As filed with the Securities and Exchange Commission on January 21, 1999
1933 Act Registration No. 333-66181
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. _____ [ 1 ]
Post-Effective Amendment No. _____ [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. _____ [ 1 ]
------
(Check appropriate box or boxes)
MORGAN KEEGAN SELECT 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
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement
Registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until Registrant shall file a further amendment that specifically states
that such Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), shall determine.
<PAGE>
Morgan Keegan Select 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 Select 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; Who may want to invest;
Investments, Risks, and Performance Goals and Strategies; Portfolio
Securities; 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; Who may want to invest;
Investment Strategies, and Related Goals and Strategies; Portfolio
Risk Securities; Risk Factors; More
About Risk; Other Securities and
Risk; Other Investment Practices
5. Management's Discussion of Risk Factors
Fund Performance
6. Management, Organization and Fund's Management and Investment
Capital Structure Adviser; Funds' Portfolio Manager
7. Shareholder Information Your Account; Buying Shares;
Choosing a Share Class; Class
Comparison; Rule 12b-1 Fees;
Policies for Buying Shares;
To Add to an Account; Buying
Shares; Internet; Selling Shares;
To Sell Some or All of Your
Shares; Account Policies;
Distributions; Tax Considerations;
Investor Services; Additional
Policies; For Additional
Information
8. Distribution Arrangements Rule 12b-1 fees; Funds' Distributor
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 Securities Description of the Funds' Shares
18. Purchase, Redemption, and Pricing Additional Information on
of Shares Redemptions; 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
FEBRUARY 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.
<PAGE>
Table of Contents
Page
Overview.......................................................................1
Fund Information Key.........................................................1
Who may want to invest.........................................................2
Morgan Keegan Intermediate Bond Fund...........................................3
Goals and Strategies.........................................................3
Portfolio Securities.........................................................3
Risk Factors.................................................................3
Fees and Expenses of the Fund................................................5
Morgan Keegan High Income Fund.................................................6
Goals and Strategies.........................................................6
Portfolio Securities.........................................................6
Risk Factors.................................................................7
Fees and Expenses of the Fund................................................8
Your Account...................................................................9
Buying shares................................................................9
Choosing a Share Class.......................................................9
Class Comparison.............................................................9
Policies for Buying Shares..................................................11
To Add to an Account........................................................11
Buying Shares...............................................................12
Internet....................................................................12
Selling Shares..............................................................12
To Sell Some or All of Your Shares..........................................13
Account Policies..............................................................13
Additional Policies...........................................................14
Investor Services.............................................................14
Funds' Management and Investment Adviser......................................15
Funds' Portfolio Manager......................................................15
Funds'Distributor.............................................................16
Distributions.................................................................16
Tax Considerations............................................................16
More About Risk...............................................................17
Other Securities and Risks..................................................17
Other Investment Practices..................................................18
For Additional Information....................................................19
Account Application...........................................................20
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 principal 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] EXPENSES: The overall costs borne by an investor in the Fund,
including sales charges and annual expenses.
1
<PAGE>
WHO MAY WANT TO INVEST
The Funds may be appropriate for investors who:
o Are seeking monthly 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
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
2
<PAGE>
MORGAN KEEGAN INTERMEDIATE BOND FUND
GOALS AND STRATEGIES [GRAPHICS OMITTED]
The Fund seeks total return by primarily investing in investment grade, fixed
income securities that Morgan Asset Management, Inc. (the "Advisor") believes
offer attractive yield and capital appreciation potential. The Fund believes
that over the long-term the primary component of total return will be derived
from interest income and the secondary component will be derived from capital
appreciation. To pursue these goals, the Fund will invest at least 65% of its
total assets in investment grade, intermediate term maturity bonds (those bonds
rated investment grade by at least one nationally recognized statistical 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 between 3 and 10
years.
All securities purchased by the Fund will be rated, at the time of investment,
at least BBB by at least one nationally recognized statistical rating
organization ("NRSRO") including, but not limited to, Standard & Poor's Ratings
Group and Moody's Investors Service, Inc. or, if unrated, will be determined by
the Adviser to be of comparable quality. If a security satisfies the Fund's
minimum rating criteria at the time of purchase and is subsequently downgraded
below such rating, the Fund will not be required to dispose of such security. If
a downgrade occurs, the Adviser will consider what action, including the sale of
such security, is in the best interest of the Fund and its shareholders.
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 it believes offer
potentially better yield or total return (the combination of yield and price
appreciation) than securities of comparable rating and maturity. Similarly, the
Adviser will sell securities that it believes no longer offer potentially better
yield or total return than other available securities. 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 U.S. Government securities, corporate bonds, debentures,
notes, preferred stock, mortgage-backed and asset-backed securities.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer generally pays the investor a fixed, variable
or floating rate of interest, and is obligated to repay the amount borrowed at
maturity.
U.S. GOVERNMENT SECURITIES. These are high quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government.
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.
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.
3
<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.
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 below investment grade and long term bond funds as a
trade-off for potentially lower risk.
Investment grade debt securities have credit risk and their ratings are no
guarantee that principal repayment or interest payments will be made. The rating
agencies describe the lowest grade of investment grade bonds as having
speculative characteristics. Moreover, in searching for attractive yields and
capital appreciation, the Fund may invest up to 35% of its assets in below
investment grade bonds, convertible securities and in common stocks, which could
carry increased credit risk and price volatility.
To the extent that the Fund invests in asset-backed and mortgage-backed
securities, it will also be subject to extension and prepayment risks. Extension
risk is 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 market value; and prepayment risk is the risk that
unanticipated prepayments may occur during periods of falling interest rates,
with the prepayments reinvested on behalf of the Fund at the lower prevailing
interest rates.
No assurance can be given that the U.S. Government will provide financial
support to U.S. Government agencies, instrumentalities or sponsored enterprises.
The Fund intends to keep invested at all times. Under adverse market conditions,
this 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.
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.
SHAREHOLDER FEES (fees paid directly from your
investment) Class A Class C Class I
- --------------------------------------------------------------------------------
Maximum sales charge 2.00% 0.00% 0.00%
(as a percentage of offering price)
Maximum deferred sales charge 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%
Distribution/service (12b-1) fees 0.25% 0.60% 0.00%
Other expenses(1) 0.40% 0.40% 0.40%
----------------------------------
Total annual fund operating expenses(2)1.05% 1.40% 0.80%
==================================
Fee Waiver 0.15% 0.15% 0.15%
==================================
Net Expenses: 0.90% 1.25% 0.65%
(1) Because the Fund had no operations prior to the date of this prospectus,
these are the expected expenses for its first year of operations.
(2) The Adviser has agreed to waive its fee and to reimburse the Fund for its
first twelve months 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 $290 $229 $67
1 Year (if shares are not redeemed) $290 $129 $67
3 Years (whether or not $514 $431 $241
shares are redeemed)
5
<PAGE>
MORGAN KEEGAN HIGH INCOME FUND
GOALS AND STRATEGIES [GRAPHICS OMITTED]
The Fund seeks total return by primarily investing in below investment grade,
fixed income securities that the Adviser believes offer attractive yield and
capital appreciation potential. The Fund believes that over the long-term the
primary component of total return will be derived from interest income and the
secondary component will be derived from capital appreciation.
The Fund will invest primarily in debt securities rated below investment grade
by S&P or Moody's or, if not rated, determined by the Adviser to be of
comparable quality. Securities purchased by the Fund will be rated, at the time
of investment, at least CCC by at least one NRSRO or, if unrated, is determined
by the Adviser to be of comparable quality. If a security satisfies the Fund's
minimum rating criteria at the time of purchase and is subsequently downgraded
below such rating, the Fund will not be required to dispose of such security. If
a downgrade occurs, the Adviser will consider what action, including the sale of
such security, is in the best interest of the Fund and its shareholders.
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 it believes offer
potentially better yield or total return (the combination of yield and price
appreciation) than securities of comparable rating and maturity. Similarly, the
Adviser will sell securities that it believes no longer offer potentially better
yield or total return than other available securities. 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. The policy of the Fund is to keep the portfolio's average
effective maturity between 3 and 15 years.
PORTFOLIO SECURITIES [GRAPHICS OMITTED]
Up to 100% of the Fund's total assets 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.
BELOW INVESTMENT GRADE SECURITIES are securities which are rated below
investment grade by at least one NRSRO or if unrated, are determined by the
Adviser to be of comparable quality. 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 interest and principal payments by the issuer.
CONVERTIBLE SECURITIES are securities of an issuer convertible at a stated
exchange rate into common stock of the issuer. Convertible securities generally
offer lower interest or dividend yields than non-convertible securities.
PREFERRED STOCK are securities that provide the holder with claims on the
issuer's earnings and assets before common stock owners but after bond owners.
Unlike debt securities, the obligations of an issuer of preferred stock, may not
typically be accelerated in the event of default (such as the filing of a
bankruptcy petition by the issuer).
MUNICIPAL SECURITIES consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by or
on behalf of states, territories and possessions of the United States (including
the District of Columbia) and their political subdivisions, agencies or
6
<PAGE>
instrumentalities. The interest on such securities is exempt from the federal
income tax. Such securities may pay fixed, variable or floating rates of
interest.
FOREIGN GOVERNMENT SECURITIES are debt obligations of foreign governments and
governmental agencies, including those of emerging countries.
RISK FACTORS [GRAPHICS OMITTED]
This is an aggressive bond fund which has a significant degree of risk.
Investors should expect greater fluctuations in share price, yield and total
return compared with less aggressive bond funds.
Below investment grade securities are considered to have speculative
characteristics, and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness, or they may already be in default. The
market prices of these securities may fluctuate more than higher-quality
securities and may decline significantly in periods of general or regional
economic difficulty. Below investment grade securities may be thinly traded,
making them difficult to sell promptly at an acceptable price. Adverse publicity
and changing investor perceptions may affect the ability to obtain prices for,
or to sell, these securities.
The default rate of below investment grade securities is likely to be higher
when issuers have difficulty meeting projected goals or obtaining additional
financing. This could occur more often during economic recessions or periods of
high interest rates.
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. Extension risk is 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 market value;
and prepayment risk is the risk that unanticipated prepayments may occur during
periods of falling interest rates, with the prepayments reinvested on behalf of
the Fund at the lower prevailing interest rates.
Investments in foreign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the foreign debt may be
unwilling or unable to pay principal or interest when due in accordance with the
terms of such debt, and the Fund may have limited recourse in the event of
default. A foreign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its currency reserves, the availability of
sufficient foreign exchange, political and economic constraints.
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 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.
7
<PAGE>
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.
SHAREHOLDER FEES (fees paid directly
from your investment) Class A Class C Class I
- --------------------------------------------------------------------------------
Maximum sales charge 2.50% 0.00% 0.00%
(as a percentage of offering price)
Maximum deferred sales charge 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%
Distribution/service (12b-1) fees 0.25% 0.75% 0.00%
Other expenses(1)\ 0.40% 0.40% 0.40%
----------------------------------
Total annual fund operating expenses(2) 1.40% 1.90% 1.15%
==================================
Fee Waiver 0.15% 0.15% 0.15%
==================================
Net Expenses: 1.25% 1.75% 1.00%
(1) Because the Fund had no operations prior to the date of this prospectus,
these are the expected expenses for its first year of operations.
(2) The Adviser has agreed to waive its fee and to reimburse the Fund for its
first twelve months 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:
Class A Class C Class I
-------------------------------------------
1 Year $375 $278 $102
1 Year (if shares are not redeemed) $375 $178 $102
3 Years (whether or not $669 $584 $352
shares redeemed)
8
<PAGE>
YOUR ACCOUNT
BUYING SHARES [GRAPHICS OMITTED]
If you are buying shares through a Morgan Keegan & Company ("Morgan Keegan")
broker, he or she can assist you with all phases of your investment.
MINIMUM INITIAL INVESTMENT FOR CLASS A AND CLASS C SHARES:
o $1,000
o $250 for Individual Retirement Accounts
MINIMUM ADDITIONAL INVESTMENTS:
o $50 for any account
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 OR if you plan to hold your
shares for a long period, Class A shares may make the most sense for you. If you
are investing for less than five years, you may want to consider Class C shares.
Class I shares are available only to a limited group of investors. 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 which includes the sales load); 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 distribution/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.
9
<PAGE>
- --------------------------------------------------------------------------------
Morgan Keegan Intermediate Bond Fund
- --------------------------------------------------------------------------------
Class A Sales Charge
- --------------------------------------------------------------------------------
As a % of net
Your investment As of % of offering price amount invested
- --------------------------------------------------------------------------------
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 net
Your investment As of % of offering price amount invested
- --------------------------------------------------------------------------------
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% of the lesser of the purchase price of the shares
or their net asset value at the time of redemption, payable by you if you
sell shares within one year of purchase. In the event of a partial
redemption, the deferred sales charge will be applied to the oldest shares
held first.
o Annual distribution/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 distribution/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).
10
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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, 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. To
purchase shares at the next computed net asset value an investor must submit an
order to Morgan Keegan by completing the enclosed purchase application and
sending it along with a check to Morgan Keegan at the address listed in the
application or through a pre-authorized check or transfer plan offered by other
financial institutions.
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 your Morgan Keegan broker or Morgan Keegan at
50 North Front Street, Memphis, TN 38103.
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 and share class on your check. Make checks payable to "Morgan Keegan". Mail
the check and stub to Morgan Keegan at 50 North Front Street, Memphis, TN 38103.
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.
Call your Morgan Keegan broker or Morgan Keegan at 800-366-7426 or visit our web
site at www.morgankeegan.com.
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BUYING SHARES [GRAPHICS OMITTED]
THROUGH A FINANCIAL PROFESSIONAL
BY MAIL Send a completed purchase application to Morgan Keegan at the address
at the bottom of this page. Specify the Fund, the share class, the account
number and the dollar value or number, if any, of shares. Be sure to include any
necessary signatures and any additional documents.
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 promptly. Purchase requests,
where the investor making the request does not currently have an account with
Morgan Keegan, must be made by written application and be accompanied by a check
to Morgan Keegan.
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. All exchanges will be made by telephone.
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 written requests must bear signature
guarantees. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
TIMING OF REQUESTS All requests received 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.
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<PAGE>
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
date (in rare cases, longer). Any delay would occur only when it cannot be
determined that payment has cleared.
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 share class, the account number
and the dollar value or number of shares. Be sure to include any necessary
signatures and any additional documents.
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. All exchanges may be made by telephone.
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
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
normally 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. When the Funds believe that a market quote does not reflect
a security's true value, the Funds may substitute for the market quote a fair
value estimate made according to methods approved by the Board of Directors.
13
<PAGE>
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. The Funds
will provide 7 days' prior notice before suspending or eliminating telephone
privileges.
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. The Funds will provide 7 days' prior notice before
suspending or eliminating exchange privileges.
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.
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.
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.
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<PAGE>
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.
AUTOMATED INVESTMENTS OR WITHDRAWALS. Set up regular investments or withdrawals
to suit your needs and let Morgan Keegan do the work for you.
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.
DIVIDEND REINVESTMENT. Have your dividends automatically reinvested at no sales
charge.
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
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.
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.
FUNDS' MANAGEMENT AND INVESTMENT ADVISER
The Funds are managed by Morgan Asset Management, Inc., 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 December 31, 1998, more than $1.5 billion in total assets
under management.
FUNDS' PORTFOLIO MANAGER [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.
15
<PAGE>
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.
DISTRIBUTIONS
INCOME AND CAPITAL GAIN DISTRIBUTIONS. Each Fund distributes its net investment
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 shares of the Fund or credited to
your brokerage account or mailed out by check. If you do not give Morgan Keegan
other instructions, your distributions will automatically be reinvested in
shares of the Fund.
TAX CONSIDERATIONS
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS. In general, any dividends and net
short-term capital gain distributions you receive from the Funds are taxable as
ordinary income. Distributions of other capital gains are generally taxable as
long-term 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, your Fund will send you information detailing the amount of
dividends and net capital gain 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 a Fund close to the end of its fiscal year (if
a Fund makes a capital gain distribution, you will receive some of your
investment back as a taxable distribution), or
o Selling shares of a Fund at a loss for tax purposes and reinvesting in shares
of that Fund 30 days before or after that sale (such a transaction is usually
considered a "wash sale," and you will not be allowed to deduct all or part
of the tax loss).
Your investment in the Funds could have additional tax consequences. Please
consult your tax professional for assistance.
BACKUP WITHHOLDING By law, the Funds must withhold 31% of your distributions
and redemption proceeds if you have not provided complete, correct taxpayer
information and 31% of your distributions if you are otherwise subject to backup
withholding.
16
<PAGE>
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 Funds' descriptions. Below are brief descriptions of other
securities and practices, along with their associated risks.
