<PAGE>
PART I
As filed with the Securities and Exchange Commission on October 28, 1997
Registration No. 33-5435
811-4658
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 12 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 13 [ X ]
(Check appropriate box or boxes)
MORGAN KEEGAN SOUTHERN CAPITAL 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
Copies to:
ALLEN B. MORGAN, JR. ARTHUR J. BROWN, ESQ.
Morgan Keegan Tower Kirkpatrick & Lockhart LLP
Memphis, Tennessee 38103 1800 Massachusetts Ave., N.W.
(Name and address of agent Washington, D.C. 20036-1800
for service) Telephone: (202) 778-9000
It is proposed that this filing will become effective:
Immediately upon filing pursuant to Rule 485(b)
X On November 1, 1997 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
On ____________ pursuant to Rule 485(a)
Title of Securities being registered:
Shares of Capital Stock, par value $.001
<PAGE>
Morgan Keegan Southern Capital Fund, Inc.
Contents of Registration Statement
This Registration Statement consists of the following papers and documents.
Table of Contents
Cross Referenced Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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Morgan Keegan Southern Capital Fund, Inc.
Form N-1A Cross Reference Sheet
[C] [C]
Part A Item No. Prospectus Caption
1 Cover Page
2 Questions and Answers About Morgan Keegan
Southern Capital Fund, Inc.; Summary of
Fund Expenses
3 Financial Highlights
4 The Fund's Investment Objective and Policies;
The Fund's Investment Limitations;
Description of the Fund and its Shares
5 The Fund's Management and Investment Adviser
The Fund's Custodian, Transfer and Dividend-
Disbursing Agent
5A The Fund's Management and Investment Adviser
6 How your Shareholder Account is Maintained;
Dividends, Capital Gain Distributions and
Taxes;
Shareholder Services;
Description of the Fund and its Shares
7 How You Can Invest in the Fund
How Net Asset Value is Determined
Shareholder Services
The Fund's Distributor
8 How You Can Sell Your Fund Shares
9 Not Applicable
<PAGE>
[C] [C]
Statement of Additional Information
Part B Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Not applicable
13 Additional Information About Investment
Limitations and Policies
14 The Fund's Directors and Officers
15 The Fund's Principal Shareholders
Statement of Additional Information
Part B Item No. Information Caption
16 The Fund's Investment Adviser;
The Fund's Distributor;
The Fund's Custodian, Transfer Agent,
Dividend-Disbursing Agent and Portfolio
Accounting Service Agent;
The Fund's Certified Public Accountants
17 Portfolio Transactions and Brokerage
18 Included in Part A
19 Additional Purchase and Redemption
Information
Valuation of Shares
20 Additional Tax Information;
Tax-Deferred Retirement Plans;
Additional Purchase and Redemption
Information
21 The Fund's Distributor
22 Performance Information
23 Financial Statements
<PAGE>
PROSPECTUS
Morgan Keegan Southern Capital Fund, Inc.
Morgan Keegan Southern Capital Fund, Inc. ("Fund") is a mutual fund that
seeks capital appreciation. The Fund invests principally in securities of
companies which are headquartered in the southern United States.
This Prospectus sets forth concisely information about the Fund that an
investor ought to know before investing. It should be read and retained for
future reference. A Statement of Additional Information about the Fund dated
November 1, 1997, which is incorporated herein by reference, has been filed with
the Securities and Exchange Commission and is available without charge upon
request from Morgan Keegan & Company, Inc. (address and telephone number listed
below).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
MORGAN KEEGAN & COMPANY, INC.
MORGAN KEEGAN TOWER
FIFTY FRONT STREET
MEMPHIS, TENNESSEE 38103
(901) 524-4100
(800) 564-2113
Dated: November 1, 1997
<PAGE>
QUESTIONS AND ANSWERS ABOUT
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
HOW CAN YOU BENEFIT FROM INVESTING IN THE FUND?
FIRST: Your securities investment is professionally managed, sparing you the
burden of selecting, supervising, and handling a securities portfolio.
SECOND: Your investment is in a diversified portfolio of securities of
companies in a variety of industries, saving you the usual brokerage costs
associated with a series of small purchases.
THIRD: Your investment in the Fund through an individual retirement account
("IRA") (including an "education individual retirement account" and a "Roth
IRA," both available to certain taxpayers beginning in 1998), simplified
employee pension plan ("SEPP"), savings incentive match plan for employees
("SIMPLE"), self-employed individual retirement plan ("Keogh Plan"), cash or
deferred arrangement under section 401(k) of the Internal Revenue Code of 1986,
as amended ("401(k) Plan"), or other qualified retirement plan (collectively,
"Tax-Deferred Retirement Plans") allows you to defer tax on the earnings on your
investment. See "Investing Through Tax-Deferred Retirement Plans."
FOURTH: Your investment is liquid, so that you may redeem your shares at any
time at their next determined net asset value (which may be more or less than
your purchase price). However, if you withdraw before age 59 1/2 from a
Tax-Deferred Retirement Plan, a significant penalty may result. See "Investing
Through Tax-Deferred Retirement Plans" and "How You Can Sell Your Fund Shares."
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is capital appreciation. The Fund's
investment adviser, Morgan Asset Management, Inc. ("Adviser"), will seek to
achieve this objective by investing primarily in securities, including common
stock, preferred stock, and convertible and other debt securities, of companies
which are headquartered in the southern United States. For purposes of this
Prospectus, a company is "headquartered" in the southern United States if its
principal corporate offices are located in the southern United States or if
(alone or on a consolidated basis) it derives 50% or more of its total revenues
from either goods produced, sales made or services performed in the southern
United States. For purposes of this Prospectus, the "southern United States"
consists of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana,
Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee,
Texas, Virginia, and West Virginia. The Fund's investment emphasis will make its
performance especially subject to the economic conditions in this region. Of
course, there can be no assurance that the Fund will achieve its objective. See
"The Fund's Investment Objective and Policies."
WHO SHOULD INVEST IN THE FUND?
Morgan Keegan & Company, Inc. ("Distributor"), which sells the Fund's
shares, believes that the Fund's shares of common stock are suitable for
investors interested in long-term growth of capital. Accordingly, the Fund is
not intended for investors attempting to "time" the market, seeking short-term
price appreciation.
2
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Investors may purchase shares of the Fund at their then current net asset
value plus any applicable sales charge. The Fund pays a management fee to the
Adviser and a distribution fee to the Distributor as set forth at pages 14-17 of
this Prospectus.
The Adviser believes that the Fund's shares also may be appropriate for
investment by Tax-Deferred Retirement Plans with principal investment objectives
of capital appreciation, provided that the risks associated with investment in
common stocks and in a particular geographic area are recognized. Contributions
to these plans are tax deductible within specified limits, and earnings on
investments by these plans in Fund shares accumulate free of current income
taxes.
SUMMARY OF FUND EXPENSES
Shareholder Transaction Expenses (as a percentage of public offering price)
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases.......... 3.0%
Maximum Sales Charge Imposed on Reinvested Dividends.. None
Redemption Fees........................................ None
Exchange Fees.......................................... None
</TABLE>
Annual Fund Operating Expenses (as a percentage of average net assets after
waiver and reimbursement)*
<TABLE>
<S> <C>
Investment Advisory Fee............................ 1.00%
12b-1 Fee.......................................... 0.50%
Other Expenses..................................... 0.50%
-----
Total Fund Operating Expenses.................. 2.00%
</TABLE>
You would pay the following cumulative expenses on a $1,000 investment over
the time periods shown assuming, (1) a 5% annual return, and (2) redemption at
the end of each period. As noted, the Fund charges no redemption fee of any
kind.**
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EXAMPLE............................................ $ 50 $ 91 $ 135 $ 256
</TABLE>
The purpose of the above tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund bears directly or
indirectly.
THE ABOVE TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; THE FUND'S ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
*Annual Fund operating expenses are based on the fiscal year ended June 30,
1997. Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc. rules regarding investment companies. The Adviser
waived its fee and reimbursed a portion of the Fund's other expenses; without
such waiver and reimbursement, the Fund's ratio of expenses to average net
assets would have been 2.0% for that fiscal year. The Adviser intends to waive
its fee and to reimburse the Fund for a portion of its expenses during the
current fiscal year so that total
3
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operating expenses (excluding brokerage, interest, taxes, and extraordinary
expenses) do not exceed 2.0% of net assets annually. See "The Fund's Management
and Investment Adviser" on pages 14-16 for further information.
**The Example set forth above assumes that all dividends and distributions
are reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same in the years shown. The assumption in the
Example of a 5% annual return is required by regulation of the Securities and
Exchange Commission applicable to all mutual funds. The assumed 5% annual return
is not a prediction of, and does not represent, the Fund's actual or projected
performance.
4
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FINANCIAL HIGHLIGHTS
The following table provides condensed audited information concerning per
share and other information for the periods shown. It has been derived from
financial statements which have been examined by KPMG Peat Marwick LLP,
independent certified public accountants, for each of the years in the six-year
period ended June 30, 1997, and by Coopers & Lybrand L.L.P., independent
certified public accountants, for each of the years in the four-year period
ended June 30, 1991. These statements, and the reports thereon, appear in the
1997 annual report to the shareholders and are incorporated by reference in the
Statement of Additional Information.
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/97 6/30/96 6/30/95 6/30/94 6/30/93 6/30/92 6/30/91
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period....................... $18.06 $14.34 $12.96 $14.04 $13.56 $11.79 $11.49
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(loss)..................... (0.11 ) (0.07 ) 0.08 0.06 0.05 0.08 0.09
Net Gains on Securities..... 4.64 4.08 1.67 0.03 1.65 1.98 0.27
Total from Investment
Operations................. 4.53 4.01 1.75 0.09 1.70 2.06 0.36
LESS DISTRIBUTIONS
Dividends (from net
investment income)......... (0.08 ) (0.06 ) (0.06 ) (0.09 ) (0.06)
Distribution (from realized
gains)..................... (0.87 ) (0.03 ) (0.29 ) (1.11 ) (1.16 ) (0.20 )
Distribution (return of
capital)................... (0.08 ) (0.26 )
Net Asset Value, end of
period..................... $21.64 $18.06 $14.34 $12.96 $14.04 $13.56 $11.79
Total Return*............... 26.32% 28.30% 13.81% .42% 13.32% 17.60% 3.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period... 53,925,763 37,505,196 27,259,499 38,696,768 45,576,519 28,614,178 13,078,456
Expenses to Average Net
Assets**................... 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Net Investment Income (loss)
to Average Net Assets...... (.6%) (.5%) .6% .5% .4% .6% .9%
Portfolio Turnover Rate..... 30% 69% 54% 133% 179% 152% 187%
Average Commission Rate
Paid+...................... $ 0.0564
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
6/30/90 6/30/89 6/30/88
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, beginning of
period....................... $11.52 $11.09 $12.16
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(loss)..................... 0.10 0.57 .11
Net Gains on Securities..... 0.30 0.31 (.78 )
Total from Investment
Operations................. 0.40 0.88 (.67 )
LESS DISTRIBUTIONS
Dividends (from net
investment income)......... (0.43 ) (0.45 ) (.01 )
Distribution (from realized
gains)..................... (.39 )
Distribution (return of
capital)...................
Net Asset Value, end of
period..................... $11.49 $11.52 $11.09
Total Return*............... 3.69% 8.05% (5.95%)
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period... 8,793,164 9,244,702 13,588,528
Expenses to Average Net
Assets**................... 2.0% 2.0% 2.0%
Net Investment Income (loss)
to Average Net Assets...... .9% 5.1% 1.0%
Portfolio Turnover Rate..... 137% 136% 184%
Average Commission Rate
Paid+......................
</TABLE>
- ------------------------------
* TOTAL RETURN DOES NOT INCLUDE FRONT END SALES LOAD.
** 2.0%, 2.2%, 2.2%, 2.0%, 2.0%, 2.3%, 3.5%, 3.8%, 3.6% AND 3.4% BEFORE EXCESS
REIMBURSEMENT AND FEE WAIVER FROM ADVISER IN 1997, 1996, 1995, 1994, 1993,
1992, 1991, 1990, 1989 AND 1988, RESPECTIVELY.
+ Disclosure effective for fiscal years beginning on or after September 1,
1995.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is capital appreciation. Absent approval of
the holders of a majority of the Fund's outstanding voting securities, this
objective cannot be changed. There is no assurance that the Fund's investment
objective can be achieved. The Fund, consistent with its objective of capital
appreciation, invests primarily in securities, including common and preferred
stock, and convertible and other debt securities, of companies headquartered in
the southern United States, and may invest in securities that pay no dividends
or interest. The timing of purchases and sales on behalf of the Fund is made on
the fundamental investment merits of the securities and generally will be
uninfluenced by whether any gain from such transactions would be classified as
short-term or long-term for tax purposes.
