MORGAN KEEGAN SELECT FUND INC, 485BPOS, 2000-10-30

MORGAN KEEGAN SELECT FUND INC
485BPOS, 2000-10-30

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As filed with the Securities and Exchange Commission on October 30, 2000

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. _____ [ ]

Post-Effective Amendment No. 7 [ X ]
-----

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]

Amendment No. 8
-----

(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

It is proposed that this filing will become effective (check appropriate box):

[ ] Immediately upon filing pursuant to paragraph (b)
[X] On November 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On ___________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On ___________ pursuant to paragraph (a)(2) of rule 485.

<PAGE>

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<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

Part A - Prospectus - Morgan Keegan Intermediate Bond Fund and
Morgan Keegan High Income Fund
Prospectus - Morgan Keegan Select Capital Growth Fund

Part B - Statement of Additional Information - Morgan Keegan
Intermediate Bond
Fund and Morgan
Keegan High Income
Fund
Statement of Additional Information - Morgan Keegan Select
Capital Growth Fund

Part C - Other Information

Signature Page

Exhibit Index

Exhibits

<PAGE>
PROSPECTUS

[LOGO Morgan Keegan Select Fund, Inc.]

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 HIGH
LEVEL OF INCOME PRIMARILY FROM BELOW INVESTMENT GRADE BONDS.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.

MORGAN KEEGAN & COMPANY, INC.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(901) 524-4100
(800) 366-7426

Dated: November 1, 2000

<PAGE>

TABLE OF CONTENTS

PAGE
----

Morgan Keegan Intermediate Bond Fund...........................................1
Principal Objectives.........................................................1
Principal Investment Strategies..............................................1
Principal Risks..............................................................2
Fees and Expenses of the Intermediate Bond Fund..............................3
Morgan Keegan High Income Fund.................................................5
Principal Objectives.........................................................5
Principal Investment Strategies..............................................5
Principal Risks..............................................................6
Fees and Expenses of the High Income Fund....................................8
Your Account..................................................................10
Buying shares...............................................................10
Choosing a Share Class......................................................10
Class Comparison............................................................11
Policies for Buying Shares..................................................12
To Add to an Account........................................................13
Buying Shares Through an Investment Broker..................................13
Internet....................................................................14
Selling Shares..............................................................14
To Sell Some or All of Your Shares..........................................15
Account Policies..............................................................15
Additional Policies...........................................................16
Investor Services.............................................................17
Funds' Management and Investment Adviser......................................18
Funds' Portfolio Manager......................................................18
Funds' Distributor............................................................18
Distributions.................................................................19
Tax Considerations............................................................19
More About Risk...............................................................20
Other Securities and Risks..................................................20
Financial Highlights..........................................................21
Account Application...........................................................24
For Additional Information............................................Back Cover

<PAGE>

MORGAN KEEGAN INTERMEDIATE BOND FUND

PRINCIPAL OBJECTIVES

The fund seeks a high level of income by investing in intermediate maturity,
investment grade bonds. The fund seeks capital growth as a secondary objective,
when consistent with the fund's primary objective.

PRINCIPAL INVESTMENT STRATEGIES

The fund seeks to achieve its objectives by investing 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 ("NRSRO") with effective maturities of 1 to 10 years) that Morgan
Asset Management, Inc. (the "Adviser") believes offer attractive yield and
capital appreciation potential. Investment grade securities purchased by the
fund will be rated, at the time of investment, at least BBB by at least one
NRSRO including, but not limited to, Standard & Poor's Ratings Group ("S&P") and
Moody's Investors Service, Inc. ("Moody's") 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. The
policy of the fund is to keep the portfolio's average effective maturity between
3 and 10 years.

In managing the fund's portfolio, the Adviser will focus on those securities
believed to offer the most attractive value relative to alternative investments.
That is, the Adviser will invest in securities that 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 fund may invest in U.S. Government securities, corporate bonds, debentures,
notes, preferred stock, mortgage-backed and asset-backed securities. Moreover,
in addition to purchasing investment grade securities to fulfill its investment
objectives, the fund may invest up to 35% of its assets in below investment
grade bonds (commonly referred to as "junk bonds"), convertible securities and
common stocks.

<PAGE>

PRINCIPAL RISKS

An investment in the fund is not guaranteed. As with any mutual fund, the value
of the fund's shares will change and you could lose money by investing in the
fund. In addition, the performance of the fund depends on the Adviser's ability
to implement the investment strategy of the fund.

A variety of factors may influence the fund's investment performance, such as:

O BOND MARKET RISK. For bonds, market risk generally reflects credit
risk and interest rate risk. Credit risk is the risk that the issuer
of the bond will not pay or is perceived as less likely to pay the
interest and principal payments when due. Bond value typically
declines if the issuer's credit quality deteriorates. Interest rate
risk is the risk that interest rates will rise and the value of bonds
will fall. A broad-based market drop may also cause a bond's price to
fall. Interest rate risk is generally greater the longer the
remaining maturity of the bonds. Prices will usually decrease more
for a longer term bond when interest rates rise.

O PREPAYMENT RISK. During periods of falling interest rates, there is
the risk that a debt security with a high stated interest rate will
be prepaid before its expected maturity rate. This is a risk
especially associated with mortgage and asset backed securities.

O BELOW INVESTMENT GRADE BONDS RISK. These bonds involve a higher
degree of credit risk. In the event of an unanticipated default, the
fund would experience a reduction in its income, a decline in the
market value of the securities so affected and a decline in the value
of its shares. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience
financial stress which could adversely affect their ability to
service principal and interest payment obligations, to meet projected
business goals and to obtain additional financing. The market prices
of below investment grade bonds are generally less sensitive to
interest rate changes than higher-rated investments, but more
sensitive to adverse economic or political changes, or individual
developments specific to the issuer. Periods of economic or political
uncertainty and change can be expected to result in volatility of
prices of these securities. NRSROs consider these bonds to be
speculative in nature.

O EQUITY SECURITY RISK. Because the fund can invest in U.S.-traded
equity securities, it is subject to stock market risk. Stock prices
typically fluctuate more than the values of other types of securities
such as U.S. government securities, corporate bonds and preferred
stock, typically in response to changes in the particular company's
financial condition and factors affecting the market in general. For
example, unfavorable or unanticipated poor earnings performance of
the company may result in a decline in its stock's price, and a
broad-based market drop may also cause a stock's price to fall.

PERFORMANCE

Performance information for the fund will be available after the fund has
completed its first calendar year.

2
<PAGE>

FEES AND EXPENSES OF THE INTERMEDIATE BOND FUND

This table describes the fees and expenses you may pay if you buy and hold
shares of the fund.

<TABLE>

<CAPTION>
SHAREHOLDER FEES (fees paid directly from
your investment) Class A Class C Class I
----------------------------------------------- ------------- ------------- -----------

<S> <C> <C> <C>
Maximum sales charge (Load) 2.00% 0.00% 0.00%
(as a percentage of offering price)
Maximum deferred sales charge (Load) 0.00% 1.00% 0.00%
(as a percentage of the lesser of the
offering price or net asset value)
Maximum sales charge (Load) Imposed on None None None
reinvested dividends and other distributions
Redemption Fee (as a percentage of amount None None None
redeemed)
Exchange Fee None None None
Maximum Account Fee None None None

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 (12b-1) fees 0.25% 0.60% 0.00%
Other expenses 0.86% 0.85% 0.86%
------------- ------------- -----------
Total annual fund operating expenses(1) 1.51% 1.85% 1.26%
============= ============= ===========

Fee Waiver 0.61% 0.60% 0.61%
============= ============= ===========
Net Expenses: 0.90% 1.25% 0.65%
</TABLE>

(1) The Adviser has agreed to waive its fee and to reimburse the fund until June
30, 2001 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

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:

3
<PAGE>

Class A Class C Class I
---------------- --------------- ------------

1 Year $290 $229 $67
1 Year (if shares are not $290 $129 $67
redeemed)
3 Years (whether or not shares $610 $525 $341
are redeemed)
5 Years (whether or not shares $954 $949 $636
are redeemed)
10 Years (whether or not shares $1,924 $2,131 $1,478
are redeemed)

4
<PAGE>

MORGAN KEEGAN HIGH INCOME FUND

PRINCIPAL OBJECTIVES

The fund seeks a high level of income by investing in below investment grade
bonds (commonly referred to as "junk bonds"). The fund seeks capital growth as a
secondary objective.

PRINCIPAL INVESTMENT STRATEGIES

The fund seeks to achieve its objectives by investing at least 65% of its total
assets in below investment grade bonds (bonds that are rated BB or below by an
NRSRO, and that are deemed to be speculative as to the issuer's ability to make
payments of principal and interest when due) that the Adviser believes offer
attractive yield and capital appreciation potential. All securities purchased by
the fund will be rated, at the time of investment, at least CCC by at least one
NRSRO including, but not limited to, S&P and Moody's or, if unrated, 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.

Up to 100% of the fund's total assets may consist of debt securities that are
rated below investment grade and their unrated equivalents (deemed by the
Adviser to be of comparable quality). Types of debt securities include, but are
not limited to, bonds, debentures, notes, mortgage-backed and asset-backed
securities, convertible debt securities of domestic and foreign corporations,
and municipal and foreign government obligations. The fund may invest up to 20%
of its assets in foreign debt and equity securities. Equity securities include
common stock, preferred stock and convertible preferred securities. The fund may
invest up to 35% of its assets in other debt securities including investment
grade securities.

5
<PAGE>

PRINCIPAL RISKS

A variety of factors may influence its investment performance, such as:

O BELOW INVESTMENT GRADE BONDS RISK. The fund invests primarily in
below investment grade bonds. These bonds involve a higher degree of
credit risk, which is the risk that the issuer will not make interest
or principal payments when due. In the event of an unanticipated
default, the fund would experience a reduction in its income, a
decline in the market value of the securities so affected and a
decline in the value of its shares. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their
ability to service principal and interest payment obligations, to
meet projected business goals and to obtain additional financing. The
market prices of below investment grade bonds are generally less
sensitive to interest rate changes than higher-rated investments, but
more sensitive to adverse economic or political changes, or
individual developments specific to the issuer. Periods of economic
or political uncertainty and change can be expected to result in
volatility of prices of these securities. NRSROs consider such bonds
to be speculative in nature.

O BOND MARKET RISK. For bonds, market risk generally reflects credit
risk and interest rate risk. Credit risk is risk that the issuer of
the bond will not pay or is perceived as less likely to pay the
interest and principal payments when due. Bond value typically
declines if the issuer's credit quality deteriorates. Interest rate
risk is the risk that interest rates will rise and the value of
bonds, including those held by the fund, will fall. A broad-based
market drop may also cause a bond's price to fall. Interest rate risk
is generally greater the longer the remaining maturity of the bonds.
Prices will usually decrease more for a longer term bond when
interest rates rise.

O FOREIGN INVESTING RISK. Foreign investing involves risks not
typically associated with U.S. investment. These risks include, among
others, adverse fluctuations in foreign currency values as well as
adverse political, social and economic developments affecting a
foreign country. Investments in foreign countries could be affected
by factors not present in the U.S., such as restrictions on receiving
the investment proceeds from a foreign country, foreign tax laws, and
potential difficulties in enforcing contractual obligations.
Transactions in foreign securities may be subject to less efficient
settlement practices, including

6
<PAGE>

extended clearance and settlement periods. Owning foreign securities
could cause the fund's performance to fluctuate more than if it held
only U.S. securities.

O CURRENCY RISK. The values of the fund's shares may change as a result
of changes in exchange rates reducing the value of the U.S. dollar
value of the fund's foreign investments. Currency exchange rates can
be volatile and affected by a number of factors, such as the general
economics of a country, the actions of U.S. and foreign governments
or central banks, the imposition of currency controls, and
speculation.

O EQUITY SECURITY RISK. Because the fund can invest in stocks of U.S.
and foreign companies, it is subject to stock market risk. Stock
prices typically fluctuate more than the values of other types of
securities such as U.S. government securities, corporate bonds and
preferred stock, typically in response to changes in the particular
company's financial condition and factors affecting the market in
general. For example, unfavorable or unanticipated poor earnings
performance of the company may result in a decline in its stock's
price, and a broad-based market drop may also cause a stock's price
to fall.

PERFORMANCE

Performance information for the fund will be available after the fund has
completed its first calendar year.

7
<PAGE>

FEES AND EXPENSES OF THE HIGH INCOME FUND

This table describes the fees and expenses you may pay if you buy and hold
shares of the fund.

<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from
your investment) Class A Class C Class I
----------------------------------------------- ------------- ------------- -----------

<S> <C> <C> <C>
Maximum sales charge (Load) 2.50% 0.00% 0.00%
(as a percentage of offering price)
Maximum deferred sales charge (Load) 0.00% 1.00% 0.00%
(as a percentage of the lesser of the
offering price or net asset value)
Maximum sales charge (Load) Imposed on None None None
reinvested dividends and other distributions
Redemption Fee (as a percentage of amount None None None
redeemed)
Exchange Fee None None None
Maximum Account Fee None None None

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 (12b-1) fees 0.25% 0.75% 0.00%
Other expenses 0.61% 0.61% 0.62%
------------- ------------- -----------
Total annual fund operating expenses(1) 1.61% 2.11% 1.37%
============= ============= ===========

Fee Waiver 0.36% 0.36% 0.37%
============= ============= ===========
Net Expenses: 1.25% 1.75% 1.00%
</TABLE>

(1) The Adviser has agreed to waive its fee and to reimburse the fund until
June 30, 2001 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.

8
<PAGE>

Class A Class C Class I
---------------- --------------- ------------

1 Year $375 $278 $102
1 Year (if shares are not $375 $178 $102
redeemed)
3 Years (whether or not shares $713 $628 $399
are redeemed)
5 Years (whether or not shares $1,074 $1,105 $718
are redeemed)
10 Years (whether or not shares $2,093 $2,424 $1,623
are redeemed)

9
<PAGE>

YOUR ACCOUNT

BUYING SHARES If you are buying shares through a Morgan Keegan & Company, Inc.
("Morgan Keegan") investment 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 investment 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 Morgan Keegan investment broker can help you choose the share class that
makes the most sense for you.

10
<PAGE>

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 Lower annual expenses than Class C shares due to lower distribution (12b-1)
fee of 0.25%.
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.

--------------------------------------------------------------------------------
Morgan Keegan Intermediate Bond Fund

--------------------------------------------------------------------------
Class A Sales Charge

--------------------------------------------------------------------------------

As a % of net
Your investment As a % 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%
--------------------------------------------------------------------------------

11
<PAGE>

--------------------------------------------------------------------------------
Morgan Keegan High Income Fund

--------------------------------------------------------------------------
Class A Sales Charge

--------------------------------------------------------------------------------

As a % of net
Your investment As a % 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 (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 (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 Morgan Keegan investment
broker for information).

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 investment broker or
Morgan Keegan at 50 North Front Street, Memphis, TN 38103.

Call your Morgan Keegan investment broker or Morgan Keegan at 800-366-7426 or
visit our Web site at www.morgankeegan.com.

12
<PAGE>

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 investment broker or Morgan Keegan at 800-366-7426 or
visit our Web site at www.morgankeegan.com.

BUYING SHARES THROUGH AN INVESTMENT BROKER

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 investment broker 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.

13
<PAGE>

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 INVESTMENT. 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.

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. Any delay would occur only when it cannot be determined that payment has
cleared.

14
<PAGE>
TO SELL SOME OR ALL OF YOUR SHARES

THROUGH AN INVESTMENT 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 and mail.

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

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 net asset value (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. The fund normally obtains market values for its
securities from an independent pricing service or from the use of an internal
matrix system that derives value based on comparable securities. Debt securities
with remaining maturities of 60 days or less are valued at amortized cost, or
original cost plus accrued interest, both of which approximate market. 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. Because foreign markets may be
open on days when U.S. markets are closed, the value of foreign securities could
change on days when you can't buy or sell fund shares.

TELEPHONE REQUESTS. When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
investment broker 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

15
<PAGE>

will provide 7 days' prior written notice before suspending or eliminating
telephone privileges.

EXCHANGE PRIVILEGES. There is no fee to exchange shares of the funds for shares
of other Morgan Keegan Select Fund, Inc. funds. 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 60 days' prior written notice
before materially amending, suspending or eliminating exchange privileges.

ACCOUNTS WITH LOW BALANCES. If the value of your account falls below $500, due
to exchanges and redemption, 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 the 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:

Class A shares may be acquired without a sales charge if the purchase is made
through a Morgan Keegan investment broker who formerly was employed as a broker
with another firm registered as a broker-dealer with the Securities and Exchange
Commission, if the following conditions are met: (1) the purchaser was a client
of the investment executive at the other firm for which the investment executive
previously served as a broker; (2) within 90 days of the purchase of the fund's
shares, the purchaser redeemed shares of one or more mutual funds for which that
other firm or its affiliates served as principal underwriter, provided that
either the purchaser had paid a sales charge in connection with investment in
such funds or a contingent deferred sales charge upon redeeming shares in such
funds; and (3) the aggregate amount of the fund's shares purchased pursuant to
this sales charge waiver does not exceed the amount of the purchaser's
redemption proceeds from the shares of the mutual fund(s) for which the other
firm or its affiliates served as principal underwriter. In addition, Class A
shares may be acquired without a sales charge if a purchase is made with the
proceeds of a redemption of other fixed income mutual fund shares, provided that
the purchaser paid a sales charge in connection with purchasing or redeeming
these shares and further provided that the purchase of the Class A shares of the
fund is made within 30 days of a redemption.