DERIVATIVES, a category that includes options and futures, are financial
instruments whose value derives from another security, index or physical
commodity. 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.
EFFECTIVE MATURITY is 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.
FOREIGN INVESTMENTS The Morgan Keegan High Income Fund may invest up to 20% of
its assets in foreign securities. 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. The
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 are less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
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.
INTERMEDIATE TERM MATURITY BONDS. Bonds (debt) that have average maturities
generally ranging from 1 to 10 years. These bonds normally offer higher yields
but less price stability than short term bonds and offer greater price stability
but lower yield than long term bonds.
INVESTMENT GRADE BONDS. Bonds that are rated in the top four credit categories
by at least one NRSRO at the time of purchase or, if not rated, are considered
by the Adviser to be of comparable quality. Investment grade bonds are
considered less risky than bonds whose ratings are below investment grade;
ratings are no guarantee of quality.
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
17
<PAGE>
these securities, the Fund may have to determine fair value, which means that
their valuation (and, to a smaller extent, the valuation of the Fund) may have a
subjective element.
TEMPORARY INVESTMENTS For liquidity and flexibility, each Fund may invest in
investment grade, short term securities. In unusual market conditions, each Fund
may invest more assets in these securities temporarily as a defensive tactic.
TOTAL RETURN is composed of the income received on the securities held by the
Fund and either capital appreciation or depreciation of those securities.
YEAR 2000 ISSUES Like other mutual funds, the Funds could be affected by
problems relating to the ability of computer systems to recognize the year 2000.
The Funds' are taking steps to ensure that its computer systems are compliant
with Year 2000 issues and to determine that the systems used by its major
service providers are also compliant. At the same time, it is impossible to know
whether these problems, which could disrupt Funds' operations and investments if
uncorrected, have been adequately addressed until the dates in question arrive.
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 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.
18
<PAGE>
FOR ADDITIONAL INFORMATION
A Statement of Additional Information ("SAI"), dated February 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.
All shareholder inquiries can be made by contacting Morgan Keegan at the address
listed below:
Morgan Keegan & Company, Inc.
50 North Front Street
Memphis, TN 38102
Investment Company Act File No. 811-09079.
19
<PAGE>
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
___ Class A
___ Class C
___ Class I
___ Morgan Keegan High Income Fund
___ Class A
___ Class C
___ Class I
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.
___ Class A
___ Class C
___ Class I
$____________________ to the Morgan Keegan High Income Fund
___ Class A
___ Class C
___ Class I
2. ACCOUNT REGISTRATION (PLEASE CHOOSE ONE)
/ / Individual or Joint Account*
- --------------------------------------------------------------------------------
Owner's name (first, middle initial, last)
and
20
<PAGE>
- --------------------------------------------------------------------------------
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
___________________________________________________________________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
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<PAGE>
- --------------------------------------------------------------------------------
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 OTHER 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 the minor's Social
Security number.
o Corporations, Partnerships, Estates, Other Entities or Trust accounts
Specify the Taxpayer Identification 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 GAIN OPTIONS
CHECK ONE ONLY. IF YOU DO NO CHECK ONE OF THE FOLLOWING OPTIONS, ALL DIVIDENDS
AND CAPITAL GAIN DISTRIBUTIONS WILL BE REINVESTED.
___ Reinvest all dividends and capital gain distributions.
___ Pay all dividends and capital gain distributions by check.
___ Pay all dividends by check and reinvest all capital gain distributions.
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<PAGE>
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.
Please check one: I (we) do ___, do not ____ want the TELEPHONE REDEMPTION
privilege.
Please check 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:
23
<PAGE>
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, Inc., 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 reasonably 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 other
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 and other distributions paid to your account and
proceeds from redemptions of your shares (referred to as "backup withholding").
Understanding penalties of perjury, you certify that:
The Social Security Number or other Taxpayer Identification Number on this
Application is correct and 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.
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 Select Fund, Inc.
50 North Front Street
Memphis, TN 38103
24
<PAGE>
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________________
25
<PAGE>
MORGAN KEEGAN SELECT 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 February 1,
1999, 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.
--------------------------------------
February 1, 1999
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................2
INVESTMENT LIMITATIONS AND POLICIES..........................................2
ADDITIONAL TAX INFORMATION..................................................19
General...................................................................20
Dividends and Other Distributions.........................................20
Income from Foreign Securities............................................21
Hedging Strategies........................................................22
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...................28
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
FINANCIAL STATEMENTS........................................................36
Dated: February 1, 1999
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GENERAL INFORMATION
The Morgan Keegan Select 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 objective 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 at the time 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 ("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) issue senior securities, except as permitted under the 1940 Act;
(2) 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 and will not purchase securities
when borrowing exceed 5% of its total assets;
(3) 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 ("1933 Act") in the disposition of restricted securities;
(4) 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, 25% or more of the Fund's total assets would
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be invested in the securities of companies whose principal business activities
are in the same industry;
(5) 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);
(6) 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
(7) 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 (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements are treated
as borrowings for purposes of fundamental investment limitation (3));
(4) may not purchase any security if, as a result, more than 15% of its
net assets would be invested in securities that are 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; and
(5) 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.
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.
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.
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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
("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.
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
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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
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
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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.
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
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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
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
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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 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.
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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
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
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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
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.
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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 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.
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
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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 Composite Stock Price 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.
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
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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.
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
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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
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
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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 1933 Act, 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
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.
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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.
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.
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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.
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
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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
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
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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.
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.
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GENERAL
Each Fund (which is treated as a separate corporation for federal tax purposes)
intends to qualify for treatment as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"). 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 plus, in the case of the
High Income Fund, net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements. For
each Fund, these requirements include the following: (1) at least 90% of the
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 foreign currencies, or other income (including
gains from options, futures or forward contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
(2) at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other securities, with these
other securities limited, with respect to any one issuer, to an amount that does
not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities; and (3)
at the close of the 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. If a
Fund failed to qualify for treatment as a RIC for any taxable year, (1) it would
be taxed at corporate rates on the full amount of its taxable income for that
year without being able to deduct the distributions it makes to its shareholders
and (2) the shareholders would treat all those distributions, including
distributions of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), as dividends (that is, ordinary income) to the
extent of the Fund's earnings and profits. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying for RIC treatment.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent 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 a 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 a 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 federal alternative minimum tax. Distributions by each Fund of
net capital gain do not qualify for the dividends-received deduction.
Dividends or other distributions declared by a Fund 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 Fund and received by the shareholders on
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December 31 if they are paid by the Fund during the following January.
Accordingly, such distributions will be taxed to the shareholders for the year
in which that December 31 falls.
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 a 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 either Fund for shares of the other Fund or Morgan Keegan Southern Capital
Fund generally will have similar tax consequences. Special rules apply when a
shareholder disposes of Class A shares of a Fund through a redemption or
exchange within 60 days after purchase thereof and subsequently reacquires Class
A shares of that Fund or acquires Class A shares of the other Fund or the Morgan
Keegan Southern Capital Fund without paying a sales charge due to the
reinstatement privilege or exchange privilege. In these cases, any gain on the
disposition of the original Class A shares will be increased, or any loss
decreased, by the amount of the sales charge paid when the shareholder acquired
those shares, and that amount will increase the basis of the shares subsequently
acquired. In addition, if a shareholder purchases shares of a Fund (whether
pursuant to the reinstatement privilege or otherwise) within 30 days before or
after redeeming at a loss other shares of that Fund (regardless of class), all
or part of that loss will not be deductible and instead will increase the basis
of the newly purchased shares.
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.
INCOME FROM FOREIGN SECURITIES
Dividends and interest received on foreign securities by the High Income
Fund, and gains it realizes thereon, may be subject to income, withholding or
other taxes imposed by foreign countries and U.S. possessions ("foreign taxes")
that would reduce the yield and/or total return on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate foreign taxes, however, and many foreign countries do not impose taxes
on capital gains in respect of investments by foreign investors.
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
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 --
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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 Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent it distributes that income 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 --
which most likely would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if those
earnings and gain were not distributed to the 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
the Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the 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.
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
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.
HEDGING STRATEGIES
The use of hedging strategies, such as selling (writing) and purchasing
options and futures contracts and entering into forward 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 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.
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Certain futures and foreign currency contracts 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. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax. These rules may operate to
increase the amount that a Fund must distribute to satisfy the Distribution
Requirement, which will be taxable to the shareholders as ordinary income, and
to increase the net capital gain recognized by a Fund, without in either case
increasing the cash available to the Fund.
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 a 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. The foregoing will not apply,
however, to any transaction during any taxable year that otherwise would be
treated as a constructive sale if the transaction is closed within 30 days after
the end of that year and the Fund holds the appreciated financial position
unhedged for 60 days after that closing (I.E., at no time during that 60-day
period is the Fund's risk of loss regarding that position reduced by reason of
certain specified transactions with respect to substantially similar or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale or granting an option to buy substantially identical
stock or securities).
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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, a 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 a 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, a 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 a 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
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Directors. Securities traded on an exchange or NASD National Market System
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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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:
P(1 + T)n = 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 other
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 distributions of each Fund 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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YIELD + 2 [BRACKET][BRACKET] a - b [OVER] cd + 1[BRACKET]6[SUPERSCRIPT] - 1
[BRACKET]
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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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 a 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. 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, when the
distribution is rolled over into another qualified plan, or in certain other
situations.
SELF-EMPLOYED INDIVIDUAL RETIREMENT PLANS - KEOGH PLANS
Morgan Keegan will assist self-employed individuals to set up a retirement
plan through which a Fund's shares may be purchased. Morgan Keegan generally
arranges for a bank to serve as trustee for the plan and performs custodian
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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.
Name Position with the Fund and Principal Occupation
During Past Five Years
Allen B. Morgan, Jr.* President and Director. Mr. Morgan is Chairman
Age 56 and Chief 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
845 Crossover Lane Corp. (management of venture capital funds).
Suite 140 He also serves as a Director for several
Memphis, Tennessee 38117 private companies.
Age 49
Spence L. Wilson Director. Mr. Wilson is President of
1629 Winchester Road Kemmons-Wilson, Inc. (private real estate
Memphis, Tennessee 38116 development). He also is Chairman of Orange
Age 55 Lake Country Club, Inc. and is a partner in
several Holiday Inn locations.
William F. Hughes, Jr. Mr. Hughes is a Management Director of Morgan
Age 55 Keegan & Company, Inc. He also is President of
Morgan Asset Management, Inc.
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Name Position with the Fund and Principal Occupation
During Past Five Years
William Jefferies Mann Director. Mr. Mann is Chairman and President
675 Oakleaf Office Lane of Mann Investments, Inc. (hotel
Suite 100 investments/consulting). He also serves as a
Memphis, Tennessee 38117 Director for Heavy Machines, Inc.
Age 65
James Stillman R. McFadden Director. Mr. McFadden is Vice President of
845 Crossover Lane Sterling Equities, Inc. (private equity
Suite 124 financings). He is also President and Director
Memphis, Tennessee 38117 of 1703, Inc. and a Director of Starr Printing
Age 41 Co.
Joseph C. Weller* Vice President, Treasurer & Assistant
Age 59 Secretary. Mr. 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
Age 44 is a 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).
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. The Funds will pay each Director who is not an interested person of the
Funds an annual retainer of $2,000, and a per meeting fee of $500 for each
meeting of the Board attended, together with actual out-of-pocket expenses
related to attendance at such meetings.
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
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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
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.
-32-
<PAGE>
DISTRIBUTOR
Morgan Keegan acts as distributor of the Funds' shares pursuant to an
Underwriting Agreement between the Funds and Morgan Keegan dated ____________,
1999 ("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 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. Morgan Keegan also pays special additional compensation and promotional
incentives from time to time, to investment brokers for 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 January 13, 1999,
and as required by Rule 12b-1 under the 1940 Act, by the Board of Directors on
November 16, 1998, 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
-33-
<PAGE>
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.
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 November 16, 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 distribution and service
(12b-1) fees and 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 and each series will vote separately on matters pertaining only
to that class or series, as the Board of Directors may determine. On all other
matters, all classes and series shall vote together and every share, regardless
of class or series, 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.
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
$4,000 per month, or $48,000 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 $1,500 per month, or
$18,000 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.
-35-
<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 LLP, Fifty North Front Street, Memphis, Tennessee 38103, are the
Funds' independent certified public accountants. KPMG LLP, performs an audit of
the Funds' financial statements and reviews the Funds' federal and state income
tax returns.
FINANCIAL STATEMENTS
Audited financial statements for the Fund and notes thereto, dated as of
January 14, 1999, and the report of KPMG LLP, are attached to this SAI.
-36-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Morgan Keegan Select Fund, Inc.:
We have audited the accompanying statements of net assets of Morgan Keegan
Intermediate Bond Fund and Morgan Keegan High Income Fund (funds within Morgan
Keegan Select Fund, Inc.) as of January 14, 1999. These financial statements are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the statements of net assets are free of
material misstatement. An audit of a statement of net assets includes examining,
on a test basis, evidence supporting the amounts and disclosures in that
financial statement. Our procedures included confirmation of cash owned with the
Funds' custodian. An audit of a statement of net assets also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits of the statements of net assets provide a reasonable basis for our
opinion.
In our opinion, the statements of net assets referred to above present fairly,
in all material respects, the financial position of Morgan Keegan Intermediate
Bond Fund and Morgan Keegan High Income Fund (funds within Morgan Keegan Select
Fund, Inc.) as of January 14, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
January 14, 1999
Memphis, Tennessee
<PAGE>
MORGAN KEEGAN SELECT FUND, INC.
Statements of Net Assets
January 14, 1999
MORGAN MORGAN
KEEGAN KEEGAN
INTERMEDIATE HIGH INCOME
BOND FUND FUND
------------ ------------
Assets:
Cash on deposit with custodian $ 50,000 50,000
------------ ------------
Total Assets 50,000 50,000
------------ ------------
Net Assets:
Net proceeds of capital stock, par value $.001 per
share-authorized 1 billion shares; outstanding
5,000; 5,000 shares, respectively 50,000 50,000
Shares outstanding and net asset value per share:
Class A shares (based on net assets of $16,667 and
$1,667 shares outstanding for each fund) $ 10 10
Class C shares (based on net assets of $16,666 and
$1,667 shares outstanding for each fund) $ 10 10
Class I shares (based on net assets of $16,666 and
$1,666 shares outstanding for each fund) $ 10 10
See accompanying notes to financial statements.
<PAGE>
MORGAN KEEGAN SELECT FUND, INC.
Notes to Financial Statements
January 14, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Morgan Keegan Intermediate Bond Fund and Morgan Keegan High Income Fund
(the "Funds") are separate diversified investment portfolios and series of
capital stock of Morgan Keegan Select Fund, Inc., an open-end management
investment company. The investment objectives of the Funds are as follows:
o The objective of the Morgan Keegan Intermediate Bond Fund is
total return (including capital appreciation and income) by
investing in investment grade, fixed income debt securities. The
Morgan Keegan Intermediate Bond Fund will invest at least 65% of
total assets in investment grade, intermediate term maturity bonds
with average effective maturities between 3 and 10 years.
o The objective of the Morgan Keegan High Income Fund is total return
(including capital appreciation and income) by investing in below
investment grade, fixed income debt securities. The Morgan Keegan
High Income Fund primarily invests in debt securities rated below
investment grades by Standard and Poor's or Moody's rating agency.
All organizational costs will be unconditionally absorbed by Morgan Asset
Management, Inc.
The inception of the Funds was January 13, 1999, and the commencement of
operations is anticipated to be February 15, 1999.
(2) MULTIPLE CLASS STRUCTURE AND PLAN OF DISTRIBUTION
A multiple class structure has been adopted pursuant to Rule 18f-3 under
the Investment Company Act of 1940, as amended, on behalf of each Fund.
Each Fund offers three share classes: Class A, Class C and Class I.
Class A shares are sold with an initial sales charge. Class C shares are
sold without an initial sales charge and are subject to a contingent
deferred sales charge within the first year of purchase. Class I shares
are sold without sales charges of any kind and are available only to
certain retirement accounts and other special programs. The Class A and
Class C shares at each Fund have a distribution plan pursuant to Rule
12b-1 under the Investment Company Act 1940, as amended.
<PAGE>
MORGAN KEEGAN SELECT FUND, INC.
Notes to Financial Statements
January 14, 1999
(3) PAYMENT TO RELATED PARTIES
Morgan Asset Management, Inc. (the "Advisor") is the investment adviser for
each Fund. Morgan Keegan and Company, Inc. acts as a distributor of each of
the Fund's shares under a plan of distribution pursuant to Rule 12b-1.
