-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MbQ2Ggbz5Pkta8Ha0ro2seV0alBBl81tpEu4qF5YcxKAdvuitR5yGRkLnreiOwTY qpzquPgBY3tLMAij4riqgw== 0000891804-10-001100.txt : 20100310 0000891804-10-001100.hdr.sgml : 20100310 20100310105934 ACCESSION NUMBER: 0000891804-10-001100 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100310 DATE AS OF CHANGE: 20100310 EFFECTIVENESS DATE: 20100310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LKCM Funds CENTRAL INDEX KEY: 0000918942 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08352 FILM NUMBER: 10669311 BUSINESS ADDRESS: STREET 1: 301 COMMERCE STREET 2: SUITE 1600 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 817-332-3235 MAIL ADDRESS: STREET 1: 301 COMMERCE STREET 2: SUITE 1600 CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: U.S. Bancorp Fund Services, LLC DATE OF NAME CHANGE: 20040819 FORMER COMPANY: FORMER CONFORMED NAME: LKCM FUND DATE OF NAME CHANGE: 19940211 0000918942 S000004604 LKCM Small Cap Fund C000012571 Institutional Class LKSCX C000012572 Adviser Class LKSAX 0000918942 S000004605 LKCM Balanced Fund C000012573 LKCM Balanced Fund LKBAX 0000918942 S000004606 LKCM Fixed Income Fund C000012574 LKCM Fixed Income Fund LKFIX 0000918942 S000004607 LKCM International Fund C000012575 LKCM International Fund LKINX 0000918942 S000004608 LKCM Equity Fund C000012576 Institutional Class LKEQX 0000918942 S000004609 LKCM Aquinas Growth Fund C000012578 LKCM Aquinas Growth Fund AQEGX 0000918942 S000004610 LKCM Aquinas Value Fund C000012579 LKCM Aquinas Value Fund AQEIX 0000918942 S000004611 LKCM Aquinas Fixed Income Fund C000012580 LKCM Aquinas Fixed Income Fund AQFIX 0000918942 S000004612 LKCM Aquinas Small Cap Fund C000012581 LKCM Aquinas Small Cap Fund AQBLX N-CSR 1 lkcm48098and99.txt LKCM FUNDS 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) K&L Gates 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, 2009 ITEM 1. REPORTS TO STOCKHOLDERS. - -------------------------------------------------------------------------------- LKCM FUNDS - ------------------------------------------------------------------------------- LKCM SMALL CAP EQUITY FUND LKCM EQUITY FUND LKCM BALANCED FUND LKCM FIXED INCOME FUND LKCM INTERNATIONAL FUND Annual Report December 31, 2009
DEAR FELLOW SHAREHOLDERS: We 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 @ NET EXPENSE GROSS EXPENSE ENDED ENDED ENDED SINCE FUNDS DATES 12/31/09 RATIO*, ** RATIO** 12/31/09 12/31/09 12/31/09 INCEPT. - ------------------------------------------------------------------------------------------------------------------------------------ LKCM Equity Fund - Institutional Class 1/3/96 $13.02 0.80% 1.07% 27.01% 2.56% 1.84% 6.50% S&P 500 Index1 26.46% 0.42% -0.95% 6.13% LKCM Small Cap Equity Fund - Institutional Class 7/14/94 $16.16 0.97% 0.97% 32.03% 1.05% 6.23% 9.87% Russell 2000 Index2 27.17% 0.51% 3.51% 7.67% LKCM Small Cap Equity Fund - Adviser Class 6/5/03 $15.83 1.22% 1.22% 31.70% 0.80% N/A 6.81% Russell 2000 Index2 27.17% 0.51% N/A 6.26% LKCM International Fund 12/30/97 $7.53 1.20% 1.42% 29.51% 3.75% -0.75% 3.19% MSCI/EAFE Index3 32.46% 4.02% 1.58% 4.97% LKCM Balanced Fund 12/30/97 $13.09 0.80% 1.39% 22.90% 4.70% 3.10% 4.71% S&P 500 Index1 26.46% 0.42% -0.95% 2.93% Barclays Capital U.S. Intermediate Government/Credit Bond Index4 5.24% 4.66% 5.93% 5.67% LKCM Fixed Income Fund 12/30/97 $10.85 0.65% 0.73% 10.77% 5.05% 5.73% 5.34% Barclays Capital U.S. Intermediate Government/Credit Bond Index4 5.24% 4.66% 5.93% 5.67%
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 than 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. * The Adviser has agreed to waive all or a portion of its management fee and/or reimburse the Funds to maintain designated expense caps. Investment performance reflects fee waivers, if any, in effect. In the absence of such waivers, total return would be reduced. Investment performance is based upon the net expense ratio. ** Expense ratios above are as of December 31, 2008, the Funds' prior fiscal year end, as reported in the Funds' most recent prospectus. Expense ratios reported for other periods in the financial highlights of this report may differ. (1) The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. (2) The Russell 2000 Index is an unmanaged index which measures the performance of the 2,000 smallest companies in the Russell 3000 Index. As of the latest reconstitution, the average market capitalization of the Russell 2000 Index was approximately $732 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 a recognized international index and is weighted by market capitalization. (4) The Barclays Capital U.S. 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. ECONOMIC OUTLOOK The S&P 500 Index returned 26.46% for 2009, but this fact certainly fails to capture the three distinct measures of the year. The year began with heightened investor concern over housing and rapidly deteriorating economic conditions. This concern was clearly reflected in the equity market as the S&P 500 Index fell approximately 25% from the first of the year through the March 9, 2009 bottom. The second period of the year consisted of the equity market rebounding despite continued worsening economic data. Indeed, the equity market discounted what we believe was likely the conclusion of the recession at the end of the second quarter and a return to positive Gross Domestic Product (GDP) growth in the third quarter. The final period of the year brought improving economic data around employment and housing, together with a corresponding improvement in the equity market. While equities have risen sharply in anticipation of a global economic recovery, resulting from unprecedented policy stimulus, the engine of economic expansion must be reignited. Though policy stimulus is typically the initial spark, the virtuous cycle of demand, liquidity, and spending typically drives expansion. There was a great deal of controversy concerning pent-up demand for housing, autos, capital equipment, and retail goods as the year drew to a close. Retail sales have recently posted a strong recovery. In addition, housing, autos, and capital expenditures are likely to show year-over-year growth in 2010. In our view, pent-up demand does indeed exist and, while perhaps not as strong as in past recoveries, we believe it is sufficient for the purposes of spurring this virtuous cycle. Credit availability is a vital component of ensuring sufficient liquidity to enable businesses to make capital expenditures and consumers to afford housing and cars. A review of the Fed's balance sheet reveals the magnitude of liquidity available to banks, for which banks claim there is little domestic demand. The Fed routinely surveys chief bank lending officers, in which one of the standard questions is whether the bank is tightening lending standards for commercial and industrial loans. Based on the most recent Fed's Senior Loan Officer Survey, banks' willingness to extend credit appears to be improving. 2 We believe that credit standards will normalize as the economic recovery progresses and banks have a clearer picture of the regulator's framework and observe an actual decline in credit metrics such as delinquency rates. It is important to note, however, that we believe the lax credit standards that were common prior to the recession will not return in the foreseeable future. The third component of the virtuous cycle, spending, is driven by job creation. Economic recoveries are often labeled as having "strong job recoveries" such as the 1973-75 and 1981-82 recoveries, or "jobless recoveries," such as 1990-91 and 2001-02. Most observers view the current recovery as a jobless recovery with a rebound in GDP during 2010 despite persistently high unemployment. However, unemployment insurance claims, which historically lead unemployment, have fallen eight consecutive months, and we believe are a sound harbinger of better future employment data. In addition, we believe the net change in nonfarm payroll data is suggesting a rebound in employment. Reviewing labor productivity suggests the labor market is approaching an inflection point. If the U.S. Nonfarm Business Productivity Index, a measure of output per worker, is extrapolated through year end 2010, based on the second and third quarter 2009 readings, we believe the Index suggests an increase which is unsustainable. In our view, this trend implies many companies have likely gleaned all near-term productivity increases and will need to add labor to meet demand. Central to the Fed's policy response to the recession was the increase of the money supply and reduction of interest rates in an attempt to reflate asset values and stave off deflation. The initial indications are that the Fed's action appears to have been successful. In response to this action, however, the value of the U.S. dollar remains quite low by historical standards. Naturally, the value of the U.S. dollar fell in response to the increased supply of dollars from the U.S. government. The decline in the U.S. dollar has been viewed in some circles as alarming, particularly given the rise in the federal deficit. Barring the government needing to defend the U.S. dollar in order to support deficit spending, we believe the low level of the U.S. dollar alone is not alarming. In fact, as interest rates approached zero, the government's menu of actions to stimulate the business cycle declined. We believe a low U.S. dollar serves to favor exports and is, therefore, another mechanism in the government's arsenal to reignite business activity. Moreover, we believe it encourages foreign manufacturers to open facilities in the United States. From an economic point of view, the hallmark of 2009 was the unprecedented application of liquidity and stimulus to combat a rapidly contracting economy and fear of deflation. Due to the lag between policy action and its observable impact on the economy, stimulus is often best applied liberally and deliberately. Given the complexion of the challenge, "too little, too late," was simply not an option. Correspondingly, the hallmark of 2010 is likely to be the beginning of liquidity and stimulus removal. The withdrawal of liquidity and stimulus will require an approach as deft as the application was blunt. Early in a recovery, it is natural to question whether the economic recovery process is real or the product of policy engineering. Policy stimulus cannot be maintained indefinitely and budgetary deficits must be retired through enormous tax revenues, reduced spending, or the rolling of debt. In reality, economic contraction is most often arrested by the application of what some would consider artificial forces. However, it is the confidence that policy makers instill, which allows the eventual withdrawal of stimulus after resumption of economic growth. As we approach this transition from stimulus to confidence, it is natural for investors to be cautious. Although the Fed will likely begin withdrawing various and sundry programs, the most closely watched Fed action will be related to interest rates. We believe that economic growth will drive the Fed's decision to increase interest rates, although the Fed is unlikely to lift interest rates before the second half of 2010 at the earliest. However, the expectation of interest rate movements can influence equity markets far more than actual Fed action. In this regard, we believe the equity market will likely begin to grapple with the prospect of higher interest rates during the first half of 2010. We believe the Fed will ultimately be persuaded to pursue higher interest rates by one of two forces. The preferable rationale for higher interest rates would be in response to stronger economic activity. In this case, the Fed would have greater room to maneuver prospectively. We believe the second rationale for higher interest carries a lower probability and would be greatly unwelcome. If foreign concerns over U.S. fiscal policy pressure the value of the dollar lower, then higher interest rates may be necessary to defend the dollar. The outcome of this higher interest rate scenario would likely be destabilizing. In our estimation, we believe the far more likely outcome is for the Fed to raise interest rates in response to strong economic data; however, the risk of defending the dollar should be recognized. As we highlighted earlier, the U.S. dollar played a central role in the reflation of assets, including equities, in 2009. Looking forward, we believe the dollar is beginning to show signs of stabilization. It is too early to know whether this is a pause before resuming the downward trend, or whether it is the early sign of a bottom for the dollar. As we noted earlier, U.S. equities have historically performed well in periods of a strong dollar, but given the central role the dollar has played in the recovery, it is not beyond reason to expect the dollar to continue to be a key factor in the near-term. The combination of a strong dollar and continued U.S. equities strength could hinge on whether future dollar strength is the product of better U.S. economic growth or lackluster growth from Europe and Asia. Although Japan is showing signs of positive progress, the European Central Bank is thus far refusing to aggressively pursue reflation. On balance, we are optimistic for equity markets as we begin 2010. We believe the first part of the new year should be marked with several positives, including payrolls improving on a consistent basis, a bottoming of home prices, and improved credit availability for consumers and small business as pent-up demand is revealed. Aside from the potential dollar weakness and discounting of higher interest rates, the majority of concerns lie with government. Healthcare reform, federal, state, and municipal budget deficits, and potentially higher personal and corporate income tax schedules collectively weigh on 3 growth. We believe economic growth, as measured by GDP, will likely be between 3% and 4% in 2010. If this estimate proves correct, then the economic recovery will likely be weaker relative to the magnitude of the decline than history would suggest. This would be consistent with our view that tight credit markets, household deleveraging, and ballooning deficits will mitigate what history would suggest would typically be a stronger economic rebound. LKCM EQUITY FUND The LKCM Equity Fund outperformed the S&P 500 Index during the year ended December 31, 2009. The Fund's performance benefited from stock selection decisions within the Consumer Discretionary, Healthcare and Energy sectors. Our decision to overweight the Materials sector also enhanced the Fund's performance. Stock selection within the Materials sector detracted from the Fund's performance, along with our decision to underweight the Financials sector. We believe the Fund's concentration on high quality companies can continue to add value for the Fund and its shareholders in this dynamic market environment. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Equity Fund 27.01% S&P 500 Index 26.46% LKCM SMALL CAP EQUITY FUND The LKCM Small Cap Equity Fund outperformed the Russell 2000 Index for the year ended December 31, 2009. Sector allocation decisions for the Fund were positive as we were overweight the best performing sector, Consumer Discretionary, and underweight the worst performing sector, Financials. Stock selection also benefited the Fund's performance, particularly in the Energy sector. The Fund also benefited from the market's rotation away from lower quality, low stock price and low market capitalization companies during the fourth quarter of 2009. As the market continues to rotate back towards quality companies, we believe the Fund should be well positioned. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Small Cap Equity Fund -- Institutional Class 32.03% Russell 2000 Index 27.17% LKCM BALANCED FUND The LKCM Balanced Fund's asset diversification, stock selection and focus on quality were keys to the Fund's performance in the year ended December 31, 2009. Stock selection decisions in the Healthcare and Energy sectors proved beneficial to the Fund's performance. Stock selection in the Information Technology and Materials sectors detracted from the Fund's performance. We believe that our long-standing philosophy of controlling risk via a focus on high quality companies in a blend of asset classes will continue to be important during 2010. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Balanced Fund 22.90% S&P 500 Index 26.46% Barclays Capital U.S. Intermediate Government/ Credit Bond Index 5.24% LKCM FIXED INCOME FUND The LKCM Fixed Income Fund is managed to provide current income. The Fund predominantly invests in a portfolio of investment grade corporate bonds as well as government securities with short and intermediate maturities from one to ten years and cash equivalent securities. Our investment strategy emphasizes the selection of corporate bonds with strong credit profiles and attractive yields relative to those offered on U.S. Treasury and government-agency debt. As of December 31, 2009, the total net assets in the Fund were $149.2 million. This represented an asset mix of 90.3% invested in corporate bonds, 5.5% in U.S. Treasury and government-agency debt, 0.6% in preferred stock, and 3.6% in cash reserves, net of liabilities. At December 31, 2009, the Fund had an effective duration of 3.3 years. The Fund's overweight in credit (i.e., corporate bonds) relative to government debt was the primary contributor to performance as credit spreads tightened dramatically during the year versus a government sector that produced negative returns. The Fund's shorter duration relative to the 3.9 year duration for the Barclays Capital U.S. Intermediate Government/Credit Bond Index was also additive to performance as spreads in the intermediate sector of the curve compressed more than those on longer dated issues. U.S. government debt underperformed on a relative basis on the reversal of the flight-to-quality trade, massive new issuance and concerns over continued willingness of foreign central banks to finance a growing U.S. budget deficit. The Fund's sector weightings in the Energy, Basic Materials, Consumer Cyclicals 4 and Technology sectors all contributed to performance as well as overweighting issues with credit ratings between triple B and single A. A number of corporate actions by high quality acquirers also contributed to spread tightening and outperformance. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Fixed Income Fund 10.77% Barclays Capital U.S. Intermediate Government/ Credit Bond Index 5.24% LKCM INTERNATIONAL FUND The LKCM International Fund is sub-advised by TT International. A detailed performance report for the Fund for the year ended December 31, 2009 can be found on page 6. /s/ J. Luther King, Jr. J. Luther King, Jr., CFA January 25, 2010 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 16-29 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. MUTUAL FUND INVESTING INVOLVES RISK. PRINCIPAL LOSS IS POSSIBLE. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. SMALL-CAPITALIZATION FUNDS TYPICALLY CARRY ADDITIONAL RISKS, SINCE SMALLER COMPANIES GENERALLY HAVE A HIGHER RISK OF FAILURE, AND, HISTORICALLY, THEIR STOCKS HAVE EXPERIENCED A GREATER DEGREE OF MARKET VOLATILITY THAN STOCKS ON AVERAGE. INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST RATES RISE. THIS RISK IS USUALLY GREATER FOR LONGER-TERM DEBT SECURITIES. INTERNATIONAL INVESTING INVOLVES SPECIAL RISK CONSIDERATIONS, INCLUDING FLUCTUATING FOREIGN EXCHANGE RATES, MORE LIMITED INFORMATION AVAILABLE ABOUT ISSUERS OF SECURITIES, FOREIGN GOVERNMENT REGULATIONS AND DIFFERING DEGREE OF LIQUIDITY, THAT MAY ADVERSELY AFFECT PORTFOLIO SECURITIES. THESE RISKS ARE DISCUSSED IN THE FUNDS' PROSPECTUS. THE LKCM INTERNATIONAL FUND MAY ALSO USE OPTIONS AND FUTURE CONTRACTS, WHICH HAVE THE RISKS OF UNLIMITED LOSSES OF THE UNDERLYING HOLDINGS DUE TO UNANTICIPATED MARKET MOVEMENTS AND FAILURE TO CORRECTLY PREDICT THE DIRECTION OF SECURITIES PRICES, INTEREST RATES AND CURRENCY EXCHANGE RATES. BECAUSE THE FUND MAY ALSO INVEST IN OPTIONS AND FUTURE CONTRACTS, IT THEREFORE MAY NOT BE SUITABLE FOR ALL INVESTORS. CURRENT AND FUTURE PORTFOLIO HOLDINGS ARE SUBJECT TO RISK. Must be preceded or accompanied by a prospectus. 5 REPORT FROM TT INTERNATIONAL The LKCM International Fund seeks to achieve a total return in excess of the total return of the Morgan Stanley Capital International Europe, Australasia and Far East Index ("MSCI EAFE") Index. YEAR ENDED DECEMBER 31, 2009 LKCM INTERNATIONAL FUND: 29.51% MSCI EAFE: 32.46% PERFORMANCE The Fund produced a positive absolute return of 29.51% in the year ended December 31, 2009, although it underperformed its benchmark, the MSCI EAFE Index. The Fund's performance benefited from positive security selection in Europe, primarily in the Materials and Energy sectors. This was offset by disappointing security selection in Japan. Japanese equities had a difficult year due to the strong yen, heavy equity issuance and negative sentiment towards the banking sector though the market finished the year strongly as the yen began to weaken. MARKETS Conditions during 2009 were extreme. The year began with economies in the midst of the worst recession in over fifty years. The mood among investors was extremely depressed and stock markets plummeted in the first two months of the year. But March marked the low point. The announcement by the world's central banks of an effective guarantee for the global financial system as well as trillions of dollars of monetary and fiscal stimulus measures brought a halt to the freefall in economies and markets. This, combined with signs of economic "green shoots", prompted a sharp resurgence in risk appetite and the beginning of a powerful cyclical-led rally in equities which continued until the end of the year. Positive second quarter earnings numbers from the banking sector announced in July and growing evidence of a cyclical economic recovery propelled equities higher over the summer and into autumn. The final quarter of the year was patchier as investors began to worry about the possibility of monetary tightening and withdrawal of economic stimuli. Markets also received an unwelcome shock at the end of November after Dubai World, the state-controlled holding company, defaulted on its debt. But equities finished the year on a strong note reflecting a mood of optimism among investors heading into 2010. OUTLOOK The economic picture in Europe remains mixed. Real economy data has proved somewhat disappointing though business surveys have been strong, particularly in the manufacturing sector where companies have seen the benefit of inventory restocking. We believe extensive cost cutting in 2009 has paved the way for huge operating leverage to come through as demand gradually improves. In our view, Germany, Europe's powerhouse, should increasingly benefit from a pick up in business spending and restocking. We believe other parts of Europe face stiff challenges. Spain is in the middle of a painful process of deleveraging and rising unemployment while Greece's serious budget problems has resulted in its credit rating being downgraded and the government having to implement an emergency budget. In Japan, the economic recovery continues to be driven by the strength of exports to the rest of Asia. Japanese manufacturing confidence has risen to the highest level since the crisis began. Concern over persistent deflationary pressure has prompted the Japanese government to introduce an $81 billion stimulus package and the Bank of Japan is expected to shift its monetary policy - -- the Bank of Japan recently said that they 'will not tolerate a Consumer Price Index of less than zero' - towards quantitative easing. Japanese corporate profits are recovering strongly, and following its poor performance in 2009, we believe the Japanese equity market is attractively valued compared to other regions. The rest of Asia enters 2010 in the midst of a broad and rapid economic recovery. We believe that China should likely continue to grow strongly in 2010 as its economic recovery increasingly becomes driven by the private sector and domestic consumption. There is a greater risk of resurgent inflation in emerging economies compared to the developed world and this has led to concerns over an end to easy financial conditions, particularly in China. However, while China has taken steps to rein in the housing market and money supply, we believe it is unlikely to risk derailing the economic recovery with overzealous tightening. Overall, we expect equities to push higher and enjoy another positive year in 2010, albeit likely without repeating the stellar gains of 2009, supported by a continued recovery in the global economy and in particular, inventory restocking. In our view, this, combined with the substantial operating leverage uncovered by cost cutting in 2009, mean there is large scope for earnings to surprise on the upside in 2010. TT International January 26, 2010 Past performance is not a guarantee of future results. 6 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Small Cap Equity Fund as of December 31, 2009 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 SMALL CAP EQUITY FUND -- INSTITUTIONAL CLASS 32.03% 1.05% 6.23% 9.87% - ------------------------------------------------------------------ Russell 2000 Index 27.17% 0.51% 3.51% 7.67% - ------------------------------------------------------------------ Lipper Small-Cap Core Funds Index 34.50% 1.55% 5.24% 9.10% - ------------------------------------------------------------------ (1) July 14, 1994
A Hypothetical $10,000 Investment in LKCM Small Cap Equity Fund -- Institutional Class LINE CHART LKCM Small Cap Equity Lipper Small-Cap Fund Institutional Russell 2000 Total Core Funds Class $18,302 Return Index $14,126 Index $16,663 Dec-99 10000 10000 10000 Dec-00 11137 9698 10693 Dec-01 11973 9939 11455 Dec-02 10561 7903 9252 Dec-03 14227 11638 13037 Dec-04 17369 13771 15431 Dec-05 19873 14398 16597 Dec-06 22850 17042 18871 Dec-07 22675 16775 19234 Dec-08 13863 11108 12389 Dec-09 18302 14126 16663 The Russell 2000 Index is an unmanaged index consisting of the 2,000 smallest companies in the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $732 million. The Lipper Small-Cap Core Funds Index is an equally weighted index of the 30 largest small cap core mutual funds tracked by Lipper, Inc. 7
AVERAGE ANNUAL TOTAL RETURN - -------------------------------------------------------------------------------------------------------------------- PAST PAST PAST SINCE YEAR 3 YEARS 5 YEARS INCEPTION(1) - -------------------------------------------------------------------------------------------------------------------- LKCM SMALL CAP EQUITY FUND -- ADVISER CLASS 31.70% (7.38)% 0.80% 6.81% - -------------------------------------------------------------------------------------------------------------------- Russell 2000 Index 27.17% (6.07)% 0.51% 6.26% - -------------------------------------------------------------------------------------------------------------------- Lipper Small-Cap Core Funds Index 34.50% (4.06)% 1.55% 7.53% - -------------------------------------------------------------------------------------------------------------------- (1) June 5, 2003 A Hypothetical $10,000 Investment in LKCM Small Cap Equity Fund -- Adviser Class
LINE CHART LKCM Small Cap Russell 2000 Equity Fund Adviser Total Return Lipper Small-Cap Class $15,415 Index $14,904 Core Funds Index $16,115 Jun-03 10000 10000 10000 Dec-03 12166 12279 12607 13644 13110 13586 Dec-04 14813 14530 14923 15271 14348 14899 Dec-05 16911 15192 16051 18259 16440 17062 Dec-06 19400 17982 18250 20784 19141 19991 Dec-07 19195 17700 18601 17170 16042 17292 Dec-08 11705 11720 11981 12620 12029 12968 Dec-09 15415 14904 16115 The Russell 2000 Index is an unmanaged index consisting of the 2,000 smallest companies in the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $732 million. The Lipper Small-Cap Core Funds Index is an equally weighted index of the 30 largest small cap core mutual funds tracked by Lipper, Inc. 8 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Equity Fund as of December 31, 2009 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 27.01% 2.56% 1.84% 6.50% - ---------------------------------------------------------------- S&P 500 Index 26.46% 0.42% (0.95)% 6.13% - ---------------------------------------------------------------- Lipper Large-Cap Core Funds Index 28.15% 0.61% (1.20)% 5.37% - ----------------------------------------------------------------
(1) January 3, 1996 A Hypothetical $10,000 Investment in LKCM Equity Fund -- Institutional Class LKCM Equity Fund Lipper Large-Cap Institutional Core Funds S&P 500 Class $12,001 Index $8,859 TR $9,090 Dec-99 10000 10000 10000 Dec-00 10414 9263 9090 Dec-01 9309 8074 8009 Dec-02 7946 6360 6239 Dec-03 9804 7937 8029 Dec-04 10576 8595 8902 Dec-05 11084 9087 9340 Dec-06 12486 10303 10815 Dec-07 13854 10986 11409 Dec-08 9448 6913 7188 Dec-09 12001 8859 9090 The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Lipper Large-Cap Core Funds Index is an equally weighted index of the 30 largest large cap core mutual funds tracked by Lipper, Inc. 9 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Balanced Fund as of December 31, 2009 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 BALANCED FUND 22.90% 4.70% 3.10% 4.71% - ---------------------------------------------------------------------------------------------------------- Barclays Capital U.S. Intermediate Government/Credit Bond Index 5.24% 4.66% 5.93% 5.67% - ---------------------------------------------------------------------------------------------------------- S&P 500 Index 26.46% 0.42% (0.95)% 2.93% - ---------------------------------------------------------------------------------------------------------- Lipper Mixed-Asset Target Allocation Growth Funds Index 26.23% 2.73% 3.61% 4.54% - ----------------------------------------------------------------------------------------------------------
