SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
August 28, 2000
Dear Shareholder:
The attached proxy materials seek your approval to convert Morgan Keegan
Southern Capital Fund, Inc. (the "Fund") into a separate series of Morgan Keegan
Select Fund, Inc. ("Select Fund"). The proxy materials also request your vote to
elect the Fund's Board of Directors, to approve changes to the fundamental
investment restrictions of the Fund, and to ratify the selection of the Fund's
independent public accountants.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL FOUR
PROPOSALS. The conversion of the Fund into a series of Select Fund will
streamline and render more efficient the administration of the Fund. The
attached proxy materials provide more information about the proposed conversion,
as well as information about the election of Directors, the proposed changes to
the fundamental investment restrictions, and the ratification of the selection
of independent auditors.
YOUR VOTE IS IMPORTANT. Voting your shares early will permit the Fund to
avoid costly follow-up mail and telephone solicitation. After reviewing the
attached materials, please complete, sign, and date your proxy card and mail it
in the enclosed return envelope promptly. As an alternative to using the paper
proxy card to vote, you may vote by telephone, by facsimile, or in person.
By Order of the Board of Directors,
Charles D. Maxwell
Secretary
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MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
50 FRONT STREET
MEMPHIS, TENNESSEE 38103
NOTICE OF A
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 18, 2000
_________________________________
Fellow Shareholders:
A special meeting of shareholders (the "Meeting") of Morgan Keegan
Southern Capital Fund, Inc. (the "Fund") will be held on October 18, 2000 at
10:00 a.m., Central time, at Morgan Keegan Tower, 50 Front Street, 21st Floor,
Memphis, Tennessee 38103 to consider and act upon the following proposals:
(1) To approve an Agreement and Plan of Conversion and Termination
providing for the conversion of the Fund into a separate series of
Morgan Keegan Select Fund, Inc.;
(2) To elect the Fund's Board of Directors;
(3) To approve changes to the fundamental investment restrictions of the
Fund;
(4) To ratify the selection of KPMG LLP, independent accountants, as
auditors of the Fund for the fiscal year ending June 30, 2001; and
(5) To transact any other business that may properly come before the
Meeting, or any adjournment thereof, in the discretion of the
proxies or their substitutes.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of the Fund at the close of business on August 21, 2000. IF YOU
ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU DO NOT EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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By order of the Board of Directors,
Allen B. Morgan, Jr.
President
August 28, 2000
Memphis, Tennessee
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YOUR VOTE IS IMPORTANT
Please indicate your voting instructions on the enclosed proxy card, sign
and date the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" ALL FOUR PROPOSALS. In order to avoid the additional expense of further
solicitation, we ask your cooperation in mailing in your proxy card promptly. As
an alternative to using the paper proxy card to vote, you may vote by telephone,
by facsimile, or in person. To vote by telephone, please call the toll-free
number listed on the enclosed proxy card. Shares that are registered in your
name, as well as shares held in "street name" through a broker, may be voted by
telephone. To vote in this manner, you will need the 8-digit "control" number
that appears on your proxy card. Shares that are registered in your name may be
voted by faxing your completed proxy card to 1-800-203-4651. If we do not
receive your completed proxy card after several weeks, representatives of Morgan
Keegan & Company, the fund's distributor, may contact you to remind you to vote
your shares.
Unless proxy cards submitted by corporations and partnerships are signed
by the appropriate persons as indicated in the voting instructions on the proxy
card, they will not be voted.
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MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
50 FRONT STREET
MEMPHIS, TENNESSEE 38103
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PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 18, 2000
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VOTING INFORMATION
This Proxy Statement is being furnished to shareholders of Morgan Keegan
Southern Capital Fund, Inc. (the "Fund") in connection with the solicitation of
proxies from Fund shareholders by the board of directors of the Fund (the
Board") for use at a special meeting of shareholders to be held on October 18,
2000 (the "Meeting"), and at any adjournment of the Meeting. This Proxy
Statement is first being mailed to shareholders on or about August 29, 2000. The
Fund's annual report, which contains financial statements for the fiscal year
ended June 30, 2000, is being mailed to shareholders with this proxy statement.
A majority of the Fund's shares outstanding on August 21, 2000 (the
"Record Date"), represented in person or by proxy shall constitute a quorum and
must be present for the transaction of business at the Meeting. Each outstanding
full share of the Fund is entitled to one vote, and each outstanding fractional
share thereof is entitled to a proportionate fractional share of one vote. If a
quorum is not present at the Meeting or a quorum is present but sufficient votes
to approve one or more of the proposals set forth in this Proxy Statement are
not received, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares represented at
the Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR any proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST a proposal
against such adjournment. A shareholder vote may be taken on one or more of the
proposals in this Proxy Statement prior to any such adjournment if sufficient
votes have been received with respect to such proposal and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against any adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against any proposal where the required vote is a percentage of the shares
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present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated on that proxy card, if it is
received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of each of
the proposals and the duly appointed proxies may, in their discretion, vote upon
such other matters as may come before the Meeting. The proxy card may be revoked
by giving another proxy or by letter or telegram revoking the initial proxy. To
be effective, revocation must be received by the Fund prior to the Meeting and
must indicate your name and account number. If you attend the Meeting in person
you may, if you wish, vote by ballot at the Meeting, thereby canceling any proxy
previously given.
As of the Record Date, the Fund had 2,501,474 shares of common stock
outstanding. The solicitation of proxies, the cost of which will be borne by the
Fund, will be made primarily by mail but also may be made by telephone or oral
communications by representatives of Morgan Keegan & Company, Inc. ("Morgan
Keegan"), the Fund's distributor, none of whom will receive any compensation for
these activities from the Fund. If votes are recorded by telephone, the Fund
will use procedures designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions, and to confirm that a shareholder's instructions have been
properly recorded. You may also vote by mail or by facsimile. Proxies voted by
telephone or by facsimile may be revoked at any time before they are voted at
the Meeting in the same manner that proxies voted by mail may be revoked.
Except as set forth in Appendix A, Morgan Keegan does not know of any
person who owns beneficially 5% or more of the shares of the Fund. The Fund's
directors and officers own in the aggregate less than 2.2% of the shares of the
Fund.
PROPOSAL 1. APPROVAL OF AN AGREEMENT AND PLAN OF CONVERSION AND
---------- TERMINATION ("CONVERSION PLAN") PROVIDING FOR THE
CONVERSION OF THE FUND INTO A SEPARATE SERIES OF
MORGAN KEEGAN SELECT FUND, INC. ("SELECT FUND").
The Fund currently is organized as a Maryland corporation and is
registered as an investment company under the Investment Company Act of 1940
(the "1940 Act"). The Board, including a majority of its directors who are not
"interested persons," as that term is defined in the 1940 Act ("Independent
Directors"), of the Fund, has approved the Conversion Plan in the form attached
to this Proxy Statement as Appendix B. The Conversion Plan provides for the
conversion of the Fund from its current form into a newly established separate
series ("New Series") of Select Fund, also a Maryland corporation (the
"Conversion"). The Select Fund is a diversified family of funds that includes
several different asset classes. Currently, the family consists of Morgan Keegan
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Intermediate Bond Fund, Morgan Keegan High Income Fund, Morgan Keegan Select
Financial Fund, Morgan Keegan Core Equity Fund, and Morgan Keegan Utility Fund.
The latter three funds are new and expect to commence operations on or after
August 28, 2000.
New Series has not yet commenced business operations. It was established
for the purpose of effecting the Conversion, will carry on the business of the
Fund following the Conversion and will have an investment objective identical
to, and investment policies and restrictions similar to, those of the Fund.
SUMMARY OF THE CONVERSION
Under the Conversion, the Fund will transfer all of its assets to New
Series in exchange for Class A shares of New Series. For every share of the Fund
that a shareholder holds, that shareholder will receive one Class A share of New
Series. The value of the Class A shares of New Series in each shareholder's
account will be the same as that of the Fund shares that he or she held just
prior to the Conversion. New Series will have the same investment objective as
the Fund. The Conversion will not affect the services provided to the Fund: MAM
will serve as investment manager of New Series, and Morgan Keegan will serve as
New Series' distributor. The Conversion will not have any adverse tax
consequences for shareholders of the Fund.
Converting the Fund into a series of Select Fund presents certain
advantages for shareholders. As described more fully below, New Series will
offer more choices under which investors can purchase shares. New Series also is
expected to provide the Fund with greater investment flexibility and a
potentially lower expense ratio.
