As filed with the Securities and Exchange Commission on June 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 ]
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Pre-Effective Amendment No. _____ [ ]
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Post-Effective Amendment No. _____ [ 3 ]
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
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Amendment No. _____ [ 4 ]
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(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)
[ ] On __________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On __________ pursuant to paragraph (a)(1)
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[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _________ pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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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 Select Financial Fund
Part B - Statement of Additional Information - Morgan Keegan
Select Financial Fund
Part C - Other Information
Signature Page
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
[LOGO Morgan Keegan Select Fund, Inc.]
Morgan Keegan Select Financial Fund
A BANKING AND FINANCIAL SERVICES FUND FOR LONG-TERM INVESTORS.
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 38108
(901) 524-4100
(800) 366-7426
Dated: __________ __, 2000
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TABLE OF CONTENTS
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PAGE
Principal Objective....................................................1
Principal Investment Strategies........................................1
Principal Risks........................................................2
Fees and Expenses of the Fund..........................................3
Your Account...........................................................4
Buying shares........................................................4
Choosing a Share Class...............................................4
Class Comparison.....................................................5
Policies for Buying Shares...........................................7
To Add to an Account.................................................7
Buying Shares Through an Investment Broker...........................7
Internet.............................................................8
Selling Shares.......................................................8
To Sell Some or All of Your Shares...................................9
Account Policies.......................................................9
Additional Policies...................................................10
Investor Services.....................................................11
Management and Investment Adviser.....................................12
Portfolio Manager.....................................................12
Distributor...........................................................12
Distributions.........................................................14
Tax Considerations....................................................14
More About Risk.......................................................15
Other Securities and Risks..........................................15
Account Application...................................................16
For Additional Information............................................23
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MORGAN KEEGAN SELECT FINANCIAL FUND
PRINCIPAL OBJECTIVE
The fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The fund seeks to achieve its objective by investing its assets primarily in
equity securities of large, mid- and small-cap traditional banks. The fund will
also invest a portion of its assets in other equities, the majority of which
will be related to the financial services industry. Financial services companies
include, but are not limited to, businesses such as large, regional and
community banks and thrift institutions, securities brokerage firms, investment
management companies, commodity brokerage firms, investment banks, specialty
finance credit and finance companies, insurance and insurance brokerage firms,
government-sponsored agencies, financial conglomerates, leasing companies,
financial publishing and news services, credit research and rating services,
financial advertising, and financial equipment and technology companies.
The fund is managed by Morgan Asset Management, Inc. (the "Adviser") and
sub-advised by T.S.J. Advisory Group, Inc. (the "Sub-adviser"). The Sub-adviser
selects stocks for purchase that have a discount to perceived value and the
potential for future growth. A low price to earnings multiple, low price to book
value, low price to assets, and low price to liquidation value are all measures
of value that the Sub-adviser uses. When assessing growth stock potential, the
Sub-adviser considers, among other things, whether the issuer is in a
fast-growing market, whether it has an innovative and growing product offering,
and whether it has high growth demographics. The Sub-adviser identifies
potential investments based on, among other things, an issuer's return on
assets, return on equity, and the quality of its assets, the adequacy of its
loan loss reserves and its operating efficiency.
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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 Sub-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 MARKET RISK. Because the fund invests primarily in U.S. 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 earning 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 CONCENTRATION RISK. A fund concentrating most of its investments in a
single industry will be more susceptible to factors adversely affecting
issues within that industry than would a more diversified portfolio of
securities. Banks and financial services companies, in which the fund
concentrates its investments, are subject to extensive government
regulation which can affect their business significantly. The
profitability of banks also is dependent on the availability and cost
of funds, and on their ability to profitably invest in a portfolio of
loans, which can fluctuate significantly when interest rates change.
Economic downturns, credit losses and severe price competition can
negatively affect the financial services industry.
Shares of the fund are not bank deposits and are not guaranteed or insured
by the Federal Deposit Insurance Corporation or any other government
agency.
The fund is newly organized and has no operating history prior to the date
of this Prospectus. As a result, the fund has no operating history or
performance information to include in a bar chart or table reflecting
average annual returns which will fluctuate.
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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.
SHAREHOLDER FEES (fees paid directly
from your investment) Class A Class C Class I
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Maximum sales charge (Load) imposed 4.75% 1.50% 0.00%
on purchases
(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 None None None
on reinvested dividends and other
distributions
Redemption Fee (as a percentage of None None None
amount redeemed)
Exchange Fee None None None
Maximum Account Fee None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from fund assets)(1) Class A Class C Class I
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Management fee 1.00% 1.00% 1.00%
Distribution (12b-1) fees 0.50% 1.00% 0.00%
Other Expenses 0.40% 0.40% 0.40%
----------------------------------
Total annual fund operating expenses 1.90% 2.40% 1.40%
(1)Because the fund had no operations prior to _________, 2000, these expenses
are estimated for its first year of operations.
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:
Class A Class C Class I
-------------------------------------------
1 Year $ $ $
1 Year (if shares are not $ $ $
redeemed)
3 Years (whether or not $ $ $
shares are redeemed)
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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 $2,500
o $1,000 for Individual Retirement Accounts
MINIMUM ADDITIONAL INVESTMENTS:
o $100 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.