(1) December 30, 1997 A Hypothetical $10,000 Investment in LKCM Balanced Fund LINE CHART
Barclays Capital Lipper Mixed-Asset U.S. Intermediate Target Allocation LKCM Government/Credit Growth Funds Balanced $13,568 Bond Index $17,784 Index $14,258 S&P 500 TR $9,090 Dec-99 10000 10000 10000 10000 Dec-00 9766 11012 10441 9090 Dec-01 9812 11999 10333 8009 Dec-02 8638 13179 9259 6239 Dec-03 10070 13747 11350 8029 Dec-04 10786 14165 12463 8902 Dec-05 11419 14389 13161 9340 Dec-06 12701 14976 14945 10815 Dec-07 13748 16082 15922 11409 Dec-08 11040 16898 11295 7188 Dec-09 13568 17784 14258 9090
The Barclays Capital U.S. 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 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. 10 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Fixed Income Fund as of December 31, 2009 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 FIXED INCOME FUND 10.77% 5.05% 5.73% 5.34% - ---------------------------------------------------------------------------------------------------- Barclays Capital U.S. Intermediate Government/Credit Bond Index 5.24% 4.66% 5.93% 5.67% - ---------------------------------------------------------------------------------------------------- Lipper Short Intermediate Investment-Grade Debt Funds Index 11.73% 3.90% 4.96% 4.87% - ----------------------------------------------------------------------------------------------------
(1) December 30, 1997 A Hypothetical $10,000 Investment in LKCM Fixed Income Fund
Barclays Capital U.S. Lipper Short Intermediate LKCM Fixed Intermediate Government/ Investment Grade Debt Income $17,464 Credit Bond Index $17,784 Fund Index $16,221 Dec-99 10000 10000 10000 Dec-00 10926 11012 10876 Dec-01 12102 11999 11727 Dec-02 12867 13179 12567 Dec-03 13285 13747 13050 Dec-04 13653 14165 13395 Dec-05 13897 14389 13576 Dec-06 14448 14976 14128 Dec-07 15309 16082 14890 Dec-08 15766 16898 14518 Dec-09 17464 17784 16221
The Barclays Capital U.S. 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 equally weighted index of the 30 largest short intermediate investment grade mutual funds tracked by Lipper, Inc. 11 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM International Fund as of December 31, 2009 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 INTERNATIONAL FUND 29.51% 3.75% (0.75)% 3.19% - ---------------------------------------------------------------------------------------------------------------------------------- MSCI/EAFE Index(2) 32.46% 4.02% 1.58% 4.97% - ---------------------------------------------------------------------------------------------------------------------------------- Lipper International Multi-Cap Value Funds Index 32.83% 4.10% 4.56% 6.56% - ----------------------------------------------------------------------------------------------------------------------------------
(1) December 30, 1997 (2) Morgan Stanley Capital International Europe, Australasia, Far East Index A Hypothetical $10,000 Investment in LKCM International Fund Lipper International LKCM MSCI EAFE Multi-Cap Value International $9,275 Index $11,697 Funds Index $15,619 Dec-99 10000 10000 10000 Dec-00 8932 8604 9666 Dec-01 6327 6780 8396 Dec-02 5134 5718 7453 Dec-03 6915 7958 10480 Dec-04 7716 9605 12777 Dec-05 9297 10951 14608 Dec-06 11854 13892 18632 Dec-07 13656 15508 20536 Dec-08 7162 8830 11758 Dec-09 9275 11697 15619 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 a recognized international index and is weighted by market capitalization. The Lipper International Multi-Cap Value Funds Index is an equally weighted index of the 30 largest international multi-cap value mutual funds tracked by Lipper, Inc. 12 LKCM FUNDS EXPENSE EXAMPLE -- DECEMBER 31, 2009 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 (7/1/09-12/31/09). 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 7/1/09- 7/1/09 12/31/09 12/31/09 - -------------------------------------------------------------------------------- Actual $1,000.00 $1,223.30 $5.60 Hypothetical (5% return before expense) $1,000.00 $1,020.16 $5.09 * Expenses are equal to the Fund's annualized net expense ratio of 1.00%, 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 7/1/09- 7/1/09 12/31/09 12/31/09 - -------------------------------------------------------------------------------- Actual $1,000.00 $1,221.50 $7.00 Hypothetical (5% return before expense) $1,000.00 $1,018.90 $6.36 * Expenses are equal to the Fund's annualized net expense ratio of 1.25%, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. 13
LKCM EQUITY FUND -------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE 7/1/09- 7/1/09 12/31/09 12/31/09 - ------------------------------------------------------------------------------------ Actual $1,000.00 $1,204.80 $4.45 Hypothetical (5% return before expense) $1,000.00 $1,021.17 $4.08
* Expenses are equal to the Fund's annualized net 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 7/1/09- 7/1/09 12/31/09 12/31/09 - ------------------------------------------------------------------------------------- Actual $1,000.00 $1,167.30 $4.37 Hypothetical (5% return before expense) $1,000.00 $1,021.17 $4.08
* Expenses are equal to the Fund's annualized net 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 7/1/09- 7/1/09 12/31/09 12/31/09 - ----------------------------------------------------------------------------------- Actual $1,000.00 $1,047.60 $3.35 Hypothetical (5% return before expense) $1,000.00 $1,021.93 $3.31
* Expenses are equal to the Fund's annualized net 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 7/1/09- 7/1/09 12/31/09 12/31/09 - ----------------------------------------------------------------------------------- Actual $1,000.00 $1,214.20 $6.70 Hypothetical (5% return before expense) $1,000.00 $1,019.16 $6.11
* Expenses are equal to the Fund's annualized net 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. 14 ALLOCATION OF PORTFOLIO HOLDINGS -- LKCM FUNDS -- DECEMBER 31, 2009 Percentages represent market value as a percentage of total investments. PIE CHARTS LKCM SMALL CAP EQUITY FUND LKCM EQUITY FUND Short-Term Investments 2.4% Short-Term Investments 5.8% Common Stocks 97.6% Common Stocks 94.2% LKCM BALANCED FUND LKCM FIXED INCOME FUND Short-Term Investments 2.6% Preferred Stocks 0.6% U.S. Government & Agency Issues 0.8% U.S.Government & Agency Issues 5.6% Corporate Bonds 26.3% Corporate Bonds 89.5% Common Stocks 70.3% Short-Term Investments 4.3% LKCM INTERNATIONAL FUND Preferred Stocks 3.0% Common Stocks 97.0% 15 LKCM SMALL CAP EQUITY FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ----------------------------------------------------------------------- COMMON STOCKS - 97.7% SHARES VALUE - ----------------------------------------------------------------------- AEROSPACE & DEFENSE - 1.1% Hexcel Corporation (a) 489,150 $ 6,349,167 ------------- AIR FREIGHT & LOGISTICS - 1.8% Forward Air Corporation 173,557 4,347,603 UTI Worldwide, Inc. (b) 417,800 5,982,896 ------------- 10,330,499 ------------- AUTO COMPONENTS - 1.2% LKQ Corporation (a) 331,050 6,485,270 ------------- CAPITAL MARKETS - 1.4% Raymond James Financial, Inc. 339,600 8,072,292 ------------- CHEMICALS - 3.1% A. Schulman, Inc. 323,100 6,520,158 Calgon Carbon Corporation (a) 401,650 5,582,935 Cytec Industries Inc. 153,250 5,581,365 ------------- 17,684,458 ------------- COMMERCIAL BANKS - 4.6% First Horizon National Corporation 517,749 6,937,835 Glacier Bancorp, Inc. 346,630 4,755,764 Prosperity Bancshares, Inc. 160,850 6,509,599 Synovus Financial Corp. 1,543,150 3,163,458 Texas Capital Bancshares, Inc. (a) 317,050 4,426,018 ------------- 25,792,674 ------------- COMMERCIAL SERVICES & SUPPLIES - 4.3% Administaff, Inc. 278,100 6,560,379 Copart, Inc. (a) 148,200 5,428,566 Resources Connection, Inc. (a) 293,350 6,224,887 Waste Connections, Inc. (a) 182,450 6,082,883 ------------- 24,296,715 ------------- COMMUNICATIONS EQUIPMENT - 0.6% Arris Group Inc. (a) 314,700 3,597,021 ------------- COMPUTERS & PERIPHERALS - 3.4% 3PAR, Inc. (a) 546,350 6,474,248 Brocade Communications Systems, Inc. (a) 555,350 4,237,320 Electronics for Imaging, Inc. (a) 177,965 2,315,325 Netezza Corporation (a) 624,250 6,055,225 -------------- 19,082,118 -------------- CONSUMER FINANCE - 2.5% Cash America International, Inc. 219,900 7,687,704 First Cash Financial Services, Inc. (a) 291,601 6,470,626 -------------- 14,158,330 -------------- CONTAINERS & PACKAGING - 2.2% Packaging Corp of America 279,500 6,431,295 Silgan Holdings Inc. 101,600 5,880,608 -------------- 12,311,903 -------------- DISTRIBUTORS - 1.2% WESCO International, Inc. (a) 246,500 6,657,965 -------------- - ----------------------------------------------------------------------- COMMON STOCKS SHARES VALUE - ----------------------------------------------------------------------- DIVERSIFIED CONSUMER SERVICES - 2.2% Capella Education Company (a) 69,600 $ 5,240,880 K12 Inc. (a) 346,490 7,023,352 -------------- 12,264,232 -------------- DIVERSIFIED MANUFACTURING - 0.8% Raven Industries, Inc. 146,550 4,655,894 -------------- ELECTRICAL EQUIPMENT - 1.1% Baldor Electric Company 224,100 6,294,969 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.2% Itron, Inc. (a) 84,950 5,740,071 National Instruments Corporation 246,650 7,263,842 Rofin-Sinar Technologies, Inc. (a) 224,450 5,299,265 Trimble Navigation Limited (a) 204,150 5,144,580 -------------- 23,447,758 -------------- ENERGY EQUIPMENT & SERVICES - 3.3% Core Laboratories N.V. (b) 60,700 7,169,884 Dril-Quip, Inc. (a) 142,550 8,051,224 Willbros Group, Inc. (a) 210,850 3,557,039 -------------- 18,778,147 -------------- FOOD PRODUCTS - 0.8% Chiquita Brands International, Inc. (a) 242,600 4,376,504 -------------- HEALTH CARE EQUIPMENT & SUPPLIES - 7.5% American Medical Systems Holdings, Inc. (a) 340,800 6,574,032 Conceptus Inc. (a) 471,600 8,847,216 Haemonetics Corporation (a) 107,200 5,912,080 Luminex Corporation (a) 160,500 2,396,265 Meridian Bioscience, Inc. 205,675 4,432,296 Merit Medical Systems, Inc. (a) 82,536 1,592,119 NuVasive, Inc. (a) 226,950 7,257,861 Wright Medical Group, Inc. (a) 280,150 5,308,843 -------------- 42,320,712 -------------- HEALTH CARE PROVIDERS & SERVICES - 4.0% MWI Veterinary Supply, Inc. (a) 211,750 7,982,975 PAREXEL International Corporation (a) 493,650 6,960,465 PSS World Medical, Inc. (a) 339,400 7,660,258 -------------- 22,603,698 -------------- HOTELS, RESTAURANTS & LEISURE - 1.8% BJ's Restaurants, Inc. (a) 313,200 5,894,424 Boyd Gaming Corporation (a) 525,550 4,398,853 -------------- HOUSEHOLD DURABLES - 2.9% 10,293,277 -------------- Jarden Corporation 225,800 6,979,478 Tempur-Pedic International Inc. (a) 399,950 9,450,819 -------------- 16,430,297 -------------- INSURANCE - 0.8% Argo Group International Holdings, Ltd. (a) (b) 156,201 4,551,697 -------------- INTERNET SOFTWARE & SERVICES - 1.9% LogMeIn, Inc. (a) 266,950 5,325,652 MercadoLibre Inc. (a) 101,450 5,262,212 -------------- 10,587,864 -------------- INVESTMENT BANK & BROKERAGE - 0.8% Evercore Partners Inc. - Class A 156,850 4,768,240 -------------- The accompanying notes are an integral part of these financial statements. 16 LKCM SMALL CAP EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ----------------------------------------------------------------------- COMMON STOCKS SHARES VALUE - ----------------------------------------------------------------------- IT SERVICES - 0.9% ManTech International Corporation - Class A (a) 110,350 $ 5,327,698 ------------- LEISURE EQUIPMENT & PRODUCTS - 0.9% Brunswick Corporation 408,300 5,189,493 ------------- LIFE SCIENCES TOOLS & SERVICES - 1.0% Techne Corporation 84,250 5,776,180 ------------- MACHINERY - 3.8% CIRCOR International, Inc. 176,350 4,440,493 CLARCOR Inc. 134,800 4,372,912 Kaydon Corporation 165,650 5,923,644 Mueller Water Products, Inc. - Class A 1,245,630 6,477,276 ------------- 21,214,325 ------------- MARINE - 1.0% Kirby Corporation (a) 153,700 5,353,371 ------------- MEDIA - 0.8% Live Nation Inc. (a) 532,850 4,534,554 ------------- METALS & MINING - 1.3% Carpenter Technology Corporation 271,150 7,307,492 ------------- OIL & GAS DRILLING - 1.0% Atwood Oceanics, Inc. (a) 151,800 5,442,030 ------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 3.2% Carrizo Oil & Gas, Inc. (a) 250,671 6,640,275 Concho Resources Inc. (a) 111,350 4,999,615 EXCO Resources, Inc. 273,550 5,807,467 Rosetta Resources, Inc. (a) 43,253 862,032 ------------- 18,309,389 ------------- PHARMACEUTICALS - 0.9% Endo Pharmaceuticals Holdings Inc. (a) 236,350 4,847,538 ------------- ROAD & RAIL - 1.0% Landstar System, Inc. 150,050 5,817,439 ------------- SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 2.2% FormFactor Inc. (a) 275,100 5,986,176 Intersil Corporation - Class A 400,150 6,138,301 ------------- 12,124,477 ------------- SOFTWARE - 9.0% ANSYS, Inc. (a) 146,265 6,356,677 F5 Networks, Inc. (a) 108,950 5,772,171 MedAssets Inc. (a) 234,300 4,969,503 MicroStrategy Incorporated - Class A (a) 87,850 8,259,657 Nuance Communications, Inc. (a) 447,800 6,958,812 Solarwinds, Inc. (a) 229,700 5,285,397 Sybase, Inc. (a) 127,050 5,513,970 TIBCO Software Inc. (a) 807,450 7,775,743 ------------- 50,891,930 ------------- - ----------------------------------------------------------------------- COMMON STOCKS SHARES VALUE - ----------------------------------------------------------------------- SPECIALTY RETAIL - 8.8% DSW Inc. - Class A (a) 387,550 $ 10,029,794 Foot Locker, Inc. 571,900 6,370,966 Hibbett Sports Inc. (a) 271,450 5,969,186 Monro Muffler Brake, Inc. 91,189 3,049,360 PetMed Express, Inc. 383,200 6,755,816 Signet Jewelers Ltd. (a) (b) 179,200 4,788,224 Tractor Supply Company (a) 121,938 6,457,836 Ulta Salon, Cosmetics & Fragrance, Inc. (a) 355,850 6,462,236 ------------ 49,883,418 ------------ TEXTILES, APPAREL & LUXURY GOODS - 1.4% The Warnaco Group, Inc. (a) 185,800 7,838,902 ------------ WIRELESS TELECOMMUNICATION SERVICES - 1.0% SBA Communications Corporation - Class A (a) 171,142 5,846,211 ------------ TOTAL COMMON STOCKS (Cost $473,778,933) 551,896,148 ============ - ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS - 2.4% - ------------------------------------------------------------------------ MONEY MARKET FUNDS - 2.4% Dreyfus Government Cash Management Fund - Institutional Shares, 0.01% (c) 1,000 1,000 Federated Government Obligations Fund - Institutional Shares, 0.06% (c) 13,738,055 13,738,055 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $13,739,055) 13,739,055 ------------ TOTAL INVESTMENTS - 100.1% (Cost $487,517,988) 565,635,203 Liabilities in Excess of Other Assets - (0.1)% (744,040) ------------ TOTAL NET ASSETS - 100.0% $564,891,163 ============ (a) Non-income producing security. (b) U.S. Dollar-denominated foreign security. (c) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 17 LKCM EQUITY FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ------------------------------------------------------------------ COMMON STOCKS - 94.1% SHARES VALUE - ------------------------------------------------------------------ AEROSPACE & DEFENSE - 3.6% Raytheon Company 15,000 $ 772,800 Rockwell Collins, Inc. 18,000 996,480 ------------- 1,769,280 ------------- BEVERAGES - 4.7% The Coca-Cola Company 14,000 798,000 Fomento Economico Mexicano, S.A.B. de C.V. - ADR (b) 15,000 718,200 PepsiCo, Inc. 13,000 790,400 ------------- 2,306,600 ------------- BIOTECHNOLOGY - 0.8% Gilead Sciences, Inc. (a) 9,500 411,160 ------------- CAPITAL MARKETS - 1.4% Lazard Ltd. - Class A (b) 8,900 337,933 Northern Trust Corporation 7,000 366,800 ------------- 704,733 ------------- CHEMICALS - 6.1% Air Products and Chemicals, Inc. 9,000 729,540 Calgon Carbon Corporation (a) 15,000 208,500 E. I. du Pont de Nemours & Company 25,000 841,750 FMC Corporation 14,600 814,096 Monsanto Company 5,000 408,750 ------------- 3,002,636 ------------- COMMERCIAL BANKS - 7.2% Bank of America Corporation 48,000 722,880 Cullen/Frost Bankers, Inc. 28,000 1,400,000 Glacier Bancorp, Inc. 23,000 315,560 Wells Fargo & Company 40,000 1,079,600 ------------- 3,518,040 ------------- COMMERCIAL SERVICES & SUPPLIES - 1.5% Waste Management, Inc. 22,000 743,820 ------------- COMMUNICATIONS EQUIPMENT - 3.0% Cisco Systems, Inc. (a) 34,000 813,960 Nokia Corporation - ADR (b) 19,600 251,860 Research In Motion Limited (a) (b) 6,000 405,240 ------------- 1,471,060 ------------- COMPUTERS & PERIPHERALS - 5.3% Apple Inc. (a) 3,300 695,838 EMC Corporation (a) 50,000 873,500 International Business Machines Corporation 8,000 1,047,200 ------------- 2,616,538 ------------- CONSTRUCTION & ENGINEERING - 0.6% Foster Wheeler AG (a) (b) 10,500 309,120 ------------- CONSTRUCTION MATERIALS - 1.6% Eagle Materials, Inc. 13,000 338,650 Martin Marietta Materials, Inc. 5,000 447,050 ------------- 785,700 ------------- CONTAINERS & PACKAGING - 0.8% Ball Corporation 7,200 372,240 ------------- - ------------------------------------------------------------------ COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.7% JPMorgan Chase & Co. 8,100 $ 337,527 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 1.1% AT&T Inc. 20,000 560,600 ------------- ELECTRICAL EQUIPMENT - 1.2% Emerson Electric Co. 13,300 566,580 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.1% Itron, Inc. (a) 4,000 270,280 National Instruments Corporation 17,000 500,650 Trimble Navigation Limited (a) 10,000 252,000 ------------- 1,022,930 ------------- ENERGY EQUIPMENT & SERVICES - 0.8% Halliburton Company 13,300 400,197 ------------- FOOD & STAPLES RETAILING - 1.1% Walgreen Company 15,000 550,800 ------------- HEALTH CARE EQUIPMENT & SUPPLIES - 6.9% Alcon, Inc. (b) 4,800 788,880 DENTSPLY International Inc. 17,000 597,890 Haemonetics Corporation (a) 10,000 551,500 ResMed Inc. (a) 10,000 522,700 Thermo Fisher Scientific, Inc. (a) 20,000 953,800 ------------- 3,414,770 ------------- HEALTH CARE PROVIDERS & SERVICES - 1.0% Express Scripts, Inc. (a) 5,500 475,475 ------------- HOTELS, RESTAURANTS & LEISURE - 0.7% Carnival Corporation (b) 11,300 358,097 ------------- HOUSEHOLD DURABLES - 1.9% Jarden Corporation 30,000 927,300 ------------- HOUSEHOLD PRODUCTS - 3.0% Energizer Holdings, Inc. (a) 5,800 355,424 Kimberly-Clark Corporation 8,000 509,680 The Procter & Gamble Company 10,000 606,300 ------------- 1,471,404 ------------- INDUSTRIAL CONGLOMERATES - 0.6% General Electric Company 20,000 302,600 ------------- INTERNET SOFTWARE & SERVICES - 2.1% Akamai Technologies, Inc. (a) 22,000 557,260 Google Inc. - Class A (a) 750 464,985 ------------- 1,022,245 ------------- MACHINERY - 1.8% Danaher Corporation 12,000 902,400 ------------- MARINE - 1.3% Kirby Corporation (a) 18,000 626,940 ------------- The accompanying notes are an integral part of these financial statements. 18 LKCM EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------------- MEDIA - 0.8% Time Warner Inc. 14,000 $ 407,960 -------------- METALS & MINING - 2.5% Newmont Mining Corporation 13,000 615,030 Peabody Energy Corporation 13,100 592,251 -------------- 1,207,281 -------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 9.9% Cabot Oil & Gas Corporation 15,300 666,927 Cenovus Energy Inc. (b) 7,200 181,440 ConocoPhillips 10,000 510,700 Devon Energy Corporation 7,000 514,500 EnCana Corporation (b) 7,200 233,208 EOG Resources, Inc. 7,000 681,100 Exxon Mobil Corporation 10,000 681,900 Noble Energy, Inc. 10,000 712,200 XTO Energy, Inc. 15,000 697,950 -------------- 4,879,925 -------------- PHARMACEUTICALS - 2.6% Abbott Laboratories 15,000 809,850 Pfizer Inc. 26,800 487,492 -------------- 1,297,342 -------------- PROFESSIONAL SERVICES - 0.8% Robert Half International, Inc. 15,000 400,950 -------------- ROAD & RAIL - 1.5% Burlington Northern Santa Fe Corporation 7,300 719,926 -------------- SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.9% Intel Corporation 22,000 448,800 Texas Instruments, Incorporated 18,000 469,080 -------------- 917,880 -------------- SOFTWARE - 4.6% Microsoft Corporation 16,300 496,987 Nuance Communications, Inc. (a) 35,000 543,900 Oracle Corporation 50,000 1,227,000 -------------- 2,267,887 -------------- SPECIALTY RETAIL - 5.9% PetSmart, Inc. 30,000 800,700 RadioShack Corporation 20,700 403,650 Tiffany & Co. 18,000 774,000 Tractor Supply Company (a) 17,000 900,320 -------------- 2,878,670 -------------- TEXTILES, APPAREL & LUXURY GOODS - 0.7% VF Corporation 4,500 329,580 -------------- TOTAL COMMON STOCKS (Cost $37,674,678) 46,258,193 -------------- - ------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 5.8% SHARES VALUE - ------------------------------------------------------------------------- MONEY MARKET FUNDS - 5.8% The AIM STIT - Treasury Portfolio - Institutional Shares, 0.02% (c) 612,429 $ 612,429 Dreyfus Government Cash Management Fund - Institutional Shares, 0.01% (c) 1,170,338 1,170,338 Federated Government Obligations Fund - Institutional Shares, 0.06% (c) 1,077,984 1,077,984 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $2,860,751) 2,860,751 ------------ TOTAL INVESTMENTS - 99.9% (Cost $40,535,429) 49,118,944 Other Assets in Excess of Liabilities - 0.1% 37,886 ------------ TOTAL NET ASSETS - 100.0% $49,156,830 ============ ADR American Depository Receipt. (a) Non-income producing security. (b) U.S. Dollar-denominated foreign security. (c) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 19 LKCM BALANCED FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ---------------------------------------------------------------------- COMMON STOCKS - 70.0% SHARES VALUE - ---------------------------------------------------------------------- AEROSPACE & DEFENSE - 2.0% General Dynamics Corporation 1,700 $ 115,889 Raytheon Company 3,132 161,361 ------- 277,250 ------- AIR FREIGHT & LOGISTICS - 0.7% United Parcel Service, Inc. - Class B 1,600 91,792 ------- ASSET MANAGEMENT - 0.9% Bank of New York Mellon Corporation 4,470 125,026 ------- BEVERAGES - 2.3% The Coca-Cola Company 2,900 165,300 PepsiCo, Inc. 2,400 145,920 ------- 311,220 ------- BIOTECHNOLOGY - 1.8% Charles River Laboratories International, Inc. (a) 3,100 104,439 Gilead Sciences, Inc. (a) 3,100 134,168 ------- 238,607 ------- CAPITAL MARKETS - 1.4% Lazard Ltd. - Class A (b) 4,800 182,256 ------- CHEMICALS - 3.0% Air Products and Chemicals, Inc. 1,300 105,378 E.I. du Pont de Nemours and Company 2,300 77,441 FMC Corporation 2,400 133,824 Monsanto Company 1,000 81,750 ------- 398,393 ------- COMMERCIAL BANKS - 3.8% Bank of America Corporation 11,800 177,708 Cullen/Frost Bankers, Inc. 2,800 140,000 Wells Fargo & Company 7,000 188,930 ------- 506,638 ------- COMMERCIAL SERVICES & SUPPLIES - 1.6% ITT Educational Services, Inc. (a) 800 76,768 Waste Management, Inc. 4,000 135,240 ------- 212,008 ------- COMMUNICATIONS EQUIPMENT - 1.9% Cisco Systems, Inc. (a) 5,700 136,458 Harris Corporation 2,600 123,630 ------- 260,088 ------- COMPUTERS & PERIPHERALS - 4.4% Apple Inc. (a) 1,200 253,032 EMC Corporation (a) 8,600 150,242 International Business Machines Corporation 1,500 196,350 ------- 599,624 ------- CONTAINERS & PACKAGING - 0.8% Ball Corporation 2,000 103,400 ------- DIVERSIFIED FINANCIAL SERVICES - 1.5% JPMorgan Chase & Co. 4,900 204,183 ------- - ---------------------------------------------------------------------- COMMON STOCKS SHARES VALUE - ---------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.9% AT&T Inc. 4,500 $ 126,135 ----------- ELECTRICAL EQUIPMENT - 1.0% Emerson Electric Co. 3,300 140,580 ----------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.1% National Instruments Corporation 5,000 147,250 ----------- ENERGY EQUIPMENT & SERVICES - 1.2% Schlumberger Limited (b) 2,500 162,725 ----------- FOOD & STAPLES RETAILING - 3.3% CVS Caremark Corporation 4,100 132,061 Walgreen Company 4,300 157,896 Wal-Mart Stores, Inc. 2,900 155,005 ----------- 444,962 ----------- HEALTH CARE EQUIPMENT & SUPPLIES - 2.7% Alcon, Inc. (b) 1,300 213,655 Thermo Fisher Scientific, Inc. (a) 3,100 147,839 ----------- 361,494 ----------- HEALTH CARE PROVIDERS & SERVICES - 1.3% Express Scripts, Inc. (a) 2,000 172,900 ----------- HOUSEHOLD PRODUCTS - 3.0% Colgate-Palmolive Company 2,000 164,300 Kimberly-Clark Corporation 1,700 108,307 The Procter & Gamble Company 2,100 127,323 ----------- 399,930 ----------- INDUSTRIAL CONGLOMERATES - 1.2% General Electric Company 10,480 158,562 ----------- INTERNET SOFTWARE & SERVICES - 1.5% AOL Inc. (a) 436 10,150 Google Inc. - Class A (a) 300 185,994 ----------- 196,144 ----------- IT SERVICES - 1.7% Accenture PLC - Class A (b) 3,400 141,100 Automatic Data Processing, Inc. 2,200 94,204 ----------- 235,304 ----------- MACHINERY - 1.2% Danaher Corporation 2,200 165,440 ----------- MEDIA - 4.6% CBS Corporation - Class B 15,000 210,750 DIRECTV - Class A (a) 5,100 170,085 Time Warner Inc. 4,800 139,872 The Walt Disney Company 3,000 96,750 ----------- 617,457 ----------- MULTILINE RETAIL - 1.1% Kohl's Corporation (a) 2,800 151,004 ----------- The accompanying notes are an integral part of these financial statements. 20 LKCM BALANCED FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ---------------------------------------------------------------------- COMMON STOCKS SHARES VALUE - ---------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 7.6% BP plc - ADR (b) 2,300 $ 133,331 Cabot Oil & Gas Corporation 3,000 130,770 Chevron Corporation 1,795 138,197 Denbury Resources Inc. (a) 7,000 103,600 Devon Energy Corporation 1,700 124,950 EOG Resources, Inc. 1,400 136,220 Exxon Mobil Corporation 2,100 143,199 XTO Energy, Inc. 2,582 120,140 ------------- 1,030,407 ------------- PHARMACEUTICALS - 2.3% Abbott Laboratories 3,100 167,369 Teva Pharmaceutical Industries Ltd. - ADR (b) 2,500 140,450 ------------- 307,819 ------------- PROFESSIONAL SERVICES - 0.6% Robert Half International, Inc. 3,000 80,190 ------------- ROAD & RAIL - 1.4% Burlington Northern Santa Fe Corporation 1,900 187,378 ------------- SOFTWARE - 2.2% Nuance Communications, Inc. (a) 10,400 161,616 Oracle Corporation 5,500 134,970 ------------- 296,586 ------------- SPECIALTY RETAIL - 3.0% The Home Depot, Inc. 6,000 173,580 O'Reilly Automotive, Inc. (a) 3,200 121,984 PetSmart, Inc. 4,300 114,767 ------------- 410,331 ------------- TEXTILES, APPAREL & LUXURY GOODS - 1.0% VF Corporation 1,800 131,832 ------------- TOTAL COMMON STOCKS (Cost $7,375,969) 9,434,915 ------------- - ---------------------------------------------------------------------- PRINCIPAL CORPORATE BONDS - 26.2% AMOUNT - ---------------------------------------------------------------------- AEROSPACE & DEFENSE - 1.5% General Dynamics Corporation 4.50%, 08/15/2010 $100,000 102,596 United Technologies Corporation 6.35%, 03/01/2011 100,000 106,017 ------------- 208,613 ------------- AIR FREIGHT & LOGISTICS - 0.4% United Parcel Service, Inc. 3.875%, 04/01/2014 50,000 51,999 ------------- BEVERAGES - 2.8% Anheuser-Busch Companies, Inc. 5.75%, 04/01/2010 57,000 57,719 Anheuser-Busch Inbev Worldwide Inc. (c) 3.00%, 10/15/2012 100,000 100,535 (Acquired 10/21/2009, Cost $100,743) The Coca-Cola Company 5.35%, 11/15/2017 100,000 107,896 PepsiCo, Inc. 4.65%, 02/15/2013 100,000 106,894 ------------- 373,044 ------------- - ---------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - ---------------------------------------------------------------------- CHEMICALS - 0.5% E. I. du Pont de Nemours and Company 3.25%, 01/15/2015 $ 75,000 $ 74,383 ----------- COMMERCIAL BANKS - 0.6% Wells Fargo & Company 5.25%, 10/23/2012 75,000 80,120 ----------- COMMERCIAL SERVICES & SUPPLIES - 1.5% Allied Waste North America Inc. 7.25%, 03/15/2015 100,000 104,613 Callable 03/15/2010 Waste Management, Inc. 7.375%, 08/01/2010 100,000 103,601 ----------- 208,214 ----------- COMMUNICATIONS EQUIPMENT - 0.6% Cisco Systems, Inc. 5.25%, 02/22/2011 75,000 78,721 ----------- COMPUTERS & PERIPHERALS - 1.9% Dell Inc. 3.375%, 06/15/2012 100,000 103,473 Hewlett-Packard Company: 2.25%, 05/27/2011 50,000 50,728 4.50%, 03/01/2013 100,000 106,094 ----------- 260,295 ----------- CONTAINERS & PACKAGING - 0.6% Ball Corporation 7.125%, 09/01/2016 Callable 09/01/2013 75,000 77,250 ----------- DIVERSIFIED TELECOMMUNICATION SERVICES - 1.6% AT&T Inc.: 5.875%, 02/01/2012 75,000 81,145 5.10%, 09/15/2014 125,000 134,598 ----------- 215,743 ----------- ELECTRIC UTILITIES - 0.8% Southern Company 5.30%, 01/15/2012 100,000 107,194 ----------- ELECTRICAL EQUIPMENT - 0.6% Emerson Electric Co. 4.50%, 05/01/2013 75,000 79,622 ----------- FOOD & STAPLES RETAILING - 2.4% Costco Wholesale Corporation 5.30%, 03/15/2012 100,000 107,933 CVS Caremark Corporation 5.75%, 06/01/2017 100,000 105,700 Wal-Mart Stores, Inc. 4.55%, 05/01/2013 100,000 106,628 ----------- 320,261 ----------- FOOD PRODUCTS - 0.4% McCormick & Company, Incorporated 5.25%, 09/01/2013 50,000 54,076 ----------- HOTELS, RESTAURANTS & LEISURE - 0.6% McDonald's Corporation 6.00%, 04/15/2011 75,000 79,498 ----------- The accompanying notes are an integral part of these financial statements. 