COMPARATIVE INFORMATION ABOUT THE FUND AND NEW SERIES
INVESTMENT OBJECTIVE. The investment objective of capital appreciation
will remain the same.
ELIMINATION OF NON-FUNDAMENTAL INVESTMENT RESTRICTION. Restrictions and
policies that the Fund has not specifically designated as fundamental are
considered to be "non-fundamental" and may be changed by the Board without
shareholder approval. The Fund's Board approved a change that will remove the
non-fundamental investment restriction that the Fund invest at least 65% of its
assets in equity and debt securities of companies headquartered in the Southern
United States. Removing this limitation will allow the Fund to maximize
investment opportunities in other regions. The Fund will continue to invest in
securities of companies headquartered in the Southern region. However, the
investment policy change will expand the Fund's ability to invest its assets in
securities of companies outside the Southern region and to adjust its portfolio
composition in response to market conditions. MAM proposed the change because of
the divergence of the demographic and economic characteristics that once made
the Southern region relatively more attractive. MAM and the Board believe that
the increased investment flexibility will enhance the Fund's ability to achieve
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its objective of capital appreciation. The change will become effective November
1, 2000, after which the Fund will still invest primarily based on MAM's
fundamental analysis of specific companies. MAM will manage New Series using the
policies approved for the Fund. In managing New Series, MAM will continue to
focus on investments that offer attractive opportunities for capital
appreciation and will use the same investment selection criteria that it
currently uses for the Fund - primarily consistency and predictability of
earnings growth. MAM does not expect materially increased portfolio turnover as
a result of the Conversion. However, in making future investments, the Fund will
be able to benefit from increased investing opportunities. The Board has
approved this non-fundamental investment restriction change for the Fund
regardless of the shareholder vote on the proposed Conversion.
New Series' name will be Morgan Keegan Select Capital Growth Fund. The
Board unanimously voted to approve a name change to reflect the foregoing change
in the Fund's non-fundamental investment restrictions. The Fund's Board is
authorized to change the Fund's name without shareholder approval. If the
Conversion is not approved, the Fund's name will be changed to Morgan Keegan
Select Capital Growth Fund, Inc. Shareholders of the Fund will receive a
prospectus supplement that describes the change in the Fund's non-fundamental
investment policy and discloses the Fund's name change.
MODIFICATION OF FUNDAMENTAL INVESTMENT RESTRICTIONS. New Series will have
the same fundamental investment restrictions as the Fund, except that New
Series' fundamental investment restrictions reflect minor differences that
promote uniformity with the investment policies and restrictions of the other
Morgan Keegan Funds. The differences are not expected to materially effect the
management of New Series and will not make New Series' investment focus
different from the Fund's. For more detail about the differences, see Proposal
3, which describes conforming changes to the Fund's fundamental investment
restrictions in the event that shareholders do not approve the Conversion. MAM
and the Board believe that the differences in these non-fundamental investment
restrictions will afford New Series more investment flexibility, although MAM
does not have any immediate plans to select investments for New Series that
would be precluded by the Fund's current policies.
CLASS STRUCTURE. Immediately following the Conversion, Fund shareholders
will receive Class A shares of New Series in exchange for their shares of the
Fund. In order to bring New Series' structure into closer conformity with the
other Morgan Keegan Funds' class structure, New Series will offer two additional
classes of shares (Class C and Class I). MAM and the Board believe that the new
class structure will provide shareholders with more options to suit their
investment plans. Class A shares, which carry a front-end sales charge, may be
suitable for investors who plan to invest a substantial amount or hold their
shares for a long period of time. Class C shares, which carry a back-end sales
charge, may be suitable for investors who plan to hold their shares for less
than five years. Class I shares, which do not carry a sales charge, are
available only to institutional investors. Shareholders purchasing shares
through a special program, such as an employer-sponsored retirement plan, may be
eligible to purchase Class I shares. Shareholders of New Series will have
exchange privileges with the corresponding class of shares of other Morgan
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Keegan Funds. MAM believes that the new class structure will better serve the
needs of existing shareholders and will attract new investors.
EXPENSES. New Series is anticipated to have the same operating
expenses (as a percent of net assets) as the Fund. If assets of New
Series increase, that expense percentage is expected to decrease.
SHAREHOLDERS' RIGHTS. Since both the Fund and Select Fund are Maryland
corporations organized under substantially similar Articles of Incorporation and
By-Laws, the rights of the security holders of the Fund under state law and its
governing documents are expected to remain unchanged after the Conversion.
Shareholder voting rights under both the Fund and Select Fund are currently
based on the number of shares owned.
DIRECTORS. The same individuals serve as directors of both the Fund and
Select Fund. The current directors of the Fund will serve as directors of New
Series. Directors of New Series who are not interested persons of New Series
will receive from New Series a $1,000 annual retainer and a per-meeting fee of
$250 for the current fiscal year.
MANAGEMENT AND DISTRIBUTION. Morgan Asset Management, Inc. ("MAM"), the
Fund's investment adviser, will be responsible for providing New Series with
various administrative services and supervising New Series' daily business
affairs, subject to the supervision of the board of directors of Select Fund
(the "New Board"), under a management contract substantially similar to the
contract in effect between MAM and the Fund immediately prior to the Closing
Date (defined below). The Fund's distribution agent, Morgan Keegan, will
distribute shares of New Series under a General Distribution Agreement
substantially identical to the contract in effect between Morgan Keegan and the
Fund immediately prior to the Closing Date.
REASONS FOR THE PROPOSED CONVERSION
The Board unanimously recommends converting the Fund into a separate
series of Select Fund (I.E., New Series). The Conversion will provide
shareholders with a broader range of investment options, including multiple
classes of shares. The Board anticipates that the new class structure will
attract new investors, potentially resulting in higher levels of assets, which
can reduce expenses through economies of scale. New Series could potentially
have a lower expense ratio due to economies of scale associated with membership
in the Morgan Keegan Select Fund family and more assets due to increased sales.
Moving the Fund into Select Fund will also consolidate and streamline the
production and mailing of certain financial reports and legal documents, and
therefore may reduce the Fund's expenses. THE PROPOSED CHANGE WILL HAVE NO
MATERIAL EFFECT ON THE SHAREHOLDERS, OFFICERS, OPERATIONS, OR MANAGEMENT OF THE
FUND.
The proposal to present the Conversion Plan to shareholders was approved
by the Board, including all of the Independent Directors, on August 21, 2000.
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The Board recommends that Fund shareholders vote FOR the approval of the
Conversion Plan. The Conversion plan provides for the conversion of the Fund
into a separate series of Select Fund. If shareholders of the Fund do not
approve the Conversion Plan, the Fund will continue to operate in its current
form.
BOARD CONSIDERATIONS
The Conversion was recommended to the Board by MAM at meetings of the
Board held on May 10, 2000 and August 21, 2000. The Board's chief consideration
in approving the Conversion was that New Series will have the same investment
objective and greater flexibility to pursue that objective. MAM provided, and
the Board reviewed, information about the Fund's performance and about the
Fund's and New Series' investment objectives, fundamental and non-fundamental
investment restrictions, investment strategies, investment advisory
arrangements, distribution arrangements, expenses, corporate organization, and
class structure. The Board also reviewed detailed information about the terms
and conditions of the Conversion Plan. The Board was advised that the Class A
shares of New Series that would be received by Fund shareholders in the
Conversion are expected to be subject to the same operating expenses, as a
percentage of net assets, as the Class A shares of the Fund. The Board noted
that MAM will serve as investment manager to New Series and Morgan Keegan will
serve as New Series' distributor. Based upon its review of the information
furnished by MAM and its affiliates, the Board concluded that New Series'
operations will be substantially the same as those of the Fund.
MAM advised the Board that the Conversion and the multiple class
structure are expected to attract new investors, which could ultimately lead to
increased assets and a lower expense ratio. Furthermore, existing shareholders
will benefit from additional purchase options. MAM advised the Board that the
Conversion would not have an adverse impact on the Fund's performance, or
adverse tax consequences for shareholders of the Fund. MAM noted that the
Conversion is expected to render more efficient management of the Fund.
The Fund's Board of Directors, including all of the Independent
Directors, determined that the Conversion is in the best interests of the Fund,
that the terms of the Conversion are fair and reasonable, and that the interests
of the Fund's shareholders will not be diluted as a result of the Conversion.
The Board, including the Independent Directors, unanimously approved the
Conversion and recommended approval by shareholders.
SUMMARY OF THE CONVERSION PLAN
The following discussion summarizes the important terms of the Conversion
Plan. This summary is qualified in its entirety by reference to the Conversion
Plan itself, which is attached as Appendix B to this Proxy Statement.