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.

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.

16
<PAGE>

INVESTOR SERVICES

SYSTEMATIC INVESTMENT PROGRAM (SIP). Use SIP to set up regular automatic
investments in a fund from your bank account. You determine the frequency and
the amount of your investments, and you can skip an investment with three days'
notice. Not available with Class I shares.

SYSTEMATIC WITHDRAWAL PLAN. This plan is designated for retirees and other
investors who want regular withdrawals from a fund account. Certain terms and
minimums apply.

DIVIDEND ALLOCATION PLAN. This plan automatically invests your distributions
from the fund into another fund of your choice, without any fees or sales
charges.

AUTOMATIC BANK CONNECTION. This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.

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.

17
<PAGE>

EXCHANGES. It's easy to move money from one fund to the other or to 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 investment broker 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 investment broker and Morgan Keegan have to
offer. The services described on this page can make investing easy for you. And
your investment broker 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. (the "Adviser"), 50 North
Front Street, Memphis, TN 38103. Pursuant to an advisory agreement (the
"Advisory Agreement"), the Adviser is responsible for the investment management
of the funds, including responsibility for making investment decisions and
placing orders to buy, sell or hold a particular security. Morgan Keegan
Intermediate Bond Fund pays the Adviser an advisory fee equal to an annual rate
of 0.40% of its average daily net assets; and Morgan Keegan High Income Fund
pays the Adviser an advisory fee equal to an annual rate of 0.75% of its average
daily net assets. Founded in 1986, the Adviser is a wholly owned subsidiary of
Morgan Keegan, Inc. The Adviser has, as of September 30, 2000, more than $1.4
billion in total assets under management.

FUNDS' PORTFOLIO MANAGER

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.

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. 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 for shareholder servicing; 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.

18
<PAGE>

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 you own 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 you own.

TAX CONSIDERATIONS

TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS. Every year, the funds will send
you information detailing the amount of dividends and net capital gain
distributed to you for the previous year. 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 a large amount in a fund close to a capital gains distribution
payment date (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.

19
<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.

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, that 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.

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. To
the extent a fund uses this strategy, it may not achieve its investment
objectives.

20
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the funds'
financial performance for the periods shown. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the funds (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, independent accountants, whose report,
along with the funds' financial statement, is included in the funds' Annual
Report to Shareholders. Annual Reports may be obtained without charge by calling
1-800-366-7426.

<TABLE>
MORGAN KEEGAN MORGAN KEEGAN
INTERMEDIATE HIGH INCOME
BOND FUND FUND

--------------------------------------------------------------------------
CLASS A

--------------------------------------------------------------------------
<CAPTION>
For The Year For the For The Year For the
Ended June Period Ended June Period
30, 2000 March 22, 30, 2000 March 22,
1999 through 1999 through
June 30, June 30,
1999 1999
---------------------------- -----------------------------

<S> <C> <C> <C> <C>
Net Asset Value, $ 9.85 $ 10.00 $ 10.17 $10.00
beginning of period

INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.68 0.16 1.29 0.20
Net Gains (loss) on (0.11) (0.15) (0.19) 0.17
Securities ----------------------------- ---------------------------
Total from Investment 0.57 0.01 1.10 0.37
Operations

LESS DISTRIBUTIONS
Dividends (from net (0.67) (0.16) (1.29) (0.20)
investment income)
Dividends (in excess of (0.01) - - -
net investment income)
Net Asset Value, end $9.74 $9.85 $9.98 $10.17
of period
Total Return* 6.17% 0.06% 9.98% 3.69%

RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period $6,101,095 $3,164,863 $5,542,495 $1,028,584
Expenses to Average Net 0.90% 0.90% 1.25% 1.25%
Assets**
Net Investment Income 6.95% 6.48% 10.89% 8.74%
to Average Net Assets
Portfolio Turnover Rate 30% 7% 12% 0%
</TABLE>

* Total return does not include front end sales load.

** For the Intermediate Fund: 1.51% and 3.41% before excess reimbursement and
fee waiver from Adviser for the year ended June 30, 2000 and the period March
22, 1999 to June 30, 1999, respectively. For the High Income Fund: 1.61% and
4.39% before excess reimbursement and fee waiver from Adviser for the year ended
June 30, 2000 and the period March 22, 1999 to June 30, 1999, respectively.

21
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
MORGAN KEEGAN MORGAN KEEGAN
INTERMEDIATE HIGH INCOME
BOND FUND FUND

--------------------------------------------------------------------------
CLASS C

<S> <C> <C> <C> <C>
Net Asset Value, $ 9.85 $ 10.00 $ 10.18 $10.00
beginning of period

INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.67 0.15 1.12 0.18
Net Gains (loss) on (0.11) (0.15) (0.20) 0.18
Securities ----------------------------- ---------------------------
Total from Investment 0.56 0.00 0.92 0.36
Operations

LESS DISTRIBUTIONS
Dividends (from net (0.66) (0.15) (1.12) (0.18)
investment income)
Dividends (in excess of (0.01) - - -
net investment income)
Net Asset Value, end $9.74 $9.85 $9.98 $10.18
of period
Total Return* 5.81% -0.04% 9.33% 3.64%

RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period $4,401,369 $1,986,591 $7,806,453 $4,064,710
Expenses to Average Net 1.25% 1.25% 1.75% 1.75%
Assets*
Net Investment Income 6.71% 6.22% 10.68% 8.65%
to Average Net Assets
Portfolio Turnover Rate 30% 7% 12% 0%
</TABLE>

* For the Intermediate Fund: 1.85% and 3.82% before excess reimbursement and fee
waiver from Adviser for the year ended June 30, 2000 and the period March 22,
1999 to June 30, 1999, respectively. For the High Income Fund: 2.11% and 4.86%
before excess reimbursement and fee waiver from Adviser for the year ended June
30, 2000 and the period March 22, 1999 to June 30, 1999, respectively.

22
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
MORGAN KEEGAN MORGAN KEEGAN
INTERMEDIATE HIGH INCOME
BOND FUND FUND

--------------------------------------------------------------------------
CLASS I

<S> <C> <C> <C> <C>
Net Asset Value, $ 9.85 $ 10.00 $ 10.18 $10.00
beginning of period

INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.72 0.16 1.31 0.20
Net Gains (loss) on (0.11) (0.15) (0.20) 0.18
Securities ----------------------------- ---------------------------
Total from Investment 0.61 0.01 1.11 0.38
Operations

LESS DISTRIBUTIONS
Dividends (from net (0.72) (0.16) (1.31) (0.20)
investment income)
Dividends (in excess of (0.01) - - -
net investment income)
Net Asset Value, end $9.74 $9.85 $9.98 $10.18
of period
Total Return* 6.46% 0.13% 10.14% 3.85%

RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period $1,823,405 $1,068,933 $5,888,854 $931,780
Expenses to Average Net 0.65% 0.65% 1.00% 1.00%
Assets*
Net Investment Income 7.30% 6.82% 11.27% 9.40%
to Average Net Assets
Portfolio Turnover Rate 30% 7% 12% 0%
</TABLE>

* For the Intermediate Fund: 1.26% and 3.13% before excess reimbursement and fee
waiver from Adviser for the year ended June 30, 2000 and the period March 22,
1999 to June 30, 1999, respectively. For the High Income Fund: 1.37% and 4.02%
before excess reimbursement and fee waiver from Adviser for the year ended June
30, 2000 and the period March 22, 1999 to June 30, 1999, respectively.

23
<PAGE>

MORGAN KEEGAN SELECT 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 also indicate the total
purchase amount and how you wish to have your initial investment split among the
funds.

$ __________________ to the Morgan Keegan Intermediate Bond Fund.

$____________________ to the Morgan Keegan High Income Fund.

24
<PAGE>

2. ACCOUNT REGISTRATION (PLEASE CHOOSE ONE)

/ / Individual or Joint Account*

________________________________________________________________________________
Owner's name (first, middle initial, last)
and

________________________________________________________________________________
Joint owner's name (first, middle initial, last)

*Joint tenancy with right of survivorship presumed, unless otherwise indicated.

/ / 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)

Under the _________________________________Uniform Gifts/Transfers to Minors Act
State

______/______/_______
Minor's date of birth

/ / TRUST

________________________________________________________________As trustee(s) of
Trustee(s) name

______________________________________________________________for the benefit of
Name of trust agreement

________________________________________________________________________________
Beneficiary's name (if applicable) Date of trust agreement

25
<PAGE>

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.

/ / CORPORATION, PARTNERSHIP, ESTATE OR OTHER ENTITY

________________________________________________________________________________
Name of Corporation, Partnership, Estate or Other Entity

________________________________________________________________________________
Type of Entity

For Corporation, Partnership, Estate or other Entities, a Multi-Purpose
Certification Form is required to authorize redemptions and add privileges. If
you have any questions please call your Morgan Keegan broker or Morgan Keegan
Fund Services at 1-800-366-7426.

3. ADDRESS

________________________________________________________________________________
Street or P.O. Box Apt. No.

________________________________________________________________________________
City State Zip Code

( ) ( )

________________________________________________________________________________
Daytime phone number Evening phone number

If you are not a citizen or resident alien of the U.S., please specify country
of permanent residence.

________________________________________________________________________________
Country of permanent residence

26
<PAGE>

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 DISTRIBUTION OPTIONS
CHECK ONE ONLY. IF YOU DO NOT 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.

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 Keegan 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

27
<PAGE>

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 Morgan Keegan funds 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

28
<PAGE>

10. SIGNATURE By signing below, you certify and agree that:

You have received a current fund Prospectus and agree to its terms. It is your
responsibility to read the Prospectus of any fund into which you may exchange.
You have full authority and are of legal age to buy and redeem shares
(custodians certify they are duly authorized to act on behalf of the investors).

The funds' Transfer Agent, Morgan Keegan, Morgan Keegan Select 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:

(1) The Social Security Number or other Taxpayer Identification Number on this
Application is correct: and (2) you are not subject to backup withholding
because (a) you are exempt from backup withholding; (b) you have not been
notified by the Internal Revenue Service that you are subject to backup
withholding; or (c) the IRS has notified you that you are no longer subject to
backup withholding.

Cross out item 2 above if it does not apply to you.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.

PLEASE SIGN HERE:

X_______________________________________________________________________________
OWNER OR CUSTODIAN

X_______________________________________________________________________________
JOINT OWNER (IF ANY), CORPORATE OFFICER, PARTNER, TRUSTEE, ETC.

Date____________________ Title_______________________________

29
<PAGE>

Mailing Instructions
Please mail the application to:

Your Morgan Keegan broker.

Morgan Keegan Select Fund, Inc.
50 North Front Street
Memphis, TN 38103

THIS APPLICATION MUST BE FILED WITH THE TRANSFER AGENT BEFORE ANY REDEMPTION
REQUEST CAN BE HONORED.

YOU WILL RECEIVE A CONFIRMATION SHOWING YOUR FUND ACCOUNT NUMBER, DOLLAR AMOUNT
RECEIVED, SHARES PURCHASED AND PRICE PAID PER SHARE.

Please do not complete

Account Number ___________________________ Rep Number_________________

30
<PAGE>

FOR ADDITIONAL INFORMATION

A Statement of Additional Information ("SAI"), dated November 1, 2000,
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.

Additional information about the funds' investments is available in the funds'
annual and semi-annual reports to shareholders. In the funds' annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance.

Free copies of the annual and semi-annual reports and SAI may be obtained:

o from your Morgan Keegan investment 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 Edgar Database on the SEC's Internet website at
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). You may obtain copies of this information, after you pay a
duplicating fee, by e-mail request at [email protected], or by writing the
Public Reference Section of the SEC, Washington, D.C. 20549-0102.

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 38103
1-800-366-7426

Investment Company Act File No. 811-09079.

31
<PAGE>

PROSPECTUS

[LOGO Morgan Keegan Select Fund, Inc.]

MORGAN KEEGAN SELECT CAPITAL GROWTH FUND

The fund seeks capital appreciation by investing in equity securities.

MORGAN KEEGAN & COMPANY, INC.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(901) 524-4100
(800) 366-7426

November 1, 2000

<PAGE>

Table of Contents
-----------------

Page
----

Investment Objective...........................................................1
Principal Investment Strategies................................................1
Principal Risks................................................................1
Performance....................................................................2
Fees and Expenses of the fund..................................................4
Your Account...................................................................5
Buying shares...............................................................5
Choosing a Share Class......................................................5
Class Comparison............................................................6
Policies for Buying Shares..................................................6
To Add to an Account........................................................7
Buying Shares Through an Investment Broker..................................7
Selling Shares..............................................................8
To Sell Some or All of Your Shares..........................................8
Account Policies...............................................................9
Additional Policies............................................................9
Investor Services.............................................................10
Management and Investment Adviser.............................................11
Portfolio Manager.............................................................11
Distributor...................................................................11
Distributions.................................................................11
Tax Considerations............................................................12
Financial Highlights..........................................................13
Account Application...........................................................14
For Additional Information............................................Back Cover

<PAGE>

MORGAN KEEGAN SELECT CAPITAL GROWTH FUND

INVESTMENT OBJECTIVE

The fund seeks capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The fund seeks to achieve its objective by investing at least 65% of its assets
in equity securities. The fund's Adviser selects investments primarily based on
a fundamental analysis of specific companies. Analysis includes consideration of
the overall financial health and prospects of given companies, with attention to
the following factors: return on equity, rate of growth of earnings, and price
to earnings ratios, as compared to the company's historic performance and to the
ratios of the industry at large.

The fund will invest primarily in common stock, preferred stock and convertible
debt securities. Normally the fund would not expect to invest more than 35% of
its assets in non-convertible debt securities, including high quality money
market instruments (such as certificates of deposit), repurchase agreements and
cash. The fund will only invest in debt securities that are rated in the top
four credit categories by at least one nationally recognized statistical rating
organization (NRSRO) at the time of purchase or, if not rated, that are
considered by the Adviser to be of comparable quality.

For temporary defensive purposes, the fund may invest up to 100% of its assets
in money market instruments, repurchase agreements and cash. To the extent the
fund uses this strategy, it may not achieve its investment objective.

PRINCIPAL RISKS

o EQUITY SECURITY RISK. Because the fund invests primarily in
U.S.-traded equity securities, it is subject to stock market risk.
Stock prices typically fluctuate more than the values of other
types of securities such as U.S. government securities, corporate
bonds and preferred stock, typically in response to changes in the
particular company's financial condition and factors affecting the
market in general. For example, unfavorable or unanticipated poor
earnings performance of a company may result in a decline in its
stock's price, and a broad-based market drop may also cause a
stock's price to fall.

o BOND MARKET RISK. For bonds, market risk generally reflects credit
risk and interest-rate risk. Credit risk is the risk that the
issuer of the bond will not pay or is perceived as less likely to
pay the interest and principal payments when due. Bond value
typically declines if the issuer's credit quality deteriorates.
Interest-rate risk is the risk that interest rates will rise and
the value of bonds will fall. A broad-based market drop may also
cause a bond's price to fall. Interest-rate risk is generally
greater the longer the remaining matury of the bonds. Prices will
usually decrease more for a longer-term bond when interest rates
rise.

1
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PERFORMANCE

RISK/RETURN BAR CHART AND TABLE:

The following bar chart shows the risks of investing in the fund by showing how
the fund's performance has varied from year to year. The fund began investment
operations on September 22, 1986.* The chart does not reflect the effect of
sales charges; if it did, the total returns shown would be lower. The table that
follows the chart shows the average annual returns over several time periods for
the fund's shares compared with those of the S&P 500 Index.** The table
compares fund returns to returns on a broad-based market index that is unmanaged
and that, therefore, does not include any sales charges or expenses. The fund's
past performance does not necessarily indicate how the fund will perform in the
future.

TOTAL RETURN

Calendar Year

1990 -15.07%

1991 33.79%

1992 17.46%

1993 5.20%

1994 -4.17%

1995 29.39%

1996 20.17%

1997 34.53%

1998 12.23%

1999 7.25%

Year-to-date performance as of 9/30/00: -2.08%

Best quarter during years shown: ending December 31, 1998: 24.11%
Worst quarter during years shown: ending September 30, 1990: -19.69%

AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)

CAPITAL GROWTH FUND S&P 500 INDEX

ONE YEAR 7.25% 21.03%

FIVE YEARS 20.29% 28.54%

TEN YEARS 12.98% 18.19%

2
<PAGE>

* Prior to November 1, 2000, the fund was known as Morgan Keegan Southern
Capital Fund, Inc. and had a policy of investing at least 65% of its assets in
companies headquartered in the Southern United States. Morgan Keegan Southern
Capital Fund, Inc. offered only one class of shares that was converted to Class
A shares of the fund.