21 LKCM BALANCED FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - -------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - -------------------------------------------------------------------- HOUSEHOLD PRODUCTS - 0.8% The Procter & Gamble Company 4.60%, 01/15/2014 $100,000 $ 106,576 ------------- INDUSTRIAL CONGLOMERATES - 0.8% General Electric Company 5.00%, 02/01/2013 100,000 105,871 ------------- INSURANCE - 0.8% Berkshire Hathaway Inc. 4.85%, 01/15/2015 100,000 107,184 ------------- INVESTMENT BANK & BROKERAGE - 1.1% The Goldman Sachs Group, Inc.: 5.25%, 04/01/2013 100,000 105,997 5.50%, 11/15/2014 35,000 37,397 ------------- 143,394 ------------- MEDIA - 0.6% Time Warner Inc. 6.75%, 04/15/2011 75,000 79,487 ------------- METALS & MINING - 0.8% Alcoa Inc. 5.375%, 01/15/2013 100,000 104,363 ------------- MULTILINE RETAIL - 0.4% J.C. Penney Co., Inc. 7.65%, 08/15/2016 50,000 54,250 ------------- MULTI-UTILITIES & UNREGULATED POWER - 0.4% Duke Energy Corp. 6.25%, 01/15/2012 50,000 54,082 ------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 2.2% Apache Corporation 5.625%, 01/15/2017 75,000 80,065 ConocoPhillips 5.50%, 04/15/2013 100,000 108,677 EOG Resources, Inc. 6.125%, 10/01/2013 100,000 110,522 ------------- 299,264 ------------- PHARMACEUTICALS - 0.4% Abbott Laboratories 5.15%, 11/30/2012 50,000 54,685 ------------- SOFTWARE - 1.1% Oracle Corporation 5.00%, 01/15/2011 150,000 156,025 ------------- TOTAL CORPORATE BONDS (Cost $3,398,777) 3,534,214 ------------- - -------------------------------------------------------------------- U.S. GOVERNMENT & PRINCIPAL AGENCY ISSUES - 0.8% AMOUNT VALUE - -------------------------------------------------------------------- FANNIE MAE - 0.8% 5.00%, 02/16/2012 $100,000 $ 107,690 ------------ TOTAL U.S. GOVERNMENT & AGENCY ISSUES (Cost $99,382) 107,690 ------------ - -------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 2.6% - -------------------------------------------------------------------- CORPORATE BONDS - 0.6% The Home Depot, Inc. 4.625%, 08/15/2010 75,000 76,790 ------------ - -------------------------------------------------------------------- SHARES - -------------------------------------------------------------------- MONEY MARKET FUNDS - 2.0% Federated Government Obligations Fund - Institutional Shares, 0.06% (d) 273,505 273,505 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $350,177) 350,295 ------------ TOTAL INVESTMENTS - 99.6% (Cost $11,224,305) 13,427,114 Other Assets in Excess of Liabilities - 0.4% 49,216 ------------ TOTAL NET ASSETS - 100.0% $13,476,330 ============ ADR American Depository Receipt. (a) Non-income producing security. (b) U.S. Dollar-denominated foreign security. (c) Restricted security, purchased in Rule 144A private offering. Resale to the public may require registration or may extend only to qualified institutional buyers. (d) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 22 LKCM FIXED INCOME FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ----------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS - 88.2% AMOUNT VALUE - ----------------------------------------------------------------------- AEROSPACE & DEFENSE - 3.3% General Dynamics Corporation: 4.25%, 05/15/2013 $ 250,000 $ 263,772 5.25%, 02/01/2014 225,000 245,018 5.375%, 08/15/2015 1,375,000 1,508,323 Lockheed Martin Corporation 7.65%, 05/01/2016 1,250,000 1,488,249 Rockwell Collins, Inc. 4.75%, 12/01/2013 430,000 448,847 United Technologies Corporation: 7.125%, 11/15/2010 250,000 263,868 6.10%, 05/15/2012 700,000 765,904 ------------- 4,983,981 ------------- AIR FREIGHT & LOGISTICS - 0.4% United Parcel Service, Inc. 3.875%, 04/01/2014 625,000 649,992 ------------- ASSET MANAGEMENT - 0.6% Mellon Funding Corporation 6.40%, 05/14/2011 892,000 946,978 ------------- BEVERAGES - 4.8% Anheuser-Busch Inbev Worldwide Inc. (a) 3.00%, 10/15/2012 (Acquired 10/21/2009, Cost $1,737,814) 1,725,000 1,734,229 The Coca-Cola Company: 5.75%, 03/15/2011 1,000,000 1,060,453 3.625%, 03/15/2014 400,000 412,714 5.35%, 11/15/2017 1,500,000 1,618,438 PepsiCo, Inc.: 4.65%, 02/15/2013 1,035,000 1,106,354 7.90%, 11/01/2018 1,000,000 1,229,287 ------------- 7,161,475 ------------- BUILDING PRODUCTS - 1.1% Masco Corporation 5.875%, 07/15/2012 1,645,000 1,681,391 ------------- CHEMICALS - 2.3% E. I. du Pont de Nemours and Company 3.25%, 01/15/2015 490,000 485,968 The Lubrizol Corporation 5.50%, 10/01/2014 1,579,000 1,682,620 Praxair, Inc.: 6.375%, 04/01/2012 925,000 1,016,979 5.25%, 11/15/2014 200,000 218,658 ------------- 3,404,225 ------------- COMMERCIAL BANKS - 1.9% Bank of America Corporation: 7.375%, 05/15/2014 1,000,000 1,135,785 5.375%, 06/15/2014 1,025,000 1,062,669 U.S. Bancorp 2.125%, 02/15/2013 576,000 571,394 ------------- 2,769,848 ------------- COMMERCIAL SERVICES & SUPPLIES - 4.7% Allied Waste North America Inc.: 6.50%, 11/15/2010 450,000 468,031 5.75%, 02/15/2011 550,000 572,409 6.125%, 02/15/2014 Callable 02/15/2010 700,000 712,810 7.25%, 03/15/2015 Callable 03/15/2010 1,050,000 1,098,432 Pitney Bowes Inc.: 4.625%, 10/01/2012 500,000 532,205 3.875%, 06/15/2013 400,000 413,142 - ----------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - ----------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES, CONTINUED Republic Services, Inc. 5.50%, 09/15/2019 $1,000,000 $ 1,017,349 Waste Management, Inc. 7.375%, 08/01/2010 2,099,000 2,174,587 ------------- 6,988,965 ------------- COMMUNICATIONS EQUIPMENT - 3.3% Cisco Systems, Inc.: 5.25%, 02/22/2011 650,000 682,251 2.90%, 11/17/2014 340,000 339,763 5.50%, 02/22/2016 1,000,000 1,099,337 4.95%, 02/15/2019 700,000 718,817 Harris Corporation: 5.00%, 10/01/2015 1,088,000 1,125,312 6.375%, 06/15/2019 900,000 973,542 ------------- 4,939,022 ------------- COMPUTERS & PERIPHERALS - 5.8% Dell Inc.: 3.375%, 06/15/2012 1,175,000 1,215,807 5.625%, 04/15/2014 750,000 817,861 Hewlett-Packard Company: 4.25%, 02/24/2012 150,000 157,421 6.50%, 07/01/2012 700,000 773,780 4.50%, 03/01/2013 1,295,000 1,373,922 International Business Machines Corporation: 4.95%, 03/22/2011 875,000 913,767 2.10%, 05/06/2013 1,750,000 1,747,900 5.70%, 09/14/2017 1,500,000 1,642,536 ------------- 8,642,994 ------------- CONSUMER FINANCE - 0.7% Western Union Company 5.93%, 10/01/2016 1,000,000 1,080,227 ------------- CONTAINERS & PACKAGING - 2.9% Ball Corporation: 6.875%, 12/15/2012 Callable 12/15/2010 800,000 814,000 7.125%, 09/01/2016 Callable 09/01/2013 1,825,000 1,879,750 Packaging Corp. of America 5.75%, 08/01/2013 1,500,000 1,608,857 ------------- 4,302,607 ------------- DIVERSIFIED MANUFACTURING - 1.1% Honeywell International Inc.: 4.25%, 03/01/2013 1,300,000 1,365,797 3.875%, 02/15/2014 270,000 281,558 ------------- 1,647,355 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 3.7% AT&T Inc.: 6.25%, 03/15/2011 200,000 211,856 5.10%, 09/15/2014 1,750,000 1,884,375 BellSouth Corporation 6.00%, 10/15/2011 1,000,000 1,081,776 Verizon Communications Inc.: 5.25%, 04/15/2013 275,000 296,666 5.55%, 02/15/2016 1,000,000 1,079,398 5.50%, 02/15/2018 875,000 914,617 ------------- 5,468,688 ------------- ELECTRIC UTILITIES - 0.7% Southern Power Co. 4.875%, 07/15/2015 1,050,000 1,094,178 ------------- The accompanying notes are an integral part of these financial statements. 23 LKCM FIXED INCOME FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - --------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - --------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 0.3% Emerson Electric Co. 4.50%, 05/01/2013 $ 425,000 $ 451,189 ------------- ENERGY EQUIPMENT & SERVICES - 1.6% Baker Hughes Incorporated 6.50%, 11/15/2013 725,000 819,067 Weatherford International, Inc. 6.35%, 06/15/2017 1,550,000 1,623,661 ------------- 2,442,728 ------------- FOOD & STAPLES RETAILING - 6.3% Costco Wholesale Corporation 5.30%, 03/15/2012 700,000 755,528 CVS Caremark Corporation: 5.75%, 08/15/2011 550,000 585,908 4.875%, 09/15/2014 330,000 349,973 5.75%, 06/01/2017 2,750,000 2,906,767 Sysco Corporation 4.20%, 02/12/2013 1,175,000 1,230,123 Walgreen Company 4.875%, 08/01/2013 1,955,000 2,101,091 Wal-Mart Stores, Inc. 4.55%, 05/01/2013 1,400,000 1,492,789 ------------- 9,422,179 ------------- FOOD PRODUCTS - 1.8% The Hershey Company 4.85%, 08/15/2015 1,000,000 1,049,589 McCormick & Company, Incorporated 5.25%, 09/01/2013 1,450,000 1,568,198 ------------- 2,617,787 ------------- HEALTH CARE EQUIPMENT & SUPPLIES - 3.2% Fisher Scientific International Inc. 6.125%, 07/01/2015 Callable 07/01/2010 1,850,000 1,908,044 Medtronic, Inc. 4.50%, 03/15/2014 900,000 954,043 Thermo Fisher Scientific, Inc. (a) 2.15%, 12/28/2012 (Acquired 12/23/2009 through 12/29/2009, Aggregate Cost $1,891,049) 1,900,000 1,875,110 ------------- 4,737,197 ------------- HEALTH CARE PROVIDERS & SERVICES - 1.4% Express Scripts, Inc.: 5.25%, 06/15/2012 950,000 1,010,050 6.25%, 06/15/2014 1,000,000 1,092,193 ------------- 2,102,243 ------------- HOTELS, RESTAURANTS & LEISURE - 1.4% McDonald's Corporation: 6.00%, 04/15/2011 1,000,000 1,059,980 5.35%, 03/01/2018 1,000,000 1,073,998 ------------- 2,133,978 ------------- HOUSEHOLD PRODUCTS - 1.7% Kimberly-Clark Corporation 5.625%, 02/15/2012 1,000,000 1,077,904 The Procter & Gamble Company: 4.60%, 01/15/2014 475,000 506,234 8.00%, 09/01/2024 Putable 09/01/2014 775,000 961,859 ------------- 2,545,997 ------------- - --------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - --------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES - 2.2% 3M Co. 4.375%, 08/15/2013 $1,500,000 $ 1,616,307 General Electric Company 5.00%, 02/01/2013 1,600,000 1,693,942 ------------- 3,310,249 ------------- INSURANCE - 0.9% Berkshire Hathaway Inc. 4.85%, 01/15/2015 1,225,000 1,313,005 ------------- INVESTMENT BANK & BROKERAGE - 0.7% The Goldman Sachs Group, Inc. 5.125%, 01/15/2015 1,000,000 1,051,915 ------------- MACHINERY - 0.7% Dover Corporation 6.50%, 02/15/2011 925,000 977,452 ------------- MEDIA - 3.9% Time Warner Inc.: 6.75%, 04/15/2011 1,000,000 1,059,828 5.50%, 11/15/2011 1,194,000 1,268,206 Viacom Inc. 6.625%, 05/15/2011 1,600,000 1,677,277 The Walt Disney Company: 4.70%, 12/01/2012 225,000 242,412 5.625%, 09/15/2016 1,500,000 1,622,090 ------------- 5,869,813 ------------- METALS & MINING - 3.7% Alcoa Inc.: 6.00%, 01/15/2012 1,310,000 1,377,521 5.375%, 01/15/2013 590,000 615,740 5.55%, 02/01/2017 500,000 497,873 Peabody Energy Corporation: 6.875%, 03/15/2013 Callable 03/15/2010 2,000,000 2,032,500 5.875%, 04/15/2016 Callable 04/15/2010 1,000,000 980,000 ------------- 5,503,634 ------------- MULTILINE RETAIL - 0.9% J.C. Penney Co., Inc. 7.65%, 08/15/2016 600,000 651,000 Kohl's Corporation 6.25%, 12/15/2017 282,000 312,532 Target Corporation 6.35%, 01/15/2011 300,000 316,867 ------------- 1,280,399 ------------- MULTI-UTILITIES & UNREGULATED POWER - 0.7% Duke Energy Corp. 6.25%, 01/15/2012 1,000,000 1,081,641 ------------- OIL & GAS DRILLING - 1.1% Transocean Inc. (b) 6.625%, 04/15/2011 1,500,000 1,574,373 ------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 9.5% Amerada Hess Corporation 6.65%, 08/15/2011 1,550,000 1,680,964 Apache Corporation 6.25%, 04/15/2012 1,593,000 1,737,742 Burlington Resources Finance Company (b) 6.68%, 02/15/2011 985,000 1,046,983 The accompanying notes are an integral part of these financial statements. 24 LKCM FIXED INCOME FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ----------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - ----------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES, CONTINUED Conoco Funding Company (b) 6.35%, 10/15/2011 $ 500,000 $ 544,211 ConocoPhillips 4.75%, 10/15/2012 875,000 938,208 Devon Financing Corp. ULC (b) 6.875%, 09/30/2011 1,000,000 1,086,764 EOG Resources, Inc. 6.125%, 10/01/2013 1,500,000 1,657,825 Kerr-McGee Corporation 6.875%, 09/15/2011 1,000,000 1,075,566 Marathon Oil Corporation 5.90%, 03/15/2018 1,000,000 1,055,047 Noble Energy, Inc. 5.25%, 04/15/2014 1,500,000 1,539,389 Range Resources Corporation 8.00%, 05/15/2019 500,000 537,500 Callable 05/15/2014 XTO Energy, Inc. 6.25%, 04/15/2013 1,150,000 1,267,514 --------------- 14,167,713 --------------- PHARMACEUTICALS - 2.5% Abbott Laboratories 5.15%, 11/30/2012 675,000 738,245 Eli Lilly & Company 4.20%, 03/06/2014 950,000 997,472 Teva Pharmaceutical Industries Ltd. 5.55%, 02/01/2016 1,860,000 1,965,892 --------------- 3,701,609 --------------- ROAD & RAIL - 2.8% Burlington Northern Santa Fe Corporation: 6.75%, 07/15/2011 1,970,000 2,122,318 5.65%, 05/01/2017 185,000 197,206 Norfolk Southern Corporation 5.257%, 09/17/2014 750,000 804,256 Union Pacific Corporation 6.125%, 01/15/2012 1,000,000 1,087,591 --------------- 4,211,371 --------------- SOFTWARE - 2.2% Microsoft Corporation 2.95%, 06/01/2014 1,910,000 1,932,444 Oracle Corporation 5.25%, 01/15/2016 1,257,000 1,359,145 --------------- 3,291,589 --------------- SPECIALTY RETAIL - 1.4% Lowe's Companies, Inc. 5.00%, 10/15/2015 525,000 569,234 The Sherwin-Williams Company 3.125%, 12/15/2014 1,450,000 1,433,705 --------------- 2,002,939 --------------- TOTAL CORPORATE BONDS (Cost $125,647,217) 131,552,926 --------------- - ----------------------------------------------------------------------- PREFERRED STOCKS - 0.6% SHARES - ----------------------------------------------------------------------- INVESTMENT BANK & BROKERAGE - 0.6% The Goldman Sachs Group, Inc. Callable 04/25/2010 40,000 877,200 --------------- TOTAL PREFERRED STOCKS (Cost $1,000,000) 877,200 --------------- - ------------------------------------------------------------------------- U.S. GOVERNMENT & PRINCIPAL AGENCY ISSUES - 5.5% AMOUNT/SHARES VALUE - ------------------------------------------------------------------------- FANNIE MAE - 0.7% 5.00%, 03/15/2016 $1,000,000 $ 1,088,426 ------------ FEDERAL HOME LOAN BANK - 1.1% 5.50%, 08/13/2014 500,000 561,547 4.875%, 05/17/2017 1,000,000 1,070,965 ------------ 1,632,512 ------------ FREDDIE MAC - 1.4% 5.55%, 10/04/2016 Callable 10/04/2011 1,500,000 1,584,583 5.125%, 11/17/2017 500,000 545,255 ------------ 2,129,838 ------------ U.S. TREASURY INFLATION INDEXED BONDS - 1.2% 2.375%, 04/15/2011 490,108 505,195 3.375%, 01/15/2012 1,217,460 1,303,633 ------------ 1,808,828 ------------ U.S. TREASURY NOTES - 1.1% 4.25%, 11/15/2014 500,000 538,750 4.25%, 08/15/2015 500,000 535,313 4.50%, 02/15/2016 500,000 539,493 ------------ 1,613,556 ------------ TOTAL U.S. GOVERNMENT AGENCY ISSUES (Cost $7,824,603) 8,273,160 ------------ - ------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 4.2% - ------------------------------------------------------------------------- CORPORATE BONDS - 2.1% The Home Depot, Inc. 4.625%, 08/15/2010 3,040,000 3,112,543 ------------ MONEY MARKET FUNDS - 2.1% Federated Government Obligations Fund - Institutional Shares, 0.06% (c) 3,111,480 3,111,480 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $6,222,007) 6,224,023 ------------ TOTAL INVESTMENTS - 98.5% (Cost $140,693,827) 146,927,309 Other Assets in Excess of Liabilities - 1.5% 2,290,931 ------------ TOTAL NET ASSETS - 100.0% $149,218,240 ============ (a) Restricted security, purchased in Rule 144A private offering. Resale to the public may require registration or may extend only to qualified institutional buyers. (b) U.S. Dollar-denominated foreign security. (c) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 25 LKCM INTERNATIONAL FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - -------------------------------------------------------------------------- COMMON STOCKS - 96.0% SHARES VALUE (US$) - -------------------------------------------------------------------------- AUSTRALIA - 5.6% - -------------------------------------------------------------------------- AIRLINES - 0.3% Qantas Airways Limited 54,531 $ 145,494 --------------- CHEMICALS - 0.2% Incitec Pivot Limited 25,774 81,526 --------------- COMMERCIAL BANKS - 1.8% Australia and New Zealand Banking Group Limited 11,631 237,021 Commonwealth Bank of Australia 4,564 222,823 Suncorp-Metway Limited 11,859 91,812 Westpac Banking Corporation 9,248 208,900 --------------- 760,556 --------------- CONSTRUCTION & ENGINEERING - 0.2% Leighton Holdings Limited 2,024 68,610 --------------- CONTAINERS & PACKAGING - 0.4% Amcor Limited 32,715 182,135 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% Challenger Financial Services Group Limited 5,515 20,758 --------------- DIVERSIFIED OPERATIONS - 0.8% BHP Billiton Limited 8,848 338,583 --------------- INSURANCE - 0.4% Insurance Australia Group Limited 32,572 116,988 QBE Insurance Group Limited 2,571 58,671 --------------- 175,659 --------------- MEDIA - 0.2% News Corporation - Class B 5,934 94,490 --------------- METALS & MINING - 0.3% Rio Tinto Limited 1,854 123,763 --------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 0.2% Oil Search Limited 13,957 76,523 --------------- REAL ESTATE - 0.3% Westfield Group 11,992 134,213 --------------- ROAD & RAIL - 0.5% Asciano Group (a) 57,652 93,334 Toll Holdings Limited 14,612 114,104 --------------- 207,438 --------------- TOTAL AUSTRALIA 2,409,748 --------------- - -------------------------------------------------------------------------- DENMARK - 0.9% - -------------------------------------------------------------------------- BEVERAGES - 0.9% Carlsberg A/S - B Shares 5,432 399,875 --------------- TOTAL DENMARK 399,875 --------------- - -------------------------------------------------------------------------- FRANCE - 10.9% - -------------------------------------------------------------------------- AUTOMOBILES - 1.1% Renault SA (a) 9,561 490,477 --------------- - -------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE (US$) - -------------------------------------------------------------------------- COMMERCIAL BANKS - 3.6% BNP Paribas 11,027 $ 874,639 Societe Generale 9,798 680,764 --------------- 1,555,403 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.1% Alstom 12,800 895,178 --------------- PHARMACEUTICALS - 2.2% Sanofi-Aventis 12,211 960,307 --------------- ROAD & RAIL - 1.9% Groupe Eurotunnel SA (a) 42,155 394,501 Groupe Eurotunnel SA 47,282 442,481 --------------- 836,982 --------------- TOTAL FRANCE 4,738,347 --------------- - -------------------------------------------------------------------------- GERMANY - 11.2% - -------------------------------------------------------------------------- AUTOMOBILES - 2.2% Daimler AG 17,539 934,190 --------------- CHEMICALS - 4.7% BASF SE 16,468 1,019,215 Bayer AG 12,716 1,017,579 --------------- 2,036,794 --------------- CONSTRUCTION MATERIALS - 1.5% HeidelbergCement AG 9,142 632,460 --------------- ELECTRIC UTILITIES - 1.5% E.ON AG 15,950 669,486 --------------- INSURANCE - 1.1% Allianz SE 3,855 477,865 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.2% Adidas AG 1,635 88,560 --------------- TOTAL GERMANY 4,839,355 --------------- - -------------------------------------------------------------------------- HONG KONG - 1.3% - -------------------------------------------------------------------------- COMMERCIAL BANKS - 0.2% BOC Hong Kong (Holdings) Limited 39,000 87,620 --------------- DIVERSIFIED OPERATIONS - 0.2% Wharf (Holdings) Limited 15,000 86,085 --------------- ELECTRIC UTILITIES - 0.1% Hongkong Electric Holdings Limited 6,000 32,683 --------------- REAL ESTATE - 0.6% Cheung Kong (Holdings) Limited 7,000 89,951 Hang Lung Properties Limited 18,000 70,567 Sun Hung Kai Properties Limited 7,000 104,084 --------------- 264,602 --------------- The accompanying notes are an integral part of these financial statements. 26 LKCM INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - --------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE (US$) - --------------------------------------------------------------------------- HONG KONG, CONTINUED - --------------------------------------------------------------------------- SPECIALTY RETAIL - 0.2% Esprit Holdings Limited 14,346 $ 95,180 --------------- TOTAL HONG KONG 566,170 =============== - --------------------------------------------------------------------------- IRELAND - 1.3% - --------------------------------------------------------------------------- CONSTRUCTION MATERIALS - 1.3% CRH plc 20,676 562,168 --------------- TOTAL IRELAND 562,168 =============== - --------------------------------------------------------------------------- JAPAN - 24.6% - --------------------------------------------------------------------------- AIRLINES - 0.1% All Nippon Airways Co., Ltd. 22,000 59,715 --------------- AUTO COMPONENTS - 1.5% AISIN SEIKI CO., LTD. 6,900 199,348 BRIDGESTONE CORPORATION 25,000 440,995 --------------- 640,343 --------------- AUTOMOBILES - 2.7% NISSAN MOTOR CO., LTD. (a) 52,500 461,366 Toyota Motor Corporation 16,800 708,304 --------------- 1,169,670 --------------- BUILDING PRODUCTS - 0.5% Asahi Glass Company, Limited 23,000 218,778 --------------- CHEMICALS - 0.2% Tokuyama Corporation 17,000 95,056 --------------- COMMERCIAL BANKS - 1.7% Chuo Mitsui Trust Holdings, Inc. 27,000 90,954 Mitsubishi UFJ Financial Group, Inc. 96,300 474,353 Sumitomo Mitsui Financial Group, Inc. 5,918 169,819 --------------- 735,126 --------------- COMMERCIAL SERVICES & SUPPLIES - 0.5% FUJIFILM Holdings Corporation 6,700 202,344 --------------- CONSTRUCTION & ENGINEERING - 0.3% TAISEI CORPORATION 67,000 114,958 --------------- DISTRIBUTORS - 1.4% Mitsubishi Corporation 20,200 503,154 MITSUI & CO., LTD. 9,000 127,675 --------------- 630,829 --------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.7% NIPPON TELEGRAPH AND TELEPHONE CORPORATION (NTT) 7,946 313,891 --------------- - --------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE (US$) - --------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 5.2% Hitachi, Ltd. (a) 105,000 $ 322,783 MURATA MANUFACTURING COMPANY, LTD. 5,200 259,518 NIDEC CORPORATION 2,400 221,815 NIKON CORPORATION 22,300 440,347 OMRON Corporation 24,300 437,031 Panasonic Corporation 14,000 201,550 Sharp Corporation 15,000 189,424 Sony Corporation 6,900 200,595 --------------- 2,273,063 --------------- FINANCIAL SERVICES - 0.2% ORIX Corporation 1,180 80,339 --------------- HOUSEHOLD DURABLES - 0.6% Makita Corporation 8,000 274,785 --------------- INSURANCE - 0.3% T & D Holdings, Inc. 6,200 127,505 --------------- INTERNET SOFTWARE & SERVICES - 0.4% Yahoo Japan Corporation 531 159,655 --------------- INVESTMENT BANK & BROKERAGE - 0.6% Nomura Holdings, Inc. 33,233 247,143 --------------- MACHINERY - 2.7% CKD Corporation 6,200 47,185 FUJI ELECTRIC HOLDINGS CO., LTD. (a) 83,000 143,541 THE JAPAN STEEL WORKS, LTD. 24,000 306,026 KOMATSU LTD. 8,700 182,127 Nabtesco Corporation 9,000 103,106 SUMITOMO HEAVY INDUSTRIES, LTD. (a) 80,000 405,012 --------------- 1,186,997 --------------- MARINE - 0.4% Nippon Yusen Kabushiki Kaisha 54,000 166,311 --------------- MEDIA - 0.3% Jupiter Telecommunications Co., Ltd. 132 130,617 --------------- METALS & MINING - 0.8% JFE Holdings, Inc. 9,100 359,713 --------------- OFFICE ELECTRONICS - 0.9% CANON INC. 9,100 387,100 --------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 0.3% INPEX CORPORATION 18 136,100 --------------- PHARMACEUTICALS - 0.2% Nippon Shinyaku Co., Ltd. 6,000 67,089 --------------- REAL ESTATE - 0.8% Mitsubishi Estate Company Ltd. 11,000 175,625 NTT URBAN DEVELOPMENT CORPORATION 137 91,452 Tokyo Tatemono Co., Ltd. 20,000 76,935 --------------- 344,012 --------------- The accompanying notes are an integral part of these financial statements. 27 LKCM INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - -------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE (US$) - -------------------------------------------------------------------------- JAPAN, CONTINUED - -------------------------------------------------------------------------- SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 0.9% Elpida Memory, Inc. (a) 12,300 $ 200,465 SHINKO ELECTRIC INDUSTRIES CO., LTD. 12,600 183,414 --------------- 383,879 --------------- SPECIALTY RETAIL - 0.4% YAMADA DENKI CO., LTD. 2,510 169,329 --------------- TOTAL JAPAN 10,674,347 --------------- - -------------------------------------------------------------------------- NETHERLANDS - 6.7% - -------------------------------------------------------------------------- BEVERAGES - 0.9% Heineken N.V. 8,575 407,085 --------------- DIVERSIFIED FINANCIAL SERVICES - 1.2% ING Groep N.V. (a) 52,932 509,755 --------------- INSURANCE - 0.8% AEGON N.V. (a) 52,303 334,927 --------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 2.9% Royal Dutch Shell plc - A Shares 41,237 1,242,552 --------------- SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 0.9% ASML Holding N.V. 11,954 408,131 --------------- TOTAL NETHERLANDS 2,902,450 --------------- - -------------------------------------------------------------------------- NORWAY - 1.7% - -------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 1.7% StatoilHydro ASA 29,652 739,510 --------------- TOTAL NORWAY 739,510 --------------- - -------------------------------------------------------------------------- SINGAPORE - 1.1% - -------------------------------------------------------------------------- COMMERCIAL BANKS - 0.4% United Overseas Bank Limited 13,000 180,957 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.1% Venture Corporation Limited 8,000 50,186 --------------- INDUSTRIAL CONGLOMERATES - 0.1% SembCorp Industries Limited 15,000 39,196 --------------- MACHINERY - 0.2% SembCorp Marine Limited 39,000 101,757 --------------- REAL ESTATE - 0.3% Capitaland Limited 37,500 111,246 --------------- TOTAL SINGAPORE 483,342 --------------- - -------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE (US$) - -------------------------------------------------------------------------- SOUTH KOREA - 0.1% - -------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES - 0.1% NHN Corp. (a) 368 $ 60,822 --------------- TOTAL SOUTH KOREA 60,822 --------------- - -------------------------------------------------------------------------- SPAIN - 2.0% - -------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 2.0% Telefonica S.A. 30,585 856,044 --------------- TOTAL SPAIN 856,044 --------------- - -------------------------------------------------------------------------- SWEDEN - 2.7% - -------------------------------------------------------------------------- AUTOMOBILES - 1.4% Volvo AB - B Shares 71,800 615,831 --------------- MACHINERY - 1.3% Sandvik AB 47,179 568,126 --------------- TOTAL SWEDEN 1,183,957 --------------- - -------------------------------------------------------------------------- SWITZERLAND - 2.1% - -------------------------------------------------------------------------- CAPITAL MARKETS - 2.1% Credit Suisse Group AG 18,250 904,130 --------------- TOTAL SWITZERLAND 904,130 --------------- - -------------------------------------------------------------------------- UNITED ARAB EMIRATES - 0.1% - -------------------------------------------------------------------------- MARINE - 0.1% DP World Ltd. (a) 65,535 27,861 --------------- TOTAL UNITED ARAB EMIRATES 27,861 --------------- - -------------------------------------------------------------------------- UNITED KINGDOM - 23.7% - -------------------------------------------------------------------------- BEVERAGES - 1.2% Diageo plc 29,506 514,764 --------------- COMMERCIAL BANKS - 4.7% Barclays plc 147,236 648,788 Lloyds Banking Group plc (a) 1,109,789 892,911 Royal Bank of Scotland Group plc (a) 1,069,052 496,264 --------------- 2,037,963 --------------- DIVERSIFIED OPERATIONS - 1.6% Rolls-Royce Group plc (a) 4,565,160 7,374 Rolls-Royce Group plc (a) 88,046 685,650 --------------- 693,024 --------------- FOOD & STAPLES RETAILING - 1.9% Tesco plc 120,209 829,295 --------------- HOTELS, RESTAURANTS & LEISURE - 0.8% Carnival plc (a) 10,365 353,116 --------------- HOUSEHOLD PRODUCTS - 1.8% Unilever plc 24,866 797,087 --------------- The accompanying notes are an integral part of these financial statements. 28 LKCM INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - --------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE (US$) - --------------------------------------------------------------------------- UNITED KINGDOM, CONTINUED - --------------------------------------------------------------------------- METALS & MINING - 6.5% Fresnillo plc 20,905 $ 265,534 Petra Diamonds Limited (a) 172,636 168,972 Rio Tinto plc 19,574 1,056,931 Xstrata plc 74,030 1,320,402 --------------- 2,811,839 --------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 1.5% Tullow Oil plc 31,507 661,029 --------------- PHARMACEUTICALS - 2.2% AstraZeneca plc 20,355 956,627 --------------- TOBACCO - 1.5% Imperial Tobacco Group plc 20,389 643,218 --------------- TOTAL UNITED KINGDOM 10,297,962 --------------- TOTAL COMMON STOCKS (Cost $39,388,542) 41,646,088 --------------- - --------------------------------------------------------------------------- PREFERRED STOCKS - 3.0% SHARES VALUE (US$) - --------------------------------------------------------------------------- GERMANY - 3.0% - --------------------------------------------------------------------------- AUTOMOBILES - 3.0% Porsche AG 10,608 $ 663,363 Volkswagen AG 6,627 625,105 ------------ TOTAL PREFERRED STOCKS (Cost $1,605,647) 1,288,468 ------------ TOTAL INVESTMENTS - 99.0% (Cost $40,994,189) 42,934,556 Other Assets in Excess of Liabilities - 1.0% 437,583 ------------ TOTAL NET ASSETS - 100.0% $43,372,139 ============ (a) Non-income producing security. FORWARD CURRENCY EXCHANGE CONTRACTS At December 31, 2009, the Fund had entered into "position hedge" forward currency exchange contracts that obligated the Fund to deliver and receive specified amounts of currencies at a specified future date. The contracts combined had net unrealized appreciation of $90,543 as of December 31, 2009. 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 DECEMBER 31, 2009 BE RECEIVED DECEMBER 31, 2009 ASSET LIABILITY - ------------------------------------------------------------------------------------------------- 1/13/10 800,000 EURO $1,146,830 1,302,148 AUD $1,168,107 $ 32,167 $10,890 1/13/10 190,000 EURO 272,372 171,222 GBP 276,537 4,601 436 1/13/10 578,395 GBP 934,155 640,000 EURO 917,464 3,078 19,769 1/13/10 3,397,520 NK 586,469 400,000 EURO 573,415 1,653 14,708 1/13/10 147,944,560 JPY 1,588,605 1,130,000 EURO 1,619,897 55,192 23,899 1/13/10 130,000 EURO 186,360 1,099,306 NK 189,759 3,993 594 1/13/10 1,650,000 EURO 2,365,336 2,493,629 SF 2,410,748 62,616 17,204 1/13/10 1,153,031 SK 161,171 110,000 EURO 157,689 563 4,045 1/28/10 117,218,384 JPY 1,258,775 1,277,000 USD 1,277,000 18,225 -- ------------ ------------ ----------- --------- $8,500,073 $8,590,616 $182,088 $91,545 ============ ============ =========== =========