If this Proposal is approved by shareholders, then on or about October 31,
2000, or such later date on which the Fund and Select Fund agree (the "Closing
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Date"), the Fund will transfer all of its assets to New Series in exchange
solely for Class A shares of New Series ("New Series Shares") equal to the
number of shares of the Fund outstanding on the Closing Date ("Fund Shares") and
the assumption by New Series of all of the liabilities of the Fund. Immediately
thereafter, the Fund will constructively distribute to each Fund shareholder one
New Series Class A Share for each Fund Share held by the shareholder on the
Closing Date, in liquidation of Fund Shares. As soon as is practicable after
this distribution of New Series Shares, the Fund will be wound up and
liquidated. UPON COMPLETION OF THE CONVERSION, EACH FUND SHAREHOLDER WILL OWN
FULL AND FRACTIONAL NEW SERIES SHARES EQUAL IN NUMBER, DENOMINATION, AND
AGGREGATE NET ASSET VALUE TO HIS OR HER FUND SHARES.
The Conversion Plan obligates Select Fund, on behalf of New Series, to
enter into (i) a Management Contract with MAM with respect to New Series (the
"New Management Contract") and (ii) Distribution and Service Plans under Rule
12b-1 promulgated under the 1940 Act (the "New 12b-1 Plan") with respect to New
Series (collectively, the "New Agreements"). Approval of the Conversion Plan
will authorize MAM (which will be issued a single share of New Series on a
temporary basis) to approve the New Agreements as the sole initial shareholder
of New Series. Each New Agreement will be substantially similar to the
corresponding contract or plan in effect with respect to the Fund immediately
prior to the Closing Date.
The New Agreements will take effect on the Closing Date, and each will
continue in effect until August 31, 2001. Thereafter, the New Management
Contract will continue in effect only if its continuance is approved at least
annually (i) by the vote of a majority of Select Fund's Independent Directors
cast in person at a meeting called for the purpose of voting on such approval
and (ii) by the vote of a majority of Select Fund's directors or a majority of
the outstanding voting shares of New Series. The New 12b-1 Plan will continue in
effect only if approved annually by a vote of Select Fund's Independent
Directors, cast in person at a meeting called for that purpose. The New
Management Contract will be terminable without penalty on sixty days' written
notice by either Select Fund or MAM and will terminate automatically in the
event of its assignment. The New 12b-1 Plan will be terminable at any time
without penalty by a vote of a majority of Select Fund's Independent Directors
or a majority of the outstanding voting shares of New Series.
The New Board will hold office without limit in time except that: (i) any
director may resign; and (ii) any director may be removed at any special meeting
of Select Fund's shareholders by the affirmative vote of a majority of the
outstanding voting shares of Select Fund. In case a vacancy shall for any reason
exist, a majority of the remaining directors, though less than a quorum, will
vote to fill such vacancy by appointing another director, so long as,
immediately after such appointment, at least two-thirds of the directors then
holding office have been elected by shareholders. If, at any time, less than a
majority of the directors holding office have been elected by shareholders, the
directors then in office will promptly call a shareholders' meeting for the
purpose of electing directors. Otherwise, there need normally be no meetings of
shareholders for the purpose of electing directors.
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Assuming the Conversion Plan is approved, it is currently expected that
the Conversion will become effective on the Closing Date. However, the
Conversion may become effective at such other date as to which the Fund and
Select Fund may agree in writing.
The obligations of the Fund and Select Fund under the Conversion Plan are
subject to various conditions as stated therein. Notwithstanding the approval of
the Conversion Plan by Fund shareholders, it may be terminated or amended at any
time prior to the Conversion by action of the directors to provide against
unforeseen events, if (i) there is a material breach by the other party of any
representation, warranty, or agreement contained in the Conversion Plan to be
performed at or prior to the Closing Date or (ii) it reasonably appears that the
other party will not or cannot meet a condition of the Conversion Plan. Either
the Fund or Select Fund may at any time waive compliance with any of the
covenants and conditions contained in, or may amend, the Conversion Plan,
provided that the waiver or amendment does not materially adversely affect the
interests of Fund shareholders.
CONTINUATION OF FUND SHAREHOLDER ACCOUNTS
The transfer agent of Select Fund will establish accounts for New Series
shareholders containing the appropriate number and denominations of New Series
Shares to be received by each holder of Fund Shares under the Conversion Plan.
Such accounts will be identical in all material respects to the accounts
currently maintained by the Fund's transfer agent for its shareholders.
EXPENSES
The expenses of the Conversion, estimated at approximately $35,000 in the
aggregate, will be borne by the Fund and MAM.
TAX CONSEQUENCES OF THE CONVERSION
Both the Fund and Select Fund will receive an opinion from their counsel,
Kirkpatrick & Lockhart LLP, that the Conversion will constitute a tax-free
conversion within the meaning of section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended. Accordingly, neither the Fund, New Series, nor the
Fund's shareholders will recognize any gain or loss for federal income tax
purposes upon (i) the transfer of the Fund's assets in exchange solely for New
Series Shares and the assumption by New Series of the Fund's liabilities or (ii)
the distribution of New Series Shares to the Fund's shareholders in liquidation
of their Fund Shares. The opinion will further provide, among other things, that
(1) a Fund shareholder's aggregate basis for federal income tax purposes of New
Series Shares to be received by the shareholder in the Conversion will be the
same as the aggregate basis of his or her Fund Shares to be constructively
surrendered in exchange for those New Series Shares; and (2) a Fund
shareholder's holding period for his or her New Series Shares will include the
shareholder's holding period for his or her Fund Shares, provided that those
Fund Shares were held as capital assets at the time of Conversion.
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CONCLUSION
The Board has concluded that the proposed Conversion Plan is in the best
interests of the Fund's shareholders. A vote in favor of the Conversion Plan
encompasses (i) approval of the conversion of the Fund to New Series (ii)
authorization of the Fund, as sole initial shareholder of New Series, to approve
(a) an Advisory Agreement with respect to New Series between Select Fund and MAM
and (b) a Distribution Agreement and Rule 12b-1 Plan of Distribution with
respect to New Series. Each of these New Agreements and Plans is identical to
the corresponding contract or plan in effect with the Fund immediately prior to
the Closing Date. If approved, the Conversion Plan will take effect on the
Closing Date. If the Conversion Plan is not approved, the Fund will continue to
operate in its current form, with the changes described above.
REQUIRED VOTE
Approval of the Conversion Plan requires the affirmative vote of a
majority of the votes outstanding.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 1
----------------------
PROPOSAL 2. ELECTION OF THE DIRECTORS OF THE FUND.
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If shareholders do not approve Proposal 1 (I.E., the Fund does not convert
into a series of Select Fund), the Fund seeks to have shareholders elect its
previously appointed Directors. If Proposal 1 were approved, the Fund would
convert to New Series and have the Select Fund Board of Directors.
The Board has nominated the individuals identified below for election to
the Board at the Meeting. The Fund currently has five directors. Vacancies on
the Board are generally filled by appointment by the remaining directors.
However, the 1940 Act provides that vacancies may not be filled by directors
unless thereafter at least two-thirds of the directors shall have been elected
by shareholders. To ensure continued compliance with this rule without incurring
the expense of calling additional shareholder meetings, shareholders are being
asked at this Meeting to elect the current five directors. Consistent with the
Bylaws, and as permitted by Maryland law, the Fund does not anticipate holding
annual shareholder meetings. Thus, the directors will be elected for indefinite
terms, subject to termination or resignation. Each nominee has indicated a
willingness to serve if elected. If any of the nominees should not be available
for election, the persons named as proxies (or their substitutes) may vote for
other persons in their discretion. Management has no reason to believe that any
nominee will be unavailable for election.
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Three of the five current directors are Independent Directors. Each of the
Independent Directors now being proposed for election was nominated and selected
by Independent Directors.
The persons named as proxies on the enclosed proxy card will vote FOR the
election of the nominees listed below unless the shareholder specifically
indicates on his or her proxy card a desire to withhold authority to vote for
any nominee.