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CLASS COMPARISON
CLASS A -- FRONT LOAD
o Initial sales charge of 4.75% (as a percentage of offering price which
includes the sales load); see schedule below.
o Lower sales charges for larger investments of $50,000 or more; no sales
charge for purchases of $1 million or more.
o Low or no sales charge for certain wrap-fee programs and other sponsored
arrangements.
o Lower annual expenses than Class C shares due to lower distribution (12b-1)
fee of 0.50%.
o "Right of accumulation" allows you to determine the applicable sales load on
a purchase by including the value of your existing Morgan Keegan Fund
investments as part of your current investment.
o "Letter of intent" allows you to count all investments in this or other
Morgan Keegan Funds over the next 13 months as if you were making them all
at once, for purposes of calculating sales charges.
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Morgan Keegan Select Financial Fund
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Class A Sales Charge
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As a % of net
Your investment As a % of offering price amount invested
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up to $49,999 4.75% %
$50,000 to $99,999 4.25% %
$100,000 to $249,999 3.75% %
$250,000 to $499,999 2.50% %
$500,000 to $999,999 1.00% %
$1 million and over 0.00% 0.00%
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5
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CLASS C -- LEVEL LOAD
o Initial sales charge of 1.50% (as a percentage of offering price which
includes the sales load); see schedule below.
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 1.00%.
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).
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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.
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.
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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.
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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 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 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. Investments in securities traded on 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. The fund normally obtains market values for its securities
from independent pricing services that use computerized "matrix" systems that
derive 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 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 to request exchanges on your
account, and with your written permission, redemptions.
9
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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 Class A shares of the Fund for
Class A shares of any other Morgan Keegan fund. Your new fund shares will be the
same class as your current shares. Any contingent deferred sales charges will
continue to be calculated from the date of your initial investment.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the 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 the fund, or any other Morgan Keegan fund, 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 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 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 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 any 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.
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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 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.
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EXCHANGES. It's easy to move money from the fund to any other Morgan Keegan
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.
MANAGEMENT AND INVESTMENT ADVISER
Morgan Asset Management, Inc., 50 North Front Street, Memphis, TN 38103, manages
the fund. It is a subsidiary of Morgan Keegan & Co., Inc. Pursuant to an
advisory agreement (the "Advisory Agreement"), the Adviser is responsible for
the overall investment management of the fund. Morgan Keegan Select Financial
Fund pays the Adviser an advisory fee equal to an annual rate of 1.00% 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 March 31, 2000, more
than $[1 billion] in total assets under management.
T. S. J. Advisory Group, Inc., 3650 Mansell Road, Suite 200, Alpharetta, GA
30022, sub-advises the fund. Founded in 2000, the Sub-adviser and T. Stephen
Johnson & Associates, Inc. ("TSJ&A"), a bank consulting firm and investment
manager in the Southeast established in 1986, are both controlled by T. Stephen
Johnson. The Sub-adviser is responsible for the day-to-day management of the
fund and makes investment decisions and places orders to buy, sell or hold a
particular security. The Adviser pays the Sub-adviser an advisory fee equal to
an annual rate of 0.75% of the fund's average daily net assets. The Sub-adviser
is newly organized and has no prior experience managing assets of a registered
investment company. The Sub-adviser has, as of March 31, 2000, more than
$[________] in total assets under management.
PORTFOLIO MANAGER
W. James Stokes has been the Managing Director of the Sub-Advisor since its
inception. He joined TSJ&A in 1987 as a Vice President in charge of financial
analysis. His bank consulting practice has focused on mergers and acquisitions,
stock valuations, fairness opinions and regulatory issues. He also served as
Managing Director of the Southeast Bank Fund Inc. (an investment company) from
1995 through 1998. Mr. Stokes began his banking career as a Bank Examiner with
the Federal Reserve Bank of Atlanta. He received a BBA in Finance from Emory
University in Atlanta in 1980.
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
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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.
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DISTRIBUTIONS
INCOME AND CAPITAL GAIN DISTRIBUTIONS. The fund distributes its net investment
income and net capital gain to shareholders. Using projections of its future
income, the fund declares dividends annually. Net capital gains, if any, are
distributed annually.
You may have your distributions reinvested in shares of the fund or credited to
your brokerage account or mailed out by check. If you do not give Morgan Keegan
other instructions, your distributions will automatically be reinvested in
shares of the fund.
TAX CONSIDERATIONS
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS. 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 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 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 the fund at a loss for tax purposes and reinvesting in
shares of the 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 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
information and 31% of your distributions if you are otherwise subject to backup
withholding.
14
<PAGE>
MORE ABOUT RISK
OTHER SECURITIES AND RISKS
The fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund's description. Below are brief descriptions of other
securities and practices, along with their associated risks.
TEMPORARY INVESTMENTS. For liquidity and flexibility, the fund may invest in
investment-grade, short-term securities. In unusual market conditions, the fund
may invest more assets in these securities temporarily as a defensive tactic. To
the extent the fund uses this strategy, it may not achieve its investment
objective.
15
<PAGE>
MORGAN KEEGAN SELECT FUND, INC.
MORGAN KEEGAN SELECT FINANCIAL 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 your initial
investment split among Classes.
$ __________________ to Class A shares.
$____________________ to Class C shares.
16
<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.
OR
/ /
UNIFORM GIFTS/TRANSFERS TO MINORS (UGMA/UTMA)
________________________________________________________________as custodian for
Custodian's name (first, middle initial, last - one custodian only)
--------------------------------------------------------------------------------
Minor's name (first, middle initial, last - one minor only)
Under the _________________________________Uniform Gifts/Transfers to Minors Act
State
-----/------/------
Minor's date of birth
OR
/ /
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
17
<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.