Investment advisory and management fees and 12b-1 distribution fees are
based on a percentage of each Fund's average daily net assets value. The
following chart represents sales charges and fees:
MORGAN KEEGAN INTERMEDIATE BOND FUND
CLASS A CLASS C CLASS I
------- ------- -------
Initial Sales Charge: 2.00% -- --
Deferred Sales Charge: -- 1 .00% --
Investment Advisory Fee: 0.40% 0 40% 0 40%
12b-1 Fees: 0.25% 0.60% --
MORGAN KEEGAN HIGH INCOME FUND
CLASS A CLASS C CLASS I
------- ------- -------
Initial Sales Charge: 2.50% -- --
Deferred Sales Charge: -- 1.00% --
Investment Advisory Fee: 0.75% 0.75% 0.75%
12b-1 Fees: 0.25% 0.75% --
Morgan Keegan and Company, Inc. will also provide funds accounting services
and transfer agent services for each Fund. The Advisor has agreed to waive
its fee and to reimburse each Fund for its first twelve months of
operations to the extent each Fund's annual operating expenses (excluding
brokerage, interest, taxes and extraordinary expenses) exceeds a specific
level. The Advisor's fee waivers for each Fund as a percentage of net
assets are as follows:
CLASS A CLASS C CLASS I
------- ------- -------
Morgan Keegan Intermediate Bond
Fund 0.90% 1.25% 0.65%
Morgan Keegan High Income Fund 1.25% 1.75% 1.00%
<PAGE>
PART C OTHER INFORMATION
23. Exhibits:
(a) Articles of Incorporation 1/
(1) Amendment to Articles of Incorporation dated January 12,
1999 (filed herewith)
(b) By-laws (filed herewith)
(c) Instruments Defining Rights of Security Holders
(1) Articles of Incorporation 1/
(2) Bylaws (filed herewith)
(d) Advisory Agreement (filed herewith)
(e) Underwriting Agreement (filed herewith)
(f) Bonus or Profit Sharing Contracts - none
(g) Custodian Agreement (to be filed)
(h) Other Material Contracts
(1) Fund Accounting Services Agreement (filed herewith)
(2) Transfer Agency and Service Agreement (filed herewith)
(i) Legal Opinion (filed herewith)
(j) Other Opinions
(1) Accountants' Consent (filed herewith)
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreement (filed herewith)
(m) Distribution Plan pursuant to Rule 12b-1 (filed herewith)
(n) Financial Data Schedule - none
(o) Multiple Class Plan Pursuant to Rule 18f-3 (filed herewith)
1/ Incorporated by reference to Form N-1A, SEC File No. 333-66181, filed on
October 27, 1998
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 25. INDEMNIFICATION
Section Eleventh of the Articles of Incorporation of the Corporation
states:
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.
<PAGE>
Section 10.01 of the Bylaws of the Corporation states:
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.
Paragraph 7 of the Advisory Agreement between the Corporation and Morgan
Asset Management, Inc. states:
A. Except as provided below, in the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund or its Portfolios
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or the making of any investment
for or on behalf of the Fund.
B. No provision of this Agreement shall be construed to protect any
Director or officer of the Fund, or the Adviser, from liability in
violation of Sections 17(h), 17(i), 36(a) or 36(b) of the 1940 Act.
Paragraphs 7 and 8 of the Underwriting Agreement between the Corporation
and Morgan Keegan & Company, Inc. state:
7. The Fund agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributor, its officers or directors, or any such
controlling person may incur, under the 1933 Act or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or arising out of or
based upon any alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided, however, that the Fund shall not indemnify or defend such
persons or hold them harmless with respect to any claims, demands, or
liabilities based on information provided to the Fund by the Distributor;
and provided further that this indemnification provision shall not inure
to the benefit of any person who is an officer or director of the Fund or
who controls the Fund within the meaning of Section 15 of the 1933 Act, as
amended, unless a court of competent jurisdiction shall determine, or it
shall have been determined by controlling precedent, that such result
would not be against public policy as expressed in the 1933 Act, as
amended, and further provided that in no event shall anything contained in
this Agreement be construed so as to protect the Distributor against any
liability to the Fund or its shareholders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
8. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
the Fund, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of
or based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or arising out of or based upon any alleged
omission by the Distributor to state a material fact in connection with
such information required to be stated in the Registration Statement or
necessary to make such information not misleading.
Paragraph 3 of the Fund Accounting Service Agreement between Morgan
Keegan & Company, Inc. and Morgan Keegan Select Fund, Inc. states:
RESPONSIBILITY OF MORGAN KEEGAN & COMPANY, INC. Morgan Keegan shall be
held to the exercise of reasonable care in carrying out the provisions of
<PAGE>
this Agreement, but shall be indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith without
negligence or willful misconduct. Morgan Keegan shall be entitled to rely
on and may act upon the reasonable advice of the Fund's auditors or of
counsel (who may be counsel of the Fund) on all matters, and shall not be
liable for any action reasonably taken or omitted pursuant to such advice.
In addition, Morgan Keegan shall not be liable for any loss of data or any
delay in its performance under this Agreement to the extent such loss or
delay is due to causes beyond its control, including but not limited to:
acts of God, interruption in, loss of or malfunction in power, significant
computer hardware or systems software or telephone communication service;
acts of civil or military authority; sabotage; war or civil commotion;
fire; explosion; or strike beyond delivery of minimum critical services.
Morgan Keegan shall use its best efforts to minimize any such loss or
delay by all practical means and to replace any lost data promptly. Morgan
Keegan agrees not to discriminate against the Fund in favor of any other
customer of Morgan Keegan in making computer time and its personnel
available to input and process the transactions hereunder when a loss or
delay occurs.
Paragraph 10 of the Transfer Agency and Service Agreement between the
Corporation and Morgan Keegan & Company, Inc. states:
<PAGE>
RESPONSIBILITY OF MORGAN KEEGAN; LIMITATION OF LIABILITY. Morgan
Keegan shall be held to the exercise of reasonable care in carrying out the
provisions of this Agreement, but the Fund shall indemnify and hold Morgan
Keegan harmless against any losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit brought by any person (including a shareholder naming the
Fund as a party) other than the Fund arising out of, or in connection with,
Morgan Keegan's performance of its obligations hereunder, provided, that Morgan
Keegan does not act with bad faith, willful misfeasance, reckless disregard of
its obligations and duties, or gross negligence.
The Fund shall also indemnify and hold Morgan Keegan harmless against any
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand, action or suit (except to
the extent contributed to by Morgan Keegan's bad faith, willful misfeasance,
reckless disregard of its obligations and duties, or gross negligence) resulting
from the negligence of the Fund, or Morgan Keegan's acting upon any instructions
reasonably believed by it to have been executed or communicated by any person
duly authorized by the Fund, or as a result of Morgan Keegan's acting in
reliance upon advice reasonably believed by Morgan Keegan to have been given by
counsel for the Fund, or as a result of Morgan Keegan's acting in reliance upon
any instrument reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
In no event shall Morgan Keegan be liable for indirect, special, or
consequential damages (even if Morgan Keegan has been advised of the possibility
of such damages) arising from the obligations assumed hereunder and the services
provided for by this Agreement, including but not limited to lost profits, loss
of use of the shareholder accounting system, cost of capital, cost of substitute
facilities, programs or services, downtime costs, or claims of the Fund's
shareholders for such damage.
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
<PAGE>
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
- ------------------ -------------- --------------
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
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
<PAGE>
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
- ------------------ -------------- --------------
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
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
<PAGE>
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
- ------------------ -------------- --------------
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 Matthews Managing Director None
Francis Maus Managing Director None
Charles D. Maxwell Managing Director None
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
<PAGE>
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
- ------------------ -------------- --------------
Mortimer S. Neblett Managing Director None
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 Phillips 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
Rick Spell Managing Director None
John B. Snowden, IV Managing Director None
<PAGE>
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
- ------------------ -------------- --------------
Thomas A. Snyder 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
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 - NONE
<PAGE>
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Morgan Keegan Select Fund, Inc.
has duly caused this Pre-Effective Amendment No. 1 to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Memphis and State of Tennessee, on the 19th day of January, 1999.
MORGAN KEEGAN SELECT FUND, INC.
By: /s/ Allen B. Morgan, Jr.
-----------------------------
Allen B. Morgan, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Allen B. Morgan, Jr. Director and President January 19, 1999
- ------------------------ (Chief Executive
Allen B. Morgan, Jr. Officer)
/s/ Joseph C. Weller Vice President and January 19, 1999
- -------------------- Treasurer (Chief
Joseph C. Weller Financial Officer)
/s/ James D. Witherington, Jr. Director January 19, 1999
- ------------------------------
James D. Witherington, Jr.
/s/ Spence L. Wilson Director January 19, 1999
- ------------------------
Spence L. Wilson
/s/ William Hughes, Jr. Director January 19, 1999
- -----------------------
William Hughes, Jr.
/s/ William Jefferies Mann Director January 19, 1999
- --------------------------
William Jefferies Mann
/s/ James Stillman R. Mcfadden Director January 19, 1999
- ------------------------------
James Stillman R. Mcfadden
<PAGE>
MORGAN KEEGAN SELECT FUND, INC.
Exhibit Index
(a) Articles of Incorporation 1/
(1) Amendment to Articles of Incorporation dated January 12,
1999 (filed herewith)
(b) By-laws (filed herewith)
(c) Instruments Defining Rights of Security Holders
(1) Articles of Incorporation 1/
(2) Bylaws (filed herewith)
(d) Advisory Agreement (filed herewith)
(e) Underwriting Agreement (filed herewith)
(f) Bonus or Profit Sharing Contracts - none
(g) Custodian Agreement (to be filed)
(h) Other Material Contracts
(1) Fund Accounting Services Agreement (filed herewith)
(2) Transfer Agency and Services Agreement (filed herewith)
(i) Legal Opinion (filed herewith)
(j) Other Opinions
(1) Accountants' Consent (filed herewith)
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreement (filed herewith)
(m) Distribution Plan pursuant to Rule 12b-1 (filed herewith)
(n) Financial Data Schedule - none
(o) Multiple Class Plan Pursuant to Rule 18f-3 (filed herewith)
1/ Incorporated by reference to Form N-1A, SEC File No. 333-66181, filed on
October 27, 1998
EXHIBIT (a) (1)
ARTICLE OF AMENDMENT
OF
MORGAN KEEGAN SERIES FUND, INC.
Pursuant to Section 2-607 of the Maryland General Corporation Law, Morgan
Keegan Series Fund, Inc. ("Corporation"), a Maryland corporation having its
principal office in the State of Maryland in Baltimore, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation's Articles of Incorporation are amended to
delete Article Second and substituting in lieu thereof:
Second: The name of the Corporation (hereinafter called the
Corporation) is:
Morgan Keegan Select Fund, Inc.
SECOND: This Article of Amendment was approved by a majority of the
entire board of directors of the Corporation at a meeting held on November 16,
1998; and
THIRD: No stock entitled to be voted on this Article of
Amendment was outstanding or subscribed for at the time of approval.
IN WITNESS WHEREOF, Morgan Keegan Series Fund, Inc. has caused these
presents to be signed in its name on its behalf by a Vice President of the
Corporation and attested by the Corporation's secretary on this 12th day of
January, 1999, who swears under penalty of perjury to the best of his knowledge,
information and belief, the matters and facts set forth in the Article of
Amendment are true in all material respects.
MORGAN KEEGAN SERIES FUND, INC.
By: /s/ Joe C. Weller
---------------------
Name: Joe C. Weller
Title: Treasurer
ATTEST:
/s/ Charles D. Maxwell
- -----------------------
Secretary
EXHIBIT (b)
BYLAWS
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL
Section 1.01 NAME: The name of the Corporation is Morgan Keegan Select
Fund, Inc.
Section 1.02 PRINCIPAL OFFICES: The principal office of the Corporation in
the State of Maryland shall be located in the City of Baltimore. The Corporation
may establish and maintain such other offices and places of business as the
Board of Directors may, from time to time, determine. Except as provided in
Section 2.10, the Board of Directors may keep the books of the Corporation at
any office of the Corporation or at any other place within the United States as
it may from time to time determine.
Section 1.03 SEAL: The corporate seal of the Corporation shall be circular
in form and shall bear the name of the Corporation, the year of the
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01 ANNUAL MEETINGS: There shall be no stockholder's meetings for
the election of directors and the transaction of other business except as
required by law or as hereinafter provided.
Section 2.02 SPECIAL MEETINGS: Special meetings of the stockholders may be
called at any time by the chairman of the board, the president, any vice
president, or a majority of the Board of Directors. Special meetings of the
stockholders shall be called by the secretary upon the written request of the
holders of shares entitled to vote not less than 25% of all the shares entitled
to be voted at such meeting, provided that (a) such request shall state the
purposes of such meeting and the matters proposed to be acted on, and (b) the
stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
secretary shall determine and specify to such stockholders. No special meeting
need be called upon the request of the holders of shares entitled to vote less
than a majority of all the shares entitled to be voted at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the stockholders held during the preceding 12 months.
Section 2.03 PLACE OF MEETINGS: All stockholders' meetings shall be held
at the principal office of the Corporation, except that the Board of Directors
may fix a different place of meeting, which shall be specified in each notice or
waiver of notice of the meeting.
<PAGE>
Section 2.04 NOTICE OF MEETINGS: The secretary shall cause notice of the
place, date and hour, and, in the case of a special meeting or as otherwise
required by law, the purpose or purposes for which the meeting is called, to be
mailed, not less than 10 nor more than 90 days before the date of the meeting,
to each stockholder entitled to vote at such meeting, at his address as it
appears on the records of the Corporation at the time of such mailing. Notice of
any stockholders' meeting need not be given to any stockholder who shall sign a
written waiver of such notice whether before or after the time of such meeting,
which waiver shall be filed with the record of such meeting, or to any
stockholder who shall attend such meeting in person or by proxy. Notice of
adjournment of a stockholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting.
Section 2.05 VOTING - IN GENERAL: At every stockholders' meeting each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended (the "1940 Act"),
all matters shall be decided by a vote of the majority of the votes validly cast
at a meeting at which a quorum is present. The vote upon any question shall be
by ballot whenever requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved by the meeting.
At any meeting at which there is an election of directors, the chairman of
the meeting may, and upon the request of the holders of 10% of the stock
entitled to vote at such election shall, appoint two inspectors of election who
shall first subscribe an oath or affirmation to execute faithfully the duties of
inspectors at such election with strict impartiality and according to the best
of their ability, and shall, after the election, make a certificate of the
result of the vote taken. No candidate for the office of Director shall be
appointed as an inspector.
Section 2.06 STOCKHOLDERS ENTITLED TO VOTE: If, pursuant to Section 8.05
hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and fraction of a share of stock of the appropriate series of shares
("Series") or class of shares ("Class") of the Corporation standing in his name
on the books of the Corporation on such record date and outstanding at the time
of the meeting. If no record date has been fixed by the Board of Directors for
the determination of stockholders entitled to notice of or to vote at a meeting,
the record date for the meeting of stockholders shall be (a) at the close of
business (i) on the day ten days before the day on which notice of the meeting
is mailed or (ii) on the day 30 days before the meeting, whichever is the closer
date to the meeting; or, (b) if notice is waived by all stockholders, at the
close of business on the tenth day next preceding the day on which the meeting
is held.
Section 2.07 VOTING - PROXIES: A stockholder may vote the stock he owns of
record by written proxy executed by the stockholder himself or by his duly
authorized attorney in fact. No proxy shall be voted after eleven months from
its date unless it provides for a longer period. Each proxy shall be dated, but
need not be sealed, witnessed or acknowledged. Proxies shall be delivered to an
inspector of election or, if no inspector has been appointed, then to the
-2-
<PAGE>
secretary of the Corporation, or person acting as secretary of the meeting,
before being voted. A proxy with respect to stock held in the name of two or
more persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Corporation receives from any one of them written
notice to the contrary and a copy of the instrument or order which so provides.
A proxy purporting to be executed by or on behalf of a stockholder shall be
deemed valid unless challenged at or prior to its exercise. A proxy in the form
of a telegram, datagram or telex shall not be valid; however, a mechanical or
electronic facsimile of an otherwise valid proxy shall be valid.
Section 2.08 QUORUM: Except as otherwise provided in the Articles of
Incorporation, the presence at any stockholders' meeting, in person or by proxy,
of stockholders entitled to cast one-third of all the votes entitled to be cast
thereat shall be necessary and sufficient to constitute a quorum for the
transaction of business.