The nominees for director, their ages, a description of their principal
occupations, the number of Fund shares owned by each, and their respective
memberships on Board committees are listed in the table below. Information
regarding the Fund's executives, who are not being submitted for election, is
also included.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME, POSITION WITH THE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DURING NUMBER OF FUND SHARES
FUND, AND AGE THE PAST FIVE YEARS BENEFICIALLY OWNED DIRECTLY
------------- ------------------- OR INDIRECTLY ON AUGUST 16,
2000
----
DIRECTOR NOMINEES
-----------------
ALLEN B. MORGAN, Mr. Morgan is Chairman and Chief Executive 34,574
JR.* (58) Officer and Executive Managing Director of
PRESIDENT AND Morgan Keegan & Company, Inc. He also is
DIRECTOR a Chairman of Morgan Keegan, Inc., and
SINCE 1986 a Director of Morgan Asset Management, Inc.
Mr. Morgan also is a Director of
Morgan Keegan Select Fund, Inc.
WILLIAM F. Mr. Hughes is an Executive Managing 15,312
HUGHES, JR.* (57) Director of Morgan Keegan & Company, Inc.
DIRECTOR He also is President of Morgan Asset
SINCE 1997 Management, Inc. Mr. Hughes also is a
Director of Morgan Keegan Select Fund, Inc.
WILLIAM JEFFERIES Mr. Mann is Chairman and President of Mann None
MANN (67) Investments, Inc. (hotel investments/
DIRECTOR consulting). He also serves as a Director
SINCE 1986 for Heavy Machines, Inc. Mr. Mann also is
a Director of Morgan Keegan Select Fund,
Inc.
JAMES STILLMAN . Mr. McFadden is Vice President of Sterling 676
R. MCFADDEN (42) Equities, Inc. (private equity
DIRECTOR financings). He is also President and
SINCE 1995 Director of 1703 Inc. and a Director of
Staff Printing Co. Mr. McFadden also is a
Director of Morgan Keegan Select Fund, Inc.
JAMES D. Mr. Witherington is President of SSM Corp. 1,739
WITHERINGTON, JR. (management of venture capital funds). He
(51) also serves as a Director for several
DIRECTOR private companies. Mr. Witherington also
SINCE 1992 is a Director of Morgan Keegan Select
Fund, Inc.
EXECUTIVES
----------
JOSEPH C. WELLER* Mr. Weller is Executive Vice President and 14,544
(61) Chief Financial Officer and Executive
Vice President, Managing Director of Morgan Keegan &
Treasurer & Company, Inc. He also is a Director of
Assistant Secretary Morgan Asset Management, Inc.
Since 1983
10
<PAGE>
NAME, POSITION WITH THE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DURING NUMBER OF FUND SHARES
FUND, AND AGE THE PAST FIVE YEARS BENEFICIALLY OWNED DIRECTLY
------------- ------------------- OR INDIRECTLY ON AUGUST 16,
2000
----
CHARLES D. Mr. Maxwell is a Managing Director and 5,368
MAXWELL* Assistant Treasurer of Morgan Keegan &
(46) Company, Inc., and Secretary/Treasurer of
Secretary and Assistant Morgan Asset Management, Inc.
Treasurer
Since 1986
E. ELKAN SCHEIDT* Mr. Scheidt, a Managing Director of Morgan 23,125
(38) Keegan & Company, Inc. and, as an employee
Portfolio Manager of Morgan Asset Management, Inc.,
Since 1994 Portfolio Manager of the Fund.
</TABLE>
* Messrs. Morgan, Hughes, Weller, Maxwell and Scheidt are "interested persons"
of the Fund, as that term is defined in the 1940 Act.
The Board has an audit and contract review committee consisting of Messrs.
Mann, Witherington, and McFadden. The Board has a nominating committee
consisting of Messrs. Mann, Witherington, and McFadden. The audit and contract
review committee meets at least annually with the independent accountants and
executive officers of the Fund. The audit and contract review committee reviews,
among other matters, the accounting principles being applied by the Fund in
financial reporting, the scope and adequacy of internal controls, the
responsibilities and fees of the independent accountants. The recommendations of
the audit and contract review committee are reported to the full Board. The
nominating committee nominates individuals to serve as Independent Directors.
The nominating committee ordinarily will not consider unsolicited director
nominations recommended by the Fund's shareholders. The Board, including the
Independent Directors, unanimously approved the nomination of the foregoing
persons to serve as directors and directed that the election of these nominees
be submitted to the Fund's shareholders.
During the past fiscal year, the Board met four times, the audit and
contract review committee met one time, and the nominating committee met one
time. During the Fund's last fiscal year, each director nominee attended 75% or
more of the Board meetings and meetings of the committees of the Board on which
he or she served.
The following table sets forth information relating to the compensation
paid to directors during the last fiscal year:
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY THE FUND TO ITS DIRECTORS(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NAME OF PERSON, POSITION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON FROM THE FUND AND THE
THE FUND PART THE FUND'S RETIREMENT MORGAN KEEGAN FUND
-------- EXPENSES ---------- FAMILY TO DIRECTORS
-------- -------------------
11
<PAGE>
ALLEN B. MORGAN, $0 $0 $0 $0
JR., PRESIDENT
WILLIAM F. $0 $0 $0 $0
HUGHES, JR.,
DIRECTOR
WILLIAM JEFFERIES $3,500 $0 $0 $7,000
MANN, DIRECTOR
JAMES STILLMAN R. $4,000 $0 $0 $8,000
MCFADDEN, DIRECTOR
JAMES D. $3,500 $0 $0 $7,000
WITHERINGTON, JR.
JR., DIRECTOR
------------- --------------- -------------------- -------------------
TOTAL $11,000 $0 $0 $22,000
-----
AS A PERCENTAGE OF NET 0.015% 0% 0% 0.022%
----------------
ASSETS
------
</TABLE>
(1)These numbers are based on the compensation schedule adopted annually by the
Fund for its operation. The Morgan Keegan Fund family consists of one other
investment company with multiple series.
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 overall direction and supervision of the Fund is the responsibility of
the Board, which has the primary duty of ensuring that the Fund's general
investment policies and programs are adhered to and that the Fund is properly
administered. The officers of the Fund, all of whom are officers and employees
of and paid by MAM, are responsible for the day-to-day administration of the
Fund. MAM, as investment adviser of the Fund, has the primary responsibility for
making investment decisions on behalf of the Fund.
All of the officers and directors of the Fund hold comparable positions
with Select Fund.
REQUIRED VOTE
Election of each nominee as a director of the Fund requires the vote of a
majority of the votes cast at the Meeting in person or by proxy, provided that a
quorum is present. Shareholders who vote FOR Proposal 2 will vote FOR each
nominee. THOSE SHAREHOLDERS WHO WISH TO WITHHOLD THEIR VOTE ON ANY SPECIFIC
NOMINEE(S) MAY DO SO ON THE PROXY CARD.
12
<PAGE>
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
EACH OF THE NOMINEES IN PROPOSAL 2.
----------------------
PROPOSAL 3. APPROVAL OF CHANGES TO THE FUNDAMENTAL
---------- INVESTMENT RESTRICTIONS OF THE FUND.
If shareholders do not approve Proposal 1 (I.E., the Fund does not convert
into a series of Select Fund), the Fund seeks to have shareholders approve
certain changes to its fundamental investment restrictions ("fundamental
restrictions"). These changes would provide the Fund the same additional
flexibility that New Series would provide if Proposal 1 is approved.
As required by the 1940 Act, the Fund has adopted certain fundamental
restrictions, which are described in the Fund's Statement of Additional
Information. Fundamental restrictions may be changed only with shareholder
approval.
Some of the Fund's fundamental restrictions reflect past regulatory,
business, or industry conditions, practices, or requirements that are no longer
in effect. For example, the National Securities Markets Improvement Act of 1996
("NSMIA") amended the Securities Act of 1933 to preempt state laws that required
the Fund to adopt certain fundamental restrictions. The Fund is no longer
subject to these state requirements. Other Morgan Keegan Funds created in recent
years also have adopted substantially similar fundamental restrictions that
often have been phrased in slightly different ways, resulting in minor but
unintended differences in effect or potentially giving rise to unintended
differences in interpretation. Accordingly, the Board has approved the
modification of certain of the Fund's fundamental restrictions, and the
elimination of others, in order to simplify and modernize the Fund's investment
policies and make them more uniform with those of the other Morgan Keegan Funds.
The Board believes that eliminating the disparities among the Morgan
Keegan Funds' fundamental restrictions will enhance MAM's ability to manage the
funds' assets efficiently and effectively in changing regulatory and investment
environments and permit the Board to review and monitor investment policies more
easily. In addition, standardizing the fundamental restrictions of the Morgan
Keegan Funds will assist the Morgan Keegan Funds in making required regulatory
filings in a more efficient and cost-effective way. Although the proposed
changes in fundamental restrictions will allow the Fund somewhat greater
investment flexibility to respond to future investment opportunities, the Board
does not anticipate that the changes, individually or in the aggregate, will
result at this time in a material change in the level of investment risk
associated with an investment in the Fund.
