As filed with the Securities and Exchange Commission on October 27, 1998
1933 Act Registration No. __________
1940 Act Registration No. 811-09079
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. _____ [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. _____ [ ]
(Check appropriate box or boxes)
MORGAN KEEGAN SERIES FUND, INC.
(Exact name of registrant as specified in charter)
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 524-4100
ALLEN B. MORGAN, JR.
Morgan Keegan Tower
Memphis, Tennessee 38103
(Name and Address of Agent for Service)
Copies to:
ARTHUR J. BROWN, ESQ.
Kirkpatrick & Lockhart LLP 1800 Massachusetts
Ave., N.W.
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
As soon as practicable after the effective date of this Registration
Statement
<PAGE>
Morgan Keegan Series Fund, Inc.
Contents of Registration Statement
This Registration Statement consists of the following papers and documents.
Cover Sheet
Contents of Registration Statement
Cross Referenced Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Morgan Keegan Series Fund, Inc.
Form N-1A Cross Reference Sheet
PART A ITEM NO. AND CAPTION PROSPECTUS CAPTION
1. Front and Back Cover Page Front and Back Cover Pages
2. Risk/Return Summary: Overview; Goals of the Funds; Goals and
Investments, Risks, and Strategies; Portfolio Securities;
Performance Concepts to Understand; Risk Factors;
More About Risk; Other Securities and
Risk; Other Investment Practices
3. Risk/Return Summary: Fee Table Fees and Expenses of the Funds
4. Investment Objectives, Principal Overview; Goals of the Funds; Goals and
Investment Strategies, and Related Strategies; Portfolio Securities;
Risks Concepts to Understand; Risk Factors;
More About Risk; Other Securities and
Risk; Other Investment Practices
5. Management's Discussion of Not Applicable
Fund Performance
6. Management, Organization and The Management Firm; Portfolio
Capital Structure Management
7. Shareholder Information Your Account; Buying Shares; Choosing a
Share Class; Class Comparison; Policies
for Buying Shares; To Add to an
Account; Buying Shares; Selling Shares;
To Sell Some or All of Your Shares;
Account Policies; Distributions and
Taxes; Tax Considerations; Investor
Services; Additional Policies; Your
Investment --The Opportunity
8. Distribution Arrangements The Management Firm
9. Financial Highlights Information Not Applicable
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART B ITEM NO. AND CAPTION CAPTION
10. Cover Page and Table of Contents Front Cover Page
Table of Contents
11. Fund History General Information
12. Description of the Fund and Its Investment Limitations and Policies;
Investments and Risks Description of the Funds' Shares
13. Management of the Fund Directors and Officers; Investment
Adviser
14. Control Persons and Principal Directors and Officers
Holders of Securities
15. Investment Advisory and Other Investment Adviser; Distributor;
Services Custodian, Transfer Agent, Dividend,
Disbursing Agent and Portfolio
Accounting Service Agent
16. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices
17. Capital Stock and Other Description of the Funds' Shares
Securities
18. Purchase, Redemption, and Pricing Additional Information on Redemptions;
of Shares Valuation of Shares; Purchase of Shares
19. Taxation of the Fund Additional Tax Information
20. Underwriters Distributor
21. Calculation of Performance Data Performance Information
22. Financial Statements Not applicable
<PAGE>
MORGAN KEEGAN INTERMEDIATE BOND FUND
A BOND FUND FOR INVESTORS WHO SEEK TO EARN A HIGH LEVEL OF INCOME PRIMARILY FROM
INTERMEDIATE MATURITY, INVESTMENT GRADE BONDS.
MORGAN KEEGAN HIGH INCOME FUND
A BOND FUND FOR INVESTORS WHO CAN ACCEPT HIGHER RISK AND SEEK TO EARN A HIGHER
LEVEL OF INCOME PRIMARILY FROM BELOW INVESTMENT GRADE BONDS.
PROSPECTUS
JANUARY 1, 1999
THIS PROSPECTUS HAS INFORMATION ABOUT THESE FUNDS YOU SHOULD KNOW BEFORE YOU
INVEST. FOR YOUR OWN BENEFIT AND PROTECTION, PLEASE READ IT CAREFULLY BEFORE YOU
INVEST, AND KEEP IT WITH YOUR INVESTMENT RECORDS FOR FUTURE REFERENCE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
MORGAN KEEGAN & COMPANY, INC.
50 North Front Street
Memphis, TN 38103
<PAGE>
TABLE OF CONTENTS
PAGE
Overview.......................................................................1
Fund Information Key........................................................1
Goals of the Funds.............................................................2
Who may want to invest.........................................................2
Morgan Keegan Intermediate Bond Fund...........................................3
Goals and Strategies .......................................................3
Portfolio Securities .......................................................3
Concepts to Understand......................................................3
Risk Factors ...............................................................4
Portfolio Management .......................................................4
Fees and Expenses of the Fund...............................................5
Morgan Keegan High Income Fund.................................................6
Goals and Strategies .......................................................6
Portfolio Securities .......................................................6
Concepts to Understand......................................................6
Risk Factors ...............................................................6
Portfolio Management .......................................................7
Fees and Expenses of the Fund ..............................................7
Your Account...................................................................8
Buying shares ..............................................................8
Choosing a Share Class......................................................8
Class Comparison............................................................8
Rule 12b-1.................................................................10
Policies for Buying Shares.................................................10
To Add to an Account.......................................................10
Buying Shares .............................................................11
Internet...................................................................11
Selling Shares.............................................................11
To Sell Some or All of Your Shares ........................................12
Funds'Management and Investment Adviser.......................................12
Funds'Distributor.............................................................13
Account Policies..............................................................13
Distributions and Taxes.......................................................14
Tax Considerations............................................................14
Investor Services.............................................................14
Additional Policies...........................................................15
More About Risk...............................................................15
Other Securities and Risks.................................................15
Other Investment Practices.................................................16
Your Investment --The Opportunity.............................................17
Services You Can Use.......................................................17
Easy to Start and Easy to Manage...........................................17
For Additional Information....................................................17
Account Application...........................................................18
i
<PAGE>
OVERVIEW
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[GRAPHICS OMITTED] GOALS AND STRATEGIES: The Fund's particular investment goals
and the strategies it intends to follow in pursuing those goals.
[GRAPHICS OMITTED] PORTFOLIO SECURITIES: The primary types of securities in
which the Fund invests. Secondary investments are described in "More about risk"
at the end of the prospectus.
[GRAPHICS OMITTED] RISK FACTORS: The major risk factors associated with the
Fund.
[GRAPHICS OMITTED] PORTFOLIO MANAGEMENT: The individual designated by the
investment adviser to handle the Fund's day-to-day management.
[GRAPHICS OMITTED] EXPENSES: The overall costs borne by an investor in the Fund,
including sales charges and annual expenses.
<PAGE>
GOALS OF THE FUNDS
Each Fund seeks income without sacrificing total return. Each Fund has its own
strategy and its own risk/reward profile. Because you could lose money by
investing in these Funds, be sure to read all risk disclosure carefully before
investing.
WHO MAY WANT TO INVEST
The Funds may be appropriate for investors who:
o Are seeking a regular stream of income
o Are seeking higher return than money market funds and are willing to accept
the risk of loss of principal
o Want to diversify their portfolios
o Are seeking a mutual fund for the income portion of an asset allocation
portfolio
o Are retired or nearing retirement
The Funds may NOT be appropriate for investors who:
o Are seeking maximum return over a long time horizon
o Require absolute stability of principal
2
<PAGE>
MORGAN KEEGAN INTERMEDIATE BOND FUND
GOALS AND STRATEGIES [GRAPHICS OMITTED]
The Fund seeks income without sacrificing total return. To pursue these goals,
the Fund's policy is to invest at least 65% of total assets in investment grade,
intermediate term maturity bonds (those bonds rated investment grade by at least
one national rating organization with overall effective maturities of 1 to 10
years). The policy of the Fund is to keep the portfolio's average effective
maturity generally between 3 and 10 years.
In managing the Fund's portfolio, the Adviser will focus on those securities
believed to offer the most attractive value relative to alternative investments.
That is, the Adviser will invest in securities that potentially offer better
yield or total return (or combination of yield and price appreciation) than
securities of comparable quality and maturity. This strategy is generally
referred to as a "value" approach and is primarily concerned with individual
security and sector selection. In addition, the Adviser's strategy does not
attempt to forecast interest rate movements; rather the goal is to keep the
Fund's assets "fully invested" (hold a minimal amount of cash reserves --
generally less than 10%) and to maintain a relatively stable average effective
portfolio maturity.
PORTFOLIO SECURITIES [GRAPHICS OMITTED]
The Fund may invest in debt securities of all maturities and types, including
U.S. government bonds, corporate bonds, debentures, notes, preferred stock,
mortgage-backed and asset-backed securities. The Fund may also invest up to 35%
of its net assets in certain higher-risk investments, including derivative and
leveraged investments, below investment-grade bonds and U.S. equity securities.
For liquidity and flexibility, the Fund may invest in investment-grade
short-term securities. In unusual market conditions, it may invest more assets
in these securities as a defensive tactic.
CONCEPTS TO UNDERSTAND
o INTERMEDIATE TERM MATURITY BONDS: bonds (debt) that have average maturities
generally ranging from 1 to 10 years. These bonds normally offer higher
yields than more stable short term bonds and greater price stability than
comparable higher-yielding long term bonds.
o INVESTMENT GRADE BONDS: bonds that are rated in the top four credit
categories by a national rating organization at the time of purchase or, if
not rated, are considered by the Adviser to be of equal quality. Investment
grade bonds are considered less risky than bonds whose ratings are below
investment grade; ratings are no guarantee of quality.
o EFFECTIVE MATURITY: the calculated maturity based on analytical factors
that estimate the actual expected return of principal rather than the
stated final maturity date. For example, a mortgage-backed bond may have a
30-year stated final maturity. However, given the expected periodic
principal prepayments of that bond, the effective maturity may be 10 years
rather than the stated 30 years. The AVERAGE EFFECTIVE MATURITY is the
dollar-weighted average of effective maturities of the securities in the
Fund's portfolio.
o EXTENSION RISK: the risk that an unexpected rise in interest rates will
extend the life of a mortgage-backed security beyond the expected
prepayment time, typically reducing the security's value.
o PREPAYMENT RISK: the risk that unanticipated prepayments may occur during
periods of falling interest rates, reducing the value of mortgage-backed
securities.
3
<PAGE>
o TOTAL RETURN: is composed of the income received on the securities held by
the Fund and either capital appreciation or depreciation of those
securities.
RISK FACTORS [GRAPHICS OMITTED]
Investors should expect fluctuations in share price, yield and total return
compared with less aggressive bond funds. Typically, a rise in interest rates
causes a decline in market value of debt securities. The longer the Fund's
average effective maturity, the more likely it is to be affected by a change in
interest rates. To the extent that the Fund invests in asset-backed and
mortgage-backed securities, it may also be subject to extension and prepayment
risks.
While bonds historically have been a leading choice of long-term investors, they
do fluctuate in price. The value of your investment in the Fund will go up and
down, which means that you could lose money.
Because different types of bonds tend to shift in and out of favor depending on
market and economic conditions, the Fund's performance may sometimes be lower or
higher than that of other bond funds. In the long run, the Fund may produce more
modest gains than riskier high yield and long term bond funds as a trade-off for
potentially lower risk.
In searching for attractive yields and capital appreciation, the Fund may invest
a portion of its assets in high yield bonds, convertible securities and common
stocks, which could carry additional risks such as credit risk and stock price
volatility.
The Fund intends to keep all assets invested at all times. Under adverse market
conditions, this strategy could have the effect of increasing an investor's risk
of loss.
The Fund is newly organized and has no operating history prior to the date of
this prospectus. Before you invest, please read "More About Risk" starting on
page 15.
PORTFOLIO MANAGEMENT [GRAPHICS OMITTED]
James C. Kelsoe, CFA, is the Chief Fixed Income Investment Officer of the
Adviser, a position he has held since 1991. He joined Morgan Keegan & Company,
Inc., ("Morgan Keegan") in 1991 and has been in the investment business since
1986.
4
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your
investment) Class A Class C Class I
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum front-end sales charge (Load) 2.00% 0.00% 0.00%
(as a percentage of offering price)
Maximum deferred sales charge (Load) 0.00% 1.00% 0.00%
(as a percentage of the lesser of the offering price or
net asset value)
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets) Class A Class C Class I
- -------------------------------------------------------------------------------------------------------
Management fee 0.40% 0.40% 0.40%
Marketing/service (12b-1) fees 0.25% 0.60% 0.00%
Other expenses1 0.40% 0.40% 0.40%
----------------------------------------------
Total annual fund operating expenses2 1.05% 1.40% 0.80%
==============================================
Fee Waiver 0.15% 0.15% 0.15%
Net Expenses: 0.90% 1.25% 0.65%
</TABLE>
(1) Because the Fund had no operations prior to the date of this prospectus,
these expenses are estimated for its first year of operations.
(2) The Adviser has agreed to waive its fee and to reimburse the Fund for its
first fiscal year of operations to the extent its total annual operating
expenses (excluding brokerage, interest, taxes, and extraordinary
expenses) exceed 0.90% of net assets of Class A shares, 1.25% of net
assets of Class C shares and 0.65% of net assets of Class I shares.
EXAMPLE [GRAPHICS OMITTED]
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This Example assumes that you invest $10,000 in the Fund and then redeem all of
your shares at the end of the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
Class A Class C Class I
------------------------------------------
1 Year $293 $236 $ 68
1 Year (if not redeemed) $293 $131 $68
3 Years (whether or not redeemed) $489 $408 $214
5
<PAGE>
MORGAN KEEGAN HIGH INCOME FUND
GOALS AND STRATEGIES: [GRAPHICS OMITTED]
The Fund seeks income without sacrificing total return. To pursue this goal, the
Fund invests primarily in high yield fixed income (debt) securities.
In managing the Fund's portfolio, the Adviser will focus on those securities
believed to offer the most attractive value relative to alternative investments.
That is, the Adviser will invest in securities that potentially offer better
yield or total return (the combination of yield and price appreciation) than
securities of comparable quality and maturity. This strategy is generally
referred to as a "value" approach and is primarily concerned with individual
security and sector selection. In addition, the Adviser's strategy does not
attempt to forecast interest rate movements; rather the goal is to keep the
Fund's assets "fully invested" (hold a minimal amount of cash reserves --
generally less than 10%) and to maintain a relatively stable average effective
portfolio maturity.
PORTFOLIO SECURITIES [GRAPHICS OMITTED]
Up to 100% of the Fund's investments may consist of debt securities that are
rated below investment grade and their unrated equivalents. Types of bonds
include, but are not limited to, debentures, notes, convertible securities and
preferred stocks of domestic and foreign corporations, and municipal and foreign
government obligations.
The Fund may also invest up to 20% of its net assets in U.S or foreign equities.
For liquidity and flexibility, the Fund may invest in investment-grade
short-term securities. In unusual market conditions, it may invest more assets
in these securities as a defensive tactic.
CONCEPTS TO UNDERSTAND
HIGH YIELD SECURITIES: high yield or below investment grade securities are
securities which are rated below investment grade by national rating
organizations. These securities (sometimes referred to as "junk bonds") are
described by the rating services to be speculative or have speculative elements
(high in financial risk) that decrease the probability of future payments by the
issuer.
TOTAL RETURN: is composed of the income received on the securities held by the
Fund and either capital appreciation or depreciation of those securities.
RISK FACTORS [GRAPHICS OMITTED]
Investors should expect greater fluctuations in share price, yield and total
return compared with less aggressive bond funds.
Issuers of high yield securities are typically in weak financial health and
their ability to pay interest and principal is uncertain. Compared with issuers
of investment grade bonds, they are more likely to encounter financial
difficulties and to be materially affected by those difficulties when they do
encounter them. High yield securities may react strongly to adverse news about
an issuer or the economy, or to the perception or expectation of adverse news.
The Fund is newly organized and has no operating history prior to the date of
this prospectus. Before you invest, please read "More About Risk" starting on
page 15.
Typically, a rise in interest rates causes a decline in market value of debt
securities. The longer the Fund's average effective maturity, the more likely it
is to be affected by a change in interest rates. To the extent that the Fund
invests in asset-backed and mortgage-backed securities, it may also be subject
to extension and prepayment risks.
6
<PAGE>
While bonds historically have been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Fund will go up
and down, which means that you could lose money.
The Fund intends to keep all assets invested at all times. Under adverse market
conditions, this strategy could have the effect of increasing an investor's risk
of loss.
The Fund is newly organized and has no operating history prior to the date of
this prospectus. Before you invest, please read "More About Risk" starting on
page 15.
PORTFOLIO MANAGEMENT [GRAPHICS OMITTED]
James C. Kelsoe, CFA, is the Chief Fixed Income Investment Officer of the
Adviser, a position he has held since 1991. He joined Morgan Keegan in 1991 and
has been in the investment business since 1986.
FEES AND EXPENSES OF THE FUND [GRAPHICS OMITTED]
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your
investment) Class A Class C Class I
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum front-end sales charge (load) 2.50% 0.00% 0.00%
(as a percentage of offering price)
Maximum deferred sales charge (load) 0.00% 1.00% 0.00%
(as a percentage of the lesser of the offering price or
net asset value)
ANNUAL FUND EXPENSES (expenses that are deducted from
Fund assets) Class A Class C Class I
- -------------------------------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
Marketing/service (12b-1) fees 0.25% 0.75% 0.00%
Other expenses1 0.40% 0.40% 0.40%
---------------- ---------------- --------------
Total annual fund operating expenses2 1.40% 1.90% 1.15%
================ ================ ==============
Fee Waiver 0.15% 0.15% 0.15%
Net Expenses: 1.25% 1.75% 1.00%
</TABLE>
(1) Because the Fund had no operations prior to the date of this prospectus,
these expenses are estimated for its first year of operations.