** The S&P 500 is an unmanaged index of U.S. stocks.

3
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FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses you may pay if you buy and hold
shares of the fund.

<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment) Class A Class C Class I
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------

Maximum Sales Charge (Load) Imposed on Purchases: (as a
percentage of offering price)..................................... 3.50% 0.00% 0.00%

Maximum deferred sales charge (Load) (as a percentage of the
lesser of the offering price or net asset value).................. 0.00% 1.00% 0.00%

Maximum Sales Charge (Load) Imposed on Reinvested Dividends and
other Distributions............................................... None None None
Redemption Fee (as a percentage of amount redeemed)............... None None None
Exchange Fee...................................................... None None None
Maximum Account Fee............................................... None None None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Class A Class C Class I
fund assets)
----------------------------------------------------------------------------------------------------------

Management fee................................................. 1.00% 1.00% 1.00%
Distribution and Service (12b-1) fees.......................... 0.50% 1.00% 0.00%
Other expenses................................................. 0.26% 0.26% 0.26%
---------------------------------------
Total annual fund operating expenses........................... 1.76% 2.26% 1.26%
=======================================
</TABLE>

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 for the time periods
indicated and then redeem all your shares at the end of these periods. 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:

<TABLE>
<CAPTION>
Class A Class C Class I
---------------------------------------------------------------
<S> <C> <C> <C>
1 Year $523 $330 $129
1 Year (if shares are not redeemed) $523 $230 $129
3 Years (whether or not shares are $887 $709 $401
redeemed)
5 Years (whether or not shares are $1,274 $1,214 $694
redeemed)
10 Years (whether or not shares are $2,360 $2,606 $1,531
redeemed)
</TABLE>

4
<PAGE>

YOUR ACCOUNT

BUYING SHARES

If you are buying shares through a Morgan Keegan & Company, Inc. ("Morgan
Keegan") investment 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 INVESTMENT:

o $50 for any account

Initial and subsequent investments in an IRA account established on behalf of a
non-working spouse of a shareholder who has an IRA invested in the fund require
a minimum amount of only $250. In addition, once you have established an
account, the minimum amount for subsequent investments will be waived if an
investment in an IRA or similar plan is the maximum amount permitted under the
Internal Revenue Code of 1986, as amended (the "Code").

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 investment broker, please use
the instructions on these pages.

CHOOSING A SHARE CLASS

The 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.

5
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CLASS COMPARISON

CLASS A -- FRONT LOAD

o Initial sales charge of 3.50% (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 Lower annual expenses than Class C shares due to lower distribution (12b-1)
fee of 0.50%.

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.

--------------------------------------------------------------------------------
Morgan Keegan Select Capital Growth Fund

--------------------------------------------------------------------------------
Class A Sales Charge

--------------------------------------------------------------------------------

As a % of net
Your investment As a % of offering price amount invested
--------------------------------------------------------------------------------
up to $49,999 3.50% 3.63%
$50,000 to $99,999 3.00% 3.09%
$100,000 to $249,999 2.50% 2.56%
$250,000 to $499,999 1.50% 1.52%
$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 1.00% 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 (12b-1) fee of 1.00%.

CLASS I -- NO LOAD

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.

6
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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.

Call your Morgan Keegan investment 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.

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 investment broker or Morgan Keegan at 800-366-7426 or
visit our Web site at www.morgankeegan.com.

BUYING SHARES THROUGH AN INVESTMENT BROKER

BY MAIL. Send a completed purchase application to Morgan Keegan at the address
at the bottom of this page. Specify 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 investment broker can buy shares by calling Morgan Keegan at
800-366-7426. A confirmation will be mailed to you promptly. Purchase requests,
where you do not currently have an account with Morgan Keegan, must be made by
written application and be accompanied by a check to Morgan Keegan.

BY SYSTEMATIC INVESTMENT. See plan information on page 10.

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
--------------------

7
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SELLING SHARES

POLICIES FOR SELLING SHARES

CIRCUMSTANCES THAT REQUIRE WRITTEN REQUESTS. Please submit instructions in
writing when any of the following apply:

CORPORATE ACCOUNTS: certified copy of a corporate resolution
FIDUCIARY ACCOUNTS: copy of power of attorney or other governing document

TO SELL SOME OR ALL OF YOUR SHARES

THROUGH AN INVESTMENT BROKER

BY SYSTEMATIC WITHDRAWAL. See plan information on page 10.

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

8
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ACCOUNT POLICIES

BUSINESS HOURS. The fund is open the same days as the NYSE (generally Monday
through Friday). Representatives of the fund 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. The fund calculates net asset value (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. Please refer to the Statement of Additional
Information for a listing of days when the NYSE is closed. Investments in
securities traded on a national securities exchange are stated at the last
reported sales price on the day of valuation. Securities traded in the
over-the-counter market and listed securities for which no sale was reported on
that date are stated at the last-quoted bid price. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, or
original cost plus accrued interest, both of which approximate market. When the
fund believes that a market quote does not reflect a security's true value, the
fund may substitute for the market quote a fair value estimate made according to
methods approved by the Board of Directors. Because foreign markets may be open
on days when U.S. markets are closed, the value of foreign securities could
change on days when you can't buy or sell fund shares.

TELEPHONE REQUESTS. When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
investment broker can also use these privileges with your written permission, to
request 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
fund may suspend or eliminate the telephone privilege at any time. The fund will
provide 7 days' prior written notice before suspending or eliminating telephone
privileges.

EXCHANGE PRIVILEGES. There is no fee to exchange shares of the fund for shares
of other Morgan Keegan Select Fund, Inc. funds. Your new fund shares will be the
same class as your current shares. Any contingent deferred sales charges will 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 fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund 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 fund will provide 60 days' prior written notice before
materially amending, suspending or eliminating exchange privileges.

ACCOUNTS WITH LOW BALANCES. If the value of your account falls below $500 due,
to exchanges and redemption, 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 other Morgan Keegan Select Fund, Inc. funds at
net asset value, without payment of a sales charge.

ADDITIONAL POLICIES

Please note that the fund maintains additional policies and reserves certain
rights, including:

Class A shares may be acquired without a sales charge if the purchase if made
through a Morgan Keegan investment broker who formerly was employed as a broker
with another firm registered as a broker-dealer with the Securities and Exchange

9
<PAGE>

Commission, if the following conditions are met: (1) the purchaser was a client
of the investment executive at the other firm for which the investment executive
previously served as a broker; (2) within 90 days of the purchase of the fund's
shares, the purchaser redeemed shares of one or more mutual funds for which that
other firm or its affiliates served as principal underwriter, provided that
either the purchaser had paid a sales charge in connection with investment in
such funds or a contingent deferred sales charge upon redeeming shares in such
funds; and (3) the aggregate amount of the fund's shares purchased pursuant to
this sales charge waiver does not exceed the amount of the purchaser's
redemption proceeds from the shares of the mutual fund(s) for which the other
firm or its affiliates served as principal underwriter.

The fund may vary its 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.

At any time, the fund may change or discontinue its sales charge waivers and any
of its order acceptance practices, and may suspend the sale of its shares.
Additionally the fund may suspend the right of redemption.

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 the fund from your bank account. You determine the frequency and
the amount of your investments, and you can skip an investment with three days'
notice. Not available with Class I shares.

SYSTEMATIC WITHDRAWAL PLAN. This plan is designated for retirees and other
investors who want regular withdrawals from their 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 the fund to other funds in Morgan Keegan
Select Fund, Inc., 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.

10
<PAGE>

MANAGEMENT AND INVESTMENT ADVISER

The fund is managed by Morgan Asset Management, Inc. ("Adviser"), a wholly owned
subsidiary of Morgan Keegan, Inc. Subject to the supervision of the Board of
Directors, the Adviser manages the investment and other affairs of the fund and
directs the investments of the fund in accordance with its investment objective,
policies and limitations pursuant to an Investment Advisory and Management
Agreement between the fund and the Adviser. The Adviser's address is Morgan
Keegan Tower, Fifty Front Street, Memphis, Tennessee 38103. Founded in 1986, the
Adviser has, as of September 30, 2000, more than $1.4 billion in total assets
under management.

The Adviser receives for its services a management fee, calculated daily and
payable quarterly, at an annual rate of 1% of the average daily net assets of
the fund for the first $100 million of average daily net assets and 0.75% of
average daily net assets exceeding $100 million. The Adviser has agreed to waive
its fee and to reimburse the fund to the extent its annual expenses (excluding
brokerage, interest, taxes, and extraordinary expenses) exceed 2.0% of net
assets. The net fee paid to the Adviser for the past fiscal year was $823,851.
The fund expects to use Morgan Keegan as broker for all or a substantial portion
of its agency transactions in listed securities at commission rates and under
circumstances consistent with the policy of best execution. Morgan Keegan also
provides accounting services to the fund and acts as its transfer and dividend
disbursing agent.

PORTFOLIO MANAGER

E. Elkan Scheidt, a managing director of Morgan Keegan and an employee of Morgan
Asset Management, Inc. serves as the portfolio manager of the fund. From July 1,
1994 to October 31, 2000, Mr. Scheidt served as portfolio manager of Morgan
Keegan Southern Capital Fund, Inc., the fund's predecessor. From November 1990
to July 1, 1994, Mr. Scheidt served as assistant to the portfolio manager of the
fund. Mr. Scheidt joined Morgan Keegan as an investment broker in 1985. He
received a B.A. in Economics from Tulane University in New Orleans, Louisiana.

DISTRIBUTOR

Morgan Keegan & Company, Inc., one of the nation's largest independent regional
financial services firms, acts as the distributor of the fund's shares. It also
is a wholly owned subsidiary of Morgan Keegan, Inc. The fund has adopted a plan
under Rule 12b-1 that allows the fund to pay distribution fees for the sale and
distribution of the Class A and C shares and for shareholder servicing; and
because these fees are paid out of the 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.

DISTRIBUTIONS

INCOME AND CAPITAL GAIN DISTRIBUTIONS. The fund distributes its net investment
income and net capital gain to shareholders. 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

11
<PAGE>

shares of the fund. Distributions to Keogh plans, 401(k) plans and other
qualified retirement plans are generally reinvested in fund shares (without a
sales charge).

TAX CONSIDERATIONS

TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS. Every year, the fund will send
you information detailing the amount of dividends and net capital gain
distributed to you for the previous year. In general, any dividends and net
short-term capital gain distributions you receive from the fund 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.

The sale of shares in your account may produce a taxable 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 a large amount in the fund shortly before a capital gain
distribution payment date (if the fund makes a capital gain distribution,
you will receive some of your investment back as a taxable distribution), or

o Selling shares of the fund at a loss for tax purposes and reinvesting in
shares of the fund within 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 fund could have additional tax consequences. Please
consult your tax professional for assistance.

BACKUP WITHHOLDING. By law, the fund must withhold 31% of your distributions and
redemption proceeds if you have not provided complete, correct taxpayer
identification information and 31% of your distributions if you are otherwise
subject to backup withholding.

12
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund's
financial performance for the past 5 years.(1) Certain information reflects
financial results for a single Class A fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the fund's Annual Report to Shareholders. Annual Reports may be
obtained without charge by calling 1-800-366-7426.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/00 6/30/99 6/30/98 6/30/97 6/30/96
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>

Net Asset Value, beginning of period $27.10 $ 26.56 $ 21.64 $ 18.06 $ 14.34

INCOME FROM INVESTMENT OPERATIONS
Net Investment (Loss) (0.20) (0.17) (0.16) (0.11) (0.07)
Net Gain (Loss) on Securities (0.03) 1.46 5.57 4.64 4.08
Total from Investment Operations (0.23) 1.29 5.41 4.53 4.01

LESS DISTRIBUTIONS
Dividends (from net investment - - - - (0.03)
income)
Distribution (from realized gains) - (0.72) (0.49) (0.87) (0.26)
Distribution (return of capital) - (0.03) - (0.08) -
Net Asset Value, end of period $26.87 $27.10 $26.56 $21.64 $18.06
Total Return** (0.85%) 5.20% 25.32% 26.32% 28.30%

RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period $69,386,938 $95,893,801 $88,207,007 $53,925,763 $37,505,196
Expenses to Average Net Assets+ 1.76% 1.74% 1.79% 1.99% 2.00%
Net Investment Loss to Average
Net Assets (0.74%) (0.68%) (0.66%) (0.56%) (0.49%)
Portfolio Turnover Rate 20% 15% 28% 30% 69%

** Total return does not include front end sales load.

+ 2.2% before excess reimbursement and fee waiver from Advisor in 1996.

(1) Prior to November 1, 2000, the fund operated as Morgan Keegan Southern
Capital Fund, Inc. and had a policy of investing at least 65% of its assets
in companies headquartered in the Southern United States. Morgan Keegan
Southern Capital Fund, Inc. offered only one class of shares that was
converted to Class A shares of the fund.

</TABLE>

13
<PAGE>

MORGAN KEEGAN SELECT FUND, INC.

MORGAN KEEGAN SELECT CAPITAL GROWTH FUND

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. SHARE CHOICE

____ Class A
____ Class C
____ Class I

If you choose to invest in more than one class of shares initially,
please also indicate the total purchase amount and how you wish to have
you initial investment split among Classes.

$__________ to Class A shares
$__________ to Class C shares
$__________ to Class I shares

2. ACCOUNT REGISTRATION (PLEASE CHOOSE ONE)

/ / Individual or Joint Account*

________________________________________________________________________________
Owner's name (first, middle initial, last)
and

________________________________________________________________________________
Joint owner's name (first, middle initial, last)

*Joint tenancy with right of survivorship presumed, unless otherwise indicated.

/ / 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)

Under the ________________________________ Uniform Gifts/Transfers to Minors Act
State

_____/______/______
Minor's date of birth

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<PAGE>

/ / TRUST

________________________________________________________________As trustee(s) of
Trustee(s) name

______________________________________________________________for the benefit of
Name of trust agreement

________________________________________________________________________________
Beneficiary's name (if applicable) Date of trust agreement

/ / CORPORATION, PARTNERSHIP, ESTATE OR OTHER ENTITY

________________________________________________________________________________
Name of Corporation, Partnership, Estate or Other Entity

________________________________________________________________________________
Type of Entity

3. ADDRESS

________________________________________________________________________________
Street or P.O. Box Apt. No.

________________________________________________________________________________
City State Zip Code
( ) ( )

________________________________________________________________________________
Daytime phone number Evening phone number

If you are not a citizen or resident alien of the U.S., please specify country
of permanent residence.

________________________________________________________________________________
Country of permanent residence

15
<PAGE>

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 DISTRIBUTION OPTIONS
CHECK ONE ONLY. IF YOU DO NOT 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.

___ Yes, I (we) want the Morgan Keegan 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.

16
<PAGE>

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 Morgan Keegan funds 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

17
<PAGE>

10. SIGNATURE By signing below, you certify and agree that:

The fund's Transfer Agent, Morgan Keegan, Morgan Keegan Select 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.

Taxpayer Identification Number Certification

Understanding penalties of perjury, you certify that:

Cross out item 2 above if it does not apply to you.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.

PLEASE SIGN HERE:

X_______________________________________________________________________________

OWNER OR CUSTODIAN

X_______________________________________________________________________________
JOINT OWNER (IF ANY), CORPORATE OFFICER, PARTNER, TRUSTEE, ETC.

Date____________________ Title_______________________________

18
<PAGE>

Mailing Instructions
Please mail the application to:

Your Morgan Keegan broker.

Morgan Keegan Select Fund, Inc.
50 North Front Street
Memphis, TN 38103

THIS APPLICATION MUST BE FILED WITH THE TRANSFER AGENT BEFORE ANY REDEMPTION
REQUEST CAN BE HONORED.

YOU WILL RECEIVE A CONFIRMATION SHOWING YOUR FUND ACCOUNT NUMBER, DOLLAR AMOUNT
RECEIVED, SHARES PURCHASED AND PRICE PAID PER SHARE.

Please do not complete

Account Number _____________________________ Rep Number_________________

19
<PAGE>

FOR ADDITIONAL INFORMATION

A Statement of Additional Information ("SAI"), dated November 1, 2000,
containing further information about the fund 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.

Additional information about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In the fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the fund's performance during the last fiscal year.

Free copies of the annual and semi-annual reports and SAI may be obtained:

o from your Morgan Keegan investment 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 Edgar Database on the SEC's Internet website at
http://www.sec.gov.

Information about the fund (including shareholder reports and the SAI) also can
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
(call 202-942-8090 for further information). You may obtain copies of this
information, after you pay a duplicating fee, by e-mail request at
[email protected], or by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.

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 38103

Investment Company Act File No. 811-09079.