The discussion below summarizes each proposed change to the Fund's
fundamental restrictions and describes certain non-fundamental restrictions that
will be adopted by the Board in conjunction with the revision of the Fund's
13
<PAGE>
fundamental restrictions. ANY NON-FUNDAMENTAL RESTRICTION MAY BE MODIFIED OR
ELIMINATED BY THE BOARD AT ANY FUTURE DATE WITHOUT SHAREHOLDER APPROVAL.
If Fund shareholders approve Proposals 2a, b, c, d, e, f, g, h, i, j, k,
and l, those proposed changes to the Fund's fundamental restrictions will be
adopted by the Fund. The Fund's Statement of Additional Information will be
revised to reflect any changes as soon as practicable following the Meeting.
a. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
AND DIVERSIFICATION
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not invest more than 25% of its total assets
in securities of issuers in the same industry; 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.
PROPOSED FUNDAMENTAL RESTRICTIONS:
The Fund may not purchase the securities of any issuer
(other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities)
if, as a result, 25% or more of the Fund's total assets
would be invested in the securities of companies whose
principal business activities are in the same industry.
The Fund may not, with respect to 75% of the Fund's total
assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or
any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the Fund's total assets would be
invested in the securities of that issuer, or (b) the Fund
would hold more than 10% of the outstanding voting
securities of that issuer.
REASON FOR PROPOSED MODIFICATION:
The Board recommends that shareholders vote to modify the current
fundamental restriction. The proposed modification is intended to conform the
Fund's investment policies and restrictions to those of the other Morgan Keegan
Funds and to maximize the Fund's investment flexibility, subject to the
limitations imposed by the 1940 Act and by the Fund's investment policies.
14
<PAGE>
Presently, the Fund's concentration and diversification policies are combined in
one fundamental restriction. The proposed change separates the policies into two
distinct fundamental restrictions. Moreover, the modified fundamental
restriction excludes securities issued or guaranteed by the U.S. government or
by any of its agencies or instrumentalities from the concentration limitation.
There is no such exclusion from the current concentration limitation. A failure
to exclude all such securities from the concentration policy could hinder the
Fund's ability to purchase such securities in conjunction with taking temporary
defensive positions.
The proposed fundamental restriction concerning diversification is the
limitation imposed by the 1940 Act for diversified investment companies. The
amended fundamental restriction would allow the Fund, with respect to 25% of its
total assets, to invest more than 5% of its assets in the securities of one or
more issuers and to hold more than 10% of the voting securities of an issuer.
The Fund will continue to be required to invest 75% of its total assets so that
no more than 5% of total assets are invested in any one issuer, and so that the
Fund will not own more than 10% of the voting securities of an issuer.
The proposed fundamental restriction would give the Fund greater
investment flexibility by permitting it to acquire larger positions in the
securities of a particular issuer, consistent with its investment objective and
strategies. This increased flexibility could provide opportunities to enhance
the Fund's performance. Investing a larger percentage of the Fund's assets in a
single issuer's securities, however, would increase the Fund's exposure to
credit and other risks associated with that issuer's financial condition and
operations, including the risk of default on debt securities.
b. MODIFICATION OF FUNDAMENTAL RESTRICTION ON BORROWING
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not 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.
PROPOSED FUNDAMENTAL RESTRICTION:
The Fund may not borrow money, except that the Fund may
borrow for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33
1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within
three days (not including Sundays and holidays) to the
extent necessary to comply with the 33 1/3% limitation.
15
<PAGE>
If shareholders approve the modification of the Fund's fundamental
restriction on borrowing, the Board will adopt the following non-fundamental
investment restriction:
The Fund may borrow money only (a) from a bank, or (b) by
engaging in reverse repurchase agreements with any party
(reverse repurchase agreements are treated as borrowings
for purposes of the above fundamental restriction on
borrowing).
REASON FOR PROPOSED MODIFICATION:
The Board recommends that shareholders vote to modify the current
fundamental restriction. The proposed modification is intended to conform the
Fund's investment policies and restrictions to those of the other Morgan Keegan
Funds and to maximize the Fund's borrowing flexibility for future contingencies,
subject to the limitations imposed by the 1940 Act and by the Fund's investment
policies.
c. MODIFICATION OF FUNDAMENTAL RESTRICTION ON MAKING LOANS
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not 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.
PROPOSED FUNDAMENTAL RESTRICTION:
The Fund may not lend any security or make any other loan
if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, but this limitation does
not apply to purchases of debt securities or to repurchase
agreements.
REASON FOR PROPOSED MODIFICATION:
The Board recommends that shareholders vote to modify the current
fundamental restriction. The proposed modification is intended to conform the
Fund's investment policies and restrictions to those of the other Morgan Keegan
Funds and to ensure that the Fund will have the maximum flexibility to make
loans, subject to the limitations imposed by the 1940 Act and by the Fund's
investment policies.
16
<PAGE>
d. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMMODITIES
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not purchase or sell commodities and
commodity contracts.
PROPOSED FUNDAMENTAL RESTRICTION:
The Fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Fund
from purchasing or selling options and futures contracts
or from investing in securities or other instruments
backed by physical commodities).
REASON FOR PROPOSED MODIFICATION:
The Board recommends that shareholders vote to modify the current
fundamental restriction. The proposed changes are intended to conform the
fundamental restriction to those of the other Morgan Keegan Funds and to ensure
that the Fund will have the maximum flexibility to invest in commodities, or
other instruments that could be deemed to be commodities, when doing so is
permitted by policies established for the Fund by the Board.
e. MODIFICATION OF FUNDAMENTAL RESTRICTION ON REAL ESTATE INVESTMENT
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not 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.
PROPOSED FUNDAMENTAL RESTRICTION:
The Fund may not purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by
real estate or securities of companies engaged in the real
estate business).
17
<PAGE>
REASON FOR PROPOSED MODIFICATION:
The Board recommends that shareholders vote to modify the current
fundamental restriction. In addition to conforming the Fund's fundamental
restriction on real estate to that of other Morgan Keegan Funds, the proposed
amendment more completely describes the types of real estate-related securities
investments that would be permissible for the Fund and would permit the Fund to
purchase or sell real estate acquired as a result of ownership of securities or
other instruments (E.G., through foreclosure on a mortgage in which the Fund
directly or indirectly holds an interest). The Board believes that this
clarification will make it easier for decisions to be made concerning the Fund's
investments in real estate-related securities without materially altering the
general restriction on direct investments in real estate or interests in real
estate. The proposed change would also give the Fund the ability to invest in
assets secured by real estate.
f. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING SECURITIES
CURRENT FUNDAMENTAL RESTRICTION:
The fund may not underwrite the securities of other
issuers, except that the fund may invest in securities
that are not readily marketable without registration under
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.
PROPOSED FUNDAMENTAL RESTRICTION:
The fund may not underwrite securities issued by others,
except to
the extent that the fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of
restricted securities.
REASON FOR PROPOSED MODIFICATION:
The Board recommends that shareholders vote to modify the current
fundamental restriction. The proposed changes are intended to conform the
fundamental restriction to those of the other Morgan Keegan Funds and to ensure
that the Fund will have the maximum flexibility to underwrite securities of
other issuers, when doing so is permitted by policies established for the Fund
by the Board.
18
<PAGE>
g. ELIMINATION OF FUNDAMENTAL RESTRICTION ON PLEDGING ASSETS
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not 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.
REASON FOR PROPOSED ELIMINATION:
The Board recommends that shareholders vote to eliminate the current
fundamental restriction. The 1940 Act does not require the Fund to have a
fundamental restriction with respect to pledging assets. The proposed
elimination is intended to conform the Fund's investment policies and
restrictions to those of the other Morgan Keegan Funds and to maximize the
Fund's investment flexibility.
h. ELIMINATION OF FUNDAMENTAL RESTRICTION ON MARGIN TRANSACTIONS AND
SHORT SALES AND ADOPTION OF NON-FUNDAMENTAL RESTRICTIONS ON MARGIN
TRANSACTIONS AND SHORT SALES
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not purchase securities on "margin," make
short sales of securities, or maintain a short position in
any security.
PROPOSED NON-FUNDAMENTAL RESTRICTIONS:
The Fund may not sell securities short, unless it owns or
has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that
transactions in futures contracts and options are not
deemed to constitute selling securities short.