OR
/ / CORPORATION, PARTNERSHIP, ESTATE OR OTHER ENTITY
--------------------------------------------------------------------------------
Name of Corporation, Partnership, Estate or Other Entity
--------------------------------------------------------------------------------
Type of Entity
For Corporation, Partnership, Estate or other Entities, a Multi-Purpose
Certification Form is required to authorize redemptions and add privileges. If
you have any questions please call your Morgan Keegan broker or Morgan Keegan
Fund Services at 1-800-366-7426.
3. ADDRESS
--------------------------------------------------------------------------------
Street or P.O. Box Apt. No.
--------------------------------------------------------------------------------
City State Zip Code
( ) ( )
--------------------------------------------------------------------------------
Daytime phone number Evening phone number
If you are not a citizen or resident alien of the U.S., please specify country
of permanent residence.
--------------------------------------------------------------------------------
Country of permanent residence
18
<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
19
<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
20
<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 Fund's 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_______________________________
21
<PAGE>
Mailing Instructions
Please mail the application to:
Your Morgan Keegan broker.
Or
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________________
22
<PAGE>
FOR ADDITIONAL INFORMATION
A Statement of Additional Information ("SAI"), dated ______________, 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.
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 Web site maintained by the SEC (http://www.sec.gov).
Information about the fund (including the SAI) also can be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. (call 800-SEC-0330 for
further information), or may be obtained upon payment of a duplicating fee by
writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
All shareholder inquiries can be made by contacting Morgan Keegan at the address
listed below:
Morgan Keegan & Company, Inc.
50 North Front Street
Memphis, TN 38103
1-800-366-7426
Investment Company Act File No. 811-09079.
23
<PAGE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
MORGAN KEEGAN SELECT FUND, INC.
Morgan Keegan Select Financial 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 fund's Prospectus, dated ____________,
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 fund, by writing to
the above address or by calling the toll-free number listed above.
--------------------------------------
__________________, 2000
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
INVESTMENT LIMITATIONS AND POLICIES..........................................1
ADDITIONAL TAX INFORMATION..................................................11
General...................................................................11
Dividends and Other Distributions.........................................12
Redemptions...............................................................12
Hedging Strategies........................................................13
ADDITIONAL INFORMATION ON REDEMPTIONS.......................................14
VALUATION OF SHARES.........................................................14
PURCHASE OF SHARES..........................................................15
Class A Shares............................................................15
Class C Shares............................................................15
Class I Shares............................................................16
PERFORMANCE INFORMATION.....................................................16
Total Return Calculations.................................................16
Other Information.........................................................17
TAX-DEFERRED RETIREMENT PLANS...............................................17
Individual Retirement Accounts - IRAs.....................................18
Self-Employed Individual Retirement Plans - Keogh Plans...................18
Simplified Employee Pension Plans - SEPPS and Savings Incentive Match Plans
for Employees - SIMPLES...................................................18
DIRECTORS AND OFFICERS......................................................18
TABLE OF COMPENSATION.......................................................20
INVESTMENT ADVISER..........................................................20
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................22
DISTRIBUTOR.................................................................23
OTHER INFORMATION...........................................................25
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING
SERVICE AGENT ..............................................................26
LEGAL COUNSEL...............................................................26
CERTIFIED PUBLIC ACCOUNTANTS................................................26
FINANCIAL STATEMENTS........................................................26
Dated: ____________, 2000
<PAGE>
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 Financial Fund ("Financial Fund") is a diversified
series of the Company. The fund offers three classes of shares: Class A shares,
Class C shares and Class I shares.
The fund seeks long-term capital appreciation by investing at least 65% of
its assets in equity securities of large, mid- and small-cap banks and financial
services companies. The fund will also invest up to 35% of its assets in other
equities, the majority of which will be related to the financial service
industry.
INVESTMENT LIMITATIONS
The following 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 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 FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE 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) The fund will concentrate (as such term may be defined or
interpreted by the 1940 Act laws, interpretations and exemptions) its
investments in the securities of large, mid- and small-cap banks and financial
service companies;
<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.
With respect to limitation (4), regarding industry concentration,
financial services companies include those that provide, and derive at least 40%
of their revenues from, financial services (such as large, regional and
community banks, thrift institutions, securities brokerage firms, investment
management companies, commodity brokerage, investment banking, specialty finance
credit and finance companies, insurance and insurance brokerage firms,
government-sponsored agencies, financial conglomerates, leasing companies,
financial publishing and news services, credit research and rating services,
financial advertising, and financial equipment and technology companies.)
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE
CHANGED BY THE BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL. THE 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 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;
(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, the fund were in a position where more than 15% of its
net assets were 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 the fund may invest, strategies the Adviser and Sub-Adviser
may employ in pursuit of the fund's investment objective, and a summary of
-2-
<PAGE>
related risks. The Adviser or Sub-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 goals.
FINANCIAL SERVICES COMPANIES include, but are not limited to businesses
such as large, regional and community banks, thrift institutions, securities
brokerage firms, investment management companies, commodity brokerage,
investment banking, specialty finance credit and finance companies, insurance
and insurance brokerage firms, government-sponsored agencies, financial
conglomerates, leasing companies, financial publishing and news services, credit
research and rating services, financial advertising, and financial equipment and
technology companies.
Banks, savings and loan associations, and finance companies are subject to
extensive governmental regulation, which may limit both the amounts and types of
loans and other financial commitments they can make and the interest rates and
fees they can charge. The profitability of these groups is largely dependent on
the availability and cost of capital funds, and can fluctuate significantly when
interest rates change. In addition, general economic conditions are important to
the operations of these concerns, with exposure to credit losses resulting from
possible financial difficulties of borrowers potentially having an adverse
effect.