20
<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 November 1,
2000, 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.

--------------------------------------

November 1, 2000

<PAGE>

TABLE OF CONTENTS

GENERAL INFORMATION............................................................1
INVESTMENT LIMITATIONS AND POLICIES............................................1
ADDITIONAL TAX INFORMATION....................................................19
General....................................................................19
Dividends and Other Distributions..........................................19
Redemptions................................................................20
Income from Foreign Securities.............................................20
Hedging Strategies.........................................................22
Original Issue Discount Securities.........................................23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................23
VALUATION OF SHARES...........................................................25
PURCHASE OF SHARES............................................................25
Class A Shares.............................................................25
Class C Shares.............................................................26
Class I Shares.............................................................26
PERFORMANCE INFORMATION.......................................................26
Total Return Calculations..................................................26
Other Information..........................................................28
TAX-DEFERRED RETIREMENT PLANS.................................................28
Individual Retirement Accounts - IRAs......................................29
Self-Employed Individual Retirement Plans - Keogh Plans....................29
Simplified Employee Pension Plans - SEPPS and Savings
Incentive Match Plans for Employees - SIMPLES..............................29
DIRECTORS AND OFFICERS........................................................29
TABLE OF COMPENSATION.........................................................31
PRINCIPAL SHAREHOLDERS........................................................31
INVESTMENT ADVISER............................................................33
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................34
DISTRIBUTOR...................................................................35
DESCRIPTION OF THE FUNDS' SHARES..............................................37
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
PORTFOLIO ACCOUNTING SERVICE AGENT............................................38
LEGAL COUNSEL.................................................................39
CERTIFIED PUBLIC ACCOUNTANTS..................................................39

Dated: November 1, 2000

<PAGE>

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") 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;

(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 be invested in the
securities of companies whose principal business activities are in the same
industry;

<PAGE>

(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);

(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; or

(8) 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.

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 not purchase securities when borrowings exceed 5% of its total
assets;

(4) 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 (2)); and

(5) 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.

With respect to limitation (5), 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.

- 2 -
<PAGE>

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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<PAGE>

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.

BELOW INVESTMENT GRADE BONDS. Below investment grade bonds 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 below investment grade bonds 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 below investment grade bonds 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 below investment grade bond
market, especially during periods of economic recession.

The market for below investment grade bonds 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,
below investment grade bonds 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 below investment grade bonds
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 below investment grade bonds and the
ability of outside pricing services to value below investment grade bonds.

Since the risk of default is higher for below investment grade bonds, 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

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<PAGE>

issuers of below investment grade bonds whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve in the future.
The Adviser's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.

U.S. GOVERNMENT SECURITIES. Each fund may invest in U.S. Government
securities, including a variety of securities that are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
secured thereby. These securities include securities issued and guaranteed by
the full faith and credit of the U.S. Government, such as Treasury bills,
Treasury notes, and Treasury bonds; obligations supported by the right of the
issuer to borrow from the U.S. Treasury, such as those of the Federal Home Loan
Banks; and obligations supported only by the credit of the issuer, such as those
of the Federal Intermediate Credit Banks. Stripped Government securities are
created by separating the income and principal components of a U.S. Government
security and selling them separately. STRIPS (Separate Trading of Registered
Interest and Principal of Securities) are created when the coupon payments and
the principal payment are stripped from an outstanding U.S. Treasury security by
a Federal Reserve Bank.

Privately stripped government securities are created when a dealer deposits
a U.S. Treasury security or other U.S. Government security with a custodian for
safekeeping. The custodian issues separate receipts for the coupon payments and
the principal payment, which the dealer then sells.

MUNICIPAL OBLIGATIONS. These obligations, which are issued by state and
local governments to acquire land, equipment and facilities, typically are not
fully backed by the municipality's credit, and, if funds are not appropriated
for the following year's lease payments, a lease may terminate, with the
possibility of default on the lease obligation and significant loss to a fund.
The two principal classifications of municipal obligations are "general
obligation" and "revenue" bonds. "General obligation" bonds are secured by the
issuer's pledge of its faith, credit and taxing power. "Revenue" bonds are
payable only from the revenues derived from a particular facility or class of
facilities or facility being financed. Industrial development bonds ("IDBs") and
private activity bonds ("PABs") are usually revenue bonds and are not payable
from the unrestricted revenues of the issuer. The credit quality of the IDBs and
PABs is usually directly related to the credit standing of the corporate user of
the facilities. In addition, certain types of IDBs and PABs are issued by or on
behalf of public authorities to finance various privately operated facilities,
including certain pollution control facilities, convention or trade show
facilities, and airport, mass transit, port or parking facilities.

FOREIGN SECURITIES (HIGH INCOME FUND). Foreign securities, foreign
currencies, and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks inherent in
U.S. investments.

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

- 5 -
<PAGE>

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).

- 6 -
<PAGE>

Although foreign exchange dealers generally do not charge a fee for such
conversions, they do realize a profit based on the difference between the prices
at which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency at one rate, while offering a lesser rate of
exchange should the counterparty desire to resell that currency to the dealer.
Forward contracts are customized transactions that require a specific amount of
a currency to be delivered at a specific exchange rate on a specific date or
range of dates in the future. Forward contracts are generally traded in an
interbank market directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the contract
to maturity and complete the contemplated currency exchange. The fund may use
currency forward contracts for any purpose consistent with its investment
objective.

The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by the fund. The fund
may also use swap agreements, indexed securities, and options and futures
contracts relating to foreign currencies for the same purposes.

A "settlement hedge" or "transaction hedge" is designed to protect the fund
against an adverse change in foreign currency values between the date a security
is purchased or sold and the date on which payment is made or received. Entering
into a forward contract for the purchase or sale of the amount of foreign
currency involved in an underlying security transaction for a fixed amount of
U.S. dollars "locks in" the U.S. dollar price of the security. Forward contracts
to purchase or sell a foreign currency may also be used by the fund in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
Adviser.

The fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. The fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency exposure
as effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.

The fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from U.S.
dollars to a foreign currency, or from one foreign currency to another 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.

- 7 -
<PAGE>

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. The Adviser has the ability to deem Restricted
Securities as liquid. The Adviser has the ability to deem restricted securities
as liquid. 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
security on a delayed-delivery basis, the fund does not participate in further

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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
whether adequate public information about the entity is available and whether

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<PAGE>

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.

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.

TOTAL RETURN is composed of the income received on the securities held by
the fund and either capital appreciation or depreciation of those securities.

Each fund may not issue senior securities, except as permitted under the
1940 Act. This policy shall not prohibit reverse repurchase agreements, deposits
of assets to margin or guarantee positions in futures, options, swaps and
forward contracts, or the segregation of assets in connection with such
contracts.

Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the fund's shareholders.

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<PAGE>

ADDITIONAL TAX INFORMATION

The following is a general summary of certain federal tax considerations
affecting each fund and its shareholders. Investors are urged to consult their
own tax advisers for more detailed information and for information regarding any
state, local or foreign taxes that may be applicable to them.

GENERAL

Each fund (which is treated as a separate corporation for federal tax
purposes) intends to continue 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

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<PAGE>

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 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 another Morgan Keegan 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.

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<PAGE>

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 --
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.

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<PAGE>

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.

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

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<PAGE>

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).

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 PURCHASE AND REDEMPTION INFORMATION

Letter of Intention
-------------------

The sales charge applicable to purchases of Class A shares is reduced to 1%
pursuant to a Letter of Intention that states that the purchaser intends to
purchase shares equal to at least $1,000,000 within a 13-month period. Investors
may obtain a form of a Letter of Intention ("Letter") from their Morgan Keegan
investment broker or the fund's transfer agent, Morgan Keegan & Company, Inc.
("Transfer Agent"). Under a Letter, purchases of shares of a fund which are sold
with a sales charge made within a 13-month period starting with the first
purchase pursuant to a Letter will be aggregated for purposes of calculating the
sales charges applicable to each purchase. To qualify under a Letter, a minimum
initial purchase of $50,000 must be made; purchases must be made for a single
account; and purchases made for related accounts may not be aggregated under a
single Letter. The Letter is not a binding obligation to purchase any amount of
shares, but its execution will result in paying a reduced sales charge for the
anticipated amount of the purchase. If the total amount of shares purchased does
not equal the amount stated in the Letter (minimum of $1,000,000), the investor
will be notified and must pay, within 20 days of the expiration of the Letter,
the difference between the sales charge on the shares purchased at the reduced
rate and the sales charge applicable to the shares actually purchased under the
Letter. Shares equal to 5% of the intended amount will be held in escrow during
the 13-month period (while remaining registered in the name of the purchaser)
for this purpose.

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<PAGE>

Sales Charge Waivers
--------------------

The sales charge is waived on Class A shares of each fund purchased (1) as
a result of reinvestment of dividends and capital gain distributions and (2) by
officers, directors and full-time employees (and their immediate families, which
includes their spouse, children, mother, father and siblings) of Morgan Keegan &
Company, Inc. (or its direct or indirect subsidiaries), or by directors or
officers (and their immediate families, which includes their spouse, children,
mother, father and siblings) of the fund. The sales charge also is waived on
purchases of fund shares in an initial amount of not less than $250,000, and
thereafter for subsequent purchases if the purchaser's fund account balance is
at least $250,000, by (a) common or collective trust funds maintained by a bank,
(b) stock bonus, pension or profit sharing plans qualified under section 401(a)
of the Code (including Keogh Plans and 401(k) Plans), and (c) organizations
exempt from taxation pursuant to section 501(a) of the Code. Also, shares of
each fund may be acquired without a sales charge if the purchase is made through
a Morgan Keegan representative who formerly was employed as a broker with
another firm registered as a broker-dealer with the Securities and Exchange
Commission ("SEC"), if the following conditions are met: (i) the purchaser was a
client of the investment executive at the other firm for which the investment
executive previously served as a broker; (ii) within 90 days of the purchase of
the fund's shares, the purchaser redeemed shares of one or more mutual funds for
which that other firm or its affiliates served as principal underwriter,
provided that either the purchaser had paid a sales charge in connection with
investment in such funds or a contingent deferred sales charge upon redeeming
shares in such funds; and (iii) the aggregate amount of the fund's shares
purchased pursuant to this sales charge waiver does not exceed the amount of the
purchaser's redemption proceeds from the shares of the mutual fund(s) for which
the other firm or its affiliates served as principal underwriter. The sales
charge is also waived on purchases of Class I shares through Morgan Keegan
Mutual fund "Wrap Accounts." Investors seeking to avail themselves of this
waiver will be required to provide satisfactory evidence that all the
above-noted conditions are met and should contact their Morgan Keegan
representative for more information.

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

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<PAGE>

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 are valued at prices received from an independent
pricing service or prices derived from the use of an internal matrix system that
considers numerous factors including, but not limited to, yields or prices of
bonds of comparable quality, type of issue, coupon, maturity and rating
indications as to value from dealers, and general market conditions. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, or original cost plus accrued interest, both of which approximate market.

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 trading, 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

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<PAGE>

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.

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(superscript) = 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

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<PAGE>

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:

Yield = 2 x [(a - b + 1)6(superscript) - 1]
[(----- ) ]
[( cd ) ]

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

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<PAGE>

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.

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.

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<PAGE>

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
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.

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<PAGE>

Name Position with the fund and Principal
Occupation During Past Five Years

Allen B. Morgan, Jr.* President and Director. Mr. Morgan is
Age 58 Chairman and Chief Executive Officer and
Executive Managing Director of Morgan
Keegan & Company, Inc. He also is a
Chairman of Morgan Keegan, Inc. and a
Director of Morgan Asset Management, Inc.

James D. Witherington, Jr. Director. Mr. Witherington is President
845 Crossover Lane of SSM Corp. (management of venture
Suite 140 capital funds). He also serves as a
Memphis, Tennessee 38117 Director for several private companies.
Age 51

William F. Hughes, Jr.* Mr. Hughes is a Managing Director of
Age 57 Morgan Keegan & Company, Inc. He also is
President of Morgan Asset Management,
Inc.

William Jefferies Mann Director. Mr. Mann is Chairman and
675 Oakleaf Office Lane President of Mann Investments, Inc.
Suite 100 (hotel investments/consulting). He also
Memphis, Tennessee 38117 serves as a Director for Heavy
Age 68 Machines, Inc. (equipment contractor).

James Stillman R. McFadden Director. Mr. McFadden is Vice President
845 Crossover Lane of Sterling Equities, Inc. (private
Suite 124 equity financings). He is also President
Memphis, Tennessee 38117 and Director of 1703, Inc. (restaurant
Age 43 management) and a Director of Starr
Printing Co.

Joseph C. Weller* Vice President, Treasurer & Assistant
Age 61 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.
Age 46 Maxwell is a Managing Director and
Assistant Treasurer of Morgan Keegan &
Company, Inc. and Secretary/Treasurer of
Morgan Asset Management, Inc. He was
formerly a senior manager with Ernst &
Young (accountants) (1976-86).

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<PAGE>

TABLE OF COMPENSATION(1)

Total Compensation
Name and Position Aggregate Compensation in the Morgan Keegan
with the Company from the Company funds Complex Paid to Directors
----------------- ---------------- -------------------------------

Allen B. Morgan, Jr. $0 $0
President and Director

James D. Witherington, Jr. $12,000 $12,000
Director

William F. Hughes, Jr. $0 $0
Director

William Jeffries Mann $12,000 $12,000
Director

James Stillman R. McFadden $12,000 $12,000
Director

Officers and directors of the Company who are interested persons of the Company
receive no salary or fees from the Company. Directors of the funds who are not
interested persons of the funds will receive from each fund an annual retainer
of $1,000 and a fee of $250 and reimbursement for related expenses for each
meeting of the Board of Directors attended by them.

(1) These estimates are based on the compensation schedule adopted annually by
the Company for its operation.

PRINCIPAL SHAREHOLDERS

As of October 30, 2000, directors and officers owned in the aggregate less than
1% of the outstanding shares of and class of each fund. As of October 30, 2000,
the following shareholders were shown in the Company's records as owning more
than 5% of any class of a fund's shares:

FUND NAME SHAREHOLDER NAME AND PERCENTAGE OF SHARES
ADDRESS* BENEFICIALLY OWNED AS OF
OCTOBER 30, 2000

<S> <C> <C>
High Income Fund The William A. Strong 12.88%
Class A Family Limited Partnership

Dianne C. Brown 11.29%

Enterprise Nursing Home 9.53%
Bond Retirement Fund

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<PAGE>
FUND NAME SHAREHOLDER NAME AND PERCENTAGE OF SHARES
ADDRESS* BENEFICIALLY OWNED AS OF
OCTOBER 30, 2000

Hood Cable Inc. 6.07%

High Income Fund Barbara B. Hanemann 6.64%
Class C Revocable Trust DTD
7/21/99, Barbara B. Hanemann
Trustee

Office of Bone & Joint 6.64%
Surgery P.C., for the benefit
of Owen-Tabor-Employees
Retirement Plan & Trust DTD
11/01/73

High Income Fund G. Walter Loewenbaum 21.27%

Class I Richard A. McStay 13.86%

Morgan Keegan 401(k), for 12.04%
the benefit of George
Bagwell-Montgomery

Charles E. Smith, DMD and 9.10%
Sandra G. Smith

W.S. Newell and Sadie P. Newell 8.49%

Morgan Keegan 401(k),for the benefit 7.77%
Robert M. Montague

Lillian Shaw Loewenbaum 7.11%

Intermediate Fund Community Foundation & 32.71%
Class A Elmwood Cemetery Morgan
Keegan Trust Company, FSB
Trustee

EBAA-Iron Inc. 32.29%

Hood Cable Inc. 7.83%

Saginaw Insurance Company LTD 6.56%

Intermediate Fund Alabama Automotive 27.11%
Class C Insured Wholesaler's Self
Workers Compfund-Fixed Inc.

Barbara B. Hanemann Revocable Trust 11.48%
Revocable Trust DTD
7/21/99, Barbara B. Hanemann
Trustee

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<PAGE>
FUND NAME SHAREHOLDER NAME AND PERCENTAGE OF SHARES
ADDRESS* BENEFICIALLY OWNED AS OF
OCTOBER 30, 2000

Kenneth F. Clark, Jr.-IRA 11.40%
Rollover

Texans for Rick Perry 10.01%

Intermediate Fund Morgan Keegan, Inc. 39.17%

Class I Calhoun Community College 26.68%
Foundation Perpetual
Scholarship Fund

Hope Foundation Inc. 10.56%

Fulenwider Living Trust DTD 6.14%
12/13/96
</TABLE>

* The shareholders listed may be contacted c/o Morgan Asset Management, Inc.,
Morgan Keegan Tower, Fifty Front Street, Memphis, Tennessee, 38103.