(2) The Adviser has agreed to waive its fee and to reimburse the Fund for its
first fiscal year of operations to the extent its annual operating
expenses (excluding brokerage, interest, taxes, and extraordinary
expenses) exceed 1.25% of net assets of Class A shares, 1.75% of net
assets of Class C shares and 1.00% of net assets of Class I shares.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This Example assumes that you invest $10,000 in the Fund and then redeem all of
your shares at the end the time periods indicated. The Example also assumes that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
7
<PAGE>
Class A Class C Class I
-------------------------------------------
1 Year $378 $289 $105
1 Year (if not redeemed) $378 $184 $105
3 Years (whether or not redeemed) $648 $569 $328
YOUR ACCOUNT
BUYING SHARES [GRAPHICS OMITTED]
If you are buying shares through a financial professional, he or she can assist
you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To buy shares without the help of a Morgan Keegan broker, please use the
instructions on these pages.
CHOOSING A SHARE CLASS
Each fund offers three share classes. Each class has its own expense structure.
Your investment plans will determine which class is most suitable for you. For
example, if you are investing a substantial amount and plan to hold your shares
for a long period, Class A shares may make the most sense for you. If you are
investing a smaller amount for less than five years, you may want to consider
Class C shares. If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class I shares. Because all future
investments in your account will be made in the share class you designate when
opening the account, you should make your decision carefully. Your financial
professional can help you choose the share class that makes the most sense for
you.
CLASS COMPARISON
CLASS A-FRONT LOAD
o Initial sales charge of 2.00% for the Morgan Keegan Intermediate Bond Fund
and 2.50% for the Morgan Keegan High Income Fund (in either case, as a
percentage of offering price); see schedule below.
o Lower sales charges for larger investments of $50,000 or more; no sales
charge for purchases of $1 million or more.
o Low or no sales charge for certain wrap-fee programs and other sponsored
arrangements.
o Lower annual expenses than Class C shares due to lower marketing/service
(12b-1) fee of 0.25%.
o "Right of accumulation" allows you to determine the applicable sales load
on a purchase by including the value of your existing Morgan Keegan Fund
investments as part of your current investment.
o "Letter of intent" allows you to count all investments in this or other
Morgan Keegan Funds over the next 13 months as if you were making them all
at once, for purposes of calculating sales charges.
<PAGE>
- --------------------------------------------------------------------------------
Morgan Keegan Intermediate Bond Fund
- --------------------------------------------------------------------------------
Class A Sales Charge
As a % of your
Your investment As of % of offering price investment
- --------------------------------------------------------------------------------
up to $49,999 2.00% 2.04%
- --------------------------------------------------------------------------------
$50,000 to $99,999 1.75% 1.78%
$100,000 to $249,999 1.50% 1.52%
$250,000 to $499,999 1.00% 1.01%
$500,000 to $999,999 0.75% 0.76%
$1 million and over 0.00% 0.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Morgan Keegan High Income Fund
- --------------------------------------------------------------------------------
Class A Sales Charge
As a % of your
Your investment As of % of offering price investment
- --------------------------------------------------------------------------------
up to $49,999 2.50% 2.56%
$50,000 to $99,999 2.25% 2.30%
$100,000 to $249,999 1.75% 1.78%
$250,000 to $499,999 1.25% 1.27%
$500,000 to $999,999 1.00% 1.01%
$1 million and over 0.00% 0.00%
- --------------------------------------------------------------------------------
CLASS C -- LEVEL LOAD
o No initial sales charge.
o Deferred sales charge of 1%, payable by you if you sell shares within one
year of purchase.
o Annual marketing/service (12b-1) fee of 0.60% for the Morgan Keegan
Intermediate Bond Fund and 0.75% for the Morgan Keegan High Income Fund.
CLASS I -- NO LOAD
o No sales charges of any kind.
o No marketing/service (12b-1) fees; annual expenses are lower than other
share classes.
o Available only to certain retirement accounts, advisory accounts of the
investment manager and broker special programs, including broker programs
with record-keeping and other services; these programs usually involve
special conditions and separate fees (contact your financial professional
for information).
9
<PAGE>
RULE 12B-1 FEES
Each Fund has adopted a plan under rule 12b-1 that allows the Funds to pay
distribution fees for the sale and distribution of the Class A and C shares; and
because these fees are paid out of each Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
POLICIES FOR BUYING SHARES
Once you have chosen a share class, the next step is to determine the amount
that you want to invest.
MINIMUM INITIAL INVESTMENTS PER FUND:
o $1,000
o $250 for Individual Retirement Accounts
MINIMUM ADDITIONAL INVESTMENTS:
o $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
TIMING OF REQUESTS. All requests received by the close of the New York Stock
Exchange ("NYSE") (normally 4:00 p.m. eastern time) will be executed the same
day, at that day's closing share price. Orders received after the closing of the
NYSE will be executed the following day, at that day's closing share price.
WIRE TRANSACTIONS. Funds may be wired between 8:30 a.m. and 3:00 p.m. central
time. Your bank may charge a fee for wiring money. Call Morgan Keegan to request
a purchase application. Forward your application to Morgan Keegan. Please be
sure to include the appropriate bank information.
PURCHASES BY CHECK. Complete the enclosed purchase application. Forward your
application, with all appropriate sections completed, along with a check for
your initial investment payable to Morgan Keegan.
Call your Morgan Keegan broker or Morgan Keegan at 800-366-7426 or visit our web
site at www.morgankeegan.com.
TO ADD TO AN ACCOUNT
BY PHONE:
Contact Morgan Keegan at 800-366-7426.
BY CHECK:
Fill out the investment stub from an account statement, or indicate the Fund
name on your check. Make checks payable to "Morgan Keegan". Mail the check and
stub to Morgan Keegan.
SYSTEMATIC INVESTMENT:
Call Morgan Keegan to verify that systematic investment is in place on your
account, or to request a form to add it. Investments are automatic once this is
in place.
10
<PAGE>
Call your Morgan Keegan broker or Morgan Keegan at 800-366-7426 or visit our web
site at www.morgankeegan.com.
BUYING SHARES [GRAPHICS OMITTED]
THROUGH A FINANCIAL PROFESSIONAL Contact your Morgan Keegan broker.
BY MAIL Send a completed purchase application to your Morgan Keegan
broker or Morgan Keegan at the address at the bottom of this page. Specify the
Fund, the account number and the dollar value or number, if any, of shares. Be
sure to include any necessary signatures and any additional documents, as well
as signature guarantees if required .
BY TELEPHONE As long as the transaction does not require a written request,
you or your financial professional can buy shares by calling Morgan Keegan at
800-366-7426. A confirmation will be mailed to you on the following business
day.
BY EXCHANGE Read the prospectus for the Fund into which you are exchanging.
Call Morgan Keegan at 800-366-7426 or visit our web site at
www.morgankeegan.com.
BY SYSTEMATIC INVESTING See plan information on page 14.
MORGAN KEEGAN & CO., INC.
50 North Front Street, Memphis, TN 38103
Call toll-free: 1-800-366-7426
(8:30 a.m. - 4:30 p.m., business days, central time)
INTERNET
www.morgankeegan.com
SELLING SHARES
POLICIES FOR SELLING SHARES
CIRCUMSTANCES THAT REQUIRE WRITTEN REQUESTS Please submit instructions in
writing when any of the following apply:
o You are selling more than $100,000 worth of shares
o The name or address on the account has changed within the last 30 days
o You want the proceeds to go to a name or address not on the account
registration
o You are transferring shares to an account with a different registration or
share class
o You are selling shares held in a corporate or fiduciary account; for these
accounts additional documents are required:
CORPORATE ACCOUNTS: certified copy of a corporate resolution
FIDUCIARY ACCOUNTS: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
INCOMPLETE SELL REQUESTS Morgan Keegan will attempt to notify you promptly if
any information necessary to process your request is missing.
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TIMING OF REQUESTS All requests received in good order by Morgan Keegan before
the close of the NYSE (normally 4:00 p.m. eastern time) will be executed the
same day, at that day's closing price. Requests received after the close of the
NYSE will be executed the following day, at that day's closing share price.
WIRE TRANSACTIONS Proceeds sent by federal funds wire must total at least
$5,000. A fee of $10 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
SELLING RECENTLY PURCHASED SHARES If you sell shares before the payment for
those shares has been collected, you will not receive the proceeds until your
initial payment has cleared. This may take up to 15 days after your purchase was
recorded (in rare cases, longer). If you open an account with shares purchased
by wire, you cannot sell those shares until your application has been processed.
TO SELL SOME OR ALL OF YOUR SHARES [GRAPHICS OMITTED]
THROUGH A FINANCIAL PROFESSIONAL Contact your Morgan Keegan broker.
BY MAIL Send a letter of instruction, an endorsed stock power or share
certificates (if you hold certificate shares) to Morgan Keegan at the address at
the bottom of this page. Specify the Fund, the account number and the dollar
value or number of shares. Be sure to include any necessary signatures and any
additional documents, as well as signature guarantees if required (see facing
page).
BY TELEPHONE As long as the transaction does not require a written request (see
facing page), you or your financial professional can sell shares by calling
Morgan Keegan at 800-366-7426. A check will be mailed to you on the following
business day.
BY EXCHANGE Read the prospectus for the Fund into which you are exchanging. Call
Morgan Keegan at 800-366-7426 or visit our web site at www.morgankeegan.com.
BY SYSTEMATIC WITHDRAWAL See plan information on page 14.
MORGAN KEEGAN & CO., INC.
50 North Front Street
Memphis, TN 38103
Call toll-free: 1-800-366-7426
(8:30 a.m. - 4:30 p.m., Business Days, central time)
INTERNET
www.morgankeegan.com
FUNDS' MANAGEMENT AND INVESTMENT ADVISER
The Funds are managed by Morgan Asset Management, Inc. (the "Adviser"), 50 North
Front Street, Memphis, TN 38103. Pursuant to an advisory agreement (the
"Advisory Agreement"), the Adviser is responsible for the investment management
of the Funds, including responsibility for making investment decisions and
placing orders to buy, sell or hold a particular security. Morgan Keegan
Intermediate Bond Fund pays the Adviser an advisory fee equal to an annual rate
of 0.40% of its daily net assets; and Morgan Keegan High Income Fund pays the
Adviser an advisory fee equal to an annual rate of 0.75% of its average daily
net assets. Founded in 1986, the Adviser is a wholly owned subsidiary of Morgan
Keegan, Inc. The Adviser has, as of September 30, 1998, more than $1 billion in
total assets under management.
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FUNDS' DISTRIBUTOR
Morgan Keegan & Company, Inc., one of the nation's largest independent regional
financial services firms, acts as the distributor of the Funds' shares. It also
is a wholly owned subsidiary of Morgan Keegan, Inc.
ACCOUNT POLICIES
THE FUNDS' BUSINESS HOURS The Funds are open the same days as the NYSE
(generally Monday through Friday). Representatives of the Funds are available
from 8:30 a.m. to 4:30 p.m. central time on these days.
CALCULATING SHARE PRICE The offering price of a share is its net asset value
plus a sales charge, if applicable. Each Fund calculates the net asset value for
each class of shares (NAV) every business day at the close of regular trading on
the NYSE (usually 4:00 p.m. eastern time) by subtracting the liabilities
attributable to shares from the total assets attributable to such shares and
dividing the result by the number of shares outstanding. Securities owned by
each Fund for which market quotations are readily available are valued at
current market value. In the absence of readily available market quotations,
securities are valued based upon appraisals received from an independent pricing
service using a computerized matrix system or based upon appraisals derived from
information concerning the security or similar securities received from
recognized dealers in those securities. Debt securities with remaining
maturities of 60 days or less are valued at amortized cost, unless conditions
otherwise indicate. Other securities are valued at fair value as determined by,
or under the supervision of, the Board of Directors of the Funds.
TELEPHONE REQUESTS When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
financial professional can also use these privileges to request exchanges on
your account, and with your written permission, redemptions.
As long as Morgan Keegan takes certain measures to authenticate telephone
requests on your account, you may be held responsible for unauthorized requests.
Unauthorized telephone requests are rare, but if you want to protect yourself
completely, you can decline the telephone privilege on your application. The
Funds may suspend or eliminate the telephone privilege at any time.
EXCHANGE PRIVILEGES There is no fee to exchange shares between the Funds or to
exchange Class A shares of either Fund for shares of Morgan Keegan Southern
Capital Fund. Your new Fund shares will be the same class as your current
shares. Any contingent deferred sales charges will continue to be calculated
from the date of your initial investment.
Frequent exchanges can interfere with Fund management and drive up costs for all
shareholders. Because of this, the Funds currently limit each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The Funds may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $500, Morgan
Keegan may mail you a notice asking you to bring the account back up to $500 or
close it out. If you do not take action within 60 days, Morgan Keegan may sell
your shares and mail the proceeds to you at the address of record.
REINSTATING RECENTLY SOLD SHARES For 120 days after you sell Class A shares, you
have the right to "reinstate" your investment by putting some or all of the
proceeds into Class A Shares of either Fund or Morgan Keegan Southern Capital
Fund at net asset value, without payment of a sales charge.
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DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS Each Fund distributes its net income and
net capital gain to shareholders. Using projections of its future income, each
Fund declares dividends daily and pays them monthly. Net capital gains, if any,
are distributed annually.
You may have your distributions reinvested in either Fund or the Morgan Keegan
Southern Capital Fund, deposited in a bank account or mailed out by check. If
you do not give Morgan Keegan other instructions, your distributions will
automatically be reinvested in the Fund.
TAX CONSIDERATIONS
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS In general, any dividends and
short-term capital gain distributions you receive from Fund are taxable as
ordinary income. Distributions of other capital gains are generally taxable as
capital gains. This is true no matter how long you have owned your shares and
whether you reinvest your distributions or take them in cash.
Every year, the Fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Unless your investment is in a tax-deferred account, you may want to avoid:
o Investing in a large amount in the fund close to the end of its fiscal year
(if the fund makes a capital gains distribution, you will receive some of
your investment back as a taxable distribution), or
o Selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after that sale (such a
transaction is usually considered a "wash sale," and you will not be
allowed to claim a tax loss).
Your investment in the Fund could have additional tax consequences. Please
consult your tax professional for assistance.
BACKUP WITHHOLDING By law, the Fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
INVESTOR SERVICES
SYSTEMATIC INVESTMENT PROGRAM (SIP). Use SIP to set up regular automatic
investments in a Fund from your bank account. You determine the frequency and
the amount of your investments, and you can skip an investment with three days
notice. Not available with Class I shares.
SYSTEMATIC WITHDRAWAL PLAN. This plan is designated for retirees and other
investors who want regular withdrawals from a Fund account. Certain terms and
minimums apply.
DIVIDEND ALLOCATION PLAN. This plan automatically invests your distributions
from the fund into another fund of your choice, without any fees or sales
charges.
AUTOMATIC BANK CONNECTION. This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
14
<PAGE>
Morgan Keegan also offers a full range of prototype retirement plans for
individuals, sole proprietors, partnerships, corporations and employees. Call
800-366-7426 for information on retirement plans or any of the services
described above.
ADDITIONAL POLICIES
Please note that the Funds maintain additional policies and reserve certain
rights, including:
The Funds may vary their initial or additional investment levels in the case of
exchanges, reinvestments, periodic investment plans, retirement and employee
benefit plans, sponsored arrangements and other similar programs.
All orders to purchase shares are subject to acceptance by the Funds.
At any time, the Funds may change or discontinue its sales charge waivers and
any of its order acceptance practices, and may suspend the sale of its shares.
To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to Morgan Keegan promptly.
Dealers may impose a transaction fee on the purchase or sale of shares by
shareholders.
MORE ABOUT RISK
OTHER SECURITIES AND RISKS
Each of the Funds' portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the Fund descriptions. Below are brief descriptions of other
securities and practices, along with their associated risks.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES Asset-backed securities represent
interests in pools of obligations, such as credit card or automobile loan
receivables, purchase contracts and financing leases. Mortgage-Backed securities
are securities representing interests in a pool of mortgages secured by real
property. Such securities are subject to prepayment and extension risks as well
as risks applicable to other debt instruments.
RESTRICTED AND ILLIQUID SECURITIES Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper a Fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the Fund may have to estimate their value, which means that
their valuation (and, to a smaller extent, the valuation of the Fund) may have a
subjective element.
FOREIGN INVESTMENTS Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information, and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. Each Fund may use foreign
currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
15
<PAGE>
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
DERIVATIVES, a category that includes options and futures, are financial
instruments whose value derives from another security or an index. Each Fund may
use derivatives for hedging (attempting to offset a potential loss in one
position by establishing an interest in an opposite position). Each Fund may
also use derivatives for speculation (investing for potential income or capital
gain).
While hedging can guard against potential risks, it adds to a Fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative. With all derivatives, whether used for hedging or speculation,
there is also the risk that the counterparty may fail to honor its contract
terms, causing a loss for the Fund
ZERO COUPONS A zero coupon security is a debt security that is purchased and
traded at a discount to its face value because it pays no interest for some or
all of its life. Interest, however, is reported as income to a Fund, and the
Fund is required to distribute to shareholders an amount equal to the amount
reported. Those distributions may force the Fund to liquidate portfolio
securities at a disadvantageous time.
OTHER INVESTMENT PRACTICES.
Each Fund may invest some assets in options, futures and foreign currencies. It
may also sell short, lend securities or purchase on a when-issued basis. These
practices are used primarily to hedge a Fund's portfolio but may be used to
increase returns; however such practices sometimes may reduce returns or
increase volatility.