The Fund's Adviser selects investments primarily based on a fundamental
analysis of specific companies. Analysis includes consideration of the overall
financial health and prospects of given companies, with attention to the
following factors: return on equity; rate of growth of earnings; and price to
earnings ratios, as compared to the company's historic performance and to the
ratios of the industry at large.
Under normal circumstances, at least 65% of the Fund's assets will be
invested in equity and debt securities of companies that are headquartered in
the southern United States. Consequently the Fund may invest up to 35% of its
assets in securities of companies headquartered outside that region. The Fund's
Adviser believes that the demographic and economic characteristics of the
fifteen states in the region are such that many companies headquartered there
have greater than average potential for capital appreciation. For example,
recent statistics suggest that such companies may enjoy favorable labor
conditions, with average annual pay below the national average. The Adviser also
believes that other factors exert a positive influence on companies
headquartered in the region, including generally mild climate, lower state
taxes, labor availability, and government attitudes generally favorable to
business development.
Of course, there is no assurance that the demographic and economic
characteristics that the Adviser believes favor many southern companies will
continue in the future. Local, national, and international political events and
economic trends may adversely affect the economic climate of the southern United
States. However, the Adviser believes that by investing in carefully selected
southern companies, the Fund will be able to have a securities portfolio with
greater than average potential for capital appreciation.
While the Fund will concentrate at least 65% of its investments in companies
headquartered in the southern United States, the Fund may invest up to 35% of
its assets in companies headquartered outside that region, so as to allow the
Fund to take advantage of attractive opportunities in securities of other
companies. From time to time, the Fund may write (sell) covered call options on
certain of its portfolio securities.
Investment in a portfolio of securities of companies headquartered in a
specific geographical region may involve greater risk of possible loss than
investment in a portfolio of securities of companies which have headquarters
throughout the United States. The Fund may be more affected by a common adverse
factor than a fund with a portfolio which is not geographically
6
<PAGE>
concentrated. For example, there is a risk that those economic, demographic and
other factors that, in the opinion of the Adviser, favor the growth of companies
headquartered in the southern United States might not result in the growth of
such companies or in their stock prices, or that there will be changes in those
factors in the future. However, given these economic, demographic and other
factors, the Adviser believes that such investments may also offer greater than
average long-term capital appreciation potential.
The Fund invests primarily in common stock, preferred stock and convertible
debt securities. Normally the Fund would not expect to invest more than 35% of
its assets in non-convertible debt securities, including high quality money
market instruments (such as certificates of deposit), repurchase agreements and
cash. The Fund expects to invest only in investment grade debt securities. The
value of such securities normally is expected to increase as interest rates
decrease, and conversely to decrease as interest rates increase. For temporary
defensive purposes, the Fund may invest up to 100% of its assets in money market
instruments, repurchase agreements and cash.
As noted above, the Fund may invest in repurchase agreements. As engaged in
by the Fund, a repurchase agreement is an agreement under which U.S. government
obligations are acquired from a securities dealer or bank subject to resale at
an agreed upon price (which includes an interest factor) and date. The Fund
bears a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the collateral securities. Under procedures approved by
the Fund's Board of Directors, the Adviser enters into repurchase agreements
only with financial institutions deemed to present minimal risk of bankruptcy or
insolvency during the term of the agreement. The Fund will not enter into
repurchase agreements of more than seven days' duration if more than 10% of its
net assets would be invested in such agreements and other illiquid investments.
THE FUND'S INVESTMENT LIMITATIONS
Under the Fund's current investment limitations, which, along with its
investment objective, cannot be changed except by vote of the holders of a
majority of the Fund's outstanding voting securities, the Fund may not among
other things:
1. Invest more than 25% of its total assets in securities of issuers in
the same industry.
2. Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than the U.S. Government, its
agencies and instrumentalities, or buy more than 10% of the voting
securities or more than 10% of all the securities of any one issuer.
3. Invest more than 5% of its total assets (taken at market value) in
securities of companies that, including their predecessors, have
been in operation for less than three years.
The Fund's other investment limitations are described in the Statement of
Additional Information.
7
<PAGE>
HOW YOU CAN INVEST IN THE FUND
The minimum initial investment in the Fund for each account is $500 and the
minimum investment for each purchase of additional shares is $250. However,
initial and subsequent investments in an IRA account established on behalf of a
nonworking spouse of a shareholder who has an IRA invested in the Fund require a
minimum amount of only $250. In addition, once an account is established, the
minimum amount for subsequent investments will be waived if an investment in an
IRA or similar plan is the maximum amount permitted under the Internal Revenue
Code of 1986, as amended ("Code").
There are three ways you can invest in the Fund:
1. THROUGH YOUR MORGAN KEEGAN BROKER.
Fund shares may be purchased through any Morgan Keegan broker who will be
pleased to open a Morgan Keegan account for you, explain to you the shareholder
services available from the Fund, and answer any questions you may have. After
you have established a Morgan Keegan account, you can order Fund shares from
Morgan Keegan brokers in person, by telephone or by mail. A regular order placed
with Morgan Keegan will be effected and shares will be purchased at the net
asset value next determined plus the applicable sales charge described below
("offering price"). Special documents available from your broker must be
completed if you invest in Fund shares through a Tax-Deferred Retirement Plan.
Payment for Fund shares generally is due to Morgan Keegan on the third business
day ("settlement date") after the trade date.
2. THROUGH MORGAN KEEGAN & COMPANY, INC.
If you do not wish to purchase Fund shares through a Morgan Keegan broker,
you may purchase Fund shares directly from Morgan Keegan & Company, Inc., the
Fund's distributor, by completing the application included in this Prospectus
and sending it along with a check to Morgan Keegan at the address set forth in
the application. Additional documents required to purchase Fund shares through a
Tax-Deferred Retirement Plan are available from Morgan Keegan. Shares will be
purchased at the offering price next determined after receipt of the completed
application and check.
An order placed with Morgan Keegan on behalf of a Tax-Deferred Retirement
Plan will not be transmitted to the Fund until Morgan Keegan's Memphis Office
receives a check for the amount of the purchase. Orders received by Morgan
Keegan's Memphis Office before the close of regular trading on the New York
Stock Exchange ("Exchange") (currently 4:00 p.m. Eastern Time) on any day the
Exchange is open will be executed at the offering price of Fund shares as
determined as of the close of regular trading on the Exchange on that day.
Orders received by Morgan Keegan's Memphis Office after the close of regular
trading on the Exchange or on days the Exchange is closed will be executed at
the offering price determined as of the close of regular trading on the Exchange
on its next trading day. The Fund and Morgan Keegan reserve the right to reject
any order for Fund shares.
8
<PAGE>
3. THROUGH PRE-AUTHORIZED CHECK PLAN AND OTHER TRANSFERS OF FUNDS FROM
FINANCIAL INSTITUTIONS.
Once you are a Fund shareholder, you can make additional investments through
the Fund's pre-authorized Check Plan for convenient monthly investments. For
additional information, contact your Morgan Keegan broker.
Investors may purchase shares at the net asset value next determined after
receipt of their orders plus a sales charge equal to 3% of the public offering
price (3.09% of the net amount of the purchase price invested in shares of the
Fund). On sales of $1 million or more, investors may purchase shares at the net
asset value next determined after receipt of the order plus a sales charge equal
to 1% of the public offering price (1.01% of the net amount of the purchase
price invested in Fund shares). Investors who intend to purchase at least $1
million of Fund shares may also purchase shares at a 1% sales charge pursuant to
a letter of intention program that permits purchases within a two-year period to
be aggregated for this purpose.
The sales charge is waived on shares of the Fund purchased (1) as a result
of reinvestment of dividends and capital gain distributions and (2) by officers,
directors and full-time employees (and their immediate families, which includes
their spouse, children, mother, father and siblings) of Morgan Keegan & Company,
Inc. (or its direct or indirect subsidiaries), or by directors or officers (and
their immediate families, which includes their spouse, children, mother, father
and siblings) of the Fund. The sales charge also is waived on purchases of Fund
shares in an initial amount of not less than $250,000, and thereafter for
subsequent purchases if the purchaser's Fund account balance is at least
$250,000, by (1) common or collective trust funds maintained by a bank, (2)
stock bonus, pension or profit sharing plans qualified under section 401(a) of
the Code (including Keogh Plans and 401(k) Plans), and (3) organizations exempt
from federal income taxation pursuant to section 501(a) of the Code. Also,
shares of the Fund may be acquired without a sales charge if the purchase is
made through a Morgan Keegan representative who formerly was employed as a
broker with another firm registered as a broker-dealer with the Securities and
Exchange Commission, if the following conditions are met: (1) the purchaser was
a client of the investment executive at the other firm for which the investment
executive previously served as a broker; (2) within 90 days of the purchase of
the Fund's shares, the purchaser redeemed shares of one or more mutual funds for
which that other firm or its affiliates served as principal underwriter,
provided that either the purchaser had paid a sales charge in connection with
investment in such funds or a contingent deferred sales charge upon redeeming
shares in such funds; and (3) the aggregate amount of the Fund's shares
purchased pursuant to this sales charge waiver does not exceed the amount of the
purchaser's redemption proceeds from the shares of the mutual fund(s) for which
the other firm or its affiliates served as principal underwriter. The sales
charge is also waived on purchases through Morgan Keegan Mutual Fund "Wrap
Accounts". Investors seeking to avail themselves of this waiver will be required
to provide satisfactory evidence that all the above-noted conditions are met and
should contact their Morgan Keegan representative for more information.
9
<PAGE>
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase your Fund shares, an account is automatically
established for you. Any shares that you purchase or receive as a distribution
from time to time will be credited directly to your account at the time of
purchase or receipt. No certificates are issued unless you specifically request
them in writing. Certificates will be issued in full shares only. No
certificates will be issued for shares prior to 15 business days after purchase
of such shares by check unless the Fund can be reasonably assured during that
period that payment for the purchase of such shares has been collected.
HOW YOU CAN SELL YOUR FUND SHARES
There are two ways you can sell and receive cash for your Fund shares.
First, you may give your Morgan Keegan broker an order for redemption of your
shares. Second, you may send a written request for redemption directly to Morgan
Keegan Southern Capital Fund, Inc., Fifty Front Street, Memphis, TN 38103.
A redemption request received by Morgan Keegan's Memphis Office from a
Morgan Keegan broker will be forwarded on the same day to the Fund's transfer
agent, and will be redeemed after receipt by the Fund at the net asset value per
share next determined at the close of the Exchange. Upon receipt of a request
for redemption in "good order," as described below, before the close of business
on the Exchange on any day when the Exchange is open, Morgan Keegan & Company,
Inc., as transfer agent for the Fund, will redeem Fund shares at the net asset
value per share determined at the close of the Exchange on that day. Requests
for redemption received by the transfer agent after the close of business on the
Exchange or on a day when the Exchange is not open for business, will be
executed at the net asset value determined at the close of the Exchange on its
next trading day.
The Fund normally transmits payment for credit to the shareholder's account
at Morgan Keegan for all shares redeemed three business days after receipt of a
redemption request. The proceeds of your redemption may be more or less than
your original cost. If the shares to be redeemed were paid for by check
(including certified or cashier's checks) within 15 business days of the
redemption request, the proceeds may not be disbursed unless the Fund can be
reasonably assured that the check has been collected.
A redemption request will be considered to be received in "good order" only
if:
1. You have indicated in writing the number of shares to be redeemed
and your shareholder account number.
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the
account.
3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the name
or names appear on the certificates.
10
<PAGE>
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have
been guaranteed by any U.S. trust company, a member firm of a U.S. stock
exchange, or any other eligible guarantor institution.
Other supporting legal documents may be required from corporations or other
organizations, fiduciaries or persons other than the stockholder of record
making the request for redemption. If you have a question concerning the sale of
Fund shares, contact Morgan Keegan or your Morgan Keegan broker.
Because of the high cost of maintaining small accounts, if your account's
current value falls below $500 due to your redemption of shares, the Fund may
elect to close your account and mail the proceeds to you. However, if the Fund
so elects, you will be notified in writing that your account is below $500 and
you will be allowed 60 days in which to make an additional investment in order
to avoid having your account closed.