Section 2.09 ABSENCE OF QUORUM: In the absence of a quorum, the holders or
proxies of a majority of the shares present at the meeting in person or by proxy
and entitled to vote thereat, or, if no stockholder entitled to vote is present
thereat in person or by proxy, any officer present thereat entitled to preside
or act as secretary of such meeting, may adjourn the meeting without determining
the date of the new meeting or from time to time, without further notice, to a
date not more than 120 days after the original record date. Any business that
might have been transacted at the meeting originally called may be transacted at
any such adjourned meeting at which a quorum is present.
Section 2.10 STOCK LEDGER AND LIST OF STOCKHOLDERS: It shall be the duty
of the secretary or assistant secretary of the Corporation to cause an original
or duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection. Any one or more persons, each of whom has been a stockholder of
record of the Corporation for at least the six months next preceding such
request, and who own in the aggregate 5% or more of the outstanding capital
stock of the Corporation, may, in person or by agent, upon written request,
inspect and copy during usual business hours the Corporation's stock ledger at
its principal office in Maryland; and may submit (if the Corporation at the time
of the request does not maintain a duplicate stock ledger at its principal
office in Maryland) a written request to any officer of the Corporation or its
resident agent in Maryland for a list of the stockholders of the Corporation.
Within 20 days after such a request, there shall be prepared and filed at the
Corporation's principal office in Maryland a list containing the names and
addresses of all stockholders of the Corporation and the number of shares of
each class held by each stockholder, certified as correct by an officer of the
Corporation, by its stock transfer agent, or by its registrar. Notwithstanding
the foregoing, whenever ten or more shareholders of record who have been such
for at least six months preceding such request, and who own in the aggregate
either shares having a net asset value of at least $25,000 or at least one
percent of the outstanding shares, whichever is less, shall apply to the
secretary in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a special
meeting of shareholders to vote upon the removal of one or more directors, and
including with the application a form of communication and request which they
wish to transmit, the Corporation shall, within five business days after receipt
3
<PAGE>
of such application, either: (1) afford to such applicants access to a list of
the names and addresses of all shareholders as recorded on the books of the
Corporation; or (2) inform the applicants as to the approximate cost of mailing
to them the proposed communication and form of request, and, upon the written
request of the applicants, accompanied by a tender of the material to be mailed
and of reasonable expenses of mailing, shall, with reasonable promptness, mail
such material to all shareholders of record; provided, however, that the
Corporation may avail itself of any of the rights afforded to a common law trust
pursuant to Section 16(c) of the 1940 Act.
Section 2.11 ACTION WITHOUT MEETING: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 NUMBER AND TERM OF OFFICE: The Board of Directors shall
consist of seven directors, which number may be increased or decreased by a
resolution of a majority of the entire Board of Directors; provided that the
number of directors shall not be less than three nor more than twenty; and
further provided that if there is no stock outstanding the number of directors
may be less than three but not less than one, and if there is a 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.
Each director (whenever selected) shall hold office until his successor is
elected and qualified or until his earlier death, resignation or removal.
Section 3.02 QUALIFICATION OF DIRECTORS: After stock has been issued to
more than one person, at least one of the members of the Board of Directors
shall be a person who is not an "interested person" of the Corporation, as
defined in the 1940 Act.
Section 3.03 ELECTION OF DIRECTORS: The initial director of the
Corporation shall be that person named as such in the Articles of Incorporation.
Thereafter, except as otherwise provided in Section 3.04 and 3.05 hereof, the
directors shall be elected by the stockholders on a date fixed by the Board of
Directors. A plurality of all the votes validly cast at a meeting at which a
quorum is present in person or by proxy is sufficient to elect a director.
Section 3.04 REMOVAL OF DIRECTORS: At any stockholders' meeting duly
called, provided a quorum is present, any director may be removed (either with
or without cause) by the affirmative vote of a majority of all the votes
entitled to be cast for the election of directors, and at the same meeting a
duly qualified person may be elected in his stead by a plurality of the votes
validity cast.
Section 3.05 VACANCIES AND NEWLY CREATED DIRECTORSHIPS: If any vacancies
shall occur in the Board of Directors by reason of death, resignation, removal
or otherwise, or if the authorized number of directors shall be increased, the
directors then in office shall continue to act, and such vacancies (if not
previously filled by the stockholders) may be filled by a majority of the
directors then in office, although less than a quorum, except that a newly
4
<PAGE>
created directorship may be filled only by a majority vote of the entire Board
of Directors, provided that in either case immediately after filling such
vacancy, at least two-thirds of the directors then holding office shall have
been elected to such office by the stockholders of the Corporation. In the event
that at any time, other than the time preceding the first stockholders' meeting,
less than a majority of the directors of the Corporation holding office at that
time were so elected by the stockholders, a meeting of the stockholders shall be
held promptly and in any event within 60 days (unless the Securities and
Exchange Commission shall by rule or order extend such period) for the purpose
of electing directors to fill any existing vacancies in the Board of Directors.
Section 3.06 GENERAL POWERS:
(a) The property, affairs and business of the Corporation shall be managed
by or under the direction of the Board of Directors, which may exercise all the
powers of the Corporation except those powers vested solely in the stockholders
of the Corporation by statute, by the Articles of Incorporation, or by these
By-Laws.
(b) All acts done by any meeting of the directors or by any person acting
as a director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07 POWER TO ISSUE AND SELL STOCK: The Board of Directors may
from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the Board of Directors shall deem advisable, subject to the provisions of
Articles Sixth and Seventh of the Articles of Incorporation.
Section 3.08 POWER TO DECLARE DIVIDENDS:
(a) The Board of Directors, from time to time as it may deem advisable,
may declare and pay dividends in stock, cash or other property of the
Corporation, out of any source available for dividends, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
i) the Corporation's accumulated undistributed net income (determined
in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect)
and not including profits or losses realized upon the sale of
securities or other properties; or
ii) the Corporation's net income so determined for the current or
preceding fiscal year.
5
<PAGE>
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
Section 3.09 ANNUAL AND REGULAR MEETINGS The annual meeting of the Board
of Directors for choosing officers and transacting other proper business shall
be held at such time and place as the board may determine. The Board of
Directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place, which need not be in the State of
Maryland. Except as otherwise provided under the 1940 Act, notice of such annual
and regular meetings need not be given, provided that notice of any change in
the time or place of such meetings shall be sent promptly, in the manner
provided for notice of special meetings, to each director not present at the
meeting at which such change was made. Except as otherwise provided under the
1940 Act, members of the Board of Directors or any committee designated thereby
may participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time; and
participation by such means shall constitute presence in person at a meeting.
Section 3.10 SPECIAL MEETINGS: Special meetings of the Board of Directors
shall be held whenever called by the chairman of the board, the president (or,
in the absence or disability of the president, by any vice president), the
treasurer, or two or more directors, at the time and place (which need not be in
the State of Maryland) specified in the respective notices or waivers of notice
of such meetings.
Section 3.11 NOTICE: Except as otherwise provided, notice of any special
meeting shall be given by the secretary to each director, by mailing to him,
postage prepaid, addressed to him at his address as registered on the books of
the Corporation or, if not so registered, at his last known address, a written
or printed notification of such meeting at least three days before the meeting
or by delivering such notice to him at least two days before the meeting, or by
sending such notice to him at least 24 hours before the meeting, by prepaid
telegram, addressed to him at his said registered address, if any, or if he has
no such registered address, at his last known address.
Section 3.12 WAIVER OF NOTICE: No notice of any meeting need be given to
any director who attends such meeting in person or to any director who waives
notice of such meeting in writing (which waiver shall be filed with the records
of such meeting), whether before or after the time of the meeting.
Section 3.13 QUORUM AND VOTING: At all meetings of the Board of Directors
the presence of one-half or more of the number of directors then in office shall
constitute a quorum for the transaction of business, provided that there shall
be present no fewer than two directors (unless the Corporation, at the time, has
only one director). In the absence of a quorum, a majority of the directors
present may adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the directors present at a meeting at which
a quorum is present shall be the action of the Board of Directors unless the
concurrence of a greater proportion is required for such action by law, by the
Articles of Incorporation or by these By-Laws.
6
<PAGE>
Section 3.14 COMPENSATION: Each director may receive such remuneration for
his services as shall be fixed from time to time by resolution of the Board of
Directors.
Section 3.15 ACTION WITHOUT A MEETING: Except as otherwise provided under
the 1940 Act, any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if written consents thereto
are signed by all members of the board and such written consents are filed with
the records of the meetings of the board.
Section 3.16 CHAIRMAN OF THE BOARD: The Board of Directors, at its first
meeting and thereafter at its annual meeting, shall elect from among the
directors a chairman of the board, who shall serve at the pleasure of the Board
of Directors. If the Board of Directors does not elect a chairman at any annual
meeting, it may do so at any subsequent regular or special meeting. The chairman
of the board shall hold office until the next annual meeting of the Board of
Directors and until his successor shall have been chosen and qualified. If the
office of chairman of the board shall become vacant for any reason, the Board of
Directors may fill such vacancy at any regular or special meeting. The chairman
of the board shall preside at all stockholders' meetings and at all meetings of
the Board of Directors and shall have such powers and perform such duties as may
be assigned to him from time to time by the Board of Directors. The chairman of
the board shall not be considered an officer of the Corporation by reason of
holding said position.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01 HOW CONSTITUTED: By resolution adopted by the Board of
Directors, the board may designate an executive committee, consisting of not
less than three nor more than five directors. The board may also designate
additional committees consisting of at least two directors. Each member of a
committee shall be a director and shall hold office at the pleasure of the
board. The chairman of the board, if any, and the president shall be members of
the executive committee.
Section 4.02 POWERS OF THE EXECUTIVE COMMITTEE: Unless otherwise provided
by resolution of the Board of Directors, when the Board of Directors is not in
session the executive committee shall have and may exercise all powers of the
Board of Directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by the full Board of Directors,
except the power to declare a dividend, to authorize the issuance of stock, to
recommend to stockholders any matter requiring stockholders' approval, to amend
the By-Laws, or to approve any merger or share exchange which does not require
shareholder approval.
Section 4.03 PROCEEDINGS, QUORUM AND MANNER OF ACTING: In the absence of
an appropriate resolution of the Board of Directors, each committee may adopt
such rules and regulations governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable, provided that the quorum shall not
be less than two directors. In the absence of such rules, the proceedings,
quorum and manner of acting of a committee shall be governed by the rules
applicable to the full Board of Directors. In the absence of any member of any
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such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 4.04 OTHER COMMITTEES: The Board of Directors may appoint other
committees, each consisting of one or more persons, who need not be directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or another committee thereof.
ARTICLE V
OFFICERS
Section 5.01 GENERAL: The officers of the Corporation shall be a
president, a secretary and a treasurer, and may include one or more vice
presidents, assistant secretaries or assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.10
hereof.
Section 5.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS: The officers of
the Corporation (except those appointed pursuant to Section 5.10 hereof) shall
be elected by the Board of Directors at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are not elected at any annual
meeting, such officers may be elected at any subsequent regular or special
meeting of the board. Except as provided in Sections 5.03, 5.04 and 5.05 hereof,
each officer chosen by the Board of Directors shall hold office until the next
annual meeting of the Board of Directors and until his successor shall have been
chosen and qualified. Any person may hold one or more offices of the Corporation
except that the president may not hold the office of vice president, and
provided further that a person who holds more than one office may not act in
more than one capacity to execute, acknowledge or verify an instrument required
by law to be executed, verified or acknowledged by more than one officer. No
officer need be a director.
Section 5.03. RESIGNATION: Any officer may resign his office at any time
by delivering a written resignation to the Board of Directors, the president,
the secretary, or any assistant secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 5.04. REMOVAL: Any officer may be removed from office whenever in
the board's judgment the best interest of the Corporation will be served
thereby, by the vote of a majority of the Board of Directors given at a regular
meeting or any special meeting called for such purpose. In addition, any officer
or agent appointed in accordance with the provisions of Section 5.10 hereof may
be removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Board of Directors.
Section 5.05. VACANCIES AND NEWLY CREATED OFFICES: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any regular or
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special meeting or, in the case of any office created pursuant to Section 5.10
hereof, by any officer upon whom such power shall have been conferred by the
Board of Directors.
Section 5.06. PRESIDENT. The president shall be the chief executive
officer of the Corporation and, in the absence of the chairman of the board,
shall preside at all stockholders' meetings and at all meetings of the Board of
Directors. Subject to the supervision of the Board of Directors, he shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers, employees and agents. Subject to the
provisions of Section 7.01 and except as the Board of Directors may otherwise
order, he may sign in the name and on behalf of the Corporation all deeds,
bonds, contracts or agreements. He shall exercise such other powers and perform
such other duties as from time to time may be assigned to him by the Board of
Directors.
Section 5.07. VICE PRESIDENT. The Board of Directors may from time to time
designate and elect one or more vice presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Board of
Directors or the president. At the request or in the absence or disability of
the president, the vice president or, if there are two or more vice presidents,
then the senior of the vice presidents present and able to act may perform all
of the duties of the president and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the president.
Section 5.08. TREASURER AND ASSISTANT TREASURERS: The treasurer shall be
the principal financial and accounting officer of the Corporation. He shall
deliver all funds and securities of the Corporation which may come into his
hands to such bank or trust company as the Board of Directors shall employ as
custodian. He shall prepare annually a full and correct statement of the affairs
of the Corporation, including a balance sheet and a financial statement of
operations for the preceding fiscal year, which shall be filed at the
Corporation's principal office within 120 days after the end of the fiscal year.
The treasurer shall furnish such other reports regarding the business and
condition of the Corporation as the Board of Directors may from time to time
require and perform such duties additional to the foregoing as the Board of
Directors may from time to time designate.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the Board of Directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
Section 5.09. SECRETARY AND ASSISTANT SECRETARIES: The secretary shall
attend to the giving and serving of all notices of the Corporation and shall act
as secretary at, and record all proceedings of, the meetings of the stockholders
and directors in the books to be kept for that purpose. He shall keep in safe
custody the seal of the Corporation, and shall have charge of the records of the
Corporation, including the stock books and such other books and papers as the
Board of Directors may direct and such books, reports, certificates and other
documents required by law to be kept, all of which shall at all reasonable times
be open to inspection by any director. At every meeting of the stockholders, he
shall receive and take charge of and/or canvass all proxies and/or ballots, and
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shall decide all questions affecting the qualification of voters, the validity
of proxies and the acceptance or rejection of votes, except that the chairman
may assign such duties to inspectors of election pursuant to Section 2.05
hereof. He shall perform such other duties as appertain to his office or as may
be required by the Board of Directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the Board of Directors may assign and, in the absence of the
secretary, may perform all the duties of the secretary.
Section 5.10. SUBORDINATE OFFICERS: The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint and remove any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
Section 5.11. REMUNERATION: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5.01 hereof.
Section 5.12 SURETY BONDS: The Board of Directors may require any officer
or agent of the Corporation to execute a bond (including, without limitation,
any bond required by the 1940 Act and the rules and regulations of the
Securities and Exchange Commission) to the Corporation in such sum and with such
surety or sureties as the Board of Directors may determine, conditioned upon the
faithful performance of his duties to the Corporation, including responsibility
for negligence and for the accounting of any of the Corporation's property,
funds or securities that may come into his hands.
ARTICLE VI
CUSTODY OF SECURITIES
Section 6.01. EMPLOYMENT OF CUSTODIAN: The Corporation shall at all times
employ a bank or trust company organized under the laws of the U.S. or one of
the states thereof and having capital, surplus and undivided profits of at least
two million dollars ($2,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in these By-Laws:
(1) to hold the securities owned by the Corporation and deliver the same
upon written order or oral order, if confirmed in writing, or by such
electro-mechanical or electronic devices as are agreed to by the
Corporation and the custodian, if such procedures have been authorized in
writing by the Corporation;
(2) to receive and receipt for any moneys due to the Corporation and
deposit the same in its own banking department or elsewhere as the
Directors may direct; and
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(3) to disburse such moneys upon orders or vouchers; and the Corporation
may also employ such custodian as its agent;
(4) to keep the books and accounts of the Corporation and furnish clerical
and accounting services thereto; and
(5) to compute, if authorized to do so by the Directors, the net asset
value of any Series in accordance with the provisions of the Articles of
Incorporation;
all upon such basis of compensation as may be agreed upon between the Directors
and the custodian. If so directed by a vote of a majority of the outstanding
shares of the Corporation entitled to vote, the custodian shall deliver and pay
over all property of the Corporation held by it as specified in such vote.
The Directors may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Directors, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars ($2,000,000) or
such other person as may be permitted by the Securities and Exchange Commission,
or otherwise in accordance with the 1940 Act.
