As filed with the Securities and Exchange Commission on [date]
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 Corporation
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
(Address of principal executive offices) (Zip code)
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, NW
Washington, DC 20006
(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, 2006
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, 2006
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 12/31/06 12/31/06 12/31/06 12/31/06 INCEPT.
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LKCM Equity Fund -
Institutional Class 1/3/96 $14.43 12.65% 6.05% 7.94% 8.74%
S&P 500 Index1 15.79% 6.19% 8.42% 9.59%
LKCM Small Cap Equity Fund -
Institutional Class 7/14/94 $21.98 14.98% 13.80% 11.91% 14.41%
Russell 2000 Index2 18.37% 11.39% 9.44% 11.27%
LKCM Small Cap Equity Fund -
Adviser Class 6/5/03 $21.73 14.72% N/A N/A 20.38%
Russell 2000 Index2 18.37% N/A N/A 17.85%
LKCM International Fund 12/30/97 $13.49 27.51% 13.38% N/A 7.15%
MSCI/EAFE Index3 26.86% 15.43% N/A 8.74%
LKCM Balanced Fund 12/30/97 $13.36 11.22% 5.30% N/A 5.56%
S&P 500 Index1 15.79% 6.19% N/A 5.95%
Lehman Government/Credit Bond Index4 4.08% 4.53% N/A 5.60%
LKCM Fixed Income Fund 12/30/97 $10.19 3.96% 3.61% N/A 4.95%
Lehman Government/Credit Bond Index4 4.08% 4.53% N/A 5.60%
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 1-800-688-LKCM. The Funds impose
a 1.00% redemption fee on shares held less than 30 days. If reflected, the
fee would reduce performance shown. 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 which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index. The average market
capitalization was approximately $763 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.
Note: These indices defined above are not available for direct investment.
From almost all standpoints, 2006 was a good year for the financial markets.
Growth in corporate profits remained strong. Short-term interest rates peaked,
and there is some anticipation they will begin to decline during the first half
of 2007. Bond yields rose during the first half of 2006 and declined in the
second half as the Federal Reserve completed its tightening. Oil prices ended
2006 at levels similar to where they began the year, and natural gas prices
declined. The rate of inflation was contained although higher on an absolute
level than the Federal Reserve Bank would like. Job growth was good with the
unemployment rate falling to 4.5%.
The housing sector of the economy continued to weaken, although the fears of a
broad-based collapse did not materialize. Strong employment growth offset weaker
housing prices and supported continued consumer strength. The overhang of the
Iraq War was a negative psychologically but had little impact on consumption.
Global liquidity remained very robust and clearly had a positive impact not only
on our economy, but on stock and bond prices as well during 2006. We expect the
positive impact to continue during 2007. While short-term interest rates have
risen in the U.S. and Europe, the money supply continues to grow. Globally,
China and Japan maintained non-restrictive monetary policies conducive to
continued growth.
The dollar value of mergers and acquisitions reached all-time highs during 2006.
This activity was the result of large pools of capital in private equity funds,
very liquid corporate balance sheets, aggressive lending by banks, narrow
spreads in the bond market between high and low quality bonds, and reasonable
valuations. We believe these conditions will persist during 2007.
In summary, our outlook is for continued economic growth, and for a positive
stock market environment in 2007.
The LKCM Equity Fund is managed to provide long-term capital appreciation and is
primarily invested in equity securities of mid to large sized companies. The
Fund focuses its investments in quality companies with above-average
profitability and reasonable valuations. For 2006, the Fund returned 12.65% vs.
the S&P 500 Index's 15.79% return. As of December 31, 2006, the total net assets
in the Fund were $50.4 million with 98.9% of the net assets invested in common
stocks and 1.1% in cash reserves, net of liabilities. During the year, the LKCM
Equity Fund's performance benefited from our investments in the Healthcare and
Industrial sectors while our stock selection in the Consumer Discretionary and
Financial sectors reduced our performance. We believe the Fund remains well
positioned with a broadly diversified portfolio of quality companies.
The LKCM Small Cap Equity Fund is managed to maximize long-term capital
appreciation through investment primarily in equity securities of smaller
companies. The performance of the Fund's Institutional Class during the year was
14.98% vs. the Russell 2000 Index's 18.37% 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
2
valuation remain an important component of our performance. As of December 31,
2006, the total net assets of the Fund were $629.3 million with 95.8% of the net
assets invested in common stocks and 4.2% in cash reserves, net of liabilities.
Investments in the Financial and Industrial sectors were additive to our results
while our Consumer Discretionary and Energy holdings subtracted from our overall
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, government and corporate bonds and cash. We
believe our diversified, total return approach proved successful during the year
as the Fund returned 11.22% vs. the 15.79% return in the S&P 500 Index and the
4.08% return in the Lehman Brothers Intermediate Government Credit Index for the
year ended December 31, 2006. As of December 31, 2006, total net assets in the
Fund were $9.9 million and the asset mix contained 73.0% common stocks, 25.8%
corporate bonds, 0.3% government bonds, and 0.9% cash reserves, net of
liabilities. The common stock portion of the Fund provided the majority of the
Fund's return, while the fixed income sector generated relatively good results
in a lackluster bond market environment. We believe the equity sector of the
Fund's portfolio was well positioned for the re-emergence in Telecommunications
Services and the Healthcare and Information Technology sectors also performed
well. The Consumer Discretionary sector of the Fund's portfolio, which includes
media and retail, underperformed during the year. We believe the "total return"
philosophy of controlling risk via a blend of asset classes remains an
attractive investment strategy for long-term investors in the Fund.
The LKCM Fixed Income Fund is managed to provide 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 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. During 2006, the total return for the Fund was 3.96% versus 4.08% for
the Lehman Brothers Intermediate Government Credit Index. At year end, the Fund
had an effective duration of 3.2 years versus the Index at 3.6 years and had a
weighted average Standard & Poor's quality rating of single A*. The Fund
benefited from its overweight in credit relative to the Index while its shorter
effective duration relative to the Index detracted from performance during the
second half of the year as all but short rates declined. As of December 31,
2006, the total net assets in the Fund were $106.1 million, with 82.6% invested
in corporate bonds, 12.7% invested in U. S. Treasury and agency debt, 2.5% in
preferred stock and 2.2% in cash reserves, net of liabilities.
The LKCM International Fund is managed to seek total returns in excess of the
MSCI/EAFE Index. A report from TT International, the Fund's sub-adviser,
regarding the Fund's performance during 2006 begins on page 4.
At LKCM, our goal 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
J. Luther King, Jr., CFA
January 29, 2007
*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.
The information provided herein represents the opinion of J. Luther King, Jr.
and is not intended to be a forecast of future events, a guarantee of future
results, nor investment advice.
Please refer to the Schedule of Investments found on pages 14-26 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.
Cash flow measures the cash generating capability of a company by adding
non-cash charges (e.g. depreciation) and interest expense to pretax income.
The Funds' investment objectives, risks, charges and expenses must be considered
carefully before investing. The prospectus for the Funds contains this and other
important information and may be obtained by calling 1-800-688-LKCM. Please read
the prospectus carefully before investing in the Funds.
The first use date of this report is 2/07.
3
REPORT FROM TT INTERNATIONAL
The LKCM International Fund is managed to seek total returns in excess of the
MSCI/EAFE Index.
2006
LKCM INTERNATIONAL FUND: 27.51% MSCI EAFE: 26.86%
Performance - The Fund had a positive year both in absolute and relative terms
and ended 2006 ahead of the benchmark. Stock selection was the driver of our
performance, with European stock selection in particular adding significantly to
returns. Within Europe, the Fund's pro-cyclical bias was a benefit with stock
selection particularly strong in Materials and Industrials. The best performing
stock was Xstrata, the UK mining company, which was the largest active stock
position for much of the year. Japanese stock selection suffered from
disappointing performance from domestic oriented stocks (Financials and
Industrials) on concern over the domestic economic recovery. Being overweight
Japan and underweight Europe for much of the year were the main reasons for the
negative effect of regional allocation. Despite an improvement in economic
fundamentals the Japanese equity market had a disappointing 2006.
Markets - Global equity markets completed another strong year in 2006, with the
majority recording double-digit growth. A wobble in May resulted in a broad
sell-off, however, it was soon brushed off, fuelled by a resurgent European and
tenacious Emerging Markets (EMs), which powered on to new highs.
Despite the global trend for monetary tightening, fundamentals in the U.S. were
markedly different from that of the rest of the world. While fading energy
prices and strong income growth helped support the U.S. economy in the second
half of the year, the ongoing slump in the housing market and a string of weak
data sets cast questions over its resilience to recession. However, growth
picked up in the fourth quarter, with U.S. consumer spending reviving through a
combination of real income growth and improving confidence after the summer's
oil price and housing shocks. Recent data on manufacturing activity and even
housing point towards growth continuing at roughly the same pace in the first
quarter of 2007. As it stands, we believe the U.S. Federal Reserve's hopes that
a period of below trend growth would reduce resource utilization have not been
realized and they have made it clear that they are still concerned about
inflation. Unlike some investors, we don't expect a cut in rates any time soon.
In fact, with core inflation continuing to concern the Fed, a rate hike cannot
be ruled out completely.
The European economy closed the year in robust health and is likely to remain
that way through the early part of 2007. The region has performed above
expectations throughout 2006 and despite some weakness in the French and to a
lesser extent the Italian economies in the final quarter, the trailblazing
performance of Germany continued to support the region as a whole. For now,
general consensus - bolstered by the hawkish statements coming from the European
Central Bank - indicates insulating against inflation as being the overriding
objective for the ECB over the short-term. German business confidence is now at
16-year highs and future expectations remain optimistic. The main threat to
Euroland strength going forward will be the combination of German tax increases
and monetary tightening. Despite a possible slowdown in growth in first quarter
of 2007, compared to recent quarters, economic momentum is likely to remain
strong as will merger and acquisition activity.
Japan's year was largely characterised by disappointment. On fundamentals alone
the picture was positive, with the economy experiencing its longest consecutive
period of growth since World War II - December marked its 59th month. Business
sentiment was solid and industrial production surprisingly strong. In contrast,
consumer sentiment was, and remains soft suggesting that until there is a
pick-up in wage growth, consumer spending growth will remain modest.
The Asian Emerging Markets told a very different story, however, extending their
bull-run to a fourth consecutive year in 2006. This was driven mainly by the
conducive conditions of tremendous liquidity, strong earnings, robust economic
growth and acceleration in merger and acquisition activity. Despite May's sell
off, it was the EMs that delivered the most stunning returns over the course of
the year, China and India amongst the most impressive. South East Asia was also
extremely strong, boosted by the improving macro fundamentals particularly in
Indonesia and the Philippines.
Past performance does not guarantee future results.
4
PERFORMANCE:
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The following information illustrates the historical performance of LKCM Small
Cap Equity Fund as of December 31, 2006 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 GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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
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PAST PAST PAST SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION(1)
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LKCM SMALL CAP EQUITY FUND -
INSTITUTIONAL CLASS 14.98% 13.80% 11.91% 14.41%
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Russell 2000 Index 18.37% 11.39% 9.44% 11.27%
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Lipper Small-Cap Core Funds
Index 13.70% 10.50% 10.32% 12.53%
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(1) July 14, 1994
A Hypothetical $10,000 Investment in LKCM Small Cap Equity Fund - Institutional
Class
Line Chart:
LKCM Small Cap Equity Fund - Institutional Class $30,797
Russell 2000 Index $24,643
Lipper Small Cap Core Funds Index $26,712
LKCM Small Cap
Equity Fund - Russell 2000 Lipper Small Cap
Institutional Class Index Core Funds Index
12/96 10000 10000 10000
12/97 12307 12236 12223
12/98 11537 11925 11779
12/99 13478 14460 14155
12/00 15011 14023 15137
12/01 16137 14371 16215
12/02 14234 11428 13097
12/03 19175 16828 18454
12/04 23410 19912 21843
12/05 26785 20819 23494
12/06 30797 24643 26712
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
$763 million.
The Lipper Small-Cap Core Funds 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 value, compared to the
S&P Small Cap 600 Index.
5
AVERAGE ANNUAL TOTAL RETURN
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PAST PAST SINCE
YEAR 3 YEARS INCEPTION(1)
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LKCM SMALL CAP EQUITY FUND - ADVISER CLASS 14.72% 16.83% 20.38%
- ------------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index 18.37% 13.56% 17.85%
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Lipper Small-Cap Core Funds Index 13.70% 13.12% 18.34%
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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 Equity Fund - Adviser Class $19,400
Russell 2000 Index $17,982
Lipper Small Cap Core Funds Index $18,250
LKCM Small Cap Lipper Small
Equity Fund - Russell 2000 Cap Core
Adviser Class Index Funds Index
6/03 10000 10000 10000
12/03 12165 12280 12228
6/04 13489 13405 13351
12/04 14813 14530 14473
6/05 15862 14861 15262
12/05 16911 15192 16051
6/06 17500 17500 17500
12/06 19400 17982 18250
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
$763 million.
The Lipper Small-Cap Core Funds 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 value, compared to the
S&P Small Cap 600 Index.
6
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Equity
Fund as of December 31, 2006 compared to the Fund's representative market
indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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)
- ------------------------------------------------------------------------------------------------------------------------------------
LKCM EQUITY FUND -
INSTITUTIONAL CLASS 12.65% 6.05% 7.94% 8.74%
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index 15.79% 6.19% 8.42% 9.59%
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Lipper Large-Cap
Core Funds Index 13.39% 5.00% 7.27% 8.36%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) January 3, 1996
A Hypothetical $10,000 Investment in LKCM Equity Fund - Institutional Class
Line Chart:
LKCM Equity Fund - Institutional Class $21,477
S&P 500 Index $22,447
Lipper Large-Cap Core Funds Index $20,170
LKCM Equity Lipper Large-Cap
Fund - Institutional S&P 500 Core Funds
Class Index Index
12/96 10000 10000 10000
12/97 12357 13336 12922
12/98 13977 17148 16403
12/99 17201 20756 19577
12/00 17913 18866 18134
12/01 16012 16624 15807
12/02 13668 12950 12450
12/03 16864 16664 15539
12/04 18193 18478 16826
12/05 19065 19385 17788
12/06 21477 22447 20170
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 Funds 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.
7
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM
Balanced Fund as of December 31, 2006 compared to the Fund's representative
market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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 11.22% 8.04% 5.30% 5.56%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate Government/Credit Bond Index 4.08% 2.90% 4.53% 5.60%
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index 15.79% 10.44% 6.19% 5.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper Mixed-Asset Target Allocation Growth Funds Index 13.55% 9.61% 7.66% 6.66%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) December 30, 1997
A Hypothetical $10,000 Investment in LKCM Balanced Fund
Line Chart:
LKCM Balanced Fund $16,270
Lehman Brothers Intermediate Government/Credit Bond Index $16,328
S&P 500 Index $16,825
Lipper Mixed-Asset Target Allocation Growth Funds Index $17,866
Lehman Brothers
Intermediate Lipper Mixed-Asset
LKCM Government/Credit Target Allocation Growth S&P 500
Balanced Fund Bond Index Funds Index Index
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
15750 15750 15750 15750
12/06 16270 16328 17866 16825
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 Mixed-Asset Target Allocation Growth Funds Index is an unmanaged
index consisting of funds that, by portfolio practice, maintain a mix of between
60%-80% equity securities, with the remainder invested in bonds, cash and cash
equivalents.
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.
8
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Fixed
Income Fund as of December 31, 2006 compared to the Fund's representative market
indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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 3.96% 2.84% 3.61% 4.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate Government/Credit Bond Index 4.08% 2.90% 4.53% 5.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper Short Intermediate Investment-Grade
Debt Funds Index 4.08% 2.68% 3.79% 4.92%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) December 30, 1997
A Hypothetical $10,000 Investment in LKCM Fixed Income Fund
Line Chart:
LKCM Fixed Income Fund $15,447
Lehman Brothers Intermediate Government/Credit Bond Index $16,328
Lipper Short Intermediate Investment-Grade Debt Funds Index $15,407
LKCM Lehman Brothers Lipper Short Intermediate
Fixed Income Intermediate Government/ Investment-Grade
Fund Credit Bond Index Debt Funds Index
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
12/06 15447 16328 15407
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 Funds 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.
9
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM
International Fund as of December 31, 2006 compared to the Fund's representative
market indices. 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 GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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 27.51% 19.68% 13.38% 7.15%
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI/EAFE Index(2) 26.86% 20.41% 15.43% 8.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper International Multi-Cap Value Funds Index 27.55% 21.14% 17.28% 11.00%
- ------------------------------------------------------------------------------------------------------------------------------------
(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 Fund $18,625
MSCI/EAFE Index $21,277
Lipper International Multi-Cap Value Funds Index $25,582
LKCM International MSCI/EAFE Lipper International Multi-Cap
Fund Index Value Funds Index
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
12/06 18625 21277 25582
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 Multi-Cap Value Funds Index is an unmanaged index
consisting of funds that, by portfolio practice, invest in a variety of market
capitalization ranges without concentrating 75% of their equity assets in any
one market capitalization range over an extended period of time. Multi-cap funds
typically have 25% to 75% of their assets invested in companies strictly outside
of the U.S. with market capitalizations (on a three-year weighted basis) greater
than the 250th largest company in the S&P/Citigroup World ex-U.S. Broad Market
Index. Multi-cap value funds typically have a below-average price-to-cash flow
ratio, price-to-book ratio, and three-year sales-per-share growth value,
compared to the S&P/Citigroup World ex-U.S. BMI.
10
LKCM FUNDS EXPENSE EXAMPLE -- DECEMBER 31, 2006
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, distribution and/or service (12b-1) 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
(7/1/06-12/31/06).
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 expenses
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 7/1/06-
7/1/06 12/31/06 12/31/06
- -----------------------------------------------------------------------------------------
Actual ..................................... $1,000.00 $1,063.70 $4.99
Hypothetical (5% return before expenses) ... $1,000.00 $1,020.37 $4.89
* Expenses are equal to the Fund's annualized expense ratio of 0.96%,
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 7/1/06-
7/1/06 12/31/06 12/31/06
- -----------------------------------------------------------------------------------------
Actual ..................................... $1,000.00 $1,062.50 $6.29
Hypothetical (5% return before expenses) ... $1,000.00 $1,019.11 $6.16
* Expenses are equal to the Fund's annualized expense ratio of 1.21%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
11
LKCM EQUITY FUND
----------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
- -----------------------------------------------------------------------------------------
Actual ..................................... $1,000.00 $1,107.30 $4.25
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 7/1/06-
7/1/06 12/31/06 12/31/06
- -----------------------------------------------------------------------------------------
Actual ..................................... $1,000.00 $1,089.70 $4.21
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 7/1/06-
7/1/06 12/31/06 12/31/06
- -----------------------------------------------------------------------------------------
Actual ..................................... $1,000.00 $1,038.60 $3.34
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 7/1/06-
7/1/06 12/31/06 12/31/06
- -----------------------------------------------------------------------------------------
Actual ..................................... $1,000.00 $1,148.80 $6.50
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.
12
ALLOCATION OF PORTFOLIO HOLDINGS -- LKCM FUNDS -- DECEMBER 31, 2006
Percentages represent market value as a percentage of total investments.
Pie Chart:
LKCM SMALL CAP EQUITY FUND
Short-Term Investments 4.0%
Common Stocks 96.0%
Pie Chart:
LKCM BALANCED FUND
U.S. Government & Agency Issues 0.3%
Common Stocks 73.3%
Corporate Bonds 25.9%
Short-Term Investments 0.5%
Pie Chart:
LKCM INTERNATIONAL FUND
Preferred Stocks 1.7%
Common Stocks 98.0%
Short-Term Investments 0.3%
Pie Chart:
LKCM EQUITY FUND
Short-Term Investments 0.8%
Common Stocks 99.2%
Pie Chart:
LKCM FIXED INCOME FUND
U.S. Government & Agency Issues 10.9%
Preferred Stocks 2.5%
Short-Term Investments 4.2%
Corporate Bonds 82.4%
13
LKCM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS - 95.8% SHARES VALUE
- -----------------------------------------------------------------
AEROSPACE & DEFENSE - 3.1%
Hexcel Corporation (a) 496,000 $ 8,635,360
Ladish Co., Inc. (a) 284,350 10,543,698
------------
19,179,058
------------
AIR FREIGHT & LOGISTICS - 0.9%
Forward Air Corporation 197,500 5,713,675
------------
AUTO COMPONENTS - 2.0%
Drew Industries Incorporated (a) 212,900 5,537,529
Tenneco Inc. (a) 282,650 6,987,108
------------
12,524,637
------------
BIOTECHNOLOGY - 1.0%
Human Genome Sciences, Inc. (a) 507,050 6,307,702
------------
CAPITAL MARKETS - 1.4%
Penson Worldwide, Inc. (a) 330,900 9,069,969
------------
COMMERCIAL BANKS - 9.0%
Capitol Bancorp Ltd. 128,300 5,927,460
Cullen/Frost Bankers, Inc. 120,500 6,726,310
First State Bancorporation 305,000 7,548,750
Glacier Bancorp, Inc. 352,180 8,607,279
Hancock Holding Company 116,900 6,176,996
The South Financial Group, Inc. 270,750 7,199,242
Sterling Financial Corporation 218,950 7,402,700
UCBH Holdings, Inc. 403,850 7,091,606
------------
56,680,343
------------
COMMERCIAL SERVICES & SUPPLIES - 5.9%
Airgas, Inc. 156,200 6,329,224
Bright Horizons Family Solutions,
Inc. (a) 189,650 7,331,869
Knoll, Inc. 363,500 7,997,000
Mobile Mini, Inc. (a) 279,268 7,523,480
Resources Connection, Inc. (a) 240,300 7,651,152
------------
36,832,725
------------
CONSTRUCTION & ENGINEERING - 2.3%
EMCOR Group, Inc. (a) 136,200 7,742,970
MasTec, Inc. (a) 601,800 6,944,772
------------
14,687,742
------------
CONSUMER FINANCE - 1.9%
Cash America International, Inc. 249,450 11,699,205
------------
CONTAINERS & PACKAGING - 1.3%
Silgan Holdings Inc. 190,900 8,384,328
------------
DIVERSIFIED MANUFACTURING - 1.0%
Raven Industries, Inc. 243,450 6,524,460
------------
EDUCATION SERVICES - 1.0%
Laureate Education Inc. (a) 134,600 6,545,598
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.9%
Axsys Technologies, Inc. (a) 216,798 3,809,141
I.D. Systems, Inc. (a) 226,950 4,271,199
MTS Systems Corporation 92,300 3,564,626
Rofin-Sinar Technologies, Inc. (a) 109,300 6,608,278
Rogers Corporation (a) 122,900 7,269,535
Veeco Instruments Inc. (a) 294,750 5,520,667
------------
31,043,446
------------
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 3.1%
Dril-Quip, Inc. (a) 139,000 $ 5,443,240
Hydril (a) 84,500 6,353,555
Superior Well Services, Inc. (a) 290,150 7,416,234
------------
19,213,029
------------
FOOD & STAPLES RETAILING - 3.6%
Pathmark Stores, Inc. (a) 552,100 6,155,915
Reddy Ice Holdings, Inc. 333,450 8,609,679
United Natural Foods, Inc. (a) 227,350 8,166,412
------------
22,932,006
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 2.9%
ArthroCare Corporation (a) 155,950 6,225,524
Immucor, Inc. (a) 112,650 3,292,759
IntraLase Corp (a) 380,050 8,505,519
------------
18,023,802
------------
HEALTH CARE PROVIDERS & SERVICES - 3.7%
inVentiv Health Inc. (a) 240,950 8,517,583
MWI Veterinary Supply, Inc. (a) 161,050 5,201,915
PSS World Medical, Inc. (a) 484,100 9,454,473
------------
23,173,971
------------
HOTELS, RESTAURANTS & LEISURE - 3.5%
The Cheesecake Factory Incorporated (a) 225,600 5,549,760
IHOP Corp. 82,000 4,321,400
Landry's Restaurants, Inc. 189,450 5,700,550
LIFE TIME FITNESS, Inc. (a) 130,000 6,306,300
------------
21,878,010
------------
HOUSEHOLD DURABLES - 1.2%
Tempur-Pedic International Inc. (a) 357,200 7,308,312
------------
INFORMATION TECHNOLOGY SERVICES - 1.3%
Ness Technologies Inc. (a) 588,650 8,394,149
------------
INSURANCE - 3.7%
American Equity Investment Life
Holding Company 542,150 7,064,214
Argonaut Group, Inc. (a) 238,125 8,301,038
Max Re Capital Ltd. (b) 309,400 7,679,308
------------
23,044,560
------------
INTERNET SOFTWARE & SERVICES - 0.6%
Access Integrated Technologies Inc. -
Class A (a) 434,100 3,785,352
------------
MACHINERY - 5.0%
Albany International Corp. - Class A 178,800 5,884,308
CLARCOR Inc. 238,800 8,073,828
Franklin Electric Co., Inc. 170,200 8,746,578
Gehl Company (a) 190,200 5,236,206
Nordson Corporation 66,000 3,288,780
------------
31,229,700
------------
MARINE - 2.2%
Kirby Corporation (a) 216,200 7,378,906
Quintana Maritime Ltd. (b) 593,050 6,535,411
------------
13,914,317
------------
MEDIA - 1.2%
Entercom Communications Corp. - Class A 274,650 7,739,637
------------
MULTILINE RETAIL - 1.0%
Conn's, Inc. (a) 267,400 6,222,398
------------
The accompanying notes are an integral part of these financial statements.