HOW NET ASSET VALUE IS DETERMINED
The offering price of one share is its net asset value plus a sales charge
(currently a maximum of 3% of the offering price, or 3.09% of the net amount
invested). See "How You Can Invest in the Fund" on pages 8-9. Net asset value
per Fund share will be determined daily as of the close of the Exchange, on
every day that the Exchange 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. Securities owned by the Fund for which market
quotations are readily available will be valued at current market value, and
other securities and assets will be valued at fair value by or under the
direction of the Board of Directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote its "total return" in advertisements or
other promotional materials. A mutual fund's total return is a measurement of
the overall change in value of an investment in a fund, including changes in
share price and assuming reinvestment of dividends and other distributions.
"Cumulative total return" shows a fund's performance over a specific period of
time. "Average annual total return" is the average annual compound return that
would have produced the same cumulative total return if the fund's performance
had been constant over the entire period Average annual returns, which differ
from actual year-to-year results, tend to even out variations in a fund's
returns.
From time to time the Fund may advertise its ranking and other assessments
of its performance by independent companies that monitor mutual fund performance
(e.g., Lipper Analytical Services, Inc., Value Line and Morningstar, Inc.) and
may advertise similar analyses that are reported periodically in national
financial publications such as BARRON'S and MONEY MAGAZINE. The Fund may also
compare its performance to the performance of Standard & Poor's 500 Index and
other relevant unmanaged indices.
11
<PAGE>
Performance information and quoted rankings are indicative only of past
performance and are not intended to and do not represent future investment
results. The Fund's share price will fluctuate and your shares, when redeemed,
may be worth more or less than you originally paid for them.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Shortly after the end of each fiscal year (June 30), the Fund declares and
distributes to shareholders as dividends substantially all of its investment
company taxable income, which includes net investment income and net short-term
capital gain (gain from the sale of securities held for one year or less), if
any, but excludes the excess of net long-term capital gain over net short-term
capital loss ("net capital gain"), if any. The Fund also distributes to
shareholders substantially all realized net capital gain, if any, after the end
of the fiscal year in which the gain is realized. To avoid having to pay a
certain excise tax, however, the Fund may be required by the end of each
calendar year to make a second distribution of substantially all of (i) its
ordinary income earned between the end of its fiscal year and December 31 and
(ii) any capital gain net income realized between the end of its fiscal year and
October 31. Distributions to Keogh Plans, 401(k) Plans and other qualified
retirement plans generally are reinvested in Fund shares (without a sales
charge). Other shareholders may elect to:
1. Receive (reinvest) both dividends and capital gain distributions in
Fund shares;
2. Receive dividends in cash and receive (reinvest) capital gain
distributions in Fund shares;
3. Receive (reinvest) dividends in Fund shares and receive capital gain
distributions in cash; or
4. Receive both dividends and capital gain distributions in cash.
No sales charge is imposed on the reinvestment of dividends or capital gain
distributions.
If no election is made, then ordinarily by the fifth business day after the
record date for payment, both dividends and capital gain distributions are
credited to your account (without a sales charge) in additional Fund shares at
the net asset value of the shares determined at the close of business on the day
following the record date. The payment date for shareholders electing to receive
dividends and/or capital gain distributions in cash also is ordinarily the fifth
business day after the record date. You may elect to change your option by
notifying in writing the Fund's transfer and dividend-disbursing agent, Morgan
Keegan & Company, Inc., Fifty Front Street, Memphis, TN 38103. Your election
will become effective for the succeeding dividend and/or capital gain
distribution, provided your election is made at least 15 days prior to the
record date of the dividend or capital gain distribution.
12
<PAGE>
TAXES
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Code so that it (but not its shareholders)
will be relieved of federal income tax on that part of its investment company
taxable income (consisting generally of net investment income and net short-term
capital gain) and net capital gain that is distributed to its shareholders. To
the extent, however, that the Fund does not distribute to its shareholders by
the end of any calendar year substantially all of its ordinary income for that
year and substantially all of its capital gain net income for the one-year
period ending on October 31 of that year, plus other certain amounts, a 4%
excise tax will be imposed on the Fund.
Dividends from the Fund's investment company taxable income are taxable as
ordinary income to its shareholders, other than tax-exempt entities (including
IRAs and qualified retirement plans), whether received in cash or reinvested in
additional Fund shares, to the extent of the Fund's earnings and profits.
Distributions of the Fund's net capital gain, when designated as such, are
taxable to those shareholders as long-term capital gains, whether received in
cash or reinvested in additional Fund shares and regardless of the length of
time the shares have been held. Under the Taxpayer Relief Act of 1997 ("Act"),
different maximum tax rates apply to net capital gain depending on the
taxpayer's holding period and marginal rate of federal income tax--generally,
28% for gain on capital assets held for more than one year but not more than 18
months and 20% (10% for taxpayers in the 15% marginal tax bracket) on capital
assets held for more than 18 months. The Act, however, does not address the
application of these rules to distributions of net capital gain by RICs,
including whether those distributions may be treated by its shareholders in
accordance with the RIC's holding period for the assets it sold that generated
the gain; the application thereof must be determined by further legislation or
future regulations that are not available at the date of this Prospectus.
Accordingly, shareholders should consult their tax advisers as to the effect of
the Act on distributions by the Fund to them of net capital gain.
The Fund sends a notice to each shareholder following the end of each
calendar year specifying the amounts of all dividends and capital gain
distributions paid (or deemed paid) during that year and the portion of those
dividends that qualifies for the corporate dividends-received deduction. The
Fund is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a correct taxpayer
identification number. The Fund also is required to withhold 31% from all
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
A redemption of Fund shares may result in 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 initial sales charge paid). Capital gain on the redemption
of Fund shares held for more than one year will be long-term capital gain, in
which event it will be subject to federal income tax at the rates indicated
above. If
13
<PAGE>
a shareholder purchases Fund shares within thirty days before or after redeeming
other Fund shares at a loss, all or a part of that loss will not be deductible
and instead will increase the basis of the newly purchased shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition to
those considerations, which are applicable to any investment in the Fund, there
may be other federal, state or local tax considerations applicable to a
particular investor. Prospective shareholders are therefore urged to consult
their tax advisers with respect to the effects of this investment on their own
tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
You will receive from the transfer agent after each purchase or sale a
confirmation showing the particular transaction and the current status of your
account. Reports will be sent to shareholders at least semiannually showing the
Fund's portfolio and other information. An annual report containing financial
statements audited by independent certified public accountants will also be sent
to shareholders each year.
Shareholder inquiries may be made in writing to Morgan Keegan Southern
Capital Fund, Inc., Morgan Keegan Tower, Fifty Front Street, Memphis Tennessee
38103, or by telephoning (901) 524-4100.
INVESTING THROUGH TAX-DEFERRED RETIREMENT PLANS
An investment in Fund shares may be appropriate for IRAs (including
"education individual retirement accounts" and "Roth IRAs," both available to
certain taxpayers beginning in 1998), SEPPs, Keogh Plans, 401(k) Plans and other
qualified retirement plans. Investors who are considering establishing such a
plan may wish to consult their attorneys or tax advisers with respect to
specific tax questions regarding such plans. Morgan Keegan can make available to
you forms of IRAs, SEPPs, Keogh Plans, 401(k) Plans and other qualified
retirement plans which have been approved as to form by the Internal Revenue
Service. Additional information with respect to these plans is available upon
request from any Morgan Keegan broker.
THE FUND'S MANAGEMENT AND INVESTMENT ADVISER
The Fund's Board of Directors has overall responsibility for the operation
of the Fund. Pursuant to such responsibility, it has selected Morgan Asset
Management, Inc. ("Adviser"), a wholly-owned subsidiary of Morgan Keegan, Inc.,
which is also the parent of Morgan Keegan & Company, Inc., to serve as the
Fund's investment adviser and manager. Subject to the supervision of the Board
of Directors, the Adviser manages the investment and other affairs of the Fund
and directs the investments of the Fund in accordance with its investment
objective, policies and
14
<PAGE>
limitations pursuant to an Investment Advisory and Management Agreement between
the Fund and the Adviser, dated August 14, 1986. The Adviser's address is Morgan
Keegan Tower, Fifty Front Street, Memphis, Tennessee 38103.
The Adviser receives for its services a management fee, calculated daily and
payable quarterly, at an annual rate of 1% of the average daily net assets of
the Fund for the first $100 million of average daily net assets and 0.75% of
average daily net assets exceeding $100 million. The advisory fee is higher than
fees paid by most other funds to their investment advisers. The Adviser has
agreed to waive its fee and to reimburse the Fund to the extent its annual
expenses (excluding brokerage, interest, taxes, and extraordinary expenses)
exceed 2.0% of net assets. The Fund expects to use Morgan Keegan & Company, Inc.
as broker for all or a substantial portion of its agency transactions in listed
securities at commission rates and under circumstances consistent with the
policy of best execution. Morgan Keegan & Company, Inc. also provides accounting
services to the Fund and acts as its transfer and dividend disbursing agent.
Since July 1, 1994, E. Elkan Scheidt, a senior vice president of Morgan
Keegan & Company, Inc. and an employee of Morgan Asset Management, Inc. has
served as the portfolio manager of the Fund. From November 1990 to July 1, 1994,
Mr. Scheidt served as assistant to the portfolio manager of the Fund. Mr.
Scheidt joined Morgan Keegan as an investment broker in 1985. He received a B.A.
in Economics from Tulane University in New Orleans, Louisiana. Morgan Keegan
investment personnel may engage in securities transactions for their own
accounts pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
The Fund's portfolio turnover rate is computed by dividing the lesser of
purchases or sales of securities for the period by the average value of
portfolio securities for that period. High portfolio turnover rates will result
in the payment by the Fund of above average transaction costs and could result
in the payment by shareholders of above average taxes as realized investment
gains. The Adviser expects that the Fund's rate of portfolio turnover generally
will not exceed 200%, but it may vary from year to year, and will not be a
limiting factor when management deems portfolio changes appropriate.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
As of June 30, 1997, the Fund's portfolio was invested in 73 stocks,
representing 20 different industries. Its largest holdings were in the
financial, energy-related and technology sectors. Our outlook for the market
continues to be favorable, despite its current high valuation and recent
volatility. Relatively low interest rates, a slow-growing economy and a Federal
Reserve determined to keep inflation under control should provide an excellent
foundation for an extended market rally. The South, which continues to be one of
the most rapidly-growing regions of the United States, provides the Fund with
excellent investment opportunities in companies with strong growth prospects.
The Fund remains focused on the best opportunities in our region, regardless of
market capitalization. By maintaining a blend of large and small company stocks,
the Fund offers both the higher growth potential of small emerging companies and
the stability typically provided by larger firms.
15
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
<S> <C> <C>
SOUTHERN CAPITAL FUND AND THE S&P 500
Southern Capital Fund S&P 500 Stock Index
1987 $9,696.97 $10,000.00
1988 $9,120.06 $8,997.00
1989 $9,854.00 $10,460.00
1990 $10,217.27 $11,777.00
1991 $10,547.29 $12,209.00
1992 $12,403.73 $13,426.00
1993 $14,056.04 $14,820.00
1994 $14,115.75 $14,614.00
1995 $16,064.48 $17,919.00
1996 $20,610.65 $22,060.00
1997 $26,036.17 $29,116.00
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR
22.53% 15.28% 10.05%
Past performance is not predictive of future performance.
The maximum sales charge imposed on purchases is 3.0%.
</TABLE>
THE FUND'S DISTRIBUTOR
Morgan Keegan & Company, Inc. acts as distributor of the Fund's shares
pursuant to a plan of distribution ("Plan") adopted by the Board of Directors
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act") and
an Underwriting Agreement between it and the Fund. The Underwriting Agreement
obligates the Distributor to promote the Fund, to solicit and accept orders for
the purchase of the Fund's shares and to pay certain expenses in connection with
the offering of Fund shares, including the expenses of the printing and
distribution of Prospectuses, Statements of Additional Information and periodic
reports used in connection with the offering to prospective investors and for
supplementary sales literature, and advertising costs and administrative and
overhead expenses related to distribution of shares. The Distributor also pays
sales commissions and other compensation, including special additional
compensation and promotional incentives from time to time, to investment brokers
for sales of Fund shares. For its services, the Distributor receives
distribution and service fees described below and the proceeds of the sales
charges paid by investors, unless such sales charge is waived. See "How You Can
Invest In The Fund."
Under the Plan, the Fund pays the Distributor a service fee computed daily
and paid monthly at the annual rate of .25% of the Fund's average daily net
assets as compensation for its
16
<PAGE>
servicing of shareholder accounts, and pays the Distributor a distribution fee
as compensation for its distribution services, computed daily and paid monthly,
at the annual rate of .25% of the Fund's average daily net assets. While the
Plan is in effect, the Fund is obligated to pay service and distribution fees,
in the aggregate, of .50% of net assets, regardless of whether the Distributor's
service and distribution expenses equal such fee income; however, the Fund pays
no greater fees if the Distributor's distribution and service expenses for a
given year exceed the amount of the fees it receives from the Fund. The Plan
does not provide for expenses of Morgan Keegan to be "carried over" to a
succeeding year if such expenses exceed the .50% limit.