Section 6.02. USE OF CENTRAL SECURITIES HANDLING SYSTEM: Subject to such
rules, regulations and orders as the Securities and Exchange Commission may
adopt, the Directors may direct the custodian to deposit all or any part of the
securities owned by the Corporation in a system for the central handling of
securities established by a national securities exchange or a national
securities association registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or such other person as may be
permitted by the Securities and Exchange Commission, or otherwise in accordance
with the 1940 Act, pursuant to which system all securities of any particular
class or series of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry without physical
delivery of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Corporation.
ARTICLES VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. GENERAL: Subject to the provisions of Sections 5.07, 7.02
and 8.03 hereof, all deeds, documents, transfers, contracts, agreements and
other instruments requiring execution by the Corporation shall be signed by the
president or a vice president and by the treasurer or secretary or an assistant
treasurer or an assistant secretary, or as the Board of Directors may otherwise,
from time to time, authorize. Any such authorization may be general or confined
to specific instances.
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Section 7.02. CHECKS, NOTES, DRAFTS, ETC.: So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the Board of Directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the president or a vice president and by the
treasurer or an assistant treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or such
nominee and only by the treasurer or president or a vice president or by such
other person or persons as shall be authorized by the Board of Directors.
Section 7.03. VOTING OF SECURITIES: Unless otherwise ordered by the Board
of Directors, the president or any vice president shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The Board of Directors may by resolution from time to time confer like powers
upon any other person or persons.
ARTICLE VIII
CAPITAL STOCK
Section 8.01. CERTIFICATES OF STOCK: Certificates of stock shall not be
issued.
Section 8.02. TRANSFER OF CAPITAL STOCK:
(a) Transfers of shares of any Series or Class of the Corporation shall be
made on the books of the Corporation by the holder of record thereof (in person
or by his attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) as
prescribed by the Board of Directors.
(b) The Corporation shall be entitled to treat the holder of record of any
share of stock as the absolute owner thereof for all purposes, and accordingly
shall not be bound to recognize any legal, equitable or other claim or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
statues of the State of Maryland.
Section 8.03. TRANSFER AGENTS AND REGISTRARS: The Board of Directors may,
from time to time, appoint or remove transfer agents or registrars of shares of
any Series or Class of the Corporation.
Section 8.04. TRANSFER REGULATIONS: Except as provided in the Articles of
Incorporation, the shares of any Series of the Corporation may be freely
transferred, subject to the charging of customary transfer fees, and the Board
of Directors may, from time to time, adopt rules and regulations with reference
to the method of transfer of the shares of any Series or Class of the
Corporation.
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Section 8.05. FIXING OF RECORD DATE: The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action; provided that
such record date shall be a date not more than 90 nor less than 10 days prior to
the date on which the particular action requiring such determination of
stockholders of record will be taken, except as otherwise provided by law.
ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01. FISCAL YEAR. The fiscal year of the Corporation shall,
unless otherwise ordered by the Board of Directors, be twelve calendar months
ending on the 30th day of June in each year.
Section 9.02. ACCOUNTANT:
(a) The Corporation shall employ an independent accountant or firm of
independent accountants as its accountant to examine the account of the
Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the Board of Directors and to the stockholders.
(b) A majority of the members of the Board of Directors who are not
"interested persons" (as such term is defined in the 1940 Act) of the
Corporation shall select the accountant at any meeting held within 90 days
before or after the beginning of the fiscal year of the Corporation or before
the annual stockholders' meeting (if any) in that year. Such selection shall be
submitted for ratification or rejection at the next succeeding stockholders'
meeting, when and if such meeting is held. If such meeting shall reject such
selection, the accountant shall be selected by majority vote of the
Corporation's outstanding voting securities, either at the meeting at which the
rejection occurred or at a subsequent meeting of stockholders called for that
purpose.
(c) Any vacancy occurring between meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
Board of Directors who are not such interested persons.
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS: 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
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(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. Notwithstanding the foregoing, the following provisions shall
apply with respect to indemnification of the Corporation's directors, officers,
and investment adviser (as defined in the 1940 Act):
(a) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for any
liability arising by reason of such person's willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his or her office or reckless disregard of his duties under any contract or
agreement with the Corporation ("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the proceeding was brought
(a) dismisses the Proceeding for insufficiency of evidence of any
disabling conduct, or (b) reaches a final decision on the merits that
such person was not liable by reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is made, based
upon a review of the facts, by (a) the vote of a majority of a quorum
of the directors of the Corporation who are neither "interested
persons" of the Corporation as defined in the 1940 Act, nor parties to
the Proceeding, or (b) if a majority of a quorum of directors
described above so directs, or if such quorum is not obtainable, based
upon a written opinion by independent legal counsel, that such person
was not liable by reason of disabling conduct.
(c) Reasonable expenses (including attorneys' fees) incurred in defending
a Proceeding involving any such person will be paid by the Corporation in
advance of the final disposition thereof upon an undertaking by such person to
repay such expenses unless it is ultimately determined that he or she is
entitled to indemnification, if:
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by reason
of such advance; or
(3) a majority of a quorum of the directors of the Corporation who are
neither "interested persons" of the Corporation as defined in the
1940 Act, nor parties to the proceeding, or independent legal
counsel in a written opinion, shall determine, based on a review
of readily available facts, that there is reason to believe that
such person will be found to be entitled to indemnification.
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Section 10.02. INSURANCE OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS: The
Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent 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 any liability asserted against him or her and
incurred by him or her in or arising out of his or her position.
Section 10.03. NON-EXCLUSIVITY: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, any agreement, vote of stockholders or directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
ARTICLE XI
AMENDMENTS
Section 11.01. GENERAL: Except as provided in Sections 11.02 and 11.03
hereof, all By-Laws of the Corporation, whether adopted by the Board of
Directors or the stockholders, shall be subject to amendment, alteration or
repeal, and new By-Laws may be made, by the affirmative vote of a majority of
either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Law; or
(b) the directors, at any regular or special meeting the notice or waiver
of notice of which shall have specified or summarized the proposed amendment,
alteration, repeal or new By-Law.
Section 11.02. BY STOCKHOLDERS ONLY:
(a) No amendment of any section of these By-Laws shall be made except by
the stockholders of the Corporation if the By-Laws provide that such section may
not be amended, altered or repealed except by the stockholders.
(b) From and after the issuance of any shares of the capital stock of the
Corporation, no amendment of this Article XI shall be made except by the
stockholders of the Corporation.
Section 11.03. LIMITATION ON AMENDMENT: No amendment to Article X of these
By-Laws shall narrow or eliminate any right to expenses, indemnification or
insurance for any claim or proceeding arising out of conduct occurring prior to
said amendment.
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EXHIBIT (d)
ADVISORY AGREEMENT
between
MORGAN KEEGAN SELECT FUND, INC.
and
MORGAN ASSET MANAGEMENT, INC.
ADVISORY AGREEMENT made this ____ day of ______________, 1999 (the
"Agreement"), by and between Morgan Keegan Select Fund, Inc., a Maryland
corporation (hereinafter called the "Fund"), and Morgan Asset Management, Inc.,
a corporation organized under the laws of the State of Tennessee (hereinafter
called the "Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended ("1940 Act") as an open-end management investment company, and
offers for sale two distinct series of shares of common stock, which have been
designated Morgan Keegan Intermediate Bond Fund and Morgan Keegan High Income
Fund (each referred to herein as a "Portfolio"); and
WHEREAS, the Fund desires to avail itself of the services, information,
advice, assistance and facilities of an investment adviser on behalf of the
Portfolios, and to have that investment adviser provide or perform for each
Portfolio various research, statistical and investment services;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants herein contained, it is agreed between the parties as follows:
1. EMPLOYMENT OF THE ADVISER. The Fund hereby employs the Adviser to
invest and reinvest the assets of each Portfolio in the manner set forth in
Section 2 of this Agreement subject to the direction of the Board of Directors
(the "Board") and the officers of the Fund, for the period, in the manner, and
on the terms set forth hereinafter. The Adviser hereby accepts such employment
and agrees during such period to render the services and to assume the
obligations herein set forth. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY, THE ADVISER. The
Adviser undertakes to provide the services hereinafter set forth and to assume
the following obligations:
A. INVESTMENT ADVISORY SERVICES.
(i) The Adviser shall direct the investments of each
Portfolio, subject to and in accordance with the each Portfolio's investment
objective, policies and limitations as provided in its Prospectus and Statement
of Additional Information (the "Prospectus") and other governing instruments, as
amended from time to time, and any other directions and policies which the Board
may issue to the Adviser from time to time.
<PAGE>
(ii) The Adviser is authorized, in its discretion and
without prior consultation with the Fund, to purchase and sell securities and
other investments for each Portfolio.
B. CORPORATE MANAGEMENT SERVICES.
(i) The Adviser shall furnish for the use of the Fund,
office space and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund.
(ii) The Adviser shall pay the salaries of all personnel
of the Fund or the Adviser performing services relating to research, statistical
and investment activities.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF
REGISTRATION STATEMENT, AMENDMENTS AND OTHER MATERIALS. The Adviser will make
available and provide such information as the Fund or its administrator may
reasonably request for use in the preparation of its registration statement,
reports and other documents required by any applicable federal, foreign or state
statutes or regulations.
D. CODE OF ETHICS. The Adviser will adopt a written code of
ethics complying with the requirements of Rule 17j-1 under the 1940 Act and
Section 204A of the Investment Advisers Act of 1940 and will provide the Fund
and its administrator with a copy of the code of ethics and evidence of its
adoption. Within forty-five (45) days of the end of the last calendar quarter of
each year while this Agreement is in effect, an executive officer of the Adviser
shall certify to the Board that the Adviser has complied with the requirements
of Rule 17j-1 and Section 204A during the previous year and that there has been
no violation of the Adviser's code of ethics or, if such a violation has
occurred, that appropriate action was taken in response to such violation. Upon
the written request of the Fund or its administrator, the Adviser shall permit
the Fund or its administrator to examine the reports required to be made to the
Adviser by Rule 17j-l(c)(l).
E. DISQUALIFICATION. The Adviser shall immediately notify the
Board of the occurrence of any event which would disqualify the Adviser from
serving as an investment adviser of an investment company pursuant to Section 9
of the 1940 Act or any other applicable statute or regulation.
F. OTHER OBLIGATIONS AND SERVICES. The Adviser shall make its
officers and employees available to the Board and officers of the Fund for
consultation and discussion regarding the management of each Portfolio and its
investment activities.
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3. EXECUTION AND ALLOCATION OF PORTFOLIO BROKERAGE.
A. The Adviser, subject to the control and direction of the
Board, shall have authority and discretion to select brokers and dealers to
execute transactions for each Portfolio, and for the selection of the markets on
or in which the transactions will be executed.
B. In acting pursuant to Section 3A, the Adviser will place
orders through such brokers or dealers in conformity with the policies with
respect to transactions for each Portfolio set forth in the Fund's registration
statement.
C. It is understood that neither the Fund nor the Adviser will
adopt a formula for allocation of a Portfolio's brokerage.
D. It is understood that the Adviser may, to the extent permitted
by applicable laws and regulations, aggregate securities to be sold or purchased
for any Portfolio and for other clients in order to obtain the most favorable
price and efficient execution. In that event, allocation of the securities
purchased or sold, as well as expenses incurred in the transaction, will be made
by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its other clients.
E. It is understood that the Adviser may, in its discretion, use
brokers who provide a Portfolio with research, analysis, advice and similar
services to execute transactions on behalf of the Portfolio, and the Adviser may
pay to those brokers in return for brokerage and research services a higher
commission than may be charged by other brokers, subject to the Adviser
determining in good faith that such commission is reasonable in terms either of
the particular transaction or of the overall responsibility of the Adviser to
such Portfolio and its other clients and that the total commissions paid by such
Portfolio will be reasonable in relation to the benefits to the Portfolio over
the long term.
F. It is understood that the Adviser may use brokers who (i) are
affiliated with the Adviser provided that no such broker will be utilized in any
transaction in which such broker acts as principal; and (ii) the commissions,
fees or other remuneration received by such brokers is reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold during a comparable period of time.
G. The Adviser shall provide such reports as the Board may
reasonably request with respect to each Portfolio's total brokerage and
transaction activities and the manner in which that business was allocated.
4. EXPENSES OF THE FUND. During the term of this Agreement, each
Portfolio will bear all expenses, not specifically assumed by Morgan Keegan,
incurred in its operations and the offering of its shares. Expenses borne by the
Portfolios will include but not be limited to the following (or each Portfolio's
proportionate share of the following): legal and audit expenses, organizational
expenses; interest; taxes; governmental fees; fees, voluntary assessments and
3
<PAGE>
other expenses incurred in connection with membership in investment company
organizations; the cost (including brokerage commissions or charges, if any) of
securities purchased or sold by each Portfolio and any losses incurred in
connection therewith; fees of custodians, transfer agents, registrars or other
agents; distribution fee; expenses of preparing share certificates; expenses
relating to the redemption or repurchase of shares; expenses of registering and
qualifying shares for sale under applicable federal and state law and
maintaining such registrations and qualifications; expenses of preparing,
setting in print, printing and distributing prospectuses, proxy statements,
reports, notices and dividends to shareholders; cost of stationery; costs of
stockholders and other meetings of the Fund; compensation and expenses of the
independent directors of the Fund; and the Fund's pro rata portion of premiums
of any fidelity bond and other insurance covering the Fund and its officers and
directors.
5. COMPENSATION OF THE ADVISER. For the services and facilities to be
furnished and expenses assumed hereunder, the Adviser shall receive from each
Portfolio an advisory fee at the annual rate listed along with that Portfolio's
name in Schedule A attached hereto. This advisory fee shall be payable monthly
as soon as practicable after the last day of each month based on the average of
the daily values placed on the net assets of each respective Portfolio as
determined at the close of business on each day throughout the month. The assets
of each Portfolio will be valued separately as of the close of regular trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern time) on each
business day throughout the month or, if the Fund lawfully determines the value
of the net assets of any Portfolio as of some other time on each business day,
as of such time with respect to that Portfolio. The first payment of such fee
shall be made as promptly as possible at the end of the month next succeeding
the effective date of this Agreement. In the event that the Adviser's right to
such fee commences on a date other than the last day of the month, the fee for
such month shall be based on the average daily assets of the Portfolio in that
period from the date of commencement to the last day of the month. If the Fund
determines the value of the net assets of any Portfolio more than once on any
business day, the last such determination on that day shall be deemed to be the
sole determination on that day. The value of net assets shall be determined
pursuant to the applicable provisions of the Fund's Articles of Incorporation,
its By-Laws and the 1940 Act. If, pursuant to such provisions, the determination
of the net asset value of any Portfolio of the Fund is suspended for any
particular business day, then the value of the net assets of that Portfolio on
that day shall be deemed to be the value of its net assets as determined on the
preceding business day. If the determination of the net asset value of any
Portfolio has been suspended for more than one month, the Adviser's compensation
payable at the end of that month shall be computed on the basis of the value of
the net assets of the Portfolio as last determined (whether during or prior to
such month).
6. ACTIVITIES AND AFFILIATES OF THE ADVISER.
A. Nothing in this Agreement shall limit or restrict the right of
any director, officer, or employee of the Adviser who may also be a director,
officer, or employee of the Fund, to engage in any other business or to devote
his time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature, nor to limit or
4
<PAGE>
restrict the right of the Adviser to engage in any other business or to render
services of any kind, including investment advisory and management services, to
any other corporation, firm, individual or association.
B. The Fund acknowledges that the Adviser or one or more of its
"affiliated persons" may have investment responsibilities or render investment
advice to or perform other investment advisory services for other individuals or
entities and that the Adviser, its "affiliated persons" or any of its or their
directors, officers, agents or employees may buy, sell or trade in securities
for its or their respective accounts ("Affiliated Accounts"). Subject to the
provisions of paragraph 3, the Fund agrees that the Adviser or its "affiliated
persons" may give advice or exercise investment responsibility and take such
other action with respect to Affiliated Accounts which may differ from the
advice given or the timing or nature of action with respect to the Portfolios,
provided that the Adviser acts in good faith. The Fund acknowledges that one or
more of the Affiliated Accounts may at any time hold, acquire, increase,
decrease, dispose of or otherwise deal with positions in investments in which
the Portfolio may have an interest. The Adviser shall have no obligation to
recommend for the Portfolio a position in any investment which an Affiliated
Account may acquire, and the Fund shall have no first refusal, co-investment or
other rights in respect of any such investment, either for its Portfolios or
otherwise.
C. Subject to and in accordance with the Articles of
Incorporation and By-Laws of the Fund as currently in effect and the 1940 Act
and the rules thereunder, it is understood that Directors, officers and agents
of the Fund and shareholders of the Fund are or may be interested in the Adviser
or its "affiliated persons," or that directors, officers, agents and
shareholders of the Adviser or its "affiliated persons" are or may be interested
in the Fund; and that the effect of any such interests shall be governed by said
Articles of Incorporation, By-Laws and the 1940 Act and the rules thereunder.