Finance companies can be highly dependent upon access to capital markets
and any impediments to such access, such as adverse overall economic conditions
or a negative perception in the capital markets of a finance company's financial
condition or prospects, could adversely affects its business.
Insurance companies are likewise subject to substantial governmental
regulation, predominantly at the state level, and may be subject to severe price
competition. The performance of the fund's investments in insurance companies
will be subject to risk from several additional factors. The earnings of
insurance companies will be affected by, in addition to general economic
conditions, pricing (including severe pricing competition from time to time),
claims activity, and marketing competition. Particular insurance lines will also
be influenced by specific matters. Property and casualty insurer profits may be
affected by certain weather catastrophes and other disasters. Life and health
insurer profits may be affected by mortality and morbidity rates. Individual
companies may be exposed to material risks, including reserve inadequacy,
problems in investment portfolios (due to real estate or "junk" bond holdings,
for example), and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Potential anti-trust or tax law changes also may affect adversely
insurance companies' policy sales, tax obligations and profitability.
Companies engaged in stock brokerage, commodity brokerage, investment
banking, investment management, or related investment advisory services are
closely tied economically to the securities and commodities markets and can
suffer during a decline in either. These companies also are subject to the
regulatory environment and changes in regulations, pricing pressure and the
availability of funds to borrowing and interest rate levels.
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.
-3-
<PAGE>
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 the fund is called for redemption or
conversion, the fund could be required to tender it for redemption, convert it
into the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss than
common stocks. Convertible securities generally provide yields higher than the
underlying common stocks, but generally lower than compatible nonconvertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their "conversion value," which is the current market value of
the stock to be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time depending on
changes in the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because of the interest or dividend payments
and the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow, which means
that the value of convertible securities will generally not increase to the same
extent as the value of the underlying common stocks. Because convertible
securities may also be interest rate sensitive, their value may increase as
interest rates fall and decrease as interest rates rise. Convertible securities
are also subject to credit risk, and are often lower-quality securities.
U.S. GOVERNMENT SECURITIES. The 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.
-4-
<PAGE>
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.
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.
FOREIGN SECURITIES. While the fund does not intend to invest in foreign
securities, the fund may hold foreign securities under certain circumstances,
such as if the fund holds securities of an issuer that is acquired by a foreign
company. 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. Securities of foreign
issuers may not be registered with the Securities and Exchange Commission and
the issuers thereof may not be subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the fund than is available concerning U.S.
companies. Foreign issuers are generally not bound by uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. issuers.
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 and
Futures Margin Payments.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The 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 the fund's assets could impede portfolio management or the 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.
-5-
<PAGE>
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.
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, the
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.
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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
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 the fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When the 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 the fund's investment limitations. In the
event of the bankruptcy of an FCM that holds margin on behalf of the 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.
The 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 fund intends to comply with Rule 4.5 under
the Commodity Exchange Act, which limits the extent to which the fund can commit
assets to initial margin deposits and option premiums.
In addition, the 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
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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 fund's investments in futures contracts and
options, and the fund's 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 the fund's current or anticipated investments exactly. The fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which the
fund typically invests, which involves a risk that the options or futures
position will not track the performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The 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 the 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
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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 the
fund to continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, the fund's access to other assets held to
cover its options or futures positions could also be impaired.
TRUST PREFERRED SECURITIES The fund may invest in trust preferred
securities, which are a type of asset-backed security. Trust preferred
securities represent interests in a trust formed by a parent company to finance
its operations. The trust sells preferred shares and invests the proceeds in
debt securities of the parent. This debt may be subordinated and unsecured.
Dividend payments on the trust preferred securities match the interest payments
on the debt securities; if no interest is paid on the debt securities, the trust
will not make current payments on its preferred securities. Unlike typical
asset-backed securities, which have many underlying payors and are usually
overcollateralized, trust preferred securities have only one underlying payor
and are not overcollateralized. Issuers of trust preferred securities and their
parents currently enjoy favorable tax treatment. If the tax characterization of
trust preferred securities were to change, they could be redeemed by the
issuers, which could result in a loss to the fund.
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 the fund's investments and, through reports from the Adviser,
the Board of Directors monitors investments in illiquid instruments. In
determining the liquidity of the 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. Where registration is required, the 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, the 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
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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 the fund, however, could affect adversely the marketability
of such portfolio securities and the fund might be unable to dispose of such
securities promptly or at reasonable prices.
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 fund 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 the
fund's investments. When delayed-delivery purchases are outstanding, the fund
will set aside appropriate liquid assets in a segregated custodial account to
cover the purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or losses
with respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss a
favorable price or yield opportunity or suffer a loss.
The 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. The fund may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows the 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 or
Sub-Adviser to be of good standing. Furthermore, they will only be made if, in
the Adviser's or Sub-Advisor'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
the 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
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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).
TOTAL RETURN is composed of the income received on the securities held by
the fund and either capital appreciation or depreciation of those securities.
The fund may not issue senior securities, except as permitted under the
1940 Act. This policy shall not prohibit deposits of assets to margin or
guarantee positions in futures, options, and forward contracts, or the
segregation of assets in connection with such contracts.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the fund's shareholders.
ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax considerations
affecting 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.