The Distributor's expenses as distributor may or may not exceed the amount
paid to it by the Fund under the Plan, depending, among other things, on the
amount of compensation paid to Morgan Keegan brokers (other than commissions
paid at the time of sale from sales charge proceeds), and its advertising and
other costs of distribution, as well as the asset size of the Fund.
THE FUND'S CUSTODIAN, TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, National Association (108 Myrtle St.,
Quincy, MA 02171) is custodian of the Fund's assets. As indicated, Morgan Keegan
& Company, Inc., Fifty Front Street, Memphis, Tennessee 38103 serves as the
transfer and dividend-disbursing agent of the Fund.
DESCRIPTION OF THE FUND AND ITS SHARES
The Fund is a diversified open-end management investment company
incorporated in Maryland on May 5, 1986. The Fund has authorized capital of 100
million shares of common stock, par value $0.001. All shares are the same class,
and each share is entitled to one vote for the election of directors and on any
other matter submitted to a shareholder vote. The Directors may create
additional series of shares from time to time although they have no present
intention to do so. Fractional shares will have fractional voting rights. Voting
rights are not cumulative. All shares of the Fund are fully paid and
nonassessable and have no preemptive or conversion rights.
The Fund does not hold annual meetings of shareholders. There will normally
be no meetings of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office has been
elected by shareholders, at which time the Directors then in office will call a
shareholders' meeting for the election of Directors. The Fund's by-laws require
the Directors to call a meeting of shareholders when requested in writing to do
so by the shareholders of record of not less than 25% of the Fund's outstanding
shares.
17
<PAGE>
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
APPLICATION FOR PURCHASE OF SHARES
You may purchase shares of the Morgan Keegan Southern Capital Fund, Inc. by
(1) contacting a Morgan Keegan broker, or (2) completing this application and
sending it along with a check made payable to Morgan Keegan Southern Capital
Fund, Inc. to:
Morgan Keegan & Company, Inc.
Morgan Keegan Tower - Fifty Front Street
Memphis, TN 38103 - Attn: Southern Capital Fund, Inc.
Additional documents available from a Morgan Keegan broker are required to
purchase Fund shares through a Tax-Deferred Retirement Plan.
<TABLE>
<S> <C>
ACCOUNT REGISTRATION AMOUNT
NAME $
(First Name) (Middle) (Last ($500 minimum)
Name)
Joint owner or other
registration, if applicable
Street
City State Zip
Phone Number
Social Security Number or Taxpayer Identification Number
</TABLE>
DISTRIBUTIONS
Shareholders may elect to:
/ / Receive (reinvest) both dividends and capital gain distributions in Fund
shares;
/ / Receive dividends in cash and receive (reinvest) capital gain distributions
in Fund shares;
/ / Receive (reinvest) dividends in Fund shares and capital gain distributions
in cash; or
/ / Receive both dividends and capital gain distributions in cash.
If no selection is made, dividends and capital gain distributions will be
reinvested in Fund shares.
SIGNATURE
I have received and read a copy of the prospectus of Morgan Keegan Southern
Capital Fund, Inc., and agree to its terms.
I am of legal age.
Under the penalties of perjury, I certify (1) that the Social Security Number or
other Taxpayer Identification Number shown above is correct, and (2) that unless
the box below is checked, I am not subject to backup withholding either because
I have not been notified that I am subject to backup withholding as a result of
a failure to report all interest and dividends, or the Internal Revenue Service
has notified me that I am no longer subject to backup withholding. The
certifications in this paragraph are required for all nonexempt persons to
prevent backup withholding of 31% of all taxable distributions and gross
redemption proceeds under the federal income tax law.
/ / Check here if you are subject to backup withholding.
<TABLE>
<S> <C> <C>
Signature Date Joint Registrant, if any
</TABLE>
DO NOT COMPLETE
Account number ______________________________________ Rep number ______________
<PAGE>
Morgan Keegan
Southern Capital Fund, Inc. Prospectus
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
---------
<S> <C>
Questions and Answers About Morgan Keegan Southern
Capital Fund, Inc.................................... 2
Summary of Fund Expenses.............................. 3
Financial Highlights.................................. 5
The Fund's Investment Objective and Policies.......... 6
The Fund's Investment Limitations..................... 7
How You Can Invest in the Fund........................ 8
How Your Shareholder Account is Maintained............ 10
How You Can Sell Your Fund Shares..................... 10
How Net Asset Value is Determined..................... 11
Performance Information............................... 11
Dividends, Capital Gain Distributions and Taxes....... 12
Shareholder Services.................................. 14
Investing Through Tax-Deferred Retirement Plans....... 14
The Fund's Management and Investment Adviser.......... 14
The Fund's Distributor................................ 16
The Fund's Custodian, Transfer and Dividend-Disbursing
Agent................................................ 17
Description of the Fund and its Shares................ 17
</TABLE>
MORGAN KEEGAN
Morgan Keegan & Company, Inc.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(901) 524-4100 - (800) 564-2113
This Prospectus does not constitute an offering by the Fund or by the principal
underwriter in any jurisdiction in
which such offering may not lawfully be made.
<PAGE>
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Keegan Southern Capital Fund, Inc. ("Fund")
is a mutual fund seeking capital appreciation.
The Fund invests principally in securities,
including common stock, preferred stock,
convertible and other debt securities,
of companies which are headquartered
in the southern United States. For purposes
of this Statement of Additional Information,
the "southern United States" consists
of Alabama, Arkansas, Florida, Georgia,
Kentucky, Louisiana, Mississippi, Missouri,
North Carolina, Oklahoma, South Carolina,
Tennessee, Texas, Virginia and West Virginia.
A company is "headquartered" in the southern
United States if either its principal
corporate offices are located in the southern
United States, or if (alone or on a consolidated basis)
it derives 50% or more of its total revenues
from either goods produced, sales made or
services performed in the southern United
States.
This Statement of Additional Information
is not a prospectus and should be read in
conjunction with the Fund's Prospectus,
dated November 1, 1997, which has been
filed with the Securities and Exchange
Commission. A copy of the current Prospectus
is available without charge from Morgan Keegan
& Company, Inc., the Fund's distributor.
Morgan Keegan & Company, Inc.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(901) 524-4100
<TABLE>
<S> <C>
TABLE OF CONTENTS PAGE
Additional Information About Investment Limitations
and Policies . . . . . . . . . . . . . . . . . . . 2
Additional Tax Information . . . . . . . . . . . . . 6
Additional Purchase and Redemption Information . . . 7
Valuation of Shares. . . . . . . . . . . . . . . . . 9
Performance Information. . . . . . . . . . . . . . . 9
Tax-Deferred Retirement Plans. . . . . . . . . . . . 11
The Fund's Directors and Officers. . . . . . . . . . 13
The Fund's Principal Shareholders. . . . . . . . . . 14
The Fund's Investment Adviser. . . . . . . . . . . . 14
Portfolio Transactions and Brokerage . . . . . . . . 16
The Fund's Distributor . . . . . . . . . . . . . . . 17
The Fund's Custodian, Transfer Agent, Dividend
Disbursing Agent, and Portfolio Accounting
Service Agent. . . . . . . . . . . . . . . . . . . 20
The Fund's Legal Counsel . . . . . . . . . . . . . . 21
The Fund's Certified Public Accountants. . . . . . . 21
Financial Statements . . . . . . . . . . . . . . . . 21
Dated: November 1, 1997
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT LIMITATIONS
AND POLICIES
In addition to the investment objective
and the three numbered investment limitations
described in the Prospectus, Morgan Keegan Southern
Capital Fund, Inc. ("Fund") has adopted certain
investment limitations that cannot be changed
except by vote of the holders of a majority
of the Fund's outstanding voting securities. The Fund may not:
1. Borrow money, including entry by the Fund into reverse
repurchase agreements, except for temporary purposes
in an aggregate amount not to exceed 5% of the value
of its total assets at the time of borrowing. Although
not a fundamental policy subject to shareholder approval,
the Fund intends to repay any money borrowed before any
additional portfolio securities are purchased;
2. Mortgage, pledge or hypothecate any of its assets, except
to secure permitted borrowings up to 5% of the value of
its total assets at the time of borrowing, provided that
the deposit in escrow of underlying securities in
connection with the writing of call options is not deemed
to be a pledge;
3. Purchase securities on "margin," make short sales of
securities or maintain a short position in any security;
4. Invest in securities issued by other investment companies,
except in connection with a merger, consolidation,
acquisition or reorganization or by purchase in the open
market of securities of closed-end investment companies
where no underwriter or dealer's commission or profit,
other than a customary brokerage commission, is involved
and only if immediately thereafter not more than 10% of
the Fund's total assets (taken at market value) would be
invested in such securities;
5. Purchase or sell commodities and commodity contracts;
6. Underwrite the securities of other issuers, except
that the Fund may invest in securities that are not
readily marketable without registration under the
Securities Act of 1933, as amended, if immediately
after the making of such investment not more than 5%
of the value of the Fund's total assets (taken at
cost) would be so invested;
7. Make loans, except loans of portfolio securities and
except to the extent the purchase of a portion of an
issue of publicly distributed notes, bonds or other
evidences of indebtedness or deposits with banks and
other financial institutions may be considered loans;
<PAGE>
8. Write (sell) or purchase put, call, straddle or spread
options except that the Fund may write covered call
options with respect to its portfolio securities
listed on a national securities exchange and enter
into closing purchase transactions with respect to
call options so listed or quoted;
9. Purchase or sell real estate, except that the Fund may
invest in securities collateralized by real estate or
interests therein or in securities issued by companies
that invest in real estate or interests therein; or
10. Purchase or sell interests in oil or gas or other
mineral exploration or development programs.
As noted above, the investment limitations of
the Fund described in the preceding paragraphs, the
investment limitations described in the Prospectus, and
the Fund's investment objective are fundamental and
may not be changed without the vote of the holders of
a majority of the Fund's outstanding voting securities.
Under the Investment Company Act of 1940 ("1940 Act"),
a "vote of a majority of the outstanding voting securities"
of the Fund means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund or
(2) 67% or more of the shares present at a shareholders'
meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
Whenever an investment policy or limitation states
a maximum percentage of the Fund's assets which may be
invested in any security or other standard or
percentage limitation, such percentage shall be
determined immediately after and as a result of the
acquisition of such security or other asset.
Accordingly, any later increase or decrease
in percentage resulting from a 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.
Illiquid Securities
Although not a fundamental policy subject
to shareholder vote, the Fund will not invest more
than 10% of its net assets in illiquid securities
(securities which, in the judgment of Morgan Asset
Management, Inc. ("Adviser"), could not be sold
within seven business days without substantial
adverse impact on their market prices because
of such sales), including repurchase agreements
of more than seven days' duration.
Warrants
Although not a fundamental policy subject
to shareholder vote, as long as the Fund's shares
are registered in certain states, the Fund may
not invest more than 5% of the value of its net
assets, taken at the lower of cost or market value,
in warrants or invest more than 2% of the value of
such net assets in warrants not listed on the New
York or American Stock Exchanges. The Fund
currently has no intention of purchasing any
warrants in the coming year.
<PAGE>
Options
The Fund may from time to time write (sell)
covered call options on certain of its portfolio
securities. The Fund intends only to engage in
transactions in exchange-traded options. A covered
call option is an option to purchase a portfolio
security owned by the Fund. In such a transaction,
the Fund obligates itself to sell the underlying
security to the purchaser of the option at a fixed
price if the purchaser exercises the option during
the option period. In return, the Fund receives a
premium from the purchaser. During the option period,
the Fund foregoes the opportunity to profit from any
increase in the market price of the security above
the exercise price of the option, but retains the
risk that the price of the security may decline.
The Fund may seek to terminate its obligation
as a writer of a call option prior to its expiration
by entering into a "closing purchase transactions."
There is no assurance that the Fund will be able
to effect a closing purchase transaction,
particularly with respect to thinly traded call
options. The selling of call options could result
in an increase in the Fund's portfolio turnover rate,
particularly in periods of appreciation in the market
price of the underlying securities. The Fund
would use such options only as a defensive strategy
and not as a primary investment technique.
Although not a fundamental policy subject to shareholder
vote, the Fund does not intend during the coming
year to write call options on portfolio securities
exceeding 5% of its total assets or to write options
that are not traded on a national securities exchange.