AUD Australian Dollar EURO Euro JPY Japanese Yen NK Norwegian Kroner GBP British Pound SF Swiss Franc SK Swedish Krona USD U.S. Dollar The accompanying notes are an integral part of these financial statements. 29
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2009 LKCM LKCM LKCM LKCM SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL EQUITY FUND EQUITY FUND FUND FUND FUND ASSETS: Investments, at value * $565,635,203 $49,118,944 $13,427,114 $146,927,309 $42,934,556 Foreign currency ** -- -- -- -- 507,864 Cash -- 2,448 -- -- -- Dividends and interest receivable 271,160 44,459 67,910 2,069,512 139,653 Unrealized gain on open forward foreign currency contracts -- -- -- -- 182,088 Receivable for investments sold -- -- -- -- 155,296 Receivable for fund shares sold 521,003 64,960 -- 419,900 84,960 Other assets 37,912 10,067 3,623 12,038 6,734 -------------- ------------ ------------- -------------- -------------- Total assets 566,465,278 49,240,878 13,498,647 149,428,759 44,011,151 -------------- ------------ ------------- -------------- -------------- LIABILITIES: Unrealized loss on open forward foreign currency contracts -- -- -- -- 91,545 Foreign currency payable -- -- -- -- 433 Payable for investment advisory fees 1,082,959 51,995 5,064 142,199 47,665 Payable to custodian 10,236 904 889 579 459,714 Payable for fund shares redeemed 222,091 -- -- -- 2,532 Distribution expense payable 21,856 -- -- -- -- Accrued expenses and other liabilities 236,973 31,149 16,364 67,741 37,123 -------------- ------------ ------------- -------------- -------------- Total liabilities 1,574,115 84,048 22,317 210,519 639,012 -------------- ------------ ------------- -------------- -------------- NET ASSETS $564,891,163 $49,156,830 $13,476,330 $149,218,240 $43,372,139 ============== ============ ============= ============== ============== Net assets consist of: Paid in capital $620,337,437 $41,919,808 $11,988,101 $142,897,547 $82,363,432 Undistributed net investment income -- 3,115 2,160 -- 366,733 Accumulated net realized gain (loss) on investments and foreign currency transactions (133,563,489) (1,349,608) (716,740) 87,211 (41,397,242) Net unrealized appreciation on: Investments 78,117,215 8,583,515 2,202,809 6,233,482 1,940,367 Other assets and liabilities denominated in foreign currency -- -- -- -- 98,849 -------------- ------------ ------------- -------------- -------------- NET ASSETS $564,891,163 $49,156,830 $13,476,330 $149,218,240 $43,372,139 ============== ============ ============= ============== ============== INSTITUTIONAL CLASS*** Net assets $529,165,634 $49,156,830 $13,476,330 $149,218,240 $43,372,139 Shares of beneficial interest outstanding (unlimited shares of no par value authorized) 32,739,221 3,776,180 1,029,554 13,757,829 5,756,108 Net asset value per share (offering and redemption price) $ 16.16 $ 13.02 $ 13.09 $ 10.85 $ 7.53 ============== ============ ============= ============== ============== ADVISER CLASS Net assets $ 35,725,529 Shares of beneficial interest outstanding (unlimited shares of no par value authorized) 2,256,393 Net asset value per share (offering and redemption price) $ 15.83 ============== * Cost of Investments $487,517,988 $40,535,429 $11,224,305 $140,693,827 $40,994,189 ============== ============ ============= ============== ============== ** Cost of Foreign Currency $ -- $ -- $ -- $ -- $ 506,414 ============== ============ ============= ============== ============== *** Currently, only the Small Cap Equity and Equity Funds offer a second class.
The accompanying notes are an integral part of these financial statements. 30
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 LKCM LKCM LKCM LKCM SMALL CAP LKCM BALANCED FIXED INCOME INTERNATIONAL EQUITY FUND EQUITY FUND FUND FUND FUND INVESTMENT INCOME: Dividends * $ 3,016,988 $ 703,733 $ 146,168 $ 38,021 $ 905,143 Interest 36,139 3,216 155,623 6,201,577 75,451 -------------- ------------ ------------- -------------- -------------- Total income 3,053,127 706,949 301,791 6,239,598 980,594 -------------- ------------ ------------- -------------- -------------- EXPENSES: Investment advisory fees 3,508,633 283,573 72,986 655,662 379,210 Distribution expense - Adviser Class (Note B) 72,248 -- -- -- -- Administrative fees 404,899 45,510 20,325 107,216 46,775 Accounting and transfer agent fees and expenses 243,954 60,606 40,585 86,622 96,938 Professional fees 153,811 16,517 7,208 46,826 16,295 Federal and state registration 70,237 27,748 7,700 17,374 16,414 Custody fees and expenses 59,307 5,316 4,684 19,855 148,787 Trustees' fees 67,143 5,800 1,520 16,498 8,594 Reports to shareholders 50,509 2,950 730 9,222 2,753 Other 113,043 9,669 2,715 32,456 10,350 -------------- ------------ ------------- -------------- -------------- Total expenses 4,743,784 457,689 158,453 991,731 726,116 Less, expense waiver and/or reimbursement (Note B) -- (133,605) (68,624) (139,371) (271,064) -------------- ------------ ------------- -------------- -------------- Net expenses 4,743,784 324,084 89,829 852,360 455,052 -------------- ------------ ------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) (1,690,657) 382,865 211,962 5,387,238 525,542 -------------- ------------ ------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments (54,284,096) 125,457 (35,549) 1,432,482 (7,647,632) Foreign currency transactions -- -- -- -- (101,563) -------------- ------------ ------------- -------------- -------------- (54,284,096) 125,457 (35,549) 1,432,482 (7,749,195) -------------- ------------ ------------- -------------- -------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON Investments 193,230,455 9,504,072 2,189,309 6,404,470 16,833,952 Foreign currency transactions -- -- -- -- (6,003) -------------- ------------ ------------- -------------- -------------- 193,230,455 9,504,072 2,189,309 6,404,470 16,827,949 -------------- ------------ ------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 138,946,359 9,629,529 2,153,760 7,836,952 9,078,754 -------------- ------------ ------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $137,255,702 $ 10,012,394 $ 2,365,722 $ 13,224,190 $ 9,604,296 ============== ============ ============= ============== ============== * Net of foreign taxes withheld $ 10,329 $ 5,162 $ 1,016 $ -- $ 94,803 ============== ============ ============= ============== ==============
The accompanying notes are an integral part of these financial statements. 31
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, 2009 2008 2009 2008 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss) $ (1,690,657) $ (1,096,485) $ 382,865 $ 539,179 Net realized gain (loss) on investments (54,284,096) (70,815,545) 125,457 (1,474,556) Net change in unrealized appreciation/depreciation on investments 193,230,455 (189,968,994) 9,504,072 (16,343,956) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 137,255,702 (261,881,024) 10,012,394 (17,279,333) ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: Net investment income -- -- (380,347) (548,026) Net realized gain on investments -- (163,200) -- -- ------------- ------------- ------------- ------------- -- (163,200) (380,347) (548,026) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO ADVISER CLASS SHAREHOLDERS: Net realized gain on investments -- (10,503) -- -- ------------- ------------- ------------- ------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (NOTE C) 17,487,630 36,562,552 2,848,036 760,908 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 154,743,332 (225,492,175) 12,480,083 (17,066,451) NET ASSETS: Beginning of period 410,147,831 635,640,006 36,676,747 53,743,198 ------------- ------------- ------------- ------------- End of period * $ 564,891,163 $ 410,147,831 $ 49,156,830 $ 36,676,747 ============= ============= ============= ============= * Including undistributed net investment income of: $ -- $ 55,625 $ 3,115 $ -- ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements. 32
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, 2009 2008 2009 2008 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income $ 211,962 $ 246,244 $ 5,387,238 $ 5,099,303 Net realized gain (loss) on investments (35,549) (681,191) 1,432,482 (653,176) Net change in unrealized appreciation/depreciation on investments 2,189,309 (2,099,361) 6,404,470 (915,260) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 2,365,722 (2,534,308) 13,224,190 3,530,867 ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net investment income (210,329) (262,866) (5,397,151) (5,133,732) Net realized gain on investments -- (7,593) -- -- ------------- ------------- ------------- ------------- (210,329) (270,459) (5,397,151) (5,133,732) ------------- ------------- ------------- ------------- NET INCREASE IN NET ASSETS FROM FROM FUND SHARE TRANSACTIONS (NOTE C) 1,165,009 769,454 20,716,960 9,244,873 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 3,320,402 (2,035,313) 28,543,999 7,642,008 NET ASSETS: Beginning of period 10,155,928 12,191,241 120,674,241 113,032,233 ------------- ------------- ------------- ------------- End of period * $ 13,476,330 $ 10,155,928 $ 149,218,240 $ 120,674,241 ------------- ------------- ------------- ------------- * Including undistributed net investment income of: $ 2,160 $ -- $ -- $ 4,826 ------------- ------------- ------------- -------------
LKCM INTERNATIONAL FUND Year Ended Year Ended December 31, December 31, 2009 2008 ------------- ------------- OPERATIONS: Net investment income $ 525,542 $ 1,365,246 Net realized loss on investments, futures contracts and foreign currency transactions (7,749,195) (31,742,954) Net change in unrealized appreciation/depreciation 16,827,949 (25,306,055) ------------- ------------- Net increase (decrease) in net assets resulting from operations 9,604,296 (55,683,763) ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net investment income (2,454,865) (614,095) Net realized gain on investments -- (1,375,053) ------------- ------------- (2,454,865) (1,989,148) ------------- ------------- NET DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (NOTE C) (1,008,501) (34,327,435) ------------- ------------- Total increase (decrease) in net assets 6,140,930 (92,000,346) NET ASSETS: Beginning of period 37,231,209 129,231,555 ------------- ------------- End of period * $ 43,372,139 $ 37,231,209 ------------- ------------- * Including undistributed net investment income of: $ 366,733 $ 2,362,880 ------------- -------------
The accompanying notes are an integral part of these financial statements. 33 FINANCIAL HIGHLIGHTS SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING - --------------------------------------------------------------------------------
LKCM SMALL CAP EQUITY FUND -- INSTITUTIONAL CLASS Year Year Year Year Year Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, 2009 2008 2007 2006 2005 ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - BEGINNING OF PERIOD $ 12.24 $ 20.03 $ 21.98 $ 21.12 $ 21.46 ------------- ------------- ------------- ------------- ------------- Net investment income (loss)(1) (0.05) (0.03) 0.01 (0.04) (0.05) Net realized and unrealized gain (loss) on investments 3.97 (7.75) (0.17) 3.22 3.17 ------------- ------------- ------------- ------------- ------------- Total from investment operations 3.92 (7.78) (0.16) 3.18 3.12 ------------- ------------- ------------- ------------- ------------- Dividends from net investment income -- -- (0.00)(2) -- -- Distributions from net realized gains -- (0.01) (1.79) (2.32) (3.46) ------------- ------------- ------------- ------------- ------------- Total dividends and distributions -- (0.01) (1.79) (2.32) (3.46) ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - END OF PERIOD $ 16.16 $ 12.24 $ 20.03 $ 21.98 $ 21.12 ============= ============= ============= ============= ============= TOTAL RETURN 32.03% (38.87)% (0.76)% 14.98% 14.42% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) $ 529,166 $ 385,223 $ 595,175 $ 608,417 $ 370,988 Ratio of expenses to average net assets: 1.00% 0.97% 0.94% 0.96% 0.99% Ratio of net investment income (loss) to average net assets: (0.35)% (0.17)% 0.04% (0.16)% (0.23)% Portfolio turnover rate(3) 59% 61% 60% 56% 56%
(1) Net investment income (loss) per share represents net investment income (loss) divided by the average shares outstanding throughout the period. (2) Less than $(0.005). (3) 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 Year Year Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, 2009 2008 2007 2006 2005 ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - BEGINNING OF PERIOD $ 12.02 $ 19.72 $ 21.73 $ 20.95 $ 21.36 ------------- ------------- ------------- ------------- ------------- Net investment loss(1) (0.08) (0.07) (0.05) (0.09) (0.11) Net realized and unrealized gain (loss) on investments 3.89 (7.62) (0.17) 3.19 3.16 ------------- ------------- ------------- ------------- ------------- Total from investment operations 3.81 (7.69) (0.22) 3.10 3.05 ------------- ------------- ------------- ------------- ------------- Distributions from net realized gains -- (0.01) (1.79) (2.32) (3.46) ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - END OF PERIOD $ 15.83 $ 12.02 $ 19.72 $ 21.73 $ 20.95 ============= ============= ============= ============= ============= TOTAL RETURN 31.70% (39.02)% (1.06)% 14.72% 14.16% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) $ 35,725 $ 24,925 $ 40,465 $ 20,923 $ 8,589 Ratio of expenses to average net assets: 1.25% 1.22% 1.19% 1.21% 1.24% Ratio of net investment loss to average net assets: (0.60)% (0.42)% (0.21)% (0.41)% (0.48)% Portfolio turnover rate(2) 59% 61% 60% 56% 56%
(1) Net investment loss per share represents net investment loss divided by the average shares outstanding throughout the period. (2) 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. 34
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, 2009 2008 2007 2006 2005 ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - BEGINNING OF PERIOD $ 10.33 $ 15.38 $ 14.43 $ 13.30 $ 13.09 ------------- ------------- ------------- ------------- ------------- Net investment income 0.10 0.16 0.16 0.14 0.11 Net realized and unrealized gain (loss) on investments 2.69 (5.05) 1.42 1.55 0.52 ------------- ------------- ------------- ------------- ------------- Total from investment operations 2.79 (4.89) 1.58 1.69 0.63 ------------- ------------- ------------- ------------- ------------- Dividends from net investment income (0.10) (0.16) (0.16) (0.14) (0.12) Distributions from net realized gains -- -- (0.47) (0.42) (0.30) ------------- ------------- ------------- ------------- ------------- Total dividends and distributions (0.10) (0.16) (0.63) (0.56) (0.42) ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - END OF PERIOD $ 13.02 $ 10.33 $ 15.38 $ 14.43 $ 13.30 ============= ============= ============= ============= ============= TOTAL RETURN 27.01% (31.80)% 10.96% 12.65% 4.80% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) $ 49,157 $ 36,677 $ 53,743 $ 50,385 $ 46,510 Ratio of expenses to average net assets: Before expense waiver and/or reimbursement 1.13% 1.06% 1.01% 1.06% 1.10% 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 0.62% 0.85% 0.82% 0.71% 0.60% After expense waiver and/or reimbursement 0.95% 1.11% 1.03% 0.97% 0.90% Portfolio turnover rate 26% 31% 26% 24% 21%
LKCM BALANCED FUND Year Year Year Year Year Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, 2009 2008 2007 2006 2005 ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - BEGINNING OF PERIOD $ 10.85 $ 13.84 $ 13.36 $ 12.42 $ 11.85 ------------- ------------- ------------- ------------- ------------- Net investment income 0.22 0.26 0.28 0.25 0.21 Net realized and unrealized gain (loss) on investments 2.24 (2.96) 0.82 1.13 0.48 ------------- ------------- ------------- ------------- ------------- Total from investment operations 2.46 (2.70) 1.10 1.38 0.69 ------------- ------------- ------------- ------------- ------------- Dividends from net investment income (0.22) (0.28) (0.28) (0.26) (0.12) Distributions from net realized gains -- (0.01) (0.34) (0.18) -- ------------- ------------- ------------- ------------- ------------- Total dividends and distributions (0.22) (0.29) (0.62) (0.44) (0.12) ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - END OF PERIOD $ 13.09 $ 10.85 $ 13.84 $ 13.36 $ 12.42 ============= ============= ============= ============= ============= TOTAL RETURN 22.90% (19.70)% 8.25% 11.22% 5.87% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) $ 13,476 $ 10,156 $ 12,191 $ 9,922 $ 9,232 Ratio of expenses to average net assets: Before expense waiver and/or reimbursement 1.41% 1.38% 1.35% 1.45% 1.47% 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 1.28% 1.51% 1.51% 1.30% 1.03% After expense waiver and/or reimbursement 1.89% 2.09% 2.06% 1.95% 1.70% Portfolio turnover rate 22% 38% 27% 12% 24%
The accompanying notes are an integral part of these financial statements. 35 FINANCIAL HIGHLIGHTS SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING - --------------------------------------------------------------------------------
LKCM FIXED INCOME FUND Year Year Year Year Year Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, 2009 2008 2007 2006 2005 ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - BEGINNING OF PERIOD $ 10.20 $ 10.33 $ 10.19 $ 10.24 $ 10.42 ------------- ------------- ------------- ------------- ------------- Net investment income 0.43 0.43 0.46 0.44 0.36 Net realized and unrealized gain (loss) on investments 0.65 (0.13) 0.14 (0.05) (0.18) ------------- ------------- ------------- ------------- ------------- Total from investment operations 1.08 0.30 0.60 0.39 0.18 ------------- ------------- ------------- ------------- ------------- Dividends from net investment income (0.43) (0.43) (0.46) (0.44) (0.36) ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - END OF PERIOD $ 10.85 $ 10.20 $ 10.33 $ 10.19 $ 10.24 ============= ============= ============= ============= ============= TOTAL RETURN 10.77% 2.99% 5.96% 3.96% 1.79% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) $ 149,218 $ 120,674 $ 113,032 $ 106,082 $ 115,599 Ratio of expenses to average net assets: Before expense waiver and/or reimbursement 0.76% 0.73% 0.72% 0.74% 0.76% After expense waiver and/or 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 4.00% 4.15% 4.39% 4.14% 3.56% After expense waiver and/or reimbursement 4.11% 4.23% 4.46% 4.23% 3.67% Portfolio turnover rate 30% 23% 31% 30% 40%
The accompanying notes are an integral part of these financial statements. 36 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, 2009 2008 2007 2006 2005 ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - BEGINNING OF PERIOD $ 6.16 $ 12.41 $ 13.49 $ 11.10 $ 9.40 ------------- ------------- ------------- ------------- ------------- Net investment income 0.09(1) 0.15(1) 0.14(2) 0.10(1) 0.02(1) Net realized and unrealized gain (loss) on investments 1.73 (6.05) 1.93 2.95 1.91 ------------- ------------- ------------- ------------- ------------- Total from investment operations 1.82 (5.90) 2.07 3.05 1.93 ------------- ------------- ------------- ------------- ------------- Dividends from net investment income (0.45) (0.11) (0.26) (0.16) (0.23) Distributions from net realized gains -- (0.24) (2.89) (0.50) -- ------------- ------------- ------------- ------------- ------------- Total dividends and distributions (0.45) (0.35) (3.15) (0.66) (0.23) ------------- ------------- ------------- ------------- ------------- NET ASSET VALUE - END OF PERIOD $ 7.53 $ 6.16 $ 12.41 $ 13.49 $ 11.10 ============= ============= ============= ============= ============= TOTAL RETURN 29.51% (47.55)% 15.20% 27.51% 20.49% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) $ 43,372 $ 37,231 $ 129,232 $ 136,295 $ 81,900 Ratio of expenses to average net assets: Before expense waiver and/or reimbursement 1.91% 1.42% 1.31% 1.34% 1.99% After expense waiver and/or reimbursement 1.20% 1.20% 1.20% 1.20% 1.20% Ratio of net investment income to average net assets: Before expense waiver and/or reimbursement 0.67% 1.29% 0.61% 0.62% (0.57)% After expense waiver and/or reimbursement 1.38% 1.51% 0.72% 0.76% 0.22% Portfolio turnover rate 179% 181% 153% 141% 56%(3)
(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. 37 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 capitalizations at the initial time of investment between $400 million and $2.5 billion) which Luther King Capital Management Corporation (the "Adviser") believes are likely to have above-average growth in revenue and/or earnings and potential for above-average capital appreciation. The LKCM Equity Fund seeks to maximize long-term capital appreciation by investing primarily in equity securities of companies which the Adviser believes are likely to have above-average growth in revenue and/or earnings, 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 long-term 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 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. 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 or 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. The International Fund currently uses a third-party fair valuation vendor. The vendor provides a fair value for foreign securities held by the Fund based on certain factors and methodologies (involving, generally, tracking valuation correlations between the U.S. market and each non-U.S. security). Values from the fair value vendor are applied in the event that there is a movement in the U.S. market that exceeds a specific threshold that has been established by the Trustees. At December 31, 2009, the securities in the International Fund were adjusted using factors provided by the fair value vendor. 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. Securities listed on a foreign exchange for which market quotations are readily available are valued at the last quoted sales price, unless 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. If such events occur, foreign securities will be valued at fair value in accordance with procedures adopted by the Trustees. The Trust has adopted accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below. Level 1 - Quoted unadjusted prices for identical instruments in active markets to which the Trust has access at the date of measurement. Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers. Level 3 - Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Trust's own assumptions that market participants would use to price the asset or liability based on the best available information. 38 The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the Funds' investments as of December 31, 2009: LKCM SMALL CAP FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ----------------------------------------------------------------------------- Common Stocks $ 551,896,148 $ -- $ -- $551,896,148 Money Market Funds 13,739,055 -- -- 13,739,055 ------------------------------------------------------ Total Investments** $ 565,635,203 $ -- $ -- $565,635,203 ====================================================== LKCM EQUITY FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ----------------------------------------------------------------------------- Common Stocks $ 46,258,193 $ -- $ -- $ 46,258,193 Money Market Funds 2,860,751 -- -- 2,860,751 ------------------------------------------------------ Total Investments** $ 49,118,944 $ -- $ -- $ 49,118,944 ====================================================== LKCM BALANCED FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ----------------------------------------------------------------------------- Common Stocks $ 9,434,915 $ -- $ -- $ 9,434,915 Corporate Bonds -- 3,611,004 -- 3,611,004 U.S. Government & Agency Issues -- 107,690 -- 107,690 Money Market Funds 273,505 -- -- 273,505 ------------------------------------------------------ Total Investments** $ 9,708,420 $3,718,694 $ -- $13,427,114 ====================================================== LKCM FIXED INCOME FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ----------------------------------------------------------------------------- Preferred Stocks $ 877,200 $ -- $ -- $ 877,200 Corporate Bonds -- 134,665,469 -- 134,665,469 U.S. Government & Agency Issues -- 8,273,160 -- 8,273,160 Money Market Funds 3,111,480 -- -- 3,111,480 ------------------------------------------------------ Total Investments** $3,988,680 $ 142,938,629 $ -- $146,927,309 ====================================================== 39 LKCM INTERNATIONAL FUND OTHER FINANCIAL INSTRUMENTS* DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL LEVEL 2 - ------------------------------------------------------------------------------ Common Stocks $ -- $41,646,088 $ -- $41,646,088 $ -- Preferred Stocks -- 1,288,468 -- 1,288,468 -- Forward Currency Exchange Contracts -- -- -- -- 90,543 ------------------------------------------------------ Total Investments** $ -- $42,934,556 $ -- $42,934,556 $90,543 ====================================================== * Other financial instruments are derivative instruments not reflected in the Schedule of Investments, such as futures, written options, forwards and swap contracts, which are valued at the unrealized appreciation (depreciation) on the instrument. ** Additional information regarding the industry and/or geographical classifications of these investments is disclosed in the Schedule of Investments. In March 2008, the Trust adopted an accounting standard involving disclosures of derivatives and hedging activities that is effective for fiscal years beginning after November 15, 2008. The standard is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position. Other than the International Fund, the standard does not have any impact on the Funds' financial disclosures because those Funds have not maintained any positions in derivative instruments or engaged in hedging activities. Additional information regarding derivative instruments and hedging activities of the International Fund is disclosed in the Schedule of Investments. Refer to Note A.6 to understand how and why the International Fund uses derivatives. In preparing these financial statements, the Trust has evaluated events and transactions for potential recognition or disclosure through February 25, 2010, the date the financial statements were available to be issued. 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 all of its investment company net taxable income and net capital gains to shareholders. Therefore, no federal income tax provision is recorded. 3. DISTRIBUTIONS TO SHAREHOLDERS: The LKCM Small Cap Equity, LKCM Equity and LKCM International Funds generally intend to pay dividends and net capital gain distributions, if any, at least on an annual basis. The LKCM Balanced and LKCM Fixed Income Funds generally intend to pay dividends on a quarterly basis and net capital gain distributions, if any, at least on an annual basis. 4. FOREIGN SECURITIES: Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and securities of the U.S. government. 5. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are maintained in U.S. dollars. Foreign currency 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, 2009, substantially all of the LKCM International 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 40 the extent of changes in currency exchange rates. As of December 31, 2009, 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, 2009, 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 (loss) $ 1,635,032 $ 597 $ 527 $ 5,087 $ (66,824) Accumulated gain (loss) 330,063 -- -- (5,087) 66,824 Paid in capital (1,965,095) (597) (527) -- --
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. 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 contractually 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, 2009, the Adviser and/or Sub-Adviser waived 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 in 2009 -- $133,605 $68,624 $139,371 $271,064