GENERAL
The fund (which is treated as a separate corporation for federal tax
purposes) intends to qualify for treatment as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended
("Code"). To qualify for that treatment, 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 plus, net
gains from certain foreign currency transactions) ("Distribution Requirement")
and must meet several additional requirements. For the 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 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, (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
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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 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 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 or 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, 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 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
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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
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,
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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 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, 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 the fund's shares 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
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NYSE is closed. Currently, the NYSE is closed on weekends and on certain days
relating to the following holidays: New Year's Day, Martin Luther King's Day,
Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving
and Christmas. Securities owned by 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 NASD National Market System
securities (including debt securities) will normally be valued at their last
sale price. Other over-the-counter securities (including debt securities), and
securities traded on exchanges for which there is no sale on a particular day
(including debt securities), will be valued by a method which the fund's Board
of Directors believes accurately reflects fair value.
In the absence of readily available market quotations, securities are
valued based upon appraisals received from an independent pricing service using
an electronic data processing and/or computerized matrix system using methods
which include consideration of 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.
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 fund's 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 fund 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 plus the applicable "initial sales charge" described in the
Prospectus. 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
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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 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 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
fund's 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
Because each class of the fund 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 the fund during the period stated by the maximum offering price
or net asset value at the end of the period. Excluding the fund's 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 fund 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 the fund's sales charge on
Class A shares or the CDSC on Class C shares into account. Excluding the fund's
sales charge on Class A shares and the CDSC on Class C shares from a total
return calculation produces a higher total return figure.
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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
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. Neither
initial nor contingent deferred sales charges are 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. 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 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 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 the fund's 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 the fund's shares will vary.
The fund's Performance Advertisements may reference the history of the
fund's Adviser and Sub-Adviser 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 the 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
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other tax advisers with respect to individual tax questions. Additional
information with respect to these plans is available upon request from any
Morgan Keegan broker.
INDIVIDUAL RETIREMENT ACCOUNTS - IRAS
If you have earned income from employment (including self-employment), you
can contribute each year to an IRA up to the lesser of (1) $2,000 for yourself
or $4,000 for you and your spouse, regardless of whether your spouse is
employed, or (2) 100% of compensation. Some individuals may be able to take an
income tax deduction for the contribution. Regular contributions may not be made
for the year you become 70-1/2 or thereafter. Nondeductible contributions may
also be made to an "education IRA" or a "Roth IRA," distributions from which are
not taxable under certain circumstances.
An investment in the 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 the 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 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
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.
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Name Position with the fund and Principal Occupation
During Past Five Years
Allen B. Morgan, Jr.* President and Director. Mr. Morgan is Chairman
Age 57 and Chief Executive Officer and Executive
Managing Director of Morgan Keegan & Company,
Inc. He also is a Chairman of Morgan Keegan,
Inc., a Director of Morgan Asset Management,
Inc., and a Director of Catherine's Stores, Inc.
James D. Witherington, Jr. Director. Mr. Witherington is President of SSM
845 Crossover Lane Corp. (management of venture capital funds).
Suite 140 He also serves as a Director for several
Memphis, Tennessee 38117 private companies.
Age 50
William F. Hughes, Jr. Mr. Hughes is a Managing Director of Morgan
Age 56 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 serves as a
Memphis, Tennessee 38117 Director for Heavy Machines,
Age 67 Inc.( )
James Stillman R. McFadden Director. Mr. McFadden is Vice President of
845 Crossover Lane Sterling Equities, Inc. (private equity
Suite 124 financings). He is also President and Director
Memphis, Tennessee 38117 of 1703, Inc. (restaurant management) and a
Age 42 Director of Starr Printing Co .
Joseph C. Weller* Vice President, Treasurer & Assistant
Age 60 Secretary. Mr. Weller is Executive Vice
President and Chief Financial Officer and
Executive Managing Director of Morgan Keegan &
Company, Inc. He also is a Director of Morgan
Asset Management, Inc.
Charles D. Maxwell* Secretary and Assistant Treasurer. Mr. Maxwell
Age 45 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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TABLE OF COMPENSATION(1)
Total Compensation
Name and Position Aggregate Compensation in the Morgan Keegan funds
With the Company from the Company Complex Paid to Directors
---------------- ---------------- -------------------------
Allen B. Morgan, Jr. $0 $0
President and Director
James D. Witherington, Jr. $____ $_____
Director
William F. Hughes, Jr. $0 $0
Director
William Jeffries Mann $_____ $_____
Director
James Stillman R. McFadden $_____ $_____
Director
Officers and directors of the Company who are interested persons of the Company
receive no salary or fees from the Company.
(1) The Morgan Keegan funds Complex consists of one other investment company
with one series.
INVESTMENT ADVISER
Morgan Asset Management, Inc. ("MAM"), an affiliate of Morgan Keegan,
serves as the fund's investment adviser and manager under an Investment Advisory
and Administration Agreement ("Advisory Agreement"). The Advisory Agreement
became effective as of _______, 2000. 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 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 the fund who are employees of the Adviser and/or its affiliates.
The fund bears all their 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
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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's 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 the fund's 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 respective officers and directors. The fund is also 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 fund pays the Adviser a management fee at an annual rate of 1.00% of
the fund's average daily net assets.
The Board of Directors approves the Advisory Agreement for an initial two
year period. Thereafter, it will be renewed annually, 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.