Normally such options will be written only on
those portfolio securities which the Adviser does
not expect to have significant short-term capital
appreciation.
Lending Portfolio Securities
The Fund may lend portfolio securities to
broker/dealers in corporate or government
securities, banks or other recognized institutional
borrowers of securities, provided that cash
or equivalent collateral, equal to at least 100%
of the value of the securities loaned plus any
accrued interest, "marked to market" on a
daily basis, is continuously maintained by the
borrower with the Fund, and further provided
that the Adviser determines that the borrower
presents minimal credit risk. The Adviser will
monitor the credit status of the borrower during
the period of the loan.
During the time portfolio securities are
on loan, the borrower will pay the Fund an amount
equivalent to any dividends or interest paid on
such securities, and the Fund may invest the cash
collateral and earn additional income, or it may
receive an agreed upon fee from the borrower who
has delivered equivalent collateral. These loans
are subject to termination at the option of the
Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with
a loan and may pay a negotiated portion of the
interest earned on the cash collateral to the
borrower or placing broker. The Fund does not
<PAGE>
have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if
such vote were considered important with
respect to the investment. The Fund does not
intend during the coming year to loan more
than 5% of its portfolio securities at any given
time.
Repurchase and Reverse Repurchase Agreements
Available cash may be invested by the
Fund in repurchase agreements. A repurchase
agreement is an agreement under which U.S.
Government obligations are acquired from a
securities dealer or Bank subject to resale at
a previously agreed upon price and date.
The resale price reflects an agreed upon
interest rate which is unrelated to the interest
rate provided by the securities which are
transferred. The securities will be held for
the Fund by its custodian as collateral until
retransferred and will be supplemented by
additional collateral (without cost to the
Fund) if necessary to maintain a total value
equal to or in excess of the value of the
repurchase agreement. Repurchase agreements
are usually for periods of one week or less,
but may be for longer periods.
To the extent that proceeds from any sale
upon a default of the obligation to repurchase
were less than the repurchase price, the Fund
might suffer a loss. If bankruptcy proceedings
are commenced with respect to the seller
of the security, realization upon the collateral
by the Fund would be delayed or limited.
However, the Fund has adopted standards for the
parties with whom it may enter into repurchase
agreements, including monitoring by the
Adviser of the creditworthiness of such parties,
which the Fund's Board of Directors believes
are reasonably designed to assure that each
party presents no serious risk of becoming involved
in bankruptcy proceedings within the time frame
contemplated by the repurchase agreement.
As stated in the Fund's investment limitations,
the Fund may enter into reverse repurchase
agreements for temporary purposes. Because such
agreements are considered to be borrowings, the
agreements are subject to the limitation that the
Fund may not borrow in an aggregate amount that
exceeds 5% of the value of the Fund's total assets
at the time of borrowing. Reverse repurchase
agreements involve the sale of securities held
by the Fund pursuant to the Fund's agreement to
repurchase the securities at an agreed upon price,
date and rate of interest. While reverse repurchase
transactions are outstanding, the Fund will
maintain in a segregated account cash, U.S. government
securities or other liquid, high grade debt
securities of an amount at least equal to the market
value of the securities, plus accrued interests,
subject to the agreement.
<PAGE>
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 intends to continue to qualify for
treatment as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended ("Code"). In order to
qualify for that treatment, the Fund must distribute
annually to its shareholders at least 90% of
its investment company taxable income (generally,
net investment income plus net short-term capital
gain) and must meet several additional requirements.
Among these requirements are the following: (1)
at least 90% of the Fund's gross income each taxable
year must be derived from dividends, interest,
payments with respect to securities loans and gains
from the sale or other disposition of securities,
or other income (including gains from options)
derived with respect to its business of investing
in securities; (2) less than 30% of its gross
income for its current taxable year ("Income
Requirement") from the sale or other disposition
of securities or options held for less than three
months ("Short-Short Limitation"); (3) at the
close of each quarter of the Fund's taxable year,
at least 50% of the value of its total assets must
be represented by cash and cash items, U.S.
government securities, securities of other
RICs and other securities, with such other
securities limited, with respect to any one issuer,
to an amount that does not exceed 5% of the
value of the Fund's total assets and that does
not represent more than 10% of the issuer's
outstanding voting securities; and (4) at the
close of each quarter of the Fund's taxable year,
not more than 25% of the value of its total assets
may be invested in securities (other than
U.S. government securities or the securities of
other RICs) of any one issuer. After its
current taxable year ending June 30, 1998, the Fund
will no longer need to satisfy the Short-Short
Limitation in order to qualify as a RIC, as
a result of the Taxpayer Relief Act of 1997.
The Fund will be subject to a nondeductible 4%
excise tax to the extent that it fails to distribute
by the end of any calendar year substantially all of
its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of
that year, plus certain other amounts.
Gains from options derived by the Fund with
respect to its business of investing in securities
will qualify as permissible income under the Income
Requirement. However, income from the disposition of
options will be subject to the Short-Short Limitation
if they are held for less than three months.
If the Fund satisfies certain requirements,
any increase in value of a position that is part of
a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting
hedging position during the period of the hedge for
purposes of determining whether the Fund satisfies
the Short-Short Limitation. Thus, only the net gain
(if any) from the designated hedge will be included
in gross income for purposes of that limitation.
The Fund will consider whether it should seek to qualify
for this treatment for its hedging transactions.
To the extent the Fund does not so qualify, it may be
forced to defer the closing out of certain options
beyond the time when it otherwise would be advantageous
to do so, in order for the Fund to continue to qualify
as a RIC.
<PAGE>
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 alternative
minimum tax. Distributions by the Fund of net capital
gain (the excess of net long-term capital gain over net
short-term capital loss) do not qualify for the
dividends-received deduction.
Dividends or other distributions declared
by the 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.
Any loss on a sale or exchange of Fund shares
held for six months or less will be treated as
a long-term, instead of a short-term, capital loss
to the extent of any capital gain distributions
received on those shares.
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Letter of Intention
The sales charge applicable to purchases is
reduced to 1% pursuant to a Letter of Intention that
states that the purchaser intends to purchase shares
equal to at least $1,000,000 within a 24-month period.
Investors may obtain a form of a Letter of Intention
("Letter") from their Morgan Keegan investment broker
or the Fund's transfer agent, Morgan Keegan &
Company, Inc. ("Transfer Agent"). Under a Letter,
purchases of shares of the Fund which are sold with a
sales charge made within a 24-month period starting
with the first purchase pursuant to a Letter will
be aggregated for purposes of calculating the
sales charges applicable to each purchase. To
qualify under a Letter, a minimum initial purchase of
$50,000 must be made; purchases must be made for a
single account;
<PAGE>
and purchases made for related accounts may not
be aggregated under a single Letter. The Letter
is not a binding obligation to purchase any amount
of shares, but its execution will result in paying
a reduced sales charge for the anticipated amount
of the purchase. If the total amount of shares
purchased does not equal the amount stated in the
Letter (minimum of $1,000,000), the investor will
be notified and must pay, within 20 days of the
expiration of the Letter, the difference between
the sales charge on the shares purchased at the
reduced rate and the sales charge applicable
to the shares actually purchased under the Letter.
Shares equal to 5% of the intended amount will be
held in escrow during the 24-month period
(while remaining registered in the name of the
purchaser) for this purpose.
Additional Information of Redemptions
Suspension of the right of redemption, or
postponement of the date of payment, may be
made (1) for any periods when the Exchange 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 Securities & Exchange
Commission ("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).
<PAGE>
VALUATION OF SHARES
Net asset value of a Fund share will be
determined daily as of the close of the Exchange,
on every day that the Exchange 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 Exchange is closed.
Currently, the Exchange is closed on weekends and
on certain days relating to the following holidays:
New Year's Day, President's 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. Premiums received on
the sale of call options are included in the
Fund's net asset value, and the current market
value of options sold by the Fund will be
subtracted from net assets.
PERFORMANCE INFORMATION
The Fund's performance information and
quoted rankings used in advertising and
other promotional materials ("Performance
Advertisements") are indicative only of past
performance and are not intended to and do
not represent future investment results.
The Fund's share price will fluctuate and
your shares, when redeemed, may be worth
more or less than you originally paid for them.
Total Return Calculations
Average annual total return quotes
("Standardized Return") used in
the Fund's Performance Advertisements
are calculated according to the following formula:
</TABLE>
<TABLE>
<C> <C> <C>
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
that period
</TABLE>
Under the foregoing formula, the time
periods used in Performance Advertisements will
be based on rolling calendar quarters, updated
at least to the last day of the most recent
quarter prior to submission of the Performance
Advertisements for
<PAGE>
publication. Total return, or "T" in the
formula above, is computed by finding the average
annual change in the value of an initial $1,000
investment over the period. In calculating the
ending redeemable value, all dividends and other
distributions by the Fund are assumed to have been
reinvested at net asset value.
The Fund also may refer in Performance
Advertisements to total return performance
data that are not calculated according to the
formula set forth above ("Non-Standardized
Return"). The Fund calculates Non-Standardized
Return for specified periods of time by assuming
an investment of $1,000 in Fund shares
and assuming the reinvestment of all
dividends and other distributions. The
rate of return is determined by subtracting
the initial value of the investment from the
ending value and by dividing the remainder
by the initial value. Initial sales charges
are not taken into account in calculating
Non-Standardized Return; the inclusion of
those charges would reduce the return.
Other Information
From time to time the Fund may compare
its performance in Performance Advertisements
to the performance of other mutual funds
or various market indices. One such market
index is the S&P 500, a widely recognized
unmanaged index composed of the capitalization-weighted
average of the prices of 500 of the largest
publicly traded stocks in the United States.
The S&P 500 includes reinvestment of all dividends.
It takes no account of the costs of investing
or the tax consequences of distributions. The
Fund may invest in securities that are not
included in the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500").
The Fund may also quote rankings and ratings,
and compare the return of the Fund with data published
by Lipper Analytical Services, Inc., IBC/Donaghue's
Money Market Fund Report, CDA Investment
Technologies, Inc., Wiesenberger Investment
Companies Service, Investment Company Data Inc.,
Morningstar Mututal Funds, Value Line and other
services or publications that monitor, compare, rank
and/or rate the performance of mutual funds. The
Fund may refer in such materials to mutual fund
performance rankings, ratings or comparisons with
funds having similar investment objectives, and other
mutual funds reported in independent periodicals,
including, but not limited to, THE WALL STREET
JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON
POST and THE KIPLINGER LETTERS.
The Fund may also compare its performance
with, or may otherwise discuss, the performance
of bank certificates of deposit ("CDs") and other bank
deposits, and may quote from organizations that track
the rates offered on such deposits. In comparing the
Fund or its performance to CDs investors should keep
in mind that bank CDs are insured up to specified
limits by an agency of the U.S. government. Shares
of the Fund are not insured or guaranteed by the U.S.
government, the value of Fund shares will fluctuate
and your shares, when redeemed, may be worth more or
less than you
<PAGE>
originally paid for them. Unlike the interest paid
on many CDs, which remains as a specified rate for
a specified period of time, the return on the Fund's
shares will vary.
The Fund's Performance Advertisements may
reference the history of the Fund's distributor and
its affiliates or biographical information of key
investment and managerial personnel including
the portfolio manager. The Fund may illustrate
hypothetical investment plans designed to help
investors meet long-term financial goals, such as
saving for a college education or for retirement.
The Fund may discuss the advantages of saving through
tax-deferred retirement plans or accounts.
From time to time the Fund may quote information
including, but not limited to, data regarding the
southern region of the United States from sources
considered by Morgan Keegan to be reliable, including
information relating to economic and financial
trends in the southern region. The Fund may also quote
or discuss information or other data concerning the
southern region 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, THE KIPLINGER LETTERS and
THE ECONOMIST.
TAX-DEFERRED RETIREMENT PLANS
As noted in the Fund's Prospectus,
an investment in Fund shares may be
appropriate for various types of tax-deferred
retirement plans. In general, income
earned through the investment of assets of
such a plan is not taxed to the beneficiaries
until the income is distributed to them.
Investors who are considering establishing such
a plan may wish to consult their attorneys or
other tax advisers with respect to individual
tax questions. Additional information with
respect to these plans is available upon request
from any Morgan Keegan broker.
Individual Retirement Accounts - IRAs
If you have earned income from employment
(including self-employment), you can contribute
each year to an IRA up to the lesser of (1) $2,000
for yourself or $4,000 for you and your spouse,
regardless of whether your spouse is employed,
or (2) 100% of compensation. Some individuals may
be able to take an income tax deduction for the
contribution. Regular contributions may not be made
for the year you become 70 1/2 or thereafter.