14
LKCM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------
OIL & GAS DRILLING - 1.1%
Union Drilling, Inc. (a) 496,124 $ 6,985,426
------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 3.2%
Cabot Oil & Gas Corporation 117,500 7,126,375
Encore Acquisition Company (a) 194,350 4,767,405
Parallel Petroleum Corporation (a) 293,750 5,161,188
St. Mary Land & Exploration Company 82,750 3,048,510
------------
20,103,478
------------
PHARMACEUTICALS - 2.0%
Bentley Pharmaceuticals, Inc. (a) 448,300 4,559,211
Perrigo Company 458,100 7,925,130
------------
12,484,341
------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 2.9%
Cirrus Logic, Inc. (a) 807,377 5,554,754
RF Micro Devices, Inc. (a) 918,010 6,233,288
Spansion Inc. - Class A (a) 454,400 6,752,384
------------
18,540,426
------------
SOFTWARE - 7.4%
Ariba, Inc. (a) 688,400 5,328,216
i2 Technologies, Inc. (a) 384,650 8,777,713
Nuance Communications, Inc. (a) 1,002,250 11,485,785
Parametric Technology Corporation (a) 414,910 7,476,678
TIBCO Software Inc. (a) 739,450 6,980,408
Verint Systems Inc. (a) 185,300 6,352,084
------------
46,400,884
------------
SPECIALTY RETAIL - 5.6%
Charming Shoppes, Inc. (a) 336,150 4,548,109
Gamestop Corporation - Class A (a) 115,700 6,376,227
Jos. A. Bank Clothiers, Inc. (a) 188,493 5,532,270
Rent-A-Center, Inc. (a) 288,000 8,498,880
Stein Mart, Inc. 323,250 4,286,295
Tractor Supply Company (a) 128,300 5,736,293
------------
34,978,074
------------
THRIFTS & MORTGAGE FINANCE - 1.0%
City Bank 177,682 6,361,016
------------
TRADING COMPANIES & DISTRIBUTORS - 1.5%
Anixter International, Inc. (a) 171,800 9,328,740
------------
WIRELESS TELECOMMUNICATION SERVICES - 2.4%
Premiere Global Services, Inc. (a) 791,050 7,467,512
SBA Communications Corporation -
Class A (a) 285,500 7,851,250
------------
15,318,762
------------
TOTAL COMMON STOCKS
(Cost $500,377,746) 602,553,278
------------
- -----------------------------------------------------------------
SHORT-TERM INVESTMENTS - 4.0% SHARES VALUE
- -----------------------------------------------------------------
MONEY MARKET FUNDS - 4.0%
Columbia Money Market Reserves Fund -
Capital Shares 18,039,641 $ 18,039,641
Dreyfus Cash Management Fund -
Investor Shares 7,359,612 7,359,612
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $25,399,253) 25,399,253
------------
TOTAL INVESTMENTS - 99.8%
(Cost $525,776,999) 627,952,531
Other Assets in Excess of Liabilities - 0.2% 1,387,617
------------
TOTAL NET ASSETS - 100.0% $629,340,148
============
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
The accompanying notes are an integral part of these financial statements.
15
LKCM EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS - 98.9% SHARES VALUE
- -----------------------------------------------------------------
AEROSPACE & DEFENSE - 6.4%
Honeywell International Inc. 16,000 $ 723,840
Raytheon Company 18,000 950,400
Rockwell Collins, Inc. 15,000 949,350
United Technologies Corporation 10,000 625,200
------------
3,248,790
------------
AIR FREIGHT & LOGISTICS - 0.7%
United Parcel Service, Inc. - Class B 5,000 374,900
------------
BEVERAGES - 5.6%
The Coca-Cola Company 14,000 675,500
Fomento Economico Mexicano,
S.A. de C.V. - ADR (b) 5,000 578,800
Molson Coors Brewing Company - Class B 8,000 611,520
PepsiCo, Inc. 15,000 938,250
------------
2,804,070
------------
BUILDING PRODUCTS - 1.0%
American Standard Companies Inc. 10,500 481,425
------------
CHEMICALS - 3.0%
Air Products and Chemicals, Inc. 9,000 632,520
E. I. du Pont de Nemours & Company 10,000 487,100
The Valspar Corporation 13,700 378,668
------------
1,498,288
------------
COMMERCIAL BANKS - 6.4%
Bank of America Corporation 15,000 800,850
Compass Bancshares, Inc. 11,900 709,835
Cullen/Frost Bankers, Inc. 13,000 725,660
Wachovia Corporation 8,500 484,075
Wells Fargo & Company 14,000 497,840
------------
3,218,260
------------
COMMERCIAL SERVICES & SUPPLIES - 3.0%
Allied Waste Industries, Inc. (a) 59,000 725,110
Waste Management, Inc. 22,000 808,940
------------
1,534,050
------------
COMMUNICATIONS EQUIPMENT - 3.2%
Cisco Systems, Inc. (a) 34,000 929,220
Motorola, Inc. 34,000 699,040
------------
1,628,260
------------
COMPUTERS & PERIPHERALS - 2.7%
EMC Corporation (a) 45,000 594,000
International Business
Machines Corporation 8,000 777,200
------------
1,371,200
------------
CONSTRUCTION & ENGINEERING - 1.0%
Chicago Bridge & Iron Company N.V. -
NY Shares - ADR (b) 18,000 492,120
------------
CONTAINERS & PACKAGING - 2.3%
Temple-Inland Inc. 25,000 1,150,750
-----------
DIVERSIFIED FINANCIAL SERVICES - 1.8%
Citigroup Inc. 5,500 306,350
JPMorgan Chase & Co. 13,000 627,900
------------
934,250
------------
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.6%
ALLTEL Corporation 7,000 $ 423,360
AT&T Inc. 20,000 715,000
Embarq Corporation 9,100 478,296
Verizon Communications Inc. 18,500 688,940
------------
2,305,596
------------
ELECTRIC UTILITIES - 1.1%
Allegheny Energy, Inc. (a) 11,600 532,556
------------
ENERGY EQUIPMENT & SERVICES - 2.1%
GlobalSantaFe Corporation (b) 4,700 276,266
National-Oilwell Varco Inc. (a) 6,000 367,080
Noble Corporation (b) 5,700 434,055
------------
1,077,401
------------
FOOD & STAPLES RETAILING - 1.0%
CVS Corporation 16,000 494,560
------------
FOOD PRODUCTS - 1.1%
McCormick & Company, Incorporated (c) 14,600 562,976
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 5.7%
Alcon, Inc. (b) 4,800 536,496
DENTSPLY International Inc. 17,000 507,450
ResMed Inc. (a) 8,000 393,760
Respironics, Inc. (a) 14,000 528,500
Thermo Fisher Scientific, Inc. (a) 20,000 905,800
------------
2,872,006
------------
HOTELS, RESTAURANTS & LEISURE - 1.0%
Starbucks Corporation (a) 14,000 495,880
------------
HOUSEHOLD PRODUCTS - 3.2%
Kimberly-Clark Corporation 11,500 781,425
The Procter & Gamble Company 13,000 835,510
------------
1,616,935
------------
INDUSTRIAL CONGLOMERATES - 1.5%
General Electric Company 20,000 744,200
------------
INSURANCE - 1.4%
Prudential Financial, Inc. 8,000 686,880
------------
INVESTMENT BANK & BROKERAGE - 0.9%
Morgan Stanley 5,700 464,151
------------
IT SERVICES - 1.5%
Accenture Ltd.- Class A (b) 20,000 738,600
------------
MARINE - 1.1%
Kirby Corporation (a) 16,000 546,080
------------
MEDIA - 5.1%
Clear Channel Communications, Inc. 20,000 710,800
Gannett Co., Inc. 11,000 665,060
Grupo Televisa S.A. - ADR (b) 18,000 486,180
Time Warner Inc. 32,000 696,960
------------
2,559,000
------------
The accompanying notes are an integral part of these financial statements.
16
LKCM EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------
MULTILINE RETAIL - 0.9%
Kohl's Corporation (a) 6,300 $ 431,109
------------
MULTI-UTILITIES & UNREGULATED POWER - 0.8%
National Fuel Gas Company 11,000 423,940
------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 8.1%
Devon Energy Corporation 3,700 248,196
El Paso Corporation 37,000 565,360
EOG Resources, Inc. 7,000 437,150
Exxon Mobil Corporation 10,000 766,300
Noble Energy, Inc. 10,000 490,700
Range Resources Corporation 8,000 219,680
The Williams Companies, Inc. 30,000 783,600
XTO Energy, Inc. 12,000 564,600
------------
4,075,586
------------
PAPER & FOREST PRODUCTS - 1.1%
International Paper Company 17,000 579,700
------------
PHARMACEUTICALS - 4.8%
Abbott Laboratories 18,000 876,780
Pfizer Inc. 28,000 725,200
Schering-Plough Corporation 35,000 827,400
------------
2,429,380
------------
ROAD & RAIL - 1.1%
Burlington Northern Santa Fe Corporation 7,300 538,813
------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 2.0%
Intel Corporation 22,000 445,500
Texas Instruments, Incorporated 20,000 576,000
------------
1,021,500
------------
SOFTWARE - 6.0%
Citrix Systems, Inc. (a) 15,000 405,750
Electronic Arts Inc. (a) 6,100 307,196
Microsoft Corporation 20,000 597,200
Oracle Corporation (a) 50,000 857,000
Symantec Corporation (a) 41,080 856,518
------------
3,023,664
------------
SPECIALTY RETAIL - 5.7%
The Home Depot, Inc. 20,000 803,200
PETsMART, Inc. 31,000 894,660
Tiffany & Co. 18,000 706,320
Tractor Supply Company (a) 10,000 447,100
------------
2,851,280
------------
TOTAL COMMON STOCKS
(Cost $37,654,347) 49,808,156
------------
- -----------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.8% SHARES VALUE
- -----------------------------------------------------------------
MONEY MARKET FUND - 0.8%
Columbia Money Market Reserves Fund -
Capital Shares 411,388 $ 411,388
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $411,388) 411,388
------------
TOTAL INVESTMENTS - 99.7%
(Cost $38,065,735) 50,219,544
Other Assets in Excess of Liabilities - 0.3% 165,030
------------
TOTAL NET ASSETS - 100.0% $ 50,384,574
============
ADR American Depository Receipt.
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
(c) Non-voting shares.
The accompanying notes are an integral part of these financial statements.
17
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS - 73.0% SHARES VALUE
- -----------------------------------------------------------------
AEROSPACE & DEFENSE - 4.7%
General Dynamics Corporation 1,400 $ 104,090
Raytheon Company 2,732 144,250
Rockwell Collins, Inc. 1,500 94,935
United Technologies Corporation 2,000 125,040
------------
468,315
------------
ASSET MANAGEMENT - 2.9%
The Bank of New York Company, Inc. 3,600 141,732
Mellon Financial Corporation 3,440 144,996
------------
286,728
------------
BEVERAGES - 2.3%
The Coca-Cola Company 2,300 110,975
PepsiCo, Inc. 1,900 118,845
------------
229,820
------------
BUILDING PRODUCTS - 0.9%
American Standard Companies Inc. 2,000 91,700
------------
CHEMICALS - 2.4%
Air Products and Chemicals, Inc. 1,800 126,504
E.I. du Pont de Nemours & Company 2,400 116,904
------------
243,408
------------
COMMERCIAL BANKS - 5.2%
Bank of America Corporation 2,100 112,119
Cullen/Frost Bankers, Inc. 2,600 145,132
The South Financial Group, Inc. 4,300 114,337
Wells Fargo & Company 4,000 142,240
------------
513,828
------------
COMMERCIAL SERVICES & SUPPLIES - 2.9%
H&R Block, Inc. 4,200 96,768
Waste Management, Inc. 3,500 128,695
Western Union Company 2,600 58,292
------------
283,755
------------
COMMUNICATIONS EQUIPMENT - 3.7%
Cisco Systems, Inc. (a) 5,100 139,383
Harris Corporation 3,000 137,580
Motorola, Inc. 4,500 92,520
------------
369,483
------------
COMPUTERS & PERIPHERALS - 2.2%
Dell, Inc. (a) 2,900 72,761
International Business
Machines Corporation 1,500 145,725
------------
218,486
------------
CONTAINERS & PACKAGING - 1.0%
Temple-Inland, Inc. 2,100 96,663
------------
DIVERSIFIED FINANCIAL SERVICES - 1.3%
Citigroup Inc. 2,366 131,786
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.6%
ALLTEL Corporation 1,600 96,768
AT&T Inc. 3,800 135,850
Verizon Communications Inc. 2,600 96,824
Windstream Corporation 1,654 23,520
------------
352,962
------------
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 2.5%
Noble Corporation (b) 1,500 $ 114,225
Schlumberger Ltd. (b) 2,100 132,636
------------
246,861
------------
FOOD & STAPLES RETAILING - 2.2%
CVS Corporation 3,300 102,003
Wal-Mart Stores, Inc. 2,500 115,450
------------
217,453
------------
FOOD PRODUCTS - 0.8%
Kraft Foods, Inc. - Class A 2,200 78,540
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 5.4%
Alcon, Inc. (b) 1,000 111,770
DENTSPLY International Inc. 2,400 71,640
Medtronic, Inc. 2,300 123,073
Respironics, Inc. (a) 2,200 83,050
Thermo Fisher Scientific, Inc. (a) 3,200 144,928
------------
534,461
------------
HOUSEHOLD PRODUCTS - 4.2%
Colgate-Palmolive Company 2,500 163,100
Kimberly-Clark Corporation 1,700 115,515
The Procter & Gamble Company 2,100 134,967
------------
413,582
------------
INDUSTRIAL CONGLOMERATES - 1.8%
General Electric Company 4,800 178,608
------------
INSURANCE - 2.6%
Genworth Financial Inc. - Class A 3,000 102,630
Prudential Financial, Inc. 1,781 152,917
------------
255,547
------------
IT SERVICES - 3.3%
Accenture Ltd. - Class A (b) 4,200 155,106
Automatic Data Processing, Inc. 2,200 108,350
First Data Corp. 2,600 66,352
------------
329,808
------------
MEDIA - 2.7%
CBS Corporation - Class B (c) 2,643 82,409
Harte-Hanks, Inc. 3,000 83,130
The Walt Disney Company 3,000 102,810
------------
268,349
------------
MULTI-UTILITIES & UNREGULATED POWER - 1.0%
National Fuel Gas Company 2,500 96,350
------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 5.7%
Anadarko Petroleum Corporation 2,200 95,744
Chevron Corporation 1,495 109,927
EOG Resources, Inc. 1,400 87,430
Exxon Mobil Corporation 1,900 145,597
XTO Energy, Inc. 2,766 130,140
------------
568,838
------------
PHARMACEUTICALS - 3.3%
Abbott Laboratories 1,700 82,807
Schering-Plough Corporation 6,500 153,660
Teva Pharmaceutical Industries
Ltd. - ADR (b) 3,000 93,240
------------
329,707
------------
The accompanying notes are an integral part of these financial statements.
18
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.0%
Texas Instruments Incorporated 3,400 $ 97,920
------------
SOFTWARE - 0.9%
Microsoft Corporation 3,100 92,566
------------
SPECIALTY RETAIL - 2.5%
The Home Depot, Inc. 3,100 124,496
PETsMART, Inc. 4,300 124,098
------------
248,594
------------
TOTAL COMMON STOCKS
(Cost $5,438,065) 7,244,118
------------
- -----------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS - 25.8% AMOUNT
- -----------------------------------------------------------------
AEROSPACE & DEFENSE - 1.3%
General Dynamics Corporation
4.50%, 08/15/2010 $100,000 97,957
Raytheon Company
6.00%, 12/15/2010 26,000 26,599
------------
124,556
------------
ASSET MANAGEMENT - 1.0%
The Bank of New York Company, Inc.
3.90%, 09/01/2007 100,000 99,154
------------
BEVERAGES - 0.6%
Anheuser-Busch Companies, Inc.
5.75%, 04/01/2010 57,000 57,987
------------
BUILDING PRODUCTS - 0.8%
Masco Corporation
5.75%, 10/15/2008 75,000 75,317
------------
CHEMICALS - 1.1%
E.I. du Pont de Nemours & Company
6.875%, 10/15/2009 100,000 104,464
------------
COMMERCIAL BANKS - 0.8%
Bancwest Corp.
8.30%, 01/15/2011 75,000 82,200
------------
COMMERCIAL SERVICES & SUPPLIES - 1.1%
Waste Management, Inc.
7.375%, 08/01/2010 100,000 106,454
------------
COMMUNICATIONS EQUIPMENT - 2.2%
Harris Corporation
6.35%, 02/01/2028 110,000 113,078
Motorola, Inc.
7.625%, 11/15/2010 100,000 107,763
------------
220,841
------------
COMPUTERS & PERIPHERALS - 0.5%
International Business Machines Corporation
4.375%, 06/01/2009 50,000 49,168
------------
CONSUMER FINANCE - 1.0%
Pitney Bowes Credit Corp.
5.75%, 08/15/2008 100,000 100,610
------------
- -----------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- -----------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.0%
CIT Group Inc.
6.875%, 11/01/2009 $100,000 $ 104,100
Citigroup Inc.
4.25%, 07/29/2009 100,000 97,919
------------
202,019
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
AT&T Inc.
5.875%, 02/01/2012 75,000 76,495
------------
ELECTRICAL EQUIPMENT - 1.0%
Emerson Electric Co.
5.85%, 03/15/2009 100,000 101,295
------------
FOOD & STAPLES RETAILING - 0.8%
CVS Corporation
3.875%, 11/01/2007 85,000 83,932
------------
INVESTMENT BANK & BROKERAGE - 4.0%
The Goldman Sachs Group, Inc.
5.25%, 04/01/2013 100,000 99,478
Lehman Brothers Holdings, Inc.
8.25%, 06/15/2007 100,000 101,303
Merrill Lynch & Co., Inc.
5.45%, 07/15/2014 100,000 100,688
Morgan Stanley Group, Inc.
6.875%, 03/01/2007 100,000 100,224
------------
401,693
------------
MULTILINE RETAIL - 1.2%
J.C. Penney Co., Inc.:
6.50%, 12/15/2007 60,000 60,462
7.65%, 08/15/2016 50,000 55,054
------------
115,516
------------
MULTI-UTILITIES & UNREGULATED POWER - 0.5%
Duke Energy Corp.
6.25%, 01/15/2012 50,000 52,118
------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 3.1%
Anadarko Petroleum Corporation
3.25%, 05/01/2008 100,000 96,943
Burlington Resources Finance Company (b)
6.68%, 02/15/2011 100,000 105,128
EOG Resources, Inc.
6.50%, 12/01/2007 100,000 100,932
------------
303,003
------------
PAPER & FOREST PRODUCTS - 1.0%
Weyerhaeuser Co.
5.95%, 11/01/2008 100,000 100,843
------------
RESTAURANTS - 0.8%
McDonald's Corporation
6.00%, 04/15/2011 75,000 76,954
------------
SOFTWARE - 0.2%
Oracle Corporation
6.91%, 02/15/2007 25,000 25,037
------------
TOTAL CORPORATE BONDS
(Cost $2,569,912) 2,559,656
------------
The accompanying notes are an integral part of these financial statements.