The Fund may not purchase securities on margin, except
that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided
that margin payments in connection with futures contracts
and options on futures contracts shall not constitute
purchasing securities on margin.
REASON FOR PROPOSED MODIFICATION:
The Board recommends that shareholders vote to eliminate the current
fundamental restriction. The proposed elimination is intended to conform the
19
<PAGE>
Fund's investment policies and restrictions to those of the other Morgan Keegan
Funds and to ensure that the Fund will have the maximum flexibility to purchase
securities on margin and make short sales, subject to the limitations imposed by
the 1940 Act and by the Fund's investment policies.
i. ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN OTHER
INVESTMENT COMPANIES
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not 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.
REASON FOR PROPOSED ELIMINATION:
The Board recommends that shareholders vote to eliminate the current
fundamental restriction. The proposed elimination is intended to conform the
Fund's investment policies and restrictions to those of the other Morgan Keegan
Funds and to permit the Fund to invest in the securities of other investment
companies, consistent with the limitations imposed by the 1940 Act. Although the
Fund has no immediate plans to invest in the securities of other investment
companies, eliminating the fundamental restriction would give the Fund
flexibility to invest in other investment companies to the extent permitted by
legal and regulatory requirements.
j. ELIMINATION OF FUNDAMENTAL RESTRICTION ON OPTIONS
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not 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.
REASON FOR PROPOSED ELIMINATION:
The Board recommends that shareholders vote to eliminate the current
fundamental restriction. The proposed elimination is intended to conform the
Fund's investment policies and restrictions to those of the other Morgan Keegan
20
<PAGE>
Funds and to ensure that the Fund will have the maximum flexibility to sell or
purchase options, subject to the limitations imposed by the 1940 Act and by the
Fund's investment policies.
k. ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN OIL, GAS,
AND MINERAL PROGRAMS
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not purchase or sell interests in oil or gas
or other mineral exploration or development programs.
REASON FOR PROPOSED ELIMINATION:
The Board recommends that shareholders vote to eliminate the current
fundamental restriction. The proposed elimination is intended to conform the
Fund's investment policies and restrictions to those of the other Morgan Keegan
Funds and to maximize the Fund's flexibility to invest in oil, gas, or mineral
programs. The 1940 Act does not require the Fund to have a fundamental
restriction on oil, gas, or mineral investments. The restriction was imposed by
state law and NSMIA preempts the requirement that the Fund have such a
restriction. Notwithstanding the elimination of this restriction, the Fund does
not expect to invest at this time in oil, gas, or mineral programs.
l. ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMPANIES
THAT HAVE BEEN IN OPERATION FOR LESS THAN THREE YEARS
CURRENT FUNDAMENTAL RESTRICTION:
The Fund may not 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.
REASON FOR PROPOSED ELIMINATION:
The Board recommends that shareholders vote to eliminate the current
fundamental restriction. The proposed elimination is intended to conform the
Fund's investment policies and restrictions to those of the other Morgan Keegan
Funds and to maximize the Fund's investment flexibility. There is no legal
requirement that the Fund have an affirmative policy on investment in companies
that have been in operation for less than three years. This restriction was
imposed by state law and NSMIA preempts the requirement that the Fund have such
a restriction.
REQUIRED VOTE
Approval of Proposal 3 requires the affirmative vote of a "majority of the
outstanding voting securities" of the Fund, which for this purpose means the
21
<PAGE>
affirmative vote of the lesser of (i) 67% or more of the shares of the Fund
present at the Meeting or represented by proxy if more than 50% of the
outstanding shares of the Fund are so present or represented, or (ii) more than
50% of the outstanding shares of the Fund. Shareholders who vote FOR Proposal 3
will vote FOR each proposed change described above. THOSE SHAREHOLDERS WHO WISH
TO VOTE AGAINST ANY OF THE SPECIFIC PROPOSED CHANGES DESCRIBED ABOVE MAY DO SO
ON THE PROXY CARD.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 3.
-----------------------------------------------------------
PROPOSAL 4. RATIFICATION OF SELECTION OF THE FUND'S INDEPENDENT
---------- PUBLIC ACCOUNTANTS.
If shareholders do not approve Proposal 1 (I.E., the Fund does not convert
into a series of Select Fund), the Fund seeks to have shareholders ratify the
selection of its independent public accountants.
The Board, including all of the Independent Directors, has selected KPMG
LLP to continue to serve as independent accountants of the Fund, subject to
ratification by the Fund's shareholders. KPMG LLP has no direct financial
interest or material indirect financial interest in the Fund. Representatives of
KPMG LLP are not expected to attend the Meeting, but have been given the
opportunity to make a statement if they so desire, and will be available should
any matter arise requiring their presence.
The independent accountants examine the Fund's annual financial statements
and provide other audit and tax-related services. In recommending the selection
of KPMG LLP, the Board reviewed the nature and scope of the services to be
provided (including non-audit services) and whether the performance of such
services would affect the accountants' independence.
KPMG LLP serves as Select Fund's independent accountants.
REQUIRED VOTE
Approval of Proposal 4 requires the affirmative vote of a majority of the
votes present at the Meeting, provided that a quorum is present.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" PROPOSAL 4.
-----------------------------------------------------------
22
<PAGE>
INFORMATION CONCERNING ADVISER,
DISTRIBUTOR AND AFFILIATED COMPANIES
MAM serves as the Fund's investment adviser and manager under an
Investment Advisory and Management Agreement ("Advisory Agreement"). MAM
receives for its services a management fee, calculated daily and payable
quarterly, at an annual rate of 1.0% of the average daily net assets of the Fund
for the first $100 million of average daily net assets and 0.75% of average
daily net assets exceeding $100 million. The advisory fee is higher than fees
paid by most other funds to their investment advisers, but is not significantly
different, in MAM's opinion, from the fees of advisers to mutual funds with
similar specialized policies. MAM 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, 2000, the advisory fee
paid to MAM was $823,851.
Morgan Keegan acts as distributor of the Fund's shares pursuant to an
Underwriting Agreement between the Fund and Morgan Keegan ("Underwriting
Agreement"). Pursuant to the Underwriting Agreement, as currently in effect,
Morgan Keegan receives as compensation for its services a 3.0% sales charge on
purchased shares. The sales charge is reduced to 1.0% on sales of $1 million or
more, and is waived on certain purchases of Fund shares.
In addition, Morgan Keegan receives an annual distribution fee equivalent
up to 0.25% of the Fund's average daily net assets and an annual service fee
equivalent to up to 0.25% 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") that, among other
things, permits it to pay Morgan Keegan a service fee and a distribution fee out
of its net assets. 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, 2000, the Fund paid service fees
and distribution fees to Morgan Keegan pursuant to the Plan of $411,926. For the
fiscal year ended June 30, 2000, expenses paid for by Morgan Keegan included
$247,155 for commissions and other compensation to employees, $39,319 for
printing and mailing, and $97,352 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 Fund benefits from the Plan by virtue of
the broker's ongoing involvement with individual customers as well as the
benefit from continued promotion. For the fiscal year ended June 30, 2000,
Morgan Keegan retained sales charges for $36,694 received on sales of the Fund's
shares.
23
<PAGE>
Morgan Keegan also serves as the Fund's transfer and dividend disbursing
agent. For these services, Morgan Keegan 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.
MAM and Morgan Keegan are located at Morgan Keegan Tower, 50 Front Street,
Memphis, Tennessee 38103.
24
<PAGE>
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting. If,
however, any other matters properly come before the Meeting, it is the intention
that proxies that do not contain specific instructions to the contrary will be
voted on such matters in accordance with the judgment of the persons designated
in the proxies.
SHAREHOLDER PROPOSALS
The Fund does not hold annual meetings of shareholders. Shareholders
wishing to submit proposals for inclusion in a proxy statement and form of proxy
for a subsequent shareholders' meeting should send their written proposals to
the Secretary of the Fund, 50 Front Street, Memphis, Tennessee 38103. The Fund
has not received any shareholder proposals to be presented at this Meeting.
By Order of the Board of Directors,
Allen B. Morgan, Jr.