Beginning in 1998, you also may be able to make
a nondeductible contribution to an "education
IRA" or a "Roth IRA", distributions from which
are not taxable under certain circumstances.
<PAGE>
An investment in Fund shares through IRA
contributions may be advantageous, regardless
of whether the contributions are deductible by
you for tax purposes, because all dividends and
capital gain distributions on your Fund shares are not
immediately taxable to you or the IRA; they become
taxable only when distributed to you except as noted
above. To avoid penalties, your interest in an
IRA must be distributed, or start to be distributed,
to you not later than April 1 following the calendar year
in which you attain age 70 1/2. Distributions made
before age 59 1/2, in addition to being taxable,
generally are subject to a penalty equal to
10% of the distribution, except in the case
of death or disability, where the distribution is rolled
over into another qualified plan, or in certain other
situations.
Self-Employed Individual Retirement Plans - Keogh Plans
Morgan Keegan will assist self-employed individuals
to set up a retirement plan through which Fund shares
may be purchased. Morgan Keegan generally arranges for
a bank to serve as trustee for the plan and performs
custodian services for the trustee and the plan by
holding and handling securities. However, you have
the right to use a bank of your choice to provide
these services at your cost. There are
penalties for distributions from a Keogh Plan prior
to age 59 1/2, except in the case of death or disability.
Simplified Employee Pension Plans - SEPPS and
Savings Incentive Match Plans for Employees - SIMPLES
Morgan Keegan also will make available in a
similar manner to corporate and other employers
a SEPP or SIMPLE for investment in Fund shares.
THE FUND'S 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.
<PAGE>
<TABLE>
<S> <C>
Position with the Fund and Principal
Name Occupation During Past Five Years
Allen B. Morgan, Jr.* President and Director. Mr. Morgan is
Age 55 Chairman 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
845 Crossover Lane President of SSM Corp. (financial
Suite 140 consulting). He is also a Principal
Memphis, Tennessee 38117 of SSM I, L.P., which is the general
Age 48 partner of SSM Venture Partners, L.P.,
and a Principal of Capital
Appreciation, L.P., which is the
general partner of Private
Investment Consortium Ltd. He also
serves as a Director for several
private companies.
Robert D. Gooch, Jr.* Director. Mr. Gooch is a Managing
Age 60 Director of Morgan Keegan & Company,
Inc.
Spence L. Wilson Director. Mr. Wilson is President of
1629 Winchester Road Kemmons-Wilson, Inc. (private real
Memphis, Tennessee 38116 estate development). He also is
Age 54 President of Orange Lake Country Club,
Inc. and is a partner in several
Holiday Inn locations.
William Jefferies Mann Director. Mr. Mann is Chairman and
675 Oakleaf Office Lane President of Mann Investments, Inc.
Suite 100 (hotel investments/consulting). He
Memphis, Tennessee 38117 also serves as a Director for Heavy
Age 64 Machines, Inc.
Joseph C. Weller* Vice President, Treasurer & Assistant
Age 58 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.
<PAGE>
Charles D. Maxwell* Secretary and Assistant Treasurer.
Age 43 Mr. Maxwell is Senior Vice President
and Assistant Treasurer of Morgan
Keegan and Co., Inc., and
Secretary/Treasurer of Morgan Asset
Management, Inc. He was formerly
a senior manager with Ernst & Young
(accountants) (1976-86).
James Stillman R. McFadden Director. Mr. McFadden is Vice
845 Crossover Lane President of Sterling Equities, Inc.
Suite 124 (private equity financings). He is
Memphis, Tennessee 38117 also President and Director of 1703,
Age 40 Inc. and a Director of Starr Printing
Co.
</TABLE>
<PAGE>
Officers and directors of the Fund who are
interested persons of the Fund receive no salary
or fees from the Fund. Directors of the
Fund who are not interested persons of the Fund
will receive a fee of $1,000 and reimbursement
for related expenses for each meeting of the Board
of Directors attended by them.
THE FUND'S PRINCIPAL SHAREHOLDERS
On September 30, 1997 there were 2,550,987
shares of the Fund outstanding of which all
the officers and directors of the Fund as a
group (7 persons) owned approximately 38,000
(1.5%). Management of the Fund is not aware
of any shareholder who owned of record or beneficially
5% or more of the Fund's outstanding common
stock on October 1, 1997.
THE FUND'S INVESTMENT ADVISER
Morgan Asset Management, Inc., formerly
Southern Capital Advisors, Inc., ("Adviser"), an
affiliate of Morgan Keegan, serves as the Fund's
investment adviser and manager under an Investment
Advisory and Management Agreement ("Advisory Agreement").
The Advisory Agreement originally became effective
as of August 14, 1986 and was most recently
approved by the shareholders of the Fund on
October 20, 1987. The Advisory Agreement
provides that, subject to overall supervision
by the Board of Directors of the Fund, the
Adviser manages the investment and other affairs
of the Fund. The Adviser is responsible for
managing the Fund's portfolio securities and for
making purchases and sales of portfolio securities
consistent with the Fund's investment objective,
policies and limitations described in the
Prospectus and this Statement of Additional
Information. The Adviser is obligated to
furnish the Fund with office space as well
as with executive and other personnel necessary
for the operation of the Fund. In addition,
the Adviser is obligated to supply the Board
of Directors and officers of the Fund with
certain statistical information and reports,
to oversee the maintenance of various books
and records and to arrange for the preservation
of records in accordance with applicable
federal law and regulations. The Adviser and
its affiliates also are responsible for
the compensation of directors and officers
of the Fund who are employees of the
Adviser and/or its affiliates.
The Fund bears all its other expenses
which are not assumed by the Adviser.
These expenses include, among others: legal
and audit expense; organizational expenses;
interest; taxes; governmental fees; membership
fees for investment company organizations:
the cost(including brokerage commissions or
charges, if any) of securities purchased or
sold by the Fund and any losses incurred in
connection therewith; fees of custodians,
transfer agents, registrars or other agents;
distribution fees; expenses of preparing
share certificates; expenses relating to the
redemption of the Fund's shares; expenses of
registering and qualifying Fund shares for
sale under applicable federal and state laws
and maintaining such registrations and
qualifications; expenses of preparing,
setting in print, printing and distributing
<PAGE>
prospectuses, proxy statements, reports, notices
and dividends to Fund shareholders; costs of
stationery; costs of shareholders' and other
meetings of the Fund; compensation and expenses
of the independent directors; and insurance
covering the Fund and its officers and directors.
The Fund also is liable for such nonrecurring
expenses as may arise, including litigation to
which the Fund may be party. The Fund also may
have an obligation to indemnify its directors
and officers with respect to any such litigation.
The Adviser receives for its services
a management fee, calculated daily and payable
quarterly, at an annual rate of 1% of the average
daily net assets of the Fund for the first $100
million of average daily net assets and 0.75% of
average daily net assets exceeding $100 million.
The advisory fee is higher than fees paid by
most other funds to their investment
advisers, but is not significantly different,
in the Adviser's opinion, from the fees of
advisers to mutual funds with similar specialized
policies. The adviser has agreed to reimburse
the Fund for certain expenses, including waiving
the advisory fees received by it, in any fiscal
year in which the Fund's annual expenses
(excluding interest, taxes, brokerage fees
and commissions, and certain extraordinary
charges), exceed 2.0% of the Fund's average
net assets. For the fiscal year ended June 30,
1992, the advisory fee was $219,150 and the
Adviser waived and reimbursed the Fund $66,084.
For the fiscal year ended June 30, 1993, the
advisory fee was $377,058 and the Adviser waived
and reimbursed the Fund $16,023. For the Fiscal
year ended June 30, 1994, the advisory fee was
$450,472 and the Adviser waived and reimbursed
the Fund $825. For the fiscal year ended
June 30, 1995, the advisory fee was $313,164
and the Adviser waived and reimbursed the Fund
$53,293. For the fiscal year ended
June 30, 1996, the advisory fee was
$309,063 and the Adviser waived and reimbursed
the Fund $55,903. And for the fiscal year
ended June 30, 1997, the advisory fee was
$427,360 and the Advisor waived and reimbursed
the Fund $8,384.
The Advisory Agreement will remain in
effect from year to year, provided such continuance
is approved by a majority of the Board of Directors
or by vote of the holders of a majority of the
outstanding voting securities of the Fund.
Additionally, the Advisory Agreement must be
approved annually by vote of a majority of the
directors of the Fund who are not parties
to the Agreement or "interested persons" of
such parties as that term is defined in the
1940 Act. The Advisory Agreement may be terminated
by the Adviser or the Fund, without penalty,
on 60 days' written notice to the other,
and will terminate automatically in the event of
its assignment.
Under the Advisory Agreement, the Fund
will have the non-exclusive right to use the
name "Morgan Keegan" until the Agreement is
terminated, or until the right is withdrawn
in writing by the Adviser.
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser
is responsible for the execution of the
Fund's portfolio transactions and must seek the
most favorable price and execution for such
transactions, subject to the possible payment, as
described below, of higher commissions to brokers
who provide research and analysis. The Fund may
not always pay the lowest commission or spread
available. Rather, the Fund also will take into
account such factors as size of the order,
difficulty of execution, efficiency of the
executing brokers facilities (including the
services described below) and any risk assumed
by the executing broker.
The Adviser may give consideration to
research, statistical and other services
furnished by broker/dealers to the Adviser for
its use, may place orders with broker/dealers
who provide supplemental investment and market
research and securities and economic analysis,
and may pay to those brokers a higher brokerage
commission or spread than may be charged by other
brokers. Such research and analysis may be useful
to the Adviser in connection with services
clients other than the Fund. The Adviser's fee
is not reduced by reason of its receipt of
such brokerage and research services. During
the fiscal year ended June 30, 1997, the
Fund paid brokerage commissions of $19,890 to
brokers who provided research services.
From time to time the Fund may use Morgan
Keegan & Company, Inc. ("Morgan Keegan") as
broker for agency transactions in listed and
over-the-counter securities at commission
rates and under circumstances consistent with
the policy of best execution. The Adviser
will not cause the Fund to pay Morgan Keegan
any commission for effecting a securities
transaction for the Fund in excess of the
usual and customary amount other broker/dealers
would have charged for the transaction. Rule
17e-1 under the 1940 Act defines "usual and
customary" commissions to include amounts
which are "reasonable and fair compared to
the commission, fee or other remuneration
received or to be received by other brokers
in connection with comparable transactions
involving similar securities being purchased
or sold on a securities exchange during a
comparable period of time."
The Adviser may also select other
brokers to execute portfolio transactions.
In the over-the-counter market, the Fund
generally deals with responsible primary
market-makers unless a more favorable execution
can otherwise be obtained through brokers.
For the fiscal year ended June 30, 1997,
brokerage commissions paid to Morgan
Keegan constituted approximately 31% of all
brokerage commissions paid by the Fund in
connection with 37% of the aggregate dollar
amount of transactions involving the payment
of commissions effected by the Fund in that
year. Brokerage commissions paid to Morgan Keegan
& Company, Inc. were $9,200, $17,500, $85,000,
$123,000 and $78,000, for the fiscal years ended
June 30, 1997, 1996, 1995, 1994, and 1993, respectively.
<PAGE>
The Fund may not buy securities from,
or sell securities to, Morgan Keegan as
principal. The Fund's Board of Directors
has adopted procedures in conformity with
Rule 10f-3 under the 1940 Act whereby
the Fund may purchase securities that are
offered in underwritings in which Morgan
Keegan is a participant.
Section 11(a) of the Securities
Exchange Act of 1934 prohibits Morgan
Keegan from executing transactions on an
exchange for the Fund except pursuant to
the provisions of Rule 11a2-2(T) thereunder.
That rule permits Morgan Keegan, as a
member of a national securities exchange,
to perform functions other than execution
in connection with a securities transaction
for the Fund on that exchange only if the Fund
expressly consents by written contract. The
Advisory Agreement expressly provides such
consent in accordance with Rule 11a2-2(T).
Investment decisions for the Fund are made
independently from those of other accounts advised
by the Adviser. However, the same security may
be held in the portfolios of more that one account.
When two or more accounts simultaneously engage in
the purchase or sale of the same security, the
prices and amounts will be equitably allocated among
the accounts. In some cases, this procedure may
adversely affect the price or quantity of the
security available to a particular account.
In other cases, however, an account's ability
to participate in large volume transactions may
produce better executions and prices.
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.