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YOUR INVESTMENT -- THE OPPORTUNITY
SERVICES YOU CAN USE
o AUTOMATED INVESTMENTS OR WITHDRAWALS. Set up regular investments or
withdrawals to suit your needs and let Morgan Keegan do the work for you.
o MOVE MONEY BY PHONE. Designate this on your application and you can move
money between your bank account and your Morgan Keegan account with a phone
call.
o DIVIDEND REINVESTMENT. Have your dividends automatically reinvested at no
sales charge.
o EXCHANGES. It's easy to move money from one Fund to the other or the Morgan
Keegan Southern Capital Fund, with no exchange fees. (Exchange privilege
may be changed or discontinued at any time.) Call 800-366-7426 or visit our
Web site at www.morgankeegan.com
EASY TO START AND EASY TO MANAGE
OPENING a regular investment or a tax-deferred retirement account at Morgan
Keegan is easy. Your financial professional can help you determine if this fund
is right for you. He or she is trained to understand investments and can help
speed the application process.
TAKE ADVANTAGE of everything your financial professional and Morgan Keegan have
to offer. The services described on this page can make investing easy for you.
And your financial professional can be a valuable source of guidance and
additional services, for planning your investments and for keeping them on track
with your goals.
17
<PAGE>
FOR ADDITIONAL INFORMATION
A Statement of Additional Information ("SAI"), dated January 1, 1999, containing
further information about the Funds has been filed with the Securities and
Exchange Commission ("SEC") and, as amended or supplemented from time to time,
is incorporated by reference in this prospectus. A copy of the SAI may be
obtained, without charge:
o from your Morgan Keegan broker;
o by calling Morgan Keegan at 800-366-7426;
o by writing to Morgan Keegan at the address noted below; or
o by accessing the web site maintained by the SEC (http://www.sec.gov).
Information about the Funds (including the SAI) also can be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. (call 800-SEC-0330 for
further information), or may be obtained upon payment of a duplicating fee by
writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Morgan Keegan & Company, Inc.
50 North Front Street
Memphis, TN 38102
Investment Company Act File No. 811-___.
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MORGAN KEEGAN SERIES FUND, INC.
ACCOUNT APPLICATION
Do not use this Application for IRA or Keogh Plans.
For special forms or if you need assistance completing this Application, Please
call your Morgan Keegan broker or Morgan Keegan at 1-800-366-7426.
Please print all items except signatures. Please use blue or black ink only.
1. FUND CHOICE
___ Morgan Keegan Intermediate Bond Fund
___ Morgan Keegan High Income Fund
If you choose to invest in both funds initially, please indicate the total
purchase $ amount and how you wish to have your initial investment split among
the funds.
$_____________Total Investment. Please split the total as follows: $
__________________ to the Morgan Keegan Intermediate Bond Fund,
$____________________ to the Morgan Keegan High Income Fund.
2. ACCOUNT REGISTRATION (PLEASE CHOOSE ONE)
/ / Individual or Joint Account*
- --------------------------------------------------------------------------------
Owner's name (first, middle initial, last)
and
- --------------------------------------------------------------------------------
Joint owner's name (first, middle initial, last)
*Joint tenancy with right of survivorship presumed, unless otherwise indicated.
OR
/ / UNIFORM GIFTS/TRANSFERS TO MINORS (UGMA/UTMA)
________________________________________________________________as custodian for
Custodian's name (first, middle initial, last - one custodian only)
________________________________________________________________________________
Minor's name (first, middle initial, last - one minor only)
____________________________________________Uniform Gifts/Transfers to Minor Act
State
- -----/------/------
Minor's date of birth
OR
/ / TRUST
19
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___________________________________________________________________As trustee(s)
of
Trustee(s) name
______________________________________________________________for the benefit of
Name of trust agreement
dated
________________________________________________________________________________
Beneficiary's name (if applicable) Date of trust agreement
For Trust Accounts, a Multi-Purpose Certification form may be required to
authorize redemptions and add privileges. Please call your Morgan Keegan broker
or Morgan Keegan Fund Services at 1-800-366-7426 to determine if a Multi-Purpose
Certification Form is required.
OR
/ / CORPORATION, PARTNERSHIP, ESTATE OR OTHER ENTITY
________________________________________________________________________________
Name of Corporation, Partnership, Estate or Other Entity
________________________________________________________________________________
Type of Entity
For Corporation, Partnership, Estate or other Entities, a Multi-Purpose
Certification Form is required to authorize redemptions and add privileges. If
you have any questions please call your Morgan Keegan broker or Morgan Keegan
Fund Services at 1-800-366-7426.
3. ADDRESS
________________________________________________________________________________
Street or P.O. Box Apt. No.
________________________________________________________________________________
City State Zip Code
( ) ( )
________________________________________________________________________________
Daytime phone number Evening phone number
If you are not a citizen or resident alien of the U.S., please specify country
of permanent residence.
________________________________________________________________________________
Country of permanent residence
4. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
----- ----- ----- ----- ----- ----- ----- ----- -----
o INDIVIDUAL ACCOUNTS Specify the Social Security number of the owner.
o *JOINT ACCOUNTS Specify the Social Security number of the first named
owner.
o UNIFORM GIFTS/TRANSFERS TO MINORS ACCOUNTS Specify minor's Social Security
Number.
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<PAGE>
o CORPORATIONS, PARTNERSHIPS, ESTATES, OTHER ENTITIES OR TRUST ACCOUNTS
Specify the Taxpayer Identification Number or Social Security number of
the legal entity or organization that will report income and/or gains
resulting from your investments in the fund.
*In ADDITION to the above, Joint accounts must ALSO specify the Social Security
number of the second named owner here.
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
----- ----- ----- ----- ----- ----- ----- ----- -----
5. INVESTMENT METHOD (MINIMUM INVESTMENT: $1,000)
/ / CHECK
Enclosed is a check payable to Morgan Keegan. (Neither initial nor subsequent
investments should be made by third party check.)
FOR $ ____ _____________________________________________________________________
Amount
6. DIVIDEND AND CAPITAL GAINS DISTRIBUTION OPTIONS
CHECK ONE ONLY. IF YOU DO NO CHECK ONE OF THE FOLLOWING OPTIONS, ALL DIVIDENDS
AND CAPITAL GAINS WILL BE REINVESTED.
___ Reinvest all dividends and capital gains.
___ Pay all dividends and capital gains by check.
___ Pay all dividends by check and reinvest all capital gains.
7. SYSTEMATIC INVESTMENT PLAN (SIP)
PERMITS YOU TO PURCHASE SHARES AUTOMATICALLY ON A REGULAR BASIS BY
ELECTRONICALLY TRANSFERRING A SPECIFIED DOLLAR AMOUNT FROM YOUR BANK ACCOUNT TO
YOUR MORGAN KEEGAN FUNDS MUTUAL FUND ACCOUNT.
___ Yes, I (we) want the Morgan Funds Systematic Investment Plan (SIP)
You must attach a voided check to this Application. Money will be transferred
only from the bank account indicated on the voided check.
Check the day of the month most convenient for you to have your bank account
debited. You can invest once or twice a month ($250 minimum investment(s).
___ 1st ___ 15th ___ both dates
Amount you would like to invest each time: $______________
8. TELEPHONE PRIVILEGES
TELEPHONE REDEMPTION permits redemption proceeds paid by check, payable to your
account's registration and mailed to your account's address.
TELEPHONE EXCHANGE permits exchanges by telephone among certain Morgan Keegan
Series Funds and the Morgan Keegan Southern Capital Fund with the same
registration.
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Please check one: I (we) do ___, do not ____ want the TELEPHONE REDEMPTION
privilege.
Pleasecheck one: I (we) do ___, do not ____ want the TELEPHONE EXCHANGE
privilege.
9. OPTIONAL INFORMATION (we are required by the National Association of
Securities Dealers, Inc. to request this information).
________________________________________________________________________________
Owner's occupation Owner's date of birth
________________________________________________________________________________
Owner's employer's name
________________________________________________________________________________
Owner's employer's address
________________________________________________________________________________
Joint owner's occupation Joint owner's date of birth
________________________________________________________________________________
Joint owner's employer's name
________________________________________________________________________________
Joint owner's employer's address
________________________________________________________________________________
Signature and Taxpayer Identification Number Certification
By signing below, you certify and agree that:
You have received a current Fund Prospectus and agree to its terms. It is your
responsibility to read the Prospectus of any Fund into which you may exchange.
You have full authority and are of legal age to buy and redeem shares
(custodians certify they are duly authorized to act on behalf of the investors).
The Fund's Transfer Agent, Morgan Keegan, Morgan Keegan Series Fund, Inc.,
Morgan Keegan Southern Capital Fund, Inc., Morgan Asset Management, any
affiliate and/or any of their directors, trustees, employees and agents will not
be liable for any claims, losses or expenses (including legal fees) for acting
on any instructions or inquiries believed to be genuine.
You understand that mutual fund shares are not deposits or obligations of, or
guaranteed by, any bank, the U.S. Government or its Agencies, and are not
Federally Insured by the Federal Deposit Insurance Corporation, The Federal
Reserve Board or any other Agency.
The net asset value of funds of this type will fluctuate from time to time.
Taxpayer Identification Number Certification
The IRS requires all taxpayers to write their Social Security number or Taxpayer
Identification Number in Section 4 of this Application, and sign this
Certification. Failure by a non-exempt taxpayer to give us the correct Social
Security number or Taxpayer Identification Number will result in the withholding
of 31% of all taxable dividends paid to your account and/or the withholding of
certain other payments to your (referred to as "backup withholding").
Understanding penalties of perjury, you certify that:
The Social Security or Taxpayer Identification on this Application is correct;
and
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<PAGE>
You are not subject to backup withholding because a) you are exempt from backup
withholding; b) you have not been notified by the Internal Revenue Service that
you are subject to backup withholding; or c) the IRS has notified you that you
are no longer subject to backup withholding.
Cross out item 2 above if it does not apply to you.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
PLEASE SIGN HERE:
X_______________________________________________________________________________
Owner or Custodian
Joint owner (if any), Corporate officer, Partner, Trustee, etc.
Date Title
Mailing Instructions Please mail the application to:
Your Morgan Keegan broker.
Or
Morgan Keegan Fund Series
50 North Front Street
Memphis, TN 38103
THIS APPLICATION MUST BE FILED WITH THE TRANSFER AGENT BEFORE ANY REDEMPTION
REQUEST CAN BE HONORED.
YOU WILL RECEIVE A CONFIRMATION SHOWING YOUR FUND ACCOUNT NUMBER, DOLLAR AMOUNT
RECEIVED, SHARES PURCHASED AND PRICE PAID PER SHARE.
Please do not complete
Account Number ______________________ Rep Number_________________
23
<PAGE>
MORGAN KEEGAN SERIES FUND, INC.
Morgan Keegan Intermediate Bond Fund
Morgan Keegan High Income Fund
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(800) 366-7426
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus
and should be read in conjunction with the Funds' Prospectus, dated December 1,
1998, which has been filed with the Securities and Exchange Commission ("SEC").
A copy of the current Prospectus is available without charge from Morgan Keegan
& Company, Inc. ("Morgan Keegan"), the distributor of the Funds by writing to
the above address or by calling the toll-free number listed above.
--------------------------------------
January 1, 1999
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION............................................................2
INVESTMENT LIMITATIONS AND POLICIES............................................2
ADDITIONAL TAX INFORMATION....................................................20
General....................................................................20
Dividends and Other Distributions..........................................20
Income from Foreign Securities.............................................21
Hedging Strategies.........................................................23
Original Issue Discount Securities.........................................24
ADDITIONAL INFORMATION ON REDEMPTIONS.........................................24
VALUATION OF SHARES...........................................................24
PURCHASE OF SHARES............................................................25
Class A Shares.............................................................25
Class C Shares.............................................................25
Class I Shares.............................................................26
PERFORMANCE INFORMATION.......................................................26
Total Return Calculations..................................................26
Other Information..........................................................27
TAX-DEFERRED RETIREMENT PLANS.................................................28
Individual Retirement Accounts - IRAs......................................28
Self-Employed Individual Retirement Plans - Keogh Plans....................29
Simplified Employee Pension Plans - SEPPS and Savings Incentive
Match Plans for Employees - SIMPLES......................................29
DIRECTORS AND OFFICERS........................................................29
INVESTMENT ADVISER............................................................30
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................31
DISTRIBUTOR...................................................................33
DESCRIPTION OF THE FUNDS' SHARES..............................................34
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO
ACCOUNTING SERVICE AGENT....................................................35
LEGAL COUNSEL.................................................................36
CERTIFIED PUBLIC ACCOUNTANTS..................................................36
Dated: January 1, 1999
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GENERAL INFORMATION
The Morgan Keegan Series Fund, Inc., is an open-end investment
management company (the "Company") organized as a Maryland corporation on
October 27, 1998. The Morgan Keegan Intermediate Bond Fund ("Intermediate Fund")
and the Morgan Keegan High Income Fund ("High Income Fund") (each a "Fund," and
collectively the "Funds") are diversified series of the Company. Each Fund has
its own investment objectives and policies as described in the Funds'
Prospectus. Each Fund offers three classes of shares: Class A shares, Class C
shares and Class I shares.
INVESTMENT LIMITATIONS AND POLICIES
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Fund's assets that may be invested
in any security or other asset, or sets forth a policy regarding quality
standards, such standard or percentage limitation will be determined immediately
after and as a result of a Fund's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
Each Fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting securities"
(as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Fund.
However, except for the fundamental investment limitations listed below, the
investment policies and limitations described in this SAI are not fundamental
and may be changed without shareholder approval.
INVESTMENT LIMITATIONS OF THE FUNDS
THE FOLLOWING ARE THE FUNDS' FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. EACH FUND MAY NOT:
(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result, (a)
more than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer;
(2) issue senior securities, except as permitted under the 1940 Act;
(3) borrow money, except that the Fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33 1/3% limitation;
-2-
<PAGE>
(4) underwrite securities issued by others, except to the extent that
the Fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
would be invested in the securities of companies whose principal business
activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities); or
(8) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE
CHANGED BY THE BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL. EACH FUND:
(1) may not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short,
and provided that transactions in futures contracts and options are not deemed
to constitute selling securities short;
(2) may not purchase securities on margin, except that a Fund may
obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute purchasing
securities on margin;
(3) may borrow money only (a) from a bank or from a registered
investment company or portfolio for which Morgan Asset Management, Inc. (the
"Adviser") or an affiliate serves as investment adviser or (b) by engaging in
reverse repurchase agreements with any party (reverse repurchase agreements are
treated as borrowings for purposes of fundamental investment limitation (3)).
Each Fund will not borrow from other Funds advised by the Adviser or its
affiliates if total outstanding borrowings immediately after such borrowing
would exceed 15 % of the Fund's total assets; and
(4) may not purchase any security if, as a result, more than 15% of its
net assets would be invested in securities that are deemed to be illiquid
because they are subject to legal or contractual restrictions on resale or
because they cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
With respect to limitation (4), if through a change in values, net
assets, or other circumstances, a Fund were in a position where more than 15% of
its net assets was invested in illiquid securities, it would consider
appropriate steps to protect liquidity.
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The following pages contain more detailed information about types of
instruments in which each Fund may invest, strategies the Adviser may employ in
pursuit of each Fund's investment objective, and a summary of related risks. The
Adviser may not buy all of these instruments or use all of these techniques
unless it believes that doing so will help the Funds achieve their goals.
ASSET-BACKED SECURITIES represent interests in pools of mortgages,
loans, receivables or other assets. Payment of interest and repayment of
principal may be largely dependent upon the cash flows generated by the assets
backing the securities and, in certain cases, supported by letters of credit,
surety bonds, or other credit enhancements. Asset-backed security values may
also be affected by the creditworthiness of the servicing agent for the pool,
the originator of the loans or receivables, or the entities providing the credit
enhancement. In addition, these securities may be subject to prepayment risk.
MORTGAGE-BACKED SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage-backed security is an obligation of the issuer backed by a mortgage or
pool of mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations (or
"CMOs"), make payments of both principal and interest at a range of specified
intervals; others make semiannual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond). Mortgage-backed securities
are based on different types of mortgages, including those on commercial real
estate or residential properties. Stripped mortgage-backed securities are
created when the interest and principal components of a mortgage-backed security
are separated and sold as individual securities. In the case of a stripped
mortgage-backed security, the holder of the "principal-only" security receives
the principal payments made by the underlying mortgage, while the holder of the
"interest-only" security receives interest payments from the same underlying
mortgage.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers and changes in interest rates. In addition,
regulatory or tax changes may adversely affect the mortgage-backed securities
market as a whole. Non-government mortgage-backed securities may offer higher
yields than those issued by government entities, but also may be subject to
greater price changes than government issues. Mortgage-backed securities are
subject to prepayment risk, which is the risk that early principal payments made
on the underlying mortgages, usually in response to a reduction in interest
rates, will result in the return of principal to the investor, causing it to be
invested subsequently at a lower current interest rate. Alternatively, in a
rising interest rate environment, mortgage-backed security values may be
adversely affected when prepayments on underlying mortgages do not occur as
anticipated, resulting in the extension of the security's effective maturity and
the related increase in interest rate sensitivity of a longer-term instrument.
The prices of stripped mortgage-backed securities tend to be more volatile in
response to changes in interest rates than those of non-stripped mortgage-backed
securities.
CLOSED-END INVESTMENT COMPANIES are investment companies that issue a
fixed number of shares, which trade on a stock exchange or over-the-counter.
Closed-end investment companies are professionally managed and may invest in any
type of security. Shares of closed-end investment companies may trade at a
premium or a discount to their net asset value.