19
LKCM BALANCED FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
U.S. GOVERNMENT & PRINCIPAL
AGENCY ISSUES - 0.3% AMOUNT/SHARES VALUE
- -----------------------------------------------------------------
FREDDIE MAC - 0.3%
3.875%, 06/15/2008 $ 25,000 $ 24,587
------------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(Cost $24,639) 24,587
------------
- -----------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.5%
- -----------------------------------------------------------------
MONEY MARKET FUND - 0.5%
Columbia Money Market Reserves Fund -
Capital Shares 50,271 50,271
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $50,271) 50,271
------------
TOTAL INVESTMENTS - 99.6%
(Cost $8,082,887) 9,878,632
Other Assets in Excess of Liabilities - 0.4% 43,192
------------
TOTAL NET ASSETS - 100.0% $ 9,921,824
============
ADR American Depository Receipt.
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
(c) Non-voting shares.
The accompanying notes are an integral part of these financial statements.
20
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- -----------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS - 80.8% AMOUNT VALUE
- -----------------------------------------------------------------
AEROSPACE & DEFENSE - 5.3%
General Dynamics Corporation
5.375%, 08/15/2015 $1,375,000 $ 1,383,390
Lockheed Martin Corporation:
8.20%, 12/01/2009 820,000 882,039
7.65%, 05/01/2016 1,250,000 1,444,671
Raytheon Company:
6.55%, 03/15/2010 207,000 214,626
6.00%, 12/15/2010 306,000 313,048
Rockwell Collins, Inc.
4.75%, 12/01/2013 430,000 420,247
United Technologies Corporation:
7.125%, 11/15/2010 250,000 266,422
6.10%, 05/15/2012 700,000 727,826
------------
5,652,269
------------
ASSET MANAGEMENT - 2.1%
The Bank of New York Company Inc.
5.20%, 07/01/2007 1,000,000 999,965
Mellon Funding Corporation:
6.70%, 03/01/2008 325,000 329,066
6.40%, 05/14/2011 892,000 928,506
------------
2,257,537
------------
BEVERAGES - 1.7%
Anheuser-Busch Cos., Inc.
5.75%, 01/15/2011
Callable 02/20/2007 588,000 584,621
PepsiCo, Inc.:
3.20%, 05/15/2007 500,000 495,837
5.75%, 01/15/2008 730,000 734,475
------------
1,814,933
------------
CHEMICALS - 3.0%
E.I. du Pont de Nemours & Company
4.125%, 04/30/2010 750,000 728,273
The Lubrizol Corporation
5.50%, 10/01/2014 1,579,000 1,541,707
Praxair, Inc.
6.375%, 04/01/2012 925,000 968,258
------------
3,238,238
------------
COMMERCIAL BANKS - 1.4%
Bank of America Corporation
6.375%, 02/15/2008 350,000 353,343
National City Bank
6.20%, 12/15/2011 335,000 348,214
SunTrust Banks, Inc.
6.25%, 06/01/2008 811,000 818,516
------------
1,520,073
------------
COMMERCIAL SERVICES & SUPPLIES - 3.5%
Allied Waste Industries, Inc.
5.75%, 02/15/2011 1,000,000 972,500
Block Financial Corp.
8.50%, 04/15/2007 490,000 493,790
International Lease Finance Corporation
6.375%, 03/15/2009 700,000 715,439
Pitney Bowes Inc.
3.875%, 06/15/2013 400,000 366,652
Waste Management, Inc.
7.375%, 08/01/2010 1,049,000 1,116,705
------------
3,665,086
------------
COMMUNICATIONS EQUIPMENT - 3.8%
Cisco Systems, Inc.:
5.25%, 02/22/2011 1,400,000 1,404,803
5.50%, 02/22/2016 1,000,000 1,002,418
Motorola, Inc.
7.625%, 11/15/2010 1,500,000 1,616,453
------------
4,023,674
------------
- -----------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- -----------------------------------------------------------------
COMPUTERS & PERIPHERALS - 3.1%
Dell, Inc.
6.55%, 04/15/2008 $1,000,000 $ 1,011,384
Hewlett-Packard Company:
5.50%, 07/01/2007 1,500,000 1,501,820
6.50%, 07/01/2012 700,000 742,819
------------
3,256,023
------------
CONSUMER FINANCE - 2.1%
Capital One Bank
5.125%, 02/15/2014 1,200,000 1,181,965
Pitney Bowes Credit Corp.
5.75%, 08/15/2008 1,000,000 1,006,097
------------
2,188,062
------------
CONTAINERS & PACKAGING - 1.4%
Packaging Corp of America
5.75%, 08/01/2013 1,500,000 1,452,396
------------
DIVERSIFIED FINANCIAL SERVICES - 3.0%
Citicorp
7.00%, 07/01/2007 1,157,000 1,165,374
First Chicago Corporation
6.375%, 01/30/2009 1,000,000 1,021,578
Textron Financial Corporation
6.00%, 11/20/2009 1,000,000 1,021,963
------------
3,208,915
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.5%
ALLTEL Corporation
7.00%, 07/01/2012 1,000,000 1,040,072
AT&T Inc.
6.25%, 03/15/2011 200,000 206,671
BellSouth Corporation
6.00%, 10/15/2011 1,000,000 1,027,032
SBC Communications, Inc.
5.30%, 11/15/2010 125,000 125,125
Verizon Communications Inc.
5.55%, 02/15/2016 1,000,000 998,308
Verizon Global Funding Corp.
7.375%, 09/01/2012 1,250,000 1,368,244
------------
4,765,452
------------
ELECTRIC UTILITIES - 0.9%
Southern Company Capital Funding, Inc.
5.30%, 02/01/2007 1,000,000 999,612
------------
ELECTRICAL EQUIPMENT - 1.8%
Emerson Electric Co.:
5.00%, 10/15/2008 850,000 844,491
5.85%, 03/15/2009 1,025,000 1,038,276
------------
1,882,767
------------
ENERGY EQUIPMENT & SERVICES - 1.2%
Baker Hughes Incorporated
6.00%, 02/15/2009 1,307,000 1,324,154
------------
FOOD & STAPLES RETAILING - 0.5%
CVS Corporation
3.875%, 11/01/2007 535,000 528,281
------------
FOOD PRODUCTS - 0.9%
The Hershey Company
4.85%, 08/15/2015 1,000,000 967,467
------------
The accompanying notes are an integral part of these financial statements.
21
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- -----------------------------------------------------------------
HOUSEHOLD PRODUCTS - 2.4%
Kimberly-Clark Corporation:
7.10%, 08/01/2007 $ 500,000 $ 504,903
5.625%, 02/15/2012 1,000,000 1,017,803
The Procter & Gamble Company
8.00%, 09/01/2024
Putable 09/01/2014 775,000 987,999
------------
2,510,705
------------
INDUSTRIAL CONGLOMERATES - 0.4%
Tyco International Group SA (a):
6.125%, 11/01/2008 254,000 257,254
6.00%, 11/15/2013 140,000 145,057
------------
402,311
------------
INVESTMENT BANK & BROKERAGE - 4.1%
The Bear Stearns Companies Inc.
5.30%, 10/30/2015 1,400,000 1,383,876
The Goldman Sachs Group, Inc.
5.125%, 01/15/2015 1,000,000 978,663
Lehman Brothers Holdings, Inc.
8.25%, 06/15/2007 1,000,000 1,013,031
Morgan Stanley Group, Inc.
6.875%, 03/01/2007 1,000,000 1,002,237
------------
4,377,807
------------
MACHINERY - 0.9%
Dover Corporation
6.50%, 02/15/2011 925,000 963,575
------------
MEDIA - 1.9%
Clear Channel Communications, Inc.:
4.625%, 01/15/2008 725,000 718,242
7.65%, 09/15/2010 775,000 812,040
The Walt Disney Company
5.625%, 09/15/2016 500,000 504,413
------------
2,034,695
------------
METALS & MINING - 2.9%
Alcoa Inc.:
4.25%, 08/15/2007 750,000 743,202
6.00%, 01/15/2012 1,310,000 1,345,696
Freeport-McMoRan Copper & Gold, Inc.
10.125%, 02/01/2010
Callable 02/01/2007 975,000 1,029,844
------------
3,118,742
------------
MULTILINE RETAIL - 5.6%
Dollar General Corporation
8.625%, 06/15/2010 1,745,000 1,862,788
J.C. Penney Co., Inc.:
6.50%, 12/15/2007 1,115,000 1,123,579
8.00%, 03/01/2010 950,000 1,012,193
7.65%, 08/15/2016 600,000 660,644
Target Corporation:
5.50%, 04/01/2007 950,000 950,202
6.35%, 01/15/2011 300,000 312,451
------------
5,921,857
------------
MULTI-UTILITIES & UNREGULATED POWER - 1.0%
Duke Energy Corp.
6.25%, 01/15/2012 1,000,000 1,042,370
------------
OIL & GAS DRILLING - 1.5%
Transocean Inc. (a)
6.625%, 04/15/2011 1,500,000 1,559,801
------------
- -----------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT/SHARES VALUE
- -----------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 10.9%
Amerada Hess Corporation
6.65%, 08/15/2011 $1,550,000 $ 1,615,570
Apache Corporation
6.25%, 04/15/2012 1,593,000 1,655,882
Burlington Resources Finance Company (a)
6.68%, 02/15/2011 985,000 1,035,509
Devon Financing Corp. ULC
6.875%, 09/30/2011 1,000,000 1,058,485
EOG Resources, Inc.
6.50%, 12/01/2007 1,000,000 1,009,320
Kerr-McGee Corporation
6.875%, 09/15/2011 1,000,000 1,057,614
Noble Energy, Inc.
5.25%, 04/15/2014 1,500,000 1,444,716
Vintage Petroleum, Inc.
8.25%, 05/01/2012
Callable 05/01/2007 1,400,000 1,469,336
XTO Energy, Inc.
6.25%, 04/15/2013 1,150,000 1,187,720
------------
11,534,152
------------
RESTAURANTS - 1.0%
McDonald's Corporation
6.00%, 04/15/2011 1,000,000 1,026,049
------------
ROAD & RAIL - 2.8%
Burlington Northern Santa Fe Corporation
6.75%, 07/15/2011 1,850,000 1,954,845
Union Pacific Corporation
6.125%, 01/15/2012 1,000,000 1,031,303
------------
2,986,148
------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 0.9%
Applied Materials, Inc.
6.75%, 10/15/2007 1,000,000 1,008,965
------------
SOFTWARE - 1.5%
Oracle Corporation
6.91%, 02/15/2007 1,550,000 1,552,266
------------
SPECIALTY RETAIL - 2.8%
The Home Depot, Inc.
4.625%, 08/15/2010 1,175,000 1,151,237
Lowe's Companies, Inc.:
8.25%, 06/01/2010 1,225,000 1,339,707
5.00%, 10/15/2015 525,000 506,618
------------
2,997,562
------------
TOTAL CORPORATE BONDS
(Cost $86,611,975) 85,781,944
------------
- -----------------------------------------------------------------
PREFERRED
STOCKS - 2.5%
- -----------------------------------------------------------------
INVESTMENT BANK & BROKERAGE - 2.5%
The Goldman Sachs Group, Inc.
Callable 04/25/2010 40,000 1,052,000
Lehman Brothers Holdings, Inc.
Callable 10/31/2008 21,000 530,670
Merrill Lynch & Co., Inc.
Callable 11/28/2009 40,000 1,032,000
------------
TOTAL PREFERRED STOCKS
(Cost $2,523,320) 2,614,670
------------
The accompanying notes are an integral part of these financial statements.
22
LKCM FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
U.S. GOVERNMENT PRINCIPAL
& AGENCY ISSUES - 10.7% AMOUNT VALUE
- -----------------------------------------------------------------
FANNIE MAE - 2.5%
5.00%, 02/27/2008
Callable 02/27/2007 $ 500,000 $ 498,834
5.01%, 11/10/2010
Callable 2/10/2007 1,000,000 990,539
5.00%, 04/15/2015 1,100,000 1,103,991
------------
2,593,364
------------
FEDERAL HOME LOAN BANK - 1.9%
4.90%, 11/21/2007 1,000,000 997,251
5.25%, 06/18/2014 1,000,000 1,017,899
------------
2,015,150
------------
FREDDIE MAC - 0.9%
4.20%, 12/28/2007 1,000,000 990,424
------------
U.S. TREASURY INFLATION INDEXED BONDS - 2.1%
2.375%, 04/15/2011 1,016,870 1,013,137
3.375%, 01/15/2012 1,136,690 1,187,086
------------
2,200,223
------------
U.S. TREASURY NOTES - 3.3%
4.75%, 11/15/2008 1,000,000 999,024
4.50%, 02/15/2016 1,000,000 984,376
5.125%, 05/15/2016 1,500,000 1,545,528
------------
3,528,928
------------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(Cost $11,403,723) 11,328,089
------------
- -----------------------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENTS - 4.1% AMOUNT/SHARES VALUE
- -----------------------------------------------------------------
CORPORATE BONDS - 1.7%
General Electric Capital Corporation
5.00%, 02/15/2007 $ 800,000 $ 799,702
Viacom Inc.
5.625%, 05/01/2007 1,000,000 1,000,596
------------
1,800,298
------------
MONEY MARKET FUND - 0.3%
Columbia Money Market Reserves Fund -
Capital Shares 339,596 339,596
------------
U.S. GOVERNMENT & AGENCY ISSUES - 2.1%
Fannie Mae
3.875%, 05/15/2007 1,000,000 995,483
Federal Home Loan Bank
5.26%, 10/19/2007
Callable 01/19/07 1,200,000 1,199,359
------------
2,194,842
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,334,458) 4,334,736
------------
TOTAL INVESTMENTS - 98.1%
(Cost $104,873,476) 104,059,439
Other Assets in Excess of Liabilities - 1.9% 2,022,622
------------
TOTAL NET ASSETS - 100.0% $106,082,061
============
(a) Dollar-denominated foreign security.
The accompanying notes are an integral part of these financial statements.
23
LKCM INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS - 86.5% SHARES VALUE (US$)
- -----------------------------------------------------------------
AUSTRALIA - 2.1%
- -----------------------------------------------------------------
CONTAINERS & PACKAGING - 0.4%
Amcor Limited 82,728 $ 472,829
------------
DIVERSIFIED OPERATIONS - 0.2%
BHP Billiton Limited 16,905 336,225
------------
INSURANCE - 0.6%
AMP Limited 71,372 567,038
Insurance Australia Group Limited 10,012 50,004
Promina Group Limited 37,525 204,507
------------
821,549
------------
METALS & MINING - 0.3%
Alumina Limited 79,782 398,294
------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 0.3%
Santos Limited 56,515 439,821
------------
TRANSPORTATION INFRASTRUCTURE - 0.3%
Macquarie Airports 159,000 450,986
------------
TOTAL AUSTRALIA 2,919,704
------------
- -----------------------------------------------------------------
BELGIUM - 0.7%
- -----------------------------------------------------------------
PHARMACEUTICALS - 0.7%
UCB SA 13,119 899,039
------------
TOTAL BELGIUM 899,039
------------
- -----------------------------------------------------------------
CHINA - 0.4%
- -----------------------------------------------------------------
MACHINERY - 0.4%
Shanghai Electric Group Company Limited -
H Shares 1,390,000 581,947
------------
TOTAL CHINA 581,947
------------
- -----------------------------------------------------------------
DENMARK - 1.3%
- -----------------------------------------------------------------
COMMERCIAL BANKS - 1.3%
Danske Bank A/S 39,400 1,745,996
------------
TOTAL DENMARK 1,745,996
------------
- -----------------------------------------------------------------
FRANCE - 12.4%
- -----------------------------------------------------------------
AUTOMOTIVE - 1.4%
PSA Peugeot Citroen 28,735 1,902,537
------------
BUILDING PRODUCTS - 1.1%
Compagnie de Saint-Gobain 18,000 1,508,245
------------
COMMERCIAL BANKS - 2.1%
Credit Agricole SA 68,192 2,858,467
------------
CONSTRUCTION MATERIALS - 1.2%
Lafarge SA 11,451 1,702,136
------------
ELECTRIC UTILITIES - 2.0%
Electricite de France (a) 37,965 2,760,553
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.9%
Schneider Electric SA 10,660 1,179,760
------------
IT SERVICES - 0.7%
Cap Gemini SA 16,037 1,003,353
------------
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- -----------------------------------------------------------------
METALS & MINING - 0.7%
Vallourec SA 3,327 $ 961,455
------------
PHARMACEUTICALS - 2.3%
Sanofi-Aventis 33,363 3,076,091
------------
TOTAL FRANCE 16,952,597
------------
- -----------------------------------------------------------------
GERMANY - 5.6%
- -----------------------------------------------------------------
AUTOMOTIVE - 2.3%
Continental AG 16,700 1,937,063
Volkswagen AG 10,693 1,212,586
------------
3,149,649
------------
CHEMICALS - 1.0%
Bayer AG 26,119 1,400,751
------------
ELECTRIC UTILITIES - 2.3%
E.ON AG 22,452 3,045,579
------------
TOTAL GERMANY 7,595,979
------------
- -----------------------------------------------------------------
HONG KONG - 1.7%
- -----------------------------------------------------------------
DIVERSIFIED OPERATIONS - 0.3%
Citic Pacific Limited 107,775 370,651
------------
ELECTRIC UTILITIES - 0.4%
CLP Holdings Limited 70,000 516,697
------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 0.3%
CNOOC Limited 383,500 363,573
------------
REAL ESTATE - 0.7%
Cheung Kong (Holdings) Limited 44,000 540,509
Henderson Land Development
Company Limited 81,000 451,552
------------
992,061
------------
TOTAL HONG KONG 2,242,982
------------
- -----------------------------------------------------------------
ITALY - 3.4%
- -----------------------------------------------------------------
AIRLINES - 0.4%
Alitalia S.p.A. (a) 364,929 504,521
------------
COMMERCIAL BANKS - 3.0%
Banca Intesa S.p.A. (a) 246,438 1,897,908
Capitalia S.p.A. 213,795 2,017,280
SanPaolo IMI S.p.A. 10,399 241,325
------------
4,156,513
------------
TOTAL ITALY 4,661,034
------------
- -----------------------------------------------------------------
JAPAN - 19.7%
- -----------------------------------------------------------------
AUTO COMPONENTS - 1.3%
BRIDGESTONE CORPORATION 79,000 1,762,977
------------
AUTOMOTIVE - 1.4%
NISSAN MOTOR CO., LTD. 153,800 1,855,859
------------
BUILDING PRODUCTS - 0.4%
Nippon Sheet Glass Company, Limited 112,000 524,498
------------
CAPITAL MARKETS - 0.3%
Asset Managers Co., Ltd. 198 392,072
------------
The accompanying notes are an integral part of these financial statements.
24
LKCM INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- -----------------------------------------------------------------
COMMERCIAL BANKS - 2.8%
AOZORA BANK, LTD. (a) 94,000 $ 365,716
THE BANK OF FUKUOKA, LTD. 69,000 501,925
Mitsubishi UFJ Financial Group, Inc. 98 1,215,768
Mizuho Financial Group, Inc. 244 1,740,444
------------
3,823,853
------------
COMPUTERS & PERIPHERALS - 0.7%
FUJITSU LIMITED 118,000 924,586
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.3%
FANUC LTD. 6,700 657,550
MURATA MANUFACTURING COMPANY, LTD. 18,800 1,268,536
NIDEC CORPORATION 13,300 1,029,346
YOKOGAWA ELECTRIC CORPORATION 10,800 170,963
------------
3,126,395
------------
INSURANCE - 0.8%
T&D Holdings, Inc. 15,850 1,046,399
------------
LEISURE EQUIPMENT & PRODUCTS - 0.5%
FUJIFILM Holdings Corporation 17,700 729,030
------------
MACHINERY - 1.7%
Hitachi Construction Machinery Co., Ltd. 30,900 829,798
KOMATSU LTD. 21,026 425,564
THK CO., LTD. 42,600 1,096,556
------------
2,351,918
------------
MARINE - 0.3%
Nippon Yusen Kabushiki Kaisha 52,000 380,274
------------
MEDIA - 0.1%
Jupiter Telecommunications Co., Ltd. (a) 229 184,584
------------
PHARMACEUTICALS - 1.7%
Takeda Pharmaceutical Company Limited 34,600 2,371,346
------------
REAL ESTATE - 0.9%
LEOPALACE21 CORPORATION 17,600 562,207
Mitsui Fudosan Co., Ltd. 30,000 730,926
------------
1,293,133
------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 2.0%
ADVANTEST CORPORATION 12,600 722,327
SUMCO CORPORATION 14,900 1,259,212
Tokyo Electron Limited 8,800 692,187
------------
2,673,726
------------
TOBACCO - 0.9%
JAPAN TOBACCO INC. 260 1,256,698
------------
TRADING COMPANIES & DISTRIBUTORS - 1.6%
Marubeni Corporation 131,000 663,707
MITSUI & CO., LTD. 100,000 1,498,388
------------
2,162,095
------------
TOTAL JAPAN 26,859,443
------------
- -----------------------------------------------------------------
MALAYSIA - 0.2%
- -----------------------------------------------------------------
COMMERCIAL BANKS - 0.2%
Bumiputra-Commerce Holdings Bhd 117,000 256,341
------------
TOTAL MALAYSIA 256,341
------------
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- -----------------------------------------------------------------
NETHERLANDS - 1.1%
- -----------------------------------------------------------------
METALS & MINING - 1.1%
Mittal Steel Company NV 35,405 $ 1,490,459
------------
TOTAL NETHERLANDS 1,490,459
------------
- -----------------------------------------------------------------
NORWAY - 2.6%
- -----------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 2.6%
Norsk Hydro ASA 114,700 3,540,473
------------
TOTAL NORWAY 3,540,473
------------
- -----------------------------------------------------------------
SINGAPORE - 1.0%
- -----------------------------------------------------------------
COMMERCIAL BANKS - 0.5%
United Overseas Bank Limited 52,412 661,063
------------
DIVERSIFIED OPERATIONS - 0.2%
Keppel Corporation Limited 26,000 297,276
------------
ENGINEERING SERVICES - 0.3%
SembCorp Industries Limited 150,000 374,446
------------
TOTAL SINGAPORE 1,332,785
------------
- -----------------------------------------------------------------
SOUTH KOREA - 0.3%
- -----------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.3%
LG.Phillips LCD Co., Ltd (a) 15,280 455,004
------------
TOTAL SOUTH KOREA 455,004
------------
- -----------------------------------------------------------------
SPAIN - 1.4%
- -----------------------------------------------------------------
COMMERCIAL BANKS - 1.4%
Banco Santander Central Hispano SA 102,639 1,911,248
------------
TOTAL SPAIN 1,911,248
------------
- -----------------------------------------------------------------
SWEDEN - 4.3%
- -----------------------------------------------------------------
MACHINERY - 2.5%
Atlas Copco AB - A Shares 62,609 2,096,342
Sandvik AB 88,400 1,280,269
------------
3,376,611
------------
SPECIALTY RETAIL - 0.9%
Hennes & Mauritz AB 25,800 1,301,227
------------
WIRELESS TELECOMMUNICATION SERVICES - 0.9%
Telefonaktiebolaget LM Ericsson -
B Shares 292,347 1,175,575
------------
TOTAL SWEDEN 5,853,413
------------
- -----------------------------------------------------------------
SWITZERLAND - 4.3%
- -----------------------------------------------------------------
CAPITAL MARKETS - 1.3%
Credit Suisse Group 25,108 1,750,479
------------
ELECTRICAL EQUIPMENT - 1.7%
ABB Ltd. 131,712 2,358,641
------------
SPECIALTY RETAIL - 1.3%
Compagnie Financiere Richemont AG -
A shares 30,867 1,791,434
------------
TOTAL SWITZERLAND 5,900,554
------------
The accompanying notes are an integral part of these financial statements.