THE FUND'S DISTRIBUTOR
Morgan Keegan acts as distributor of
the Fund's shares pursuant to an Underwriting
Agreement between the Fund and Morgan Keegan
dated August 14, 1986 and amended on
February 12, 1987 and July 7, 1993
("Underwriting Agreement"). The shares
of the Fund are offered continuously. The
Underwriting Agreement obligates Morgan Keegan
to provide certain services and to bear
certain expenses in connection with the
offering of Fund shares, including, but not
limited to: printing and distribution
of prospectuses and reports to
prospective shareholders; preparation and
distribution of sales literature, and advertising;
administrative and overhead cost of distribution
such as the allocable costs of executive office
time expended on developing,
<PAGE>
managing and operating the distribution
program; operating expenses of branch offices,
sales training expenses, and telephone and
other communication expenses. Morgan Keegan
also compensates investment brokers of Morgan
Keegan and other persons who engage in or
support distribution of shares and shareholder
service based on the sales for which they
are responsible and the average daily net
asset value of Fund shares in accounts of their
clients.
Pursuant to the Underwriting Agreement,
as currently in effect, Morgan Keegan will
receive as compensation for its services
a 3% sales charge on purchased shares.
The sales charge is reduced to 1% on sales of
$1 million or more, and is waived on certain
purchases of Fund shares, as described in the
Prospectus.
In addition, Morgan Keegan will
receive an annual distribution fee equivalent
up to .25% of the Fund's average daily net
assets and an annual service fee equivalent to
up to .25% of the Fund's average net assets,
in accordance with the Distribution Plan
described below. The distribution fee is
computed daily and paid monthly.
The Fund has adopted a Distribution
Plan ("Plan") which, among other things,
permits it to pay Morgan Keegan a service
fee and a distribution fee out of its net
assets. The Plan was approved by the initial
shareholder of the Fund on August 14, 1986,
and, as required by Rule 12b-1 under the 1940
Act, by the Board of Directors on the same
date, including a majority of the
directors who are not "interested persons"
of the 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
("Qualified Directors"). The Plan was
amended on February 12, 1987, to reduce
the annual distribution fee from an
equivalent of 1.0% of the Fund's average
daily net assets to an equivalent of .50%
of the Fund's average daily net assets.
The Plan also was amended on July 7,
1993 to reflect compliance with National
Association of Securities Dealers, Inc.
rule regarding "asset-based" sales charges.
The continuation of the Plan was approved
by a majority of the Board of Directors,
including a majority of the Qualified
Directors on August 18, 1997.
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. For the fiscal year ended
June 30, 1997, the Fund paid service fees
and distribution fees to Morgan Keegan
pursuant to the Plan of $213,680. For the
fiscal year ended June 30, 1997, expenses
paid for by Morgan Keegan included $96,154
for commissions and other compensation to
employees, $56,472 for printing and mailing,
and $9,125 for promotional materials.
No interested person of the Fund or
non-interested director had a direct
or indirect interest in the Plan or related
agreements. The
<PAGE>
Fund benefits from the Plan by virtue of
the ongoing broker's involvement with
individual customers as well as the
benefit from continued promotion. For the
fiscal year ended June 30, 1992, Morgan
Keegan retained sales charges for $95,000
received on sales of the Fund's shares; and
for the fiscal year ended June 30, 1993,
Morgan Keegan retained sales charges for
$384,000 received on sales of the Fund's
shares; for the fiscal year ended June 30,
1994, Morgan Keegan retained sales charges for
$40,000 received on sales of the Fund's shares;
for the fiscal year ended June 30, 1995, Morgan
Keegan retained sales charges for $13,000 received
on sales of the Fund's shares; for the fiscal year
ended June 30, 1996, Morgan Keegan retained sales
charges for $185,000 received on sales of the Fund's
shares; and for the fiscal year ended June 30, 1997,
Morgan Keegan retained sales charges for $250,000
received on sales of the Fund's shares.
In approving the Plan and the amendments to
the Plan, in accordance with the requirements of
Rule 12b-1, the Directors considered various factors,
including the amount of the service and distribution
fees. In connection with its consideration of this
factor, the Board considered at the time of the
amendment the effect of the institution of a 3%
sales charge by the distributor. The Board determined
that the service and distribution fees were reasonable
in view of the compensation Morgan Keegan investment
brokers can receive relative to the compensation
offered by competing equity funds sold with front-end
sales loads, with or without distribution fees. The
Plan permits the Fund's shares to be sold to
investors with a front-end sales load of 3%, while
some competing equity funds traditionally have
been sold with front-end sales loads in an amount up
to 8 1/2% of the purchase price (9.29% of the
net amount invested). The Board also determined that
the fees are reasonable in light of the service and
distribution fees paid by other similar funds.
Finally, the Directors determined that there was
a reasonable likelihood that the Plan, and the
amendments to 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 both the Fund and
the Adviser. The Fund is expected to benefit from
the potential for economies of scale in its operations
that can arise from growth in assets, as well
as from the increased potential for flexibility
in portfolio management resulting from a net inflow
of assets, as opposed to net redemptions.
Shareholders of the Fund are expected to benefit
from continuing services provided by investment
brokers and other staff members of Morgan Keegan
as distributor. The Adviser and Morgan Keegan
are expected to benefit from the fact that their
advisory, service and distribution fees, which
are based on a percentage of assets, increase as
Fund assets grow and that their brokerage commissions
and transfer fees will also increase as assets
grow. The Directors acknowledged, however, that there
is
<PAGE>
no assurance that benefits to the Fund will
be realized as a result to the Plan. In
considering whether to continue the Plan,
the Directors, among other things, also reviewed
the expenses of the Plan, alternative methods of
distributing Fund shares and the overall
expected costs and benefits to the Fund.
The Plan may be terminated by vote of a
majority of the Qualified Directors or by vote
of a majority of the outstanding voting securities
of the Fund. 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
<PAGE>
shareholder approval; otherwise the Plan
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.
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 Fund's Board of
Directors, and the Directors shall review, at
least quarterly, a written report of the amounts
so expended and the purposes for which expenditures
were made. Rule 12b-1 also provides that the Fund
may rely on that rule only if the selection and
nomination of the Fund's independent directors
are committed to the discretion of such independent
directors.
The current Underwriting Agreement was approved
initially by vote of the Board and the Qualified
Directors on February 9, 1987, and its continuance
was most recently approved by vote of the Board and
the Qualified Directors on August 18, 1997.
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.
THE FUND'S CUSTODIAN, TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
AND PORTFOLIO ACCOUNTING SERVICE AGENT
Morgan Keegan & Company, Inc., Morgan
Keegan Tower, Fifty Front Street, Memphis,
Tennessee 38103, serves as the transfer and
dividend disbursing agent of the Fund. For these
services, Morgan Keegan, the Fund's distributor,
receives from the Fund a fee of $5,000 per month,
or $60,000 per year.
Morgan Keegan also provides accounting
services to the Fund. For these services,
which include portfolio accounting, expense accrual
and payment, fund valuation and financial
reporting, tax accounting, and compliance control
services, Morgan Keegan receives from the Fund a
fee of $2,500 per month, or $30,000 per year.
Shareholders who request an historical
transcript of their account will be charged a
fee based on the number of years researched.
The Fund reserves the right, upon 60 days'
written notice, to make other charges to investors
to cover administrative costs.
State Street Bank and Trust Company,
National Association, 108 Myrtle Street,
Quincy, Massachusetts, 02171, serves as the
Fund's custodian.
<PAGE>
THE FUND'S 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.
THE FUND'S CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP, Fifty North Front
Street, Memphis, Tennessee 38103, are the
Fund's independent certified public accountants.
The financial information under the caption "Financial
Highlights" in the Prospectus has been derived from
the Fund's financial statements contained in the
Fund's Annual Report to shareholders for the period
ended June 30, 1997 ("Annual Report"). Those financial
statements have been examined by KPMG Peat Marwick
LLP, whose report thereon also appears in the Annual
Report and have been incorporated by reference in this
Statement of Additional Information. KPMG Peat
Marwick LLP, performs an audit of the Fund's financial
statements and reviews the Fund's federal and state
income tax returns.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 1997 is a
separate document supplied with this Statement
of Additional Information, and the financial
statements, accompanying notes, and the report of
independent certified public accountants appearing
therein are incorporated by reference in this
Statement of Additional Information.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
The following financial statements were filed with the United States Securities
and Exchange Commission as part of the Fund's 1997 Annual Report to Shareholders
pursuant to Section 30(b)(2) of the Investment Company Act of 1940 and are
incorporated herein by reference:
Statement of Assets and Liabilities as of June 30, 1997
Statement of Changes in Net Assets for the Years Ended June 30, 1996 and June 30
,1997
Statement of Operations for the Year Ended June 30, 1997
Investments as of June 30, 1997
Notes to Financial Statements dated June 30, 1997
Report of Independent Certified Public Accountants dated July 25, 1997
Financial Highlights for Fiscal Years Ended June 30, 1993, 1994, 1995, 1996 and
1997
(b) Exhibits:
(1) Articles of Incorporation 1/
(2) By-laws 4/
(3) Voting trust agreement - none
(4) Specimen security 2/
(5) Investment Advisory and Management Agreement 3/
(6) Underwriting Agreement 6/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 5/
(9) (a) Agency Agreement 5/
(b) Portfolio Accounting Service Agreement 5/
(10) Previously filed on August 26, 1986 as part of Pre-Effective Amendment
No. 1 to the registration statement on Form N-1A.
(11) Other opinions, appraisals, rulings and consents -
Accountants' Consent (filed herewith)
(12) Financial statements omitted from statement of
additional information - none
(13) Letter of investment intent 2/
(14) Prototype Retirement Plan - none
(15) Plan pursuant to Rule 12b-1 6/
(16) Schedule of Computation of Performance Information
(filed herewith)
(17) and
(27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 (not applicable)
(24) Power of Attorney
1/ Incorporated by reference to the corresponding exhibit filed on May 5, 1986,
as part of the Initial Registration Statement on Form N-1A, File No. 33-5435.
2/ Incorporated by reference to the corresponding exhibit filed on August 26,
1986, as part of the Pre-Effective Amendment No. 1, File No. 33-5435.
3/ Incorporated by reference to the corresponding exhibit filed on January 29,
1987, as part of Post-Effective Amendment No. 1, File No. 33-5435.
4/ Incorporated by reference to the corresponding exhibit filed on September 3,
1987, as part of Post-Effective Amendment No. 2, File No. 33-5435.
5/ Incorporated by reference to the corresponding exhibit filed on October 20,
1989, as part of Post-Effective Amendment No. 4, File No.33-5435.
6/ Incorporated by reference to the corresponding exhibit filed on September 2,
1993, as part of Post-Effective Amendment No. 8, File No. 33-5435.
Item 25. Persons controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
Number of Shareholders
Title of Class (as of September 30, 1997)
Capital Stock - $.001 3,319
par value
Item 27. Indemnification
This item is incorporated by reference to Pre-Effective Amendment No. 1,
Registration No. 33-5435, on Form N-1A, Item 27, filed on August 26, 1986.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Morgan Asset Management, Inc., a Tennessee corporation, is a registered
investment adviser and offers investment management services to investment
companies and other types of investors. Information as to its officers and
directors is included in its Form ADV filed on August 11, 1995 with the
Securities and Exchange Commission (registration number 801-27629) and is
incorporated herein by reference.
Item 29. Principal Underwriter
(a) Bedford Money Market Fund
(b) Morgan Keegan & Company, Inc.