President
August 28, 2000
Memphis, Tennessee
25
<PAGE>
APPENDIX A
----------
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of the Fund's
outstanding equity securities as of August 9, 2000 by each beneficial owner of
5% or more of the Fund's outstanding equity securities:
SHARES OF EQUITY SECURITIES
BENEFICIALLY OWNED
-----------------------
NAME AND ADDRESS AMOUNT PERCENT
----------------------------- ------------- ---------
Memphis Plough Community 158,378.48 6.28%
Foundation
1900 Union Avenue
Memphis, TN 38104
<PAGE>
APPENDIX B
----------
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is
made as of __________, 2000, between Morgan Keegan Southern Capital Fund, Inc.,
a Maryland corporation ("Old Fund"), and Morgan Keegan Select Fund, Inc., a
Maryland corporation ("Select Fund"), on behalf of its series, Morgan Keegan
Select Capital Growth Fund, a segregated portfolio of assets ("series") thereof
("New Fund"). (Old Fund and New Fund are sometimes referred to herein
individually as a "Fund" and collectively as the "Funds"; and Old Fund and
Select Fund are sometimes referred to herein individually as an "Investment
Company.") All agreements, representations, actions, and obligations described
herein made or to be taken or undertaken by New Fund are made and shall be taken
or undertaken by Select Fund on its behalf.
Old Fund intends to change its identity and form -- by converting to a
series of Select Fund -- through a reorganization within the meaning of section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended ("Code"). Old Fund
desires to accomplish such conversion by transferring all its assets to New Fund
(which is being established solely for the purpose of acquiring such assets and
continuing Old Fund's business) in exchange solely for voting shares of common
stock of New Fund and New Fund's assumption of Old Fund's liabilities, followed
by the constructive distribution of the New Fund Shares PRO RATA to the holders
of shares of common stock of Old Fund ("Old Fund Shares") in exchange therefor,
all on the terms and conditions set forth in this Agreement (which is intended
to be, and is adopted as, a "plan of reorganization" within the meaning of the
regulations under the Code ("Regulations")). All such transactions are referred
to herein as the "Reorganization."
Old Fund has a single class of shares. New Fund's shares will be divided
into multiple classes of shares, including Class A shares. Only New Fund's Class
A shares ("New Fund Shares"), which are substantially similar to the Old Fund
Shares, are involved in the Reorganization.
In consideration of the mutual promises herein contained, the parties
agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
1.1. Old Fund agrees to assign, sell, convey, transfer, and deliver all
of its assets described in paragraph 1.2 ("Assets") to New Fund. New Fund agrees
in exchange therefor --
(a) to issue and deliver to Old Fund the number of full and
fractional (rounded to the third decimal place) New Fund Shares equal to
the number of full and fractional Old Fund Shares then outstanding, and
(b) to assume all of Old Fund's liabilities described in paragraph
1.3 ("Liabilities").
<PAGE>
Such transactions shall take place at the Closing (as defined in paragraph 2.1).
1.2. The Assets shall include all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on Old Fund's books, and
other property owned by Old Fund at the Effective Time (as defined in paragraph
2.1).
1.3. The Liabilities shall include all of Old Fund's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement.
1.4. At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Share issued pursuant to paragraph 4.4 shall be
redeemed by New Fund for $1.00 and (b) Old Fund shall distribute the New Fund
Shares it received pursuant to paragraph 1.1 to its shareholders of record,
determined as of the Effective Time (each a "Shareholder" and collectively
"Shareholders"), in constructive exchange for their Old Fund Shares. Such
distribution shall be accomplished by Select Fund's transfer agent's opening
accounts on New Fund's share transfer books in the Shareholders' names and
transferring such New Fund Shares thereto. Each Shareholder's account shall be
credited with the respective PRO RATA number of full and fractional (rounded to
the third decimal place) New Fund Shares due that Shareholder. All outstanding
Old Fund Shares, including those represented by certificates, shall
simultaneously be canceled on Old Fund's share transfer books. New Fund shall
not issue certificates representing the New Fund Shares in connection with the
Reorganization.
1.5. As soon as reasonably practicable after distribution of the New Fund
Shares pursuant to paragraph 1.4, but in all events within six months after the
Effective Time, Old Fund shall be terminated and any further actions shall be
taken in connection therewith as required by applicable law.
1.6. Any reporting responsibility of Old Fund to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.7. Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's books of the Old Fund
Shares constructively exchanged therefor shall be paid by the person to whom
such New Fund Shares are to be issued, as a condition of such transfer.
2. CLOSING AND EFFECTIVE TIME
2.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
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<PAGE>
or about October 31, 2000, or at such other place and/or on such other date as
to which the parties may agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the date
thereof or at such other time as to which the parties may agree ("Effective
Time").
2.2. Old Fund's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Old Fund to New Fund, as
reflected on New Fund's books immediately following the Closing, does or will
conform to such information on Old Fund's books immediately before the Closing.
Old Fund's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred to
New Fund at the Effective Time and (b) all necessary taxes in conjunction with
the delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
2.3. Select Fund's transfer agent shall deliver at the Closing a
certificate as to the opening of accounts in the Shareholders' names on New
Fund's share transfer books. Select Fund shall issue and deliver a confirmation
to Old Fund evidencing the New Fund Shares to be credited to Old Fund at the
Effective Time or provide evidence satisfactory to Old Fund that such New Fund
Shares have been credited to Old Fund's account on such books. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
stock certificates, receipts, or other documents as the other party or its
counsel may reasonably request.
2.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1. Old Fund represents and warrants as follows:
3.1.1. Old Fund is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland; and
its Articles of Incorporation are on file with the Department of
Assessments and Taxation of Maryland ("Department");
3.1.2. Old Fund is duly registered as an open-end management
investment company under the Investment Company Act of 1940, as amended
("1940 Act"), and such registration will be in full force and effect at
the Effective Time;
3.1.3. At the Closing, Old Fund will have good and marketable title
to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, New Fund will acquire good
and marketable title thereto;
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<PAGE>
3.1.4. New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the
terms hereof;
3.1.5. Old Fund qualified for treatment as a regulated investment
company under Subchapter M of the Code ("RIC") for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; the
Assets shall be invested at all times through the Effective Time in a
manner that ensures compliance with the foregoing; and Old Fund has no
earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M did not apply to it;
3.1.6. Old Fund incurred the Liabilities in the ordinary course of
its business;
3.1.7. Old Fund is not under the jurisdiction of a court in a
"title 11 or similar case" (within the meaning of section 368(a)(3)(A) of
the Code);
3.1.8. Not more than 25% of the value of Old Fund's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers;
3.1.9. As of the Effective Time, Old Fund will not have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Old Fund Shares; and
3.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Old Fund's
shareholders.
3.2. New Fund represents and warrants as follows:
3.2.1. Select Fund is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and its Articles of Incorporation are on file with the Department;
3.2.2. Select Fund is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
3.2.3. Before the Effective Time, New Fund will be a duly
established and designated series of Select Fund;
3.2.4. New Fund has not commenced operations and will not do so
until after the Closing;
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<PAGE>
3.2.5. Prior to the Effective Time, there will be no issued and
outstanding shares in New Fund or any other securities issued by New Fund,
except as provided in paragraph 4.4;
3.2.6. No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets
in the Reorganization;
3.2.7. The New Fund Shares to be issued and delivered to Old Fund
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of New Fund, fully paid and non-assessable;
3.2.8. New Fund will be a "fund" as defined in section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
3.2.9. New Fund has no plan or intention to issue additional New
Fund Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end investment
company; nor does New Fund have any plan or intention to redeem or
otherwise reacquire any New Fund Shares issued to the Shareholders
pursuant to the Reorganization, except to the extent it is required by the
1940 Act to redeem any of its shares presented for redemption at net asset
value in the ordinary course of that business;
3.2.10. Following the Reorganization, New Fund (a) will continue Old
Fund's "historic business" (within the meaning of section 1.368-1(d)(2) of
the Regulations), and (b) will use a significant portion of Old Fund's
"historic business assets" (within the meaning of section 1.368-1(d)(3) of
the Regulations) in a business; moreover, New Fund (c) has no plan or
intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and dispositions
necessary to maintain its status as a RIC, and (d) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
3.2.11. There is no plan or intention for New Fund to be dissolved
or merged into another corporation or a business trust or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code) following
the Reorganization; and
3.2.12. Immediately after the Reorganization, (a) not more than 25%
of the value of New Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock and securities of five or fewer issuers.