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CONVERTIBLE SECURITIES are bonds, debentures, notes, preferred stocks
or other securities that may be converted or exchanged (by the holder or by the
issuer) into shares of the underlying common stock (or cash or securities of
equivalent value) at a stated exchange ratio. A convertible security may also be
called for redemption or conversion by the issuer after a particular date and
under certain circumstances (including a specified price) established upon
issue. If a convertible security held by a Fund is called for redemption or
conversion, the Fund could be required to tender it for redemption, convert it
into the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields higher than
the underlying common stocks, but generally lower than compatible nonconvertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their "conversion value," which is the current market value of
the stock to be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time depending on
changes in the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because of the interest or dividend payments
and the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow, which means
that the value of convertible securities will generally not increase to the same
extent as the value of the underlying common stocks. Because convertible
securities may also be interest rate sensitive, their value may increase as
interest rates fall and decrease as interest rates rise. Convertible securities
are also subject to credit risk, and are often lower-quality securities.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of principal,
or may be in default. These securities are often considered to be speculative
and involve greater risk of loss or price changes due to changes in the issuer's
capacity to pay. The market prices of lower-quality debt securities may
fluctuate more than those of higher-quality debt securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates.
While the market for high-yield corporate debt securities has been in
existence for many years and has weathered previous economic downturns, the
1980s brought a dramatic increase in the use of such securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not
provide an accurate indication of the future performance of the high-yield bond
market, especially during periods of economic recession.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower-quality debt securities will be valued in accordance with procedures
established by the Board of Directors, including the use of outside pricing
services. Judgment plays a greater role in valuing high-yield debt securities
than is the case for securities for which more external sources for quotations
and last-sale information are available. Adverse publicity and changing investor
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perceptions may affect the liquidity of lower-quality debt securities and the
ability of outside pricing services to value lower quality debt securities.
Since the risk of default is higher for lower-quality debt securities,
the Adviser's research and credit analysis are an especially important part of
managing securities of this type. The Adviser will attempt to identify those
issuers of high-yielding securities whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve in the future.
The Adviser's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities, including a variety of securities that are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
secured thereby. These securities include securities issued and guaranteed by
the full faith and credit of the U.S. Government, such as Treasury bills,
Treasury notes, and Treasury bonds; obligations supported by the right of the
issuer to borrow from the U.S. Treasury, such as those of the Federal Home Loan
Banks; and obligations supported only by the credit of the issuer, such as those
of the Federal Intermediate Credit Banks. Stripped Government securities are
created by separating the income and principal components of a U.S. Government
security and selling them separately. STRIPS (Separate Trading of Registered
Interest and Principal of Securities) are created when the coupon payments and
the principal payment are stripped from an outstanding U.S. Treasury security by
a Federal Reserve Bank.
Privately stripped government securities are created when a dealer
deposits a U.S. Treasury security or other U.S. Government security with a
custodian for safekeeping. The custodian issues separate receipts for the coupon
payments and the principal payment, which the dealer then sells.
MUNICIPAL OBLIGATIONS. These obligations, which are issued by state and
local governments to acquire land, equipment and facilities, typically are not
fully backed by the municipality's credit, and, if funds are not appropriated
for the following year's lease payments, a lease may terminate, with the
possibility of default on the lease obligation and significant loss to a Fund.
The two principal classifications of municipal obligations are "general
obligation" and "revenue" bonds. "General obligation" bonds are secured by the
issuer's pledge of its faith, credit and taxing power. "Revenue" bonds are
payable only from the revenues derived from a particular facility or class of
facilities or facility being financed. Industrial development bonds ("IDBs") and
private activity bonds ("PABs") are usually revenue bonds and are not payable
from the unrestricted revenues of the issuer. The credit quality of the IDBs and
PABs is usually directly related to the credit standing of the corporate user of
the facilities. In addition, certain types of IDBs and PABs are issued by or on
behalf of public authorities to finance various privately operated facilities,
including certain pollution control facilities, convention or trade show
facilities, and airport, mass transit, port or parking facilities.
FOREIGN SECURITIES (HIGH INCOME FUND). Foreign securities, foreign
currencies, and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks inherent in
U.S. investments.
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Foreign investments involve risks relating to local political,
economic, regulatory, or social instability, military action or unrest, or
adverse diplomatic developments, and may be affected by actions of foreign
governments adverse to the interests of U.S. investors. Such actions may include
expropriation or nationalization of assets, confiscatory taxation, restrictions
on U.S. investment or on the ability to repatriate assets or convert currency
into U.S. dollars, or other government intervention. There is no assurance that
the Adviser will be able to anticipate these potential events or counter their
effects. In addition, the value of securities denominated in foreign currencies
and of dividends and interest paid with respect to such securities will
fluctuate based on the relative strength of the U.S. dollar.
It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter (OTC) markets
located outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices (including those involving securities
settlement where Fund assets may be released prior to receipt of payment) are
often less developed than those in U.S. markets, and may result in increased
risk or substantial delays in the event of a failed trade or the insolvency of,
or breach of duty by, a foreign broker-dealer, securities depository or foreign
subcustodian. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than with U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers are generally not bound by uniform accounting,
auditing, financial reporting requirements and standards of practice comparable
to those applicable to U.S. issuers. Adequate public information on foreign
issuers may not be available, and it may be difficult to secure dividends and
information regarding corporate actions on a timely basis. In general, there is
less overall governmental supervision and regulation of securities exchanges,
brokers, and listed companies than in the United States. OTC markets tend to be
less regulated than stock exchange markets and, in certain countries, may be
totally unregulated. Regulatory enforcement may be influenced by economic or
political concerns, and investors may have difficulty enforcing their legal
rights in foreign countries.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The risks of foreign investing may be magnified for investments in
emerging markets. Security prices in emerging markets can be significantly more
volatile than those in more developed markets, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may have relatively unstable
governments, may present the risks of nationalization of businesses,
restrictions on foreign ownership and prohibitions on the repatriation of
assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be based on only
a few industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
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be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
FOREIGN CURRENCY TRANSACTIONS (HIGH INCOME FUND). The Fund may conduct
foreign currency transactions on a spot (i.e., cash) or forward basis (i.e., by
entering into forward contracts to purchase or sell foreign currencies).
Although foreign exchange dealers generally do not charge a fee for such
conversions, they do realize a profit based on the difference between the prices
at which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency at one rate, while offering a lesser rate of
exchange should the counterparty desire to resell that currency to the dealer.
Forward contracts are customized transactions that require a specific amount of
a currency to be delivered at a specific exchange rate on a specific date or
range of dates in the future. Forward contracts are generally traded in an
interbank market directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the contract
to maturity and complete the contemplated currency exchange. The Fund may use
currency forward contracts for any purpose consistent with its investment
objective.
The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by the Fund. The Fund
may also use swap agreements, indexed securities, and options and futures
contracts relating to foreign currencies for the same purposes.
A "settlement hedge" or "transaction hedge" is designed to protect the
Fund against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or received.
Entering into a forward contract for the purchase or sale of the amount of
foreign currency involved in an underlying security transaction for a fixed
amount of U.S. dollars "locks in" the U.S. dollar price of the security. Forward
contracts to purchase or sell a foreign currency may also be used by the Fund in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
Adviser.
The Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if the Fund owned securities denominated in pounds sterling, it could enter into
a forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. The Fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency exposure
as effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
The Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
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foreign currency. This type of strategy, sometimes known as a "cross-hedge,"
will tend to reduce or eliminate exposure to the currency that is sold, and
increase exposure to the currency that is purchased, much as if the Fund had
sold a security denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from a
decline in the hedged currency, but will cause a Fund to assume the risk of
fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the Fund will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. The Fund will not segregate assets to cover forward
contracts entered into for hedging purposes, including settlement hedges,
position hedges, and proxy hedges.
Successful use of currency management strategies will depend on the
Adviser's skill in analyzing currency values. Currency management strategies may
substantially change the Fund's investment exposure to changes in currency
exchange rates and could result in losses to the Fund if currencies do not
perform as the Adviser anticipates. For example, if a currency's value rose at a
time when the Adviser had hedged the Fund by selling that currency in exchange
for dollars, the Fund would not participate in the currency's appreciation. If
the Adviser hedges currency exposure through proxy hedges, the Fund could
realize currency losses from both the hedge and the security position if the two
currencies do not move in tandem. Similarly, if the Adviser increases the Fund's
exposure to a foreign currency and that currency's value declines, the Fund will
realize a loss. There is no assurance that the Adviser's use of currency
management strategies will be advantageous to the Fund or that it will hedge at
appropriate times.
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, currencies, precious metals or
other commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the characteristics of
direct ownership.
Gold-indexed securities typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to rise
and fall together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. Indexed securities may be more volatile than the underlying
instruments. Indexed securities are also subject to the credit risks associated
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with the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government agencies.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities provide for
a specified periodic adjustment in the interest rate, while floating rate
securities have interest rates that change whenever there is a change in a
designated benchmark rate. Some variable or floating rate securities are
structured with put features that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain financial
intermediaries.
ZERO COUPON BONDS do not make interest payments; instead, they are sold
at a discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can be
more volatile than other types of fixed-income securities when interest rates
change. In calculating each Fund's dividend, a portion of the difference between
a zero coupon bond's purchase price and its face value is considered income.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Asset Coverage for Futures and Options Positions, Purchasing Put and
Call Options, Writing Put and Call Options, OTC Options, Futures Contracts,
Futures Margin Payments, Options and Futures Relating to Foreign Currencies, and
Swap Agreements.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. Each Fund will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds and, if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of each Fund's assets could impede portfolio management or each
Fund's ability to meet redemption requests or other current obligations.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, the
purchaser pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, indices of securities prices, and futures contracts. The
purchaser may terminate its position in a put option by allowing it to expire or
by exercising the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser completes the
sale of the underlying instrument at the strike price. A purchaser may also
terminate a put option position by closing it out in the secondary market at its
current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium, plus
related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
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option if security prices fall. At the same time, the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
WRITING PUT AND CALL OPTIONS. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the writer assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the option
chooses to exercise it. The writer may seek to terminate a position in a put
option before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option, however,
the writer must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position. When writing an option on a futures contract, each
Fund will be required to make margin payments to an FCM as described above for
futures contracts.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
Combined Positions involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, purchasing a put option and writing a call option on the
same underlying instrument would construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not traded on
exchanges) generally are established through negotiation with the other party to
the option contract. While this type of arrangement allows the purchaser or
writer greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which are
guaranteed by the clearing organization of the exchanges where they are traded.
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FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future date. In
selling a futures contract, the seller agrees to sell a specified underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the buyer and seller enter into the contract. Some
currently available futures contracts are based on specific securities, such as
U.S. Treasury bonds or notes, and some are based on indices of securities
prices, such as the Standard & Poor's 500 Index ("S&P 500"). Futures can be held
until their delivery dates, or can be closed out before then if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase a Fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a Fund sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
futures commission merchant (FCM), when the contract is entered into. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of a Fund's investment limitations.
In the event of the bankruptcy of an FCM that holds margin on behalf of a Fund,
the Fund may be entitled to return of margin owed to it only in proportion to
the amount received by the FCM's other customers, potentially resulting in
losses to the Fund.
Each Fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity Futures
Trading Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The Funds intend to comply with Rule 4.5 under
the Commodity Exchange Act, which limits the extent to which the Funds can
commit assets to initial margin deposits and option premiums.
In addition, each Fund will not (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of the Fund's
total assets would be hedged with futures and options under normal conditions;
(b) purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets; or (c) purchase call
options if, as a result, the current value of option premiums for call options
purchased by the Fund would exceed 5% of the Fund's total assets. These
limitations do not apply to options attached to or acquired or traded together
with their underlying securities, and do not apply to securities that
incorporate features similar to options.
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The limitations below on the Funds' investments in futures contracts
and options, and the Funds' policies regarding futures contracts and options
discussed elsewhere in this SAI, may be changed as regulatory agencies permit.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match each Fund's current or anticipated investments exactly. Each Fund
may invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which the
Fund typically invests, which involves a risk that the options or futures
position will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. Each Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in each Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures contracts, and
may halt trading if a contract's price moves upward or downward more than the
limit in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible to enter into new
positions or close out existing positions. The lack of liquidity in the
secondary market for a contract due to price fluctuation limits could prevent
prompt liquidation of unfavorable positions, and potentially could require a
Fund to continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, each Fund's access to other assets held to
cover its options or futures positions could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES (HIGH INCOME FUND).
Currency futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.
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The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above. The
Fund may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
Currency options may also be purchased or written in conjunction with each other
or with currency futures or forward contracts. Currency futures and options
values can be expected to correlate with exchange rates, but may not reflect
other factors that affect the value of the Fund's investments. A currency hedge,
for example, should protect a Yen-denominated security from a decline in the
Yen, but will not protect the Fund against a price decline resulting from
deterioration in the issuer's creditworthiness. Because the value of the Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the Fund's investments exactly over time.
SWAP AGREEMENTS can be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or decrease
a Fund's exposure to long or short-term interest rates (in the United States or
abroad), foreign currency values, mortgage securities, corporate borrowing
rates, or other factors such as security prices or inflation rates. Swap
agreements can take many different forms and are known by a variety of names.
In a typical cap or floor agreement one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if the High Income Fund agreed
to exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and floors
have an effect similar to buying or writing options. Depending on how they are
used, swap agreements may increase or decrease the overall volatility of a
Fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a Fund. If a swap agreement
calls for payments by a Fund, the Fund must be prepared to make such payments
when due. In addition, if the counterparty's creditworthiness declined, the
value of a swap agreement would be likely to decline, potentially resulting in
losses. Each Fund may be able to eliminate its exposure under a swap agreement
either by assignment or other disposition, or by entering into an offsetting
swap agreement with the same party or a similarly creditworthy party.
Each Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If a
Fund enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of the Fund's accrued
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obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If a Fund enters into a swap agreement
on other than a net basis, it will segregate assets with a value equal to the
full amount of the Fund's accrued obligations under the agreement.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of
in the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Directors, the Adviser determines
the liquidity of each Fund's investments and, through reports from the Adviser,
the Board of Directors monitors investments in illiquid instruments. In
determining the liquidity of each Fund's investments, the Adviser may consider
various factors, including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment).
Investments currently considered by the Adviser to be illiquid include
repurchase agreements not entitling the holder to repayment of principal and
payment of interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, the Adviser may
determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments, emerging
market securities, and swap agreements to be illiquid. However, with respect to
over-the-counter options the Funds write, all or a portion of the value of the
underlying instrument may be illiquid depending on the assets held to cover the
option and the nature and terms of any agreement the Funds may have to close out
the option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by a committee
appointed by the Board of Directors.
Restricted Securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
each Fund may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time it may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to seek registration of the security.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
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qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at reasonable prices.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower to
lenders or lending syndicates (loans and loan participations), to suppliers of
goods or services (trade claims or other receivables), or to other parties.
Direct debt instruments are subject to the Funds' policies regarding the quality
of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of interest and
repayment of principal. Direct debt instruments may not be rated by any
nationally recognized statistical rating service. If scheduled interest or
principal payments are not made, the value of the instrument may be adversely
affected. Loans that are fully secured provide more protections than an
unsecured loan in the event of failure to make scheduled interest or principal
payments. However, there is no assurance that the liquidation of collateral from
a secured loan would satisfy the borrower's obligation, or that the collateral
could be liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks and may be highly speculative. Borrowers
that are in bankruptcy or restructuring may never pay off their indebtedness, or
may pay only a small fraction of the amount owed. Direct indebtedness of
developing countries also involves a risk that the governmental entities
responsible for the repayment of the debt may be unable, or unwilling, to pay
interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks. For
example, if a loan is foreclosed, the purchaser could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, a purchaser could be held liable as a
co-lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to the purchaser in the event
of fraud or misrepresentation. In the absence of definitive regulatory guidance,
the Adviser uses its research to attempt to avoid situations where fraud or
misrepresentation could adversely affect the Funds.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the purchaser has direct recourse against the borrower, the
purchaser may have to rely on the agent to apply appropriate credit remedies
against a borrower. If assets held by the agent for the benefit of a purchaser
were determined to be subject to the claims of the agent's general creditors,
the purchaser might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or interest.
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Direct indebtedness may include letters of credit, revolving credit
facilities, or other standby financing commitments that obligate purchasers to
make additional cash payments on demand. These commitments may have the effect
of requiring a purchaser to increase its investment in a borrower at a time when
it would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid. Each Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments.
Each Fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see the Funds' investment
limitations). For purposes of these limitations, a Fund generally will treat the
borrower as the "issuer" of indebtedness held by the Fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between each Fund and the borrower, if the participation does not
shift to the Funds the direct debtor-creditor relationship with the borrower,
SEC interpretations require the Funds, in appropriate circumstances, to treat
both the lending bank or other lending institution and the borrower as "issuers"
for these purposes. Treating a financial intermediary as an issuer of
indebtedness may restrict the Funds' ability to invest in indebtedness related
to a single financial intermediary, or a group of intermediaries engaged in the
same industry, even if the underlying borrowers represent many different
companies and industries.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund purchases a
security and simultaneously commits to sell that security back to the original
seller at an agreed-upon price. The resale price reflects the purchase price
plus an agreed-upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. As protection against the risk that the
original seller will not fulfill its obligation, the securities are held in a
separate account at a bank, marked-to-market daily, and maintained at a value at
least equal to the sale price plus the accrued incremental amount. While it does
not presently appear possible to eliminate all risks from these transactions
(particularly the possibility that the value of the underlying security will be
less than the resale price, as well as delays and costs to a Fund in connection
with bankruptcy proceedings), each Fund will engage in repurchase agreement
transactions only with parties whose creditworthiness has been reviewed and
found satisfactory by the Adviser.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Fund sells a security to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase that security at an agreed-upon price
and time. While a reverse repurchase agreement is outstanding, a Fund will
maintain appropriate liquid assets in a segregated custodial account to cover
their obligation under the agreement. The Funds will enter into reverse
repurchase agreements only with parties whose creditworthiness has been reviewed
and found satisfactory by the Adviser. Such transactions may increase
fluctuations in the market value of Fund assets and may be viewed as a form of
leverage.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to purchase or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. Typically, no interest accrues to the purchaser until the
security is delivered. The Funds may receive fees or price concessions for
entering into delayed-delivery transactions.