7. LIABILITIES OF THE ADVISER.
A. Except as provided below, in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Fund or to any shareholder of the Fund or its Portfolios for
any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security or the making of any investment for or on behalf of the
Fund.
B. No provision of this Agreement shall be construed to protect
any Director or officer of the Fund, or the Adviser, from liability in violation
of Sections 17(h), 17(i), 36(a) or 36(b) of the 1940 Act.
8. EFFECTIVE DATE; TERM. This Agreement shall continue in effect for one
year and from year to year thereafter only so long as specifically approved
annually by (i) vote of a majority of the directors of the Fund who are not
parties to this Agreement or interested persons of such parties, cast in person
at a meeting called for that purpose, and (ii) by the Board or with respect to
any given Portfolio by a vote of a majority of the outstanding voting securities
of such Portfolio.
5
<PAGE>
9. ASSIGNMENT. No "assignment" of this Agreement shall be made by the
Adviser, and this Agreement shall terminate automatically in event of such
assignment. The Adviser shall notify the Fund in writing in advance of any
proposed change of "control" to enable the Fund to take the steps necessary to
enter into a new advisory agreement, if necessary.
10. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement between the Adviser and the Fund, which amendment is subject
to the approval of the Board and, where required by the 1940 Act, the
shareholders of the affected Portfolio in the manner required by the 1940 Act
and the rules thereunder.
11. TERMINATION. This Agreement:
A. may at any time be terminated without payment of any
penalty by the Fund with respect to any Portfolio (by vote
of the Board or by "vote of a majority of the outstanding
voting securities") on sixty (60) days' written notice to
the Adviser;
B. shall immediately terminate in the event of its "assign-
ment"; and
C. may be terminated with respect to any Portfolio by the
Adviser on sixty (60) days' written notice to the Fund.
12. NAME. In the event this Agreement is terminated by either party
or upon written notice from the Adviser at anytime, the Fund hereby agrees that
it will eliminate from its corporate name any reference to the name "Morgan
Keegan". The Fund shall have the exclusive use of the name "Morgan Keegan"
in whole or in part so long as this Agreement is effective or until such notice
is given
13. DEFINITIONS. As used in this Agreement, the terms "affiliated
person," "assignment," "control," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the 1940
Act and the rules and regulations thereunder, subject to any applicable orders
of exemption issued by the Securities and Exchange Commission.
14. NOTICE. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postage prepaid to the other party to this
Agreement at its principal place of business.
15. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
16. GOVERNING LAW. To the extent that state law has not been preempted
by the provisions of any law of the United States, this Agreement shall be
administered, construed and enforced according to the laws of the State of
Maryland.
6
<PAGE>
IN WITNESS WHEREOF the parties have caused this instrument to be signed
on their behalf by their respective officers thereunto duly authorized, and
their respective seals to be hereunto affixed, all as of the date first written
above.
MORGAN KEEGAN SELECT FUND, INC.
(SEAL) By:-----------------------------------------------
Name:
Title:
MORGAN ASSET MANAGEMENT, INC.
(SEAL) By:-----------------------------------------------
Name:
Title:
7
<PAGE>
SCHEDULE A
MORGAN KEEGAN SERIES FUND, INC.
FEE SCHEDULE
Portfolio % of average
---------
daily net assets
Morgan Keegan Intermediate Bond Fund 0.40%
Morgan Keegan High Income Fund 0.75%
8
EXHIBIT (e)
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT ("Agreement"), made this _____ day of
___________, 1999, by and between Morgan Keegan Select Fund, Inc., a Maryland
corporation (the "Fund") and Morgan Keegan & Company, Inc., a Tennessee
corporation (the "Distributor"):
WHEREAS, the Fund is registered with the Securities and Exchange
Commission as an open-end, diversified investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") and has registered its shares
of common stock for sale to the public under the Securities Act of 1933, as
amended (the "1933 Act"), and has qualified its shares in accordance with the
provisions of various state securities laws; and
WHEREAS, the Fund intends to offer for public sale two distinct series
of shares of common stock, which have been designated Morgan Keegan Intermediate
Bond Fund and Morgan Keegan High Income Fund (each a "Portfolio"); and
WHEREAS, the Fund has adopted distribution plans pursuant to Rule 12b-1
for the shares of each Portfolio; and
WHEREAS, the Fund wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of the shares of each
Portfolio as now exists and as may hereafter may be established (the "Shares")
and to furnish certain other services to the Fund as specified in this
Agreement; and
WHEREAS, this Agreement has been approved by a vote of the Fund's Board
of Directors and certain disinterested directors in conformity with paragraph
(b)(2) of Rule 12b-1 under the 1940 Act, as well as by the disinterested
directors in conformity with Section 15(c) of the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Fund hereby appoints the Distributor as principal underwriter in
connection with the offering and sale of the Shares, and of all classes now or
hereafter created, on its behalf during the term of this Agreement. The Fund
authorizes the Distributor, as exclusive agent for the Fund, subject to
applicable federal and state law and the Articles of Incorporation and By-laws
of the Fund: (a) to promote the Fund; (b) to solicit orders for the purchase of
the Shares of subject to such terms and conditions as the Fund may specify; and
(c) to accept orders for the purchase of the Shares on behalf of the applicable
Portfolio. The Distributor shall comply with all applicable federal and state
laws and offer the Shares on an agency or "best efforts" basis under which the
Fund shall issue only such Shares as are actually sold.
<PAGE>
2. The public offering price of the Shares shall be the net asset value
per share (as determined by the Fund) of the outstanding Shares, plus the
applicable sales charge, if any, determined as set forth in the Registration
Statement. The Fund shall furnish the Distributor with a statement of each
computation of net asset value and of the details entering into such
computation.
3. The sales charge, if any, set forth in the Fund's Registration
Statement shall constitute compensation of the Distributor. As additional
compensation for the services performed and the expenses assumed by the
Distributor under this Agreement, including, but not limited to, any commissions
paid for sales of the Shares, the Distributor shall receive from each Portfolio,
as promptly as possible after the last day of each month, a service fee and a
distribution fee, as applicable, each calculated daily pursuant to the
applicable distribution plan. The first payment of the service and distribution
fees shall be made as promptly as possible at the end of the month next
succeeding the effective date of this Agreement, and shall include a full
payment of the fees due the Distributor for all shareholder and distribution
services prior to that date. If this Agreement is terminated as of any date not
the last day of a month, such fees shall be paid as promptly as possible after
such date of termination, shall be based on the average daily net assets of each
Portfolio in that period from the beginning of such month to such date of
termination, and shall be that proportion of such average daily net assets as
the number of business days in such period bears to the number of business days
in such month. The average daily net assets of each Portfolio shall in all cases
be based only on business days and be computed as of the time of the regular
close of business of the New York Stock Exchange, or such other time as may be
determined by the Board of Directors of the Fund. Each such payment shall be
accompanied by a report of the Fund prepared either by the Fund or by a
reputable firm of independent accountants which shall show the amount properly
payable to the Distributor under this Agreement and the detailed computation
thereof.
4. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Fund with the
Securities and Exchange Commission and effective under the 1933 Act, as such
Registration Statement is amended at the time in effect, and the terms
"Prospectus" and "Statement of Additional Information" shall mean the forms of
prospectus and statement of additional information, respectively, filed by the
Fund as part of the Registration Statement.
5. The Distributor, at no expense to the Fund, shall print and
distribute to prospective investors, the Prospectus and Statement of Additional
Information, and may print and distribute such other sales literature, reports,
forms and advertisements in connection with the sale of the Shares as comply
with the applicable provisions of federal and state law. In connection with such
sales and offers of sale, the Distributor shall only give such information and
make only such statements or representations as are contained in the Prospectus
or Statement of Additional Information or in information furnished in writing to
the Distributor by the Fund, and the Fund shall not be responsible in any way
for any other information, statements or representations given or made by the
Distributor or its representatives or agents. Except as specifically provided in
this Agreement, the Fund shall bear none of the expenses of the Distributor in
connection with its offer and sale of the Shares.
2
<PAGE>
6. The Fund agrees at its own expense to register the Shares under the
1933 Act, as amended, and under the securities laws of such states and
jurisdictions as the Distributor of the Fund shall agree, and to prepare and
file from time to time such Prospectuses and Statements of Additional
Information, amendments, reports and other documents as may be necessary to
maintain the Registration Statement. The Fund shall bear all expenses related to
preparing and typesetting such Prospectuses and other materials required by law
and such other expenses, including printing and mailing expenses, related to the
Fund's communications with persons who are shareholders of the Fund.
7. The Fund agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided, however, that the Fund shall not indemnify or defend such
persons or hold them harmless with respect to any claims, demands, or
liabilities based on information provided to the Fund by the Distributor; and
provided further that this indemnification provision shall not inure to the
benefit of any person who is an officer or director of the Fund or who controls
the Fund within the meaning of Section 15 of the 1933 Act, as amended, unless a
court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act, as amended, and further provided
that in no event shall anything contained in this Agreement be construed so as
to protect the Distributor against any liability to the Fund or its shareholders
to which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under this
Agreement.
8. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Fund, its officers or
directors, or any such controlling person may incur, under the 1933 Act or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Fund for use in the Registration Statement or arising out
of or based upon any alleged omission by the Distributor to state a material
fact in connection with such information required to be stated in the
Registration Statement or necessary to make such information not misleading.
9. The Fund reserves the right at any time to withdraw any or all
offerings of the Shares by written notice to the Distributor at its principal
office.
3
<PAGE>
10. The Fund shall not issue certificates representing the Shares
unless requested by a shareholder. If such request is transmitted through the
Distributor, the Fund will cause certificates evidencing the Shares owned to be
issued in such names and denominations as the Distributor shall from time to
time direct, provided that no certificates shall be issued for fractional
Shares.
11. The Distributor may at its sole discretion repurchase Shares
offered for sale by the shareholders. Repurchase of Shares by the Distributor
shall be at the net asset value next determined after a repurchase order has
been received. The Distributor will receive no commission or other remuneration
for repurchasing Shares other than the fees set forth in paragraph 3 hereof. At
the end of each business day, the Distributor shall notify by telex or in
writing the Fund and State Street Bank and Trust Company, the Fund's custodian,
of the orders for repurchase of Shares received by the Distributor since the
last such report, the amount to be paid for such Shares, and the identity of the
shareholders offering Shares for repurchase. Upon such notice, the Fund shall
pay the Distributor such amounts as are required by the Distributor for the
repurchase of such Shares in cash or in the form of a credit against moneys due
the Fund from the Distributor as proceeds from the sale of Shares. The Fund
reserves the right to suspend such repurchase right upon written notice to the
Distributor. The Distributor further agrees to act as agent for the Fund to
receive and transmit promptly to the Fund's transfer agent shareholder requests
for redemption of Shares.
12. The Distributor is an independent contractor and shall be an agent
for the Fund only in respect to the sale and redemption of the Shares.
13. The Distributor represents and warrants that it is a broker-dealer
duly registered under the Securities Act of 1934 and applicable state securities
laws, that it is a member of the National Association of Securities Dealers and
has all licenses required to engage in the business it undertakes in this
Agreement to carry out. Additionally the Distributor represents and warrants
that it will notify the Fund promptly if any such registration, membership or
license is suspended, revoked, withdrawn or allowed to lapse.
14. The services of the Distributor to the Fund under this Agreement
are not to be deemed exclusive, and the Distributor shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
15. The Distributor shall prepare reports for the Board of Directors of
the Fund on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Directors.
16. As used in this Agreement, the terms "securities" and "net assets"
shall have the meanings ascribed to them in the Articles of Incorporation of the
Fund.
17. This Agreement will remain in effect for one year from the date of
its execution and from year to year thereafter, provided that such continuance
is specifically approved, at least annually: (i) by the Fund's Board of
Directors or by vote of a majority of the outstanding voting securities of the
4
<PAGE>
Fund, (ii) by a vote of a majority of those members of the Fund's Board of
Directors who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval; and (iii) by vote of a majority of those members of the Fund's Board
of Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in this Agreement or in the Plan (the
"Independent Directors"). Notwithstanding the foregoing, this Agreement may be
terminated at any time by the Fund without penalty, on 60 days' written notice
to the Distributor, by vote of the Fund's Board of Directors, by vote of a
majority of the Independent Directors, or by a vote of a majority of the
outstanding voting securities of the Fund. This Agreement may be terminated by
the Distributor at any time, without the payment of any penalty, upon 60 days'
written notice to the Fund. This Agreement will automatically and immediately
terminate in the event of its assignment. As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested person" and
"assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: MORGAN KEEGAN SELECT FUND, INC.
By: By:
--------------------------- -----------------------------------
Attest: MORGAN KEEGAN & COMPANY, INC.
By: By:
--------------------------- -----------------------------------
5
EXHIBIT (h)(1)
FUND ACCOUNTING SERVICE AGREEMENT
BETWEEN
MORGAN KEEGAN & COMPANY, INC.
AND
MORGAN KEEGAN SELECT FUND, INC.
This Fund Accounting Service Agreement is made this _____ day of
_____________, 1999 (the "Agreement"), between Morgan Keegan Select Fund, Inc.,
a Maryland corporation (the "Fund"), and Morgan Keegan & Company, Inc.
("Morgan Keegan"), a brokerage firm.
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act") and currently has two distinct series of shares of common stock,
which have been designated Morgan Keegan Intermediate Bond Fund and Morgan
Keegan High Income Fund (each a "Portfolio"); and
WHEREAS, Morgan Keegan is a brokerage firm, and is capable of
providing, among other things, recordkeeping and fund accounting services in
accordance with the 1940 Act, and the Securities Exchange Act of 1934 (the "1934
Act"), and the current prospectus of the Fund as filed with the Securities and
Exchange Commission under the Securities Act of 1933 (the "1933 Act"); and
WHEREAS, the Fund desires to retain Morgan Keegan to provide fund
accounting services for each Portfolio of the Fund;
NOW, THEREFORE, Morgan Keegan and the Fund in consideration of the
mutual agreements contained herein agree as follows:
1. SERVICES. Morgan Keegan agrees to provide all mutual fund accounting services
to the Fund on behalf of each Portfolio required to conduct the business of the
Fund or otherwise required under the 1940 Act, except such services as are
normally performed by the investment adviser, the Fund's independent accountant,
and the officers of the Fund. Such services shall include, without limitation,
the following:
A. PORTFOLIO ACCOUNTING SERVICES:
(1) Maintain each Portfolio's records on a trade date basis using
security trade information communicated on a timely basis from
the Fund's investment adviser.
(2) Update each Portfolio's records, including share or face
positions, with the effect of capital changes and corporate
action announcements as known. Obtain information as to these
announcements by performing the following:
(a) Subscribe to announcement information services that Morgan
Keegan deems sufficient to remain current with industry
standards. Morgan Keegan will regularly review and update
<PAGE>
such subscriptions and notify its fund customers of the
changes in the information services it is using. Morgan
Keegan will subscribe to additional information services
that are requested in writing by the Fund, with information
from that service used specifically and solely for the
Fund's portfolio accounting and with the expense of that
service charged directly to the Fund.
(b) Receive information regarding such announcements from the
Fund's investment adviser.
(3) For each security identified by the Fund on behalf of each
Portfolio for pricing, obtain a price for each valuation date
from a pricing source approved by the Fund's Board of Directors.
Apply the price to the security's portfolio position to determine
its market value as of valuation day. In the event that a price
for a given security identified for pricing is not available from
the normal pricing sources for a given valuation date, obtain a
price from alternative source or sources identified by the Fund's
investment adviser.
(4) For each security not identified for pricing, determine its
market value as of each valuation date using a method identified
by the Fund from among the following:
(a) Market value equals book value;
(b) Market value equals face value;
(c) Market value equals book value less any amortization balance
or plus any accretion balance (amortized cost method);
(d) Another method approved by the Fund's Board of Directors or
its Valuation Committee.
(5) Identify interest and dividend accrual balances as of each
valuation date and identify gross earnings on investments for
each accounting period. Determine these amounts using:
(a) The security characteristics communicated from the Fund's
investment adviser at the time of purchase;
(b) Corrections to security characteristics subsequently
provided in writing by the Fund's investment adviser or
subsequently identified by the Fund's custodian as a result
of collection activity and approved in writing by the Fund's
investment adviser;
(c) Published corporate action announcements available to the
public;
2
<PAGE>
(d) For variable and floating rate notes, rate information from
sources identified and approved by the Fund's investment
adviser.