25
LKCM INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- -----------------------------------------------------------------
TAIWAN - 0.4%
- -----------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.4%
Cathay Financial Holding Co., Ltd. - GDR 21,379 $ 481,027
------------
TOTAL TAIWAN 481,027
------------
- -----------------------------------------------------------------
UNITED KINGDOM - 23.6%
- -----------------------------------------------------------------
AEROSPACE & DEFENSE - 1.5%
BAE Systems plc 252,331 2,097,773
------------
BEVERAGES - 1.2%
SABMiller plc 69,444 1,594,513
------------
COMMERCIAL BANKS - 1.6%
Standard Chartered plc 73,121 2,130,110
------------
COMMERCIAL SERVICES - 1.0%
Experian Group Ltd. (a) 114,476 1,340,526
------------
DIVERSIFIED FINANCIAL SERVICES - 1.3%
Man Group plc 172,216 1,757,821
------------
DIVERSIFIED OPERATIONS - 1.5%
Rolls-Royce Group plc (a) 227,311 1,986,428
------------
FOOD & STAPLES RETAILING - 1.1%
Tesco plc 199,358 1,575,410
------------
HOTELS, RESTAURANTS & LEISURE - 0.6%
First Choice Holidays plc 145,929 810,757
------------
HOUSEHOLD PRODUCTS - 1.2%
Unilever plc 60,266 1,676,164
------------
INSURANCE - 1.2%
Prudential plc 116,411 1,590,429
------------
METALS & MINING - 4.6%
Anglo American plc 55,675 2,709,549
Xstrata plc 72,173 3,591,296
------------
6,300,845
------------
- -----------------------------------------------------------------
COMMON STOCKS SHARES VALUE (US$)
- -----------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 1.2%
International Power plc 228,432 $ 1,701,417
------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 2.9%
BP plc 352,428 3,929,955
------------
PHARMACEUTICALS - 1.9%
AstraZeneca plc 48,229 2,584,662
------------
TOBACCO - 0.8%
Imperial Tobacco Group plc 28,366 1,116,440
------------
TOTAL UNITED KINGDOM 32,193,250
------------
TOTAL COMMON STOCKS
(Cost $102,959,700) 117,873,275
------------
- -----------------------------------------------------------------
PREFERRED STOCKS - 1.5%
- -----------------------------------------------------------------
GERMANY - 1.5%
- -----------------------------------------------------------------
AUTOMOTIVE - 1.5%
Porsche AG 1,636 2,081,764
------------
TOTAL GERMANY 2,081,764
------------
TOTAL PREFERRED STOCKS
(Cost $1,542,811) 2,081,764
------------
- -----------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.3%
- -----------------------------------------------------------------
MONEY MARKET FUND - 0.3%
Dreyfus Cash Management Fund -
Investor Shares 399,056 399,056
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $399,056) 399,056
------------
TOTAL INVESTMENTS - 88.3%
(Cost $104,901,567) 120,354,095
Other Assets in Excess of Liabilities - 11.7% 15,940,457
------------
TOTAL NET ASSETS - 100.0% $136,294,552
============
GDR Global Depository Receipt.
(a) Non-income producing security.
At December 31, 2006, the securities in this Fund, except for GDRs and cash
equivalents, were adjusted to fair value using IDC factors.
At December 31, 2006, the Fund had entered into "position hedge" forward
currency exchange contracts that obligated the Fund to deliver or receive
currencies at a specified future date. The contracts had net unrealized
appreciation of $254,138 as of December 31, 2006. 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, 2006 BE RECEIVED DEC. 31, 2006
- --------------------------------------------------------------------------------------------------------------
1/11/07 2,040,000 EURO $ 2,694,402 3,442,092 AUD $ 2,715,751
1/11/07 2,365,051,743 JPY 19,907,252 15,430,000 EURO 20,379,717
1/11/07 14,510,000 EURO 19,164,594 2,250,657,172 JPY 18,944,363
1/11/07 1,819,395 KB 3,562,424 2,690,000 EURO 3,552,912
1/11/07 12,296,032 HKD 1,581,668 1,190,000 EURO 1,571,735
----------- -----------
$46,910,340 $47,164,478
=========== ===========
AUD Australian Dollar
EURO Euro
HKD Hong Kong Dollar
JPY Japanese Yen
KB British Pound
The accompanying notes are an integral part of these financial statements.
26
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value *................................... $627,952,531 $50,219,544 $9,878,632 $104,059,439 $120,354,095
Cash...................................................... -- 405 -- -- 12,501
Foreign currency **....................................... -- -- -- -- 2,852,018
Dividends and interest receivable......................... 535,351 61,775 51,463 1,676,323 126,784
Unrealized gain on open forward foreign currency contracts -- -- -- -- 448,077
Receivable for investments sold........................... 18 -- -- -- 36,367
Receivable for fund shares sold........................... 2,735,175 188,345 1,801 504,972 13,052,092
Other assets.............................................. 46,306 9,911 3,630 11,353 8,830
------------ ----------- ---------- ------------ ------------
Total assets............................................ 631,269,381 50,479,980 9,935,526 106,252,087 136,890,764
------------ ----------- ---------- ------------ ------------
LIABILITIES:
Unrealized loss on open forward foreign currency contracts -- -- -- -- 193,939
Payable for investment advisory fees...................... 1,168,783 56,867 540 111,252 255,473
Payable for fund shares redeemed.......................... 475,594 7,006 -- -- 74,990
Distribution expense payable.............................. 17,488 -- -- -- --
Accrued expenses and other liabilities.................... 267,368 31,533 13,162 58,774 71,810
------------ ----------- ---------- ------------ ------------
Total liabilities....................................... 1,929,233 95,406 13,702 170,026 596,212
------------ ----------- ---------- ------------ ------------
NET ASSETS................................................ $629,340,148 $50,384,574 $9,921,824 $106,082,061 $136,294,552
============ =========== ========== ============ ============
NET ASSETS CONSIST OF:
Paid in capital........................................... $504,829,694 $38,322,976 $8,142,522 $107,436,234 $116,420,262
Undistributed net investment income....................... -- 176 4,220 167,359 529,817
Accumulated net realized gain (loss) on
securities and foreign currency transactions............ 22,334,922 (92,387) (20,663) (707,495) 3,638,631
Net unrealized appreciation (depreciation) on:
Investments ............................................ 102,175,532 12,153,809 1,795,745 (814,037) 15,452,528
Other assets and liabilities denominated in foreign currency -- -- -- -- 253,314
------------ ----------- ---------- ------------ ------------
NET ASSETS................................................ $629,340,148 $50,384,574 $9,921,824 $106,082,061 $136,294,552
============ =========== ========== ============ ============
INSTITUTIONAL CLASS***
Net assets................................................ $608,416,896 $50,384,574 $9,921,824 $106,082,061 $136,294,552
Shares of beneficial interest outstanding
(unlimited shares of no par value authorized).......... 27,679,031 3,491,314 742,754 10,405,310 10,100,423
Net asset value per share
(offering and redemption price)......................... $ 21.98 $ 14.43 $ 13.36 $ 10.19 $ 13.49
============ =========== ========== ============ ============
ADVISER CLASS
Net assets................................................ $ 20,923,252
Shares of beneficial interest outstanding
(unlimited shares of no par value authorized)........... 963,090
Net asset value per share
(offering and redemption price)......................... $ 21.73
============
* Cost of Investments................................... $525,776,999 $38,065,735 $8,082,887 $104,873,476 $104,901,567
============ =========== ========== ============ ============
** Cost of Foreign Currency.............................. $ -- $ -- $ -- $ -- $ 2,853,054
============ =========== ========== ============ ============
*** Currently, only the Small Cap Equity and Equity Funds offer a second class.
The accompanying notes are an integral part of these financial statements.
27
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
LKCM LKCM LKCM LKCM
SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL
EQUITY FUND EQUITY FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends *............................................... $ 2,757,546 $ 764,192 $ 123,153 $ 139,329 $ 1,898,668
Interest.................................................. 1,508,822 85,995 136,937 5,212,295 64,365
----------- ---------- ---------- ---------- -----------
Total income........................................... 4,266,368 850,187 260,090 5,351,624 1,963,033
----------- ---------- ---------- ---------- -----------
EXPENSES:
Investment advisory fees ................................. 3,993,563 337,223 61,407 547,583 1,000,880
Distribution expense - Adviser Class...................... 38,337 -- -- -- --
Administrative fees....................................... 456,151 45,979 20,175 89,711 82,634
Accounting and transfer agent fees and expenses........... 193,041 59,871 37,875 73,230 74,589
Professional fees......................................... 185,692 17,938 3,478 41,422 36,250
Federal and state registration............................ 73,779 28,720 7,436 18,913 19,059
Custody fees and expenses................................. 68,488 6,190 3,433 12,344 106,075
Trustees' fees............................................ 42,546 4,678 945 10,743 6,254
Reports to shareholders................................... 33,961 2,989 630 6,951 5,303
Other .................................................... 57,049 6,066 1,250 13,227 10,560
----------- ---------- ---------- ---------- -----------
Total expenses.......................................... 5,142,607 509,654 136,629 814,124 1,341,604
Less, expense waiver and/or reimbursement............... -- (124,256) (61,051) (102,266) (140,548)
----------- ---------- ---------- ---------- -----------
Net expenses............................................ 5,142,607 385,398 75,578 711,858 1,201,056
----------- ---------- ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS).............................. (876,239) 464,789 184,512 4,639,766 761,977
----------- ---------- ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments............................................. 71,930,820 1,252,873 129,081 (416,361) 13,191,357
Foreign currency transactions........................... -- -- -- -- 272,115
----------- ---------- ---------- ---------- -----------
71,930,820 1,252,873 129,081 (416,361) 13,463,472
----------- ---------- ---------- ---------- -----------
Net change in unrealized appreciation/depreciation on:
Investments............................................. (4,283,456) 4,073,957 692,596 65,851 9,663,579
Foreign currency transactions........................... -- -- -- -- 482,300
----------- ---------- ---------- ---------- -----------
(4,283,456) 4,073,957 692,596 65,851 10,145,879
----------- ---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.... 67,647,364 5,326,830 821,677 (350,510) 23,609,351
----------- ---------- ---------- ---------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $66,771,125 $5,791,619 $1,006,189 $4,289,256 $24,371,328
=========== ========== ========== ========== ===========
* Net of foreign taxes withheld........................... $ -- $ 3,095 $ 631 $ -- $ 210,774
=========== ========== ========== ========== ===========
The accompanying notes are an integral part of these financial statements.
28
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,
2006 2005 2006 2005
------------ ------------ ----------- -----------
OPERATIONS:
Net investment income (loss)............................................ $ (876,239) $ (781,942) $ 464,789 $ 375,724
Net realized gain on investments ....................................... 71,930,820 58,677,426 1,252,873 1,451,791
Net change in unrealized appreciation/depreciation
on investments........................................................ (4,283,456) (13,573,414) 4,073,957 218,882
------------ ------------ ----------- -----------
Net increase in net assets
resulting from operations......................................... 66,771,125 44,322,070 5,791,619 2,046,397
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO INSTITUTIONAL CLASS SHAREHOLDERS:
Net investment income................................................... -- -- (473,227) (423,004)
Net realized gain on investments........................................ (58,721,958) (52,344,719) (1,395,047) (1,004,552)
------------ ------------ ----------- -----------
(58,721,958) (52,344,719) (1,868,274) (1,427,556)
------------ ------------ ----------- -----------
DISTRIBUTIONS TO ADVISER CLASS SHAREHOLDERS:
Net realized gain on investments........................................ (2,012,985) (1,219,242) -- --
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (NOTE C)...................................... 243,727,750 36,498,922 (49,003) 8,651,868
------------ ------------ ----------- -----------
Total increase in net assets............................................ 249,763,932 27,257,031 3,874,342 9,270,709
NET ASSETS:
Beginning of period..................................................... 379,576,216 352,319,185 46,510,232 37,239,523
------------ ------------ ----------- -----------
End of period *......................................................... $629,340,148 $379,576,216 $50,384,574 $46,510,232
============ ============ =========== ===========
* Including undistributed net
investment income of:................................................ $ -- $ -- $ 176 $ 8,450
============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
29
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,
2006 2005 2006 2005
---------- ---------- ------------ ------------
OPERATIONS:
Net investment income................................................... $ 184,512 $ 157,252 $ 4,639,766 $ 3,576,906
Net realized gain (loss) on investments ................................ 129,081 123,600 (416,361) (64,933)
Net change in unrealized appreciation/depreciation
on investments........................................................ 692,596 249,872 65,851 (1,807,573)
---------- ---------- ------------ ------------
Net increase in net assets
resulting from operations......................................... 1,006,189 530,724 4,289,256 1,704,400
---------- ---------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................................................... (187,812) (93,399) (4,681,335) (3,526,577)
Net realized gain on investments........................................ (133,606) -- -- --
---------- ---------- ------------ ------------
(321,418) (93,399) (4,681,335) (3,526,577)
---------- ---------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (NOTE C)...................................... 4,563 387,342 (9,124,756) 24,138,125
---------- ---------- ------------ ------------
Total increase (decrease) in net assets................................. 689,334 824,667 (9,516,835) 22,315,948
NET ASSETS:
Beginning of period..................................................... 9,232,490 8,407,823 115,598,896 93,282,948
---------- ---------- ------------ ------------
End of period *......................................................... $9,921,824 $9,232,490 $106,082,061 $115,598,896
========== ========== ============ ============
* Including undistributed net
investment income of:................................................. $ 4,220 $ 6,316 $ 167,359 $ 188,597
========== ========== ============ ============
LKCM
INTERNATIONAL FUND
Year Ended Year Ended
December 31, December 31,
2006 2005
------------ -----------
OPERATIONS:
Net investment income................................................................................ $ 761,977 $ 75,596
Net realized gain on investments, futures contracts and foreign currency transactions................ 13,463,472 4,101,048
Net change in unrealized appreciation/depreciation................................................... 10,145,879 3,460,869
------------ -----------
Net increase in net assets resulting from operations............................................. 24,371,328 7,637,513
------------ -----------
DIVIDENDS TO SHAREHOLDERS:
Net investment income................................................................................ (1,404,574) (1,646,490)
Net realized gain on investments..................................................................... (4,379,796) --
------------ -----------
(5,784,370) (1,646,490)
------------ -----------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (NOTE C)..................................... 35,807,148 33,805,527
------------ -----------
Total increase in net assets......................................................................... 54,394,106 39,796,550
NET ASSETS:
Beginning of period.................................................................................. 81,900,446 42,103,896
------------ -----------
End of period *...................................................................................... $136,294,552 $81,900,446
============ ===========
* Including undistributed net investment income of:.................................................. $ 529,817 $ 352,999
============ ===========
The accompanying notes are an integral part of these financial statements.
30
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
LKCM SMALL CAP EQUITY FUND
Institutional Institutional Institutional Institutional
Class Class Class Class*
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD.................. $ 21.12 $ 21.46 $ 19.54 $ 15.24 $ 17.29
-------- -------- -------- -------- --------
Net investment loss..................................... (0.04)(1) (0.05)(1) (0.08)(1) (0.08)(1) (0.03)(2)
Net realized and unrealized gain (loss) on investments.. 3.22 3.17 4.40 5.38 (2.01)
-------- -------- -------- -------- --------
Total from investment operations.................... 3.18 3.12 4.32 5.30 (2.04)
-------- -------- -------- -------- --------
Dividends from net investment income.................... -- -- -- -- (0.00)(3)
Distributions from net realized gains................... (2.32) (3.46) (2.40) (1.00) (0.01)
-------- -------- -------- -------- --------
Total dividends and distributions................... (2.32) (3.46) (2.40) (1.00) (0.01)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD........................ $ 21.98 $ 21.12 $ 21.46 $ 19.54 $ 15.24
======== ======== ======== ======== ========
TOTAL RETURN............................................ 14.98% 14.42% 22.09% 34.71% (11.79)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................... $608,417 $370,988 $344,990 $266,842 $206,886
Ratio of expenses to average net assets................. 0.96% 0.99% 0.96% 0.97% 0.94%
Ratio of net investment loss
to average net assets................................. (0.16)% (0.23)% (0.38)% (0.45)% (0.19)%
Portfolio turnover rate(4).............................. 56% 56% 53% 43% 52%
* 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 Year June 5, 2003
Ended Ended Ended through
December 31, December 31, December 31, December 31,
2006 2005 2004 2003*
------- ------- ------- -------
NET ASSET VALUE -- BEGINNING OF PERIOD............................. $ 20.95 $ 21.36 $ 19.51 $ 16.85
------- ------- ------- -------
Net investment loss(1)............................................. (0.09) (0.11) (0.13) (0.08)
Net realized and unrealized gain on investments.................... 3.19 3.16 4.38 3.74
------- ------- ------- -------
Total from investment operations............................... 3.10 3.05 4.25 3.66
------- ------- ------- -------
Distributions from net realized gains.............................. (2.32) (3.46) (2.40) (1.00)
------- ------- ------- -------
NET ASSET VALUE -- END OF PERIOD................................... $ 21.73 $ 20.95 $ 21.36 $ 19.51
======= ======= ======= =======
TOTAL RETURN ...................................................... 14.72% 14.16% 21.76% 21.66%(2)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).............................. $20,923 $ 8,589 $ 7,329 $ 3,636
Ratio of expenses to average net assets ........................... 1.21% 1.24% 1.21% 1.21%(3)
Ratio of net investment loss to average net assets ................ (0.41)% (0.48)% (0.63)% (0.69)%(3)
Portfolio turnover rate(4)......................................... 56% 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.
The accompanying notes are an integral part of these financial statements.
31
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,
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD................... $ 13.30 $ 13.09 $ 12.24 $ 9.98 $ 11.76
-------- -------- -------- -------- --------
Net investment income.................................... 0.14 0.11 0.11 0.07 0.06
Net realized and unrealized gain (loss)
on investments......................................... 1.55 0.52 0.85 2.26 (1.78)
-------- -------- -------- -------- --------
Total from investment operations...................... 1.69 0.63 0.96 2.33 (1.72)
-------- -------- -------- -------- --------
Dividends from net investment income..................... (0.14) (0.12) (0.11) (0.07) (0.06)
Distributions from net realized gains.................... (0.42) (0.30) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions..................... (0.56) (0.42) (0.11) (0.07) (0.06)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD......................... $ 14.43 $ 13.30 $ 13.09 $ 12.24 $ 9.98
======== ======== ======== ======== ========
TOTAL RETURN............................................. 12.65% 4.80% 7.88% 23.38% (14.64)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).................... $ 50,385 $ 46,510 $ 37,240 $ 33,729 $ 24,672
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement............. 1.06% 1.10% 1.18% 1.18% 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............. 0.71% 0.60% 0.54% 0.33% 0.29%
After expense waiver and/or reimbursement.............. 0.97% 0.90% 0.92% 0.71% 0.54%
Portfolio turnover rate.................................. 24% 21% 28% 14% 44%
LKCM BALANCED FUND
Year Year Year Year Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD................... $ 12.42 $ 11.85 $ 11.29 $ 9.86 $ 11.44
-------- -------- -------- -------- --------
Net investment income.................................... 0.25 0.21 0.22 0.19 0.23
Net realized and unrealized gain (loss)
on investments........................................ 1.13 0.48 0.57 1.42 (1.59)
-------- -------- -------- -------- --------
Total from investment operations...................... 1.38 0.69 0.79 1.61 (1.36)
-------- -------- -------- -------- --------
Dividends from net investment income..................... (0.26) (0.12) (0.23) (0.18) (0.21)
Distributions from net realized gains.................... (0.18) -- -- -- (0.01)
-------- -------- -------- -------- --------
Total dividends and distributions..................... (0.44) (0.12) (0.23) (0.18) (0.22)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD......................... $ 13.36 $ 12.42 $ 11.85 $ 11.29 $ 9.86
======== ======== ======== ======== ========
TOTAL RETURN............................................. 11.22% 5.87% 7.10% 16.59% (11.97)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).................... $ 9,922 $ 9,232 $ 8,408 $ 8,753 $ 7,298
Ratio of expenses to average net assets:
Before expense reimbursement........................... 1.45% 1.47% 1.49% 1.52% 1.66%
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............. 1.30% 1.03% 1.20% 1.09% 1.31%
After expense waiver and/or reimbursement.............. 1.95% 1.70% 1.89% 1.81% 2.17%
Portfolio turnover rate.................................. 12% 24% 19% 24% 17%
The accompanying notes are an integral part of these financial statements.