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When purchasing securities on a delayed-delivery basis, the purchaser
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations and the risk that the security will not be issued as
anticipated. Because payment for the securities is not required until the
delivery date, these risks are in addition to the risks associated with each
Fund's investments. If each Fund remains substantially fully invested at a time
when delayed-delivery purchases are outstanding, the delayed-delivery purchases
may result in a form of leverage. When delayed-delivery purchases are
outstanding, each Fund will set aside appropriate liquid assets in a segregated
custodial account to cover the purchase obligations. When a Fund has sold a
security on a delayed-delivery basis, the Fund does not participate in further
gains or losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities, the
Fund could miss a favorable price or yield opportunity or suffer a loss.
Each Fund may re-negotiate a delayed delivery transaction and may sell
the underlying securities before delivery, which may result in capital gains or
losses for the Fund.
SECURITIES LENDING. Each Fund may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows a Fund to
retain ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties deemed by the Adviser to be
of good standing. Furthermore, they will only be made if, in the Adviser's
judgment, the consideration to be earned from such loans would justify the risk.
The Adviser understands that it is the current view of the SEC Staff
that a Fund may engage in loan transactions only under the following conditions:
(1) the Fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Fund must be able to terminate the loan
at any time; (4) the Fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends, interest,
or other distributions on the securities loaned and to any increase in market
value; (5) the Fund may pay only reasonable custodian fees in connection with
the loan; and (6) the Board of Directors must be able to vote proxies on the
securities loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as well as
the security loaned, to market forces (i.e., capital appreciation or
depreciation).
SHORT SALES. A Fund may enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if the Adviser
anticipates a decline in the price of the stock underlying a convertible
security a Fund holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value of the
convertible security. Each Fund currently intends to hedge no more than 15% of
its total assets with short sales on equity securities underlying its
convertible security holdings under normal circumstances.
When a Fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or securities
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convertible or exchangeable into such securities) and will be required to hold
them aside while the short sale is outstanding. A Fund will incur transaction
costs, including interest expenses, in connection with opening, maintaining, and
closing short sales.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. The Adviser may rely on its
evaluation of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or demand
feature, insurance or other source of credit or liquidity. In evaluating the
credit of a foreign bank or other foreign entities, the Adviser will consider
whether adequate public information about the entity is available and whether
the entity may be subject to unfavorable political or economic developments,
currency controls, or other government restrictions that might affect its
ability to honor its commitment.
LEVERAGE. The use of leverage by each Fund creates an opportunity for
increased net income and capital growth for the Fund, but, at the same time,
creates special risks, and there can be no assurance that a leveraging strategy
will be successful during any period in which it is employed. Each Fund intends
to utilize leverage to provide the shareholders with a potentially higher
return. Leverage creates risks for a Fund including the likelihood of greater
volatility of net asset value and market price of the shares and the risk that
fluctuations in interest rates on borrowings and short-term debt or in the
dividend rates on any preferred shares may affect the return to a Fund. To the
extent the income or capital growth derived from securities purchased with funds
received from leverage exceeds the cost of leverage, a Fund's return will be
greater than if leverage had not been used. Conversely, if the income or capital
growth from the securities purchased with such funds is not sufficient to cover
the cost of leverage, the return to a Fund will be less than if leverage had not
been used, and therefore the amount available for distribution to shareholders
as dividends and other distributions will be reduced. In the latter case, the
Adviser in its best judgment nevertheless may determine to maintain a Fund's
leveraged position if it deems such action to be appropriate under the
circumstances. Certain types of borrowings by a Fund may result in the Fund's
being subject to covenants in credit agreements, including those relating to
asset coverage and portfolio composition requirements. A Fund may be subject to
certain restrictions on investments imposed by guidelines of one or more rating
agencies, which may issue ratings for the corporate debt securities or preferred
shares purchased by a Fund. These guidelines may impose asset coverage or
portfolio composition requirements that are more stringent than those imposed by
the 1940 Act. It is not anticipated that these covenants or guidelines will
impede the Fund in managing the Fund's portfolio in accordance with the Fund's
investment objectives and policies.
YEAR 2000 RISKS. Like other financial and business organizations, the
Funds could be adversely affected if computer systems on which they rely do not
properly process date-related information and data involving the years 2000 and
after. The Adviser is taking steps that it believes are reasonable to address
this problem in its own computer systems and to obtain assurances that
comparable steps are being taken by each Fund's other major service providers.
The Adviser also attempts to evaluate the potential impact of this problem on
the issuers of investment securities that each Fund purchases. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds.
Each Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
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ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax
considerations affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisers for more detailed information and for information
regarding any state, local or foreign taxes that may be applicable to them.
GENERAL
The Funds intend to qualify for treatment as regulated investment
companies ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as
amended ("Code"). In order to qualify for that treatment, each Fund must
distribute annually to its shareholders at least 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and must meet several additional
requirements. Among these requirements are the following: (1) at least 90% of
each Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities, or other income (including gains from options)
derived with respect to its business of investing in securities; (2) at the
close of each quarter of each Fund's taxable year, at least 50% of the value of
their total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, with respect to any one issuer, to an amount that does not
exceed 5% of the value of each Fund's assets and that does not represent more
than 10% of the issuer's outstanding voting securities; and (3) at the close of
each quarter of each Fund's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent that it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A portion of the dividends from each Fund's investment company taxable
income (whether paid in cash or reinvested in additional Fund shares) is
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by each Fund
from domestic corporations. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the alternative minimum tax. Distributions by each Fund of
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) do not qualify for the dividends-received deduction.
Dividends or other distributions declared by the Funds in December of
any year and payable to shareholders of record on a date in that month will be
deemed to have been paid by the Funds and received by the shareholders on
December 31 if they are paid by the Funds during the following January.
Accordingly, such distributions will be taxed to the shareholders for the year
in which that December 31 falls.
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A dividend or capital gain distribution paid shortly after shares have
been purchased, although in effect a return of investment, is subject to federal
taxation. Accordingly, an investor should not purchase Fund shares immediately
prior to a dividend or capital gain distribution record date solely for the
purpose of receiving the dividend or distribution.
REDEMPTIONS
A redemption of each Fund's shares will result in a taxable gain or
loss to the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed shares
(which normally includes any sales load paid on Class A shares). An exchange of
shares of any Fund for shares of another Fund generally will have similar tax
consequences.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for a dividend or other distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
INCOME FROM FOREIGN SECURITIES
Dividends and interest received by the High Income Fund may be subject
to income, withholding or other taxes imposed by foreign countries and U.S.
possessions ("foreign taxes") that would reduce the yield on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors. If more
than 50% of the value of the High Income Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, it will be eligible
to, and may, file an election with the Internal Revenue Service that would
enable its shareholders, in effect, to receive the benefit of the foreign tax
credit with respect to any foreign taxes paid by it. Pursuant to any such
election, the High Income Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by the shareholder, the shareholder's proportionate
share of those taxes, (2) treat the shareholder's share of those taxes and of
any dividend paid by the High Income Fund that represents income from foreign or
U.S. possessions sources as the shareholder's own income from those sources, and
(3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
The High Income Fund will report to its shareholders shortly after each taxable
year their respective shares of the Fund's income from sources within foreign
countries and U.S. possessions and foreign taxes paid by it if it makes this
election. Pursuant to the Code, individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and have no foreign source non-passive income will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that otherwise
is required.
The High Income Fund may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (I.E., a foreign corporation in which, on any
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day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which the High Income Fund is a U.S. shareholder --
that, in general, meets either of the following tests: (1) at least 75% of its
gross income is passive or (2) an average of at least 50% of its assets produce,
or are held for the production of, passive income. Under certain circumstances,
the High Income Fund will be subject to Federal income tax on a portion of any
"excess distribution" received on the stock of a PFIC or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the High Income Fund distributes the PFIC income as a taxable dividend
to its shareholders. The balance of the PFIC income will be included in the High
Income Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
If the High Income Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain
(the excess of net long-term capital gain over net short-term capital loss) --
which most likely would have to be distributed by the High Income Fund to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax --
even if those earnings and gain were not distributed to the High Income Fund by
the QEF. In most instances it will be very difficult, if not impossible, to make
this election because of certain requirements thereof.
The High Income Fund may elect to "mark-to-market" its stock in any
PFIC. "Marking-to-market," in this context, means including in ordinary income
each taxable year the excess, if any, of the fair market value of a PFIC's stock
over a Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the High Income Fund also would be allowed to deduct (as an ordinary,
not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over
the fair market value thereof as of the taxable year-end, but only to the extent
of any net mark-to-market gains with respect to that stock included by the Fund
for prior taxable years. The High Income Fund's adjusted basis in each PFIC's
stock with respect to which it makes this election will be adjusted to reflect
the amounts of income included and deductions taken under the election.
Regulations proposed in 1992 would provide a similar election with respect to
the stock of certain PFICs.
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
dates of acquisition and disposition of the securities and (3) that are
attributable to fluctuations in exchange rates that occur between the time the
High Income Fund accrues dividends, interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
High Income Fund actually collects the receivables or pays the liabilities,
generally will be treated as ordinary income or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of the High Income Fund's investment company taxable income
to be distributed to its shareholders.
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HEDGING STRATEGIES
The use of hedging strategies, such as selling (writing) and purchasing
options and futures contracts and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the amount,
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, futures and forward currency contracts derived by a Fund with respect
to its business of investing in securities or foreign currencies, will qualify
as permissible income under the Income Requirement.
Certain options and futures in which a Fund may invest will be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which it has made an election not to have the
following rules apply, must be "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses will be treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. The 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital gain of 20% (10% for taxpayers in the 15% marginal tax bracket)
on capital assets held for more than 18 months. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) also may affect the taxation
of options and futures contracts in which a Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions are not entirely clear.
If a Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
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<PAGE>
ORIGINAL ISSUE DISCOUNT SECURITIES
A Fund may acquire zero coupon or other securities issued with original
issue discount ("OID"). As a holder of those securities, the Fund must include
in its income the OID that accrues on them during the taxable year, even if it
receives no corresponding payment on them during the year. Because the Fund
annually must distribute substantially all of its investment company taxable
income, including any OID, to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax, the Fund may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from the Fund's cash
assets or from the proceeds of sales of securities, if necessary. A Fund may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gain.
ADDITIONAL INFORMATION ON REDEMPTIONS
Suspension of the right of redemption, or postponement of the date of
payment, may be made (1) for any periods when the New York Stock Exchange (the
"NYSE") is closed (other than customary weekend and holiday closings); (2) when
trading is restricted in markets normally utilized by each Fund or when an
emergency, as defined by the rules and regulations of the SEC exists, making
disposal of the Funds' investments or determination of its net asset value not
reasonably practicable; or (3) for such other periods as the SEC by order may
permit for protection of the Funds' shareholders. In the case of any such
suspension, you may either withdraw your request for redemption or receive
payment based upon the net asset value next determined after the suspension is
lifted.
Each Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption by making payment in
whole or in part by securities valued in the same way as they would be valued
for purposes of computing the Funds' per share net asset value. However, each
Fund has committed itself to pay in cash all requests for redemption by any
shareholder of record, limited in amount with respect to each shareholder during
any ninety-day period to the lesser of (1) $250,000, or (2) 1% of the net asset
value of the Fund at the beginning of such period. If payment is made in
securities, a shareholder will incur brokerage or transactional expenses in
converting those securities into cash, will be subject to fluctuation in the
market price of those securities until they are sold, and may realize taxable
gain or loss (depending on the value of the securities received and the
shareholder's adjusted basis of the redeemed shares).
VALUATION OF SHARES
Net asset value of each Fund's share will be determined daily as of the
close of the NYSE, on every day that the NYSE is open for business, by dividing
the value of the total assets of the Fund, less liabilities, by the total number
of shares outstanding at such time. Pricing will not be done on days when the
NYSE is closed. Currently, the NYSE is closed on weekends and on certain days
relating to the following holidays: New Year's Day, Martin Luther King's Day,
Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving
and Christmas. Securities owned by each Fund for which market quotations are
readily available will be valued at current market value, or, in their absence,
at fair value as determined under procedures adopted by the Funds' Board of
Directors. Securities traded on an exchange or NASD National Market System
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<PAGE>
securities (including debt securities) will normally be valued at their last
sale price. Other over-the-counter securities (including debt securities), and
securities traded on exchanges for which there is no sale on a particular day
(including debt securities), will be valued by a method which the Funds' Board
of Directors believes accurately reflects fair value.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in their
local currency. The Adviser gathers all exchange rates daily at the close of the
NYSE using the last quoted price on the local currency and then translates the
value of foreign currencies from their local currencies into U.S. dollars. Any
changes in the value of forward contracts due to exchange rate fluctuations and
days to maturity are included in the calculation of the net asset value. If an
extraordinary event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange on which that security
is traded, then that security will be valued as determined in good faith by a
committee appointed by the Board of Directors.
Futures contracts and options are valued on the basis of market
quotations, if available. Premiums received on the sale of call options are
included in the Funds' net asset value, and the current market value of options
sold by the Funds will be subtracted from net assets. Securities of other
open-end investment companies are valued at their respective net asset values.
PURCHASE OF SHARES
CLASS A SHARES
Class A shares are offered on a continuous basis at a price equal to
their net asset value plus the applicable "initial sales charge" described in
the Prospectus. Proceeds from the initial sales charge are paid to Morgan Keegan
and are used by Morgan Keegan to defray expenses related to providing
distribution-related services to the Funds in connection with sales of Class A
shares, such as the payment of compensation to Morgan Keegan brokers for selling
Class A shares. No initial sales charge is imposed on Class A shares issued as a
result of the automatic reinvestment of dividends or capital gains distribution.
CLASS C SHARES
Class C shares are offered on a continuous basis at a price equal to
their net asset value. Class C shares that are redeemed within one year of
purchase are subject to a contingent deferred sales charge ("CDSC") charged as a
percentage of the dollar amount subject thereto. [In determining whether a Class
C CDSC is applicable to a redemption, the calculation will be determined in the
manner that results in the lowest possible rate being charged. The charge will
be assessed on an amount equal to the lesser of the proceeds of redemption or
the cost of the shares being redeemed.] Accordingly, no Class C CDSC will be
imposed on increases in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares derived from reinvestment
of dividends or capital gains distributions. The charge will not be applied to
dollar amounts representing an increase in the net asset value since the time of
purchase. Proceeds from the CDSC are paid to Morgan Keegan to defray the
expenses Morgan Keegan incurs in providing distribution-related services to the
Class C shares.
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<PAGE>
CLASS I SHARES
Class I shares are offered on a continuous basis at a price equal to
their net asset value, without an initial sales charge or CDSC.
PERFORMANCE INFORMATION
The Funds' performance information and quoted rankings used in
advertising and other promotional materials ("Performance Advertisements") are
indicative only of past performance and are not intended to and do not represent
future investment results. The Funds' share price will fluctuate and shares,
when redeemed, may be worth more or less than originally paid.
TOTAL RETURN CALCULATIONS
Average annual total return quotes ("Standardized Return") used in the
Funds' Performance Advertisements are calculated according to the following
formula:
n
P(1 + T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
that period
Because each class of the Funds has its own sales charge and fee
structure, the classes have different performance results. In the case of each
class, this calculation assumes the maximum sales charge is included in the
initial investment or the CDSC is applied at the end of the period,
respectively. This calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period. The
"distribution rate" is determined by annualizing the result of dividing the
declared dividends of the Funds during the period stated by the maximum offering
price or net asset value at the end of the period. Excluding the Funds' sales
charge or Class A shares and the CDSC on Class C shares from the distribution
rate produces a higher rate.
In addition to average annual total returns, the Funds may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking each Fund's sales charge on
Class A shares or the CDSC on Class C shares into account. Excluding the Funds'
sales charge on Class A shares and the CDSC on Class C shares from a total
return calculation produces a higher total return figure.
The Funds may advertise yield, where appropriate. Each Fund's yield is
computed by dividing net investment income per share determined for a 30-day
period ("Period") by the maximum offering price per share (which includes the
full sales charge, if applicable) on the last day of the period, according to
the following standard:
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<PAGE>
6
Yield = 2 [{a-b over cd +1} - 1]
a = dividends and interest earned during the period
where: b = net expenses accrued during the period
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends
d = the maximum offering price per share on the last day of the
period (NAV where applicable)
In determining interest earned during the Period (variable "a" in the
above formula), a Fund calculates interest earned on each debt obligation held
by it during the Period by (1) computing the obligation's yield to maturity
based on the market value of the obligation (including actual accrued interest)
on the last business day of the Period or, if the obligation was purchased
during the Period, the purchase price plus accrued interest and (2) dividing the
yield to maturity by 360, and multiplying the resulting quotient by the market
value of the obligation (including actual accrued interest). Once interest
earned is calculated in this fashion for each debt obligation held by the Fund,
interest earned during the Period is then determined by totaling the interest
earned on all debt obligations. For the purposes of these calculations, the
maturity of an obligation with one or more call provisions is assumed to be the
next call date on which the obligation reasonably can be expected to be called
or, if none, the maturity date.
With respect to the treatment of discount and premium on
mortgage-backed and other asset-backed obligations that are expected to be
subject to monthly payments of principal and interest ("paydowns"): (1) a Fund
accounts for gain or loss attributable to actual paydowns as an increase or
decrease to interest income during the period and (2) a Fund accrues the
discount and amortizes the premium on the remaining obligation, based on the
cost of the obligation, to the weighted average maturity date or, if weighted
average maturity information is not available, to the remaining term of the
obligation.
OTHER INFORMATION
From time to time each Fund may compare its performance in Performance
Advertisements to the performance of other mutual funds or various market
indices.
