or given during the period covered by the report by or on
behalf of the registrant to 10 or more persons. Not applicable to open-end
investment companies.
(b) 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.
-----------------------------------------
J. Luther King, Jr., President
Date 3/10/2006
-------------------------------------------------------------
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.
-----------------------------------------
J. Luther King, Jr., President
Date 3/10/2006
--------------------------------------------------------------
By (Signature and Title) /s/ Jacqui Brownfield
-----------------------------------------
Jacqui Brownfield, Treasurer
Date 3/10/2006
-------------------------------------------------------------