32
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,
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD................... $ 10.24 $ 10.42 $ 10.52 $ 10.61 $ 10.48
-------- -------- -------- -------- --------
Net investment income.................................... 0.44 0.36 0.39 0.42 0.51
Net realized and unrealized gain (loss)
on investments........................................ (0.05) (0.18) (0.10) (0.08) 0.13
-------- -------- -------- -------- --------
Total from investment operations...................... 0.39 0.18 0.29 0.34 0.64
-------- -------- -------- -------- --------
Dividends from net investment income..................... (0.44) (0.36) (0.39) (0.43) (0.51)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD......................... $ 10.19 $ 10.24 $ 10.42 $ 10.52 $ 10.61
======== ======== ======== ======== ========
TOTAL RETURN............................................. 3.96% 1.79% 2.77% 3.25% 6.32%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).................... $106,082 $115,599 $ 93,283 $ 68,354 $ 56,565
Ratio of expenses to average net assets:
Before expense reimbursement........................... 0.74% 0.76% 0.75% 0.77% 0.75%
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............. 4.14% 3.56% 3.78% 3.98% 4.96%
After expense waiver and/or reimbursement.............. 4.23% 3.67% 3.88% 4.10% 5.06%
Portfolio turnover rate.................................. 30% 40% 27% 58% 40%
The accompanying notes are an integral part of these financial statements.
33
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,
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE -- BEGINNING OF PERIOD................... $ 11.10 $ 9.40 $ 8.52 $ 6.41 $ 8.07
-------- -------- -------- -------- --------
Net investment income.................................... 0.10(1) 0.02(1) 0.04(1) 0.07(2) 0.08(1)
Net realized and unrealized gain (loss)
on investments......................................... 2.95 1.91 0.95 2.13 (1.60)
-------- -------- -------- -------- --------
Total from investment operations...................... 3.05 1.93 0.99 2.20 (1.52)
-------- -------- -------- -------- --------
Redemption fees.......................................... -- -- -- 0.02 --
-------- -------- -------- -------- --------
Dividends from net investment income..................... (0.16) (0.23) (0.11) (0.11) (0.14)
Distributions from net realized gains.................... (0.50) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions..................... (0.66) (0.23) (0.11) (0.11) (0.14)
-------- -------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD......................... $ 13.49 $ 11.10 $ 9.40 $ 8.52 $ 6.41
======== ======== ======== ======== ========
TOTAL RETURN............................................. 27.51% 20.49% 11.59% 34.68% (18.86)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).................... $136,295 $ 81,900 $ 42,104 $ 41,189 $ 31,542
Ratio of expenses to average net assets:
Before expense reimbursement........................... 1.34% 1.99% 1.67% 1.99% 1.55%
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............. 0.62% (0.57)% 0.01% 0.25% 0.68%
After expense waiver and/ or reimbursement............. 0.76% 0.22% 0.48% 1.04% 1.03%
Portfolio turnover rate.................................. 141% 56%(3) 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.
The accompanying notes are an integral part of these financial statements.
34
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 long-term capital appreciation
by investing primarily in equity securities of small companies (those with
market values less than $2.0 billion) which Luther King Capital Management
Corporation (the "Adviserbelieves 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,
above-average returns on 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 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 LKCM International Fund seeks to provide investors
with a total return in excess of the Morgan Stanley Capital International EAFE
Index.
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 mean of the bid and ask 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 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. Substantially all of the
securities owned by the LKCM International Fund were adjusted to reflect
fair value at December 31, 2006.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements". SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands disclosure about
fair value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. Management is
currently evaluating the impact of adoption of SFAS No. 157 on its
financial statements.
2. FEDERAL INCOME TAXES: The Funds have elected to be treated as "regulated
investment companies" under Subchapter M of the Internal Revenue Code 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.
35
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 are
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, 2006, 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, 2006, 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, 2006,
reclassifications were recorded as follows.
LKCM LKCM LKCM LKCM LKCM
SMALL CAP EQUITY BALANCED FIXED INTERNATIONAL
EQUITY FUND FUND FUND INCOME FUND FUND
Undistributed net investment income $1,034,107 $ 164 $ 1,204 $ 20,330 $ 529,817
Accumulated gains (121,823) (164) 723 (109) (428,815)
Capital Stock (912,284) -- (1,927) (20,221) (101,002)
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.
36
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 entered into a
Subadvisory Agreement with TT International (the "Sub-Adviser") for the LKCM
International Fund. Pursuant to its Subadvisory Agreement with the Adviser, the
Sub-Adviser is entitled to receive a fee from the Adviser, calculated daily and
payable quarterly, at the annual rate below as applied to the LKCM International
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, 2006,
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% (Inst.) 0.80% 0.80% 0.65% 1.20%
1.25% (Adviser)
Expenses Waived and/or
Reimbursed -- $124,256 $61,051 $102,266 $140,548
(1) The Adviser is entitled to receive a fee, calculated daily and payable
quarterly, at the annual rate of 1.00% of the Fund's average daily net
assets.
(2) Pursuant to its Subadvisory Agreement with the Adviser, the Sub-Adviser is
entitled to receive a fee from the Adviser, calculated daily and payable
quarterly, at an annual rate of 0.50%, net of fee waivers.
U.S. Bancorp Fund Services, LLC serves as transfer agent and administrator for
the Trust and serves as accounting services agent for the Trust.
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, 2006, fees accrued by the
Small Cap Equity Fund pursuant to the 12b-1 Plan were $38,337.
C. FUND SHARES: At December 31, 2006, 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, 2006 DECEMBER 31, 2005
----------------------- -----------------------
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 11,064,923 $255,892,577 4,256,949 $ 94,597,895
Shares issued to shareholders in
reinvestment of distributions 2,354,952 52,209,347 2,334,508 49,701,687
Shares redeemed (3,305,745) (76,618,156) (5,104,490) (109,225,518)
Redemption fee 9,628 2,051
---------- ------------ ---------- ------------
Net increase 10,114,130 $231,493,396 1,486,967 $ 35,076,115
============ ============
SHARES OUTSTANDING:
Beginning of period 17,564,901 16,077,934
---------- ----------
End of period 27,679,031 17,564,901
========== ==========
37
SMALL CAP EQUITY FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
ADVISER CLASS ADVISER CLASS
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 629,302 $ 14,187,670 11,279 $ 253,781
Shares issued to shareholders in
reinvestment of distributions 91,875 2,012,985 57,729 1,219,242
Shares redeemed (168,008) (3,966,306) (2,191) (50,216)
Redemption fee 5 --
---------- ------------ ---------- ------------
Net increase 553,169 $ 12,234,354 66,817 $ 1,422,807
============ ============
SHARES OUTSTANDING:
Beginning of period 409,921 343,104
---------- ----------
End of period 963,090 409,921
========== ==========
Total Net Increase $243,727,750 $36,498,922
============ ============
EQUITY FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 647,235 $ 8,805,006 859,700 $ 11,415,671
Shares issued to shareholders in
reinvestment of distributions 115,441 1,676,196 102,086 1,362,839
Shares redeemed (769,114) (10,531,915) (308,640) (4,126,877)
Redemption fee 1,710 235
---------- ------------ ---------- ------------
Net increase (decrease) (6,438) $ (49,003) 653,146 $ 8,651,868
============ ============
SHARES OUTSTANDING:
Beginning of period 3,497,752 2,844,606
---------- ----------
End of period 3,491,314 3,497,752
========== ==========
BALANCED FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 82,100 $ 1,070,196 140,838 $ 1,676,752
Shares issued to shareholders in
reinvestment of distributions 24,220 317,817 7,631 91,684
Shares redeemed (106,900) (1,383,450) (114,606) (1,381,409)
Redemption fee -- 315
---------- ------------ ---------- ------------
Net increase (decrease) (580) $ 4,563 33,863 $ 387,342
============ ============
SHARES OUTSTANDING:
Beginning of period 743,334 709,471
---------- ----------
End of period 742,754 743,334
========== ==========
38
FIXED INCOME FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 1,325,366 $ 13,518,101 2,786,378 $ 28,740,295
Shares issued to shareholders in
reinvestment of distributions 404,444 4,099,350 293,974 3,019,906
Shares redeemed (2,618,337) (26,742,207) (735,297) (7,622,076)
---------- ------------ ---------- ------------
Net increase (decrease) (888,527) $ (9,124,756) 2,345,055 $ 24,138,125
============ ============
SHARES OUTSTANDING:
Beginning of period 11,293,837 8,948,782
---------- ----------
End of period 10,405,310 11,293,837
========== ==========
INTERNATIONAL FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 2,684,049 $ 34,856,332 4,906,583 $ 52,659,266
Shares issued to shareholders in
reinvestment of distributions 418,999 5,652,304 139,773 1,564,054
Shares redeemed (379,205) (4,703,089) (2,148,904) (20,417,793)
Redemption fee 1,601 --
---------- ------------ ---------- ------------
Net increase 2,723,843 $ 35,807,148 2,897,452 $ 33,805,527
============ ============
SHARES OUTSTANDING:
Beginning of period 7,376,580 4,479,128
---------- ----------
End of period 10,100,423 7,376,580
========== ==========
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,
2006, 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, 2006 were as
follows:
PURCHASES SALES
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
----------- -------- ---------- -----------
LKCM Small Cap Equity Fund $ -- $455,330,840 $ -- $279,073,258
LKCM Equity Fund -- 12,035,160 -- 10,978,637
LKCM Balanced Fund 73,879 997,314 198,947 932,646
LKCM Fixed Income Fund 6,652,382 29,467,830 10,698,636 19,434,008
LKCM International Fund -- 156,161,833 -- 137,486,885
39
E. TAX INFORMATION: At December 31, 2006, 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 $525,776,999 $38,066,393 $8,078,667 $104,736,232 $105,135,931
============ =========== ========== ============ ============
Gross Unrealized
Appreciation $116,878,594 $12,705,112 $2,022,996 $ 674,981 $ 16,872,885
Gross Unrealized
Depreciation (14,703,062) (551,961) (223,031) (1,351,774) (1,654,721)
------------ ----------- ---------- ------------ ------------
Net Unrealized
Appreciation
(Depreciation) $102,175,532 $12,153,151 $1,799,965 $ (676,793) $ 15,218,164
============ =========== ========== ============ ============
Undistributed Ordinary
Income $ -- $ 176 $ -- $ -- $ 783,952
Undistributed Long-Term
Capital Gain 22,334,922 -- 450 -- 3,878,798
------------ ----------- ---------- ------------ ------------
Total Distributable Earnings $ 22,334,922 $ 176 $ 450 $ -- $ 4,662,750
------------ ----------- ---------- ------------ ------------
Other accumulated
Losses $ -- $ (91,729) $ (21,113) $ (677,380) $ (6,624)
------------ ----------- ---------- ------------ ------------
Total Accumulated
Earnings (Losses) $124,510,454 $12,061,598 $1,779,302 $ (1,354,173) $ 19,874,290
============ =========== ========== ============ ============
At December 31, 2006 the accumulated capital loss carryforwards were as follows:
LKCM
FIXED
INCOME FUND
-----------
Expiring in 2010 $ 191,023
Expiring in 2013 38,877
Expiring in 2014 338,541
---------
$ 568,441
=========
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, 2006, capital loss
carryforwards of $4,803 and $17,059,390 were utilized by the LKCM Balanced Fund
and the LKCM International Fund, respectively. At December 31, 2006, the LKCM
Equity Fund, LKCM Balanced Fund and LKCM Fixed Income Fund had net realized
losses from transactions between November 1, 2006 and December 31, 2006 of
$91,729, $21,113 and $108,939, respectively, which are deferred for tax purposes
and will be recognized in 2007.
The tax components of dividends paid during the year ended December 31, 2006
were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
----------- -------------
LKCM Small Cap Equity Fund $ -- $60,734,943
LKCM Equity Fund 473,247 1,395,027
LKCM Balanced Fund 209,384 112,034
LKCM Fixed Income Fund 4,681,335 --
LKCM International Fund 1,404,574 4,379,796
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 --
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the LKCM Funds' tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required as of the date of the last NAV calculation in the first
required financial statement reporting period for fiscal years beginning after
December 15, 2006 and is to be applied to all open tax years as of the effective
date. Recent SEC guidance allows funds to delay implementing FIN 48 into NAV
calculations until the fund's last NAV calculations in the first required
financial statement reporting period. As a result, the Funds must begin to
incorporate FIN 48 into their NAV calculations on June 29, 2007. At this time,
management is evaluating the implications of FIN 48 and whether it has any
impact on the Funds' financial statements.
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors 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, 2006, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period 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 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, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 20, 2007
41
LKCM FUNDS
ADDITIONAL INFORMATION
DECEMBER 31, 2006
TAX INFORMATION: The Funds designated the following percentages of dividends
declared from net investment income for the fiscal year ended December 31, 2006
as qualified dividend income under the Jobs & Growth Tax Relief Reconciliation
Act of 2003.
Equity 100.00%
Balanced 61.88%
Fixed Income 3.00%
International 52.75%
The Funds designated the following percentages of dividends declared during the
fiscal year ended December 31, 2006 as dividends qualifying for the dividends
received deduction available to corporate shareholders.
Equity 100.00%
Balanced 59.30%
Fixed Income 3.00%
International 0.00%
ADDITIONAL INFORMATION APPLICABLE TO FOREIGN SHAREHOLDERS ONLY: The Funds hereby
designate the following percentages of their ordinary income distributions for
the fiscal year as interest-related dividends under Internal Revenue Code
Section 871(k)(1)( C ).
Equity 10.16%
Balanced 56.79%
Fixed Income 100.00%
International 1.49%
The Funds hereby designate the following percentages of their ordinary income
distributions as short-term capital gain distributions under Internal Revenue
Code Section 871(k)(2)( C ).
Equity 0.00%
Balanced 10.31%
Fixed Income 0.00%
International 0.00%
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 (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.
42
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 TRUST SERVED1 FIVE YEARS BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
H. Kirk Downey Chairman Since 2005 CEO, Texas Systems, LLC 9 Non-Executive Chairman of
301 Commerce Street of the and CEO, the Board of AZZ
Suite 1600 Board of Trustees Texaslearningsystems LLC Incorporated, a
Fort Worth, TX 76102 since 1999; Dean, M.J. manufacturing company.
Age: 64 Trustee Since 1994 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 NASDAQ of the Catholic Diocese
Suite 1600 Corp. and Vice President, of Fort Worth, Lay
Fort Worth, TX 76102 Merrill Lynch & Co., Inc. Workers Pension
Age: 86 Fund of the Catholic
Diocese of Fort Worth,
St. Joseph Health
Care Trust, Catholic
Schools Trust and
Catholic Foundation
of North Texas.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Howell Trustee Since 2005 CPA, Consulting Services, 9 Red Robin Gourmet
301 Commerce Street since 2002; Audit Partner, Burgers, Inc.
Suite 1600 Arthur Anderson LLC from
Fort Worth, TX 76102 1974-2002.
Age: 64
INTERESTED TRUSTEE:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Luther King, Jr.2 Trustee, President Since 1994 Chairman, President and 9 Employee Retirement Systems
301 Commerce Street and Chief Executive Director, of Texas, 4K Land & Cattle
Suite 1600 Officer Luther King Capital Company, Hunt Forest
Fort Worth, TX 76102 Management Corporation Products (lumber), Ruston
Age: 66 since 1979. Industrial Corp. (forest
products), 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.
43
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
Suite 1600 Officer Corporation since 1979.
Fort Worth, TX 76102
Age: 66
- --------------------------------------------------------------------------------------------------------------------------------
Paul W. Greenwell Vice President Since Principal, Luther King Capital
301 Commerce Street 1996 Management since 1986, Vice
Suite 1600 President and Portfolio Manager,
Fort Worth, TX 76102 Luther King Capital Management
Age: 56 since 1983.
- --------------------------------------------------------------------------------------------------------------------------------
Richard Lenart Secretary and Treasurer Since Luther King Capital
301 Commerce Street 2006 Management since 2005, Vice
Suite 1600 President, Aquinas Funds
Fort Worth, TX 76102 (2001-2005).
Age: 40
- --------------------------------------------------------------------------------------------------------------------------------
Steven R. Purvis Vice President Since Principal, Luther King Capital
301 Commerce Street 2000 Management since 2003, Vice
Suite 1600 President and Portfolio
Manager,
Fort Worth, TX 76102 Luther King Capital Management
Age: 41 since 1996.
- --------------------------------------------------------------------------------------------------------------------------------
Jacob D. Smith Chief Compliance Since General Counsel and Chief
301 Commerce Street Officer 2006 Compliance Officer, Luther King
Suite 1600 Capital Management since 2006,
Fort Worth, TX 76102 Enforcement Attorney, U.S.
Age: 32 Securities and Exchange
Commission (2005-2006), Associate,
Haynes and Boone, LLP
(2001-2005).
- --------------------------------------------------------------------------------------------------------------------------------
44
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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 Richard Lenart
Trustee, Secretary & Treasurer
President
Paul W. Greenwell Jacob D. Smith
Vice President Chief Compliance Officer
Steven R. Purvis, CFA
Vice President
H. Kirk Downey
Chairman of the Board
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.
1555 N. River Center Drive, Suite 302
Milwaukee, WI 53212
- --------------------------------------------------------------------------------
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
US POSTAGE PAID
PERMIT #3602
BERWYN, IL 60402
-----------------
- --------------------------------------------------------------------------------
LKCM
FUNDS
- --------------------------------------------------------------------------------
LKCM AQUINAS VALUE FUND
LKCM AQUINAS GROWTH FUND
LKCM AQUINAS SMALL CAP FUND
LKCM AQUINAS FIXED INCOME FUND
Annual Report
December 31, 2006
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2
DEAR FELLOW SHAREHOLDERS:
We are pleased to report the following performance information for the LKCM
Aquinas Funds:
AVG.
ANNUAL
TOTAL
ONE YEAR RETURN
INCEPTION NAV @ TOTAL RETURN SINCE
FUNDS DATES 12/31/06 ENDED 12/31/06 INCEPT.*
LKCM Aquinas Value Fund 7/11/05 $13.71 16.51% 12.79%
Russell 1000 Value Index1 22.25% 17.19%
LKCM Aquinas Growth Fund 7/11/05 $15.45 (0.22)% 1.61%
Russell 1000 Growth Index2 9.07% 9.52%
LKCM Aquinas Small Cap Fund 7/11/05 $6.58 13.06% 11.36%
Russell 2000 Index3 18.37% 13.75%
LKCM Aquinas Fixed Income Fund 7/11/05 $9.81 3.82% 2.54%
Lehman Government/Credit Bond Index4 4.08% 3.07%
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. The Funds impose
a 1.00% redemption fee on shares held less than 30 days. If reflected, the
fee would reduce performance shown. 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 $763 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.
Note: These indices defined above are not available for direct investment.
From almost all standpoints, 2006 was a good year for the financial markets.
Growth in corporate profits remained strong. Short-term interest rates peaked,
and there is some anticipation they will begin to decline during the first half
of 2007. Bond yields rose during the first half of 2006 and declined in the
second half as the Federal Reserve completed its tightening. Oil prices ended
2006 at levels similar to where they began the year, and natural gas prices
declined. The rate of inflation was contained although higher on an absolute
level than the Federal Reserve Bank would like. Job growth was good with the
unemployment rate falling to 4.5%.
The housing sector of the economy continued to weaken, although the fears of a
broad-based collapse did not materialize. Strong employment growth offset weaker
housing prices and supported continued consumer strength. The overhang of the
Iraq War was a negative psychologically but had little impact on consumption.
Global liquidity remained very robust and clearly had a positive impact not only
on our economy, but on stock and bond prices as well during 2006. We expect the
positive impact to continue during 2007. While short-term interest rates have
risen in the U.S. and Europe, the money supply continues to grow. Globally,
China and Japan maintained non-restrictive monetary policies conducive to
continued growth.
The dollar value of mergers and acquisitions reached all-time highs during 2006.
This activity was the result of large pools of capital in private equity funds,
very liquid corporate balance sheets, aggressive lending by banks, narrow
spreads in the bond market between high and low quality bonds, and reasonable
valuations. We believe these conditions will persist during 2007.
In summary, our outlook is for continued economic growth, and for a positive
stock market environment in 2007.
The LKCM Aquinas Small Cap Fund is managed to maximize long-term capital
appreciation through investment primarily in the equity securities of smaller
companies. The performance of the Fund for the year was 13.06% vs. the Russell
2000 Index's 18.37% 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 performance. As of December 31, 2006, the total net assets of
the Fund were $11.0 million with 95.7% of the net assets invested in common
stocks and 4.3% in cash reserves, net of liabilities. Investments in the
Financial and Industrial sectors were additive to our results while our Consumer
Discretionary and Energy holdings subtracted from our overall 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 based on
various financial and fundamental criteria, which are constantly updated. As of
December 31, 2006, the total net assets in the Fund were $59.0 million with
100.0% of the net assets invested in common stocks. For 2006, the Fund's
performance was (0.22)% versus 9.07% for the Russell 1000 Growth Index. The
Fund's performance was hindered by the Fund's overweight positions in the Energy
and Utilities sectors, which have now been worked down to a more equal weight
condition, and by a number of ill-timed stock selections as a result of the
subsequent reinvestment in other sectors of the market. The Fund
3
benefited from good stock selection in the Financial, Industrial and Technology
sectors. We believe the Fund maintains a broadly diversified portfolio and is
well positioned for the market conditions we anticipate in 2007.
The LKCM Aquinas Value Fund is managed to provide long-term capital appreciation
through investments that we believe are undervalued relative to earnings growth
rates. The Fund generally seeks equity holdings that sell at a discount to their
growth rate versus other publicly traded equities, have low price to cash flow
characteristics, attractive dividend yields, or lower price to book values than
the overall market. As of December 31 2006, the total net assets in the Fund
were $39.8 million, with 98.5% invested in common stocks and 1.5% invested in
cash reserves, net of liabilities. For the calendar year 2006, the Fund advanced
16.51% versus 22.25% for the Russell 1000 Value Index. The Fund's performance
benefited from overweight positions in the Industrials, Materials, and Telecom
Services sectors. The Fund's performance was hindered by poor stock selection in
the Energy Sector as well as being relatively underweighted in that sector. We
believe the Fund is well positioned with a broadly diversified portfolio of
quality companies.
The LKCM Aquinas Fixed Income Fund is managed to provide 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 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. During 2006, the total return for the Fund was 3.82% versus
4.08% for the Lehman Brothers Intermediate Government Credit Index. At year end,
the Fund had an effective duration of 3.3 years versus the Index at 3.6 years
and had a weighted average Standard & Poor's quality rating of single A*. The
Fund benefited from its overweight in credit relative to the Index while its
shorter effective duration relative to the Index detracted from performance
during the second half of the year as all but short rates declined. As of
December 31, 2006, the total net assets in the Fund were $39.6 million, with
75.6% invested in corporate bonds, 18.6% invested in U. S. Treasury and agency
debt, 1.9% in preferred stock, 1.5% in municipal bonds, 0.1% in asset backed
securities and 2.3% in cash reserves, net of liabilities.