The Funds may also quote rankings and ratings, and compare the return
of the Funds with data published by Lipper Analytical Services, Inc.,
IBC/Donaghue's Money Market Fund Report, CDA Investment Technologies, Inc.,
Wiesenberger Investment Companies Service, Investment Company Data Inc.,
Morningstar Mutual Funds, Value Line and other services or publications that
monitor, compare, rank and/or rate the performance of mutual funds. The Funds
may refer in such materials to mutual fund performance rankings, ratings or
comparisons with funds having similar investment objectives, and other mutual
funds reported in independent periodicals, including, but not limited to, The
Wall Street Journal, Money Magazine, Forbes, Business Week, Financial World,
Barron's, Fortune, The New York Times, The Chicago Tribune, The Washington Post
and The Kiplinger Letters.
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<PAGE>
The Funds may also compare their performance with, or may otherwise
discuss, the performance of bank certificates of deposit ("CDs") and other bank
deposits, and may quote from organizations that track the rates offered on such
deposits. In comparing the Funds or their performance to CDs, investors should
keep in mind that bank CDs are insured up to specified limits by an agency of
the U.S. government. Shares of the Funds are not insured or guaranteed by the
U.S. government, the value of Funds' shares will fluctuate and shares, when
redeemed, may be worth more or less than originally paid. Unlike the interest
paid on many CDs, which remains as a specified rate for a specified period of
time, the return on Funds' shares will vary.
Each Fund's Performance Advertisements may reference the history of the
Fund's Adviser and its affiliates or biographical information of key investment
and managerial personnel including the portfolio manager. The Funds may
illustrate hypothetical investment plans designed to help investors meet
long-term financial goals, such as saving for a college education or for
retirement. The Funds may discuss the advantages of saving through tax-deferred
retirement plans or accounts.
TAX-DEFERRED RETIREMENT PLANS
As noted in the Funds' Prospectus, an investment in each Fund's shares
may be appropriate for various types of tax-deferred retirement plans. In
general, income earned through the investment of assets of such a plan is not
taxed to the beneficiaries until the income is distributed to them. Investors
who are considering establishing such a plan may wish to consult their attorneys
or other tax advisers with respect to individual tax questions. Additional
information with respect to these plans is available upon request from any
Morgan Keegan broker.
INDIVIDUAL RETIREMENT ACCOUNTS - IRAS
If you have earned income from employment (including self-employment),
you can contribute each year to an IRA up to the lesser of (1) $2,000 for
yourself or $4,000 for you and your spouse, regardless of whether your spouse is
employed, or (2) 100% of compensation. Some individuals may be able to take an
income tax deduction for the contribution. Regular contributions may not be made
for the year you become 70-1/2 or thereafter. Nondeductible contributions may
also be made to an "education IRA," or a "Roth IRA," distributions from which
are not taxable under certain circumstances.
An investment in a Fund's shares through IRA contributions may be
advantageous, regardless of whether the contributions are deductible by you for
tax purposes, because all dividends and capital gain distributions on your Fund
shares are not immediately taxable to you or the IRA; they become taxable only
when distributed to you except as noted above. To avoid penalties, your interest
in an IRA must be distributed, or start to be distributed, to you not later than
April 1 following the calendar year in which you attain age 70 1/2.
Distributions made before age 59 1/2, in addition to being taxable, generally
are subject to a penalty equal to 10% of the distribution, except in the case of
death or disability, where the distribution is rolled over into another
qualified plan, or in certain other situations.
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SELF-EMPLOYED INDIVIDUAL RETIREMENT PLANS - KEOGH PLANS
Morgan Keegan will assist self-employed individuals to set up a
retirement plan through which the Funds' shares may be purchased. Morgan Keegan
generally arranges for a bank to serve as trustee for the plan and performs
custodian services for the trustee and the plan by holding and handling
securities. However, you have the right to use a bank of your choice to provide
these services at your cost. There are penalties for distributions from a Keogh
Plan prior to age 59 1/2, except in the case of death or disability.
SIMPLIFIED EMPLOYEE PENSION PLANS - SEPPS AND SAVINGS
INCENTIVE MATCH PLANS FOR EMPLOYEES - SIMPLES
Morgan Keegan also will make available in a similar manner to corporate
and other employers a SEPP or SIMPLE for investment in Fund shares.
DIRECTORS AND OFFICERS
The Funds' officers are responsible for the operation of the Funds
under the direction of the Board of Directors. The officers and directors of the
Funds and their principal occupations during the past five years are set forth
below. An asterisk (*) indicates officers and/or directors who are interested
persons of the Funds as defined by the 1940 Act. The address of each officer and
director is Morgan Keegan Tower, 50 Front Street, Memphis, Tennessee 38103,
unless otherwise indicated.
<TABLE>
<CAPTION>
Name Position with the Fund and Principal Occupation During
Past Five Years
<S> <C>
[Allen B. Morgan, Jr.* President and Director. Mr. Morgan is Chairman and Chief
Age 56 Executive Officer and Executive Managing Director of
Morgan Keegan & Company, Inc. He also is a Chairman
of Morgan Keegan, Inc., a Director of Morgan Asset
Management, Inc., and a Director of Catherine's Stores,
Inc.
James D. Witherington, Jr. Director. Mr. Witherington is President of SSM Corp.
845 Crossover Lane (management of venture capital funds). He also serves as a
Suite 140 Director for several private companies.
Memphis, Tennessee 38117
Age 49
Spence L. Wilson Director. Mr. Wilson is President of Kemmons-Wilson,
1629 Winchester Road Inc. (private real estate development). He also is Chairman
Memphis, Tennessee 38116 of Orange Lake Country Club, Inc. and is a partner in
Age 55 several Holiday Inn locations.
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<PAGE>
William F. Hughes, Jr. Mr. Hughes is a Management Director of Morgan Keegan &
Age 55 Company, Inc. He also is President of Morgan Asset
Management, Inc.
William Jefferies Mann Director. Mr. Mann is Chairman and President of Mann
675 Oakleaf Office Lane Investments, Inc. (hotel investments/consulting). He also
Suite 100 serves as a Director for Heavy Machines, Inc.
Memphis, Tennessee 38117
Age 65
James Stillman R. McFadden Director. Mr. McFadden is Vice President of Sterling
845 Crossover Lane Equities, Inc. (private equity financings). He is also
Suite 124 President and Director of 1703, Inc. and a Director of Starr
Memphis, Tennessee 38117 Printing Co.
Age 41
Joseph C. Weller* Vice President, Treasurer & Assistant Secretary. Mr.
Age 59 Weller is Executive Vice President and Chief Financial
Officer and Executive Managing Director of Morgan
Keegan & Company, Inc. He also is a Director of Morgan
Asset Management, Inc.]
Charles D. Maxwell* Secretary and Assistant Treasurer. Mr. Maxwell is a
Age 44 Managing Director and Assistant Treasurer of Morgan
Keegan & Co., Inc. and Secretary/Treasurer of Morgan
Asset Management, Inc. He was formerly a senior manager
with Ernst & Young (accountants) (1976-86).
</TABLE>
Officers and directors of the Funds who are interested persons of the
Funds receive no salary or fees from the Funds. Directors of the Funds who are
not interested persons of the Funds will receive a fee of $1,000 and
reimbursement for related expenses for each meeting of the Board of Directors
attended by them.
INVESTMENT ADVISER
Morgan Asset Management, Inc., an affiliate of Morgan Keegan, serves as
the Funds' investment adviser and manager under an Investment Advisory and
Management Agreement ("Advisory Agreement"). The Advisory Agreement became
effective as of [_____________]. The Advisory Agreement provides that, subject
to overall supervision by the Board of Directors, the Adviser manages the
investment and other affairs of the Funds. The Adviser is responsible for
managing the Funds' portfolio securities and for making purchases and sales of
portfolio securities consistent with the Funds' investment objective, policies
and limitations described in the Prospectus and this SAI. The Adviser is
obligated to furnish the Funds with office space as well as with executive and
other personnel necessary for the operation of the Funds. In addition, the
Adviser is obligated to supply the Board of Directors and officers of the Funds
with certain statistical information and reports, to oversee the maintenance of
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<PAGE>
various books and records and to arrange for the preservation of
records in accordance with applicable federal law and regulations. The Adviser
and its affiliates also are responsible for the compensation of directors and
officers of each Fund who are employees of the Adviser and/or its affiliates.
The Funds bear separately all their other expenses which are not
assumed by the Adviser. These expenses include, among others: legal and audit
expense; organizational expenses; interest; taxes; governmental fees; membership
fees for investment company organizations: the cost (including brokerage
commissions or charges, if any) of securities purchased or sold by the Funds and
any losses incurred in connection therewith; fees of custodians, transfer
agents, registrars or other agents; distribution fees; expenses of preparing
share certificates; expenses relating to the redemption of the Funds' shares;
expenses of registering and qualifying Funds' shares for sale under applicable
federal and state laws and maintaining such registrations and qualifications;
expenses of preparing, setting in print, printing and distributing prospectuses,
proxy statements, reports, notices and dividends to each Fund's shareholders;
costs of stationery; costs of shareholders and other meetings of the Funds;
compensation and expenses of the independent directors; and insurance covering
each Fund and its respective officers and directors. The Funds are also liable
for such nonrecurring expenses as may arise, including litigation to which the
Funds may be party. The Funds also may have an obligation to indemnify its
directors and officers with respect to any such litigation.
The Intermediate Fund pays the Adviser a management fee at an annual
rate of 0.40% of the Fund's average daily net assets. The High Income Fund pays
the Adviser a management fee at an annual rate of 0.75% of the Fund's average
daily net assets.
The Advisory Agreement will remain in effect from year to year,
provided such continuance is approved by a majority of the Board of Directors or
by vote of the holders of a majority of the outstanding voting securities of
each Fund. Additionally, the Advisory Agreement must be approved annually by
vote of a majority of the directors of the Funds who are not parties to the
Agreement or "interested persons" of such parties as that term is defined in the
1940 Act. The Advisory Agreement may be terminated by the Adviser or the Funds,
without penalty, on 60 days' written notice to the other, and will terminate
automatically in the event of its assignment.
Under the Advisory Agreement, the Funds will have the non-exclusive
right to use the name "Morgan Keegan" until the Agreement is terminated, or
until the right is withdrawn in writing by the Adviser.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser is responsible for the
execution of the Funds' portfolio transactions and must seek the most favorable
price and execution for such transactions, subject to the possible payment, as
described below, of higher commissions to brokers who provide research and
analysis. The Funds may not always pay the lowest commission or spread
available. Rather, the Funds also will take into account such factors as size of
the order, difficulty of execution, efficiency of the executing brokers
facilities (including the services described below) and any risk assumed by the
executing broker.
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<PAGE>
The Adviser may give consideration to research, statistical and other
services furnished by broker/dealers to the Adviser for its use, may place
orders with broker/dealers who provide supplemental investment and market
research and securities and economic analysis, and may pay to those brokers a
higher brokerage commission or spread than may be charged by other brokers. Such
research and analysis may be useful to the Adviser in connection with services
clients other than the Funds. The Adviser's fee is not reduced by reason of its
receipt of such brokerage and research services.
From time to time the Funds may use Morgan Keegan as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. The Adviser
will not cause the Funds to pay Morgan Keegan any commission for effecting a
securities transaction for the Funds in excess of the usual and customary amount
other broker/dealers would have charged for the transaction. Rule 17e-1 under
the 1940 Act defines "usual and customary" commissions to include amounts which
are "reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time."
The Adviser may also select other brokers to execute portfolio
transactions. In the over-the-counter market, the Funds will generally deal with
responsible primary market-makers unless a more favorable execution can
otherwise be obtained through brokers.
The Funds may not buy securities from, or sell securities to, Morgan
Keegan as principal. The Funds' Board of Directors has adopted procedures in
conformity with Rule 10f-3 under the 1940 Act whereby the Funds may purchase
securities that are offered in underwritings in which Morgan Keegan is a
participant.
Section 11(a) of the Securities Exchange Act of 1934 prohibits Morgan
Keegan from executing transactions on an exchange for the Funds except pursuant
to the provisions of Rule lla2-2(T) thereunder. That rule permits Morgan Keegan,
as a member of a national securities exchange, to perform functions other than
execution in connection with a securities transaction for the Funds on that
exchange only if the Funds expressly consents by written contract. The Advisory
Agreement expressly provides such consent in accordance with Rule lla2-2(T).
Investment decisions for the Funds are made independently from those of
other accounts advised by the Adviser. However, the same security may be held in
the portfolios of more that one account. When two or more accounts
simultaneously engage in the purchase or sale of the same security, the prices
and amounts will be equitably allocated among the accounts. In some cases, this
procedure may adversely affect the price or quantity of the security available
to a particular account. In other cases, however, an account's ability to
participate in large volume transactions may produce better executions and
prices.
Morgan Keegan personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders by all Morgan Keegan directors, officers and employees, establishes
procedures for personal investing and restricts certain transactions. For
example, personal trading in most securities requires pre-clearance. In
addition, the code of ethics places restrictions on the timing of personal
investing in relation to trades by the Funds.
<PAGE>
DISTRIBUTOR
Morgan Keegan acts as distributor of the Funds' shares pursuant to an
Underwriting Agreement between the Funds and Morgan Keegan dated ____________,
1998 ("Underwriting Agreement"). The shares of the Funds are offered
continuously. The Underwriting Agreement obligates Morgan Keegan to provide
certain services and to bear certain expenses in connection with the offering of
each Fund's shares, including, but not limited to: printing and distribution of
prospectuses and reports to prospective shareholders; preparation and
distribution of sales literature, and advertising; administrative and overhead
cost of distribution such as the allocable costs of executive office time
expended on developing, managing and operating the distribution program;
operating expenses of branch offices, sales training expenses, and telephone and
other communication expenses. Morgan Keegan also compensates investment brokers
of Morgan Keegan and other persons who engage in or support distribution of
shares and shareholder service based on the sales for which they are responsible
and the average daily net asset value of each Fund's shares in accounts of their
clients. From time to time, certain Morgan Keegan brokers may be paid more than
others as a result of their sales of Fund shares.
Each Fund has adopted a Distribution Plan with respect to the Class A
shares and Class C shares (each a "Plan," collectively, the "Plans") pursuant to
Rule 12b-1 under the 1940 Act. Under the Intermediate Fund, distribution and
service fees will be paid at an aggregate annual rate of up to 0.25% for Class A
shares, and 0.60% for Class C shares of the Funds' average daily net assets
attributable to shares of that class. Under the High Income Fund, distribution
and service fees will be paid at an aggregate annual rate of up to 0.25% for
Class A shares and 0.75% for Class C shares of the Funds' average daily net
assets attributable to shares of that class. Class I shares are not subject to a
distribution and service fee.
Service fees and distribution fees paid by the Funds to Morgan Keegan
under the Plans may exceed or be less than Morgan Keegan's expenses thereunder.
No interested person of the Funds or non-interested director had a direct or
indirect interest in the Plans or related agreements. The Funds benefits from
the Plans by virtue of an ongoing broker's involvement with individual customers
as well as the benefit from continued promotion.
The Plans were approved by the Initial Shareholder on _____________,
1998, and as required by Rule 12b-1 under the 1940 Act, by the Board of
Directors on the same date, including a majority of the directors who are not
"interested persons" of the Funds, as that term is defined in the 1940 Act and
who have no direct or indirect financial interest in the operation of the Plans
or the Underwriting Agreement (the "Qualified Directors").
In approving the Plans, in accordance with the requirements of Rule
12b-1, the Board of Directors determined that the service and distribution fees
were reasonable in view of the compensation Morgan Keegan investment brokers can
receive relative to the compensation offered by competing bond funds. The Board
of Directors also determined that the fees are reasonable in light of the
service and distribution fees paid by other similar funds. Finally, the Board of
Directors determined that there was a reasonable likelihood that the Plans would
benefit each Fund and its shareholders. This determination was based, in part,
on the belief that the Plans enable the Funds to have Morgan Keegan investment
brokers available to promote and sell the Funds, thereby assisting the Funds to
attract assets. Growth of assets is expected to benefit the Funds and the
Adviser. The Funds are expected to benefit from the potential for economies of
scale in their operations that can arise from growth in assets, as well as from
the increased potential for flexibility in portfolio management resulting from a
net inflow of assets, as opposed to net redemptions. Shareholders of the Funds
are expected to benefit from continuing services provided by investment brokers
and other staff members of Morgan Keegan as Distributor. The Adviser and Morgan
Keegan are expected to benefit from the fact that their advisory, service and
distribution fees, which are based on a percentage of assets, increase as Fund
assets grow and that their brokerage commissions and transfer fees will also
increase as assets grow. The Board of Directors acknowledged, however, that
there is no assurance that benefits to the Funds will be realized as a result of
the Plans.
-33-
<PAGE>
The Plans may be terminated by vote of a majority of the Qualified
Directors or by vote of a majority of each Fund's outstanding voting securities
of the applicable class. Termination of the Plans terminates any obligation of
the Funds to pay service and distribution fees to Morgan Keegan, other than
service and distribution fees that may have accrued but that have not been paid
as of the date of termination. Any change in the Plans that would materially
increase the service and distribution costs to the Funds requires shareholder
approval; otherwise the Plans may be amended by the Directors, including a
majority of the Qualified Directors, as described above.
The Plans, as currently in effect, will continue for successive
one-year periods, provided that each such continuance specifically is approved
by (1) the vote of a majority of the Qualified Directors and (2) the vote of a
majority of the entire Board of Directors of the Funds.
Rule 12b-1 requires that any person authorized to direct the
disposition of monies paid or payable by the Funds pursuant to the Plan or any
related agreement shall provide to the Board of Directors, and the Directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which expenditures were made. Rule 12b-1 also provides that
the Funds may rely on that rule only if the selection and nomination of the
Fund's independent directors are committed to the discretion of such independent
directors.
The Underwriting Agreement was approved by vote of the Board of
Directors and the Qualified Directors on ___________, 1998. The Underwriting
Agreement is subject to the same provisions for annual renewal as the Plans. In
addition, the Underwriting Agreement will terminate upon assignment or upon 60
days' notice from Morgan Keegan. Each Fund may terminate the Underwriting
Agreement, without penalty, upon 60 days' notice, by a majority vote of either
its Board of Directors, the Qualified Directors, or the outstanding voting
securities of each Fund.