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 February 26, 1999. The Advisory Agreement provides that, subject
to overall supervision by the Board of Directors, the Adviser manages the
investment and other affairs of the funds. The Adviser is responsible for
managing the funds' portfolio securities and for making purchases and sales of
portfolio securities consistent with the funds' investment objective, policies
and limitations described in the Prospectus and this SAI. The Adviser is
obligated to furnish the funds with office space as well as with executive and
other personnel necessary for the operation of the funds. In addition, the
Adviser is obligated to supply the Board of Directors and officers of the funds
with certain statistical information and reports, to oversee the maintenance of
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.

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<PAGE>

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. For fiscal year ended June 30,
2000, the Intermediate Fund paid the Adviser $40,855. For the fiscal period
ended June 30, 1999, the Intermediate Fund paid the Adviser $3,709. 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. For fiscal year ended June 30, 2000, the High
Income Fund paid the Adviser $101,623. For the fiscal period ended June 30,
1999, the High Income Fund paid the Adviser $5,823.

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>

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
to 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.

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.

The Company, its adviser and distributor have adopted a Code of Ethics
under Rule 17j-1 of the 1940 Act. Subject to certain limitations, the Code of
Ethics permits persons subject to the Code to invest in securities, including
securities that may be purchased or held by the funds. The Code of Ethics
describes the fiduciary duty owed to shareholders by covered persons and
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.

DISTRIBUTOR

Morgan Keegan acts as distributor of the funds' shares pursuant to an
Underwriting Agreement between the funds and Morgan Keegan dated as of February
26, 1999 ("Underwriting Agreement"). The shares of the funds are offered

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<PAGE>

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 Rule 12b-1 Plan,
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 fund's average
daily net assets attributable to shares of that class. Under the High Income
Fund Rule 12b-1 Plan, 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 fund's average daily net assets attributable to shares of that class. Class
I shares are not subject to a distribution and service fee.

For the fiscal year ended June 30, 2000 and the fiscal period ended June
30, 2000, the Intermediate Fund paid service fees and distribution fees to
Morgan Keegan pursuant to its Rule 12b-1 Plan of $33,885 and $2,462,
respectively. For the fiscal year ended June 30, 2000, expenses paid for by
Morgan Keegan for the Intermediate Fund included $20,112 for commissions and
other compensation to employees, $15,450 for printing and mailing and $1,000 for
promotional materials. For the fiscal period ended June 30, 1999, expenses paid
for by Morgan Keegan for the Intermediate Fund included $1,477 for commissions
and other compensation to employees, $500 for printing and mailing, and $250 for
promotional materials. For the fiscal year ended June 30, 2000 and the fiscal
period ended June 30, 2000, High Income Fund paid service fees and distribution
fees to Morgan Keegan pursuant to its Rule 12b-1 Plan of $51,706 and $4,084,
respectively. For the fiscal year ended June 30, 2000, expenses paid for by
Morgan Keegan for the High Income Fund included $31,021 for commissions and
other compensation to employees, $15,450 for printing and mailing, and $1,000
for promotional materials. For the fiscal period ended June 30, 1999, expenses
paid for by Morgan Keegan for the High Income Fund included $2,450 for
commissions and other compensation to employees, $500 for printing and mailing,
and $250 for promotional materials.

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.

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<PAGE>

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
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

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<PAGE>

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 two billion
shares (2,000,000,000), 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 six series of shares (Intermediate Bond Fund, High
Income Fund, Morgan Keegan Select Financial Fund, Morgan Keegan Select Capital
Growth Fund, Morgan Keegan Core Equity Fund and Morgan Keegan Utility 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 have no preemptive,
subscription or conversion rights. When issued, shares are fully paid and
non-assessable.

The Articles of Incorporation provide that all dividends and distributions
on shares of each series or class will be distributed pro rata to the holders of
that series or class in proportion to the number of shares of that series or
class held by such holders. In calculating the amount of any dividends or
distributions, (1) each class will be charged with the transfer agency fee
attributable to that class, (2) each class will be charged separately with such
other expenses as may be permitted by the SEC and the Board of Directors and (3)
all other fees and expenses shall be charged to the classes, in the proportion
that the net assets of that class bears to the net assets of the applicable
series.

Each class will vote separately on matters pertaining only to that class,
as the Board of Directors may determine. On all other matters, all classes shall
vote together and every share, regardless of class, shall have an equal vote
with every other share. Except as otherwise provided in the Articles of
Incorporation, the By-laws of the Company or as required by the provisions of
the 1940 Act, all matters will be decided by a vote of a majority of the
outstanding voting securities validly cast at a meeting at which a quorum is
present. One-third of the aggregate number of shares of that series or class
outstanding and entitled to vote shall constitute a quorum for the transaction
of business by that series or class.

Unless otherwise required by the 1940 Act or the Articles of Incorporation,
the funds have no intention of holding annual meetings of shareholders. The
funds' shareholders may remove a Director by the majority of all votes of the
Company's outstanding shares and the Board of Directors shall promptly call a
meeting for such purpose when requested to do so in writing by the record
holders of not less than 25% of the outstanding shares of each fund. At least
two-thirds of the directors holding office must have been elected by the
shareholders.

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<PAGE>

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 Intermediate Fund
and High Income Fund fees of $2,000 and $2,500 per month, or $24,000 and $30,000
per year, respectively.

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.

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 are the fund's independent certified public accountants. The
financial information under the caption "Financial Highlights" in the Prospectus
has been derived from the fund's financial statements contained in the fund's
Annual Report to shareholders for the period ended June 30, 2000 ("Annual
Report"). Those financial statements have been examined by KPMG LLP whose report
thereon also appears in the Annual Report and have been incorporated by
reference in this Statement of Additional Information. KPMG LLP performs an
audit of the fund's financial statements and reviews the fund's federal and
state income tax returns.

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<PAGE>
MORGAN KEEGAN SELECT FUND, INC.

MORGAN KEEGAN SELECT CAPITAL GROWTH FUND

Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(800) 366-7426

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the fund's Prospectus, dated November 1, 2000, which
has been filed with the Securities and Exchange Commission. A copy of the
current Prospectus is available without charge from Morgan Keegan & Company,
Inc., the fund's distributor, by writing to the above address or by calling the
toll-free number listed above.

Morgan Keegan & Company, Inc.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
1-800-366-7426

November 1, 2000

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TABLE OF CONTENTS
PAGE

GENERAL INFORMATION...........................................................1

INVESTMENT LIMITATIONS AND POLICIES...........................................1

ADDITIONAL TAX INFORMATION....................................................4
GENERAL..................................................................5
DIVIDENDS AND OTHER DISTRIBUTIONS........................................5
REDEMPTIONS..............................................................6
HEDGING STRATEGIES.......................................................6

ADDITIONAL DEBT INFORMATION...................................................7

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................8
LETTER OF INTENTION......................................................8
SALES CHARGE WAIVERS.....................................................8
ADDITIONAL INFORMATION ON REDEMPTIONS....................................9

VALUATION OF SHARES..........................................................10

PURCHASE OF SHARES...........................................................10
CLASS A SHARES..........................................................10
CLASS C SHARES..........................................................10
CLASS I SHARES..........................................................11

PERFORMANCE INFORMATION......................................................11
TOTAL RETURN CALCULATIONS...............................................11
OTHER INFORMATION.......................................................12

TAX-DEFERRED RETIREMENT PLANS................................................12
INDIVIDUAL RETIREMENT ACCOUNTS - IRAS...................................13
SELF-EMPLOYED INDIVIDUAL RETIREMENT PLANS - KEOGH PLANS.................13
SIMPLIFIED EMPLOYEE PENSION PLANS - SEPPS, AND SAVINGS INCENTIVE
MATCH PLANS FOR EMPLOYEES - SIMPLES..................................13

DIRECTORS AND OFFICERS.......................................................13

TABLE OF COMPENSATION........................................................15

PRINCIPAL SHAREHOLDERS.......................................................16

INVESTMENT ADVISER...........................................................16

PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................18

DISTRIBUTOR..................................................................19

OTHER INFORMATION............................................................21

CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO
ACCOUNTING SERVICE AGENT.................................................23

LEGAL COUNSEL................................................................23

CERTIFIED PUBLIC ACCOUNTANTS.................................................23

Dated: November 1, 2000

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GENERAL INFORMATION

The Morgan Keegan Select Fund, Inc., is an open-end management
investment company (the "Company") organized as a Maryland corporation on
October 27, 1998. The Morgan Keegan Select Capital Growth Fund is a diversified
series of the Company. The Company has five (5) other series of funds: the
Morgan Keegan Intermediate Bond Fund, the Morgan Keegan High Income Fund, the
Morgan Keegan Core Equity Fund, the Morgan Keegan Utility Fund and the Morgan
Keegan Select Financial Fund. Each fund offers three classes of shares: Class A
shares, Class C shares and Class I shares. The Morgan Keegan Select Capital
Growth Fund succeeded to the business of Morgan Keegan Southern Capital Fund,
Inc. ("Southern Capital") by assuming all of the assets subject to the
liabilities of Southern Capital on October 31, 2000.

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 the 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 the 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.

The 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 the SAI are not fundamental and
may be changed without shareholder approval.

INVESTMENT LIMITATION OF THE FUND

THE FOLLOWING ARE THE FUND'S 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 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;

3. 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);
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4. underwrite the securities issued by others, except to the extent
that the fund may be considered an underwriter within the meaning of
the Securities Act of 1933, in the disposition of restricted
securities;

5. 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;

6. purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);

7. purchase 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 be invested in the securities of companies whose principal
business activities are in the same industry; or

8. 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.

THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE
CHANGED BY THE BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL. THE FUND:

1. 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 the above fundamental restriction
on borrowing);

2. 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;

3. may not purchase securities on margin, except that the 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;

4. may not purchase securities when borrowings exceed 5% of its total
assets; and

5. may not purchase any security if, as a result, more than 10% of its
net assets would be invested in securities that are illiquid because

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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.

The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies the Adviser may employ in
pursuit of the 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 fund achieve its goal.

OPTIONS

The fund may from time to time write (sell) covered call options on
certain of its portfolio securities. The fund intends only to engage in
transactions in exchange-traded options. A covered call option is an option to
purchase a portfolio security owned by the fund. In such a transaction, the fund
obligates itself to sell the underlying security to the purchaser of the option
at a fixed price if the purchaser exercises the option during the option period.
In return, the fund receives a premium from the purchaser. During the option
period, the fund foregoes the opportunity to profit from any increase in the
market price of the security above the exercise price of the option, but retains
the risk that the price of the security may decline.

The fund may seek to terminate its obligation as a writer of a call
option prior to its expiration by entering into a "closing purchase
transactions." There is no assurance that the fund will be able to effect a
closing purchase transaction, particularly with respect to thinly traded call
options. The selling of call options could result in an increase in the fund's
portfolio turnover rate, particularly in periods of appreciation in the market
price of the underlying securities. The fund would use such options only as a
defensive strategy and not as a primary investment technique. Although not a
fundamental policy subject to shareholder vote, the fund does not intend during
the coming year to write call options on portfolio securities exceeding 5% of
its total assets or to write options that are not traded on a national
securities exchange. Normally such options will be written only on those
portfolio securities which the Adviser does not expect to have significant
short-term capital appreciation.

LENDING PORTFOLIO SECURITIES

The fund may lend portfolio securities to broker/dealers in corporate
or government securities, banks or other recognized institutional borrowers of
securities, provided that cash or equivalent collateral, equal to at least 100%
of the value of the securities loaned plus any accrued interest, "marked to
market" on a daily basis, is continuously maintained by the borrower with the
fund, and further provided that the Adviser determines that the borrower
presents minimal credit risk. The Adviser will monitor the credit status of the
borrower during the period of the loan.

During the time portfolio securities are on loan, the borrower will pay
the fund an amount equivalent to any dividends or interest paid on such
securities, and the fund may invest the cash collateral and earn additional
income, or it may receive an agreed upon fee from the borrower who has delivered
equivalent collateral. These loans are subject to termination at the option of
the fund or the borrower. The fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash collateral to the borrower or placing broker. The

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fund does not have the right to vote securities on loan, but would terminate the
loan and regain the right to vote if such vote were considered important with
respect to the investment. The fund does not intend during the coming year to
loan more than 5% of its portfolio securities at any given time.

REPURCHASE AND REVERSE REPURCHASE AGREEMENTS

Available cash may be invested by the fund in repurchase agreements. A
repurchase agreement is an agreement under which U.S. Government obligations are
acquired from a securities dealer or Bank subject to resale at a previously
agreed upon price and date. The resale price reflects an agreed upon interest
rate which is unrelated to the interest rate provided by the securities which
are transferred. The securities will be held for the fund by its custodian as
collateral until retransferred and will be supplemented by additional collateral
(without cost to the fund) if necessary to maintain a total value equal to or in
excess of the value of the repurchase agreement. Repurchase agreements are
usually for periods of one week or less, but may be for longer periods.

To the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the fund might
suffer a loss. If bankruptcy proceedings are commenced with respect to the
seller of the security, realization upon the collateral by the fund would be
delayed or limited. However, the fund has adopted standards for the parties with
whom it may enter into repurchase agreements, including monitoring by the
Adviser of the creditworthiness of such parties, which the fund's Board of
Directors believes are reasonably designed to assure that each party presents no
serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase agreement.

As stated in the fund's investment limitations, the fund may enter into
reverse repurchase agreements for temporary purposes. Because such agreements
are considered to be borrowings, the agreements are subject to the limitation
that the fund may not borrow in an aggregate amount that exceeds 5% of the value
of the fund's total assets at the time of borrowing. Reverse repurchase
agreements involve the sale of securities held by the fund pursuant to the
fund's agreement to repurchase the securities at an agreed upon price, date and
rate of interest. While reverse repurchase transactions are outstanding, the
fund will maintain in a segregated account, cash, U.S. government securities or
other liquid, high grade debt securities of an amount at least equal to the
market value of the securities, plus accrued interests, subject to the
agreement.

ADDITIONAL TAX INFORMATION

The following is a general summary of certain federal income tax
considerations affecting the 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

The fund (which is treated as a separate corporation for federal tax
purposes) intends to continue 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, the 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) and
must meet several additional requirements. Among these requirements are 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 other income
(including gains from options) derived with respect to its business of investing
in securities; (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 such 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 each quarter of the 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 the fund failed to qualify for treatment as a RIC for any taxable
year, (a) it would be taxed as an ordinary corporation on the full amount of its
taxable income for that year without being able to deduct the distributions it
makes to its shareholders and (b) 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.

The fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent if 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 the 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 the 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 the
fund of net capital gain do not qualify for the dividends-received deduction.

Dividends and other distributions declared by the 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
December 31 if they are paid by the fund during the following January.
Accordingly, those distributions will be taxed to the shareholders for the year
in which that December 31 falls.

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A dividend or capital gain distribution paid shortly after shares have
been purchased, although in effect a return of investment is subject to federal
taxation. Accordingly, an investor should not purchase fund shares immediately
prior to a dividend or capital gain distribution record date solely for the
purpose of receiving the dividend or distribution.

REDEMPTIONS

A redemption of the 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 the fund for shares of another Morgan Keegan Fund generally will have
similar tax consequences. Special rules apply when a shareholder disposes of
Class A shares of the fund through a redemption or exchange within 60 days after
purchase thereof and subsequently reacquires Class A shares of the fund or
acquires Class A shares of another fund in the Morgan Keegan family of funds
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 the fund (whether pursuant to the reinstatement
privilege or otherwise) within 30 days before or after redeeming at a loss other
shares of the 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 the 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.

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 the 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 the fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.

Certain futures and foreign currency contracts in which the fund may
invest will be "section 1256 contracts." Section 1256 contracts held by the 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

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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 the 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 the 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 the 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 the 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
the fund of straddle transactions are not entirely clear.

If the fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale. 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).

ADDITIONAL DEBT INFORMATION

The fund will invest in debt securities, within its investment
limitations, only in cases where the Adviser believes there is the potential of
capital appreciation. If a security satisfies the fund's minimum rating criteria
at the time of purchase and is subsequently downgraded below such ratings, the
fund will not be required to dispose of such security. If a downgrade occurs,
the Advisor will consider what action, including the sale of such security, is
in the best interest of the fund and its shareholders. Convertible securities

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purchased by the fund will be rated at the time of investment in the top four
credit categories by at least one NRSRO or, if unrated, determined by the
Advisor to be of comparable quality.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

LETTER OF INTENTION

The sales charge applicable to purchases of Class A shares is reduced
to 1% pursuant to a Letter of Intention that states that the purchaser intends
to purchase shares equal to at least $1,000,000 within a 13-month period.
Investors may obtain a form of a Letter of Intention ("Letter") from their
Morgan Keegan investment broker or the fund's transfer agent, Morgan Keegan &
Company, Inc. ("Transfer Agent"). Under a Letter, purchases of shares of the
fund which are sold with a sales charge made within a 13-month period starting
with the first purchase pursuant to a Letter will be aggregated for purposes of
calculating the sales charges applicable to each purchase. To qualify under a
Letter, a minimum initial purchase of $50,000 must be made; purchases must be
made for a single account; and purchases made for related accounts may not be
aggregated under a single Letter. The Letter is not a binding obligation to
purchase any amount of shares, but its execution will result in paying a reduced
sales charge for the anticipated amount of the purchase. If the total amount of
shares purchased does not equal the amount stated in the Letter (minimum of
$1,000,000), the investor will be notified and must pay, within 20 days of the
expiration of the Letter, the difference between the sales charge on the shares
purchased at the reduced rate and the sales charge applicable to the shares
actually purchased under the Letter. Shares equal to 5% of the intended amount
will be held in escrow during the 13-month period (while remaining registered in
the name of the purchaser) for this purpose.