(6) Determine accretion and amortization balances on each valuation
date for securities which are purchased at a premium or discount
(original issue and secondary market) and which are identified in
the Fund's accounting policy established by the Fund as requiring
that accounting treatment. Determine these amounts using purchase
price and security characteristics communicated from the Fund's
investment adviser at the time of purchase or using corrections
to the information subsequently provided in writing by the Fund's
investment adviser. For those securities identified for this
accounting treatment, include the daily amortization or accretion
amount as a component of gross earnings on investments.
(7) For original issue discount (OID) debt instruments to which the
Internal Revenue Service OID rules apply, calculate adjusted
issue price as of each valuation date. For OID bonds also
calculate the ratable position of the original issue discount for
the accounting period and include that amount as part of gross
income on investments for that period. Coordinate the accounting
for original issue discount with the accounting for market
premium or discount (Section 5 above) for those OID debit
instruments purchased on the secondary market at a price other
than OID adjusted issue price. Perform this calculation using the
following information communicated from the Fund's investment
adviser at the time of purchase.
(a) Whether the debt security is one to which the Internal
Revenue Service OID rules apply;
(b) the original issue date;
(c) the original issue price;
(d) the redemption value;
(e) the maturity date;
(f) payment dates, if on irregular intervals or payment start
date and payment cycle, if on regular intervals; and
(g) the original issue yield to maturity.
(8) Determine gain/loss on security sales and identify them as to
short or long term status under the Internal Revenue Code, using
the tax lot relief policy elected by the Fund or recognizing
sales from lots that may be specifically identified by the Fund's
investment adviser at the time trade details are communicated.
Account for periodic distributions of gain to shareholders and
maintain undistributed gain or loss balances as of each valuation
date.
3
<PAGE>
(9) Provide the portfolio-based reports requested in writing by the
Fund or the Fund's investment adviser in a format as agreed to
from time to time. Issue requested reports to the recipient and
with the frequency identified in the request.
(10) Compare portfolio information in the Fund accounting system with
corresponding information in the Fund's custody records. Report
to the Fund any outstanding receivables of each Portfolio aged
more than 30 days beyond contractual payment date.
B. EXPENSE ACCRUAL AND PAYMENT SERVICES:
(1) For each valuation date, calculate the expense accrual amounts as
directed by each Portfolio as to methodology, rate, or dollar
amount.
(2) Upon receipt of written authorization from the Fund's
Administrator, initiate payment of each Portfolio's expenses by
the Fund's custodian.
(3) Account for each Portfolio's expenditures and maintain expense
accrual balances at the level of accounting detail specified by
the Fund.
(4) Provide accounting information to the Fund's Administrator or
designated expense control agent from the Fund's accounting
records as to actual expense activity versus expense accrual
amounts for specified time periods.
(5) Maintain accounting control over payment checks issued and
outstanding.
C. FUND VALUATION AND FINANCIAL REPORTING SERVICES:
(1) Account for share purchases, sales, exchanges, transfers,
dividend reinvestment, and other share activity as reported on a
timely basis by the Fund's transfer agent.
(2) Determine net investment income (earnings) as of each valuation
date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income
balances as of each valuation date.
(3) Maintain a general ledger in the form defined by the Fund and as
of each valuation date produce the set of financial statements in
the format agreed to from time to time. Issue the statements to
the recipients identified in writing by the Fund on behalf of
each Portfolio and with the specified frequency.
(4) For each day the Fund is open as defined in the Fund's
prospectus, determine net asset value according to the accounting
policies and procedures set forth in the Fund's prospectus.
4
<PAGE>
(5) Calculate per share net asset value, per share net earnings, and
other per share amounts reflective of Fund and Portfolio
operation at such time as required by the nature and
characteristics of the Fund and each Portfolio. Perform the
calculations using the number of shares outstanding reported by
the Fund's transfer agent to be applicable at the time of
calculation.
(6) Communicate per share price for each valuation date to
newspapers, the Fund's transfer agent, the Fund's investment
adviser, and other parties as specified by the Fund's
Administrator.
(7) Prepare a monthly proof package of reports in the format agreed
to from time to time which documents the adequacy of accounting
detail to support month-end ledger balances and reports.
Distribute this package to the recipients identified in writing
by the Fund behalf of each Portfolio.
D. TAX ACCOUNTING SERVICES:
(1) Maintain tax accounting records for each Portfolio, for expense
activity and for shareholder distribution activity sufficient to
support federal and state tax reporting required for IRS-defined
regulated investment companies.
(2) Maintain tax lot detail for each Portfolio.
(3) Calculate taxable gain/loss on security sales using the tax lot
relief method defined by the Fund and recognizing sales from lots
that are specifically identified.
(4) Calculate and report the taxable components of income and capital
gains distributions to the Fund's transfer agent to support tax
reporting to the shareholders.
(5) Prepare all Federal and State tax returns.
E. COMPLIANCE CONTROL SERVICES:
(1) Make the Fund's accounting records and the requested
portfolio-based reporting identified above available to the
investment adviser upon request in a timely fashion so as to
support their compliance-monitoring review. Provide the
compliance reporting in the format requested by the Fund. Issue
the requested reports to the recipients and with the frequency
identified in this request.
(2) Make the Fund's accounting records and the requested
portfolio-based and compliance reporting identified above
available upon request in a timely fashion, to the Fund's
financial accountant, so as to support the Fund's compliance with
5
<PAGE>
all applicable regulatory filings including N-1A filings, N-SAR
filing and any applicable IRS filings, and preparation of the
Fund's financial statements.
(3) Make the Fund's accounting records identified above available
upon request to Securities and Exchange Commission
representatives, to the Fund's auditors and to designated Fund
agents for their review as to the propriety of the Fund's
accounting records and the Fund's operations.
(4) Maintain at Morgan Keegan's expense, and preserve at the Fund's
expense in accordance with the 1940 Act and the rules thereunder,
all such accounting records, which shall at all times be the
property of the Fund.
2. COMPENSATION. Morgan Keegan shall be compensated for providing the
above-referenced services for each Portfolio of the Fund in accordance with the
Fee Schedule attached hereto as Exhibit A.
3. RESPONSIBILITY OF MORGAN KEEGAN & COMPANY, INC. Morgan Keegan shall be held
to the exercise of reasonable care in carrying out the provisions of this
Agreement, but shall be indemnified by and shall be without liability to the
Fund for any action taken or omitted by it in good faith without negligence or
willful misconduct. Morgan Keegan shall be entitled to rely on and may act upon
the reasonable advice of the Fund's auditors or of counsel (who may be counsel
of the Fund) on all matters, and shall not be liable for any action reasonably
taken or omitted pursuant to such advice.
In addition, Morgan Keegan shall not be liable for any loss of data or
any delay in its performance under this Agreement to the extent such loss or
delay is due to causes beyond its control, including but not limited to: acts of
God, interruption in, loss of or malfunction in power, significant computer
hardware or systems software or telephone communication service; acts of civil
or military authority; sabotage; war or civil commotion; fire; explosion; or
strike beyond delivery of minimum critical services. Morgan Keegan shall use its
best efforts to minimize any such loss or delay by all practical means and to
replace any lost data promptly. Morgan Keegan agrees not to discriminate against
the Fund in favor of any other customer of Morgan Keegan in making computer time
and its personnel available to input and process the transactions hereunder when
a loss or delay occurs.
4. AMENDMENTS. Morgan Keegan and the Fund shall regularly consult with each
other regarding Morgan Keegan's performance of its obligations hereunder. Any
change in the Fund's registration statements under the Securities Act of 1933,
as amended, or the 1940 Act or in the forms relating to any plan, program or
service offered by the current prospectus of the Fund which would require a
change in Morgan Keegan's obligations hereunder shall be subject to Morgan
Keegan's approval, which shall not be unreasonably withheld. Neither this
Agreement nor any provisions hereof may be changed, waived, discharged, or
terminated orally, but only by written instrument which shall make specific
reference to this Agreement and which shall be signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
6
<PAGE>
5. TERM OF AGREEMENT. This Agreement shall become effective as of its execution.
Thereafter, the Agreement will be renewed automatically on an annual basis;
provided, however, that this Agreement may be terminated at any time by either
party upon at least sixty days' prior written notice to the other party and
provided further that this Agreement may be terminated immediately at any time
for cause either by the Fund or Morgan Keegan. Any such termination shall not
affect the rights and obligations of the parties under paragraph 3 hereof. In
the event that the Fund designates a successor to any of Morgan Keegan's
obligations hereunder, Morgan Keegan shall, at the expense and direction of the
Fund, transfer to such successor all relevant books, records and other data of
the Fund established or maintained by Morgan Keegan hereunder and shall
cooperate in the transfer of such duties and responsibilities, including
provision for assistance from Morgan Keegan's cognizant personnel in the
establishment of books, records and other data by such successor. Historical
records will be transferred in accordance with all then current laws and
industry regulations.
6. MISCELLANEOUS. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof. This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Maryland. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
MORGAN KEEGAN & COMPANY, INC.
By:
----------------------------------
Name:
Title:
MORGAN KEEGAN SELECT FUND, INC.
By:
-----------------------------------
Name:
Title:
7
<PAGE>
APPENDIX A
Morgan Keegan Intermediate Bond Fund: Fund Accounting - $1,500 per month,
$18,000 per year
Morgan Keegan High Income Fund: Fund Accounting - $1,500 per month, $18,000 per
year
Fund Accounting Fees include Daily Valuation and Financial Statement Preparation
8
D
EXHIBIT (h)(2)
TRANSFER AGENCY AND SERVICE AGREEMENT
TRANSFER AGENCY AND SERVICE AGREEMENT, made this _____ day of
__________, 1999 (the "Agreement"), by and between Morgan Keegan & Company, Inc.
("Morgan Keegan"), a Tennessee corporation having its principal place of
business in Memphis, Tennessee, and Morgan Keegan Select Fund, Inc. (the
"Fund"), a Maryland corporation.
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and currently has two distinct series of shares of common stock
which have been designated, Morgan Keegan Intermediate Bond Fund and Morgan
Keegan High Income Fund (each a "Portfolio"); and
WHEREAS, the shares of each Portfolio may be further divided into
separate classes (each a "Class"); and
WHEREAS, the Fund wishes to retain Morgan Keegan to serve as transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent to
each Portfolio, and Morgan Keegan wishes to furnish such services.
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. APPOINTMENTS. The Fund hereby appoints Morgan Keegan as transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent for
the Fund and its Portfolio, and Morgan Keegan hereby accepts such appointment
and agrees to perform the duties thereof in accordance with the terms and
conditions set forth herein.
2. DOCUMENTATION. The Fund (or the applicable Portfolio, as
appropriate) will furnish Morgan Keegan with all documents, certificates,
contracts, forms, and opinions which Morgan Keegan, in its discretion, deems
necessary or appropriate in connection with the proper performance of its duties
hereunder.
3. AUTHORIZED SHARES. The Fund represents to Morgan Keegan that its
Articles of Incorporation permit it to issue 1,000,000,000 full and fractional
shares of beneficial interest with par value of $.001, which may be issued in
series and classes.
4. SERVICES TO BE PERFORMED.
a) In accordance with the Fund's current Prospectus and Statement of
Additional Information (the "Prospectus") and procedures
established from time to time by agreement between the Fund and
Morgan Keegan, Morgan Keegan shall:
i. Receive for acceptance, orders for the purchase of shares of
each Portfolio, and promptly deliver payment and appropriate
documentation therefor to the custodian of the Fund (the
"Custodian");
<PAGE>
ii. Pursuant to purchase orders, issue the appropriate number of
shares of each Portfolio and Class and hold such shares in
the appropriate shareholder account;
iii. Receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation
therefor to the Custodian;
iv. At the appropriate time as and when the Fund receives monies
paid to it by the Custodian with respect to any redemption,
pay over or cause to be paid over in the appropriate manner
such monies as instructed by the redeeming shareholders;
v. Effect transfers of shares by the shareholders of each
Portfolio upon receipt of appropriate instructions;
vi. Prepare and transmit payments for dividends and
distributions declared by the Fund (or a particular
Portfolio);
vii. Maintain records of account for and advise the Fund and its
shareholders as to the foregoing; and
viii.Record the issuance of shares of the Fund and maintain
pursuant to Securities and Exchange Commission ("SEC") Rule
17Ad-10(e) a record of the total number of shares of the
Fund which are authorized, based upon and provided to it by
the Fund, and issued and outstanding. Morgan Keegan shall
also provide the Fund on a regular basis with the total
number of shares of each Portfolio and Class which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of shares, to
monitor the issuance of such shares or to take cognizance of
any laws relating to the issue or sale of such shares, which
functions shall be the sole responsibility of the Fund.
b) In addition to and not in lieu of the services set forth in the
above paragraph (a), Morgan Keegan shall: (i) perform all of the
customary services of a transfer agent, shareholder servicing
agent, registrar, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account or similar
plans (including without limitation any periodic investment plan
or periodic withdrawal program); including but not limited to:
maintaining all shareholder accounts, preparing shareholder
meeting lists, mailing proxies, receiving and tabulating proxies,
mailing shareholder reports and prospectuses to current
shareholders, withholding taxes on non-resident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and
distributions by federal authorities for all shareholders,
2
<PAGE>
preparing and mailing confirmations and statements of account to
shareholders for all purchases and redemptions of shares of each
Portfolio and other confirmable transactions in shareholders
accounts, preparing and mailing activity statements of
shareholders, and providing shareholder account information and
(ii) provide a system which will enable the Fund to monitor the
total number of shares of each Portfolio and each Class thereof
sold in each State. The Fund shall (i) identify to Morgan Keegan
in writing those transactions and assets to be treated as exempt
from the blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system prior
to activation and thereafter monitor the daily activity for each
State. The responsibility of Morgan Keegan for the Fund's blue
sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by
the Fund and the reporting of such transactions to the Fund as
provided above.
c) Procedures applicable to certain of these services described in
paragraphs (a) and (b) may be established from time to time by
agreement between the Fund and Morgan Keegan and shall be subject
to the review and approval of the Fund. The failure of the Fund
to establish such procedures with respect to any service shall
not in any way diminish the duty and obligation of Morgan Keegan
to perform such services hereunder.
5. RECORD KEEPING AND OTHER INFORMATION. Morgan Keegan shall,
commencing on the effective date of this Agreement, create and maintain all
necessary shareholder accounting records in accordance with all applicable laws,
rules and regulations, including but not limited to records required by Section
31(a) of the Investment Company Act of 1940, as amended (the "1940 Act"), and
the Rules thereunder, as amended from time to time. All such records shall be
the property of the Fund and shall be available for inspection and use by the
Fund. Where applicable, such records shall be maintained by Morgan Keegan for
the periods and in the places required by Rule 31a-2 under the 1940 Act.
6. AUDIT, INSPECTION AND VISITATION. Morgan Keegan shall make available
during regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the SEC, the
Fund or any person retained by the Fund.
7. COMPENSATION. Morgan Keegan shall be compensated by the Fund on a
monthly basis for the services performed for each Portfolio hereunder, the rate
of compensation being set forth in Schedule A hereto. Expenses incurred by
Morgan Keegan and not included within Schedule A hereto shall be reimbursed to
Morgan Keegan by the Fund, as appropriate; such expenses may include, but are
not limited to, special forms and postage for mailing of said forms. Such
charges shall be payable in full upon receipt of billing invoice; in lieu of
reimbursing Morgan Keegan for such expenses, the Fund may, in its discretion,
directly pay such expenses.
8. USE OF NAMES. The Fund shall not use the name of Morgan Keegan in
any prospectus, sales literature or other material relating to the Fund in any
manner not approved prior thereto by Morgan Keegan; provided, however, that
Morgan Keegan shall approve all uses of its name which merely refer in accurate
terms to its appointment hereunder or which are required by the SEC or a State
Securities Commission; and provided further, that in no event shall such
approval be unreasonably withheld.
3
<PAGE>
9. SECURITY. Morgan Keegan represents and warrants that, to the best of
its knowledge, the various procedures and systems which Morgan Keegan proposes
to implement with regard to safeguarding from loss or damage attributable to
fire, theft or any other cause (including provision for twenty-four hour a day
restricted access) the Fund's blank checks, records and other data and Morgan
Keegan's records, data, equipment, facilities and other property used in the
performance of its obligations hereunder are adequate and that it will implement
them in the manner proposed and make such changes therein from time to time as
in its judgment are required for the secure performance of obligations
hereunder.