T. S. J. Advisory Group, Inc. (the "Sub-Adviser") of Alpharetta, GA,
serves as the sub-adviser to the fund pursuant to a Sub-Advisory Agreement that
became effective as of _____________, 2000. Founded in 2000, the Sub-Adviser is
controlled by T. Stephen Johnson, who also controls T. Stephen Johnson &
Associates, Inc., a bank consulting firm and investment manager in the Southeast
established in 1986. The Sub-Advisory Agreement provides that, subject to the
supervision and direction by the Board of Directors, the Sub-Adviser is
responsible for a continuous investment program for the fund, including
investment research and management for all securities and investments and cash
equivalents in the fund. The Sub-Adviser will be responsible for placing
purchase and sell orders for investments and for other related transactions for
the fund consistent with the fund's investment objective, policies and
limitations described in the Prospectus and this SAI. Under the Sub-Advisory
Agreement, the Sub-Adviser will not be liable for any error of judgment or
mistake of law or for any loss suffered by the fund, except for a loss resulting
from willful misfeasance, bad faith or negligence, on its part, in the
performance of its services and duties, or from reckless disregard by it of its
obligations and duties under the Sub-Advisory Agreement.
The Board of Directors approves the Sub-Advisory Agreement for an initial
two-year period. Thereafter, it will be renewed annually, provided such
continuance is approved by a majority of the Board of Directors or by a majority
of the outstanding voting securities of the Fund. The Sub-Advisory Agreement
terminates automatically upon its assignment or upon termination of the Advisory
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Agreement and is terminable (1) by the Company without penalty upon 60 days
written notice to the Adviser and Sub-Adviser, (2) by MAM on 60 days written
notice to the Company and the Sub-Adviser, (3) by the Sub-Adviser at any time
after a year from the date of the Sub-Advisory Agreement on 60 days written
notice to the Company and the Adviser.
The Sub-Adviser bears all expenses incurred by it in connection with its
services under the Sub-Advisory Agreement other than the cost of securities
purchased for the fund. The Sub-Adviser does not have prior experience in
managing the assets of investment companies.
The Sub-Advisory Agreement provides that, as compensation for its
services, the Sub-Adviser shall receive from the Adviser a fee of 0.75% of the
fund's average daily net assets. The sub-advisory fee is paid by the Adviser and
NOT the fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement and the Sub-Advisory Agreement, the
Sub-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), the liquidity the broker will provide and any risk assumed by the
executing broker.
The Sub-Adviser may give consideration to research, statistical and other
services furnished by broker/dealers to the Sub-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 Sub-Adviser in connection with
services to clients other than the funds. The Sub-Adviser's fee is not reduced
by reason of its receipt of such brokerage and research services.
From time to time the fund 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
Sub-Adviser will not cause the fund to pay Morgan Keegan any commission for
affecting 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 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 Sub-Adviser may also select other brokers to execute portfolio
transactions. In the over-the-counter market, the fund will generally deal with
responsible primary market-makers unless a more favorable execution can
otherwise be obtained through brokers.
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
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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.
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 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 fund on that
exchange only if the fund expressly consents by written contract.
Investment decisions for the fund are made independently from those of
other accounts advised by the Sub-Adviser. However, the same security may be
held in the portfolios of more than one account. When two or more accounts
simultaneously engage in the purchase or sale of the same security, the prices
and amounts will be equitably allocated among the accounts. In some cases, this
procedure may adversely affect the price or quantity of the security available
to a particular account. In other cases, however, an account's ability to
participate in large volume transactions may produce better executions and
prices.
Morgan Keegan personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders by all Morgan Keegan directors, officers and employees, establishes
procedures for personal investing and restricts certain transactions. For
example, personal trading in most securities requires pre-clearance. In
addition, the code of ethics places restrictions on the timing of personal
investing in relation to trades by the fund.
DISTRIBUTOR
Morgan Keegan acts as distributor of the fund's shares pursuant to an
Underwriting Agreement between the fund and Morgan Keegan dated as of
____________ ("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
the 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 the 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.
The 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 Rule 12b-1 Plan, 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.
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Service fees and distribution fees paid by the fund to Morgan Keegan under
the Plan may exceed or be less than Morgan Keegan's expenses thereunder. No
interested person of the fund or non-interested director had a direct or
indirect interest in the Plan or related agreements. The fund benefits from the
Plan by virtue of an ongoing broker's involvement with individual customers as
well as the benefit from continued promotion.
The Plan was approved, as required by Rule 12b-1 under the 1940 Act, by
the Board of Directors on __________, 2000, including a majority of the
directors who are not "interested persons" of the fund, as that term is defined
in the 1940 Act and who have no direct or indirect financial interest in the
operation of the Plan or the Underwriting Agreement (the "Qualified Directors").
In approving the Plan, 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 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 Plan would
benefit the fund and its shareholders. This determination was based, in part, on
the belief that the Plan enables 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 the fund and the
Adviser. The fund is 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 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 Board of Directors acknowledged, however, that
there is no assurance that benefits to the fund will be realized as a result of
the Plans.
The Plan 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 Plan 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 Plan 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 Plan, 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 fund.
Rule 12b-1 requires that any person authorized to direct the disposition
of monies paid or payable by the fund 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
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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 of Directors
and the Qualified Directors on _________, 2000. The Underwriting Agreement is
subject to the same provisions for annual renewal as the Plan. 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 five series of shares (Morgan Keegan Financial
Fund, Morgan Keegan Intermediate Bond Fund, Morgan Keegan High Income Fund, Core
Equity Fund and 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 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
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of the Company. At least two-thirds of the directors holding office must have
been elected by the shareholders.
The fund, its investment adviser and distributor have adopted Codes of
Ethics under Rule 17j-1 of the 1940 Act. Subject to certain limitations, the
Codes of Ethics permit persons subject to the Code to invest in securities,
including securities that may be purchased or held by the fund.