SALES CHARGE WAIVERS

The sales charge is waived on Class A shares of the fund purchased (1)
as a result of reinvestment of dividends and capital gain distributions and (2)
by officers, directors and full-time employees (and their immediate families,
which includes their spouse, children, mother, father and siblings) of Morgan
Keegan & Company, Inc. (or its direct or indirect subsidiaries), or by directors
or officers (and their immediate families, which includes their spouse,
children, mother, father and siblings) of the fund. The sales charge also is
waived on purchases of fund shares in an initial amount of not less than
$250,000, and thereafter for subsequent purchases if the purchaser's fund
account balance is at least $250,000, by (a) common or collective trust funds
maintained by a bank, (b) stock bonus, pension or profit sharing plans qualified
under section 401(a) of the Code (including Keogh Plans and 401(k) Plans), and
(c) organizations exempt from taxation pursuant to section 501(a) of the Code.
Also, shares of the fund may be acquired without a sales charge if the purchase
is made through a Morgan Keegan representative who formerly was employed as a
broker with another firm registered as a broker-dealer with the Securities and
Exchange Commission ("SEC"), if the following conditions are met: (i) the
purchaser was a client of the investment executive at the other firm for which
the investment executive previously served as a broker; (ii) within 90 days of
the purchase of the fund's shares, the purchaser redeemed shares of one or more
mutual funds for which that other firm or its affiliates served as principal
underwriter, provided that either the purchaser had paid a sales charge in

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connection with investment in such funds or a contingent deferred sales charge
upon redeeming shares in such funds; and (iii) the aggregate amount of the
fund's shares purchased pursuant to this sales charge waiver does not exceed the
amount of the purchaser's redemption proceeds from the shares of the mutual
fund(s) for which the other firm or its affiliates served as principal
underwriter. The sales charge is also waived on purchases of Class I shares
through Morgan Keegan Mutual fund "Wrap Accounts." Investors seeking to avail
themselves of this waiver will be required to provide satisfactory evidence that
all the above-noted conditions are met and should contact their Morgan Keegan
representative for more information.

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 the fund or when an
emergency, as defined by the rules and regulations of the SEC exists, making
disposal of the fund's 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 fund's 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.

The 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 fund's per share net asset value. However, the
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.

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VALUATION OF SHARES

Net asset value of a fund 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 Jr.'s
Birthday, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas. Securities owned by the 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
fund's Board of Directors. Securities traded on an exchange or the NASD National
Market System (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 fund's Board
of Directors believes accurately reflects fair value. Premiums received on the
sale of call options are included in the fund's net asset value, and the current
market value of options sold by the fund will be subtracted from net assets.

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 fund's 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 fund's share price will fluctuate and your
shares, when redeemed, may be worth more or less than you originally paid for
them. Prior to November 1, 2000, the fund was known as Morgan Southern Capital
Fund, Inc. and had a policy of investing at least 65% of its assets in companies
headquartered in the Southern United States. Morgan Keegan Southern Capital
Fund, Inc. offered only one class of shares that was converted to Class A shares
of the fund. Performance shown for the fund for periods prior to November 1,
2000 is the performance of Morgan Keegan Southern Capital Fund, Inc. The fund no
longer has an investment policy that limits its investments to companies
headquartered in the Southern United States.

TOTAL RETURN CALCULATIONS

Average annual total return quotes ("Standardized Return") used in the
fund's Performance Advertisements are calculated according to the following
formula:
n
P(1 + T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of that
period

Because each class of the funds has its own sales charge and fee
structure, the classes have different performance results. In the case of each
class, this calculation assumes the maximum sales charge is included in the
initial investment or the CDSC is applied at the end of the period,
respectively. This calculation assumes that all dividends and 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

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by the fund are assumed to have been
reinvested at net asset value.

The fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in fund shares
and assuming the reinvestment of all dividends and other distributions. The rate

11
<PAGE>

of return is determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the initial value. Initial
sales charges are not taken into account in calculating Non-Standardized Return;
the inclusion of those charges would reduce the return.

OTHER INFORMATION

From time to time the fund may compare its performance in Performance
Advertisements to the performance of other mutual funds or various market
indices. One such market index is the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500"), a widely recognized unmanaged index composed of the
capitalization-weighted average of the prices of 500 of the largest publicly
traded stocks in the United States. The S&P 500 includes reinvestment of all
dividends. It takes no account of the costs of investing or the tax consequences
of distributions. The fund may invest in securities that are not included in the
S&P 500.

The fund may also quote rankings and ratings, and compare the return of
the fund 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 fund 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.

The fund may also compare its 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 fund or its 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 fund are not insured or guaranteed by the U.S.
government, the value of fund shares will fluctuate and your shares, when
redeemed, may be worth more or less than you originally paid for them. Unlike
the interest paid on many CDs, which remains as a specified rate for a specified
period of time, the return on the fund's shares will vary.

The fund's Performance Advertisements may reference the history of the
fund's distributor and its affiliates or biographical information of key
investment and managerial personnel including the portfolio manager. The fund
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 fund may discuss the advantages of saving through tax-deferred
retirement plans or accounts.

TAX-DEFERRED RETIREMENT PLANS

As noted in the fund's Prospectus, an investment in fund 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

12
<PAGE>

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. You also may be able to make a
nondeductible contribution to an "education IRA" or "Roth IRA," distributions
from which are not taxable under certain circumstances.

An investment in fund 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. To avoid penalties, your interest in an IRA must be
distributed, or start to be distributed, to you not later than April 1 following
the calendar year in which you attain age 70 1/2. Distributions made before age
59 1/2, in addition to being taxable, generally are subject to a penalty equal
to 10% of the distribution, except in the case of death or disability, where the
distribution is rolled over into another qualified plan, or in certain other
situations.

SELF-EMPLOYED INDIVIDUAL RETIREMENT PLANS - KEOGH PLANS

Morgan Keegan will assist self-employed individuals to set up
retirement plans through which fund shares may be purchased. Morgan Keegan
generally arranges for a bank to serve as trustee for the plan and performs
custodian services for the trustee and the plan by holding and handling
securities. However, you have the right to use a bank of your choice to provide
these services at your cost. There are penalties for distributions from a Keogh
Plan prior to age 59 1/2, except in the case of death or disability.

SIMPLIFIED EMPLOYEE PENSION PLANS - SEPPS, AND
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES - SIMPLES

Morgan Keegan also will make available to corporate and other employers
a SEPP or SIMPLE for investment in fund shares.

DIRECTORS AND OFFICERS

The fund's officers are responsible for the operation of the fund under
the direction of the Board of Directors. The officers and directors of the fund
and their principal occupations during the past five years are set forth below.
An asterisk (*) indicates officers and/or directors who are interested persons

13
<PAGE>

of the fund 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.

Position with the fund and
NAME PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
<S> <C> <C>
Allen B. Morgan, Jr.* President and Director Mr. Morgan is Chairman and Chief
Age 58 Executive Officer and Executive
Managing Director of Morgan Keegan &
Company, Inc. He also is a
Chairman of Morgan Keegan, Inc., and
a Director of Morgan Asset
Management, Inc.

James D. Witherington, Jr. Director Mr. Witherington is President of SSM
845 Crossover Lane, Suite 140 Corp. (management of venture capital
Memphis, Tennessee 38117 funds). He also serves as a
Age 51 Director for several private
companies.

William F. Hughes, Jr.* Director Mr. Hughes is an Executive Managing
Age 57 Director of Morgan Keegan & Company,
Inc. He also is President of Morgan
Asset Management, Inc.

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
Memphis, Tennessee 38117 serves as a Director for Heavy
Age 68 Machines, Inc. (equipment contractor).

James Stillman R. McFadden
c/o Sterling Equities, Inc. Director Mr. McFadden is Vice President of
6305 Humphreys Boulevard Sterling Equities, Inc. (private
Memphis, Tennessee 38120 equity financings). He is also
Age 43 President and Director of 1703 Inc.
and a Director of Staff Printing Co.

14
<PAGE>

Position with the fund and
NAME PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
<S> <C> <C>
Joseph C. Weller* Vice President, Treasurer & Mr. Weller is Executive Vice
Age 61 Assistant Secretary 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 Mr. Maxwell is a Managing Director
Age 46 Treasurer and Assistant Treasurer of Morgan
Keegan & Company, Inc., and
Secretary/Treasurer of Morgan Asset
Management, Inc. He was formerly a
senior manager with Ernst & Young
(accountants) (1976-86).
</TABLE>

<TABLE>
<CAPTION>
TABLE OF COMPENSATION(1)

Total
Pension or Compensation
Name and Aggregate Retirement Estimated From Company
Position Compensation Benefits Accrued Annual Benefits and Fund
with the from the As Part of Fund Upon Complex Paid to
Company Company Expenses Retirement Directors
------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C>

Allen B. Morgan, $0 $0 $0 $0
Jr.
President and
Director

James D. $12,000 $0 $0 $12,000
Witherington, Jr.
Director

William F. $0 $0 $0 $0
Hughes, Jr.
Director

15
<PAGE>

James Stillman $12,000 $0 $0 $12,000
R. McFadden
Director
</TABLE>

(1)These numbers are based on the compensation schedule adopted annually by the
Company for its operation.

Officers and directors of the fund who are interested persons of the fund
receive no salary or fees from the fund. Directors of the fund who are not
interested persons of the fund will receive an annual retainer of $1,000 and a
fee of $250 and reimbursement for related expenses for each meeting of the Board
of Directors attended by them.

PRINCIPAL SHAREHOLDERS

On September 30, 2000 there were 2,417,583 shares of the fund
outstanding of which all the officers and directors of the fund as a group (7
persons) owned approximately 2.99% shares. Management of the fund is not aware
of any shareholder who owned of record or beneficially 5% or more of any class
of the fund's outstanding common stock as of that date.

INVESTMENT ADVISER

Morgan Asset Management, Inc., formerly Southern Capital Advisors,
Inc., ("Adviser"), an affiliate of Morgan Keegan, serves as the fund's
investment adviser and manager under an Investment Advisory and Management
Agreement ("Advisory Agreement"). The Advisory Agreement became effective as of
November 1, 2000. The Advisory Agreement provides that, subject to overall
supervision by the Board of Directors of the fund, the Adviser manages the
investment and other affairs of the fund. The Adviser is responsible for
managing the fund's portfolio securities and for making purchases and sales of
portfolio securities consistent with the fund's investment objective, policies
and limitations described in the Prospectus and this Statement of Additional
Information. The Adviser is obligated to furnish the fund with office space as
well as with executive and other personnel necessary for the operation of the

16
<PAGE>

fund. In addition, the Adviser is obligated to supply the Board of Directors and
officers of the fund 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 the fund who are employees of the
Adviser and/or its affiliates.

The fund bears all its other expenses that 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 fund 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 fund's shares; expenses
of registering and qualifying fund 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 fund shareholders; costs of
stationery; costs of shareholders' and other meetings of the fund; compensation
and expenses of the independent directors; and insurance covering the fund and
its officers and directors. The fund also is liable for such nonrecurring
expenses as may arise, including litigation to which the fund may be party. The
fund also may have an obligation to indemnify its directors and officers with
respect to any such litigation.

The Adviser receives for its services a management fee, calculated
daily and payable quarterly, at an annual rate of 1.0% of the average daily net
assets of the fund for the first $100 million of average daily net assets and
0.75% of average daily net assets exceeding $100 million. The Adviser has agreed
to reimburse the fund for certain expenses, including waiving the advisory fees
received by it, in any fiscal year in which the fund's annual expenses
(excluding interest, taxes, brokerage fees and commissions, and certain
extraordinary charges), exceed 2.0% of the fund's average net assets. For the
fiscal year ended June 30, 1998, the advisory fee was $695,785. For the fiscal
year ended June 30, 1999, the advisory fee was $877,482. For the fiscal year
ended June 30, 2000, the advisory fee was $823,851.

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 the
fund. Additionally, the Advisory Agreement must be approved annually by vote of
a majority of the directors of the fund 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 fund, 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 fund 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.

17
<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

Under the Advisory Agreement, the Adviser is responsible for the
execution of the fund's 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 fund may not always pay the lowest commission or spread available.
Rather, the fund 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.

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
to clients other than the fund. The Adviser's fee is not reduced by reason of
its receipt of such brokerage and research services. During the fiscal year
ended June 30, 2000, the fund paid brokerage commissions of $73,306 to brokers
who provided research services.

From time to time the fund may use Morgan Keegan & Company, Inc.
("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
fund to pay Morgan Keegan any commission for effecting a securities transaction
for the fund 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 or to be
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 fund generally deals with
responsible primary market-makers unless a more favorable execution can
otherwise be obtained through brokers. For the fiscal year ended June 30, 2000,
brokerage commissions paid to Morgan Keegan constituted approximately 9% of all
brokerage commissions paid by the fund in connection with 7% of the aggregate
dollar amount of transactions involving the payment of commissions effected by
the fund in that year. Brokerage commissions paid to Morgan Keegan were $6,520,
$3,425 and $8,100 for the fiscal years ended June 30, 2000, 1999 and 1998,
respectfully.

The fund may not buy securities from, or sell securities to, Morgan
Keegan as principal. The fund's Board of Directors has adopted procedures in
conformity with Rule 10f-3 under the 1940 Act whereby the fund may purchase
securities that are offered in underwritings in which Morgan Keegan is a
participant.

18
<PAGE>

Section 11(a) of the Securities Exchange Act of 1934 prohibits Morgan
Keegan from executing transactions on an exchange for the fund except pursuant
to the provisions of Rule 11a2-2(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 fund on that
exchange only if the fund expressly consents by written contract. The Advisory
Agreement expressly provides such consent in accordance with Rule 11a2-2(T).

Investment decisions for the fund 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.

The fund, its investment adviser and distributor have adopted a Code of
Ethics under Rule 17j-1 of the 1940 Act. Subject to certain limitations, the
Code of Ethics permits persons subject to the Code to invest in securities,
including securities that may be purchased or held by the fund. The code of
ethics describes the fiduciary duty owed to shareholders by all covered persons
and 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 fund.

DISTRIBUTOR

Morgan Keegan acts as distributor of the fund's shares pursuant to an
Underwriting Agreement between the fund and Morgan Keegan dated February 26,
1999 ("Underwriting Agreement"). The shares of the fund are offered
continuously. The Underwriting Agreement obligates Morgan Keegan to provide
certain services and to bear certain expenses in connection with the offering of
fund shares, including, but not limited to: printing and distribution of
prospectuses and reports to prospective shareholders; preparation and
distribution of sales literature, and advertising; administrative and overhead
cost of distribution such as the allocable costs of executive office time
expended on developing, managing and operating the distribution program;
operating expenses of branch offices, sales training expenses, and telephone and
other communication expenses. Morgan Keegan also compensates investment brokers
of Morgan Keegan and other persons who engage in or support distribution of
shares and shareholder service based on the sales for which they are responsible
and the average daily net asset value of fund 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.

Pursuant to the Underwriting Agreement, as currently in effect, Morgan
Keegan will receive as compensation for its services a 3.0% sales charge on
purchased shares. The sales charge is reduced to 1.0% on sales of $1 million or
more, and is waived on certain purchases of fund shares.

19
<PAGE>

The fund has adopted Distribution Plans 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 fund's Rule 12b-1 Plans, distribution
and service fees will be paid at an aggregate annual rate of up to 0.50% for
Class A shares, and 1.00% for Class C shares of the fund's 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 fund to Morgan Keegan
under the Plans may exceed or be less than Morgan Keegan's expenses thereunder.
For the fiscal year ended June 30, 2000, the fund paid service fees and
distribution fees to Morgan Keegan of $411,926. For the fiscal year ended June
30, 2000, expenses paid for by Morgan Keegan included $247,155 for commissions
and other compensation to employees, $99,319 for printing and mailing, and
$25,352 for promotional materials. No interested person of the fund or
non-interested director had a direct or indirect interest in the Plans or
related agreements. The fund benefits from the Plans by virtue of an ongoing
broker's involvement with individual customers as well as the benefit from
continued promotion. For the fiscal year ended June 30, 1998, Morgan Keegan
retained sales charges of $624,000 received on sales of the fund's shares; for
the fiscal year ended June 30, 1999, Morgan Keegan retained sales charges of
$224,000 received on sales of the fund's shares; and for the fiscal year ended
June 30, 2000, Morgan Keegan retained sales charges of $36,694 received on sales
of the fund's shares.