DESCRIPTION OF THE FUNDS' SHARES
The Company is incorporated as a Maryland corporation. The Articles of
Incorporation permit the Board of Directors the right to issue one billion
shares (1,000,000,000), par value of one tenth of one cent ($.001) . Under the
Articles of Incorporation, the Directors have the authority to divide or combine
the shares into a greater or lesser number, to classify or reclassify any
unissued shares of the Company into one or more separate series or class of
shares, without further action by the shareholders. As of the date of this SAI,
the Directors have authorized two series of shares (Intermediate Bond Fund and
High Income Fund) and the issuance of three classes of shares of each Fund,
designated as Class A, Class C and Class I. Shares are freely transferable and
-34-
<PAGE>
have no preemptive, subscription or conversion rights. When issued, shares are
fully paid and non-assessable.
The Articles of Incorporation provide that all dividends and
distributions on shares of each series or class will be distributed pro rata to
the holders of that series or class in proportion to the number of shares of
that series or class held by such holders. In calculating the amount of any
dividends or distributions, (1) each class will be charged with the transfer
agency fee attributable to that class, (2) each class will be charged separately
with such other expenses as may be permitted by the SEC and the Board of
Directors and (3) all other fees and expenses shall be charged to the classes,
in the proportion that the net assets of that class bears to the net assets of
the applicable series.
Each class will vote separately on matters pertaining only to that
class, as the Board of Directors may determine. On all other matters, all
classes shall vote together and every share, regardless of class, shall have an
equal vote with every other share. Except as otherwise provided in the Articles
of Incorporation, the By-laws of the Company or as required by the provisions of
the 1940 Act, all matters will be decided by a vote of a majority of the
outstanding voting securities validly cast at a meeting at which a quorum is
present. One-third of the aggregate number of shares of that series or class
outstanding and entitled to vote shall constitute a quorum for the transaction
of business by that series or class.
Unless otherwise required by the 1940 Act or the Articles of
Incorporation, the Funds have no intention of holding annual meetings of
shareholders. The Funds' shareholders may remove a Director by the majority of
all votes of the Company's outstanding shares and the Board of Directors shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 25% of the outstanding shares of each Fund.
At least two-thirds of the directors holding office must have been elected by
the shareholders.
CUSTODIAN, TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
AND PORTFOLIO ACCOUNTING SERVICE AGENT
Morgan Keegan & Company, Inc., Morgan Keegan Tower, Fifty Front Street,
Memphis, Tennessee 38103, serves as the transfer and dividend disbursing agent
of each Fund. For these services, Morgan Keegan receives from each Fund a fee of
[$_______] per month, or [$________] per year.
Morgan Keegan also provides accounting services to each Fund. For these
services, which include portfolio accounting, expense accrual and payment, fund
valuation and financial reporting, tax accounting, and compliance control
services, Morgan Keegan receives from each Fund a fee of [$_______] per month,
or [$________] per year.
The Funds reserve the right, upon 60 days' written notice, to make
other charges to investors to cover administrative costs.
State Street Bank and Trust Company, National Association, 108 Myrtle
Street, Quincy, Massachusetts, 02171, serves as the Funds' custodian.
<PAGE>
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800, serves as counsel to each Fund and has passed upon
certain matters in connection with this offering.
CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP, Fifty North Front Street, Memphis, Tennessee
38103, are the Funds' independent certified public accountants. KPMG Peat
Marwick LLP, performs an audit of the Funds' financial statements and reviews
the Funds' federal and state income tax returns.
FINANCIAL STATEMENTS
[Text to be supplied]
-36-
<PAGE>
PART C OTHER INFORMATION
23. Exhibits:
(a) Articles of Incorporation (filed herewith)
(b) By-laws (to be filed)
(c) Instruments Defining Rights of Security Holders
1. Articles of Incorporation (filed herewith)
2. Bylaws (to be filed)
(d) Investment Advisory and Management Agreement (to be filed)
(e) Underwriting Agreement (to be filed)
(f) Bonus or Profit Sharing Contracts - none
(g) Custodian Agreement (to be filed)
(h) Other Material Contracts
1. Fund Accounting Services Agreement (to be filed)
2. Agency Agreement (to be filed)
(i) Legal Opinion (to be filed)
(j) Other Opinions
1. Accountants' Consent (to be filed)
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreement (to be filed)
(m) Distribution Plan pursuant to Rule 12b-1 (to be filed)
(n) Financial Data Schedule (to be filed)
(o) Rule 18f-3 Plan (to be filed)
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 25. INDEMNIFICATION
The Corporation shall indemnify each person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(the "Proceeding"), by reason of the fact that he or she is or was a director,
officer or employee of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, partner, trustee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against all reasonable expenses (including attorneys' fees) actually incurred,
and judgments, fines, penalties and amounts paid in settlement in connection
with such Proceeding to the maximum extent permitted by law, now existing or
hereafter adopted.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Morgan Asset Management, Inc., a Tennessee corporation, is a
registered investment adviser and offers investment management services to
investment companies and other types of investors. Information as to its
officers and directors is included in its Form ADV filed on May 26, 1998 with
the Securities and Exchange Commission (registration number 801-27629) and is
incorporated herein by reference.
Item 27. PRINCIPAL UNDERWRITER
(a) Bedford Money Market Fund
Morgan Keegan Southern Capital Fund, Inc.
<PAGE>
(b) Morgan Keegan & Company, Inc.
NAME AND POSITIONS AND POSITIONS AND
PRINCIPAL BUSINESS OFFICES WITH OFFICES WITH
ADDRESS UNDERWRITER REGISTRANT
(Principal Business Address,
unless otherwise noted, is:
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103)
Allen B. Morgan, Jr. Chairman and None
Chief Executive
Officer, Executive
Managing Director
Joseph C. Weller Chief Financial None
Officer, Executive
Managing Director,
Executive Vice President,
Secretary and Treasurer
John W. Stokes, Jr. Vice Chairman, None
Executive Managing
Director
Robert A. Baird Executive None
Managing Director
Randolph C. Coley Executive Managing None
Director
G. Douglas Edwards Executive Managing None
Director
James H. Ganier Executive Managing None
Director
Stephen P. Laffey Executive Managing None
Director
Mark A. Lee Executive Managing None
Director
Thomas V. Orr Executive Managing None
Director
James A. Parish, Jr. Executive Managing None
Director
Allen B. Adler Managing Director None
Franklin P. Allen, III Managing Director None
George Arras Managing Director None
James M. Augustine Managing Director None
Joseph K. Ayers Managing Director None
Rodney D. Baber, Jr. Managing Director None
Richard G. Backus Managing Director None
<PAGE>
George E. Bagwell Managing Director None
Woodley H. Bagwell Managing Director None
Charles E. Bailey Managing Director None
Milton Barber Managing Director None
Joseph C. Barkley Managing Director None
Reginald E. Barnes Managing Director None
Glen E. Bascom Managing Director None
W. Preston Battle Managing Director None
Robert (Bob) D. Berry Managing Director None
Robert C. Berry Managing Director None
Cristan K. Blackman Managing Director None
John D. Brewer Managing Director None
Paul S. Burd Managing Director None
John B. Carr, Jr. Managing Director None
Ted Cashion Managing Director None
John C. Carson Managing Director None
Marshall Clark Managing Director None
William F. Clay Managing Director None
Robert E.L. Cope Managing Director None
Mark W. Crowl Managing Director None
Brian W. Dalton Managing Director None
Harold L. Deaton Managing Director None
William W. Deupree, Jr. Managing Director None
Ted B. Donaldson Managing Director None
Bob Dudley Managing Director None
Richard H. Eckels Managing Director None
Richard S. Ferguson Managing Director None
Robert M. Fockler Managing Director None
Wilmer J. Freiberg Managing Director None
Graham D.S. Fulton Managing Director None
John H. Geary Managing Director None
Robert D. Gooch, Jr. Managing Director None
James F. Gould Managing Director None
Terry C. Graves Managing Director None
Chip Grayson Managing Director None
Gary W. Guinn Managing Director None
David M. Guthrie Managing Director None
<PAGE>
Jan L. Gwin Managing Director None
Thomas M. Hahn Managing Director None
Thomas V. Harkins Managing Director None
Michael J. Harris Managing Director None
Haywood H. Henderson, Jr. Managing Director None
Roderick E. Hennek Managing Director None
Edwin L. Hoopes, III Managing Director None
R. Davis Howe Managing Director None
William F. Hughes, Jr. Managing Director None
Joe R. Jennings Managing Director None
Robert Jetmundsen Managing Director None
Ramkrishna Kasargod Managing Director None
Peter R. Klyce Managing Director None
Peter S. Knoop Managing Director None
W. Larry M. Knox, Jr. Managing Director None
E. Carl Krausnick, Jr. Managing Director None
Jim Ladyman Managing Director None
Welling LaGrone Managing Director None
Benton G. Landers Managing Director None
William A. Langevin Managing Director None
William M. Lellyett, Jr. Managing Director None
Willard G. Logan, Jr. Managing Director None
Wiley H. Maiden Managing Director None
John H. Martin Managing Director None
William D. Mathis, III Managing Director None
Foxy Mathews Managing Director None
Francis Maus Managing Director None
Charles D. Maxwell Managing Director Director
John W. Mayer Managing Director None
Neal McAtee Managing Director None
Harris McCraw Managing Director None
Edward S. Michelson Managing Director None
George Rolfe Miller Managing Director None
Gary Mills Managing Director None
David Montague Managing Director None
Robert M. Montague Managing Director None
K. Brooks Monypeny Managing Director None
John G. Moss Managing Director None
Lewis A. Moyse Managing Director None
William G. Mueller Managing Director None
Mortimer S. Neblett Managing Director None
<PAGE>
Philip Nichols Managing Director None
Michael O'Keefe Managing Director None
Jack A. Paratore Managing Director None
William T. (Dale) Managing Director None
Patterson
Chris Perkins Managing Director None
Minor Perkins Managing Director None
Logan Philips Managing Director None
L. Jackson Powell Managing Director None
S. Mark Powell Managing Director None
Richard L. Preis Managing Director None
C. David Ramsey Managing Director None
Hedi H. Reynolds Managing Director None
R. Michael Ricketts Managing Director None
Donna Richardson Managing Director None
Thomas E. Robinson, Sr. Managing Director None
Darien Roche Managing Director None
Kenneth L. Rowland Managing Director None
W. Wendell Sanders Managing Director None
E. Elkan Scheidt Managing Director None
Ronald J. Schuberth Managing Director None
Lynn T. Shaw Managing Director None
Fred B. Smith Managing Director None
Richard J. Smith Managing Director None
Robert L. Snider Managing Director None
John B. Snowden, IV Managing Director None
Thomas A. Snyder Managing Director None
Rick Spell Managing Director None
John W. (Jack) Stokes, III Managing Director None
John B. Strange Managing Director None
James M. Tait, III Managing Director None
Crosby Taylor Managing Director None
Phillip C. Taylor Managing Director None
John D. Threadgill Managing Director None
P. Gibbs Vestal Managing Director None
Edmund J. Wall Managing Director None
W. Charles Warner Managing Director None
Richard E. Watson Managing Director None
Patrick J. Weber Managing Director None
Craig T. Weichmann Managing Director None
John Wilson Managing Director None
<PAGE>
J. William Wyker Managing Director None
John J. Zollinger, III Managing Director None
(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's adviser, Morgan Asset Management, Inc.,
Morgan Keegan Tower, Fifty Front Street, Memphis, Tennessee 38103. All other
accounts, books and other documents required by Rule 31a-1 are maintained in the
physical possession of Registrant's transfer agent and portfolio accounting
service provider, Morgan Keegan & Co., Morgan Keegan Tower, Fifty Front Street,
Memphis, Tennessee 38103.
Item 29. MANAGEMENT SERVICES
Not applicable
Item 30. UNDERTAKINGS
The Registrant undertakes to file an amendment to this Registration
Statement with certified financial statements showing the initial capital
received before accepting subscriptions from more than 25 persons.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Morgan Keegan Series Fund, Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Memphis and State of Tennessee, on
the 27th day of October, 1998.
MORGAN KEEGAN SERIES FUND, INC.
By: /s/ Charles D. Maxwell
-----------------------
Charles D. Maxwell
Director
<PAGE>
MORGAN KEEGAN SERIES FUND, INC.
Exhibit Index
Exhibits:
(a) Articles of Incorporation ( filed herewith)
(b) By-laws (to be filed)
(c) Instruments Defining Rights of Security Holders
1. Articles of Incorporation (filed herewith)
2. Bylaws (to be filed)
(d) Investment Advisory and Management Agreement (to be filed)
(e) Underwriting Agreement (to be filed)
(f) Bonus or Profit Sharing Contracts - none
(g) Custodian Agreement (to be filed)
(h) Other Material Contracts
1. Fund Accounting Services Agreement (to be filed)
2. Agency Agreement (to be filed)
(i) Legal Opinion (to be filed)
(j) Other Opinions
1. Accountants' Consent (to be filed)
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreement (to be filed)
(m) Distribution Plan pursuant to Rule 12b-1 (to be filed)
(n) Financial Data Schedule (to be filed)
(o) Rule 18f-3 Plan (to be filed)
Exhibit (a)
ARTICLES OF INCORPORATION
OF
MORGAN KEEGAN SERIES FUND, INC.
FIRST: The undersigned, Joel B. Celestin, whose post office address is
1800 Massachusetts Avenue, N.W., Washington, D.C. 20036, being at least eighteen
years of age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the corporation is MORGAN KEEGAN SERIES FUND, INC.
(the "Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purposes for which the Corporation is formed are to act as an
open-end management investment company, as contemplated by the Investment
Company Act of 1940, as amended (the "1940 Act"), and to exercise and enjoy all
of the powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force,
including, without limitation:
(a) To hold, invest and reinvest the funds of the Corporation, and in
connection therewith to hold part or all of its funds in cash, and to
purchase, subscribe for or otherwise acquire, to hold for investment
or otherwise, to trade and deal in, write, sell, assign, negotiate,
transfer, exchange, lend, pledge or otherwise dispose of or turn to
account or realize upon, securities of any corporation, company,
association, trust, firm, partnership, or other organization however
or wherever established or organized, as well as securities created
or issued by any United States or foreign issuer (which term "issuer"
shall, for the purpose of these Articles of Incorporation, without
limiting the generality thereof, be deemed to include any persons,
firms, associations, partnerships, corporations, syndicates,
combinations, organizations, governments or subdivisions, agencies or
instrumentalities of any government); and to exercise, as owner or
holder of any securities, all rights, powers and privileges in
respect thereof, including the right to vote thereon; to aid by
further investment any issuer, any obligation of or interest in which
is held by the Corporation or in the affairs of which the Corporation
has any direct or indirect interest; to guarantee or become surety on
any or all of the contracts, stocks, bonds, notes, debentures and
other obligations of any corporation, company, trust, association or
firm; and to do any and all acts and things for the preservation,
protection, improvement and enhancement in value of any and all such
securities.
<PAGE>
(b) For the purposes of these Articles of Incorporation, as the same may
be supplemented or amended, the term "securities" shall be deemed to
include, without limiting the generality thereof, any stocks, Shares,
bonds, debentures, bills, notes, mortgages and any other obligations
or evidences of indebtedness, and any options, certificates,
receipts, warrants, futures or forward contracts, or other
instruments representing rights to receive, purchase, subscribe for
or sell the same, or evidencing or representing any other direct or
indirect rights or interests therein, including all rights of
equitable ownership therein, or in any property or assets; and any
negotiable or non-negotiable instruments, including money market
instruments, bank certificates of deposit, finance paper, commercial
paper, bankers' acceptances and all types of repurchase or reverse
repurchase agreements; interest rate protection instruments; and
derivative or synthetic instruments.
(c) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation heretofore
or hereafter engaged in any business similar to any business which
the Corporation has the power to conduct, and to hold, utilize, enjoy
and in any manner dispose of the whole or any part of the rights,
property and business so acquired, and to assume in connection
therewith any liabilities of any such person, firm, association or
corporation.
(d) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may
be capable of being used for any of the purposes of the Corporation;
and to use, exercise, develop, grant licenses in respect of, sell and
otherwise turn to account, the same.
(e) To issue and sell Shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms
and conditions, for such purposes and for such amount or kind of
consideration (including without limitations, securities) now or
hereafter permitted by the laws of the State of Maryland, by the 1940
Act and by these Articles of Incorporation, as its Board of Directors
may, and is hereby authorized to, determine.
(f) To allocate assets, liabilities and expenses of the Corporation to a
particular Series or Class or to apportion the same between or among
two or more Series or Classes, as applicable, provided that any
liabilities or expenses incurred by a particular Series or Class
shall be payable solely by that Series or Class as provided for in
Article SIXTH.
(g) To purchase, repurchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent
of the stockholders of the Corporation) Shares of its capital stock
in any manner and to the extent now or hereafter permitted by the
laws of the State of Maryland, by the 1940 Act and by these Articles
of Incorporation.
2
<PAGE>
(h) To conduct its business in all branches at one or more offices in any
part of the world, without restriction or limit as to extent.
(i) To exercise and enjoy, in any states, territories, districts and
United States dependencies and in foreign countries, all of the
powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or
hereafter in force.
(j) To enjoy all rights, powers and privileges of ownership or interest
in all securities held by the Corporation, including the right to
vote and otherwise act with respect thereto and to do all acts for
the preservation, protection, improvement, and enhancement in value
of all such securities.