CUSTODIAN, TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
AND PORTFOLIO ACCOUNTING SERVICE AGENT
Morgan Keegan & Company, Inc., Morgan Keegan Tower, Fifty Front Street,
Memphis, Tennessee 38103, serves as the transfer and dividend disbursing agent
of the fund. For these services, Morgan Keegan receives from the fund a fee of
$_____ per month, or $______ 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 $______ per month, or
$______ per year.
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
KPMG LLP are the fund's independent certified public accountants. KPMG LLP
performs an audit of the fund's financial statements and reviews the fund's
federal and state income tax returns.
FINANCIAL STATEMENTS
Audited financial statements for the fund, and notes thereto, dated as of
_________, 2000, and the report of KPMG LLP, are attached to this SAI.
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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 (to be filed)
(b) By-laws (2)
(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
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)
(c) Investment Sub-Subadvisory Agreement with
Hallmark Capital Management, 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 Utilities 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 Morgan Keegan Select Financial Fund
(to be filed)
(a) Sub-Advisory Agreement with respect to Morgan
Keegan Select Financial Fund (to be filed)
(e) Underwriting Agreement (2)
(f) Bonus or Profit Sharing Contracts - none
(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 and Morgan Keegan Select Financial Fund (3)
(2) Custody Agreement between Growth Stock Portfolio and
Star Bank, N.A. with respect to the Core Equity Fund (4)
(3) Custody Agreement between Utilities Stock Portfolio
and Star Bank, N.A. with respect to the Utilities
Fund (4)
<PAGE>
(h) Other Material Contracts
(1) Fund Accounting Services Agreement with respect to
Morgan Keegan Intermediate Bond Fund and Morgan Keegan
High Income Fund (2)
(a) Amendment to Fund Accounting Services Agreement
with respect to Morgan Keegan Select Financial
Fund (to be filed)
(2) Transfer Agency and Service Agreement with respect to
Morgan Keegan Intermediate Bond Fund and Morgan Keegan
High Income Fund (2)
(a) Amendment to Transfer Agency and Service Agreement
with respect to Morgan Keegan Select Financial
Fund (to be filed)
(3) Fund Accounting Services Agreement with respect to the
Core Equity Fund and the Utility Fund (to be filed)
(4) Transfer Agency and Service Agreement with respect to
the Core Equity Fund and the Utility Fund (to be filed)
(5) Administration Agreement with respect to the Core
Equity Fund and the Utility Fund (to be filed)
(i) Legal Opinions (to be filed)
(j) Other Opinions
Accountants' Consents (to be filed)
(k) Omitted Financial Statements - none
(l) Initial Capital Agreement (2)
(m) (1) Distribution Plan pursuant to Rule 12b-1 (2)
(a) Amendment to Distribution Plan with respect to
Morgan Keegan Select Financial Fund (to be filed)
(2) 12b-1 Plans for Class A Shares and 12b-1 and Service
Plans for Class C Shares of the Core Equity Fund and
Utility Fund (to be filed)
(n) (1) Multiple Class Plan Pursuant to Rule 18f-3 (2)
(a) Amendment to Multiple Class Plan with respect
to Morgan Keegan Select Financial Fund (to be
filed)
(2) Multiple Class Plans Pursuant to Rule 18f-3 for the
Core Equity Fund and Utility Fund (to be filed)
(p) Codes of Ethics
(1) Codes of Ethics for Growth Stock Portfolio and
Utilities Stock Portfolio (4)
(a) Codes of Ethics for Sub-Advisor and
Sub-subadvisers for Growth Stock Portfolio (to
be filed)
(b) Code of Ethics for Sub-Advisor for Utilities
Stock Portfolio (to be filed)
(2) Code of Ethics for Meeder Financial, Inc. (4)
(3) Code of Ethics for Morgan Keegan Select Fund, Inc.
(to be filed)
(4) Code of Ethics for Morgan Keegan & Company, Inc. (to
be filed)
(5) Code of Ethics for Morgan Asset Management, Inc. (to
be filed)
(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. 11 to the
Registration Statement on Form N-1A for Growth Stock Portfolio, SEC File
No. 811-6647, filed on April 28, 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. states:
A. Except as provided below, in the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund or its Portfolios
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or the making of any investment
for or on behalf of the Fund.
B. No provision of this Agreement shall be construed to protect any
Director or officer of the Fund, or the Adviser, from liability in
violation of Sections 17(h), 17(i), 36(a) or 36(b) of the 1940 Act.
Paragraphs 7 and 8 of the Underwriting Agreement between the Corporation
and Morgan Keegan & Company, Inc. state:
7. The Fund agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributor, its officers or directors, or any such
controlling person may incur, under the 1933 Act or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or arising out of or
based upon any alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided, however, that the Fund shall not indemnify or defend such
persons or hold them harmless with respect to any claims, demands, or
<PAGE>
liabilities based on information provided to the Fund by the Distributor;
and provided further that this indemnification provision shall not inure
to the benefit of any person who is an officer or director of the Fund or
who controls the Fund within the meaning of Section 15 of the 1933 Act, as
amended, unless a court of competent jurisdiction shall determine, or it
shall have been determined by controlling precedent, that such result
would not be against public policy as expressed in the 1933 Act, as
amended, and further provided that in no event shall anything contained in
this Agreement be construed so as to protect the Distributor against any
liability to the Fund or its shareholders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
8. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
the Fund, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of
or based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or arising out of or based upon any alleged
omission by the Distributor to state a material fact in connection with
such information required to be stated in the Registration Statement or
necessary to make such information not misleading.