The Plans were approved by the Initial Shareholder on October 30,
2,000, and as required by Rule 12b-1 under the 1940 Act, by the Board of
Directors on August 21, 2000, 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 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 equity funds sold with
front-end sales loads, with or without distribution fees. The Plans permits the
fund's shares to be sold to investors with a front-end sales load of 3%, while
some competing equity funds traditionally have been sold with front-end sales
loads in an amount up to 8 1/2% of the purchase price (9.29% of the net amount
invested). The Board also determined that the fees are reasonable in light of
the service and distribution fees paid by other similar funds. Finally, the
Directors determined that there was a reasonable likelihood that the Plans would
benefit the fund and its shareholders. This determination was based, in part, on
the belief that the Plans enable the fund to have Morgan Keegan investment
brokers available to promote and sell the fund, thereby assisting the fund to
attract assets. Growth of assets is expected to benefit both the fund and the
Adviser. The fund is expected to benefit from the potential for economies of
scale in its 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 fund
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 Directors acknowledged, however, that there is no
assurance that benefits to the fund will be realized as a result to the Plan.

20
<PAGE>

The Plans may be terminated by vote of a majority of the Qualified
Directors or by vote of a majority of the fund's outstanding voting securities
of the applicable class. Termination of the Plans terminates any obligation of
the fund 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 fund 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.

Rule 12b-1 requires that any person authorized to direct the
disposition of monies paid or payable by the fund pursuant to the Plans or any
related agreement shall provide to the fund's 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 fund 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 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. The 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 the
fund.

OTHER INFORMATION

The Company is incorporated as a Maryland corporation. The Articles of
Incorporation permit the Board of Directors the right to issue two billion
shares (2,000,000,000), 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 six series of shares which are the Morgan Keegan
Select Capital Growth Fund, the Morgan Keegan Intermediate Bond Fund, the Morgan
Keegan High Income Fund, the Morgan Keegan Select Financial Fund, the Morgan
Keegan Core Equity Fund and the Morgan Keegan Utility 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 have no preemptive, subscription or
conversion rights. When issued, shares are fully paid and non-assessable. As of
October 31, 2000, the Company, on behalf of Morgan Keegan Select Capital Growth
Fund series, assumed all of the assets subject to the liabilities of Morgan
Keegan Southern Capital Fund, Inc., which was incorporated in Maryland on May 5,
1986.

21
<PAGE>

dividends or distributions, (1) each class will be charged with the transfer
agency fee attributable to that class, (2) each class will be charged separately
with such other expenses as may be permitted by the SEC and the Board of
Directors and (3) all other fees and expenses shall be charged to the classes,
in the proportion that the net assets of that class bears to the net assets of
the applicable series.

Each class will vote separately on matters pertaining only to that
class, as the Board of Directors may determine. On all other matters, all
classes shall vote together and every share, regardless of class, shall have an
equal vote with every other share. Except as otherwise provided in the Articles
of Incorporation, the By-laws of the Company or as required by the provisions of
the 1940 Act, all matters will be decided by a vote of a majority of the
outstanding voting securities validly cast at a meeting at which a quorum is
present. One-third of the aggregate number of shares of that series or class
outstanding and entitled to vote shall constitute a quorum for the transaction
of business by that series or class.

Unless otherwise required by the 1940 Act or the Articles of
Incorporation, the fund has no intention of holding annual meetings of
shareholders. The fund's 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
of the Company. At least two-thirds of the directors holding office must have
been elected by the shareholders.

22
<PAGE>

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 the fund. For these services, Morgan Keegan, the fund's distributor, receives
from the fund a fee of $5,000 per month, or $60,000 per year.

Morgan Keegan also provides accounting services to the 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 the fund a fee of $2,500 per month, or
$30,000 per year.

Shareholders who request an historical transcript of their account will
be charged a fee based on the number of years researched. The fund reserves 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 fund's custodian.

LEGAL COUNSEL

Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800, serves as counsel to the fund and has passed upon
certain matters in connection with this offering.

CERTIFIED PUBLIC ACCOUNTANTS

23
<PAGE>

PART C: OTHER INFORMATION
-------------------------

23. Exhibits:

(a) (1) Articles of Incorporation 1/
(2) Amendment to Articles of Incorporation dated
January 12, 1999 2/
(3) Amendment to Articles of Incorporation dated July
21, 2000 6/
(4) Amendment to Articles of Incorporation dated
August 21, 2000 (filed herewith)

(b) By-laws 2/
(1) Amendment to Bylaws (filed herewith)
(c) Instruments Defining Rights of Security Holders
(1) Articles of Incorporation 1/
(2) Bylaws 2/
(d) (1) Advisory Agreement between Registrant and Morgan
Asset Management, Inc. with respect to Morgan
Keegan Intermediate Bond Fund and Morgan Keegan
High Income Fund 2/
(2) Investment Advisory Agreement between Growth Stock
Portfolio and Meeder Asset Management, Inc.,
formerly known as R. Meeder & Associates, Inc. with
respect to Morgan Keegan Core Equity Fund 4/

(a) Investment Sub-Advisory Agreement with
Sector Capital Management L.L.C. 5/

(b) Investment Sub-Subadvisory Agreement with
Miller/Howard Investments, Inc. 5/

(d) Investment Sub-Subadvisory Agreement with
Barrow, Hanley, Mewhinney & Strauss, Inc. 5/

(e) Investment Sub-Subadvisory Agreement with
The Mitchell Group, Inc. 5/

(f) Investment Sub-Subadvisory Agreement with
Ashland Management Incorporated 5/

(g) Investment Sub-Subadvisory Agreement with
Delta Capital Management, Inc. 5/

(h) Investment Sub-Subadvisory Agreement with
Dresdner RCM Global Investors LLC 5/

(i) Investment Sub-Subadvisory Agreement with
Alliance Capital Management L.P. 5/

(3) Investment Advisory Agreement between The Utilities
Stock Portfolio and Meeder Asset Management, Inc.,
formerly known as R. Meeder & Associates, Inc. with
respect to Morgan Keegan Utility Fund 4/
(a) Investment Sub-Advisory Agreement with
Miller/Howard Investment, Inc. (to be
filed).
(4) Investment Advisory and Administration Agreement
between Registrant and Morgan Asset Management,
Inc. with respect to the Morgan Keegan Core Equity
Fund and the Morgan Keegan Utility Fund (to be
filed).
(5) Investment Advisory and Administration Agreement
between Registrant and Morgan Asset Management,
Inc. with respect to Morgan Keegan Select Financial
Fund 7/
(a) Form of Sub-Advisory Agreement among
Registrant, Morgan Asset Management, Inc.
and T.S.J. Advisory Group, Inc. with respect
to Morgan Keegan Select Financial Fund 7/
(6) Investment Advisory Agreement between Registrant
and Morgan Asset Management, Inc. with respect to
Morgan Keegan Select Capital Growth Fund (filed
herewith)

(e) Underwriting Agreement 2/
(f) Bonus or Profit Sharing Contracts - none

<PAGE>

(g) (1) Custodian Agreement between Registrant and State
Street Bank & Trust Company with respect to Morgan
Keegan Intermediate Bond Fund, Morgan Keegan High
Income Fund, Morgan Keegan Select Financial Fund
and Morgan Select Capital Growth Fund 3/
(2) Custody Agreement between Growth Stock Portfolio
and Star Bank, N.A. with respect to the Morgan
Keegan Core Equity Fund 4/
(3) Custody Agreement between Utilities Stock Portfolio
and Star Bank, N.A. with respect to the Utilities
Fund 4/
(4) Custody Agreement between Registrant and Firstar
Bank, N.A. with respect to Morgan Keegan Core
Equity Fund and Morgan Keegan Utility Fund (to be
filed).
(h) Other Material Contracts
(1) Amended and Restated Fund Accounting Services
Agreement with respect to Morgan Keegan
Intermediate Bond Fund, Morgan Keegan High Income
Fund, Morgan Keegan Select Financial Fund and
Morgan Keegan Select Capital Growth Fund (filed
herewith)
(2) Amended and Restated Transfer Agency and Service
Agreement with respect to Morgan Keegan
Intermediate Bond Fund, Morgan Keegan High Income
Fund, Morgan Keegan Select Financial Fund, Morgan
Keegan Core Equity Fund, Morgan Keegan Utility Fund
and Morgan Keegan Select Capital Growth Fund (filed
herewith)
(3) Fund Accounting Services Agreement between
Registrant and Mutual Funds Service Co. with
respect to the Morgan Keegan Core Equity Fund and
the Morgan Keegan Utility Fund (to be filed).
(6) Form of Participation Agreement among Meeder Asset
Management, Inc., Growth Stock Portfolio, Sector
Capital Management, L.L.C. and Morgan Keegan Select
Fund, Inc., on behalf of Morgan Keegan Core Equity
Fund (filed herewith).
(7) Form of Participation Agreement among Meeder Asset
Management, Inc., The Utilities Stock Portfolio,
Miller/Howard Investment, Inc. and Morgan Keegan
Select Fund, Inc., on behalf of Morgan Keegan
Utility Fund (filed herewith).
(8) Sub-Administration Agreement among Morgan Keegan
Select Fund, Inc., Morgan Asset Management, Inc.
and Mutual Funds Service Company with respect to
Morgan Keegan Core Equity Fund and Morgan Keegan
Utility Fund (to be filed).

(i) (1) Legal Opinion with respect to Morgan Keegan Select
Financial Fund 7/
(2) Legal Opinion with respect to Morgan Keegan
Intermediate Bond Fund, Morgan Keegan High Income
Fund and Morgan Keegan Select Capital Growth Fund
(filed herewith).
(j) Other Opinions
(1) Accountants' Consent with respect to Morgan Keegan
High Income Fund and Morgan Keegan International
Bond Fund (filed herewith).
(2) Accountants' Consent with respect to Morgan Keegan
Select Capital Growth Fund (filed herewith).
(k) Omitted Financial Statements - none
(l) Initial Capital Agreement 2/
(m) (1) Distribution Plan pursuant to Rule 12b-1 for Class
A shares of Morgan Keegan Intermediate Bond Fund
and Morgan Keegan High Income Fund 2/
(2) Distribution Plan pursuant to Rule 12b-1 for Class
A shares of Morgan Keegan Select Financial Fund,
Morgan Keegan Select Capital Growth Fund, Morgan
Keegan Core Equity Fund and Morgan Keegan Utility
Fund (filed herewith)
(3) Distribution Plan pursuant to Rule 12b-1 for Class
C shares of Morgan Keegan Select Fund, Inc. (filed
herewith)
(a) Distribution Fee Addendum for Class C shares
with respect to Morgan Keegan Intermediate
Bond Fund, Morgan Keegan High Income Fund,
Morgan Keegan Select Financial Fund, Morgan
Keegan Select Capital Growth Fund, Morgan
Keegan Core Equity Fund and Morgan Keegan
Utility Fund (filed herewith)

<PAGE>

(n) Amended and Restated Multiple Class Plan with respect to
Morgan Keegan Intermediate Bond Fund, Morgan Keegan High
Income Fund, Morgan Keegan Core Equity Fund, Morgan Keegan
Utility Fund, Morgan Keegan Select Financial Fund and
Morgan Keegan Select Capital Growth Fund (filed herewith)

(p) Codes of Ethics
(1) Codes of Ethics for Growth Stock Portfolio and
Utilities Stock Portfolio 4/
(2) Code of Ethics for Meeder Financial, Inc. 4/
(3) Amended and Restated Code of Ethics for Morgan
Keegan Select Fund, Inc., Morgan Keegan & Company,
Inc. and Morgan Asset Management, Inc. 7/
(4) Code of Ethics for T.S.J. Advisory Group, Inc. 7/

1/ Incorporated by reference to the Registrant's Registration Statement on
Form N-1A, SEC File No. 333-66181, filed on October 27, 1998.

2/ Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A, SEC File No.
333-66181, filed on January 21, 1999.

3/ Incorporated by reference to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-1A, SEC File No.
333-66181, filed on October 28, 1999.

4/ Incorporated by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A, SEC File No.
333-66181, filed on June 6, 2000.

5/ Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A for Growth Stock Portfolio, SEC File
No. 811-6647, filed on December 27, 1997.

6/ Incorporated by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A, SEC File No.
333-66181, filed on August 17, 2000.

7/ Incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A, SEC File No.
333-66181, filed on August 25, 2000.

<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.

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. with respect to Morgan Keegan Intermediate Bond
Fund and Morgan Keegan High Income Fund 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

<PAGE>

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 Amended and Restated Fund Accounting Service
Agreement between Morgan Keegan & Company, Inc. and Morgan Keegan Select
Fund, Inc. with respect to Morgan Keegan Intermediate Bond Fund, Morgan
Keen High Income Fund, Morgan Keegan Select Financial Fund and Morgan
Keegan Select Capital Growth Fund states:
------------------------------------------------------------------------

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.

Paragraph 10 of the Amended and Restated Transfer Agency and Service
Agreement between the Corporation and Morgan Keegan & Company, Inc.
states:
------------------------------------------------------------------------

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
<PAGE>

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.

Article VI, Paragraph 4, of the Investment Advisory Agreement between
Growth Stock Portfolio and R. Meeder & Associates, Inc. states:
--------------------------------------------------------------------------------

(4) The Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the portfolio in connection with the
matters to which this Agreement relates (including, but not limited to, loss
sustained by reason of the adoption or implementation of any investment policy
or the purchase, sale or retention of any security), except for loss resulting
from willful misfeasance, bad faith or gross negligence of the Adviser in the
performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under this Agreement.

Article VI, Paragraph 4, of the Investment Advisory Agreement between
The Utilities Stock Portfolio and R. Meeder & Associates, Inc. states:
--------------------------------------------------------------------------------

Paragraph 8 of the Investment Advisory and Admnistration Agreement
between Morgan Keegan Select Fund, Inc. and Morgan Asset Management, Inc. with
respect to Morgan Keegan Select Financial Fund 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 Morgan Keegan Select or to any shareholder of Morgan Keegan Select
or its Fund for any error of judgment or mistake of law in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained by the Fund, Morgan Keegan Select, or its shareholders in connection
with the matters to which this Agreement relates.

B. Nothing in this paragraph shall be deemed a limitation or waiver
of any obligation or duty that may not by law be limited or waived.

Paragraph 8 of the Sub-Advisory Agreement among Morgan Keegan Select
Fund, Inc., Morgan Asset Management, Inc. and T.S.J. Advisory Group, Inc. with
respect to Morgan Keegan Select Financial Fund states:
--------------------------------------------------------------------------------

8. Limitation of Liability. The Sub-Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund,
Morgan Keegan Select, its shareholders or by the Adviser in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
services and duties or from reckless disregard by it of its obligations and
duties under this Agreement. Nothing in this paragraph shall be deemed a
limitation or waiver of any obligation or duty that may not by law be limited or
waived.

Paragraph 7 of the Investment Advisory and Management Agreement between
Morgan Keegan Select Fund, Inc. and Morgan Asset Management, Inc. with respect
to Morgan Keegan Select Capital Growth Fund states:
--------------------------------------------------------------------------------

The Adviser assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith, and shall not be
responsible for any action of the Board of Directors of the Fund in following or
declining to follow any advice or recommendations of the Adviser; provided that
nothing in this Agreement shall protect the Adviser against any liability to the
Portfolio, the Fund or its stockholders to which it 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 hereunder.

<PAGE>

Paragraph 3.2 of the Participation Agreement among Growth Stock
Portfolio, Meeder Asset Management, Inc. , Sector Capital Management, L.L.C. and
Morgan Keegan Select Fund, Inc. with respect to the Morgan Keegan Core Equity
Portfolio states:
--------------------------------------------------------------------------------

Indemnification by the Portfolio.