(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. 41 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, 2009, fees accrued by the Small Cap Equity Fund pursuant to the 12b-1 Plan were $72,248. C. FUND SHARES: At December 31, 2009, 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, 2009 DECEMBER 31, 2008 ------------------------ ------------------------ INSTITUTIONAL CLASS INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Shares sold 7,874,772 $103,585,277 9,538,637 $157,658,974 Shares issued to shareholders in reinvestment of distributions -- -- 11,733 139,109 Shares redeemed (6,595,759) (88,317,779) (7,801,928)(120,957,869) Redemption fee -- 3,368 6,698 ----------- ----------- ----------- ----------- Net increase 1,279,013 $15,270,866 1,748,442 $36,846,912 =========== =========== SHARES OUTSTANDING: Beginning of period 31,460,208 29,711,766 ----------- ----------- End of period 32,739,221 31,460,208 =========== =========== SMALL CAP EQUITY FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------ ------------------------ ADVISER CLASS ADVISER CLASS SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Shares sold 495,524 $ 6,304,325 515,246 $ 8,088,332 Shares issued to shareholders in reinvestment of distributions -- -- 901 10,498 Shares redeemed (311,944) (4,087,561) (495,120) (8,383,190) ----------- ----------- ----------- ----------- Net increase (decrease) 183,580 $ 2,216,764 21,027 $ (284,360) =========== =========== SHARES OUTSTANDING: Beginning of period 2,072,813 2,051,786 ----------- ----------- End of period 2,256,393 2,072,813 =========== =========== Total Net Increase $17,487,630 $36,562,552 =========== =========== EQUITY FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Shares sold 557,583 $ 6,344,126 694,658 $ 9,532,289 Shares issued to shareholders in reinvestment of distributions 28,510 374,616 52,417 533,605 Shares redeemed (359,031) (3,870,807) (693,111) (9,305,031) Redemption fee 101 45 ----------- ----------- ----------- ----------- Net increase 227,062 $ 2,848,036 53,964 $ 760,908 =========== =========== SHARES OUTSTANDING: Beginning of period 3,549,118 3,495,154 ----------- ----------- End of period 3,776,180 3,549,118 =========== ===========
42
BALANCED FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Shares sold 148,180 $ 1,776,594 104,047 $ 1,345,328 Shares issued to shareholders in reinvestment of distributions 17,747 208,152 22,442 267,613 Shares redeemed (72,194) (819,737) (71,632) (843,585) Redemption fee -- 98 ----------- ----------- ----------- ----------- Net increase 93,733 $ 1,165,009 54,857 $ 769,454 =========== =========== SHARES OUTSTANDING: Beginning of period 935,821 880,964 ----------- ----------- End of period 1,029,554 935,821 =========== =========== FIXED INCOME FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Shares sold 3,118,416 $33,549,434 1,831,342 $18,874,423 Shares issued to shareholders in reinvestment of distributions 439,421 4,692,146 439,718 4,497,769 Shares redeemed (1,630,375) (17,524,680) (1,385,196) (14,128,320) Redemption fee 60 1,001 ----------- ----------- ----------- ----------- Net increase 1,927,462 $20,716,960 885,864 $ 9,244,873 =========== =========== SHARES OUTSTANDING: Beginning of period 11,830,367 10,944,503 ----------- ----------- End of period 13,757,829 11,830,367 =========== =========== INTERNATIONAL FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- Shares sold 189,201 $ 1,336,110 1,716,665 $19,225,885 Shares issued to shareholders in reinvestment of distributions 282,000 2,126,281 308,796 1,889,829 Shares redeemed (755,220) (4,470,892) (6,402,415) (55,443,218) Redemption fee -- 69 ----------- ----------- ----------- ----------- Net decrease (284,019) $(1,008,501) (4,376,954)$(34,327,435) =========== =========== SHARES OUTSTANDING: Beginning of period 6,040,127 10,417,081 ----------- ----------- End of period 5,756,108 6,040,127 =========== ===========
43 D. SECURITY TRANSACTIONS: Purchases and sales of investment securities, other than short-term investments, for the year ended December 31, 2009 were as follows: PURCHASES SALES U.S. U.S. GOVERNMENT OTHER GOVERNMENT OTHER ------------------------ -------------------------- LKCM Small Cap Equity Fund $ -- $270,682,456 $ -- $265,842,546 LKCM Equity Fund -- 10,101,190 -- 10,096,751 LKCM Balanced Fund -- 3,551,798 101,187 2,284,779 LKCM Fixed Income Fund 1,235,710 52,085,762 12,608,662 25,915,387 LKCM International Fund -- 66,054,806 -- 70,896,778 E. TAX INFORMATION: At December 31, 2009, 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 $ 487,581,563 $ 40,532,314 $ 11,222,145 $ 140,693,827 $ 44,923,679 ------------- ------------- ------------- ------------- ------------- Gross Unrealized Appreciation$ 105,532,246 $ 10,885,539 $ 2,509,423 $ 6,484,951 $ 5,026,478 Gross Unrealized Depreciation (27,478,606) (2,298,909) (304,454) (251,469) (7,015,601) ------------- ------------- ------------- ------------- ------------- Net Unrealized Appreciation (Depreciation) $ 78,053,640 $ 8,586,630 $ 2,204,969 $ 6,233,482 $ (1,989,123) ------------- ------------- ------------- ------------- ------------- Undistributed Ordinary Income -- -- -- -- 474,770 Undistributed Long-Term Capital Gain -- -- -- 87,211 -- ------------- ------------- ------------- ------------- ------------- Total Distributable Earnings $ -- $ -- $ -- $ 87,211 $ 474,770 ------------- ------------- ------------- ------------- ------------- Other Accumulated Losses $(133,499,914) $ (1,349,608) $ (716,740) $ -- $ (37,476,940) ------------- ------------- ------------- ------------- ------------- Total Accumulated Gains (Losses) $ (55,446,274) $ 7,237,022 $ 1,488,229 $ 6,320,693 $ (38,991,293) ------------- ------------- ------------- ------------- -------------
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales and partnerships.
At December 31, 2009, the accumulated capital loss carryforwards were as follows: LKCM LKCM LKCM LKCM SMALL CAP EQUITY BALANCED INTERNATIONAL EQUITY FUND FUND FUND FUND -------------------------------------------------------- Expiring in 2016 $ 41,887,773 $ 688,311 $ 243,935 $ 14,977,524 Expiring in 2017 85,386,046 661,297 472,805 22,376,424 ------------ ------------ ------------ ------------ Total capital loss carryforwards $127,273,819 $ 1,349,608 $ 716,740 $ 37,353,948 ------------ ------------ ------------ ------------
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. The LKCM Fixed Income Fund utilized $1,340,184 of prior capital loss carryforwards during the year ended December 31, 2009. At December 31, 2009, the following Funds deferred, on a tax basis, post-October losses of: LKCM LKCM SMALL CAP INTERNATIONAL EQUITY FUND FUND ----------- ------------ $ 6,226,095 $ 131,298 44 The tax components of dividends paid during the year ended December 31, 2009 were as follows: ORDINARY LONG-TERM INCOME CAPITAL GAINS ------------- -------------- LKCM Small Cap Equity Fund $ -- $ -- LKCM Equity Fund 380,347 -- LKCM Balanced Fund 210,329 -- LKCM Fixed Income Fund 5,392,064 5,087 LKCM International Fund 2,454,865 -- The tax components of dividends paid during the year ended December 31, 2008 were as follows: ORDINARY LONG-TERM INCOME CAPITAL GAINS ------------- -------------- LKCM Small Cap Equity Fund $ -- $ 173,703 LKCM Equity Fund 548,026 -- LKCM Balanced Fund 262,870 7,589 LKCM Fixed Income Fund 5,133,732 -- LKCM International Fund 661,588 1,327,560 The Funds designated as long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits of the Funds related to net capital gain to zero for the tax years ended December 31, 2008 and 2009. The Trust has adopted financial reporting rules regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The Trust has reviewed all open tax years and major jurisdictions and concluded that there is no impact on the Funds' financial position or results of operations. Tax years that remain open to examination by major tax jurisdictions include tax years ended December 31, 2006 through December 31, 2009. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on tax returns as of December 31, 2009. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. If applicable, the Funds would recognize interest accrued related to unrecognized tax benefits in "interest expense" and penalties in "other expense" on the statement of operations. 45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of LKCM Funds: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of LKCM Small Cap Equity Fund, LKCM Equity Fund, LKCM Balanced Fund, LKCM Fixed Income Fund, and LKCM International Fund, five of the portfolios constituting the LKCM Funds (collectively, the "Funds") as of December 31, 2009, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the periods ended prior to December 31, 2007 were audited by other auditors whose report, dated February 20, 2007, expressed an unqualified opinion on those financial highlights. We conducted our audits 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 and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the five portfolios (listed in the first paragraph) of the LKCM Funds as of December 31, 2009, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Milwaukee, Wisconsin February 25, 2010 46 LKCM FUNDS ADDITIONAL INFORMATION DECEMBER 31, 2009 TAX INFORMATION: The Funds designated the following percentages of dividends declared from net investment income for the fiscal year ended December 31, 2009 as qualified dividend income under the Jobs & Growth Tax Relief Reconciliation Act of 2003. Equity 100.00% Balanced 70.15% Fixed Income 0.71% International 95.12% The Funds designated the following percentages of dividends declared during the fiscal year ended December 31, 2009 as dividends qualifying for the dividends received deduction available to corporate shareholders. Equity 100.00% Balanced 60.21% Fixed Income 0.71% 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 0.46% Balanced 58.96% Fixed Income 100.00% International 0.11% The Funds had no taxable ordinary income distributions that were designated as short-term capital gain distributions under Internal Revenue Code Section 871 (k)(2)(C) during the year ended December 31, 2009. 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. 47 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 President and CEO, Texas 9 Non-Executive Chairman of 301 Commerce Street of the Systems, LLC 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: 67 Trustee Since 1994 Neeley School of Business, Texas Christian University Business School from 1987 to 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Earle A. Shields, Jr. Trustee Since 1994 Consultant; formerly 9 Priests Pension Fund of the 301 Commerce Street Consultant for NASDAQ Catholic Diocese of Fort Suite 1600 Corp. and Vice President, Worth, Lay Workers Pension Fort Worth, TX 76102 Merrill Lynch & Co., Inc. Fund of the Catholic Diocese Age: 89 of Fort Worth, St. Joseph Health Care Trust, Catholic Schools Trust and Catholic Foundation of North Texas. - ---------------------------------------------------------------------------------------------------------------------------------- Richard J. Howell Trustee Since 2005 CPA, Adjunct Faculty at 9 Red Robin Gourmet 301 Commerce Street SMU Cox School of Burgers, Inc. Suite 1600 Chairman of the Since 2008 Business since 2004; Consulting Fort Worth, TX 76102 Audit and Compliance Services, since 2002; Audit Partner, Age: 67 Committee Arthur Andersen LLP from 1974-2002. - ---------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES: - ---------------------------------------------------------------------------------------------------------------------------------- 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 (ranching), Hunt Fort Worth, TX 76102 Management Corporation Forest Products (lumber), Age: 69 since 1979. Southwestern Exposition & Livestock (livestock), Southwest JLK Corporation (management company), Texas Christian University, Texas Southwestern Cattleraisers Foundation (livestock),Tyler Technologies (information management company for government agencies) and Encore Energy Partners LP (oil and natural gas exploration). - ---------------------------------------------------------------------------------------------------------------------------------- (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.
48
TERM OF OFFICE & PRINCIPAL POSITION(S) LENGTH OCCUPATION NAME, ADDRESS HELD WITH OF TIME DURING PAST AND AGE THE TRUST 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: 69 - ---------------------------------------------------------------------------------------- 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: 59 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: 43 - ---------------------------------------------------------------------------------------- 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: 44 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: 35 Securities and Exchange Commission (2005-2006), Associate, Haynes and Boone, LLP (2001-2005). - ----------------------------------------------------------------------------------------
49 This page intentionally left blank. LKCM FUNDS PRIVACY NOTICE Our Commitment to Your Privacy At LKCM Funds, we are committed to safeguarding the confidentiality and privacy of personal information about our shareholders. This privacy notice describes the policies and procedures we have implemented to protect the privacy of your personal information as well as the sources through which we may obtain personal information about you. How We Protect Your Personal Information Protecting your personal information is an important priority at LKCM Funds. Accordingly, we have implemented policies and procedures designed to safeguard your personal information from unauthorized access. Pursuant to these policies and procedures, we maintain various physical, electronic, and procedural safeguards to protect the security and confidentiality of your personal information, and we adapt these safeguards to respond to evolving technological and other standards. In addition, we do not disclose any nonpublic personal information about you to nonaffiliated third parties, except as required or permitted by law or as necessary for us to carry out our responsibilities in providing services to you. How We Obtain Your Personal Information We collect nonpublic personal information about you from the following sources: o Information provided by you or your representatives, whether through documentation that you or your representatives provide to us, through discussions that you or your representatives have with us, or otherwise; and o Information arising from your account experience with us. Please do not hesitate to contact our Chief Compliance Officer if you have any questions regarding the measures we have implemented to protect the privacy of your personal information. Not a Part of the Annual Report. U.S. Bancorp Fund Services, LLC PRESORTED P.O. Box 701 STANDARD Milwaukee, WI 53201-0701 US POSTAGE PAID PERMIT #3602 BERWYN, IL 60402 LKCM FUNDS P.O. BOX 701 MILWAUKEE, WI 53201-0701 - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES J. Luther King, Jr., CFA H. Kirk Downey Richard Lenart Trustee, Chairman of the Board Secretary & Treasurer President Paul W. Greenwell Richard J. Howell Jacob D. Smith Vice President Trustee Chief Compliance Officer Steven R. Purvis, CFA Earle A. Shields, Jr. Vice President 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 Deloitte & Touche LLP 555 E. Wells St., Suite 1400 Milwaukee, WI 53202 - -------------------------------------------------------------------------------- DISTRIBUTOR Quasar Distributors, LLC 615 E. Michigan Street Milwaukee, WI 53202 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LKCM Aquinas Funds - -------------------------------------------------------------------------------- LKCM AQUINAS VALUE FUND LKCM AQUINAS GROWTH FUND LKCM AQUINAS SMALL CAP FUND LKCM AQUINAS FIXED INCOME FUND Annual Report December 31, 2009
DEAR FELLOW SHAREHOLDERS: We report the following performance information for the LKCM Aquinas Funds: AVG. ONE YEAR ANNUAL TOTAL TOTAL RETURN RETURN INCEPTION NAV @ NET EXPENSE GROSS EXPENSE ENDED SINCE FUNDS DATES 12/31/09 RATIO*,** RATIO** 12/31/09 INCEPT.*** - ------------------------------------------------ ----------------------------------------------------------------- LKCM Aquinas Value Fund 7/11/05 $10.82 1.50% 1.59% 32.94% 1.64% Russell 1000 Value Index1 19.69% -1.03% LKCM Aquinas Growth Fund 7/11/05 $14.25 1.50% 1.57% 30.02% 0.10% Russell 1000 Growth Index2 37.21% 1.75% LKCM Aquinas Small Cap Fund 7/11/05 $5.25 1.50% 2.92% 30.27% -1.05% Russell 2000 Index3 27.17% 0.07% LKCM Aquinas Fixed Income Fund 7/11/05 $10.21 0.80% 1.98% 10.51% 4.75% Barclays Capital U.S. Intermediate Government/Credit Bond Index4 5.24% 4.95%
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 than 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. * The Adviser has agreed to waive all or a portion of its management fee and/or reimburse the Funds to maintain designated expense caps. Investment performance reflects fee waivers, if any, in effect. In the absence of such waivers, total return would be reduced. Investment performance is based upon the net expense ratio. ** Expense ratios above are as of December 31, 2008, the Funds' prior fiscal year end, as reported in the Funds' most recent prospectus. Expense ratios reported for other periods in the financial highlights of this report may differ. *** 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. As of the latest reconstitution, the average market capitalization of the Russell 2000 Index was approximately $732 million. 4 The Barclays Capital U.S. 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. CATHOLIC VALUES INVESTING The LKCM Aquinas Funds practice socially responsible investing within the framework provided by the United States Conference of Catholic Bishop's Socially Responsible Investing Guidelines. The LKCM Aquinas Funds follow these guidelines by using an approach that focuses on Catholic values screening of portfolio companies, proactive dialogue with those companies whose practices conflict with the guidelines, and potential exclusion of those companies that are unwilling to alter their practices over a reasonable period of time. We exclude a number of companies from possible investment that do not meet our standards for Catholic values investing. We monitor portfolio companies selected for the LKCM Aquinas Funds for policies on various issues set out in the USCCB guidelines. If investments are made in companies whose policies are inconsistent with the USCCB guidelines, we may attempt to influence the company's policies through proactive dialogue and other efforts. During 2009, we corresponded with companies on various issues contemplated by the USCCB guidelines. ECONOMIC OUTLOOK The S&P 500 Index returned 26.46% for 2009, but this fact certainly fails to capture the three distinct measures of the year. The year began with heightened investor concern over housing and rapidly deteriorating economic conditions. This concern was clearly reflected in the equity market as the S&P 500 Index fell approximately 25% from the first of the year through the March 9, 2009 bottom. The second period of the year consisted of the equity market rebounding despite continued worsening economic data. Indeed, the equity market discounted what we believe was likely the conclusion of the recession at the end of the second quarter and a return to positive Gross Domestic Product (GDP) growth in the third quarter. The final period of the year brought improving economic data around employment and housing, together with a corresponding improvement in the equity market. While equities have risen sharply in anticipation of a global economic recovery, resulting from unprecedented policy stimulus, the engine of economic expansion must be reignited. Though policy stimulus is typically the initial spark, the virtuous cycle of demand, liquidity, and spending typically drives expansion. There was a great deal of controversy concerning pent-up demand for housing, autos, capital equipment, and retail goods as the year drew to a 2 close. Retail sales have recently posted a strong recovery. In addition, housing, autos, and capital expenditures are likely to show year-over-year growth in 2010. In our view, pent-up demand does indeed exist and, while perhaps not as strong as in past recoveries, we believe it is sufficient for the purposes of spurring this virtuous cycle. Credit availability is a vital component of ensuring sufficient liquidity to enable businesses to make capital expenditures and consumers to afford housing and cars. A review of the Fed's balance sheet reveals the magnitude of liquidity available to banks, for which banks claim there is little domestic demand. The Fed routinely surveys chief bank lending officers, in which one of the standard questions is whether the bank is tightening lending standards for commercial and industrial loans. Based on the most recent Fed's Senior Loan Officer Survey, banks' willingness to extend credit appears to be improving. We believe that credit standards will normalize as the economic recovery progresses and banks have a clearer picture of the regulator's framework and observe an actual decline in credit metrics such as delinquency rates. It is important to note, however, that we believe the lax credit standards that were common prior to the recession will not return in the foreseeable future. The third component of the virtuous cycle, spending, is driven by job creation. Economic recoveries are often labeled as having "strong job recoveries" such as the 1973-75 and 1981-82 recoveries, or "jobless recoveries," such as 1990-91 and 2001-02. Most observers view the current recovery as a jobless recovery with a rebound in GDP during 2010 despite persistently high unemployment. However, unemployment insurance claims, which historically lead unemployment, have fallen eight consecutive months, and we believe are a sound harbinger of better future employment data. In addition, we believe the net change in nonfarm payroll data is suggesting a rebound in employment. Reviewing labor productivity suggests the labor market is approaching an inflection point. If the U.S. Nonfarm Business Productivity Index is extrapolated through year end 2010, based on the second and third quarter 2009 readings, we believe the Index suggests an increase which is unsustainable. In our view, this trend implies many companies have likely gleaned all near-term productivity increases and will need to add labor to meet demand. Central to the Fed's policy response to the recession was the increase of the money supply and reduction of interest rates in an attempt to reflate asset values and stave off deflation. The initial indications are that the Fed's action appears to have been successful. In response to this action, however, the value of the U.S. dollar remains quite low by historical standards. Naturally, the value of the U.S. dollar fell in response to the increased supply of dollars from the U.S. government. The decline in the U.S. dollar has been viewed in some circles as alarming, particularly given the rise in the federal deficit. Barring the government needing to defend the U.S. dollar in order to support deficit spending, we believe the low level of the U.S. dollar alone is not alarming. In fact, as interest rates approached zero, the government's menu of actions to stimulate the business cycle declined. We believe a low U.S. dollar serves to favor exports and is, therefore, another mechanism in the government's arsenal to reignite business activity. Moreover, we believe it encourages foreign manufacturers to open facilities in the United States. From an economic point of view, the hallmark of 2009 was the unprecedented application of liquidity and stimulus to combat a rapidly contracting economy and fear of deflation. Due to the lag between policy action and its observable impact on the economy, stimulus is often best applied liberally and deliberately. Given the complexion of the challenge, "too little, too late," was simply not an option. Correspondingly, the hallmark of 2010 is likely to be the beginning of liquidity and stimulus removal. The withdrawal of liquidity and stimulus will likely require an approach as deft as the application was blunt. Early in a recovery, it is natural to question whether the economic recovery process is real or the product of policy engineering. Policy stimulus cannot be maintained indefinitely and budgetary deficits must be retired through enormous tax revenues, reduced spending, or the rolling of debt. In reality, economic contraction is most often arrested by the application of what some would consider artificial forces. However, it is the confidence that policy makers instill, which allows the eventual withdrawal of stimulus after resumption of economic growth. As we approach this transition from stimulus to confidence, it is natural for investors to be cautious. Although the Fed will likely begin withdrawing various and sundry programs, the most closely watched Fed action will be related to interest rates. We believe that economic growth will drive the Fed's decision to increase interest rates, although the Fed is unlikely to lift interest rates before the second half of 2010 at the earliest. However, the expectation of interest rate movements can influence equity markets far more than actual Fed action. In this regard, we believe the equity market will likely begin to grapple with the prospect of higher interest rates during the first half of 2010. We believe the Fed will ultimately be persuaded to pursue higher interest rates by one of two forces. The preferable rationale for higher interest rates would be in response to stronger economic activity. In this case, the Fed would have greater room to maneuver prospectively. We believe the second rationale for higher interest carries a lower probability and would be greatly unwelcome. If foreign concerns over U.S. fiscal policy pressure the value of the dollar lower, then higher interest rates may be necessary to defend the dollar. The outcome of this higher interest rate scenario would likely be destabilizing. In our estimation, we believe the far more likely outcome is for the Fed to raise interest rates in response to strong economic data; however, the risk of defending the dollar should be recognized. 3 As we highlighted earlier, the U.S. dollar played a central role in the reflation of assets, including equities, in 2009. Looking forward, we believe the dollar is beginning to show signs of stabilization. It is too early to know whether this is a pause before resuming the downward trend, or whether it is the early sign of a bottom for the dollar. As we noted earlier, U.S. equities have historically performed well in periods of a strong dollar, but given the central role the dollar has played in the recovery, it is not beyond reason to expect the dollar to continue to be a key factor in the near-term. The combination of a strong dollar and continued U.S. equities strength could hinge on whether future dollar strength is the product of better U.S. economic growth or lackluster growth from Europe and Asia. Although Japan is showing signs of positive progress, the European Central Bank is thus far refusing to aggressively pursue reflation. On balance, we are optimistic for equity markets as we begin 2010. We believe the first part of the new year should be marked with several positives, including payrolls improving on a consistent basis, a bottoming of home prices, and improved credit availability for consumers and small business as pent-up demand is revealed. Aside from the potential dollar weakness and discounting of higher interest rates, the majority of concerns lie with government. Healthcare reform, federal, state, and municipal budget deficits, and potentially higher personal and corporate income tax schedules collectively weigh on growth. We believe economic growth, as measured by GDP, will likely be between 3% and 4% in 2010. If this estimate proves correct, then the economic recovery will likely be weaker relative to the magnitude of the decline than history would suggest. This would be consistent with our view that tight credit markets, household deleveraging, and ballooning deficits should mitigate what history would suggest would typically be a stronger economic rebound. LKCM AQUINAS SMALL CAP FUND The LKCM Aquinas Small Cap Fund outperformed the Russell 2000 Index for the year ended December 31, 2009. Sector allocation decisions for the Fund were positive as we were overweight the best performing sector, Consumer Discretionary, and underweight the worst performing sector, Financials. Stock selection also benefited the Fund's performance, particularly in the Energy sector. The Fund benefited from the market's rotation away from lower quality, low stock price and low market capitalization companies during the fourth quarter of 2009. As the market continues to rotate back towards quality companies, we believe the Fund should be well positioned. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Aquinas Small Cap Fund 30.27% Russell 2000 Index 27.17% LKCM AQUINAS GROWTH FUND The LKCM Aquinas Growth Fund posted strong absolute returns for the year ended December 31, 2009, although it underperformed its benchmark, the Russell 1000 Growth Index, during the period. Stock selection within the Consumer Staples sector was beneficial to performance, while stock selection decisions in the Financials and Consumer Discretionary sectors detracted from performance. Our decision to overweight the Financials sector and underweight the Technology sector detracted from performance. We believe the Fund is well positioned as the economic recovery continues to take shape. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Aquinas Growth Fund 30.02% Russell 1000 Growth Index 37.21% 4 LKCM AQUINAS VALUE FUND The LKCM Aquinas Value Fund significantly outperformed its benchmark, the Russell 1000 Value Index, during the year ended December 31, 2009. The Fund's outperformance was primarily the result of our stock selection decisions, particular in the Energy and Consumer Discretionary sectors. Our decision to overweight the Consumer Discretionary and Technology sectors also benefited performance. Stock selection decisions in the Materials sector as well as our decision to underweight the Financials sector detracted from performance. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Aquinas Value Fund 32.94% Russell 1000 Value Index 19.69% LKCM AQUINAS FIXED INCOME FUND The LKCM Aquinas Fixed Income Fund is managed to provide current income. The Fund predominantly invests in a portfolio of investment grade corporate bonds as well as government securities with short and intermediate maturities from one to ten years and cash equivalent securities. Our investment strategy emphasizes the selection of corporate bonds with strong credit profiles and attractive yields relative to those offered on U.S. Treasury and government-agency debt. As of December 31, 2009, the total net assets in the Fund were $12.3 million. This represented an asset mix of 80.4% invested in corporate bonds, 10.0% in U.S. Treasury and government-agency debt, 3.0% in taxable municipal bonds, 1.0% in preferred stock, and 5.6% in cash reserves, net of liabilities. At December 31, 2009, the Fund had an effective duration of 3.3 years. The Fund's overweight in credit (i.e., corporate bonds) relative to government debt was the primary contributor to performance as credit spreads tightened dramatically during the year versus a government sector that produced negative returns. The Fund's shorter duration relative to the 3.9 year duration for the Barclays Capital U.S. Intermediate Government/Credit Bond Index was also additive to performance as spreads in the intermediate sector of the curve compressed more than those on longer dated issues. U.S. government debt underperformed on a relative basis on the reversal of the flight-to-quality trade, massive new issuance and concerns over continued willingness of foreign central banks to finance a growing U.S. budget deficit. The Fund's sector weightings in the Energy, Basic Materials, Consumer Cyclicals and Technology sectors all contributed to performance as well as overweighting issues with credit ratings between triple B and single A. A number of corporate actions by high quality acquirers also contributed to spread tightening and outperformance. TOTAL RETURN YEAR ENDED DECEMBER 31, 2009 ----------------------- LKCM Aquinas Fixed Income Fund 10.51% Barclays Capital U.S. Intermediate Government/ Credit Bond Index 5.24% /s/ Luther King J. Luther King, Jr., CFA January 25, 2010 5 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 13-21 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. MUTUAL FUND INVESTING INVOLVES RISK. PRINCIPAL LOSS IS POSSIBLE. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. SMALL CAPITALIZATION FUNDS TYPICALLY CARRY ADDITIONAL RISKS, SINCE SMALL COMPANIES GENERALLY HAVE A HIGHER RISK OF FAILURE, AND, HISTORICALLY, THEIR STOCKS HAVE EXPERIENCED A GREATER DEGREE OF MARKET VOLATILITY THAN STOCKS ON AVERAGE. INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST RATES RISE. THIS RISK IS GREATER FOR LONGER-TERM DEBT SECURITIES. CURRENT AND FUTURE PORTFOLIO HOLDINGS ARE SUBJECT TO RISK. The Price to Book (P/B) Ratio is calculated by dividing the current price of the stock by the company's book value per share. The S&P Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. An investment cannot be made directly in an index. Must be preceded or accompanied by a prospectus. 6 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Aquinas Value Fund as of December 31, 2009 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 PAST SINCE 1 YEAR 3 YEARS INCEPTION(1) - -------------------------------------------------------------------- LKCM AQUINAS VALUE FUND 32.94% (3.45)% 1.64% - -------------------------------------------------------------------- Russell 1000 Value Index 19.69% (8.96)% (1.03)% - -------------------------------------------------------------------- Lipper Large-Cap Value Funds Index 24.96% (6.91)% 0.20% - -------------------------------------------------------------------- (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 Russell 1000 Lipper Large Cap Value Fund $10,758 Value Index $9,546 Value Funds Index $10,089 7/05 10000 10000 10000 12/05 10260 10349 10574 12/06 11953 12651 12507 12/07 12915 12629 12815 12/08 8092 7975 8074 12/09 10758 9546 10089 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 equally weighted index of the 30 largest large cap value mutual funds tracked by Lipper, Inc. 7 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Aquinas Growth Fund as of December 31, 2009 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 PAST SINCE 1 YEAR 3 YEARS INCEPTION(1) - ----------------------------------------------------------------------- LKCM AQUINAS GROWTH FUND 30.02% (0.63)% 0.10% - ----------------------------------------------------------------------- Russell 1000 Growth Index 37.21% (1.89)% 1.75% - ----------------------------------------------------------------------- Lipper Large-Cap Growth Funds Index 38.50% (2.28)% 1.41% - ----------------------------------------------------------------------- (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 Lipper Large-Cap LKCM Aquinas Russell 1000 Growth Funds Growth Fund $10,045 Growth Index $10,807 Index $10,649 5-Jul 10000 10000 10000 5-Dec 10261 10491 10897 6-Dec 10239 11443 11411 7-Dec 11544 12794 13120 8-Dec 7726 7877 7689 9-Dec 10045 10807 10649 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 equally weighted index of the 30 largest large cap growth mutual funds tracked by Lipper, Inc. 8 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Aquinas Small Cap Fund as of December 31, 2009 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 PAST SINCE 1 YEAR 3 YEARS INCEPTION(1) - ----------------------------------------------------------------- LKCM AQUINAS SMALL CAP FUND 30.27% (6.66)% (1.05)% - ----------------------------------------------------------------- Russell 2000 Index 27.17% (6.07)% 0.07% - ----------------------------------------------------------------- Lipper Small-Cap Core Funds Index 34.50% (4.06)% 1.76% - ----------------------------------------------------------------- (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 Russell 2000 Lipper Small-Cap Core Cap Fund $9,537 Index $10,033 Funds Index $10,816 7/05 10000 10000 10000 12/05 10374 10226 10773 12/06 11729 12104 12249 12/07 11739 11915 12484 12/08 7321 7889 8042 12/09 9537 10033 10816 The Russell 2000 Index is an unmanaged index consisting of the 2,000 smallest companies in the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $732 million. The Lipper Small-Cap Core Funds Index is an equally weighted index of the 30 largest small cap core mutual funds tracked by Lipper, Inc. 9 PERFORMANCE: - -------------------------------------------------------------------------------- The following information illustrates the historical performance of LKCM Aquinas Fixed Income Fund as of December 31, 2009 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 PAST SINCE 1 YEAR 3 YEARS INCEPTION(1) - -------------------------------------------------------------------- LKCM AQUINAS FIXED INCOME FUND 10.51% 5.85% 4.75% - -------------------------------------------------------------------- Barclays Capital U.S. Intermediate Government/Credit Bond Index 5.24% 5.90% 4.95% - -------------------------------------------------------------------- Lipper Short Intermediate Investment-Grade Debt Funds Index 11.73% 4.71% 4.06% - -------------------------------------------------------------------- (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 Barclays Capital U.S. Lipper Short Intermediate LKCM Aquinas Fixed Intermediate Government/ Investment-Grade Debt Income Fund $12,310 Credit Bond Index $12,419 Funds Index $11,953 7/05 10000 10000 10000 12/05 9997 10048 10003 12/06 10379 10458 10411 12/07 10996 11230 10972 12/08 11139 11800 10698 12/09 12310 12419 11953
The Barclays Capital U.S. 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 equally weighted index of the 30 largest short intermediate grade mutual funds tracked by Lipper, Inc. 10 LKCM AQUINAS FUNDS EXPENSE EXAMPLE -- DECEMBER 31, 2009 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 (7/1/09-12/31/09). 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 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 7/1/09 - 7/1/09 12/31/09 12/31/09 - -------------------------------------------------------------------------------- Actual $1,000.00 $1,232.60 $8.44 Hypothetical (5% return before expense) $1,000.00 $1,017.64 $7.63 * Expenses are equal to the Fund's annualized net 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 7/1/09 - 7/1/09 12/31/09 12/31/09 - -------------------------------------------------------------------------------- Actual $1,000.00 $1,227.40 $8.42 Hypothetical (5% return before expense) $1,000.00 $1,017.64 $7.63 * Expenses are equal to the Fund's annualized net 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. 11 LKCM AQUINAS SMALL CAP FUND ----------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE 7/1/09 - 7/1/09 12/31/09 12/31/09 - -------------------------------------------------------------------------------- Actual $1,000.00 $1,215.30 $8.38 Hypothetical (5% return before expense) $1,000.00 $1,017.64 $7.63 * Expenses are equal to the Fund's annualized net 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 7/1/09 - 7/1/09 12/31/09 12/31/09 - -------------------------------------------------------------------------------- Actual $1,000.00 $1,044.80 $4.12 Hypothetical (5% return before expense) $1,000.00 $1,021.17 $4.08 * Expenses are equal to the Fund's annualized net 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, 2009 Percentages represent market value as a percentage of total investments. Pie Chart: LKCM AQUINAS VALUE FUND LKCM AQUINAS GROWTH FUND Short-Term Investments 4.4% Short-Term Investments 1.9% Common Stocks 95.6% Common Stocks 98.1% LKCM AQUINAS SMALL CAP FUND LKCM AQUINAS FIXED INCOME FUND Short-Term Investments 4.5% Municipal Bonds 3.1% Common Stocks 95.5% U.S. Government & Agency Issues 10.2% Preferred Stocks 1.0% Short-Term Investments 4.2% Corporate Bonds 81.5% 12 LKCM AQUINAS VALUE FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ------------------------------------------------------------------------ COMMON STOCKS - 95.8% SHARES VALUE - ------------------------------------------------------------------------ AIR FREIGHT & LOGISTICS - 1.4% C.H. Robinson Worldwide, Inc. 8,500 $ 499,205 ------------ ASSET MANAGEMENT - 1.7% Bank of New York Mellon Corporation 22,500 629,325 ------------ AUTO COMPONENTS - 1.9% LKQ Corporation (a) 35,000 685,650 ------------ BEVERAGES - 2.6% The Coca-Cola Company 10,000 570,000 PepsiCo, Inc. 6,000 364,800 ------------ 934,800 ------------ BIOTECHNOLOGY - 1.5% Gilead Sciences, Inc. (a) 12,500 541,000 ------------ BUILDING PRODUCTS - 1.9% Masco Corporation 50,000 690,500 ------------ CAPITAL MARKETS - 2.6% Lazard Ltd. - Class A (b) 25,000 949,250 ------------ CHEMICALS - 3.0% FMC Corporation 12,500 697,000 Praxair, Inc. 5,000 401,550 ------------ 1,098,550 ------------ COMMERCIAL BANKS - 3.9% BOK Financial Corporation 17,500 831,600 Wells Fargo & Company 22,500 607,275 ------------ 1,438,875 ------------ COMMERCIAL SERVICES & SUPPLIES - 1.9% Waste Management, Inc. 20,000 676,200 ------------ COMMUNICATIONS EQUIPMENT - 1.6% Cisco Systems, Inc. (a) 25,000 598,500 ------------ COMPUTERS & PERIPHERALS - 6.1% Brocade Communications Systems, Inc. (a) 110,000 839,300 EMC Corporation (a) 50,000 873,500 International Business Machines Corporation 4,020 526,218 ------------ 2,239,018 ------------ CONSUMER FINANCE - 2.5% American Express Company 22,500 911,700 ------------ DIVERSIFIED FINANCIAL SERVICES - 2.6% JPMorgan Chase & Co. 22,500 937,575 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 4.0% AT&T Inc. 25,000 700,750 Verizon Communications Inc. 22,500 745,425 ------------ 1,446,175 ------------ - ------------------------------------------------------------------------ COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------------ ELECTRICAL EQUIPMENT - 1.2% Emerson Electric Co. 10,000 $ 426,000 ------------ ENERGY EQUIPMENT & SERVICES - 3.8% Nabors Industries Ltd. (a) (b) 20,000 437,800 Noble Corporation (b) 10,000 407,000 Schlumberger Limited (b) 8,400 546,756 ------------ 1,391,556 ------------ FOOD & STAPLES RETAILING - 1.3% CVS Caremark Corporation 15,000 483,150 ------------ HEALTH CARE EQUIPMENT & SUPPLIES - 7.7% DENTSPLY International Inc. 17,500 615,475 Haemonetics Corporation (a) 12,500 689,375 ResMed Inc. (a) 17,500 914,725 Thermo Fisher Scientific, Inc. (a) 12,500 596,125 ------------ 2,815,700 ------------ INSURANCE - 2.3% HCC Insurance Holdings, Inc. 30,000 839,100 ------------ INTERNET SOFTWARE & SERVICES - 3.1% Akamai Technologies, Inc. (a) 45,000 1,139,850 ------------ IT SERVICES - 1.7% Accenture PLC - Class A (b) 15,000 622,500 ------------ LEISURE EQUIPMENT & PRODUCTS - 1.7% Brunswick Corporation 50,000 635,500 ------------ MACHINERY - 1.9% Danaher Corporation 9,000 676,800 ------------ MEDIA - 2.7% CBS Corporation - Class B 70,000 983,500 ------------ METALS & MINING - 2.2% Peabody Energy Corporation 17,500 791,175 ------------ MULTILINE RETAIL - 2.6% Kohl's Corporation (a) 17,500 943,775 ------------ MULTI-UTILITIES & UNREGULATED POWER - 4.1% Duke Energy Corporation 40,000 688,400 MDU Resources Group, Inc. 35,000 826,000 ------------ 1,514,400 ------------ OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 10.4% Cabot Oil & Gas Corporation 15,000 653,850 ConocoPhillips 8,000 408,560 Denbury Resources Inc. (a) 35,000 518,000 EXCO Resources, Inc. 27,500 583,825 Exxon Mobil Corporation 5,000 340,950 Range Resources Corporation 12,300 613,155 XTO Energy, Inc. 15,000 697,950 ------------ 3,816,290 ------------ The accompanying notes are an integral part of these financial statements. 13 LKCM AQUINAS VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ------------------------------------------------------------------------ COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------------ PERSONAL PRODUCTS - 1.9% Avon Products, Inc. 22,500 $ 708,750 ------------ SOFTWARE - 2.9% Nuance Communications, Inc. (a) 40,000 621,600 Oracle Corporation 17,500 429,450 ------------ 1,051,050 ------------ SPECIALTY RETAIL - 5.1% Collective Brands, Inc. (a) 20,000 455,400 Foot Locker, Inc. 52,500 584,850 The Home Depot, Inc. 12,800 370,304 PetSmart, Inc. 17,500 467,075 ------------ 1,877,629 ------------ TOTAL COMMON STOCKS (Cost $30,376,320) 34,993,048 ------------ - ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS - 4.4% - ------------------------------------------------------------------------ MONEY MARKET FUNDS - 4.4% Dreyfus Government Cash Management Fund - Institutional Shares, 0.00% (c) 712,315 712,315 Federated Government Obligations Fund - Institutional Shares, 0.06% (c) 916,221 916,221 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $1,628,536) 1,628,536 ------------ TOTAL INVESTMENTS - 100.2% (Cost $32,004,856) 36,621,584 Liabilities in Excess of Other Assets - (0.2)% (85,100) ------------ TOTAL NET ASSETS - 100.0% $ 36,536,484 ============ (a) Non-income producing security. (b) U.S. Dollar-denominated foreign security. (c) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 14 LKCM AQUINAS GROWTH FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ------------------------------------------------------------------------ COMMON STOCKS - 98.4% SHARES VALUE - ------------------------------------------------------------------------ AEROSPACE & DEFENSE - 4.9% Northrop Grumman Corporation 10,000 $ 558,500 Rockwell Collins, Inc. 20,000 1,107,200 ------------ 1,665,700 ------------ AIR FREIGHT & LOGISTICS - 3.6% C.H. Robinson Worldwide, Inc. 7,000 411,110 FedEx Corp. 10,000 834,500 ------------ 1,245,610 ------------ BEVERAGES - 4.6% The Coca-Cola Company 10,000 570,000 Fomento Economico Mexicano, S.A.B. de C.V. - ADR (b) 21,000 1,005,480 ------------ 1,575,480 ------------ BIOTECHNOLOGY - 1.3% Gilead Sciences, Inc. (a) 10,000 432,800 ------------ CAPITAL MARKETS - 1.2% Northern Trust Corporation 8,000 419,200 ------------ CHEMICALS - 3.3% FMC Corporation 15,000 836,400 Monsanto Company 3,500 286,125 ------------ 1,122,525 ------------ COMMERCIAL SERVICES & SUPPLIES - 1.6% Copart, Inc. (a) 15,000 549,450 ------------ COMMUNICATIONS EQUIPMENT - 2.4% Cisco Systems, Inc. (a) 20,000 478,800 Research In Motion Limited (a) (b) 5,000 337,700 ------------ 816,500 ------------ COMPUTERS & PERIPHERALS - 12.6% Apple Inc. (a) 6,000 1,265,160 EMC Corporation (a) 40,000 698,800 Hewlett-Packard Company 20,000 1,030,200 International Business Machines Corporation 10,000 1,309,000 ------------ 4,303,160 ------------ CONSTRUCTION & ENGINEERING - 1.7% Foster Wheeler AG (a) (b) 20,000 588,800 ------------ DISTRIBUTORS - 1.5% Fastenal Company 12,000 499,680 ------------ DIVERSIFIED FINANCIAL SERVICES - 5.1% JPMorgan Chase & Co. 10,000 416,700 Visa Inc. - Class A 15,000 1,311,900 ------------ 1,728,600 ------------ ELECTRICAL EQUIPMENT - 2.5% Emerson Electric Co. 20,000 852,000 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.8% National Instruments Corporation 12,000 353,400 Trimble Navigation Limited (a) 11,000 277,200 ------------ 630,600 ------------ ENERGY EQUIPMENT & SERVICES - 1.1% Halliburton Co. 12,000 361,080 ------------ - -------------------------------------------------------------------------- COMMON STOCKS SHARES VALUE - -------------------------------------------------------------------------- FOOD & STAPLES RETAILING - 4.4% Costco Wholesale Corporation 10,000 $ 591,700 CVS Caremark Corporation 11,000 354,310 Walgreen Company 15,000 550,800 ------------ 1,496,810 ------------ HEALTH CARE EQUIPMENT & SUPPLIES - 8.0% Alcon, Inc. (b) 6,000 986,100 DENTSPLY International Inc. 20,000 703,400 Haemonetics Corporation (a) 10,000 551,500 Thermo Fisher Scientific, Inc. (a) 10,000 476,900 ------------ 2,717,900 ------------ HOTELS, RESTAURANTS & LEISURE - 2.1% Carnival Corporation (a) (b) 15,000 475,350 Starbucks Corporation (a) 10,000 230,600 ------------ 705,950 ------------ HOUSEHOLD PRODUCTS - 3.7% Colgate-Palmolive Company 8,000 657,200 Energizer Holdings, Inc. (a) 10,000 612,800 ------------ 1,270,000 ------------ INTERNET SOFTWARE & SERVICES - 6.9% Akamai Technologies, Inc. (a) 20,700 524,331 Amazon.com, Inc. (a) 2,000 269,040 Google Inc. - Class A (a) 2,500 1,549,950 ------------ 2,343,321 ------------ INVESTMENT BANK & BROKERAGE - 1.3% Morgan Stanley 15,000 444,000 ------------ MACHINERY - 2.2% Danaher Corporation 10,000 752,000 ------------ METALS & MINING - 1.3% Reliance Steel & Aluminum Co. 10,000 432,200 ------------ OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 8.1% Denbury Resources Inc. (a) 25,000 370,000 Devon Energy Corporation 15,000 1,102,500 EXCO Resources, Inc. 30,000 636,900 Range Resources Corporation 13,000 648,050 ------------ 2,757,450 ------------ SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 1.8% Intel Corporation 30,000 612,000 ------------ SOFTWARE - 4.5% Citrix Systems, Inc. (a) 10,000 416,100 Nuance Communications, Inc. (a) 18,000 279,720 Oracle Corporation 20,000 490,800 Sybase, Inc. (a) 8,000 347,200 ------------ 1,533,820 ------------ SPECIALTY RETAIL - 3.4% Guess?, Inc. 15,000 634,500 Tractor Supply Company (a) 10,000 529,600 ------------ 1,164,100 ------------ TEXTILES, APPAREL & LUXURY GOODS - 1.5% VF Corporation 7,000 512,680 ------------ TOTAL COMMON STOCKS (Cost $26,886,023) 33,533,416 ------------ The accompanying notes are an integral part of these financial statements. 15 LKCM AQUINAS GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS - 1.9% SHARES VALUE - ------------------------------------------------------------------------ MONEY MARKET FUNDS - 1.9% Federated Government Obligations Fund - Institutional Shares, 0.06% (c) 651,821 $ 651,821 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $651,821) 651,821 ------------ TOTAL INVESTMENTS - 100.3% (Cost $27,537,844) 34,185,237 Liabilities in Excess of Other Assets - (0.3)% (114,080) ------------ TOTAL NET ASSETS - 100.0% $ 34,071,157 ============ ADR American Depository Receipt. (a) Non-income producing security. (b) U.S. Dollar-denominated foreign security. (c) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 16 LKCM AQUINAS SMALL CAP FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ------------------------------------------------------------------------ COMMON STOCKS - 95.1% SHARES VALUE - ------------------------------------------------------------------------ AEROSPACE & DEFENSE - 1.1% Hexcel Corporation (a) 4,450 $ 57,761 ----------- AIR FREIGHT & LOGISTICS - 1.9% Forward Air Corporation 1,900 47,595 UTI Worldwide, Inc. (b) 3,800 54,416 ----------- 102,011 ----------- AUTO COMPONENTS - 1.1% LKQ Corporation (a) 2,950 57,791 ----------- CAPITAL MARKETS - 1.4% Raymond James Financial, Inc. 3,050 72,498 ----------- CHEMICALS - 3.1% A. Schulman, Inc. 2,950 59,531 Calgon Carbon Corporation (a) 3,700 51,430 Cytec Industries, Inc. 1,400 50,988 ----------- 161,949 ----------- COMMERCIAL BANKS - 4.5% First Horizon National Corporation 4,710 63,120 Glacier Bancorp, Inc. 3,200 43,904 Prosperity Bancshares, Inc. 1,450 58,682 Synovus Financial Corp. 14,000 28,700 Texas Capital Bancshares, Inc. (a) 2,900 40,484 ----------- 234,890 ----------- COMMERCIAL SERVICES & SUPPLIES - 4.2% Administaff, Inc. 2,550 60,154 Copart, Inc. (a) 1,350 49,450 Resources Connection, Inc. (a) 2,700 57,294 Waste Connections, Inc. (a) 1,600 53,344 ----------- 220,242 ----------- COMMUNICATIONS EQUIPMENT - 0.6% Arris Group Inc. (a) 2,900 33,147 ----------- COMPUTERS & PERIPHERALS - 3.3% 3PAR, Inc. (a) 4,950 58,658 Brocade Communications Systems, Inc. (a) 5,050 38,531 Electronics For Imaging, Inc. (a) 1,600 20,816 Netezza Corporation (a) 5,650 54,805 ----------- 172,810 ----------- CONSUMER FINANCE - 2.4% Cash America International, Inc. 2,000 69,920 First Cash Financial Services, Inc. (a) 2,650 58,803 ----------- 128,723 ----------- CONTAINERS & PACKAGING - 2.1% Packaging Corp of America 2,550 58,676 Silgan Holdings Inc. 900 52,092 ----------- 110,768 ----------- DISTRIBUTORS - 1.2% WESCO International, Inc. (a) 2,250 60,773 ----------- - ------------------------------------------------------------------------ COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------------ DIVERSIFIED CONSUMER SERVICES - 2.1% Capella Education Company (a) 650 $ 48,945 K12 Inc. (a) 3,150 63,850 ----------- 112,795 ----------- DIVERSIFIED MANUFACTURING - 0.8% Raven Industries, Inc. 1,350 42,890 ----------- ELECTRICAL EQUIPMENT - 1.1% Baldor Electric Company 2,100 58,989 ----------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.6% Itron, Inc. (a) 1,000 67,570 National Instruments Corporation 2,700 79,515 Rofin-Sinar Technologies, Inc. (a) 2,050 48,401 Trimble Navigation Limited (a) 1,850 46,620 ----------- 242,106 ----------- ENERGY EQUIPMENT & SERVICES - 3.2% Core Laboratories N.V. (b) 550 64,966 Dril-Quip, Inc. (a) 1,300 73,424 Willbros Group, Inc. (a) 1,900 32,053 ----------- 170,443 ----------- FOOD PRODUCTS - 0.8% Chiquita Brands International, Inc. (a) 2,200 39,688 ----------- HEALTH CARE EQUIPMENT & SUPPLIES - 5.2% Haemonetics Corporation (a) 1,150 63,422 Luminex Corporation (a) 1,450 21,649 Meridian Bioscience, Inc. 1,850 39,868 Merit Medical Systems, Inc. (a) 800 15,432 NuVasive, Inc. (a) 2,200 70,356 Wright Medical Group, Inc. (a) 3,300 62,535 ----------- 273,262 ----------- HEALTH CARE PROVIDERS & SERVICES - 4.6% MWI Veterinary Supply, Inc. (a) 2,200 82,940 PAREXEL International Corporation (a) 5,600 78,960 PSS World Medical, Inc. (a) 3,600 81,252 ----------- 243,152 ----------- HOTELS, RESTAURANTS & LEISURE - 1.8% BJ's Restaurants, Inc. (a) 2,850 53,637 Boyd Gaming Corporation (a) 4,850 40,594 ----------- 94,231 ----------- HOUSEHOLD DURABLES - 2.9% Jarden Corporation 2,050 63,365 Tempur-Pedic International Inc. (a) 3,700 87,431 ----------- 150,796 ----------- INSURANCE - 0.8% Argo Group International Holdings, Ltd. (a) (b) 1,424 41,495 ----------- INTERNET SOFTWARE & SERVICES - 2.3% LogMeIn, Inc. (a) 2,500 49,875 MercadoLibre Inc. (a) 1,350 70,025 ----------- 119,900 ----------- INVESTMENT BANK & BROKERAGE - 0.8% Evercore Partners Inc. - Class A 1,450 44,080 ----------- The accompanying notes are an integral part of these financial statements. 17 LKCM AQUINAS SMALL CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ------------------------------------------------------------------------ COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------------ IT SERVICES - 1.0% ManTech International Corporation - Class A (a) 1,050 $ 50,694 ----------- LEISURE EQUIPMENT & PRODUCTS - 0.9% Brunswick Corporation 3,700 47,027 ----------- MACHINERY - 3.7% CIRCOR International, Inc. 1,600 40,288 CLARCOR Inc. 1,250 40,550 Kaydon Corporation 1,550 55,428 Mueller Water Products, Inc. - Class A 11,300 58,760 ----------- 195,026 ----------- MARINE - 0.9% Kirby Corporation (a) 1,400 48,762 ----------- MEDIA - 0.8% Live Nation Inc. (a) 4,850 41,274 ----------- METALS & MINING - 1.3% Carpenter Technology Corporation 2,500 67,375 ----------- OIL & GAS DRILLING - 0.9% Atwood Oceanics, Inc. (a) 1,400 50,190 ----------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 3.1% Carrizo Oil & Gas, Inc. (a) 2,200 58,278 Concho Resources Inc. (a) 1,000 44,900 EXCO Resources, Inc. 2,500 53,075 Rosetta Resources, Inc. (a) 400 7,972 ----------- 164,225 ----------- PHARMACEUTICALS - 1.0% Endo Pharmaceuticals Holdings Inc. (a) 2,600 53,326 ----------- ROAD & RAIL - 1.0% Landstar System, Inc. 1,400 54,278 ----------- SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT - 2.1% Formfactor Inc. (a) 2,500 54,400 Intersil Corporation - Class A 3,650 55,991 ----------- 110,391 ----------- SOFTWARE - 9.2% ANSYS, Inc. (a) 1,300 56,498 F5 Networks, Inc. (a) 1,000 52,980 MedAssets Inc. (a) 3,050 64,691 MicroStrategy Incorporated - Class A (a) 800 75,216 Nuance Communications, Inc. (a) 4,100 63,714 Solarwinds, Inc. (a) 2,100 48,321 Sybase, Inc. (a) 1,150 49,910 TIBCO Software Inc. (a) 7,400 71,262 ----------- 482,592 ----------- - ------------------------------------------------------------------------ COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------------ SPECIALTY RETAIL - 8.9% DSW Inc. - Class A (a) 3,600 $ 93,168 Foot Locker, Inc. 5,200 57,928 Hibbett Sports Inc. (a) 2,850 62,671 Monro Muffler Brake, Inc. 800 26,752 PetMed Express, Inc. 3,500 61,705 Signet Jewelers Ltd. (a) (b) 1,650 44,088 Tractor Supply Company (a) 1,150 60,904 Ulta Salon, Cosmetics & Fragrance, Inc. (a) 3,300 59,928 ----------- 467,144 ----------- TEXTILES, APPAREL & LUXURY GOODS - 1.4% The Warnaco Group, Inc. (a) 1,700 71,723 ----------- WIRELESS TELECOMMUNICATION SERVICES - 1.0% SBA Communications Corporation - Class A (a) 1,550 52,948 ----------- TOTAL COMMON STOCKS (Cost $4,339,073) 5,004,165 ----------- - ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS - 4.5% - ------------------------------------------------------------------------ MONEY MARKET FUNDS - 4.5% The AIM STIT - Treasury Portfolio - Institutional Shares, 0.02% (c) 67,691 67,691 Dreyfus Government Cash Management Fund - Institutional Shares, 0.00% (c) 60,533 60,533 Federated Government Obligations Fund - Institutional Shares, 0.06% (c) 109,659 109,659 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $237,883) 237,883 ----------- TOTAL INVESTMENTS - 99.6% (Cost $4,576,956) 5,242,048 Other Assets in Excess of Liabilities - 0.4% 22,646 ----------- TOTAL NET ASSETS - 100.0% $ 5,264,694 =========== (a) Non-income producing security. (b) U.S. Dollar-denominated foreign security. (c) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 18 LKCM AQUINAS FIXED INCOME FUND SCHEDULE OF INVESTMENTS DECEMBER 31, 2009 - ------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS - 80.4% AMOUNT VALUE - ------------------------------------------------------------------- AEROSPACE & DEFENSE - 0.9% United Technologies Corporation 6.35%, 03/01/2011 $100,000 $ 106,017 ----------- BEVERAGES - 4.9% Anheuser-Busch Inbev Worldwide Inc. (a) 3.00%, 10/15/2012 175,000 175,936 (Acquired 10/21/2009, Cost $176,300) The Coca-Cola Company: 5.75%, 03/15/2011 75,000 79,534 5.35%, 11/15/2017 150,000 161,844 PepsiCo, Inc. 4.65%, 02/15/2013 175,000 187,065 ----------- 604,379 ----------- BUILDING PRODUCTS - 0.8% Masco Corporation 5.875%, 07/15/2012 100,000 102,212 ----------- CHEMICALS - 3.4% E. I. du Pont de Nemours and Company 3.25%, 01/15/2015 150,000 148,766 The Lubrizol Corporation 5.50%, 10/01/2014 250,000 266,406 ----------- 415,172 ----------- COMMERCIAL BANKS - 1.7% Wells Fargo & Company 5.25%, 10/23/2012 200,000 213,654 ----------- COMMERCIAL SERVICES & SUPPLIES - 6.4% Allied Waste North America Inc.: 5.75%, 02/15/2011 100,000 104,075 7.25%, 03/15/2015 Callable 03/15/2010 200,000 209,225 Pitney Bowes Inc. 4.625%, 10/01/2012 150,000 159,661 Waste Management, Inc.: 7.375%, 08/01/2010 200,000 207,202 6.375%, 11/15/2012 100,000 110,084 ----------- 790,247 ----------- COMMUNICATIONS EQUIPMENT - 4.7% Cisco Systems, Inc.: 5.25%, 02/22/2011 150,000 157,443 4.95%, 02/15/2019 100,000 102,688 Harris Corporation: 5.00%, 10/01/2015 200,000 206,859 6.375%, 06/15/2019 100,000 108,171 ----------- 575,161 ----------- - ------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - ------------------------------------------------------------------- COMPUTERS & PERIPHERALS - 5.5% Dell Inc.: 3.375%, 06/15/2012 $100,000 $ 103,473 5.625%, 04/15/2014 100,000 109,048 Hewlett-Packard Company: 4.25%, 02/24/2012 150,000 157,421 4.50%, 03/01/2013 100,000 106,094 International Business Machines Corporation 2.10%, 05/06/2013 200,000 199,760 ----------- 675,796 ----------- CONSUMER FINANCE - 1.7% Western Union Company 5.93%, 10/01/2016 200,000 216,045 ----------- CONTAINERS & PACKAGING - 1.7% Ball Corporation: 6.875%, 12/15/2012 Callable 12/15/2010 100,000 101,750 7.125%, 09/01/2016 Callable 09/01/2013 100,000 103,000 ----------- 204,750 ----------- DIVERSIFIED FINANCIAL SERVICES - 0.2% AXA Financial, Inc. 7.75%, 08/01/2010 25,000 25,949 ----------- DIVERSIFIED MANUFACTURING - 1.3% Honeywell International Inc.: 4.25%, 03/01/2013 100,000 105,062 3.875%, 02/15/2014 50,000 52,140 ----------- 157,202 ----------- DIVERSIFIED TELECOMMUNICATION SERVICES - 2.0% BellSouth Corporation 6.00%, 10/15/2011 100,000 108,178 Verizon Communications, Inc. 5.50%, 02/15/2018 125,000 130,659 Verizon Global Funding Corp. 7.25%, 12/01/2010 10,000 10,570 ----------- 249,407 ----------- ELECTRICAL EQUIPMENT - 0.6% Emerson Electric Co. 4.50%, 05/01/2013 75,000 79,622 ----------- ENERGY EQUIPMENT & SERVICES - 3.4% Baker Hughes Incorporated 6.50%, 11/15/2013 150,000 169,462 Halliburton Company 5.50%, 10/15/2010 40,000 41,636 Weatherford International, Inc.: 5.95%, 06/15/2012 100,000 107,084 6.35%, 06/15/2017 100,000 104,752 ----------- 422,934 ----------- The accompanying notes are an integral part of these financial statements. 