LKCM Funds N-CSRSCertified semi-annual shareholder report (management investment company)

As filed with the U.S. Securities and Exchange Commission on September 7, 2021

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 811-08352

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: June 30, 2021

Item 1. Reports to Stockholders.

LKCM

FUNDS

LKCM Small Cap Equity Fund

LKCM Small-Mid Cap Equity Fund

LKCM Equity Fund

LKCM Balanced Fund

LKCM Fixed Income Fund

LKCM International Equity Fund

Semi-Annual Report

June 30, 2021

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the LKCM Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the LKCM Funds (if you hold your Fund shares directly with the LKCM Funds) or from your financial intermediary, such as a broker-dealer or bank (if you hold your Fund shares through a financial intermediary). Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold your Fund shares directly with the LKCM Funds, you may elect to receive shareholder reports and other communications electronically from the LKCM Funds by calling 1-800-688-LKCM or, if you hold your Fund shares through a financial intermediary, by contacting your financial intermediary.

You may elect to receive all future reports on paper free of charge. If you hold your Fund shares directly with the LKCM Funds, you can inform the LKCM Funds that you wish to continue receiving paper copies of your shareholder reports by calling 1-800-688-LKCM or, if you hold your Fund shares through a financial intermediary, contacting your financial intermediary. Your election to receive reports in paper will apply to all of the LKCM Funds you hold directly with LKCM Funds or all of the funds you hold through your financial intermediary, as applicable.

Dear Fellow Shareholders:

We report the following performance information for the LKCM Funds for indicated periods ended June 30, 2021:

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 Funds 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.

Note: The indices defined above are not available for direct investment and the index performance therefore does not include fees, expenses or taxes.

1H2021 Review

The current economic cycle has been turbocharged through a unique combination of market behaviors. First, policymakers reacted strongly to threats posed by the pandemic to households and businesses. These actions resulted in an increase of approximately 27% in the money supply since March of 2020, and the U.S. government engaged in significant deficit spending. Similarly, businesses curtailed operations, not to combat a normal economic downturn, but instead to survive an existential threat presented by the pandemic. These decisions contributed to the largest ever quarterly decline in Gross Domestic Product (GDP), a rapid increase in joblessness, and extensive liquidation of inventory. Finally, households hoarded savings, establishing a new record level of savings to income, much of which currently remains in the form of personal savings. In the current economic cycle, GDP has recovered to its prior peak after only a year. In contrast, it took three-and-a-half years for economic output to recover following the Global Financial Crisis, which ended in 2009.

We believe the rapid pace of economic growth is accentuating supply and demand imbalances created by the recession, and the situation is compounded by the logistical and production challenges of smoothly restarting the global supply chain. This dynamic has given rise to

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labor shortages and rising inflation in 2021. More than half of the increase in the Consumer Price Index (CPI) in April and May 2021 resulted from higher vehicle prices, in tandem with a rebound in pandemic-affected prices for flying and hotel accommodations. Input costs such as those for lumber, steel, and microchips have all recently peaked following a multifold increase. In terms of labor, aside from a few lower-wage sectors such as retail and hospitality, overall wage growth remains constrained. On the surface, these data points thus far appear to remain consistent with Federal Reserve Bank Chairman Jerome Powell’s message that inflation will likely be “transitory.” However, we believe the degree to which inflationary pressures broaden and become persistent will likely have a significant impact on how investors view the likely path of monetary policy and corollary implications for the stock market.

With the economic recovery in full motion, we believe that investors face a much different set of questions this year versus last year. For example, how long will it take the economy to return to full employment, and what happens to inflation in the interim and beyond? In our view, there is a great deal of uncertainty and debate surrounding these two questions, as they are central to shaping the path of monetary policy, which remains extremely accommodative even as the economy begins to heat up. We believe that the analysis is unusually complex for three reasons. First, economic data are very volatile as year-over-year comparisons produce extreme outputs for series such as GDP and CPI. Second, extraordinary fiscal and monetary policy, such as supplemental unemployment benefits and large-scale asset purchases by the Federal Reserve, continues to support the economy. Third, both the demand side (how fast will consumer spending recover?) and the supply side (how much labor market slack is there and how quickly will it dissipate?) have been impacted, making the forecasting of a new equilibrium challenging. As a result, we believe economic activity and data are likely to remain volatile and challenging for investors to digest.