(k) In general, to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary,
suitable or proper for the accomplishment of such purposes or for the
attainment of any object or the furtherance of any power set forth in
these Articles of Incorporation, either alone or in association with
others, to do every other act or thing incidental or appurtenant to
or growing out of or connected with its business or purposes, objects
or powers, and, subject to the foregoing, to have and exercise all
the powers, rights and privileges granted to, or conferred upon,
corporations by the laws of the State of Maryland as in force from
time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power, without limitation:
(1) To acquire (by purchase, lease or otherwise) and to take, receive,
own, hold, use, employ, maintain, develop, dispose of (by sale or
otherwise) and otherwise deal with any real or personal property,
wherever located, and any interest therein.
(2) To make contracts and guarantees, incur liabilities and borrow money
and, in this connection, issue notes or other evidence of
indebtedness.
3
<PAGE>
(3) To buy, hold, sell, and otherwise deal in and with commodities,
indices of commodities or securities, and foreign exchange, including
the purchase and sale of futures contracts, options on futures
contracts related thereto and forward contracts, subject to any
applicable provisions of law.
(4) To sell, lease, exchange, transfer, convey, mortgage, pledge and
otherwise dispose of any or all of its assets.
FIFTH: The post office address of the principal office of the Corporation
in the State of Maryland is 300 East Lombard Street, Baltimore, Maryland, 21202.
The name of the resident agent of the Corporation in the State of Maryland is
The Corporation Trust Incorporated, whose post office address is 300 East
Lombard Street, Baltimore, Maryland, 21202. The resident agent is a citizen of
the State of Maryland and actually resides therein.
SIXTH: Section 6.1. Capital Stock. The total number of Shares of capital
stock which the Corporation shall have authority to issue is one billion
(1,000,000,000) Shares, par value of one tenth of one cent ($.001) ("Shares"),
and having an aggregate par value of one million dollars ($1,000,000). The Board
of Directors shall have full power and authority, in its sole discretion and
without obtaining any prior authorization or vote of the Stockholders, to change
in any manner and to create and establish Shares having such preferences, terms
of conversion, rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as shall be fixed and
determined from time to time by resolution or resolutions providing for the
issuance of such Shares adopted by the Board of Directors.
The Shares may be issued by the Board of Directors in such separate and
distinct series ("Series") and Classes ("Classes") as the Board of Directors
shall from time to time create and establish. The Board of Directors is
authorized, from time to time, to divide or combine the Shares into a greater or
lesser number, to classify or reclassify any unissued Shares of the Corporation
into one or more separate Series or Classes of Shares, and to take such other
action with respect to the Shares as the Board of Directors may deem desirable.
In addition, the Board of Directors is hereby expressly granted authority to
increase or decrease the number of Shares of any Series or Class, but the number
of Shares of any Series or Class shall not be decreased by the Board of
Directors below the number of Shares thereof then outstanding. The Board of
Directors, in its discretion without a vote of the Stockholders, may divide the
Shares of any Series into Classes. The Shares of any Series or Class of stock
shall have such preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption as shall be
fixed and determined from time to time by the Board of Directors.
The Corporation may hold as treasury shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at its discretion from time to time, any Shares reacquired by the
Corporation. No holder of any of the Shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any Shares of the Corporation
which the Corporation proposes to issue or reissue.
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Without limiting the authority of the Board of Directors set forth herein
to establish and designate any further Series or Classes, and to classify and
reclassify any unissued Shares, there is hereby established and classified, two
Series of stock comprising 600,000,000 Shares, to be known as (1) the Morgan
Keegan Intermediate Bond Fund and (2) the Morgan Keegan High Income Fund. Of
these 600,000,000 Shares, 100,000,000 Shares are hereby established and
classified as Shares of Morgan Keegan Intermediate Bond Fund, Class A;
100,000,000 Shares are hereby established and classified as Morgan Keegan
Intermediate Bond Fund, Class C; and 100,000,000 Shares are hereby established
and classified as Morgan Keegan Intermediate Bond Fund, Class I. Furthermore,
100,000,000 Shares are hereby established and classified as Shares of Morgan
Keegan High Income Fund, Class A; 100,000,000 Shares are hereby established and
classified as Morgan Keegan High Income Fund, Class C; and 100,000,000 Shares
are hereby established and classified as Morgan Keegan High Income Fund, Class
I.
The Class A, Class C and Class I Shares of each Series shall represent
investment in the same pool of assets and shall have the same preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption, except as
provided in these Articles of Incorporation and as set forth below:
(I) The net asset values of Class A, Class C and Class I Shares of each
Series shall be calculated separately. In calculating the net asset
values,
(a) Each Class shall be charged with the transfer agency fees and
Rule 12b-1 fees (or equivalent fees by any other name) attributable
to that Class, and not with the transfer agency fees and Rule 12b-1
fees (or equivalent fees by any other name) attributable to any
other Class;
(b) Each Class shall be charged separately with such other expenses
as may be permitted by Securities and Exchange Commission rule or
order and as the Board of Directors shall deem appropriate;
(c) All other fees and expenses shall be charged to the Classes, in
the proportion that the net assets of that Class bears to the net
assets of the applicable Series, except as the Securities and
Exchange Commission may otherwise require;
(II) Dividends and other distributions shall be paid on Class A, Class C
and Class I Shares of each Series. The amounts of all dividends and other
distributions shall be calculated separately for Class A, Class C and
Class I Shares of each Series. In calculating the amount of any dividends
or other distribution,
(a) Each Class shall be charged with the transfer agency fees and
Rule 12b-1 fees (or equivalent fees by any other name) attributable
to that Class, and not with the transfer agency fees and Rule 12b-1
fees (or equivalent fees by any other name) attributable to any
other Class;
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(b) Each Class shall be charged separately with such other expenses
as may be permitted by Securities and Exchange Commission rule or
order and as the Board of Directors shall deem appropriate;
(c) All other fees and expenses shall be charged to the Classes, in
the proportion that the net assets of that Class bears to the net
assets of the applicable Series, except as the Securities and
Exchange Commission may otherwise require;
(III) Each Class shall vote separately on matters pertaining only to that
Class, as the Board of Directors shall from time to time determine. On all
other matters, all Classes shall vote together and every Share, regardless
of Class, shall have an equal vote with every other Share.
The Corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
Section 6.2. Establishment of Series and Classes. The establishment of any
Series or Class of Shares in addition to those established in Section 6.1 hereof
shall be effective upon the adoption of a resolution by the Board of Directors
setting forth such establishment and designation and the relative rights and
preferences of the Shares of such Series or Class. At any time that there are no
Shares outstanding of any particular Series or Class previously established and
designated, the Directors may by a majority vote abolish that Series or Class
and the establishment and designation thereof.
Section 6.3. Dividends. Dividends and distributions on Shares with respect
to each Series or Class may be declared and paid with such frequency, in such
form and in such amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the Board
of Directors may determine.
All dividends on Shares of each Series or Class shall be paid only out of
the income belonging to that Series or Class and capital gains distributions on
Shares of each Series or Class shall be paid only out of the capital gains
belonging to that Series or Class. All dividends and distributions on Shares of
each Series or Class shall be distributed pro rata to the holders of that Series
or Class in proportion to the number of Shares of that Series or Class held by
such holders at the date and time of record established for the payment of such
dividends or distributions, except that such dividends and distributions shall
appropriately reflect expenses allocated to a particular Series or Class. In
connection with any dividend or distribution program or procedure the Board of
Directors may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Board of Directors under such
program or procedure.
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The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable each Series of the Corporation to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended, or any successor or comparable statute thereto, and
regulations promulgated thereunder, and to avoid liability of each Series of the
Corporation for Federal income and excise tax in respect of that year. However,
nothing in the foregoing shall limit the authority of the Board of Directors to
make distributions greater than or less than the amount necessary to qualify as
a regulated investment company and to avoid liability of any Series of the
Corporation for such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 6.7.
Section 6.4. Assets and Liabilities of Series and Classes. All
consideration received by the Corporation for the issue or sale of Shares of a
particular Series or Class, together with all assets in which such consideration
is invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be referred to as "assets belonging to"
that Series or Class, as the case may be. In addition, any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated between and among one or more of the Series or Classes in such manner
as the Board of Directors, in its sole discretion, deems fair and equitable.
Each such allocation shall be conclusive and binding upon the Stockholders of
all Series or Classes for all purposes, and shall be referred to as assets
belonging to that Series or Class. The assets belonging to a particular Series
or Class shall be so recorded upon the books of the Corporation. The assets
belonging to each particular Series or Class shall be charged with the
liabilities of that Series or Class and all expenses, costs, charges and
reserves attributable to that Series or Class, as the case may be. Any general
liabilities, expenses, costs, charges or reserves of the Corporation which are
not readily identifiable as belonging to any particular Series or Class shall be
allocated between or among any one or more of the Series or Classes in such a
manner as the Board of Directors in its sole discretion deems fair and
equitable. Each such allocation shall be conclusive and binding upon the
Stockholders of all Series or Classes for all purposes.
Section 6.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his name on the
books of the Corporation; provided, however, that when required by the 1940 Act
or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of such Series or Class only, and each
holder of Shares thereof shall be entitled to votes equal to the number of full
and fractional Shares of the Series or Class standing in his name on the books
of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares of capital stock of the Corporation outstanding and
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entitled to vote thereat shall constitute a quorum for the transaction of
business at a Stockholders' meeting, except that where holders of any Series or
Class vote as a Series or Class, one-third of the aggregate number of Shares of
that Series or Class outstanding and entitled to vote shall constitute a quorum
for the transaction of business by that Series or Class.
Section 6.6. Redemption by Stockholders. Each holder of Shares shall have
the right at such times as may be permitted by the Corporation to require the
Corporation to redeem all or any part of his Shares at a redemption price per
Share equal to the net asset value per Share as of such time as the Board of
Directors shall have prescribed by resolution, minus any applicable sales charge
or redemption or repurchase fee. In the absence of such resolution, the
redemption price per Share shall be the net asset value next determined (in
accordance with Section 6.7) after acceptance of a request for redemption in
proper form less such charges as are determined by the Board of Directors and
described in the Corporation's registration statement under the Securities Act
of 1933, except that Shares may be redeemed by an underwriter at (a) the net
asset value next determined after such requests are received by a dealer with
whom such underwriter has a sales agreement or (b) the net asset value
determined at a later time. The Board of Directors may specify conditions,
prices, and places of redemption, and may specify binding requirements for the
proper form or forms of requests for redemption. The Corporation may require
Stockholders to pay a sales charge to the Corporation, the underwriter or any
other person designated by the Board of Directors upon redemption or repurchase
of Shares of any Series or Class, in such amount as shall be determined from
time to time by the Directors. Payment of the redemption price may be wholly or
partly in securities or other assets at the value of such securities or assets
used in such determination of net asset value, or may be in cash.
Notwithstanding the foregoing, the Board of Directors may postpone payment of
the redemption price and may suspend the right of the holders of Shares to
require the Corporation to redeem Shares during any period or at any time when
and to the extent permissible under the 1940 Act.
Section 6.7. Net Asset Value per Share. The net asset value of each Share
of each Series or Class shall be the quotient obtained by dividing the value of
the total assets of the Series or Class, less liabilities and expenses of that
Series or Class, by the total number of Shares of the Series or Class
outstanding. The Board of Directors shall have the power and duty to determine,
in accordance with generally accepted accounting principles, the net income,
total assets and liabilities of the Corporation and the net asset value per
Share of each Series and Class of Shares at such times and by such methods as it
shall determine subject to any restrictions or requirements under the 1940 Act
and the rules, regulations and interpretations thereof promulgated or issued by
the Securities and Exchange Commission or insofar as permitted by any order of
the Securities and Exchange Commission applicable to the Corporation. The Board
of Directors may delegate such power and duty to any one or more of the
directors and officers of the Corporation, to the Corporation's investment
adviser, to the custodian or depository of the Corporation's assets, or to
another agent or contractor of the Corporation.
Section 6.8. Redemption by the Corporation. The Board of Directors may
cause the corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than two thousand dollars ($2,000). No such redemption shall be effected unless
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the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his Shares to two thousand dollars ($2,000). Upon redemption of Shares pursuant
to this Section, the Corporation shall promptly cause payment of the full
redemption price, in any permissible form, to be made to the holder of Shares so
redeemed. The Board of Directors may by a majority vote establish from time to
time amounts less than two thousand dollars ($2,000) at which the Corporation
will redeem Shares pursuant to this Section.
SEVENTH: Section 7.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 7.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the By-Laws they
shall be deemed to include fractions of Shares, where the context does not
clearly indicate that only full Shares are intended.
EIGHTH: Except as otherwise required by the 1940 Act, a majority of all
the votes cast at a Stockholders' meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the meeting.
Notwithstanding any provision of law requiring a greater proportion than a
majority of the vote thereon as a separate Class or Series (or of any Class or
Series entitled to vote thereon as a separate Class or Series) to take or
authorize any action, the Corporation is hereby authorized in accordance with
the authority granted by Section 2-104(b)(5) of the Maryland General Corporation
Law, to take such action upon the concurrence of a majority of the aggregate
number of Shares entitled to vote thereon (or of a majority of the aggregate
number of Shares of a Class or Series entitled to vote thereon as a separate
Class or Series). The right to cumulate votes in the election of directors is
expressly prohibited.
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NINTH: Section 9.1. Board of Directors. All corporate powers and authority
of the Corporation (except as otherwise provided by statute, by these Articles
of Incorporation, or by the By-Laws of the Corporation) shall be vested in and
exercised by the Board of Directors. The number of directors constituting the
Board of Directors shall be such number as may from time to time be fixed in or
in accordance with the By-Laws of the Corporation, provided that if there is no
stock outstanding, the number of directors may be less than three but not less
than one, and further provided that if there is stock outstanding and so long as
there are less than three Stockholders, the number of directors may be less than
three but not less than the number of Stockholders. Except as provided in the
By-Laws, the election of directors may be conducted in any way approved at the
meeting (whether of stockholders or directors) at which the election is held,
provided that such election shall be by ballot whenever requested by any person
entitled to vote. The name of the person who shall act as initial director until
stock is issued to more than one stockholder or the first meeting of
stockholders, whichever shall occur earlier, and until his successor has been
duly chosen and qualified is Charles Maxwell.
Section 9.2. By-Laws. Except as may otherwise be provided in the By-Laws,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend and repeal By-Laws or to adopt new By-Laws of the Corporation,
without any action on the part of the Stockholders; but the By-Laws made by the
Board of Directors and the power so conferred may be altered or repealed by the
Stockholders.
Section 9.3. Inspection of Records. The Board of Directors shall have the
power to determine whether and to what extent, and at what times and places, and
under what conditions and regulation, the accounts and books of the Corporation
(other than the stock ledger), or any of them, shall be open to inspection by
stockholders. No stockholders shall have any right to inspect any account, book,
or document of the Corporation, except to the extent permitted by statute or the
By-Laws.
TENTH: Section 10.1. The Board of Directors may in its discretion from
time to time enter into an exclusive or nonexclusive distribution contract or
contracts providing for the sale of Shares whereby the Corporation may either
agree to sell Shares to the other party to the contract or appoint such other
party its sales agent for such Shares (such other party being herein sometimes
called the "underwriter"), and in either case on such terms and conditions as
may be prescribed in the By-Laws, if any, and such further terms and conditions
as the Board of Directors may in its discretion determine not inconsistent with
the provisions of these Articles of Incorporation. Such contract may also
provide for the repurchase of Shares of the Corporation by such other party or
parties as agent of the Corporation. The Board of Directors may also in its
discretion from time to time enter into an investment advisory or management
contract or contracts whereby the other party to such contract shall undertake
to furnish to the Board of Directors such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Board of
Directors may in its discretion determine.
Section 10.2. Any contract of the character described in Section 10.1 or
for services as administrator, custodian, transfer agent or disbursing agent or
related services may be entered into with any corporation, firm, trust or
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association, although any one or more of the directors or officers of the
Corporation may be an officer, director, trustee, stockholder or member of such
other party to the contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any such relationship, nor shall
any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Corporation under or by reason of
said contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was reasonable and fair
and not inconsistent with the provisions of this Article TENTH. The same person
(including a firm, corporation, trust, or association) may be the other party to
any or all of the contracts entered into pursuant to Section 10.1 above, and any
individual may be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 10.2.
ELEVENTH: Section 11.1. To the maximum extent permitted by applicable law
(including Maryland law and the 1940 Act) as currently in effect or as it may
hereafter be amended, no director or officer of the Corporation shall be liable
to the Corporation or its stockholders for money damages.
Section 11.2. To the maximum extent permitted by applicable law (including
Maryland law and the 1940 Act) currently in effect or as it may hereafter be
amended, the Corporation shall indemnify and advance expenses to its present and
past directors, officers, or employees, and persons who are serving or have
served at the request of the Corporation as a director, officer, employee,
partner, trustee or agent, of or in similar capacities, for other entities. The
Board of Directors may determine that the Corporation shall provide information
or advance expenses to an agent.
Section 11.3. Repeal or Modifications. No repeal or modification of this
Article ELEVENTH by the stockholders of the Corporation, or adoption or
modification of any other provision of the Articles of Incorporation or By-Laws
inconsistent with this Article ELEVENTH, shall repeal or narrow any limitation
on (1) the liability of any director, officer or employee of the Corporation or
(2) right of indemnification available to any person covered by these provisions
with respect to any act or omission which occurred prior to such repeal,
modification or adoption.
TWELFTH: The Corporation reserves the right from time to time to make any
amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at any meeting of
the stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon. The Board of Directors may, without a Shareholder
vote, order the filing of Articles Supplementary increasing or decreasing the
aggregate number of Shares or the number of Shares of any Series or Class that
the Corporation has authority to issue, establishing new Series or Classes and
describing the Shares thereof.
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IN WITNESS WHEREOF, the undersigned incorporator of MORGAN KEEGAN SERIES
FUND, INC. has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 21st day of October, 1998.
/s/ Joel B. Celestin
--------------------------------
Joel B. Celestin