At LKCM, our goal 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 goal 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
through your investment in these Funds.
/s/ J. Luther King
J. Luther King, Jr., CFA
January 29, 2007
*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.
The information provided herein represents the opinion of J. Luther King, Jr.
and is not intended to be a forecast of future events, a guarantee of future
results, nor investment advice.
Please refer to the Schedule of Investments found on pages 11-19 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.
Return on equity (ROE) is net income divided by average common equity.
Cash flow measures the cash generating capability of a company by adding
non-cash charges (e.g. depreciation) and interest expense to pretax income.
The Funds' investment objectives, risks, charges and expenses must be considered
carefully before investing. The prospectus for the Funds contains this and other
important information and may be obtained by calling 1-800-423-6369. Please read
the prospectus carefully before investing in the Funds.
The first use date of this report is 2/07.
4
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Value Fund as of December 31, 2006 compared to the Fund's representative market
indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS VALUE FUND 16.51% 12.79%
- --------------------------------------------------------------------------------
Russell 1000 Value Index 22.25% 17.19%
- --------------------------------------------------------------------------------
Lipper Large-Cap Value Funds Index 18.28% 16.29%
- --------------------------------------------------------------------------------
(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 Fund $11,953
Russell 1000 Value Index $12,651
Lipper Large Cap Value Funds Index $12,507
LKCM Aquinas Russell 1000 Lipper Large Cap Value
Value Fund Value Index Funds Index
7/05 10000 10000 10000
12/05 10260 10349 10574
12/06 11953 12651 12507
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 Funds 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.
5
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Growth Fund as of December 31, 2006 compared to the Fund's representative market
indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS GROWTH FUND (0.22)% 1.61%
- --------------------------------------------------------------------------------
Russell 1000 Growth Index 9.07% 9.52%
- --------------------------------------------------------------------------------
Lipper Large-Cap Growth Funds Index 4.72% 9.31%
- --------------------------------------------------------------------------------
(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 Growth Fund $10,239
Russell 1000 Growth Index $11,443
Lipper Large-Cap Growth Funds Index $11,411
LKCM Aquinas Russell 1000 Lipper Large-Cap Growth
Growth Fund Growth Index Funds Index
7/05 10000 10000 10000
12/05 10261 10491 10897
12/06 10239 11443 11411
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 Funds 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.
6
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Small Cap Fund as of December 31, 2006 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 GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS SMALL CAP FUND 13.06% 11.36%
- --------------------------------------------------------------------------------
Russell 2000 Index 18.37% 13.75%
- --------------------------------------------------------------------------------
Lipper Small-Cap Core Funds Index 13.70% 14.67%
- --------------------------------------------------------------------------------
(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 Small Cap Fund $11,729
Russell 2000 Index $12,104
Lipper Small-Cap Core Funds Index $12,249
LKCM Aquinas Russell 2000 Lipper Small-Cap
Small Cap Fund Index Core Funds Index
7/05 10000 10000 10000
12/05 10374 10226 10773
12/06 11729 12104 12249
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 $763 million.
The Lipper Small-Cap Core Funds 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) 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.
7
PERFORMANCE:
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of LKCM Aquinas
Fixed Income Fund as of December 31, 2006 compared to the Fund's representative
market indices.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. 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.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
PAST SINCE
1 YEAR INCEPTION(1)
- --------------------------------------------------------------------------------
LKCM AQUINAS FIXED INCOME FUND 3.82% 2.54%
- --------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Credit Bond Index 4.08% 3.07%
- --------------------------------------------------------------------------------
Lipper Short Intermediate
Investment-Grade
Debt Funds Index 4.08% 2.75%
- --------------------------------------------------------------------------------
(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.
A Hypothetical $10,000 Investment in LKCM Aquinas Fixed Income Fund
Line Chart:
LKCM Aquinas Fixed Income Fund $10,379
Lehman Brothers Intermediate Government/Credit Bond Index $10,458
Lipper Short Intermediate Investment-Grade Debt Funds Index $10,411
LKCM Aquinas Lehman Brothers Intermediate Lipper Short Intermediate
Fixed Income Government/Credit Investment-Grade
Fund Bond Index Debt Funds Index
7/05 10000 10000 10000
12/05 9997 10048 10003
12/06 10379 10458 10411
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 Funds 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.
8
LKCM AQUINAS FUNDS EXPENSE EXAMPLE -- DECEMBER 31, 2006
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, distribution and/or service (12b-1) 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
(7/1/06-12/31/06).
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 expenses
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 7/1/06-
7/1/06 12/31/06 12/31/06
- ------------------------------------------------------------------------------------------
Actual $1,000.00 $1,118.50 $8.01
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 7/1/06-
7/1/06 12/31/06 12/31/06
- ------------------------------------------------------------------------------------------
Actual $1,000.00 $1,061.10 $7.53
Hypothetical (5% return before expenses) $1,000.00 $1,017.90 $7.37
* Expenses are equal to the Fund's annualized expense ratio of 1.45%,
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
9
LKCM AQUINAS SMALL CAP FUND
----------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
- ------------------------------------------------------------------------------------------
Actual $1,000.00 $1,052.80 $7.76
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 FIXED INCOME FUND
----------------------------------------------
EXPENSES
PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
- ------------------------------------------------------------------------------------------
Actual $1,000.00 $1,037.60 $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.
ALLOCATION OF PORTFOLIO HOLDINGS -- LKCM AQUINAS FUNDS -- DECEMBER 31, 2006
Percentages represent market value as a percentage of total investments.
Pie Chart:
LKCM AQUINAS VALUE FUND
Short-Term Investments 1.7%
Common Stocks 98.3%
Pie Chart:
LKCM AQUINAS GROWTH FUND
Short-Term Investments 0.5%
Common Stocks 99.5%
Pie Chart:
LKCM AQUINAS SMALL CAP FUND
Short-Term Investments 4.4%
Common Stocks 95.6%
Pie Chart:
LKCM AQUINAS FIXED INCOME FUND
Municipal Bonds 1.5%
U.S. Government & Agency Issues 17.1%
Preferred Stocks 1.9%
Short-Term Investments 5.8%
Mortgage & Asset-Backed Securities 0.1%
Corporate Bonds 73.6%
10
LKCM AQUINAS VALUE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- ------------------------------------------------------------------
COMMON STOCKS - 98.5% SHARES VALUE
- ------------------------------------------------------------------
AEROSPACE & DEFENSE - 4.0%
General Dynamics Corporation 9,400 $ 698,890
Rockwell Collins, Inc. 10,000 632,900
United Technologies Corporation 4,000 250,080
-----------
1,581,870
-----------
ASSET MANAGEMENT - 1.3%
Mellon Financial Corporation 12,500 526,875
-----------
BEVERAGES - 2.6%
The Coca-Cola Company 15,000 723,750
PepsiCo, Inc. 5,000 312,750
-----------
1,036,500
-----------
BUILDING PRODUCTS - 1.6%
American Standard Companies Inc. 14,200 651,070
-----------
CHEMICALS - 5.8%
E.I. du Pont de Nemours and Company 15,000 730,650
Praxair, Inc. 15,000 889,950
The Valspar Corporation 25,000 691,000
-----------
2,311,600
-----------
COMMERCIAL BANKS - 6.0%
Bank of America Corporation 21,244 1,134,217
BOK Financial Corporation 10,000 549,800
Capitol Bancorp Ltd. 12,500 577,500
The South Financial Group, Inc. 5,000 132,950
-----------
2,394,467
-----------
COMPUTERS & PERIPHERALS - 2.0%
International Business Machines
Corporation 8,320 808,288
-----------
CONSTRUCTION & ENGINEERING - 1.2%
Chicago Bridge & Iron Company N.V. -
NY Shares - ADR (b) 17,500 478,450
-----------
DIVERSIFIED FINANCIAL SERVICES - 5.0%
Citigroup Inc. 14,000 779,800
JPMorgan Chase & Co. 25,000 1,207,500
-----------
1,987,300
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.0%
AT&T Inc. 30,000 1,072,500
Verizon Communications Inc. 25,000 931,000
-----------
2,003,500
-----------
ELECTRIC UTILITIES - 1.7%
Allegheny Energy, Inc. (a) 15,000 688,650
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.1%
Agilent Technologies, Inc. (a) 12,500 435,625
-----------
ENERGY EQUIPMENT & SERVICES - 1.4%
Hanover Compressor Company (a) 10,000 188,900
Noble Corporation (b) 5,000 380,750
-----------
569,650
-----------
FOOD & STAPLES RETAILING - 2.3%
CVS Corporation 30,000 927,300
-----------
FOOD PRODUCTS - 1.5%
General Mills, Inc. 10,000 576,000
-----------
- ------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 8.3%
Baxter International Inc. 25,140 $ 1,166,245
DENTSPLY International Inc. 30,000 895,500
Respironics, Inc. (a) 15,000 566,250
Thermo Fisher Scientific, Inc. (a) 15,000 679,350
-----------
3,307,345
-----------
HOTELS, RESTAURANTS & LEISURE - 0.4%
McDonald's Corporation 3,500 155,155
-----------
HOUSEHOLD PRODUCTS - 2.3%
Colgate-Palmolive Company 9,000 587,160
Kimberly-Clark Corporation 4,990 339,071
-----------
926,231
-----------
INDUSTRIAL CONGLOMERATES - 4.6%
General Electric Company 25,000 930,250
Tyco International Ltd. (b) 30,000 912,000
-----------
1,842,250
-----------
INSURANCE - 5.4%
The Allstate Corporation 8,200 533,902
Genworth Financial Inc. - Class A 27,500 940,775
Lincoln National Corporation 10,000 664,000
-----------
2,138,677
-----------
INTERNET SOFTWARE & SERVICES - 1.4%
Yahoo! Inc. (a) 22,500 574,650
-----------
INVESTMENT BANK & BROKERAGE - 6.1%
The Goldman Sachs Group, Inc. 4,000 797,400
Morgan Stanley 20,000 1,628,600
-----------
2,426,000
-----------
IT SERVICES - 2.8%
Accenture Ltd. - Class A (b) 30,000 1,107,900
-----------
MEDIA - 1.8%
CBS Corporation - Class B 22,500 701,550
-----------
METALS & MINING - 2.2%
Peabody Energy Corporation 21,600 872,856
-----------
MULTILINE RETAIL - 1.8%
Kohl's Corporation (a) 10,600 725,358
-----------
MULTI-UTILITIES & UNREGULATED POWER - 1.7%
Duke Energy Corporation 20,000 664,200
-----------
OFFICE ELECTRONICS - 1.3%
Xerox Corporation (a) 30,000 508,500
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 8.2%
Chevron Corporation 7,500 551,475
ConocoPhillips 10,000 719,500
Devon Energy Corporation 8,000 536,640
Exxon Mobil Corporation 10,000 766,300
Range Resources Corporation 24,500 672,770
-----------
3,246,685
-----------
PERSONAL PRODUCTS - 1.0%
Avon Products, Inc. 12,000 396,480
-----------
The accompanying notes are an integral part of these financial statements.
11
LKCM AQUINAS VALUE FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- ------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------
PHARMACEUTICALS - 1.2%
Abbott Laboratories 10,000 $ 487,100
-----------
SOFTWARE - 0.3%
Nuance Communications, Inc. (a) 10,000 114,600
-----------
SPECIALTY RETAIL - 3.2%
The Home Depot, Inc. 17,500 702,800
PETsMART, Inc. 20,000 577,200
-----------
1,280,000
-----------
WIRELESS TELECOMMUNICATION SERVICES - 2.0%
America Movil S.A. de C.V. - ADR (b) 17,500 791,350
-----------
TOTAL COMMON STOCKS
(Cost $30,626,364) 39,244,032
-----------
- ------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.8%
- ------------------------------------------------------------------
MONEY MARKET FUND - 1.8%
Columbia Money Market Reserves Fund -
Capital Shares 695,487 695,487
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $695,487) 695,487
-----------
TOTAL INVESTMENTS - 100.3%
(Cost $31,321,851) 39,939,519
Liabilities in Excess of Other Assets - (0.3)% (113,746)
-----------
TOTAL NET ASSETS - 100.0% $39,825,773
===========
ADR American Depository Receipt.
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
The accompanying notes are an integral part of these financial statements.
12
LKCM AQUINAS GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- ------------------------------------------------------------------
COMMON STOCKS - 100.0% SHARES VALUE
- ------------------------------------------------------------------
AEROSPACE & DEFENSE - 6.5%
The Boeing Company 15,000 $ 1,332,600
Raytheon Company 24,000 1,267,200
Rockwell Collins, Inc. 20,000 1,265,800
-----------
3,865,600
-----------
AIR FREIGHT & LOGISTICS - 1.8%
FedEx Corp. 10,000 1,086,200
-----------
BEVERAGES - 3.0%
Fomento Economico Mexicano,
S.A.B. de C.V. - ADR (b) 7,000 810,320
PepsiCo, Inc. 15,000 938,250
-----------
1,748,570
-----------
BUILDING PRODUCTS - 2.3%
Cemex S.A. de C.V. - ADR (b) 40,000 1,355,200
-----------
COMMERCIAL BANKS - 2.6%
Cullen/Frost Bankers, Inc. 11,000 614,020
Sterling Financial Corporation 28,000 946,680
-----------
1,560,700
-----------
COMMUNICATIONS EQUIPMENT - 7.7%
Corning Incorporated (a) 55,000 1,029,050
Harris Corporation 20,000 917,200
Motorola, Inc. 80,000 1,644,800
QUALCOMM Inc. 25,000 944,750
-----------
4,535,800
-----------
COMPUTERS & PERIPHERALS - 4.9%
Apple Computer, Inc. (a) 12,000 1,018,080
Hewlett-Packard Company 20,000 823,800
SanDisk Corporation (a) 25,000 1,075,750
-----------
2,917,630
-----------
CONSUMER FINANCE - 2.4%
Cash America International, Inc. 29,700 1,392,930
-----------
ELECTRIC UTILITIES - 1.2%
Allegheny Energy, Inc. (a) 15,000 688,650
-----------
ELECTRICAL EQUIPMENT - 2.2%
Emerson Electric Co. 30,000 1,322,700
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.8%
Agilent Technologies, Inc. (a) 30,000 1,045,500
-----------
ENERGY EQUIPMENT & SERVICES - 2.1%
Weatherford International Ltd. (a) (b) 30,000 1,253,700
-----------
FOOD & STAPLES RETAILING - 7.3%
Costco Wholesale Corporation 20,000 1,057,400
United Natural Foods, Inc. (a) 45,000 1,616,400
Walgreen Co. 35,000 1,606,150
-----------
4,279,950
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 10.5%
Alcon, Inc. (b) 13,000 1,453,010
ArthroCare Corporation (a) 30,000 1,197,600
Becton, Dickinson and Company 10,000 701,500
DENTSPLY International Inc. 39,000 1,164,150
Medtronic, Inc. 15,000 802,650
Thermo Fisher Scientific, Inc. (a) 20,000 905,800
-----------
6,224,710
-----------
- ------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 3.6%
Starbucks Corporation (a) 24,000 $ 850,080
Starwood Hotels & Resorts Worldwide, Inc. 20,000 1,250,000
-----------
2,100,080
-----------
HOUSEHOLD PRODUCTS - 3.9%
Colgate-Palmolive Company 16,000 1,043,840
The Procter & Gamble Company 20,000 1,285,400
-----------
2,329,240
-----------
INDUSTRIAL CONGLOMERATES - 1.3%
General Electric Company 20,000 744,200
-----------
INSURANCE - 1.9%
Prudential Financial, Inc. 13,000 1,116,180
-----------
INVESTMENT BANK & BROKERAGE - 1.6%
Lehman Brothers Holdings Inc. 12,000 937,440
-----------
MACHINERY - 2.3%
CLARCOR Inc. 40,000 1,352,400
-----------
MEDIA - 3.4%
Grupo Televisa S.A. - ADR (b) 26,000 702,260
The McGraw-Hill Companies, Inc. 19,000 1,292,380
-----------
1,994,640
-----------
METALS & MINING - 1.9%
Freeport-McMoRan Copper &
Gold, Inc. - Class B 20,000 1,114,600
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 5.9%
Denbury Resources Inc. (a) 25,000 694,750
Devon Energy Corporation 25,000 1,677,000
Range Resources Corporation 40,000 1,098,400
-----------
3,470,150
-----------
PERSONAL PRODUCTS - 2.2%
Avon Products, Inc. 40,000 1,321,600
-----------
ROAD & RAIL - 1.9%
Burlington Northern Santa Fe Corporation 15,000 1,107,150
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.7%
Intel Corporation 50,000 1,012,500
-----------
SOFTWARE - 3.5%
Microsoft Corporation 40,100 1,197,386
Oracle Corporation (a) 50,000 857,000
-----------
2,054,386
-----------
SPECIALTY RETAIL - 1.6%
Office Depot, Inc. (a) 25,000 954,250
-----------
TEXTILES, APPAREL & LUXURY GOODS - 1.7%
Coach, Inc. (a) 23,000 988,080
-----------
TRADING COMPANIES & DISTRIBUTORS - 1.8%
Fastenal Company 30,000 1,076,400
-----------
The accompanying notes are an integral part of these financial statements.
13
LKCM AQUINAS GROWTH FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- ------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 3.5%
SBA Communications Corporation -
Class A (a) 75,000 $ 2,062,500
-----------
TOTAL COMMON STOCKS
(Cost $54,598,423) 59,013,636
-----------
- ------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.5%
- ------------------------------------------------------------------
MONEY MARKET FUND - 0.5%
Columbia Money Market Reserves Fund -
Capital Shares 280,469 280,469
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $280,469) 280,469
-----------
TOTAL INVESTMENTS - 100.5%
(Cost $54,878,892) 59,294,105
Liabilities in Excess of Other Assets - (0.5)% (297,253)
-----------
TOTAL NET ASSETS - 100.0% $58,996,852
===========
ADR American Depository Receipt.
(a) Non-income producing security.
(b) Dollar-dominated foreign security.
The accompanying notes are an integral part of these financial statements.
14
LKCM AQUINAS SMALL CAP FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- ------------------------------------------------------------------
COMMON STOCKS - 95.7% SHARES VALUE
- ------------------------------------------------------------------
AEROSPACE & DEFENSE - 3.1%
Hexcel Corporation (a) 8,700 $ 151,467
Ladish Co., Inc. (a) 5,100 189,108
-----------
340,575
-----------
AIR FREIGHT & LOGISTICS - 0.6%
Forward Air Corporation 2,150 62,200
-----------
AUTO COMPONENTS - 1.8%
Drew Industries Incorporated (a) 3,450 89,735
Tenneco Inc. (a) 4,550 112,476
-----------
202,211
-----------
BIOTECHNOLOGY - 1.0%
Human Genome Sciences, Inc. (a) 8,750 108,850
-----------
CAPITAL MARKETS - 1.6%
Penson Worldwide, Inc. (a) 6,400 175,424
-----------
COMMERCIAL BANKS - 9.0%
Capitol Bancorp Ltd. 2,200 101,640
Cullen/Frost Bankers, Inc. 2,050 114,431
First State Bancorporation 5,350 132,412
Glacier Bancorp, Inc. 6,300 153,972
Hancock Holding Company 2,050 108,322
The South Financial Group, Inc. 4,550 120,984
Sterling Financial Corporation 3,850 130,169
UCBH Holdings, Inc. 7,150 125,554
-----------
987,484
-----------
COMMERCIAL SERVICES & SUPPLIES - 5.9%
Airgas, Inc. 2,800 113,456
Bright Horizons Family Solutions, Inc. (a) 3,350 129,511
Knoll, Inc. 6,400 140,800
Mobile Mini, Inc. (a) 4,950 133,353
Resources Connection, Inc. (a) 4,100 130,544
-----------
647,664
-----------
CONSTRUCTION & ENGINEERING - 2.4%
EMCOR Group, Inc. (a) 2,400 136,440
MasTec, Inc. (a) 10,550 121,747
-----------
258,187
-----------
CONSUMER FINANCE - 1.9%
Cash America International, Inc. 4,400 206,360
-----------
CONTAINERS & PACKAGING - 1.3%
Silgan Holdings Inc. 3,300 144,936
-----------
DIVERSIFIED MANUFACTURING - 1.0%
Raven Industries, Inc. 4,200 112,560
-----------
EDUCATION SERVICES - 1.1%
Laureate Education Inc. (a) 2,400 116,712
-----------
- ------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 5.0%
Axsys Technologies, Inc. (a) 4,000 $ 70,280
I.D. Systems, Inc. (a) 3,800 71,516
MTS Systems Corporation 1,600 61,792
Rofin-Sinar Technologies, Inc. (a) 1,900 114,874
Rogers Corporation (a) 2,200 130,130
Veeco Instruments Inc. (a) 5,200 97,396
-----------
545,988
-----------
ENERGY EQUIPMENT & SERVICES - 3.1%
Dril-Quip, Inc. (a) 2,500 97,900
Hydril (a) 1,500 112,785
Superior Well Services, Inc. (a) 5,100 130,356
-----------
341,041
-----------
FOOD & STAPLES RETAILING - 3.5%
Pathmark Stores, Inc. (a) 8,650 96,448
Reddy Ice Holdings, Inc. 5,750 148,465
United Natural Foods, Inc. (a) 3,900 140,088
-----------
385,001
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 2.9%
ArthroCare Corporation (a) 2,650 105,788
Immucor, Inc. (a) 2,000 58,460
IntraLase Corp (a) 6,700 149,946
-----------
314,194
-----------
HEALTH CARE PROVIDERS & SERVICES - 3.7%
inVentiv Health Inc. (a) 4,250 150,237
MWI Veterinary Supply, Inc. (a) 2,700 87,210
PSS World Medical, Inc. (a) 8,350 163,076
-----------
400,523
-----------
HOTELS, RESTAURANTS & LEISURE - 3.5%
The Cheesecake Factory Incorporated (a) 3,850 94,710
IHOP Corp. 1,450 76,415
Landry's Restaurants, Inc. 3,250 97,792
LIFE TIME FITNESS, Inc. (a) 2,300 111,573
-----------
380,490
-----------
HOUSEHOLD DURABLES - 1.2%
Tempur-Pedic International Inc. (a) 6,200 126,852
-----------
INFORMATION TECHNOLOGY SERVICES - 1.3%
Ness Technologies Inc. (a) 10,150 144,739
-----------
INSURANCE - 3.7%
American Equity Investment Life
Holding Company 9,350 121,830
Argonaut Group, Inc. (a) 4,200 146,412
Max Re Capital Ltd. (b) 5,450 135,269
-----------
403,511
-----------
INTERNET SOFTWARE & SERVICES - 0.6%
Access Integrated Technologies Inc. -
Class A (a) 7,500 65,400
-----------
MACHINERY - 4.9%
Albany International Corp. - Class A 2,900 95,439
CLARCOR Inc. 4,200 142,002
Franklin Electric Co., Inc. 3,000 154,170
Gehl Company (a) 3,350 92,225
Nordson Corporation 1,150 57,305
-----------
541,141
-----------
The accompanying notes are an integral part of these financial statements.