Higher costs are returning as companies grapple with supply chain shortages and surging demand as the economy continues to reopen. Inflation also continues to rise compared to last year, based on the latest CPI readings. However, we believe a mix of temporary shortages, supply chain disruptions, and rebounds in transportation prices have driven the spike in CPI readings. In our view, elevated inflation readings are likely to persist until markets resolve supply chain constraints and other post-pandemic disruptions. Therefore, we think there may be sustained higher inflation readings over the following several months and possibly into the year-end. We believe it is important not to be overly dismissive of headline inflation. Market imbalances often emerge first in faster-moving prices such as gasoline, auto prices, hotel prices, and apparel, but can eventually creep into more moderate increases in a broader basket of slower-moving prices.

Beyond short-term price volatility in goods that are subject to dramatic swings in supply and demand, we continue to closely monitor the labor market for signs of wage pressure. We believe the employment dynamic exiting the pandemic-induced recession is very different from what followed the 2007—2009 recession. At the conclusion of the previous recession, labor was plentiful relative to demand, which contributed to relatively minimal inflation pressures. Abundant labor last cycle was also partly responsible for a decade of low productivity growth. In our view, there is a greater risk today that wage growth could rise at a faster pace than last cycle if current signs of labor market tightness prove more dogged than anticipated.

Regarding the labor market, there were approximately 4.3% fewer people employed at the end of the second quarter of 2021 than in January of 2021, which to us implies that meaningful slack resides in the labor market. However, company survey data, such as the National Federation of Independent Business (NFIB) small business survey, suggests a different story. The most recent survey indicated that approximately 48% of firms reported difficulty filling vacant positions in May 2021, the highest level in the 46-year history of the survey. The reopening-driven recovery in labor demand has tightened the labor market at a time when labor supply is still constrained by supplemental unemployment benefits and the lingering effects of social distancing. There were 9.5 million unemployed workers as of the end of June 2021. Therefore, the ratio of unemployed workers to job openings has fallen to a level usually associated with tight labor markets. This is particularly true in lower-wage services that face greater competition from unemployment benefits. We believe that we are unlikely to get a clear view of the health of the labor market until this fall when supplemental unemployment benefits expire, and schools across the country open for in-person learning.

While we believe investors are rightly focused on inflation and the health of the labor market, there is another key aspect of the business cycle which we believe deserves attention—business investment, which is emerging as a powerful source of economic growth that will likely help sustain the economic recovery. Although business investment accounts for only approximately 18% of GDP, it carries important implications, because rising business investment helps fuel economic output. These types of expenditures are important because they can lift worker productivity, or output per hour. While productivity was very sluggish during the prior economic expansion, capital goods orders are now beginning to show signs of growth. Business investment is also important because it drives job creation and can mitigate wage pressures.

2H2021 Outlook

Supply and demand imbalances have led to a spike in inflation readings; however, we believe much of the underlying cause is directly linked to unique circumstances such as auto and travel prices, which we believe will moderate as the year-end approaches. Turning to the labor market, while the pace of hiring has quickened, we believe there is also a rational speed limit to which the matching of workers with employers can naturally occur. In our view, pronounced labor market churn is due in part to the need for workers to change jobs to reach the marginal bid for new workers, which is around $15 per hour and may include a signing bonus. Excess savings and the ongoing unemployment trends in many states give workers more bargaining power, while also allowing the unemployed to be more selective in finding the right match. However, we believe these constraints should ease in the second half of 2021 as supplemental benefits expire

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and schools open for in-person learning. We currently anticipate that the economy will lurch forward in 2021 in conjunction with strong corporate earnings. We believe that accompanying inflation readings are anticipated to moderate by the end of the year.

We believe there are two prominent risks to our current outlook. The first is a pandemic resurgence sparked by the spread of more powerful virus variants against which existing vaccines are substantially less effective. In our view, such a development would likely negatively impact global economies more substantially than the domestic economy due to differences in vaccination levels and health care infrastructure. Under this potential scenario, global supply and demand imbalances would persist, rather than correcting. The second key risk is that strong inflation readings in a narrow set of goods and services bleed over into a broader basket of goods and services. If the seemingly tight labor market constricts further and wage growth is not offset by productivity improvements, we believe further cost pressures could build in the economy. As a result, the Federal Reserve Bank could conclude it is behind the curve and move quickly to tighten monetary policy to dampen inflation. We believe such an action could startle capital markets. Neither of these more visible risks should be overlooked, but our current view anticipates economic momentum to carry over into next year and monetary policy to tighten very slowly, both of which continue to create an economic backdrop that is supportive of equity values.