Paragraph 3 of the Fund Accounting Service Agreement between Morgan
Keegan & Company, Inc. and Morgan Keegan Select Fund, Inc. states:
RESPONSIBILITY OF MORGAN KEEGAN & COMPANY, INC. Morgan Keegan shall
be held to the exercise of reasonable care in carrying out the provisions
of this Agreement, but shall be indemnified by and shall be without
liability to the Fund for any action taken or omitted by it in good faith
without negligence or willful misconduct. Morgan Keegan shall be entitled
to rely on and may act upon the reasonable advice of the Fund's auditors
or of counsel (who may be counsel of the Fund) on all matters, and shall
not be liable for any action reasonably taken or omitted pursuant to such
advice.
In addition, Morgan Keegan shall not be liable for any loss of data or any
delay in its performance under this Agreement to the extent such loss or
delay is due to causes beyond its control, including but not limited to:
acts of God, interruption in, loss of or malfunction in power, significant
computer hardware or systems software or telephone communication service;
acts of civil or military authority; sabotage; war or civil commotion;
fire; explosion; or strike beyond delivery of minimum critical services.
Morgan Keegan shall use its best efforts to minimize any such loss or
delay by all practical means and to replace any lost data promptly. Morgan
Keegan agrees not to discriminate against the Fund in favor of any other
customer of Morgan Keegan in making computer time and its personnel
available to input and process the transactions hereunder when a loss or
delay occurs.
Paragraph 10 of the Transfer Agency and Service Agreement between the
Corporation and Morgan Keegan & Company, Inc. states:
RESPONSIBILITY OF MORGAN KEEGAN; LIMITATION OF LIABILITY. Morgan
Keegan shall be held to the exercise of reasonable care in carrying out
the provisions of this Agreement, but the Fund shall indemnify and hold
Morgan Keegan harmless against any losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from
any claim, demand, action or suit brought by any person (including a
shareholder naming the Fund as a party) other than the Fund arising out
of, or in connection with, Morgan Keegan's performance of its obligations
hereunder, provided, that Morgan Keegan does not act with bad faith,
willful misfeasance, reckless disregard of its obligations and duties, or
gross negligence.
The Fund shall also indemnify and hold Morgan Keegan harmless against any
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or
suit (except to the extent contributed to by Morgan Keegan's bad faith,
willful misfeasance, reckless disregard of its obligations and duties, or
gross negligence) resulting from the negligence of the Fund, or Morgan
Keegan's acting upon any instructions reasonably believed by it to have
been executed or communicated by any person duly authorized by the Fund,
or as a result of Morgan Keegan's acting in reliance upon advice
reasonably believed by Morgan Keegan to have been given by counsel for the
Fund, or as a result of Morgan Keegan's acting in reliance upon any
instrument reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
<PAGE>
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:
(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.
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.
Meeder Asset Management, Inc., formerly known as R. Meeder &
Associates, Inc., the investment adviser to the Core Equity Fund and the
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.
Name and Positions and Positions and
Principal Business Offices With Offices With
Address Underwriter Registrant
------- ----------- ----------
(Principal Business Address,
unless otherwise noted, is:
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103)
Allen B. Morgan, Jr. Chairman and 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
John W. Stokes, Jr. Vice Chairman, None
Executive Managing
Director
Robert A. Baird Executive None
Managing Director
G. Douglas Edwards Executive Managing None
Director
James H. Ganier Executive Managing None
Director
Stephen P. Laffey 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
Allen B. Adler Managing Director None
Franklin P. Allen, III Managing Director None
George E. Arras, Jr. Managing Director None
James M. Augustine, Jr. Managing Director None
<PAGE>
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
Cristan K. Blackman 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
James J. Dieck Managing Director None
Robert H. Dudley, Jr. Managing Director None
Richard H. Eckels Managing Director None
<PAGE>
Richard K. Fellows Managing Director None
Richard S. Ferguson 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
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
William F. Hughes, Jr. Managing Director Director
Joe R. Jennings Managing Director None
Robert Jetmundsen Managing Director None
Ram P. Kasargod Managing Director None
Carol Sue Keathley Managing Director None
Don T. Keel III Managing Director None
Peter R. Klyce Managing Director None
<PAGE>
Peter Stephen Knoop Managing Director None
W. Lawrence M. Managing Director None
Knox, Jr.
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. Malden 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
K. Brooks Monypeny Managing Director None
John G. Moss Managing Director None
<PAGE>
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
Harry T. Rosenblum 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
H. Wade Schuessler Managing Director None
Lynn T. Shaw Managing Director None
<PAGE>
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
(c) None
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS
MORGAN KEEGAN INTERMEDIATE BOND FUND, MORGAN KEEGAN HIGH INCOME FUND AND
MORGAN KEEGAN SELECT FINANCIAL 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.
CORE EQUITY FUND AND 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.,
has duly caused this Post-Effective Amendment No. 3 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 20th day
of June, 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. 3 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Allen B. Morgan, Jr. Director and President June 20, 2000
------------------------ (Chief Executive
Allen B. Morgan, Jr. Officer)
/s/ Joseph C. Weller Vice President and June 20, 2000
-------------------- Treasurer (Chief
Joseph C. Weller Financial Officer)
/s/ James D. Witherington, Jr. Director June 20, 2000
------------------------------
James D. Witherington, Jr.
/s/ William F. Hughes, Jr. Director June 20, 2000
--------------------------
William F. Hughes, Jr.
_____________________ Director
William Jefferies Mann
/s/ James Stillman R. McFadden Director June 20, 2000
------------------------------
James Stillman R. McFadden