15
LKCM AQUINAS SMALL CAP FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- ------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------
MARINE - 2.2%
Kirby Corporation (a) 3,700 $ 126,281
Quintana Maritime Ltd. (b) 10,450 115,159
-----------
241,440
-----------
MEDIA - 1.2%
Entercom Communications Corp. - Class A 4,850 136,673
-----------
MULTILINE RETAIL - 1.0%
Conn's, Inc. (a) 4,650 108,205
-----------
OIL & GAS DRILLING - 1.1%
Union Drilling, Inc. (a) 8,850 124,608
-----------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 3.2%
Cabot Oil & Gas Corporation 2,050 124,332
Encore Acquisition Company (a) 3,400 83,402
Parallel Petroleum Corporation (a) 5,050 88,729
St. Mary Land & Exploration Company 1,450 53,418
-----------
349,881
-----------
PHARMACEUTICALS - 2.0%
Bentley Pharmaceuticals, Inc. (a) 8,100 82,377
Perrigo Company 7,900 136,670
-----------
219,047
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 3.0%
Cirrus Logic, Inc. (a) 14,200 97,696
RF Micro Devices, Inc. (a) 16,130 109,523
Spansion Inc. - Class A (a) 8,100 120,366
-----------
327,585
-----------
SOFTWARE - 7.4%
Ariba, Inc. (a) 12,550 97,137
i2 Technologies, Inc. (a) 6,600 150,612
Nuance Communications, Inc. (a) 17,650 202,269
Parametric Technology Corporation (a) 7,150 128,843
TIBCO Software Inc. (a) 13,200 124,608
Verint Systems Inc. (a) 3,300 113,124
-----------
816,593
-----------
SPECIALTY RETAIL - 5.6%
Charming Shoppes, Inc. (a) 5,900 79,827
Gamestop Corporation - Class A (a) 2,050 112,975
Jos. A. Bank Clothiers, Inc. (a) 3,400 99,790
Rent-A-Center, Inc. (a) 5,150 151,977
Stein Mart, Inc. 5,700 75,582
Tractor Supply Company (a) 2,100 93,891
-----------
614,042
-----------
THRIFTS & MORTGAGE FINANCE - 1.0%
City Bank 3,150 112,770
-----------
TRADING COMPANIES & DISTRIBUTORS - 1.5%
Anixter International, Inc. (a) 2,950 160,185
-----------
WIRELESS TELECOMMUNICATION SERVICES - 2.4%
Premiere Global Services, Inc. (a) 13,850 130,744
SBA Communications Corporation -
Class A (a) 4,900 134,750
-----------
265,494
-----------
TOTAL COMMON STOCKS
(Cost $9,264,034) 10,488,566
-----------
- ------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 4.4% SHARES VALUE
- ------------------------------------------------------------------
MONEY MARKET FUNDS - 4.4%
Columbia Money Market Reserves Fund -
Capital Shares 309,483 $ 309,483
Dreyfus Cash Management Fund -
Investor Shares1 68,702 168,702
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $478,185) 478,185
-----------
TOTAL INVESTMENTS - 100.1%
(Cost $9,742,219) 10,966,751
Liabilities in Excess of Other Assets - (0.1)% (9,905)
-----------
TOTAL NET ASSETS - 100.0% $10,956,846
===========
(a) Non-income producing security.
(b) Dollar-denominated foreign security.
The accompanying notes are an integral part of these financial statements.
16
LKCM AQUINAS FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
- ------------------------------------------------------------------
ASSET BACKED PRINCIPAL
SECURITIES - 0.1% AMOUNT VALUE
- ------------------------------------------------------------------
FedEx Corp.
Series 981, Class C, 7.02%, 01/15/2016
Sinkable 07/15/2007 $ 50,698 $ 53,334
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $54,503) 53,334
-----------
- ------------------------------------------------------------------
CORPORATE BONDS - 72.6%
- ------------------------------------------------------------------
AEROSPACE & DEFENSE - 3.2%
General Dynamics Corporation
4.50%, 08/15/2010 500,000 489,784
Raytheon Company
5.50%, 11/15/2012 447,000 450,363
United Technologies Corporation
6.35%, 03/01/2011 300,000 312,215
-----------
1,252,362
-----------
ASSET MANAGEMENT - 1.0%
Mellon Funding Corporation
6.70%, 03/01/2008 400,000 405,005
-----------
BUILDING PRODUCTS - 0.3%
Masco Corporation
5.75%, 10/15/2008 100,000 100,423
-----------
CHEMICALS - 1.8%
The Lubrizol Corporation
5.50%, 10/01/2014 750,000 732,287
-----------
COMMERCIAL BANKS - 1.9%
Landesbank Baden-Wuerttemberg (b)
6.35%, 04/01/2012 45,000 47,151
National City Bank
6.20%, 12/15/2011 500,000 519,722
Northern Trust Company
7.10%, 08/01/2009 168,000 175,271
-----------
742,144
-----------
COMMERCIAL SERVICES & SUPPLIES - 3.0%
CP&L, Inc.
6.80%, 08/15/2007 300,000 302,201
International Lease Finance Corporation:
6.375%, 03/15/2009 540,000 551,910
5.00%, 04/15/2010 40,000 39,589
Pitney Bowes Inc.
3.875%, 06/15/2013 300,000 274,989
-----------
1,168,689
-----------
COMMUNICATIONS EQUIPMENT - 3.0%
Cisco Systems, Inc.
5.25%, 02/22/2011 400,000 401,372
Motorola, Inc.
7.625%, 11/15/2010 740,000 797,450
-----------
1,198,822
-----------
COMPUTERS & PERIPHERALS - 3.1%
Hewlett-Packard Company
5.50%, 07/01/2007 750,000 750,910
International Business Machines Corporation
4.375%, 06/01/2009 500,000 491,677
-----------
1,242,587
-----------
- ------------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.1%
Centex Corporation
7.50%, 01/15/2012 $ 40,000 $ 42,796
-----------
CONSUMER FINANCE - 3.4%
American General Finance Corporation
4.625%, 05/15/2009 490,000 482,529
ASIF Global Financing XVIII (a)
3.85%, 11/26/2007
(Acquired 01/06/2004, Cost $326,426) 325,000 320,714
General Electric Capital Corporation
4.25%, 12/01/2010 30,000 29,052
HSBC Finance Corporation
6.50%, 11/15/2008 510,000 521,568
-----------
1,353,863
-----------
DIVERSIFIED FINANCIAL SERVICES - 2.3%
AXA Financial, Inc.
7.75%, 08/01/2010 25,000 26,948
CIT Group Inc.:
6.875%, 11/01/2009 150,000 156,149
4.75%, 12/15/2010 30,000 29,406
Textron Financial Corporation:
5.875%, 06/01/2007 60,000 60,130
6.00%, 11/20/2009 440,000 449,664
Wells Fargo Financial, Inc.
5.50%, 08/01/2012 200,000 202,587
-----------
924,884
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.3%
ALLTEL Corporation
7.00%, 07/01/2012 150,000 156,011
BellSouth Corporation
6.00%, 10/15/2011 500,000 513,516
SBC Communications Inc.
5.10%, 09/15/2014 50,000 48,624
Sprint Capital Corp.
8.375%, 03/15/2012 45,000 50,065
Verizon Global Funding Corp.:
6.125%, 06/15/2007 250,000 250,659
7.25%, 12/01/2010 10,000 10,669
7.375%, 09/01/2012 250,000 273,649
-----------
1,303,193
-----------
ELECTRIC UTILITIES - 1.3%
TXU Energy Co.
7.00%, 03/15/2013 500,000 523,835
-----------
ELECTRICAL EQUIPMENT - 0.8%
Arrow Electronics, Inc.
9.15%, 10/01/2010 40,000 44,735
Emerson Electric Co.
5.75%, 11/01/2011 250,000 255,513
-----------
300,248
-----------
ENERGY EQUIPMENT & SERVICES - 1.5%
Baker Hughes Incorporated
6.00%, 02/15/2009 555,000 562,284
Halliburton Company
5.50%, 10/15/2010 40,000 39,963
-----------
602,247
-----------
FOOD PRODUCTS - 1.2%
The Hershey Company
4.85%, 08/15/2015 500,000 483,734
-----------
The accompanying notes are an integral part of these financial statements.
17
LKCM AQUINAS FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- ------------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 3.7%
Kimberly-Clark Corporation
5.625%, 02/15/2012 $ 600,000 $ 610,682
The Procter & Gamble Company
8.00%, 09/01/2024
Putable 09/01/2014 675,000 860,515
-----------
1,471,197
-----------
INDUSTRIAL AUTOMATION - 0.9%
Rockwell Automation, Inc.
6.15%, 01/15/2008 370,000 371,574
-----------
INSURANCE - 1.0%
The Hartford Financial Services Group, Inc.
4.70%, 09/01/2007 100,000 99,518
Massmutual Global Funding II (a)
3.25%, 06/15/2007
(Acquired 12/03/2003, Cost $284,399) 285,000 282,393
-----------
381,911
-----------
INVESTMENT BANK & BROKERAGE - 4.5%
The Bear Stearns Companies Inc.
5.30%, 10/30/2015 500,000 494,241
Credit Suisse First Boston USA
6.50%, 01/15/2012 45,000 47,342
The Goldman Sachs Group, Inc.:
5.15%, 01/15/2014 30,000 29,596
5.125%, 01/15/2015 500,000 489,332
Lehman Brothers Holdings, Inc.
7.00%, 02/01/2008 540,000 549,269
Merrill Lynch & Co., Inc.
3.125%, 07/15/2008 195,000 188,952
-----------
1,798,732
-----------
MACHINERY - 1.2%
Dover Corporation
6.50%, 02/15/2011 450,000 468,766
-----------
MEDIA - 1.7%
The Walt Disney Company
6.375%, 03/01/2012 635,000 666,232
-----------
METALS & MINING - 2.6%
Alcoa Inc.:
6.50%, 06/01/2011 400,000 417,908
6.00%, 01/15/2012 600,000 616,349
-----------
1,034,257
-----------
MULTILINE RETAIL - 4.2%
Dollar General Corporation
8.625%, 06/15/2010 450,000 480,375
J.C. Penney Co., Inc.
7.65%, 08/15/2016 500,000 550,537
Target Corporation:
6.35%, 01/15/2011 100,000 104,150
5.875%, 03/01/2012 500,000 514,489
-----------
1,649,551
-----------
MULTI-UTILITIES & UNREGULATED POWER - 0.2%
Sempra Energy
4.621%, 05/17/2007 60,000 59,776
-----------
- ------------------------------------------------------------------
CORPORATE PRINCIPAL
BONDS AMOUNT VALUE
- ------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 10.0%
Amerada Hess Corporation
6.65%, 08/15/2011 $ 400,000 $ 416,921
Apache Corporation
6.25%, 04/15/2012 690,000 717,237
Burlington Resources Finance Company (b)
6.68%, 02/15/2011 400,000 420,511
Noble Energy, Inc.
5.25%, 04/15/2014 450,000 433,415
Occidental Petroleum Corporation
6.75%, 01/15/2012 648,000 688,215
Ocean Energy Inc.
4.375%, 10/01/2007 238,000 236,174
ONEOK, Inc.
5.20%, 06/15/2015 40,000 37,794
USX Corporation
9.125%, 01/15/2013 409,000 487,000
XTO Energy, Inc.
6.25%, 04/15/2013 500,000 516,400
-----------
3,953,667
-----------
REAL ESTATE - 1.8%
EOP Operating Limited Partnership:
7.75%, 11/15/2007 105,000 107,187
4.65%, 10/01/2010 525,000 521,784
Health Care Property Investors, Inc.
6.45%, 06/25/2012 20,000 20,673
Health Care REIT, Inc.
8.00%, 09/12/2012 50,000 55,023
-----------
704,667
-----------
RESTAURANTS - 1.6%
McDonald's Corporation
6.00%, 04/15/2011 610,000 625,890
-----------
ROAD & RAIL - 1.7%
Burlington Northern Santa Fe Corporation:
6.125%, 03/15/2009 40,000 40,652
6.75%, 07/15/2011 600,000 634,004
-----------
674,656
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.3%
Applied Materials, Inc.
6.75%, 10/15/2007 500,000 504,482
-----------
SOFTWARE - 1.5%
Oracle Corporation
6.91%, 02/15/2007 600,000 600,877
-----------
SPECIALTY RETAIL - 3.5%
The Home Depot, Inc.
4.625%, 08/15/2010 500,000 489,888
Lowe's Companies, Inc.:
8.25%, 06/01/2010 650,000 710,865
5.00%, 10/15/2015 200,000 192,997
-----------
1,393,750
-----------
TOTAL CORPORATE BONDS
(Cost $29,013,368) 28,737,104
-----------
The accompanying notes are an integral part of these financial statements.
18
LKCM AQUINAS FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
DECEMBER 31, 2006
- ------------------------------------------------------------------
SHARES OR
MUNICIPAL PRINCIPAL
BONDS - 1.5% AMOUNT VALUE
- ------------------------------------------------------------------
Fiscal Year 2005 Securitization Corp. NY
3.40%, 08/15/2008 $ 220,000 $ 217,197
Southern California Public Power Authority
Power Project
6.93%, 05/15/2017 330,000 373,006
-----------
TOTAL MUNICIPAL BONDS
(Cost $599,362) 590,203
-----------
- ------------------------------------------------------------------
PREFERRED STOCKS - 1.9%
- ------------------------------------------------------------------
INVESTMENT BANK & BROKERAGE - 1.9%
The Goldman Sachs Group, Inc. 20,000 522,400
Lehman Brothers Holdings, Inc.
Callable 10/31/2008 9,000 227,430
-----------
TOTAL PREFERRED STOCKS
(Cost $724,280) 749,830
-----------
- ------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY ISSUES - 16.8%
- ------------------------------------------------------------------
FANNIE MAE - 4.1%
5.00%, 02/27/2008
Callable 02/27/2007 760,000 758,227
6.00%, 05/15/2011 120,000 125,068
5.00%, 04/15/2015 750,000 752,721
-----------
1,636,016
-----------
FEDERAL HOME LOAN BANK - 3.4%
5.75%, 10/15/2007
Putable 04/15/2007 855,000 858,122
4.90%, 11/21/2007 500,000 498,625
-----------
1,356,747
-----------
FREDDIE MAC - 2.5%
4.20%, 12/28/2007 1,000,000 990,424
-----------
U.S. TREASURY INFLATION INDEXED BONDS - 2.7%
3.625%, 01/15/2008 331,072 334,707
2.375%, 04/15/2011 508,435 506,569
1.625%, 01/15/2015 221,976 209,005
-----------
1,050,281
-----------
U.S. TREASURY NOTES - 4.1%
6.50%, 02/15/2010 115,000 120,844
5.00%, 08/15/2011 700,000 710,008
4.50%, 02/15/2016 500,000 492,188
5.125%, 05/15/2016 300,000 309,106
-----------
1,632,146
-----------
TOTAL U.S. GOVERNMENT & AGENCY ISSUES
(Cost $6,711,097) 6,665,614
-----------
- ------------------------------------------------------------------
SHARES OR
PRINCIPAL
SHORT-TERM INVESTMENTS - 5.7% AMOUNT VALUE
- ------------------------------------------------------------------
CORPORATE BONDS - 3.0%
General Electric Capital Corporation
5.00%, 02/15/2007 $ 200,000 $ 199,926
Viacom Inc.
5.625%, 05/01/2007 1,000,000 1,000,596
-----------
1,200,522
-----------
MONEY MARKET FUND - 0.9%
Columbia Money Market Reserves Fund -
Capital Shares 335,942 335,942
-----------
U.S. GOVERNMENT & AGENCY ISSUES - 1.8%
Federal Home Loan Bank
5.26%, 10/19/2007
Callable 01/19/2007 725,000 724,613
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $2,260,848) 2,261,077
-----------
TOTAL INVESTMENTS - 98.6%
(Cost $39,363,458) 39,057,162
Other Assets in Excess of Liabilities - 1.4% 561,103
-----------
TOTAL NET ASSETS - 100.0% $39,618,265
===========
(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 $603,107 representing 1.54% of the Portfolio.
(b) Dollar-denominated foreign security.
The accompanying notes are an integral part of these financial statements.
19
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
LKCM LKCM LKCM LKCM
AQUINAS AQUINAS AQUINAS AQUINAS FIXED
VALUE FUND GROWTH FUND SMALL CAP FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value *................................................ $39,939,519 $59,294,105 $10,966,751 $39,057,162
Dividends and interest receivable...................................... 42,043 44,806 9,389 587,249
Receivable for fund shares sold........................................ 6,812 36,206 410 39,047
Other assets........................................................... 9,031 10,184 12,335 8,865
----------- ----------- ----------- -----------
Total assets......................................................... 39,997,405 59,385,301 10,988,885 39,692,323
----------- ----------- ----------- -----------
LIABILITIES:
Payable for investment advisory fees................................... 91,107 138,563 10,057 42,800
Payable for fund shares redeemed....................................... 2,786 132,311 37 --
Distribution expense payable........................................... 47,370 74,793 8,722 --
Accrued expenses and other liabilities................................. 30,369 42,782 13,223 31,258
----------- ----------- ----------- -----------
Total liabilities................................................... 171,632 388,449 32,039 74,058
----------- ----------- ----------- -----------
NET ASSETS............................................................. $39,825,773 $58,996,852 $10,956,846 $39,618,265
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Paid in capital........................................................ $30,758,046 $54,221,131 $ 9,952,046 $40,045,654
Undistributed net investment income.................................... -- -- -- 1,156
Accumulated net realized gain (loss) on securities..................... 450,059 360,508 (219,732) (122,249)
Net unrealized appreciation (depreciation) on investments.............. 8,617,668 4,415,213 1,224,532 (306,296)
----------- ----------- ----------- -----------
NET ASSETS............................................................. $39,825,773 $58,996,852 $10,956,846 $39,618,265
=========== =========== =========== ===========
NET ASSETS............................................................. $39,825,773 $58,996,852 $10,956,846 $39,618,265
Shares of beneficial interest outstanding
(unlimited shares of no par value
authorized).......................................................... 2,904,270 3,817,748 1,666,198 4,037,013
Net asset value per share
(offering and redemption price)...................................... $ 13.71 $ 15.45 $ 6.58 $ 9.81
=========== =========== =========== ===========
* Cost of Investments.................................................. $31,321,851 $54,878,892 $ 9,742,219 $39,363,458
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
20
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
LKCM LKCM LKCM LKCM
AQUINAS AQUINAS AQUINAS AQUINAS FIXED
VALUE FUND GROWTH FUND SMALL CAP FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends *............................................................ $ 753,614 $ 552,910 $ 46,113 $ 42,619
Interest............................................................... 48,633 171,724 24,692 1,882,680
----------- ---------- ----------- -----------
Total income........................................................ 802,247 724,634 70,805 1,925,299
----------- ---------- ----------- -----------
EXPENSES:
Investment advisory fees .............................................. 373,566 593,296 89,845 244,434
Distribution expense .................................................. 103,768 164,804 22,462 --
Administrative fees.................................................... 33,560 54,025 20,225 33,345
Accounting and transfer agent fees and expenses........................ 52,155 68,645 38,214 71,148
Professional fees...................................................... 15,746 25,694 3,356 15,577
Federal and state registration......................................... 19,005 21,599 19,827 19,019
Custody fees and expenses.............................................. 5,579 8,038 9,325 5,147
Reports to shareholders................................................ 6,987 12,180 1,557 6,920
Trustees' fees......................................................... 4,393 7,155 830 4,618
Other ................................................................. 4,567 7,375 3,000 4,779
----------- ---------- ----------- -----------
Total expenses....................................................... 619,326 962,811 208,641 404,987
Less, expense waiver and/or
reimbursement...................................................... -- -- (73,873) (79,076)
----------- ---------- ----------- -----------
Net expenses......................................................... 619,326 962,811 134,768 325,911
----------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS)........................................... 182,921 (238,177) (63,963) 1,599,388
----------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments................................ 3,698,983 585,630 1,101,782 (63,963)
Net change in unrealized appreciation/depreciation on investments...... 2,237,358 (960,702) 66,752 (24,857)
----------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS....................................................... 5,936,341 (375,072) 1,168,534 (88,820)
----------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................................ $ 6,119,262 $ (613,249) $ 1,104,571 $ 1,510,568
=========== ========== =========== ===========
* Net of foreign taxes withheld........................................ $ 806 $ 3,246 $ -- $ --
=========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
21
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,
2006 2005 2006 2005
----------- ----------- ----------- -----------
OPERATIONS:
Net investment income (loss)............................................ $ 182,921 $ 157,369 $ (238,177) $ 171,030
Net realized gain on investments ....................................... 3,698,983 3,082,006 585,630 472,796
Net change in unrealized appreciation/depreciation on investments...... 2,237,358 (1,537,265) (960,702) 5,338,281
----------- ----------- ----------- -----------
Net increase (decrease) in net assets................................