19 LKCM AQUINAS FIXED INCOME FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ------------------------------------------------------------------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - ------------------------------------------------------------------- FOOD & STAPLES RETAILING - 4.3% CVS Caremark Corporation: 5.75%, 08/15/2011 $100,000 $ 106,529 4.875%, 09/15/2014 100,000 106,052 5.75%, 06/01/2017 100,000 105,701 Walgreen Company 4.875%, 08/01/2013 200,000 214,945 ----------- 533,227 ----------- FOOD PRODUCTS - 2.6% The Hershey Company 4.85%, 08/15/2015 200,000 209,918 McCormick & Company, Incorporated 5.25%, 09/01/2013 100,000 108,151 ----------- 318,069 ----------- HEALTH CARE EQUIPMENT & SUPPLIES - 1.7% Fisher Scientific International Inc. 6.125%, 07/01/2015 Callable 07/01/2010 100,000 103,138 Medtronic, Inc. 4.50%, 03/15/2014 100,000 106,005 ----------- 209,143 ----------- HOTELS, RESTAURANTS & LEISURE - 0.9% McDonald's Corporation 6.00%, 04/15/2011 100,000 105,998 ----------- HOUSEHOLD PRODUCTS - 2.9% Kimberly-Clark Corporation 5.625%, 02/15/2012 100,000 107,790 The Procter & Gamble Company 8.00%, 09/01/2024 Putable 09/01/2014 200,000 248,222 ----------- 356,012 ----------- INDUSTRIAL CONGLOMERATES - 1.5% 3M Co. 4.375%, 08/15/2013 175,000 188,569 ----------- INVESTMENT BANK & BROKERAGE - 1.5% Credit Suisse First Boston USA 6.50%, 01/15/2012 45,000 48,992 The Goldman Sachs Group, Inc.: 5.15%, 01/15/2014 30,000 31,765 5.125%, 01/15/2015 100,000 105,191 ----------- 185,948 ----------- MACHINERY - 0.8% Dover Corporation 6.50%, 02/15/2011 100,000 105,670 ----------- CORPORATE PRINCIPAL BONDS AMOUNT VALUE - ------------------------------------------------------------------ MEDIA - 2.2% Viacom Inc. 6.625%, 05/15/2011 $100,000 $ 104,830 The Walt Disney Company 6.375%, 03/01/2012 150,000 163,929 ------------- 268,759 ------------- METALS & MINING - 2.7% Alcoa Inc. 6.00%, 01/15/2012 150,000 157,731 Peabody Energy Corporation 6.875%, 03/15/2013 Callable 03/15/2010 175,000 177,844 ------------- 335,575 ------------- MULTILINE RETAIL - 2.7% J.C. Penney Co., Inc. 7.65%, 08/15/2016 200,000 217,000 Kohl's Corporation 6.25%, 12/15/2017 100,000 110,827 ------------- 327,827 ------------- OIL & GAS EXPLORATION & PRODUCTION COMPANIES - 11.9% Amerada Hess Corporation 6.65%, 08/15/2011 100,000 108,449 Apache Corporation 6.25%, 04/15/2012 100,000 109,086 Burlington Resources Finance Company (b) 6.68%, 02/15/2011 100,000 106,293 Conoco Funding Company (b) 6.35%, 10/15/2011 100,000 108,842 ConocoPhillips 4.75%, 02/01/2014 100,000 107,469 EOG Resources, Inc. 6.125%, 10/01/2013 150,000 165,783 Noble Energy, Inc. 5.25%, 04/15/2014 200,000 205,252 Occidental Petroleum Corporation 6.75%, 01/15/2012 100,000 109,468 USX Corporation 9.125%, 01/15/2013 200,000 228,050 XTO Energy, Inc. 6.25%, 04/15/2013 200,000 220,437 ------------- 1,469,129 ------------- ROAD & RAIL - 0.9% Burlington Northern Santa Fe Corporation 6.75%, 07/15/2011 100,000 107,732 ------------- SOFTWARE - 3.4% Microsoft Corporation 2.95%, 06/01/2014 200,000 202,350 Oracle Corporation: 5.00%, 01/15/2011 100,000 104,017 5.25%, 01/15/2016 100,000 108,126 ------------- 414,493 ------------- The accompanying notes are an integral part of these financial statements. 20 LKCM AQUINAS FIXED INCOME FUND SCHEDULE OF INVESTMENTS, CONTINUED DECEMBER 31, 2009 - ------------------------------------------------------------------- SHARES OR CORPORATE PRINCIPAL BONDS AMOUNT VALUE - ------------------------------------------------------------------- SPECIALTY RETAIL - 1.2% The Sherwin-Williams Company 3.125%, 12/15/2014 $150,000 $ 148,314 ------------- TOTAL CORPORATE BONDS (Cost $9,495,948) 9,913,012 ------------- - ------------------------------------------------------------------- MUNICIPAL BONDS - 3.0% - ------------------------------------------------------------------- Southern California Public Power Authority Power Project 6.93%, 05/15/2017 330,000 374,428 ------------- TOTAL MUNICIPAL BONDS (Cost $367,994) 374,428 ------------- - ------------------------------------------------------------------- PREFERRED STOCKS - 1.0% - ------------------------------------------------------------------- INVESTMENT BANK & BROKERAGE - 1.0% The Goldman Sachs Group, Inc. Callable 10/31/2010 4,750 119,890 ------------- TOTAL PREFERRED STOCKS (Cost $118,750) 119,890 ------------- - ------------------------------------------------------------------- U.S. GOVERNMENT & AGENCY ISSUES - 10.0% - ------------------------------------------------------------------- FEDERAL HOME LOAN BANK - 1.8% 5.50%, 08/13/2014 $200,000 224,619 ------------- U.S. TREASURY INFLATION INDEXED BOND - 2.0% 1.625%, 01/15/2015 237,750 247,556 ------------- U.S. TREASURY NOTES - 6.2% 4.25%, 11/15/2014 200,000 215,500 4.25%, 08/15/2015 200,000 214,125 5.125%, 05/15/2016 300,000 334,688 ------------- 764,313 ------------- TOTAL U.S. GOVERNMENT & AGENCY ISSUES (Cost $1,137,113) 1,236,488 ------------- - ------------------------------------------------------------------- SHARES OR SHORT-TERM PRINCIPAL INVESTMENTS - 4.2% AMOUNT VALUE - ------------------------------------------------------------------- CORPORATE BONDS - 2.1% The Home Depot, Inc. 4.625%, 08/15/2010 $250,000 $ 255,966 ----------- MONEY MARKET FUNDS - 2.1% Federated Government Obligations Fund - Institutional Shares, 0.06% (c) 258,562 258,562 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $514,223) 514,528 ----------- TOTAL INVESTMENTS - 98.6% (Cost $11,634,028) 12,158,346 Other Assets in Excess of Liabilities - 1.4% 169,306 ----------- TOTAL NET ASSETS - 100.0% $12,327,652 =========== (a) Restricted security purchased in a Rule 144A private offering. Resale to the public may require registration or may extend only to qualified institutional buyers. (b) U.S. Dollar-denominated foreign security. (c) The rate quoted is the annualized seven-day yield of the fund at period end. The accompanying notes are an integral part of these financial statements. 21 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2009
LKCM LKCM LKCM LKCM AQUINAS AQUINAS AQUINAS AQUINAS FIXED VALUE FUND GROWTH FUND SMALL CAP FUND INCOME FUND ASSETS: Investments, at value * ...................... $ 36,621,584 $ 34,185,237 $ 5,242,048 $ 12,158,346 Dividends and interest receivable ............ 22,761 16,856 2,473 171,988 Receivable from Adviser ...................... -- -- 9,879 10,842 Receivable for fund shares sold .............. 17,482 6,242 21,964 2,460 Other assets ................................. 8,427 10,145 10,373 8,882 ------------- ------------- ------------- ------------- Total assets ................................ 36,670,254 34,218,480 5,286,737 12,352,518 ------------- ------------- ------------- ------------- LIABILITIES: Payable for investment advisory fees ......... 52,475 67,111 -- -- Payable for fund shares redeemed ............. 15,155 3,465 317 936 Distribution expense payable ................. 37,781 47,557 4,697 -- Accrued expenses and other liabilities ....... 28,359 29,190 17,029 23,930 ------------- ------------- ------------- ------------- Total liabilities ........................... 133,770 147,323 22,043 24,866 ------------- ------------- ------------- ------------- NET ASSETS ................................... $ 36,536,484 $ 34,071,157 $ 5,264,694 $ 12,327,652 ============= ============= ============= ============= NET ASSETS CONSIST OF: Paid in capital .............................. $ 35,182,807 $ 31,337,376 $ 5,747,093 $ 12,144,238 Undistributed net investment income .......... 10,150 -- -- 287 Accumulated net realized loss on investments . (3,273,201) (3,913,612) (1,147,491) (341,191) Net unrealized appreciation on investments ... 4,616,728 6,647,393 665,092 524,318 ------------- ------------- ------------- ------------- NET ASSETS ................................... $ 36,536,484 $ 34,071,157 $ 5,264,694 $ 12,327,652 ============= ============= ============= ============= NET ASSETS ................................... $ 36,536,484 $ 34,071,157 $ 5,264,694 $ 12,327,652 Shares of beneficial interest outstanding (unlimited shares of no par value authorized) ................................. 3,377,283 2,390,306 1,002,424 1,207,932 Net asset value per share (offering and redemption price) ............. $ 10.82 $ 14.25 $ 5.25 $ 10.21 ============= ============= ============= ============= * Cost of Investments ........................ $ 32,004,856 $ 27,537,844 $ 4,576,956 $ 11,634,028 ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements. 22
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 LKCM LKCM LKCM LKCM AQUINAS AQUINAS AQUINAS AQUINAS FIXED VALUE FUND GROWTH FUND SMALL CAP FUND INCOME FUND INVESTMENT INCOME: Dividends * ..................................................... $ 492,495 $ 345,569 $ 25,608 $ 7,363 Interest ........................................................ 1,441 2,135 461 506,655 -------------- -------------- -------------- -------------- Total income ................................................... 493,936 347,704 26,069 514,018 -------------- -------------- -------------- -------------- EXPENSES: Investment advisory fees ........................................ 263,050 260,985 40,163 66,883 Distribution expense (Note B) ................................... 73,069 72,496 10,041 -- Accounting and transfer agent fees and expenses ................. 59,074 60,623 39,442 69,555 Administrative fees ............................................. 28,843 27,605 20,925 26,585 Federal and state registration .................................. 20,396 19,565 16,785 17,482 Professional fees ............................................... 13,133 13,117 4,709 7,147 Custody fees and expenses ....................................... 4,066 3,909 12,268 3,599 Reports to shareholders ......................................... 10,428 10,794 1,546 4,223 Trustees' fees .................................................. 4,165 4,420 670 1,277 Other ........................................................... 7,145 7,187 1,117 2,804 -------------- -------------- -------------- -------------- Total expenses ................................................. 483,369 480,701 147,666 199,555 Less, expense waiver (Note B) .................................. (44,951) (45,726) (87,421) (110,430) -------------- -------------- -------------- -------------- Net expenses ................................................... 438,418 434,975 60,245 89,125 -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) .................................... 55,518 (87,271) (34,176) 424,893 -------------- -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments ......................... (2,432,411) (1,717,058) (448,448) 91,053 Net change in unrealized appreciation/depreciation on investments 11,058,393 9,662,551 1,627,698 574,163 -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ................................................. 8,625,982 7,945,493 1,179,250 665,216 -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................... $ 8,681,500 $ 7,858,222 $ 1,145,074 $ 1,090,109 ============== ============== ============== ============== * Net of foreign taxes withheld ................................. $ -- $ 3,811 $ 87 $ -- ============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements. 23
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, 2009 2008 2009 2008 --------------- --------------- --------------- --------------- OPERATIONS: Net investment income (loss) ....................... $ 55,518 $ 118,884 $ (87,271) $ (126,196) Net realized loss on investments ................... (2,432,411) (607,729) (1,717,058) (2,188,241) Net change in unrealized appreciation/depreciation on investments .................................... 11,058,393 (14,367,577) 9,662,551 (11,446,087) --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations ........ 8,681,500 (14,856,422) 7,858,222 (13,760,524) --------------- --------------- --------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net investment income .............................. (50,327) (119,073) -- (7,336) --------------- --------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (NOTE C) .................. 2,721,347 2,723,748 (730,914) (1,360,990) --------------- --------------- --------------- --------------- Total increase (decrease) in net assets ............ 11,352,520 (12,251,747) 7,127,308 (15,128,850) NET ASSETS: Beginning of period ................................ 25,183,964 37,435,711 26,943,849 42,072,699 --------------- --------------- --------------- --------------- End of period * .................................... $ 36,536,484 $ 25,183,964 $ 34,071,157 $ 26,943,849 --------------- --------------- --------------- --------------- * Including undistributed net investment income of: ............................. $ 10,150 $ 4,750 $ -- $ 900 =============== =============== =============== =============== 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, 2009 2008 2009 2008 --------------- --------------- --------------- --------------- OPERATIONS: Net investment income (loss) ....................... $ (34,176) $ (46,862) $ 424,893 $ 382,579 Net realized gain (loss) on investments ............ (448,448) (589,173) 91,053 (128,977) Net change in unrealized appreciation/depreciation on investments .................................... 1,627,698 (2,018,524) 574,163 (128,587) --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations ....................... 1,145,074 (2,654,559) 1,090,109 125,015 --------------- --------------- --------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: .................................. Net investment income .............................. -- -- (424,991) (385,418) Net realized gain on investments ................... -- (4,082) -- -- --------------- --------------- --------------- --------------- -- (4,082) (424,991) (385,418) --------------- --------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FROM FUND SHARE TRANSACTIONS (NOTE C) ............. 716,457 (4,728,647) 1,751,686 938,640 --------------- --------------- --------------- --------------- Total increase (decrease) in net assets ............ 1,861,531 (7,387,288) 2,416,804 678,237 NET ASSETS: Beginning of period ................................ 3,403,163 10,790,451 9,910,848 9,232,611 --------------- --------------- --------------- --------------- End of period * .................................... $ 5,264,694 $ 3,403,163 $ 12,327,652 $ 9,910,848 --------------- --------------- --------------- --------------- * Including undistributed net investment income of: ............................. $ -- $ 500 $ 287 $ 385 =============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements. 24
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, 2009 2008 2007 2006 2005(1) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - BEGINNING OF PERIOD ................. $ 8.15 $ 13.07 $ 13.71 $ 12.24 $ 11.77 ------------ ------------ ------------ ------------ ------------ Net investment income ................................. 0.02 0.04 0.10 0.07 0.04 Net realized and unrealized gain (loss) on investments 2.67 (4.92) 1.01 1.95 0.44 ------------ ------------ ------------ ------------ ------------ Total from investment operations ................... 2.69 (4.88) 1.11 2.02 0.48 ------------ ------------ ------------ ------------ ------------ Dividends from net investment income .................. (0.02) (0.04) (0.10) (0.11) (0.01) Distributions from net realized gains ................. -- -- (1.65) (0.44) -- ------------ ------------ ------------ ------------ ------------ Total dividends and distributions .................. (0.02) (0.04) (1.75) (0.55) (0.01) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - END OF PERIOD ....................... $ 10.82 $ 8.15 $ 13.07 $ 13.71 $ 12.24 ============ ============ ============ ============ ============ TOTAL RETURN .......................................... 32.94% (37.34)% 8.05% 16.51% 4.13% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) ................. $ 36,536 $ 25,184 $ 37,436 $ 39,826 $ 42,690 Ratio of expenses to average net assets: .............. Before expense waiver and/or reimbursement ......... 1.65% 1.58% 1.49% 1.49% 1.55% After expense waiver and/or reimbursement .......... 1.50% 1.50% 1.49% 1.49% 1.52%(2) Ratio of net investment income to average net assets: Before expense waiver and/or reimbursement ......... 0.04% 0.28% 0.65% 0.44% 0.34% After expense waiver and/or reimbursement .......... 0.19% 0.36% 0.65% 0.44% 0.37% Portfolio turnover rate ............................... 29% 70% 62% 47% 71%
(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, 2009 2008 2007 2006 2005(1) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - BEGINNING OF PERIOD ................. $ 10.96 $ 16.38 $ 15.45 $ 15.61 $ 14.67 ------------ ------------ ------------ ------------ ------------ Net investment income (loss) .......................... (0.04)(2) (0.05)(2) 0.01 (0.06)(2) 0.03 Net realized and unrealized gain (loss) on investments 3.33 (5.37) 1.97 0.03 1.31 ------------ ------------ ------------ ------------ ------------ Total from investment operations ................... 3.29 (5.42) 1.98 (0.03) 1.34 ------------ ------------ ------------ ------------ ------------ Dividends from net investment income .................. -- (0.00)(3) (0.01) -- (0.03) Distributions from net realized gains ................. -- -- (1.04) (0.13) (0.37) ------------ ------------ ------------ ------------ ------------ Total dividends and distributions .................. -- (0.00)(3) (1.05) (0.13) (0.40) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - END OF PERIOD ....................... $ 14.25 $ 10.96 $ 16.38 $ 15.45 $ 15.61 ============ ============ ============ ============ ============ TOTAL RETURN .......................................... 30.02% (33.07)% 12.75% (0.22)% 9.15% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) ................. $ 34,071 $ 26,944 $ 42,073 $ 58,997 $ 74,606 Ratio of expenses to average net assets: Before expense waiver and/or reimbursement ......... 1.66% 1.56% 1.47% 1.46% 1.51% After expense waiver and/or reimbursement .......... 1.50% 1.50% 1.47% 1.46% 1.51%(4) Ratio of net investment income (loss) to average net assets: Before expense waiver and/or reimbursement ......... (0.46)% (0.40)% 0.06% (0.36)% 0.25% After expense waiver and/or reimbursement .......... (0.30)% (0.34)% 0.06% (0.36)% 0.25% Portfolio turnover rate ............................... 47% 67% 40% 73% 114%
(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) Less than $(0.005). (4) 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. 25
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, 2009 2008 2007 2006 2005(1) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - BEGINNING OF PERIOD ................. $ 4.03 $ 6.47 $ 6.58 $ 5.82 $ 5.66 ------------ ------------ ------------ ------------ ------------ Net investment loss ................................... (0.04)(2) (0.04)(2) (0.03)(3) (0.04)(3) (0.07)(3) Net realized and unrealized gain (loss) on investments 1.26 (2.40) 0.04 0.80 0.23 ------------ ------------ ------------ ------------ ------------ Total from investment operations ................... 1.22 (2.44) 0.01 0.76 0.16 ------------ ------------ ------------ ------------ ------------ Distributions from net realized gains ................. -- (0.00)(4) (0.12) -- -- ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - END OF PERIOD ....................... $ 5.25 $ 4.03 $ 6.47 $ 6.58 $ 5.82 ============ ============ ============ ============ ============ TOTAL RETURN .......................................... 30.27% (37.64)% 0.08% 13.06% 2.83% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) $ 5,265 $ 3,403 $ 10,790 $ 10,957 $ 7,064 Ratio of expenses to average net assets: .............. Before expense waiver and/or reimbursement ......... 3.68% 2.91% 2.18% 2.32% 2.65% After expense waiver and/or reimbursement .......... 1.50% 1.50% 1.50% 1.50% 1.73%(5) Ratio of net investment loss to average net assets: ... Before expense waiver and/or reimbursement ......... (3.03)% (2.11)% (1.18)% (1.53)% (2.09)% After expense waiver and/or reimbursement .......... (0.85)% (0.70)% (0.50)% (0.71)% (1.17)% Portfolio turnover rate ............................... 66% 91% 66% 91% 148%
(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 represents net investment loss divided by the average shares outstanding throughout the period. (3) 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. (4) Less than $(0.005). (5) 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, 2009 2008 2007 2006 2005(1) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - BEGINNING OF PERIOD ................. $ 9.59 $ 9.86 $ 9.81 $ 9.84 $ 10.06 ------------ ------------ ------------ ------------ ------------ Net investment income ................................. 0.38 0.40 0.42(2) 0.40 0.37 Net realized and unrealized gain (loss) on investments 0.62 (0.27) 0.15 (0.03) (0.19) ------------ ------------ ------------ ------------ ------------ Total from investment operations ................... 1.00 0.13 0.57 0.37 0.18 ------------ ------------ ------------ ------------ ------------ Dividends from net investment income .................. (0.38) (0.40) (0.52) (0.40) (0.36) Distributions from net realized gains ................. -- -- -- -- (0.04) ------------ ------------ ------------ ------------ ------------ Total dividends and distributions .................. (0.38) (0.40) (0.52) (0.40) (0.40) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE - END OF PERIOD ....................... $ 10.21 $ 9.59 $ 9.86 $ 9.81 $ 9.84 ============ ============ ============ ============ ============ TOTAL RETURN 10.51% 1.30% 5.95% 3.82% 1.75% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (thousands) ................. $ 12,328 $ 9,911 $ 9,233 $ 39,618 $ 42,782 Ratio of expenses to average net assets: Before expense waiver and/or reimbursement ......... 1.79% 1.97% 1.46% 0.99% 1.11% After expense waiver and/or reimbursement .......... 0.80% 0.80% 0.80% 0.80% 0.93%(3) Ratio of net investment income to average net assets: Before expense waiver and/or reimbursement ......... 2.82% 2.93% 3.45% 3.73% 3.34% After expense waiver and/or reimbursement .......... 3.81% 4.10% 4.11% 3.92% 3.52% Portfolio turnover rate ............................... 28% 20% 18% 24% 152%
(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) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. (3) 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. 26 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/or 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 capitalizations at the time of investment between $400 million and $2.5 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 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 Aquinas Funds practice socially responsible investing within the framework provided by the United States Conference of Catholic Bishops' Socially Responsible Investing Guidelines ("Guidelines"). Each Fund's investment approach incorporates the Guidelines through a combination of screening portfolio companies based on criteria set forth in the Guidelines, dialogue with companies whose policies and practices conflict with the Guidelines, and excluding from the Fund's portfolios the securities of those companies that are unwilling to alter their policies and practices over a reasonable period of time. The Adviser monitors companies selected for the Funds for policies on various issued contemplated by the Guidelines. If a Fund invests in a company whose policies and practices are inconsistent with the Guidelines, the Adviser may attempt to influence the company, sell the company's securities or otherwise exclude future investments in such company. 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 or 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. The Trust has adopted accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below. Level 1 - Quoted unadjusted prices for identical instruments in active markets to which the Trust has access at the date of measurement. Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers. Level 3 - Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Trust's own assumptions that market participants would use to price the asset or liability based on the best available information. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the Funds' net assets as of December 31, 2009:
LKCM AQUINAS VALUE FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ---------------------------------- ------------ ------------ ------------ --------- Common Stocks $34,993,048 $ -- $ -- $34,993,048 Money Market Funds 1,628,536 -- -- 1,628,536 ------------------------------------------------ Total Investments* $36,621,584 $ -- $ -- $36,621,584 ================================================
27
LKCM AQUINAS GROWTH FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ---------------------------------- ------------ ------------ ------------ --------- Common Stocks $ 33,533,416 $ -- $ -- $33,533,416 Money Market Funds 651,821 -- -- 651,821 ------------------------------------------------ Total Investments* $ 34,185,237 $ -- $ -- $34,185,237 ================================================ LKCM AQUINAS SMALL CAP FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ---------------------------------- ------------ ------------ ------------ --------- Common Stocks $5,004,165 $ -- $ -- $5,004,165 Money Market Funds 237,883 -- -- 237,883 ------------------------------------------------ Total Investments* $5,242,048 $ -- $ -- $5,242,048 ================================================ LKCM AQUINAS FIXED INCOME FUND DESCRIPTION LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - ---------------------------------- ------------ ------------ ------------ --------- Preferred Stocks $119,890 $ -- $ -- $ 119,890 Corporate Bonds -- 10,168,978 -- 10,168,978 Municipal Bonds -- 374,428 -- 374,428 U.S. Government & Agency Issues -- 1,236,488 -- 1,236,488 Money Market Funds 258,562 -- -- 258,562 ------------------------------------------------ Total Investments* $378,452 $11,779,894 $ -- $12,158,346 ================================================