<TABLE>
<C> <C> <C>
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
Randolph C. Coley Executive Managing None
Director
G. Douglas Edwards Executive Managing None
Director
James H. Ganier Executive Managing None
Director
<PAGE>
Stephen P. Laffey Executive Managing None
Director
Mark A. Lee Executive Managing None
Director
Thomas V. Orr Executive Managing None
Director
James A. Parish, Jr. Executive Managing None
Director
C. David Ramsey Executive Managing None
Director
John W. Stokes, Jr. Executive Managing None
Director
Allen B. Adler Managing Director None
Franklin P. Allen, III Managing Director None
James M. Augustine Managing Director None
Joseph K. Ayers Managing Director None
Rodney D. Baber, Jr. Managing Director None
Richard G. Backus Managing Director None
George E. Bagwell Managing Director None
Woodley H. Bagwell Managing Director None
Robert A. Baird Managing Director None
Joseph C. Barkley Managing Director None
Reginald E. Barnes Managing Director None
Glen E. Bascom Managing Director None
W. Preston Battle Managing Director None
Robert (Bob) D. Berry Managing Director None
Robert C. Berry Managing Director None
Cristan K. Blackman Managing Director None
John D. Brewer Managing Director None
<PAGE>
Paul S. Burd Managing Director None
John B. Carr, Jr. Managing Director None
John C. Carson Managing Director None
William F. Clay Managing Director None
Robert E. L. Cope Managing Director None
Mark W. Crowl Managing Director None
Brian W. Dalton Managing Director None
Harold L. Deaton Managing Director None
William W. Deupree, Jr. Managing Director None
Ted B. Donaldson Managing Director None
Richard H. Eckels Managing Director None
Richard S. Ferguson Managing Director None
Robert M. Fockler Managing Director None
Wilmer J. Freiberg Managing Director None
Graham D.S. Fulton Managing Director None
Michael J. Gagliardi Managing Director None
John H. Geary Managing Director None
Robert D. Gooch, Jr. Managing Director Director
James F. Gould Managing Director None
Terry C. Graves 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
<PAGE>
Haywood H. Henderson, Jr. Managing Director None
Roderick E. Hennek Managing Director None
Edwin L. Hoopes, III Managing Director None
R. Dave Howe Managing Director None
William F. Hughes, Jr. Managing Director None
Joe R. Jennings Managing Director None
Robert Jetmundsen Managing Director None
Ramakrishnarao Patten Managing Director None
Kasargod
Peter R. Klyce Managing Director None
Peter S. Knoop Managing Director None
William L. M. Knox, Jr. Managing Director None
E. Carl Krausnick, Jr. Managing Director None
A. Welling LaGrone, Jr. Managing Director None
Benton G. Landers Managing Director None
William A. Langevin Managing Director None
William M. Lellyett, Jr. Managing Director None
William G. Logan, Jr. Managing Director None
Wiley H. Maiden Managing Director None
John H. Martin Managing Director None
William D. Mathis, III Managing Director None
John W. Mayer Managing Director None
Richard A. McStay Managing Director None
Edward S. Michelson Managing Director None
George Rolfe Miller Managing Director None
David M. Minnick Managing Director None
Robert M. Montague Managing Director None
<PAGE>
K. Brooks Monypeny Managing Director None
John G. Moss Managing Director None
Lewis A. Moyse Managing Director None
William G. Mueller Managing Director None
Mortimer S. Neblett Managing Director None
Michael O'Keefe Managing Director None
Jack A. Paratore Managing Director None
William T. (Dale) Managing Director None
Patterson
L. Jackson Powell Managing Director None
S. Mark Powell Managing Director None
Richard L. Preis Managing Director None
Hedi H. Reynolds Managing Director None
R. Michael Ricketts Managing Director None
Thomas E. Robinson, Sr. Managing Director None
Kenneth L. Rowland Managing Director None
Willard G. Rowley Managing Director None
W. Wendell Sanders Managing Director None
E. Elkan Scheidt Managing Director None
Ronald J. Schuberth Managing Director None
Lynn T. Shaw Managing Director None
Fred B. Smith Managing Director None
Richard J. Smith Managing Director None
Robert L. Snider Managing Director None
John B. Snowden, IV Managing Director None
Thomas A. Snyder Managing Director None
John W. (Jack) Stokes, III Vice President, None
Managing Director
<PAGE>
John B. Strange Managing Director None
James M. Tait, III Managing Director None
Phillip C. Taylor Managing Director None
John D. Threadgill Managing Director None
P. Gibbs Vestal Managing Director None
Edmund J. Wall Managing Director None
W. Charles Warner Managing Director None
Richard E. Watson Managing Director None
Patrick J. Weber Managing Director None
Craig T. Weichmann Managing Director None
J. William Wyker Managing Director None
John J. Zollinger, III Managing Director None
</TABLE>
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records
The books and other documents required by paragraphs (b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's adviser, Morgan Asset Management, Inc.,
Morgan Keegan Tower, Fifty Front Street, Memphis, Tennessee 38103. All other
accounts, books and other documents required by Rule 31a-1 are maintained in
the physical possession of Registrant's transfer agent and portfolio
accounting service provider, Morgan Keegan & Co., Morgan Keegan Tower, Fifty
Front Street, Memphis, Tennessee 38103.
Item 31. Management Services
Not applicable
Item 32. Undertakings
vices
Not applicable
Item 32. 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 Southern Capital Fund, Inc.
certifies that it meets all the requirements for effectiveness in this
Post-Effective Amendment No. 12 to its Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Memphis and State of Tennessee, on the
22 day of October, 1997.
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
By: /s/ Allen B. Morgan, Jr.
Allen B. Morgan, Jr., President
llen B. Morgan, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<C> <C> <C>
Signature Title Date
/s/ Allen B. Morgan, Jr. Director and October 22, 1997
Allen B. Morgan, Jr. President
(Chief Executive
Officer)
/s/ Joseph C. Weller Vice President October 22, 1997
Joseph C. Weller and Treasurer
(Chief Financial
Officer)
/s/ Robert D. Gooch, Jr. Director October 22, 1997
Robert D. Gooch, Jr.
/s/ James D. Witherington, Jr. Director October 22, 1997
James D. Witherington, Jr.
/s/ Spence L. Wilson Director October 22, 1997
Spence L. Wilson
<PAGE>
/s/ William Jefferies Mann Director October 22, 1997
William Jefferies Mann
/s/ James Stillman McFadden Director October 22, 1977
James Stillman McFadden
</TABLE>
<PAGE>
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
Exhibit Index
(b) Exhibits:
(1) Articles of Incorporation 1/
(2) By-laws 4/
(3) Voting trust agreement - none
(4) Specimen security 2/
(5) Investment Advisory and Management Agreement 3/
(6) Underwriting Agreement 6/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 5/
(9) (a) Agency Agreement 5/
(b) Portfolio Accounting Service Agreement 5/
(10) Previously filed on August 26, 1986 as part of Pre-Effective
Amendment No. 1 to the registration statement on Form N-1A.
(11) Other opinions, appraisals, rulings and consents -
Accountants' Consent (filed herewith)
(12) Financial statements omitted from statement of
additional information - none
(13) Letter of investment intent 2/
(14) Prototype Retirement Plan - none
(15) Plan pursuant to Rule 12b-1 6/
(16) Schedule of Computation of Performance Information
(filed herewith)
(17)
and (27)Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 (not applicable)
(24) Power of Attorney
___________________
1/ Incorporated by reference to the corresponding exhibit filed on May 5, 1986,
as part of the Initial Registration Statement on Form N-1A, File No. 33-5435.
2/ Incorporated by reference to the corresponding exhibit filed on August 26,
1986, as part of the Pre-Effective Amendment No. 1, File No. 33-5435.
3/ Incorporated by reference to the corresponding exhibit filed on January 29,
1987, as part of Post-Effective Amendment No. 1, File No. 33-5435.
4/ Incorporated by reference to the corresponding exhibit filed on September
3, 1987, as part of Post-Effective Amendment No. 2, File No. 33-5435.
<PAGE>
5/ Incorporated by reference to the corresponding exhibit filed on October 20,
1989, as part of Post-Effective Amendment No. 4, File No.33-5435.
6/ Incorporated by reference to the corresponding exhibit filed on September 2,
1993, as part of Post-Effective Amendment No. 8, File No. 33-5435.
<PAGE>
EXHIBIT 11
KPMG Peat Marwick LLP
Morgan Keegan Tower, Suite 900
Fifty North Front Street
Memphis, TN 38103
The Board of Directors of
Morgan Keegan Southern Capital Fund, Inc.:
In planning and performing our audit of the financial statements and financial
highlights of Morgan Keegan Southern Capital Fund, Inc. for the year ended June
30, 1997, we considered its internal control structure, including procedures
for safeguarding securities, in order to determine our auditing procedures for
the purpose of expressing our opinion on the financial statements and assurance
on the internal control structure.
The management of Morgan Keegan Southern Capital Fund, Inc. is responsible for
establishing and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of internal control structure, policies
and procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthod use or disposition and that transactions
are executed in accordance with management's authorization and recorded properly
to permit preparation of financial statements in conformity with generally
accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may nevertheless occur and not be detected. Also, projection of
any evaluation of the structure to future periods in subject to the risk that it
may become inadequate because of changes in conditions or that the effectiveness
of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financi
tatements and financial highlights being audited may occur and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving the internal control
structure, including procedures for safeguarding securities, that we consider to
be material weaknesses, as defined above, as of June 30, 1997.
<PAGE>
This report is intended solely for the information and use of management of
Morgan Keegan Southern Capital Fund, Inc. and the Securities and Exchange
Commission.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Memphis, Tennessee
July 25, 1997
</PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE INFORMATION
Exhibit 16
MORGAN KEEGAN SOUTHERN CAPITAL FUND
June 30, 1996 - June 30, 1997 (One Year)
Cumulative Total Return:
ERV=(21.64 x 1203.15)-((18.06 x 1141.23)/.97)x1000+1000=1225.34
---------------------------------------
((18.06 x 1141.23)/.97)
P = 1000
C = 1225.34 - 1 = .2253 = 22.53%
---------
1000
Average Annual Return: Same
June 30, 1992 - June 30, 1997 (Five Years)
Cumulative Total Return:
ERV=(21.64 x 1203.15)-((13.56 x 914.73)/.97)x1000+1000=2036.09
----------------------------------------
((13.56 x 914.73)/.97)
P = 1000
C = 2036.09 - 1 = 1.0361 = 103.61%
----------
1000
<PAGE>
Average Annual Return
1
----
5
(1.0361 + 1) - 1 = .1528 = 15.28%
June 30, 1987 - June 30, 1997 (Ten Years)
Cumulative Total Return:
ERV=(21.64 x 1203.15)-((12.16 x 797.45)/.97)x1000+1000=2604.42
----------------------------------------
((12.16 x 797.45)/.97)
P = 1000
C = 2604.42 - 1 = 1.6044 = 160.44%
---------
1000
Average Annual Return:
1
----
10
(1.6044 + 1) - 1 = .1005 = 10.05%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 34577631
<INVESTMENTS-AT-VALUE> 53950815
<RECEIVABLES> 187880
<ASSETS-OTHER> 16113
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54193760
<PAYABLE-FOR-SECURITIES> 1290
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 266707
<TOTAL-LIABILITIES> 267997
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35001797
<SHARES-COMMON-STOCK> 2491946
<SHARES-COMMON-PRIOR> 2076868
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (451710)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19373184
<NET-ASSETS> 53925763
<DIVIDEND-INCOME> 451436
<INTEREST-INCOME> 151811
<OTHER-INCOME> 0
<EXPENSES-NET> 842529
<NET-INVESTMENT-INCOME> (239282)
<REALIZED-GAINS-CURRENT> 1070576
<APPREC-INCREASE-CURRENT> 9964673
<NET-CHANGE-FROM-OPS> 10795967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1817708
<DISTRIBUTIONS-OTHER> 201631
<NUMBER-OF-SHARES-SOLD> 510690
<NUMBER-OF-SHARES-REDEEMED> 208201
<SHARES-REINVESTED> 112589
<NET-CHANGE-IN-ASSETS> 16420567
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 427360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 850913
<AVERAGE-NET-ASSETS> 42867636
<PER-SHARE-NAV-BEGIN> 18.06
<PER-SHARE-NII> (.11)
<PER-SHARE-GAIN-APPREC> 4.64
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .87
<RETURNS-OF-CAPITAL> .08
<PER-SHARE-NAV-END> 21.64
<EXPENSE-RATIO> 2.0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 24
POWER OF ATTORNEY
Each of the undersigned directors and officers of Morgan Keegan Southern
Capital Fund, Inc. (the "Corporation") hereby severally constitutes and appoints
Arthur J. Brown, the Corporation's counsel, and Thom Weller, and each of them
singly, our true and lawful attorneys, with full powers of substitution, as his
true and lawful attorney-in-fact and agent to execute in his name and on his
behalf in any and all capacities, any and all amendments to the Corporation's
Registration Statement, and all instruments necessary or advisable in connection
therewith, filed by the Corporation with the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by said
attorney to any and all amendments to said Registration Statement.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of
the date indicated below.
<TABLE>
<C> <C> <C>
Signature Title Date
/s/ Allen B. Morgan, Jr. Director and August 15, 1997
Allen B. Morgan, Jr. President
(Chief Executive
Officer)
/s/ Joseph C. Weller Vice President August 15, 1997
Joseph C. Weller and Treasurer
(Chief Financial
Officer)
/s/ Robert D. Gooch, Jr. Director August 15, 1997
Robert D. Gooch, Jr.
/s/ Spence L. Wilson Director August 15, 1997
Spence L. Wilson
/s/ James D. Witherington, Jr. Director August 15, 1997
James D. Witherington, Jr.
/s/ William Jefferies Mann Director August 15, 1997
William Jefferies Mann
/s/ James Stillman McFadden Director August 15, 1977
James Stillman McFadden
</TABLE>