resulting from operations........................................... 6,119,262 1,702,110 (613,249) 5,982,107
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................................................... (301,160) (54,531) -- (173,759)
Net realized gain on investments........................................ (1,251,226) -- (481,852) (1,731,877)
----------- ----------- ----------- -----------
(1,552,386) (54,531) (481,852) (1,905,636)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (NOTE C)..................................... (7,430,832) (1,722,864) (14,514,040) 12,095,490
----------- ----------- ----------- -----------
Total increase (decrease) in net assets................................. (2,863,956) (75,285) (15,609,141) 16,171,961
NET ASSETS:
Beginning of period..................................................... 42,689,729 42,765,014 74,605,993 58,434,032
----------- ----------- ----------- -----------
End of period *......................................................... $39,825,773 $42,689,729 $58,996,852 $74,605,993
=========== =========== =========== ===========
* Including undistributed net
investment income of:................................................. $ -- $ 118,223 $ -- $ --
=========== =========== =========== ===========
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,
2006 2005 2006 2005
----------- ---------- ----------- -----------
OPERATIONS:
Net investment income (loss)............................................ $ (63,963) $ (84,695) $ 1,599,388 $ 1,622,813
Net realized gain (loss) on investments ................................ 1,101,782 328,021 (63,963) 104,162
Net change in unrealized appreciation/depreciation on investments....... 66,752 (35,568) (24,857) (901,763)
----------- ---------- ----------- -----------
Net increase in net assets
resulting from operations.......................................... 1,104,571 207,758 1,510,568 825,212
----------- ---------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income................................................... -- -- (1,621,812) (1,626,609)
Net realized gain on investments........................................ -- -- -- (151,578)
----------- ---------- ----------- -----------
-- -- (1,621,812) (1,778,187)
----------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FROM FUND SHARE TRANSACTIONS (NOTE C)................................. 2,788,192 (719,033) (3,052,240) (2,381,653)
----------- ---------- ----------- -----------
Total increase (decrease) in net assets................................. 3,892,763 (511,275) (3,163,484) (3,334,628)
NET ASSETS:
Beginning of period..................................................... 7,064,083 7,575,358 42,781,749 46,116,377
----------- ---------- ----------- -----------
End of period *......................................................... $10,956,846 $7,064,083 $39,618,265 $42,781,749
=========== ========== =========== ===========
* Including undistributed net
investment income of:................................................ $ -- $ -- $ 1,156 $ 8,793
=========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
22
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,
2006 2005(1) 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE - BEGINNING OF PERIOD.......................... $ 12.24 $ 11.77 $ 10.17 $ 7.95 $ 10.22
-------- -------- -------- -------- --------
Net investment income.......................................... 0.07 0.04 0.02 0.03 0.01
Net realized and unrealized gain (loss) on investments......... 1.95 0.44 1.60 2.22 (2.27)
-------- -------- -------- -------- --------
Total from investment operations........................... 2.02 0.48 1.62 2.25 (2.26)
-------- -------- -------- -------- --------
Dividends from net investment income........................... (0.11) (0.01) (0.02) (0.03) (0.01)
Distributions from net realized gains.......................... (0.44) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions.......................... (0.55) (0.01) (0.02) (0.03) (0.01)
-------- -------- -------- -------- --------
NET ASSET VALUE - END OF PERIOD................................ $ 13.71 $ 12.24 $ 11.77 $ 10.17 $ 7.95
======== ======== ======== ======== ========
TOTAL RETURN................................................... 16.51% 4.13% 15.93% 28.29% (22.11)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).......................... $ 39,826 $ 42,690 $ 42,765 $ 40,470 $ 33,783
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement................... 1.49% 1.55% 1.57% 1.59% 1.55%
After expense waiver and/or reimbursement.................... 1.49% 1.52%(2 ) 1.53% 1.50% 1.50%
Ratio of net investment income to average net assets:
Before expense waiver and/or reimbursement................... 0.44% 0.34% 0.17% 0.21% 0.06%
After expense waiver and/or reimbursement.................... 0.44% 0.37% 0.21% 0.30% 0.11%
Portfolio turnover rate........................................ 47% 71% 61% 70% 45%
(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,
2006 2005(1) 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE - BEGINNING OF PERIOD.......................... $ 15.61 $ 14.67 $ 13.58 $ 11.26 $ 14.61
-------- -------- -------- -------- --------
Net investment income (loss)................................... (0.06)(2) 0.03 (0.07) (0.08) (0.10)
Net realized and unrealized gain (loss) on investments......... 0.03 1.31 1.16 2.40 (3.25)
-------- -------- -------- -------- --------
Total from investment operations........................... (0.03) 1.34 1.09 2.32 (3.35)
-------- -------- -------- -------- --------
Dividends from net investment income........................... -- (0.03) -- -- --
Distributions from net realized gains.......................... (0.13) (0.37) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions.......................... (0.13) (0.40) -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE - END OF PERIOD................................ $ 15.45 $ 15.61 $ 14.67 $ 13.58 $ 11.26
======== ======== ======== ======== ========
TOTAL RETURN................................................... (0.22)% 9.15% 8.03% 20.60% (22.93)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands).......................... $ 58,997 $ 74,606 $ 58,434 $ 57,818 $ 48,773
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement................... 1.46% 1.51% 1.55% 1.58% 1.54%
After expense waiver and/or reimbursement.................... 1.46% 1.51%(3) 1.53% 1.50% 1.50%
Ratio of net investment income (loss) to average net assets:
Before expense waiver and/or reimbursement................... (0.36)% 0.25% (0.50)% (0.70)% (0.86)%
After expense waiver and/or reimbursement.................... (0.36)% 0.25% (0.48)% (0.62)% (0.82)%
Portfolio turnover rate........................................ 73% 114% 196% 105% 94%
(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) 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 Growth Fund implemented a voluntary expense cap of 1.50%
effective July 11, 2005.
The accompanying notes are an integral part of these financial statements.
23
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,
2006 2005(1) 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE - BEGINNING OF PERIOD...................... $ 5.82 $ 5.66 $ 5.50 $ 4.21 $ 6.08
-------- -------- -------- -------- --------
Net investment loss........................................ (0.04)(2) (0.07)(2) (0.09) (0.08) (0.08)
Net realized and unrealized gain (loss) on investments..... 0.80 0.23 0.25 1.37 (1.79)
-------- -------- -------- -------- --------
Total from investment operations......................... 0.76 0.16 0.16 1.29 (1.87)
-------- -------- -------- -------- --------
NET ASSET VALUE - END OF PERIOD............................ $ 6.58 $ 5.82 $ 5.66 $ 5.50 $ 4.21
======== ======== ======== ======== ========
TOTAL RETURN............................................... 13.06% 2.83% 2.91% 30.64% (30.76)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)...................... $ 10,957 $ 7,064 $ 7,575 $ 7,283 $ 5,419
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement............... 2.32% 2.65% 2.76% 2.99% 2.91%
After expense waiver and/or reimbursement................ 1.50% 1.73%(3) 1.95% 1.95% 1.95%
Ratio of net investment loss to average net assets:
Before expense waiver and/or reimbursement............... (1.53)% (2.09)% (2.62)% (2.74)% (2.72)%
After expense waiver and/or reimbursement................ (0.71)% (1.17)% (1.81)% (1.70)% (1.76)%
Portfolio turnover rate.................................... 91% 148% 260% 161% 113%
(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,
2006 2005(1) 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE - BEGINNING OF PERIOD........................ $ 9.84 $ 10.06 $ 10.16 $ 10.23 $ 10.07
-------- -------- -------- -------- --------
Net investment income........................................ 0.40 0.37 0.34 0.35 0.50
Net realized and unrealized gain (loss) on investments....... (0.03) (0.19) 0.09 0.14 0.21
-------- -------- -------- -------- --------
Total from investment operations........................... 0.37 0.18 0.43 0.49 0.71
-------- -------- -------- -------- --------
Dividends from net investment income......................... (0.40) (0.36) (0.38) (0.40) (0.50)
Distributions from net realized gains........................ -- (0.04) (0.15) (0.16) (0.05)
-------- -------- -------- -------- --------
Total dividends and distributions.......................... (0.40) (0.40) (0.53) (0.56) (0.55)
-------- -------- -------- -------- --------
NET ASSET VALUE - END OF PERIOD.............................. $ 9.81 $ 9.84 $ 10.06 $ 10.16 $ 10.23
======== ======== ======== ======== ========
TOTAL RETURN................................................. 3.82% 1.75% 4.35% 4.90% 7.29%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........................ $ 39,618 $ 42,782 $ 46,116 $ 44,760 $ 47,688
Ratio of expenses to average net assets:
Before expense waiver and/or reimbursement................. 0.99% 1.11% 1.19% 1.20% 1.12%
After expense waiver and/or reimbursement.................. 0.80% 0.93%(2) 1.02% 1.00% 1.00%
Ratio of net investment income to average net assets:
Before expense waiver and/or reimbursement................. 3.92% 3.34% 3.20% 3.23% 4.83%
After expense waiver and/or reimbursement.................. 3.73% 3.52% 3.37% 3.43% 4.95%
Portfolio turnover rate...................................... 24% 152% 147% 276% 168%
(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.
The accompanying notes are an integral part of these financial statements.
24
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. 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 1% 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 Luther King Capital Management
Corporation (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
mean of bid and ask 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 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.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements". SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands disclosure about
fair value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. Management is
currently evaluating the impact of adoption of SFAS No. 157 on its financial
statements.
2. FEDERAL INCOME TAXES: The Funds have elected to be treated as "regulated
investment companies" under Subchapter M of the Internal Revenue Code 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. Accordingly, at December 31, 2006,
reclassifications were recorded as follows.
25
LKCM LKCM LKCM LKCM
AQUINAS AQUINAS AQUINAS AQUINAS
VALUE GROWTH SMALL CAP FIXED
FUND FUND FUND INCOME FUND
Undistributed net investment income $16 $238,177 $65,907 $14,787
Accumulated gains (16) (119,760) (65,907) (13,091)
Capital stock -- (118,417) -- (1,696)
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 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, 2006, the Adviser waived and/or reimbursed the following expenses:
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%
Expenses Waived and/or Reimbursed -- -- $73,873 $79,076
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.
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.
U.S. Bank, N.A. serves as custodian for all LKCM Aquinas Funds.
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, 2006,
fees accrued by the LKCM Aquinas Value, LKCMAquinas Growth and LKCM Aquinas
Small Cap Funds pursuant to the 12b-1 Plan were $103,768, $164,804 and $22,462,
respectively. C. FUND SHARES: At December 31, 2006, 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, 2006 DECEMBER 31, 2005
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 375,160 $ 4,862,046 517,266 $ 6,199,674
Shares issued to shareholders in
reinvestment of distributions 105,201 1,451,764 4,597 53,536
Shares redeemed (1,064,115) (13,744,733) (666,873) (7,976,246)
Redemption fee 91 172
---------- ------------ ---------- ------------
Net decrease (583,754) $ (7,430,832) (145,010) $ (1,722,864)
============ ============
SHARES OUTSTANDING:
Beginning of period 3,488,024 3,633,034
---------- ----------
End of period 2,904,270 3,488,024
========== ==========
26
AQUINAS GROWTH FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 448,866 $ 6,886,276 1,599,321 $ 24,524,809
Shares issued to shareholders in
reinvestment of distributions 29,487 457,930 119,414 1,869,173
Shares redeemed (1,439,660) (21,858,281) (923,905) (14,298,519)
Redemption fee 35 27
---------- ------------ ---------- ------------
Net increase (decrease) (961,307) $(14,514,040) 794,830 $ 12,095,490
============ ============
SHARES OUTSTANDING:
Beginning of period 4,779,055 3,984,225
---------- ----------
End of period 3,817,748 4,779,055
========== ==========
AQUINAS SMALL CAP FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 939,257 $ 5,819,888 144,954 $ 793,472
Shares redeemed (486,054) (3,032,129) (269,227) (1,512,510)
Redemption fee 433 5
---------- ------------ ---------- ------------
Net increase (decrease) 453,203 $ 2,788,192 (124,273) $ (719,033)
============ ============
SHARES OUTSTANDING:
Beginning of period 1,212,995 1,337,268
---------- ----------
End of period 1,666,198 1,212,995
========== ==========
AQUINAS FIXED INCOME FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold 361,202 $ 3,540,812 651,383 $ 6,531,465
Shares issued to shareholders in
reinvestment of distributions 161,725 1,575,846 168,655 1,681,749
Shares redeemed (831,556) (8,170,167) (1,060,527) (10,597,055)
Redemption fee 1,269 2,188
---------- ------------ ---------- ------------
Net decrease (308,629) $ (3,052,240) (240,489) $ (2,381,653)
============ ============
SHARES OUTSTANDING:
Beginning of period 4,345,642 4,586,131
---------- ----------
End of period 4,037,013 4,345,642
========== ==========
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,
2006, 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, 2006 were as
follows:
PURCHASES SALES
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
----------- -------- ---------- -----------
LKCM Aquinas Value Fund $ ____ $19,273,959 $ ____ $27,546,250
LKCM Aquinas Growth Fund ____ 45,716,772 ____ 56,068,432
LKCM Aquinas Small Cap Fund ____ 10,316,605 ____ 7,789,752
LKCM Aquinas Fixed Income Fund 3,284,675 7,781,272 1,657,598 7,058,980
27
E. TAX INFORMATION: At December 31, 2006, 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 $31,377,023 $54,878,892 $9,743,851 $39,362,313
=========== =========== ========== ===========
Gross Unrealized Appreciation 8,627,580 6,244,059 1,406,893 239,720
Gross Unrealized Depreciation (65,084) (1,828,846) (183,993) (544,871)
----------- ---------- --------- ----------
Net Unrealized Appreciation (Depreciation) $ 8,562,496 $ 4,415,213 $1,222,900 $ (305,151)
=========== =========== ========== ===========
Undistributed Ordinary Income -- -- -- --
Undistributed Long-Term Capital Gain 505,231 360,508 -- --
----------- ---------- --------- ----------
Total Distributable Earnings 505,231 360,508 -- --
----------- ---------- --------- ----------
Other Accumulated Losses -- -- (218,100) (122,238)
----------- ---------- --------- ----------
Total Accumulated Earnings (Losses) $ 9,067,727 $ 4,775,721 $1,004,800 $ (427,389)
=========== =========== ========== ===========
At December 31, 2006 the accumulated capital loss carryforwards were as follows:
LKCM LKCM
AQUINAS AQUINAS
SMALL CAP FIXED INCOME
FUND FUND
- --------------------------------------------------------------------------------
Expiring in 2010 $ 218,100 $ --
Expiring in 2014 -- 117,865
---------- ----------
$ 218,100 $ 117,865
========== ==========
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, 2006, capital loss
carryforwards of $1,039,451 and $1,913,261 were utilized by the LKCM Aquinas
Small Cap Fund and the LKCM Aquinas Value Fund, respectively. At December 31,
2006, the LKCM Aquinas Fixed Income Fund had net realized losses from
transactions between November 1, 2006 and December 31, 2006 of $4,373, which are
deferred for tax purposes and will be recognized in 2007.
The tax components of dividends paid during the year ended December 31, 2006
were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
---------- -------------
LKCM Aquinas Value Fund $ 301,144 $1,251,242
LKCM Aquinas Growth Fund 455,653 26,199
LKCM Aquinas Small Cap Fund -- --
LKCM Aquinas Fixed Income Fund 1,621,812 --
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
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented, and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the LKCM Funds' tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required as of the date of the last NAV calculation in the first
required financial statement reporting period for fiscal years beginning after
December 15, 2006 and is to be applied to all open tax years as of the effective
date. Recent SEC guidance allows funds to delay implementing FIN 48 into NAV
calculations until the fund's last NAV calculations in the first required
financial statement reporting period. As a result, the Funds must begin to
incorporate FIN 48 into their NAV calculations on June 29, 2007. At this time,
management is evaluating the implications of FIN 48 and whether it will have any
impact on the Funds' financial statements.
28
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, 2006, the results of each of their operations for the year then
ended, the changes in each of their net assets and the financial highlights for
each of the two years in the period 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 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, 2006 by
correspondence with the custodian, provide a reasonable basis for our opinion.
The financial highlights of the Funds for each of the years ended December 31,
2004 and prior were audited by another independent registered public accounting
firm whose report dated February 14, 2005 expressed an unqualified opinion on
those financial highlights.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, WI
February 20, 2007
29
LKCM FUNDS
ADDITIONAL INFORMATION
DECEMBER 31, 2006
TAX INFORMATION: The Funds designated the following percentages of dividends
declared from net investment income for the fiscal year ended December 31, 2006
as qualified dividend income under the Jobs & Growth Tax Relief Reconciliation
Act of 2003.
Value 100.00%
Growth 100.00%
Fixed Income 2.63%
The Funds designated the following percentages of dividends declared during the
fiscal year ended December 31, 2006 as dividends qualifying for the dividends
received deduction available to corporate shareholders.
Value 100.00%
Growth 100.00%
Fixed Income 2.60%
ADDITIONAL INFORMATION APPLICABLE TO FOREIGN SHAREHOLDERS ONLY: The Funds hereby
designate the following percentages of their ordinary income distributions for
the fiscal year as interest-related dividends under Internal Revenue Code
Section 871(k)(1)( C ).
Value 5.68%
Growth 10.74%
Fixed Income 100.00%
The Funds hereby designate the following percentages of their ordinary income
distributions as short-term capital gain distributions under Internal Revenue
Code Section 871(k)(2)( C ).
Value 0.00%
Growth 100.00%
Fixed Income 0.00%
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.
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 1-800-423-6369. 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.
30
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 2005 CEO, Texas Systems, LLC 9 Non-Executive Chairman of
301 Commerce Street of the and CEO, the Board of AZZ
Suite 1600 Board of Trustees Texaslearningsystems LLC Incorporated, a
Fort Worth, TX 76102 since 1999; Dean, M.J. manufacturing company.
Age: 64 Trustee Since 1994 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 NASDAQ of the Catholic Diocese
Suite 1600 Corp. and Vice President, of Fort Worth, Lay
Fort Worth, TX 76102 Merrill Lynch & Co., Inc. Workers Pension
Age: 86 Fund of the Catholic
Diocese of Fort Worth,
St. Joseph Health
Care Trust, Catholic
Schools Trust and
Catholic Foundation
of North Texas.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Howell Trustee Since 2005 CPA, Consulting Services, 9 Red Robin Gourmet
301 Commerce Street since 2002; Audit Partner, Burgers, Inc.
Suite 1600 Arthur Anderson LLC from
Fort Worth, TX 76102 1974-2002.
Age: 64
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Luther King, Jr.2 Trustee, President Since 1994 Chairman, President and 9 Employee Retirement Systems
301 Commerce Street and Chief Executive Director, of Texas, 4K Land & Cattle
Suite 1600 Officer Luther King Capital Company, Hunt Forest
Fort Worth, TX 76102 Management Corporation Products (lumber), Ruston
Age: 66 since 1979. Industrial Corp. (forest
products), 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 of his affiliation with the Adviser.
31
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
Suite 1600 Officer Corporation since 1979.
Fort Worth, TX 76102
Age: 66
- --------------------------------------------------------------------------------------------------------------------------------
Paul W. Greenwell Vice President Since Principal, Luther King Capital
301 Commerce Street 1996 Management since 1986,
Suite 1600 Vice President and Portfolio
Fort Worth, TX 76102 Manager, Luther King Capital
Age: 56 Management since 1983.
- --------------------------------------------------------------------------------------------------------------------------------
Richard Lenart Secretary and Since Luther King Capital Management
301 Commerce Street Treasurer 2006 since 2005, Vice President,
Suite 1600 Aquinas Funds (2001-2005).
Fort Worth, TX 76102
Age: 40
- --------------------------------------------------------------------------------------------------------------------------------
Steven R. Purvis Vice President Since Principal, Luther King Capital
301 Commerce Street 2000 Management since 2003,
Suite 1600 Vice President and Portfolio
Fort Worth, TX 76102 Manager, Luther King Capital
Age: 41 Management since 1996.
- --------------------------------------------------------------------------------------------------------------------------------
Jacob D. Smith Chief Compliance Since General Counsel and Chief
301 Commerce Street Officer 2006 Compliance Officer, Luther King
Suite 1600 Capital Management since 2006,
Fort Worth, TX 76102 Enforcement Attorney, U.S.
Age: 32 Securities and Exchange Commission
(2005-2006), Associate, Haynes
and Boone, LLP(2001-2005).
- --------------------------------------------------------------------------------------------------------------------------------
32
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33
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34
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35
LKCM FUNDS
P.O. BOX 701
MILWAUKEE, WI 53201-0701
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
J. Luther King, Jr., CFA Richard Lenart
Trustee, Secretary & Treasurer
President
Paul W. Greenwell Jacob D. Smith
Vice President Chief Compliance Officer
Steven R. Purvis, CFA
Vice President
H. Kirk Downey
Chairman of the Board
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.
1555 N. River Center Drive, Suite 302
Milwaukee, WI 53212
- --------------------------------------------------------------------------------
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 PRESORTED
P.O. Box 701 STANDARD
Milwaukee, WI 53201-0701 US POSTAGE PAID
PERMIT #3602
BERWYN, IL 60402
----------------
Item 2. Code of Ethics.
The registrant has adopted a code of ethics (as defined in Item 2 of Form N-CSR)
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 following table details the aggregate fees billed to the registrant by its
principal accountant for each of the last two fiscal years for audit fees,
audit-related fees, tax fees and other fees. As used below, (i) "audit fees"
means the aggregate fees billed for professional services rendered by the
registrant's principal accountant for the audit of the registrant's annual
financial statements or services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements,
(ii) "audit-related fees" means the aggregate fees billed for assurance and
related services by the registrant's principal accountant that are reasonably
related to the performance of the audit of the registrant's financial statements
and are not included within the term "audit fees," and (iii) "tax fees" means
the aggregate fees billed for professional services rendered by the registrant's
principal accountant for tax compliance, tax advice, and tax planning.
- ----------------------------- ----------------------- -----------------------
FYE 12/31/2006 FYE 12/31/2005
- ----------------------------- ----------------------- -----------------------
Audit Fees $122,000 $130,400
Audit-Related Fees $0 $0
Tax Fees $42,930 $30,275
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 expended 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 principal accountant for services to the registrant and to
the registrant's investment adviser (including any entity controlling,
controlled by, or under common control with the adviser) for the last two years.
The audit committee of the board of trustees 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 principal accountant has not compromised the principal accountant's
independence.
- ------------------------------------------- ------------------------ -----------------------
Non-Audit Related Fees FYE 12/31/2006 FYE 12/31/2005
- ------------------------------------------- ------------------------ -----------------------
Registrant $42,930 $30,275
Registrant's Investment Adviser $0 $0
- ------------------------------------------- ------------------------ -----------------------
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this Form N-CSR.
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/ Luther King
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J. Luther King, Jr., President
Date March 8, 2007
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/ Luther King
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J. Luther King, Jr., President
Date March 8, 2007
By (Signature and Title) /s/ Richard Lenart
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Richard Lenart, Treasurer
Date March 8, 2007