* Additional information regarding the industry and/or geographical classifications of these investments is disclosed in the Schedule of Investments. In March 2008, the Trust adopted an accounting standard involving disclosures of derivatives and hedging activities that is effective for fiscal years beginning after November 15, 2008. The standard is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position. The standard does not have any impact on the Funds' financial disclosures because the Funds have not maintained any positions in derivative instruments or engaged in hedging activities. In preparing these financial statements, the Trust has evaluated events and transactions for potential recognition or disclosure through February 25, 2010, the date the financial statements were available to be issued. 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 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 devaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and securities of the U.S. government. 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 based 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. 28 Accordingly, at December 31, 2009, reclassifications were recorded as follows: LKCM LKCM LKCM AQUINAS AQUINAS AQUINAS VALUE GROWTH SMALL CAP FUND FUND FUND ------- ------- ------- Undistributed net investment income $ 209 $ 86,371 $ 33,676 Accumulated gain -- 2,033 2,065 Paid in capital (209) (88,404) (35,741) 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, 2009, the Adviser waived 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 in 2009 $44,951 $45,726 $87,421 $110,430 U.S. Bancorp Fund Services, LLC serves as transfer agent and administrator for the Trust and serves as accounting services agent for the Funds. U.S. Bank, N.A. serves as custodian for the Funds. Distribution services are performed pursuant to a distribution contract with Quasar Distributors, LLC, the Trust's principal underwriter. The LKCM Funds 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 each Fund's average daily net assets for the LKCM Aquinas Value, LKCM Aquinas Growth and LKCM Aquinas Small Cap Funds. For the year ended December 31, 2009, fees accrued by the LKCM Aquinas Value, LKCM Aquinas Growth and LKCM Aquinas Small Cap Funds pursuant to the 12b-1 Plan were $73,069, $72,496 and $10,041, respectively. C. FUND SHARES: At December 31, 2009, 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, 2009 DECEMBER 31, 2008 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ Shares sold 661,469 $ 5,960,330 639,919 $ 7,205,108 Shares issued to shareholders in reinvestment of distributions 4,414 48,199 14,192 113,678 Shares redeemed (377,448) (3,287,285) (429,224) (4,595,538) Redemption fee 103 500 ------------ ------------ ------------ ------------ Net increase 288,435 $ 2,721,347 224,887 $ 2,723,748 ============ ============ SHARES OUTSTANDING: Beginning of period 3,088,848 2,863,961 ------------ ------------ End of period 3,377,283 3,088,848 ============ ============
29
AQUINAS GROWTH FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ Shares sold 309,570 $ 3,787,992 286,190 $ 4,173,631 Shares issued to shareholders in reinvestment of distributions -- -- 649 6,956 Shares redeemed (377,902) (4,518,948) (397,477) (5,541,654) Redemption fee 42 77 ------------ ------------ ------------ ------------ Net decrease (68,332)$ (730,914) (110,638) $ (1,360,990) ============ ============ SHARES OUTSTANDING: Beginning of period 2,458,638 2,569,276 ------------ ------------ End of period 2,390,306 2,458,638 ============ ============ AQUINAS SMALL CAP FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ Shares sold 237,925 $ 1,047,685 483,493 $ 2,753,283 Shares issued to shareholders in reinvestment of distributions -- -- 1,027 4,015 Shares redeemed (79,957) (331,250) (1,308,551) (7,486,162) Redemption fee 22 217 ------------ ------------ ------------ ------------ Net increase (decrease) 157,968 $ 716,457 (824,031)$ (4,728,647) ============ ============ SHARES OUTSTANDING: Beginning of period 844,456 1,668,487 ------------ ------------ End of period 1,002,424 844,456 ============ ============ AQUINAS FIXED INCOME FUND YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ Shares sold 362,451 $ 3,630,325 185,882 $ 1,801,952 Shares issued to shareholders in reinvestment of distributions 39,754 398,453 37,247 362,671 Shares redeemed (227,266) (2,277,156) (126,078) (1,225,990) Redemption fee 64 7 ------------ ------------ ------------ ------------ Net increase 174,939 $ 1,751,686 97,051 $ 938,640 ============ ============ SHARES OUTSTANDING: Beginning of period 1,032,993 935,942 ------------ ------------ End of period 1,207,932 1,032,993 ============ ============
From time to time, the Funds may have a concentration of shares held by controlling persons. A control person is one who owns beneficially or through controlled companies more than 25% of the voting securities of a company or acknowledges the existence of control. A person who controls a fund may be able to determine the outcome of any matter submitted to a vote of shareholders. As of December 31, 2009, one foundation may be deemed to be a controlling person in the Aquinas Value Fund and the Aquinas Growth Fund. 30 D. SECURITY TRANSACTIONS: Purchases and sales of investment securities, other than short-term investments, for the year ended December 31, 2009 were as follows:
PURCHASES SALES U.S. U.S. GOVERNMENT OTHER GOVERNMENT OTHER ------------ ------------ ------------ ------------ LKCM Aquinas Value Fund $ -- $10,059,017 $ -- $ 8,320,684 LKCM Aquinas Growth Fund -- 14,008,841 -- 13,235,651 LKCM Aquinas Small Cap Fund -- 3,035,201 -- 2,532,246 LKCM Aquinas Fixed Income Fund 216,250 4,585,909 690,017 2,261,546
E. TAX INFORMATION: At December 31, 2009, the components of accumulated earnings (losses) on a tax basis were as follows:
LKCM LKCM LKCM LKCM AQUINAS AQUINAS AQUINAS AQUINAS SMALL CAP FIXED INCOME VALUE FUND GROWTH FUND FUND FUND ------------- ------------- ------------- ------------- Cost of Investments $ 31,994,706 $ 27,537,844 $ 4,597,130 $ 11,634,028 ------------- ------------- ------------- ------------- Gross Unrealized Appreciation $ 5,462,750 $ 6,977,448 $ 908,631 $ 537,070 Gross Unrealized Depreciation (835,872) (330,055) (263,713) (12,752) ------------- ------------- ------------- ------------- Net Unrealized Appreciation $ 4,626,878 $ 6,647,393 $ 644,918 $ 524,318 ------------- ------------- ------------- ------------- Undistributed Ordinary Income $ -- $ -- $ -- $ 287 Undistributed Long-Term Capital Gain -- -- -- -- ------------- ------------- ------------- ------------- Total Distributable Earnings $ -- $ -- $ -- $ 287 ------------- ------------- ------------- ------------- Other Accumulated Losses $ (3,273,201) $ (3,913,612) $ (1,127,317) $ (341,191) ------------- ------------- ------------- ------------- Total Accumulated Gains (Losses) $ 1,353,677 $ 2,733,781 $ (482,399) $ 183,414 ------------- ------------- ------------- -------------
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales and partnership adjustments.
At December 31, 2009 the accumulated capital loss carryforwards were as follows: LKCM LKCM LKCM LKCM AQUINAS AQUINAS AQUINAS AQUINAS SMALL CAP FIXED INCOME VALUE FUND GROWTH FUND FUND FUND ------------ ------------ ------------- --------------- Expiring in 2014 $ -- $ -- $ -- $ 26,812 Expiring in 2015 -- -- -- 184,058 Expiring in 2016 840,790 42,477 166,781 130,321 Expiring in 2017 1,889,250 3,871,135 899,425 -- ------------ ------------ ------------- --------------- Total capital loss carryforwards $ 2,730,040 $ 3,913,612 $ 1,066,206 $ 341,191 ------------ ------------ ------------- ---------------
To the extent the Fund realizes future net capital gains, taxable distributions will be reduced by any unused capital loss carryforwards as permitted by the Internal Revenue Code. The LKCM Aquinas Fixed Income Fund utilized $91,053 of prior capital loss carryforwards during the year ended December 31, 2009. At December 31, 2009, the following Funds deferred, on a tax basis, post-October losses of: LKCM AQUINAS LKCM AQUINAS VALUE FUND SMALL CAP FUND -------------- ---------------- $543,161 $61,111 31 The tax components of dividends paid during the year ended December 31, 2009 were as follows: ORDINARY LONG-TERM INCOME CAPITAL GAINS ------------- -------------- LKCM Aquinas Value Fund $ 50,327 -- LKCM Aquinas Growth Fund -- -- LKCM Aquinas Small Cap Fund -- -- LKCM Aquinas Fixed Income Fund $ 424,991 -- The tax components of dividends paid during the year ended December 31, 2008 were as follows: ORDINARY LONG-TERM INCOME CAPITAL GAINS ------------- -------------- LKCM Aquinas Value Fund $ 119,073 -- LKCM Aquinas Growth Fund 7,336 -- LKCM Aquinas Small Cap Fund -- $ 4,082 LKCM Aquinas Fixed Income Fund 385,418 -- The Funds designated as long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits of the Funds related to net capital gain to zero for the tax years ended December 31, 2008 and 2009. The Trust has adopted financial reporting rules regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The Trust has reviewed all open tax years and major jurisdictions and concluded that there is no impact on the Funds' financial position or results of operations. Tax years that remain open to examination by major tax jurisdictions include tax years ended December 31, 2006 through December 31, 2009. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on tax returns as of December 31, 2009. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the twelve months. If applicable, the Funds would recognize interest accrued related to unrecognized tax benefits in "interest expenses" and penalties in "other expenses" on the statement of operations. 32 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of LKCM Funds: We have audited the accompanying statements of assets and liabilities, including the schedules of investments of LKCM Aquinas Value Fund, LKCM Aquinas Growth Fund, LKCM Aquinas Small Cap Fund, and LKCM Aquinas Fixed Income Fund, four of the portfolios constituting the LKCM Funds (collectively, the "Funds") as of December 31, 2009, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the periods ended prior to December 31, 2007 were audited by other auditors whose report, dated February 20, 2007, expressed an unqualified opinion on those financial highlights. We conducted our audits 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 and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the four portfolios (listed in the first paragraph) of the LKCM Funds as of December 31, 2009, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Milwaukee, Wisconsin February 25, 2010 33 LKCM FUNDS ADDITIONAL INFORMATION DECEMBER 31, 2009 TAX INFORMATION: The Funds designated the following percentages of dividends declared from net investment income for the fiscal year ended December 31, 2009 as qualified dividend income under the Jobs & Growth Tax Relief Reconciliation Act of 2003. Value 100.00% Fixed Income 1.74% The Funds designated the following percentages of dividends declared during the fiscal year ended December 31, 2009 as dividends qualifying for the dividends received deduction available to corporate shareholders. Value 100.00% Fixed Income 1.74% 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 0.52% Fixed Income 100.00% The Funds had no taxable ordinary income distributions that were designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) during the year ended December 31, 2009. 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. 34 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 TRUST SERVED(1) FIVE YEARS BY TRUSTEE HELD BY TRUSTEE - ---------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES: - ---------------------------------------------------------------------------------------------------------------------------- H. Kirk Downey Chairman Since 2005 President and CEO, Texas 9 Non-Executive Chairman of the 301 Commerce Street of the Systems, LLC and CEO, Board of AZZ Incorporated, a Suite 1600 Board of Trustees Texaslearningsystems LLC manufacturing company. Fort Worth, TX 76102 since 1999; Dean, M.J. Age: 67 Trustee Since 1994 Neeley School of Business, Texas Christian University Business School from 1987 to 1999. - ---------------------------------------------------------------------------------------------------------------------------- Earle A. Shields, Jr. Trustee Since 1994 Consultant; formerly 9 Priests Pension Fund of the 301 Commerce Street Consultant for NASDAQ Catholic Diocese of Fort Worth, Suite 1600 Corp. and Vice President, Lay Workers Pension Fund of Fort Worth, TX 76102 Merrill Lynch & Co., Inc. the Catholic Diocese of Fort Age: 89 Worth, St. Joseph Health Care Trust, Catholic Schools Trust and Catholic Foundation of North Texas. - ---------------------------------------------------------------------------------------------------------------------------- Richard J. Howell Trustee Since 2005 CPA, Adjunct Faculty at SMU 9 Red Robin Gourmet 301 Commerce Street Cox School of Business since Burgers, Inc. Suite 1600 2004; Consulting Services, Fort Worth, TX 76102 since 2002; Audit Partner, Age: 67 Chairman Since 2008 Arthur Andersen LLP from of the Audit 1974-2002. and Compliance Committee 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 (ranching), Hunt Fort Worth, TX 76102 Management Corporation Forest Products (lumber), Age: 69 since 1979. Southwestern Exposition & Livestock (livestock), Southwest JLK Corporation (management company), Texas Christian University, Texas Southwestern Cattleraisers Foundation (livestock), Tyler Technologies (information management company for government agencies), and Encore Energy Partners LP (oil and natural gas exploration).
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. 35
TERM OF OFFICE & PRINCIPAL POSITION(S) LENGTH OCCUPATION NAME, ADDRESS HELD WITH OF TIME DURING PAST AND AGE THE TRUST 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: 69 - --------------------------------------------------------------------------------- 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: 59 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: 43 - --------------------------------------------------------------------------------- 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: 44 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: 35 Securities and Exchange Commission (2005-2006), Associate, Haynes and Boone, LLP (2001-2005). - ---------------------------------------------------------------------------------
36 This page intentionally left blank. This page intentionally left blank. LKCM FUNDS PRIVACY NOTICE Our Commitment to Your Privacy At LKCM Funds, we are committed to safeguarding the confidentiality and privacy of personal information about our shareholders. This privacy notice describes the policies and procedures we have implemented to protect the privacy of your personal information as well as the sources through which we may obtain personal information about you. How We Protect Your Personal Information Protecting your personal information is an important priority at LKCM Funds. Accordingly, we have implemented policies and procedures designed to safeguard your personal information from unauthorized access. Pursuant to these policies and procedures, we maintain various physical, electronic, and procedural safeguards to protect the security and confidentiality of your personal information, and we adapt these safeguards to respond to evolving technological and other standards. In addition, we do not disclose any nonpublic personal information about you to nonaffiliated third parties, except as required or permitted by law or as necessary for us to carry out our responsibilities in providing services to you. How We Obtain Your Personal Information We collect nonpublic personal information about you from the following sources: o Information provided by you or your representatives, whether through documentation that you or your representatives provide to us, through discussions that you or your representatives have with us, or otherwise; and o Information arising from your account experience with us. Please do not hesitate to contact our Chief Compliance Officer if you have any questions regarding the measures we have implemented to protect the privacy of your personal information. Not a Part of the Annual Report. - -------------------------------------------------------------------------------- U.S. Bancorp Fund Services, LLC PRESORTED P.O. Box 701 STANDARD Milwaukee, WI 53201-0701 US POSTAGE PAID PERMIT #3602 BERWYN, IL 60402
LKCM FUNDS P.O. BOX 701 MILWAUKEE, WI 53201-0701 - ---------------------------------------------------------------------------------------------- OFFICERS AND TRUSTEES J. Luther King, Jr., CFA H. Kirk Downey Richard Lenart Trustee, Chairman of the Board Secretary & Treasurer President Paul W. Greenwell Richard J. Howell Jacob D. Smith Vice President Trustee Chief Compliance Officer Steven R. Purvis, CFA Earle A. Shields, Jr. Vice President 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 Deloitte & Touche LLP 555 E. Wells St., Suite 1400 Milwaukee, WI 53202 - ---------------------------------------------------------------------------------------------- DISTRIBUTOR Quasar Distributors, LLC 615 E. Michigan Street Milwaukee, WI 53202 - ----------------------------------------------------------------------------------------------
ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer. The registrant has not made any amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report. A copy of the registrant's Code of Ethics is filed herewith. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board of trustees has determined that there is at least one audit committee financial expert serving on its audit committee. Richard J. Howell is the "audit committee financial expert" and is considered to be "independent" as each term is defined in Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. "Audit services" refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. "Audit-related services" refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. "Tax services" refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. "All other fees" refer to the aggregate fees billed for professional services rendered by the registrant's prior principal accountant in connection with the transition of the engagement to the registrant's current principal accountant. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant. - ----------------------------- ----------------------- ----------------------- FYE 12/31/2009 FYE 12/31/2008 - ----------------------------- ----------------------- ----------------------- Audit Fees $146,500 $142,500 Audit-Related Fees $0 $0 Tax Fees $32,000 $31,200 All Other Fees $0 $2,200 - ----------------------------- ----------------------- ----------------------- 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. The percentage of fees billed by Deloitte & Touche LLP applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows: - ----------------------------- ----------------------- ----------------------- FYE 12/31/2009 FYE 12/31/2008 - ----------------------------- ----------------------- ----------------------- Audit-Related Fees 0% 0% Tax Fees 0% 0% All Other Fees 0% 0% - ----------------------------- ----------------------- ----------------------- All of the principal accountant's hours spent on auditing the registrant's financial statements were attributed to work performed by full-time permanent employees of the principal accountant. The following table indicates the non-audit fees billed or expected to be billed by the registrant's accountant for services to the registrant and to the registrant's investment adviser (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 accountant has not compromised the accountant's independence. - --------------------------------- ---------------------- ----------------------- Non-Audit Related Fees FYE 12/31/2009 FYE 12/31/2008 - --------------------------------- ---------------------- ----------------------- Registrant $32,000 $31,200 Registrant's Investment Adviser $0 $0 - --------------------------------- ---------------------- ----------------------- ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934). ITEM 6. INVESTMENTS. Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to open-end investment companies. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of trustees. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's President/Chief Executive Officer and Treasurer/Chief Financial Officer have reviewed the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the registrant and by the registrant's service provider. (b) There were no 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 the 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) A separate certification for each principal executive and principal financial officer 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) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) LKCM Funds By (Signature and Title) /s/ J. Luther King, Jr. -------------------------------------- J. Luther King, Jr., Principal Executive Officer/President Date March 9, 2010 -------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ J. Luther King, Jr. -------------------------------------- J. Luther King, Jr., Principal Executive Officer/President Date March 9, 2010 -------------------------------------- By (Signature and Title) /s/ Richard Lenart -------------------------------------- Richard Lenart, Principal Financial Officer/Treasurer Date March 9, 2010 -------------------------------------- EX-99.CODE ETH 2 codeofethics.txt CODE OF ETHICS LKCM FUNDS CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND TREASURER 1. COVERED OFFICERS AND PURPOSES OF THIS CODE This code of ethics ("Code") applies to the Chief Executive Officer and the Treasurer (the "Covered Officers") of the LKCM Funds (the "Trust"). The Code serves to promote: (a) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (b) full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Trust; (c) compliance with applicable laws and governmental rules and regulations; (d) the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and (e) accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. 2. COVERED OFFICERS SHOULD RESOLVE ETHICALLY ANY ACTUAL OR APPARENT CONFLICTS OF INTEREST A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Trust. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his position with the Trust. Certain conflicts of interest arise out of the relationships between Covered Officers and the Trust and already are subject to conflict of interest provisions in the Investment Company Act of 1940, as amended ("1940 Act"), and the Investment Advisers Act of 1940, as amended ("Advisers Act"). For example, Covered Officers may not engage individually in certain transactions (such as the purchase or sale of securities or other property) with the Trust because of their status as "affiliated persons" of the Trust. Conflicts also may arise from a Covered Officer's position or employment at Luther King Capital Management Corporation ("LKCM") and his or her position with the Trust. This Code recognizes that the Covered Officers, in the normal course of their duties (whether formally for the Trust or for LKCM, or for both), will be involved in establishing policies and implementing decisions that will have different effects on LKCM and the Trust. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Trust and LKCM and is consistent with the performance by the Covered Officers of their duties as officers of the Trust. Thus, if performed in conformity with the provisions of the 1940 Act and the Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the 1940 Act and the Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Trust. Thus, a Covered Officer should not: (a) use personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Trust whereby the Covered Officer would benefit personally to the detriment of the Trust; or (b) cause the Trust to take action, or fail to take action, for the personal benefit of the Covered Officer, rather than the benefit of the Trust. At times, certain situations may arise that may, or may not be, considered conflicts of interest under this Code. Covered Officers are encouraged to discuss such situations with legal counsel to the Trust if they are concerned that the situation poses a conflict of interest to him or her. Examples of these types of situations include: (a) service as director on the board of any public or private company; (b) the receipt of any non-nominal gifts; (c) the receipt of any entertainment from any company with which the Trust has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; (d) any ownership interest in, or any consulting or employment relationship with, any of the Trusts' service providers, other than LKCM, or any affiliated person thereof; and (e) a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Trust for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. 2 3. DISCLOSURE AND COMPLIANCE It is Trust policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Trust. Covered Officers are required to promote compliance with this policy by all employees and to abide by Trust standards, policies and procedures designed to promote compliance with this policy. Thus, a Covered Officer shall (a) familiarize himself or herself with the disclosure requirements generally applicable to the Trust; (b) not knowingly misrepresent, or cause others to misrepresent, facts regarding a Trust to others, whether within or outside the Trust, including to the Trust's Trustees and auditors, and to governmental regulators and self-regulatory organizations; (c) to the extent appropriate, within his or her area of responsibility, consult with other officers and employees of the Trust and LKCM with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Trust files with, or submit to, the SEC and in other public communications made by the Trust; and (d) promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. 4. REPORTING AND ACCOUNTABILITY Each Covered Officer must: (a) upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he or she has received, read, and understands the Code; (b) annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; (c) not retaliate against any other Covered Officer or any employee of the Trust or their affiliated persons for reports of potential violations that are made in good faith; (d) notify the Audit Committee ("Committee") promptly if he or she knows of any violation of this Code (failure to do so is itself a violation of the Code); and (e) report at least annually any affiliations or other relationships related to conflicts of interest in accordance with the Trust's Trustees and Officers Questionnaire. The Committee is responsible for applying this Code to any specific situations presented to it and has the authority to interpret this Code in any particular situation. Any approvals or waivers sought by Covered Officers shall be considered by the Committee. 3 The following procedures will be used by the Committee in investigating and enforcing this Code: (a) the Committee will take all appropriate action to investigate any potential violations reported to the Committee; (b) if, after such investigation, the Committee believes that no violation has occurred, no further action is required; (c) if the Committee believes that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; (d) the Committee will be responsible for granting waivers, as appropriate; and (e) any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. The Committee may retain appropriate counsel or other experts to assist and to perform the foregoing duties and its other duties under this Code. 5. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Trust for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Any other policies or procedures of the Trust, LKCM, or other service providers that govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code are to be interpreted and enforced in conjunction with this Code. The codes of ethics under Rule 17j-1 under the 1940 Act for the Trust and LKCM, contain separate requirements applying to the Covered Officers and others and are not part of this Code. 6. AMENDMENTS Any amendments to this Code must be approved or ratified by a majority vote of the Board, including a majority of independent Trustees. 7. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board, Trust counsel and LKCM. 4 8. INTERNAL USE The Code is intended solely for the internal use by the Trust and does not constitute an admission, by or on behalf of the Trust, as to any fact, circumstance, or legal conclusion. Date: November 19, 2003 5 EX-99.CERT 3 ex99cert.txt CERTIFICATIONS EX.99.CERT CERTIFICATIONS I, J. Luther King, Jr., certify that: 1. I have reviewed this report on Form N-CSR of LKCM Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; (d) Disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2010 /s/ J. Luther King, Jr. -------------------------------- ------------------------------------- J. Luther King, Jr. Principal Executive Officer/President CERTIFICATIONS I, Richard Lenart, certify that: 1. I have reviewed this report on Form N-CSR of LKCM Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; (d) Disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2010 /s/ Richard Lenart -------------------------------- ------------------------------------- Richard Lenart Principal Financial Officer/Treasurer EX-99.906 CERT 4 ex99cert906.txt CERTIFICATION EX.99.906CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of the LKCM Funds, does hereby certify, to such officer's knowledge, that the report on Form N-CSR of the LKCM Funds for the year ended December 31, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the LKCM Funds for the stated period. /s/ J. Luther King, Jr. /s/ Richard Lenart - ----------------------------------- --------------------------------------- J. Luther King, Jr. Richard Lenart Principal Executive Principal Financial Officer/President, LKCM Funds Officer/Treasurer, LKCM Funds Dated: March 9, 2010 ------------------------------- This statement accompanies this report on Form N-CSR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed as filed by LKCM Funds for purposes of Section 18 of the Securities Exchange Act of 1934. -----END PRIVACY-ENHANCED MESSAGE-----