(a) The Portfolio will indemnify and hold harmless the Company,
the Fund, and their directors, officers and employees and each other person who
controls the Fund, as the case may be, within the meaning of Section 15 of the
1933 Act (each a "Covered Person" and collectively "Covered Persons"), against
any and all losses, claims, demands, damages, liabilities and expenses (each a
"Liability" and collectively, the "Liabilities") (including the reasonable costs
of investigating and defending against any claims therefor and any counsel fees
incurred in connection therewith) which

(i) arise out of or are based upon any of the
Securities Laws, any other statute or common law or are incurred in connection
with or as a result of any formal or informal administrative proceeding or
investigation by a regulatory agency, insofar as such Liabilities arise out of
or are based upon any omission or commission by the Portfolio (either during the
course of its daily activities or in connection with the accuracy of its
representations or warranties in this Agreement) that caused or continues to
cause the Fund to violate any federal or state securities laws or regulations or
any other applicable domestic or foreign law or regulations or common law duties
or obligations, but only to the extent that such Liabilities do not arise out of
and are not based upon an omission or commission of the Company or Fund (other
than an imputed act or omission based upon an act or omission of the Portfolio);

(ii) arise out of or are based upon an inaccurate
calculation of the Portfolio's net asset value (whether by the Portfolio or any
party retained by the Portfolio for that purpose);

(iii) arise out of (A) any untrue statement of a material
fact in the registration statement of the Portfolio filed on Form N-1A
(including amendments and supplements thereto) or omission of any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, (B) any
untrue statement of a material fact in the registration statement of the Company
(relating to the Fund) filed on Form N-1A (including amendments and supplements
thereto) with respect to information about the Portfolio (including any
investment performance information of the Portfolio) that is furnished by the
Portfolio specifically for inclusion in the Company's Form N-1A, or omission of
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (C) any untrue statement of a material fact in advertising or
sales literature used by the Company on behalf of the Fund, or an omission of
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, if included at the request, or with the written permission, of
the Portfolio;

(iv) arise out of the Portfolio's failure to qualify as
a regulated investment company under the Code;

(v) result from the failure of any representation or
warranty made by the Portfolio to be accurate when made or the failure of the
Portfolio to perform any covenant contained herein or to otherwise comply with
the terms of this Agreement;

(vi) arise out of any unlawful or negligent act by the
Portfolio, whether such act was committed against Meeder, Sector Capital, the
Portfolio, the Fund or any third party;

(vii) arise out of any claim that the systems,
methodologies, or technology used in connection with operating the Portfolio,
including the technologies associated with maintaining the master-feeder
structure of the Portfolio, violates any license or infringes upon any patent or
trademark;

(viii) arise out of any claim that the use of the names
used by the Portfolio or any corresponding use by the Fund of names used by the
Portfolio violates any license or infringes upon any trademark; or

<PAGE>

local tax deficiency has come to the attention of the Fund or a Covered Person.
Failure to notify the Portfolio of such claim shall not relieve it from any
liability that it may have to any Covered Person otherwise than on account of
the indemnification contained in this paragraph.

(b) INDEMNIFICATION OF SECTOR CAPITAL. The Portfolio will indemnify and
hold harmless Sector Capital, and each of its respective Trustees, directors and
officers and each person, if any, who controls Sector Capital within the meaning
of Section 15 of the 1933 Act (each a "Sector Indemnified Party" and
collectively, the "Sector Indemnified Parties") against any and all Liabilities
(including the reasonable costs of investigating and defending against any
claims therefor and any counsel fees incurred in connection therewith), which

(i) arise out of (A) any untrue statement of a material
fact in the registration statement of the Portfolio filed on Form N-1A
(including amendments and supplements thereto) or omission of any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, (B) any
untrue statement of a material fact in advertising or sales literature used by
Sector Capital, or an omission of any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, if included at the
request, or with the written permission, of the Portfolio;

(ii) result from the failure of any representation or
warranty made by the Portfolio to be accurate when made or the failure of the
Portfolio to perform any covenant contained herein or to otherwise comply with
the terms of this Agreement;

(iii) arise out of any unlawful or negligent act by the,
whether such act was committed against Sector Capital, the Fund, the Company,
the Portfolio, Meeder, or any third party.

Paragraph 3.2 of the Participation Agreement among the Utilities Stock
Portfolio, Meeder Asset Management, Inc., Miller/Howard Investments, Inc. and
Morgan Keegan Select Fund, Inc. with respect to the Morgan Keegan Utility Fund
states:
--------------------------------------------------------------------------------

Indemnification by the Portfolio.
---------------------------------

(ii) arise out of or are based upon an inaccurate
calculation of the Portfolio's net asset value (whether by the Portfolio or any
party retained by the Portfolio for that purpose);

<PAGE>

not misleading, if included at the request, or with the written permission, of
the Portfolio;

(iv) arise out of the Portfolio's failure to qualify as
a regulated investment company under the Code;

(vi) arise out of any unlawful or negligent act by the
Portfolio, whether such act was committed against Meeder, Miller/Howard, the
Portfolio, the Fund or any third party;

(ix) result from any Liability of the Portfolio to any
investor in the Portfolio (or shareholder thereof), other than the Fund (and its
shareholders); provided, however, that in no case shall the Portfolio be liable
with respect to any claim made against any such Covered Person unless such
Covered Person shall have notified the Portfolio in writing of the nature of the
claim within a reasonable time after the summons, other first legal process or
formal or informal initiation of a regulatory investigation or proceeding shall
have been served upon or provided to a Covered Person or any federal, state or
local tax deficiency has come to the attention of the Fund or a Covered Person.
Failure to notify the Portfolio of such claim shall not relieve it from any
liability that it may have to any Covered Person otherwise than on account of
the indemnification contained in this paragraph.

(b) INDEMNIFICATION OF MILLER/HOWARD. The Portfolio will indemnify and
hold harmless Miller/Howard, and each of its respective Trustees, directors and
officers and each person, if any, who controls Miller/Howard within the meaning
of Section 15 of the 1933 Act (each a "Miller/Howard Indemnified Party" and
collectively, the "Miller/Howard Indemnified Parties") against any and all
Liabilities (including the reasonable costs of investigating and defending
against any claims therefor and any counsel fees incurred in connection
therewith), which

(i) arise out of (A) any untrue statement of a material
fact in the registration statement of the Portfolio filed on Form N-1A
(including amendments and supplements thereto) or omission of any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, (B) any
untrue statement of a material fact in advertising or sales literature used by
Miller/Howard, or an omission of any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, if included at the request, or with the
written permission, of the Portfolio;

(iii) arise out of any unlawful or negligent act by the
Portfolio, whether such act was committed against Miller/Howard, the Fund, the
Company, the Portfolio, Meeder, or any third party.

Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------

Morgan Asset Management, Inc., a Tennessee corporation, the investment
adviser to the Morgan Keegan Intermediate Bond Fund, the Morgan Keegan High
Income Fund and the Morgan Keegan Select Financial Fund, is a registered
investment adviser and offers investment management services to investment
companies and other types of investors. Information on its officers and
directors is included in its Form ADV filed on October 22, 1999 with the
Securities and Exchange Commission (registration number 801-27629) and is
incorporated herein by reference. T. S. J. Advisory Group, Inc., the Sub-Adviser
to the Morgan Keegan Select Financial Fund is controlled by T. Stephen Johnson
who also controls T. Stephen Johnson & Associates, Inc., a bank consulting firm
and investment manager.

<PAGE>

Meeder Asset Management, Inc., formerly known as R. Meeder & Associates,
Inc., the investment adviser to the Morgan Keegan Core Equity Fund and the
Morgan Keegan Utility Fund, is an investment adviser to individuals, pension and
profit sharing plans, trusts, charitable organizations, corporations and other
institutions.

Item 27. Principal Underwriter
---------------------

(a) Bedford Money Market Fund
Morgan Keegan Southern Capital Fund, Inc.

<PAGE>

(b) Morgan Keegan & Company, Inc.

<TABLE>
<CAPTION>
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)

<S> <C> <C>
Allen B. Morgan, Jr. Chairman and Director,
Chief Executive President
Officer, Executive
Managing Director

Joseph C. Weller Chief Financial Vice President,
Officer, Executive Treasurer and
Managing Director, Assistant Secretary
Executive Vice President,
Secretary and Treasurer

G. Douglas Edwards Vice Chairman None
Executive Managing
Director

John W. Stokes, Jr. Vice Chairman, None
Executive Managing
Director

Stephen P. Laffey President, Chief Operating None
Officer, Executive Managing
Director

Robert A. Baird Executive None
Managing Director

Jerome M. Dattel Executive None
Managing Director

Richard S. Ferguson Executive None
Managing Director

William F. Hughes, Jr. Executive Managing None
Director

Thomas V. Orr, Jr. Executive Managing None
Director

James A. Parish, Jr. Executive Managing None
Director

Minor Perkins Executive Managing None
Director

<PAGE>
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------

Allen B. Adler Managing Director None

Franklin P. Allen, III Managing Director None

George E. Arras, Jr. Managing Director None

James N. Augustine, Jr. Managing Director None

Joseph K. Ayers Managing Director None

Rodney D. Baber, Jr. Managing Director None

George E. Bagwell Managing Director None

Woodley H. Bagwell Managing Director None

Charles E. Bailey Managing Director None

Milton A. 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 C. Berry Managing Director None

John D. Brewer Managing Director None

Susan Leonard Brown Managing Director None

Paul S. Burd Managing Director None

John B. Carr, Jr. Managing Director None

John C. Carson, Jr. Managing Director None

Ted H. Cashion Managing Director None

Marshall A. Clark Managing Director None

William F. Clay Managing Director None

Robert E. Cope Managing Director None

Mark W. Crowl Managing Director None

Harold L. Deaton Managing Director None

William W. Deupree, Jr. Managing Director None

<PAGE>
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------

James J. Dieck Managing Director None

Robert H. Dudley, Jr. Managing Director None

Richard H. Eckels Managing Director None

Richard K. Fellows Managing Director None

Robert M. Fockler Managing Director None

James M. Fowler, Jr. Managing Director None

Wilmer J. Freiberg Managing Director None

Graham D.S. Fulton Managing Director None

James H. Ganier 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

John H. Grayson, Jr. 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 Henderson Managing Director None

Roderick E. Hennek Managing Director None

William P. Hinckley Managing Director None

Edwin L. Hoopes, III Managing Director None

Joe R. Jennings Managing Director None

Robert Jetmundsen Managing Director None

Ram P. Kasargod Managing Director None

Carol Sue Keathley Managing Director None

<PAGE>

Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------

Dan T. Keel III Managing Director None

Peter R. Klyce Managing Director None

Peter Stephen Knoop Managing Director None

W. Lawrence M. Knox, Jr. Managing Director None

E. Carl Krausnick, Jr. Managing Director None

James R. Ladyman Managing Director None

A. Welling LaGrone, Jr. Managing Director None

Benton G. Landers Managing Director None

William M. Lellyett, Jr. Managing Director None

W. G. Logan, Jr. Managing Director None

W. Gage Logan III Managing Director None

Wiley H. Maiden Managing Director None

John Henry Martin Managing Director None

William D. Mathis, III Managing Director None

John Fox Matthews Managing Director None

Francis J. Maus Managing Director None

Charles D. Maxwell Managing Director Secretary and
Assistant Treasurer

John Welsh Mayer Managing Director None

W. Ward Mayer Managing Director None

W. Neal McAtee Managing Director None

Harris L. McCraw III Managing Director None

Thomas J. McQuiston Managing Director None

Edward S. Michelson Managing Director None

G. Rolfe Miller Managing Director None

Gary C. Mills Managing Director None

David Montague Managing Director None

Robert M. Montague Managing Director None

<PAGE>

Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------

K. Brooks Monypeny Managing Director None

John G. Moss Managing Director None

Lewis A. Moyse Managing Director None

William G. Mueller Managing Director None

Mortimer S. Neblett Managing Director None

Philip G. Nichols Managing Director None

Michael O'Keefe Managing Director None

Jack A. Paratore Managing Director None

William T. Patterson Managing Director None

J. Christopher Perkins Managing Director None

Logan B. Phillips, Jr. Managing Director None

L. Jack 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

Donna L. Richardson Managing Director None

R. Michael Ricketts Managing Director None

Kathy L. Ridley Managing Director None

Thomas H. Roberts III Managing Director None

Terry A. Robertson Managing Director None

Darien M. Roche Managing Director None

Kenneth L. Rowland Managing Director None

Michael L. Sain Managing Director None

W. Wendell Sanders Managing Director None

E. Elkan Scheidt Managing Director None

Ronald J. Schuberth Managing Director None

<PAGE>

Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------

H. Wade Schuessler Managing Director None

Lynn T. Shaw Managing Director None

Fred B. Smith Managing Director None

Richard J. Smith Managing Director None

Robert L. Snider Managing Director None

John B. Snowden, IV Managing Director None

Thomas A. Snyder Managing Director None

Richard A. Spell Managing Director None

John W. Stokes, III Managing Director None

John Burke Strange Managing Director None

James M. Tait, III Managing Director None

J. Crosby Taylor, Jr. Managing Director None

Phillip C. Taylor Managing Director None

Van C. Thompson 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

John E. Wilfong Managing Director None

John S. Wilson Managing Director None

J. William Wyker III Managing Director None

Paul B. Young, Jr. Managing Director None

John J. Zollinger, III Managing Director None

William D. Zollinger Managing Director None

</TABLE>

<PAGE>

Item 28. Location of Accounts and Records
--------------------------------

Morgan Keegan Intermediate Bond Fund, Morgan Keegan High Income Fund and
Morgan Keegan Select Financial Fund and Morgan Keegan Select Capital
Growth Fund:
------------------------------------------------------------------------

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.

Morgan Keegan Core Equity Fund and Morgan Keegan Utility Fund:
--------------------------------------------------------------

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 Meeder Asset Management, Inc., formerly known as R.
Meeder & Associates, Inc., at 6000 Memorial Drive, Dublin, OH 43017. All other
accounts, books and other documents required by Rule 31a-1 are maintained in the
physical possession of Registrant's transfer agent, Morgan Keegan & Co., Morgan
Keegan Tower, Fifty Front Street, Memphis, Tennessee 38103. Certain custodial
records are in the custody of Firstar Bank, N.A., the Funds' custodian at 425
Walnut Street, Cincinnati, Ohio 45202. All other records are kept in the custody
of Mutual Funds Service Co., 6000 Memorial Drive, Dublin, OH 43017.

Item 29. Management Services
-------------------

Not applicable

Item 30. Undertakings - none
------------

<PAGE>

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.,
certifies that it meets all the requirements for effectiveness of this
Post-Effective Amendment No. 7 to its Registration Statement on Form N-1A under
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 7 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Memphis and State of Tennessee, on the 21st day of August, 2000.

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
Post-Effective Amendment No. 7 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Allen B. Morgan, Jr. Director and President August 21, 2000
------------------------------ (Chief Executive
Allen B. Morgan, Jr. Officer)

/s/ Joseph C. Weller Vice President and August 21, 2000
------------------------------ Treasurer (Chief
Joseph C. Weller Financial Officer)

/s/ James D. Witherington, Jr. Director August 21, 2000
------------------------------
James D. Witherington, Jr.

/s/ William F. Hughes, Jr. Director August 21, 2000
------------------------------
William F. Hughes, Jr.

------------------------------ Director August 21, 2000
William Jefferies Mann

/s/ James Stillman R. McFadden Director August 21, 2000
------------------------------
James Stillman R. McFadden
</TABLE>

<PAGE>

MORGAN KEEGAN SELECT FUND, INC.

Exhibit Index

Exhibit (a) (4) Articles of Amendment dated August 21, 2000 to the
Articles of Incorporation of Morgan Keegan Select Fund,
Inc.

Exhibit (b) (1) Amendment to Bylaws of Morgan Keegan Select Fund, Inc.

Exhibit (d) (6) Investment Advisory and Management Agreement between
Morgan Keegan Select Fund, Inc. and Morgan Asset
Management, Inc. with respect to Morgan Keegan Select
Capital Growth Fund

Exhibit (h) (1) Amended and Restated Fund Accounting Service Agreement
between Morgan Keegan & Company, Inc. and Morgan Keegan
Select Fund, Inc.

Exhibit (h) (2) Amended and Restated Transfer Agency and Service Agreement
between Morgan Keegan & Company, Inc. and Morgan Keegan
Select Fund, Inc.

Exhibit (h) (6) Form of Participation Agreement among Growth Stock
Portfolio, Meeder Asset Management, Inc., Sector Capital
Management, L.L.C. and Morgan Keegan Select Fund, Inc.
with respect to Morgan Keegan Core Equity Fund

Exhibit (h) (7) Form of Participation Agreement among the Utilities Stock
Portfolio, Meeder Asset Management, Inc., Miller/Howard
Investmetns, Inc. and Morgan Keegan Select Fund, Inc. with
respect to Morgan Keegan Utility Fund

Exhibit (i) (3) Legal Opinion with respect to Morgan Keegan Intermediate
Bond Fund, Morgan Keegan High Income Fund and Morgan
Keegan Select Capital Growth Fund

Exhibit (j) (1) Accountants' Consent with respect to Morgan Keegan High
Income Fund and Morgan Keegan Intermediate Bond Fund

Exhibit (j) (2) Accountant's Consent with respect to Morgan Keegan Select
Capital Growth Fund

Exhibit (m) (2) Distribution Plan pursuant to Rule 12b-1 of Morgan Keegan
Select Fund, Inc. for Class A shares of Morgan Keegan Core
Equity Fund, Morgan Keegan Utility Fund, Morgan Keegan
Select Financial Fund and Morgan Keegan Select Capital
Growth Fund

Exhibit (m) (3) Distribution Plan pursuant to Rule 12b-1 of Morgan Keegan
Select Fund, Inc. for Class C shares

Exhibit (m) (3) (a) Distribution Fee Addendum to the Distribution Plan
pursuant to Rule 12b-1 of Morgan Keegan Select Fund, Inc.
for Class C shares

Exhibit (n) Amended and Restated Multiple Class Plan pursuant to Rule
18f-3 of Morgan Keegan Select Fund, Inc.