LKCM Equity Fund

The LKCM Equity Fund returned 13.99% for the six months ended June 30, 2021, as compared to the 15.25% return for the S&P 500^® Index, the Fund’s benchmark. The Fund’s relative performance benefited from stock selection decisions, particularly in the Industrials, Information Technology and Communication Services sectors, which was partially offset by stock selection decisions in the Materials sector. The Fund’s underweight position in the Financials and Communication Services sectors detracted from the Fund’s relative performance, which was partially offset by the Fund’s overweight position in the Industrials sector. We remain committed to our investment strategy for the Fund that focuses on investments in companies that we believe are high quality and have solid balance sheets and cash flows, particularly with the potential for rising interest rates.

LKCM Balanced Fund

The LKCM Balanced Fund returned 8.33% for the six months ended June 30, 2021, as compared to the 15.25% return for the S&P 500^® Index and the -0.90% return for the Bloomberg Barclays Intermediate Government/Credit Bond Index. The Fund’s equity portfolio benefited from strong stock selection in the Healthcare and Financials sectors relative to the benchmark and by maintaining a lack of exposure to the underperforming Utilities sector. Stock selection in the Information Technology and Industrials sectors detracted from the Fund’s relative performance during the period. The Fund’s fixed income portfolio generated slightly negative returns during the period as interest rates lifted off the lows from earlier in the year. The Fund’s fixed income portfolio remains focused on investments in high quality corporate bonds with intermediate maturities. We believe that Fund remains well-positioned for the anticipated economic and capital market environment.

LKCM Fixed Income Fund

The LKCM Fixed Income Fund returned -0.76% on a total return basis during the six months ended June 30, 2021, as compared to the -0.90% return of the Fund’s benchmark, the Bloomberg Barclays Intermediate Government/Credit Bond Index. During the period, Treasury yields rose sharply, and the yield curve steepened, as measured by the yield differential between the 3-month T-bill and the 10-year Treasury. This steepening of the curve was largely the result of the continuing economic recovery that officially transitioned into expansion in the first quarter as GDP surpassed its previous peak in the fourth quarter of 2019 and the reopening of the economy broadened to encompass those sectors that were more negatively impacted by the pandemic-induced shutdown. Within this backdrop both monetary and fiscal policy remained extraordinarily accommodative to support the recovery and achieve sustainable economic growth. However, while GDP has recovered, payroll employment and labor force participation remain well off their pre-pandemic levels. In addition, inflation has increased substantially due to base effects relative to deflation last spring, and supply-chain bottlenecks as a result of the reopening of the economy. The Federal Reserve views this increase in inflation as “transitory” and continues to deploy accommodative policies to focus on the maximum sustainable employment part of their dual mandate. In this environment where fixed income securities were negatively impacted by rising interest rates, shorter-duration securities outperformed their longer-duration counterparts and lower-quality issues outperformed higher-quality issues as credit spreads tightened. The Fund’s shorter duration of 2.9 years relative to the 4.2-year duration of the benchmark as well as the Fund’s overweight in corporate bonds were additive to the Fund’s relative performance in this volatile environment. Most of the Fund remains focused in the short-to-intermediate sector in an effort to reduce interest rate risk and in investment-grade corporate bonds with strong underlying fundamentals in an effort to mitigate credit risk and achieve a sustainable cash flow stream.

LKCM International Equity Fund

The LKCM International Equity Fund returned 13.91% for the six months ended June 30, 2021, as compared to the 9.17% return for the MSCI EAFE^® Index, the Fund’s benchmark. The Fund benefited from an underweight position in the Utilities sector relative to the benchmark, although the Fund’s underweight positions in the Financials and Materials sectors detracted slightly from the Fund’s relative performance. The Fund’s overweight positions in the Industrials and Energy sectors also contributed to the Fund’s relative performance, while the Fund’s overweight position in the Information Technology sector detracted slightly from the Fund’s relative performance. The

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Fund also benefited from stock selection decisions in the Industrials, Financials and Information Technology sectors relative to the benchmark, which were partially offset by stock selection decisions in the Consumer Staples and Communication Services sectors.