10. RESPONSIBILITY OF MORGAN KEEGAN; LIMITATION OF LIABILITY. Morgan
Keegan shall be held to the exercise of reasonable care in carrying out the
provisions of this Agreement, but the Fund shall indemnify and hold Morgan
Keegan harmless against any losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit brought by any person (including a shareholder naming the
Fund as a party) other than the Fund arising out of, or in connection with,
Morgan Keegan's performance of its obligations hereunder, provided, that Morgan
Keegan does not act with bad faith, willful misfeasance, reckless disregard of
its obligations and duties, or gross negligence.
The Fund shall also indemnify and hold Morgan Keegan harmless against
any losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit
(except to the extent contributed to by Morgan Keegan's bad faith, willful
misfeasance, reckless disregard of its obligations and duties, or gross
negligence) resulting from the negligence of the Fund, or Morgan Keegan's acting
upon any instructions reasonably believed by it to have been executed or
communicated by any person duly authorized by the Fund, or as a result of Morgan
Keegan's acting in reliance upon advice reasonably believed by Morgan Keegan to
have been given by counsel for the Fund, or as a result of Morgan Keegan's
acting in reliance upon any instrument reasonably believed by it to have been
genuine and signed, countersigned or executed by the proper person.
In no event shall Morgan Keegan be liable for indirect, special, or
consequential damages (even if Morgan Keegan has been advised of the possibility
of such damages) arising from the obligations assumed hereunder and the services
provided for by this Agreement, including but not limited to lost profits, loss
of use of the shareholder accounting system, cost of capital, cost of substitute
facilities, programs or services, downtime costs, or claims of the Fund's
shareholders for such damage.
11. FORCE MAJEURE. Morgan Keegan shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, Morgan Keegan shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
12. AMENDMENTS. Morgan Keegan and the Fund shall regularly consult with
each other regarding Morgan Keegan's performance of its obligations hereunder.
Any change in the Fund's registration statements under the Securities Act of
4
<PAGE>
1933, as amended, or the 1940 Act or in the forms relating to any plan, program
or service offered by the Prospectus which would require a change in Morgan
Keegan's obligations hereunder shall be subject to Morgan Keegan's approval,
which shall not be unreasonably withheld. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged, or terminated orally, but
only by written instrument which shall make specific reference to this Agreement
and which shall be signed by the party against which enforcement of such change,
waiver, discharge or termination is sought.
13. TERM OF AGREEMENT. This Agreement shall become effective as of its
execution. Thereafter, the Agreement will be renewed automatically on an annual
basis; provided, however, that this Agreement may be terminated at any time by
either party upon at least sixty days' prior written notice to the other party
and provided further that this Agreement may be terminated immediately at any
time for cause either by the Fund or Morgan Keegan. Any such termination shall
not affect the rights and obligations of the parties under Paragraphs 10 and 11
hereof. In the event that the Fund designates a successor to any of Morgan
Keegan's obligations hereunder, Morgan Keegan shall, at the expense and
direction of the Fund, transfer to such successor all relevant books, records
and other data of the Fund established or maintained by Morgan Keegan hereunder
and shall cooperate in the transfer of such duties and responsibilities,
including provision for assistance from Morgan Keegan's cognizant personnel in
the establishment of books, records and other data by such successor. Historical
records will be transferred in accordance with all then current laws and
industry regulations.
14. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Maryland. The captions in this Agreement
are included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
MORGAN KEEGAN & COMPANY, INC.
By___________________________________
Title:
MORGAN KEEGAN SELECT FUND, INC.
By___________________________________
Title:
5
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
SCHEDULE A
For its services under this Transfer Agency and Service Agreement,
Morgan Keegan & Company, Inc., is entitled to receive from Morgan Keegan Select
Fund, Inc. (the "Fund"), an annual fee of $4,000 per month, or $48,000 per year
until such time as the Fund's net assets reach $35,000,000, at which time the
fee will become $5,000 per month, or $60,000 per year.
Dated:______________________
Exhibit (i)
KIRKPATRICK & LOCKHART LLP
2ND FLOOR
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 200036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
January 20, 1999
Morgan Keegan Select Fund, Inc.
Fifty Front Street
Memphis, Tennessee 38103
Ladies and Gentlemen:
We have acted as counsel to Morgan Keegan Select Fund, Inc., a Maryland
corporation (the "Company"), in connection with Pre-Effective Amendment No. 1
(the "PEA") to the Company's Registration Statement on Form N-1A (File No.
333-66181), relating to the issuance and sale of Shares of the Company. You have
requested our opinion with respect to the matters set forth below.
In this opinion letter, the term "Shares" refers to the Class A, C and I
shares of common stock of Morgan Keegan Intermediate Bond Fund and Morgan Keegan
High Income Fund, each of which is a series ("Series") of the Company, that may
be issued during the time that the PEA is effective and has not been superseded
by a post-effective amendment and is limited to an aggregate (including shares
that are issued and outstanding as of the effective date of the PEA but
excluding shares that, as of the date a Share is issued, have been redeemed) of
100,000,000 shares of each Class of each Series.
In connection with rendering the opinions set forth below, we have
examined copies of the Company's Articles of Incorporation and by-laws, and
resolutions and minutes of meetings of the Company's Board of Directors relating
to the PEA and the issuance and sale of the Shares. We have also examined and
relied upon certificates of public officials and, as to certain matters of fact
that are material to our opinions, we have also relied on a certificate of an
officer of the Company. We have not independently established the facts so
relied on.
The opinions expressed in this opinion letter are limited to the laws
(other than the laws relating to choice of law) of the State of Maryland that in
our experience are normally applicable to the issuance of shares by corporations
and to the Securities Act of 1933 ("1933 Act"), the Investment Company Act of
1940 ("1940 Act") and the regulations of the Securities and Exchange Commission
thereunder.
Based on and subject to the foregoing, it is our opinion that:
1. The issuance of the Shares has been duly authorized by the Company.
<PAGE>
Morgan Keegan Select Fund, Inc.
January 20, 1999
Page 2
2. When sold in accordance with the terms contemplated by the PEA,
including receipt by the Company of full payment for the Shares and compliance
with the 1933 Act and the 1940 Act, the Shares will have been validly issued and
will be fully paid and non-assessable.
We hereby consent to the filing of this opinion letter as an exhibit to
the PEA and to the reference to our firm in the Statement of Additional
Information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Certified Public
Accountants" in the Statement of Additional Information and to the inclusion
herein of our report dated January 14, 1999, in this Registration Statement
(Form N-1A No. 333-66181) of Morgan Keegan Select Fund, Inc.
KPMG LLP
Memphis, Tennessee
January 14, 1999
Exhibit l
Morgan Asset Management, Inc.
Morgan Keegan Tower
50 Front Street
Memphis, Tennessee 38103
January 20, 1999
Morgan Keegan Select Fund, Inc.
50 Front Street
Memphis, Tennessee 38103
Ladies and Gentlemen:
Please be advised that the 1,667 shares of Class A, 1,667 shares of Class
C, 1,666 shares of Class I of Morgan Keegan Intermediate Bond Fund and the 1,667
shares of Class A, 1,667 shares of Class C and 1,666 shares of Class I of Morgan
Keegan High Income Fund which we have today purchased from you in the aggregate
amount of $100,000 were purchased as an investment with no present intention of
redeeming or selling such shares and we do not have any intention of redeeming
or selling such shares.
Sincerely,
MORGAN ASSET MANAGEMENT, INC.
/s/ Allen B. Morgan, Jr.
By: ________________________________
Allen B. Morgan, Jr.
EXHIBIT (m)
DISTRIBUTION PLAN
PURSUANT TO RULE 12b-1
OF
MORGAN KEEGAN SELECT FUND, INC.
WHEREAS, Morgan Keegan Select Fund, Inc. ("Fund") is registered as an
open-end, diversified management investment company under the Investment Company
Act of 1940, as amended ("1940 Act") and has two distinct series of shares of
common stock which have been designated Morgan Keegan Intermediate Bond Fund and
Morgan Keegan High Income Fund (the "Series"); and
WHEREAS, the Fund desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A shares of
the above-referenced Series and of such other series as may hereafter be
designated by the Fund's Board of Directors ("Board") and have Class A shares
established; and
WHEREAS, the Fund has entered into an Underwriting Agreement with
Morgan Keegan & Company, Inc. ("Morgan Keegan") pursuant to which Morgan Keegan
has agreed to serve as Distributor of the Class A shares of each Series;
NOW THEREFORE, the Fund hereby adopts this Plan with respect to the
Class A shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. The following Series of the Fund are authorized to pay to Morgan
Keegan, as compensation for Morgan Keegan's services to shareholders of the
Series' Class A shares, a service fee (on an annualized basis) of the average
daily net assets of the Series' Class A shares. Such fee shall be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine as set forth below:
Morgan Keegan Intermediate Bond Fund: .25 %
Morgan Keegan High Income Fund: .25 %
B. The service fees payable hereunder are payable without regard to
the aggregate amount that may be paid over the years, provided that, so long as
the limitations set forth in Article III, Section 26(d) of this Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") remain
in effect and apply to distributors or dealers in the Fund's shares, the amounts
paid hereunder shall not exceed those limitations, including permissible
interest.
C. Any Series may pay a service fee to Morgan Keegan at a lesser
rate than the fees specified above, as agreed upon by the Board and Morgan
Keegan and as approved in the manner specified in Paragraph 8 of this Plan.
<PAGE>
2. Morgan Keegan may spend the fees it receives pursuant to paragraph 1
of this Plan and/or its other resources on any activities or expenses primarily
intended to result in the sale of the Fund's shares or the servicing and
maintenance of shareholder accounts, including but not limited to, compensation
to investment executives or other employees of Morgan Keegan, and independent
dealers; compensation to and expenses, including overhead and telephone
expenses, of employees who engage in or support distribution of shares or who
service shareholder accounts; printing of prospectuses, statements of additional
information and reports for other than existing shareholders; and preparation,
printing and distribution of sales literature and advertising materials. The
amount of the fees payable by the Fund to Morgan Keegan under paragraph 1 hereof
is not related directly to expenses incurred by Morgan Keegan in serving as
Distributor, and this paragraph 2 neither obligates the Fund to reimburse Morgan
Keegan for such expenses nor obligates Morgan Keegan to incur shareholder
servicing expenses equal to or in excess of the fees it receives.
3. This Plan shall not take effect with respect to the Class A shares
of any Series until it has been approved, together with any related agreements,
by votes of a majority of both (a) the Board and (b) those directors of the Fund
who are not "interested persons" of the Fund, as defined in the 1940 Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on this Plan and such
related agreements; and until the directors who approve the Plan with respect to
such Series' Class A shares have, in the exercise of reasonable business
judgment and in light of their fiduciary duties under state law and under
Sections 36(a) and (b) of the 1940 Act, concluded that there is a reasonable
likelihood that the plan will benefit the company and its shareholders.
4. This Plan shall continue in effect for a period of one year from the
date of execution of this Plan and shall continue in full force and effect
thereafter for successive periods of up to one year, for so long as such
continuance is specifically approved at least annually in the manner provided
for approval of this Plan in paragraph 3.
5. Any person authorized to direct the disposition of monies paid or
payable by any Series pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. Morgan Keegan shall submit only information
regarding amounts expended for "service activities," as defined in paragraph 6,
to the Board in support of the service fee payable hereunder.
6. For purposes of this Plan, "service activities" shall mean
activities covered by the definition of "service fee" contained in amendments to
Article III, Section 26(d) of the NASD's Rules of Fair Practice that became
effective July 7, 1993, including the provision by Morgan Keegan of personal,
continuing services to investors in the Fund's shares. Overhead and other
expenses of Morgan Keegan related to its "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such service activities, respectively.
2
<PAGE>
7. This Plan may be terminated with respect to the Class A shares of
any Series at any time by vote of a majority of the Rule 12b-1 Directors or by
vote of a majority of the "outstanding voting securities" (as defined in the
1940 Act). The fees set forth in paragraph 1 hereof will be paid by the Fund to
Morgan Keegan unless and until either the Plan or Underwriting Agreement is
terminated or not renewed. If either the Plan or Underwriting Agreement is
terminated or not renewed, expenses incurred by Morgan Keegan in connection with
providing services thereunder in excess of the fees specified in paragraph 1
hereof which Morgan Keegan has received or accrued through the termination date
are the sole responsibility and liability of Morgan Keegan, and are not
obligations of the Fund.
8. This Plan may not be amended with respect to the Class A shares of
any Series to increase materially the amount of service fees provided for in
paragraph 1 hereof unless such amendment is approved by a vote of a majority of
the outstanding voting securities of the Class A shares of any Series, and no
material amendment to the Plan shall be made with respect to the Class A shares
of any Series unless such amendment is approved in the manner provided for
approval and annual renewal in paragraph 3 hereof.
9. While this Plan is in effect, the selection and nomination of
directors of the Fund who are not interested persons of the Fund, as defined in
the 1940 Act, shall be committed to the discretion of the directors who are
themselves not interested persons of the Fund, as defined in the 1940 Act.
10. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof for a period of
not less than six years from the date of this Plan, the first two years in an
easily accessible place.
IN WITNESS WHEREOF, the Fund has executed this Plan as of the date and
year set forth below:
Date: _____________, 1999 MORGAN KEEGAN SELECT FUND, INC.
By: ____________________________
Name:
Title:
Attest:
By: ______________________________
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EXHIBIT (o)
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
OF
MORGAN KEEGAN SELECT FUND, INC.
This Multiple Class Plan is adopted pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended (the "1940 Act"), on behalf of Morgan
Keegan Intermediate Bond Fund ("Intermediate Bond Portfolio"), Morgan Keegan
High Income Fund ("High Income Portfolio"), and any series that may be
established in the future (each a "Portfolio").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
1. CLASS A SHARES. Class A shares of each Portfolio are offered with
the imposition of the initial sales charges set forth below:
Morgan Keegan Intermediate Bond Fund: 2.00% of purchase amount
(maximum)
Morgan Keegan High Income Fund: 2.50% of purchase amount (maximum)
Class A shares of each Portfolio are subject to an annual service fee
of .25 % of the average daily net assets of the Class A shares of each Portfolio
under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class A shares of each Portfolio are not subject to distribution fees.
2. CLASS C SHARES. Class C shares of each Portfolio are offered without
the imposition of an initial sales charge but with the imposition of a 1.00%
maximum contingent deferred sales charge.
Class C shares of the Intermediate Bond Portfolio are subject to an
annual distribution fee of up to .35 % of its average daily net assets and an
annual service fee of .25 % of its average daily net assets under a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class C shares of the High Income Portfolio are subject to an annual
distribution fee of up to .50 % of its average daily net assets and an annual
service fee of .25 % of its average daily net assets under a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
3. CLASS I SHARES. Class I shares of each Portfolio are offered and
sold without imposition of an initial sales charge, contingent deferred sales
charge, service fee and distribution fee.
B. EXPENSE ALLOCATION OF EACH CLASS
Certain expenses may be attributable to a particular Class of shares of
a Portfolio ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may, by action of the Board of Directors or its delegate, also pay a
different amount of the following expenses:
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(1) legal, printing and postage expenses related to preparing and
distributing to current shareholders of a specific Class
materials such as shareholder reports, prospectuses, and proxies;
(2) Blue Sky fees incurred by a specific Class;
(3) SEC registration fees incurred by a specific Class;
(4) expenses of administrative personnel and services required to
support the shareholders of a specific Class;
(5) Directors' fees incurred as a result of issues relating to a
specific Class;
(6) litigation expenses or other legal expenses relating to a
specific Class;
(7) transfer agent fees and shareholder servicing expenses identified
as being attributable to a specific Class; and
(8) such other expenses actually incurred in a different amount by a
Class or related to a Class' receipt of services of a different
kind or to a different degree than another Class.
C. EXCHANGE PRIVILEGES:
The Class A, C and I shares of each Portfolio may be exchanged for
shares of the other and Class A shares may be exchanged for Shares of common
stock of Morgan Keegan Southern Capital Fund, Inc.
These exchange privileges may be modified or terminated by the Fund in
certain instances, and exchanges may be made only into funds that are legally
available for sale in the investor's state of residence.
D. CLASS DESIGNATION:
Subject to approval by the Board of Directors, the Fund may alter the
nomenclature for the designations of one or more of its Classes of shares.
E. ADDITIONAL INFORMATION:
This Multiple Class Plan is qualified by and subject to the terms of
the Prospectus; provided, however, that none of the terms set forth in the
Prospectus shall be inconsistent with the terms of the Classes contained in this
Plan. The Prospectus contains additional information about the Classes and the
Fund's multiple class structure.
F. DATE OF EFFECTIVENESS:
This Multiple Class Plan is effective on January 20, 1999, provided
that this Plan shall not become effective with respect to any Portfolio unless
such action has first been approved by the vote of a majority of the Board of
Directors of the Fund and by vote of a majority of those directors who are not
interested persons of the Fund.
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