We believe that the Fund is well-positioned to generate attractive returns for Fund shareholders by investing in competitively advantaged companies that we believe generate returns in excess of their cost of capital and have good opportunities for earnings growth. We continue to maintain an elevated weighting in the Financials sector, though still an underweight allocation relative to the benchmark, and an overweight position in the Industrials sector relative to the benchmark in an effort to be positioned for the continued cyclical rebound. The Fund has benefited from the rotation towards more cyclical names during the fourth quarter of 2020 and the first quarter of 2021. Though there was a retracement during June, we still believe that strong economic activity will persist, in the absence of further restrictions due to new, vaccine-resistant COVID strains. We believe fiscal and monetary support will provide ample stimulus to push economic output past pre-COVID levels. However, we remain wary of the potential for inflationary pressures in the United States short-circuiting a global rebound.

LKCM Small Cap Equity Fund

The LKCM Small Cap Equity Fund returned 17.59% for the six months ended June 30, 2021, as compared to the 17.54% return for the Russell 2000^® Index, the Fund’s benchmark. Stock selection decisions in the Healthcare, Industrials and Consumer Discretionary sectors benefited the Fund’s relative performance, which were partially offset by stock selection decisions in the Information Technology, Communication Services and Financials sectors. The Fund’s relative performance benefited from an overweight position in the Communication Services sector, which was partially offset by an overweight position in the Information Technology sector. The Fund benefited from our investment strategy that focuses on companies that we believe are high quality, and we believe our investment strategy has the Fund well-positioned for the remainder of 2021.

LKCM Small-Mid Cap Equity Fund

The LKCM Small-Mid Cap Equity Fund returned 13.18% for the six months ended June 30, 2021, as compared to the 16.97% return for the Russell 2500^® Index, the Fund’s benchmark. Stock selection decisions in the Consumer Discretionary, Information Technology and Financials sectors detracted from the Fund’s relative performance, which was partially offset by strong stock selection in the Healthcare sector. The Fund’s overweight position in the Healthcare sector detracted from the Fund’s relative performance, which was partially offset by the Fund’s overweight position in the Energy sector. The Fund benefited from our investment strategy that focuses on companies that we believe are high quality, and we believe our investment strategy has the Fund well-positioned for the remainder of 2021.

J. Luther King, Jr., CFA, CIC

July 12, 2021

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The information provided herein represents the opinion of J. Luther King, Jr., CFA, CIC 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 9-23 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. Investments in equity securities are subject to market risks and significant fluctuations in value. Small and medium 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 greater for longer-term debt securities. Investments in mortgage backed securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. These risks are discussed in the Funds’ summary and statutory prospectuses.

Earnings growth is not a measure of future performance.

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of a 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. Returns would have been lower if LKCM had not waived a portion of its management fee and/or reimbursed certain expenses of a Fund. Please see Note B to the Notes to the Financial Statements for specific information regarding management fee waiver and/or expense reimbursement arrangements for a Fund.

Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates. Securities with a longer duration generally have more volatile prices than securities of comparable quality with a shorter duration.

Spread is the percentage point difference between yields of various classes of bonds compared to treasury bonds.

Yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.

Bond ratings are grades given to bonds that indicate their credit quality as determined by a private independent rating service such as S&P Global. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from ‘AAA’, which is the highest grade, to ‘D’, which is the lowest grade. In limited situations when the rating agency has not issued a formal rating, the rating agency will classify the security as nonrated.

Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business.

Investors should consider the investment objective, risks and charges and expenses of a Fund carefully before investing. Each Fund’s summary prospectus and the prospectus contain this and other information about the Fund. Investors can obtain a summary prospectus and the prospectus by calling 1-800-688-LKCM. The summary prospectus and the prospectus should be read carefully before investing in a Fund.

Quasar Distributors, LLC, distributor.

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LKCM Funds Expense Example — June 30, 2021 (Unaudited)

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 (01/01/2021-6/30/2021).

ACTUAL EXPENSES

The third and fourth columns of the table below provide information about actual account values and actual expenses. You may use the information in these columns, 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 fourth column under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. 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 (doing business as U.S. Bank Global Fund Services), 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, Small-Mid Cap Equity, Equity, Balanced, Fixed Income, and International Equity Funds within 30 days of purchase, unless otherwise determined by the Funds in their discretion. To the extent the Funds invest in shares of other investment companies as part of their investment strategies, 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.

HYPOTHETICAL EXAMPLES FOR COMPARISON PURPOSES

The fifth and sixth columns of the table below provide 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 fifth and sixth columns of the table are 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.

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ALLOCATION OF PORTFOLIO HOLDINGS — LKCM Funds — June 30, 2021 (Unaudited)

Percentages represent market value as a percentage of total investments.

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The accompanying notes are an integral part of these financial statements.

9

The accompanying notes are an integral part of these financial statements.

10

The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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