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<PAGE>
3.3. Each Fund represents and warrants as follows:
3.3.1. The fair market value of the New Fund Shares received by
each Shareholder will be approximately equal to the fair market value of
its Old Fund Shares constructively surrendered in exchange therefor;
3.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Old Fund Shares before the Reorganization to any person "related"
(within the meaning of section 1.368-1(e)(3) of the Regulations) to either
Fund or (ii) any portion of the New Fund Shares to be received by them in
the Reorganization to any person related (within such meaning) to New
Fund, (b) does not anticipate dispositions of those New Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Old Fund as an open-end investment
company, (c) expects that the percentage of Shareholder interests, if any,
that will be disposed of as a result of or at the time of the
Reorganization will be DE minimis, and (d) does not anticipate that there
will be extraordinary redemptions of New Fund Shares immediately following
the Reorganization;
3.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.4. Immediately following consummation of the Reorganization,
the Shareholders will own all the New Fund Shares and will own such shares
solely by reason of their ownership of Old Fund Shares immediately before
the Reorganization;
3.3.5. Immediately following consummation of the Reorganization, New
Fund will hold the same assets -- except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization -- and be subject
to the same liabilities that Old Fund held or was subject to immediately
prior to the Reorganization, plus any liabilities for expenses of the
parties incurred in connection with the Reorganization. Such excepted
assets, together with the amount of all redemptions and distributions
(other than regular, normal dividends) made by Old Fund immediately
preceding the Reorganization, will, in the aggregate, constitute less than
1% of its net assets;
3.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount; and
3.3.7. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
B-6
<PAGE>
4. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
4.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by each Investment Company's board of directors
and shall have been approved by Old Fund's shareholders in accordance with
applicable law;
4.2. All necessary filings shall have been made with the Securities and
Exchange Commission ("SEC") and state securities authorities, and no order or
directive shall have been received that any other or further action is required
to permit the parties to carry out the transactions contemplated hereby. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Investment Company may for itself waive any of such conditions;
4.3. Each Investment Company shall have received an opinion of Kirkpatrick
& Lockhart LLP, addressed to and in form and substance reasonably satisfactory
to it, as to the federal income tax consequences mentioned below ("Tax
Opinion"). In rendering the Tax Opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on the
representations and warranties made in this Agreement (which such counsel may
treat as representations and warranties made to it), and/or in separate letters
addressed to such counsel, and the certificates delivered pursuant to paragraph
2.4. The Tax Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein and conditioned on consummation of the
Reorganization in accordance with this Agreement, for federal income tax
purposes:
4.3.1. New Fund's acquisition of the Assets in exchange solely for
New Fund Shares and its assumption of the Liabilities, followed by Old
Fund's distribution of those shares PRO RATA to the Shareholders
constructively in exchange for their Old Fund Shares, will qualify as a
reorganization within the meaning of section 368(a)(1)(F) of the Code, and
each Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
4.3.2. Old Fund will recognize no gain or loss on the transfer of
the Assets to New Fund in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent distribution of
those shares to the Shareholders in constructive exchange for their Old
Fund Shares;
B-7
<PAGE>
4.3.3. New Fund will recognize no gain or loss on its receipt of
the Assets in exchange solely for New Fund Shares and its assumption of
the Liabilities;
4.3.4. New Fund's basis in the Assets will be the same as Old Fund's
basis therein immediately before the Reorganization, and New Fund's
holding period for the Assets will include Old Fund's holding period
therefor;
4.3.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Old Fund Shares solely for New Fund
Shares pursuant to the Reorganization;
4.3.6. A Shareholder's aggregate basis in the New Fund Shares to be
received by it in the Reorganization will be the same as the aggregate
basis in its Old Fund Shares to be constructively surrendered in exchange
for those New Fund Shares, and its holding period for those New Fund
Shares will include its holding period for those Old Fund Shares, provided
the Shareholder held them as capital assets at the Effective Time; and
4.3.7. For purposes of section 381 of the Code, New Fund will be
treated as if there had been no Reorganization. Accordingly, the
Reorganization will not result in the termination of Old Fund's taxable
year, Old Fund's tax attributes enumerated in section 381(c) of the Code
will be taken into account by New Fund as if there had been no
Reorganization, and the part of Old Fund's taxable year before the
Reorganization will be included in New Fund's taxable year after the
Reorganization;
Notwithstanding subparagraphs 4.3.2 and 4.3.4, the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes on the termination or
transfer thereof under a mark-to-market system of accounting.
4.4. Prior to the Closing, Select Fund's directors shall have authorized
the issuance of, and New Fund shall have issued, one New Fund Share to Morgan
Asset Management, Inc. ("MAM") in consideration of the payment of $1.00 to vote
on the matters referred to in paragraph 4.5; and
4.5. Select Fund (on behalf of and with respect to New Fund) shall have
entered into an advisory agreement, a distribution and service plan pursuant to
Rule 12b-1 under the 1940 Act, and other agreements necessary for New Fund's
operation as a series of an open-end investment company. Each such agreement and
plan shall have been approved by Select Fund's directors and, to the extent
required by law, by such of those directors who are not "interested persons" (as
defined in the 1940 Act) thereof and by MAM as New Fund's sole shareholder.
At any time before the Closing, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 4.1) if, in the
judgment of its board of directors, such waiver will not have a material adverse
effect on its Fund's shareholders' interests.
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<PAGE>
5. BROKERAGE FEES AND EXPENSES
5.1 Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
5.2 Old Fund and MAM will bear the Reorganization Expenses.
6. ENTIRE AGREEMENT; NO SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
7. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Old Fund's shareholders:
7.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before December 31, 2000; or
7.2. By the parties' mutual agreement.
In the event of termination under paragraphs 7.1(c) or 7.2, there shall be no
liability for damages on the part of either Fund, or the directors or officers
of either Investment Company, to the other Fund.
8. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Old Fund's shareholders, in a manner
mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
B-9
<PAGE>
9. MISCELLANEOUS
9.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
9.2. Nothing expressed or implied herein is intended or shall be construed
to confer on or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
9.3. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
MORGAN KEEGAN SOUTHERN CAPITAL
FUND, INC.
By:
-------------------
President
MORGAN KEEGAN SELECT FUND, INC.,
on behalf of its series,
Morgan Keegan Select Capital Growth Fund
By:
-------------------
President
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<PAGE>
MORGAN KEEGAN
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 18, 2000
This proxy is being solicited on behalf of the Board of Directors of
Morgan Keegan Southern Capital Fund, Inc. (the "Fund") and relates to the
proposals with respect to the Fund. The undersigned hereby appoints as proxies
Charles D. Maxwell, Allen B. Morgan, Jr. and Joseph C. Weller and each of them
(with power of substitution) to vote for the undersigned all shares of common
stock of the undersigned in the Fund at the Special Meeting of Shareholders to
be held at 10:00 a.m., Central time, on October 18, 2000 at Morgan Keegan Tower,
50 Front Street, Memphis, Tennessee 38103, and any adjournment thereof
("Meeting"), with all the power the undersigned would have if personally
present. The shares represented by this proxy will be voted as instructed.
Unless indicated to the contrary, this proxy shall be deemed to grant authority
to vote "FOR" all proposals relating to the Fund, with the Fund having
discretionary power to vote upon such other business as may properly come before
the Meeting. To vote by telephone, please call 1-800-564-2113.
YOUR VOTE IS IMPORTANT. Please date and sign this proxy below and return
it promptly in the enclosed envelope.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
--------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
<PAGE>
MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
1. Approval of reorganization of the Fund into Morgan /_/ /_/ /_/
Keegan Select Fund, Inc.
2. Election of the Fund's Board of Directors: (1) /_/ /_/ /_/
Allen B. Morgan, Jr., (2) William F. Hughes, Jr.,
(3) William Jefferies Mann, (4) James Stillman R.
McFadden, and (5) James D. Witherington, Jr.. A
vote FOR Proposal 2 is a vote to elect all five
nominees. A vote AGAINST Proposal 2 is a vote to
reject all five nominees. To ABSTAIN from voting for
any individual nominee(s), but to vote FOR all of
the other nominees, mark FOR ALL EXCEPT and write
the number(s) of the nominee(s) you wish to abstain
from voting for on the line below.
----------------------------------------------------
3. Approval of changes to the fundamental investment /_/ /_/ /_/
restrictions of the Fund. A vote FOR Proposal 3 is a
vote to approve all of the proposed changes to the
Fund's fundamental investment restrictions. A vote
AGAINST Proposal 3 is a vote to reject all of the
proposed changes to the Fund's fundamental
investment restrictions. To vote AGAINST any
specific fundamental investment restriction(s), but
FOR all of the other fundamental investment
restriction(s), mark FOR ALL EXCEPT and write the
letter(s) of the fundamental investment
restriction(s) you wish to reject on the line below.
----------------------------------------------------
4. Ratification of the selection of KPMG LLP as the /_/ /_/ /_/
Fund's independent public accountants.
Please sign within the box. If shares are held jointly, each shareholder named
should sign. If only one signs, his or her signature will be binding. If the
shareholder is a corporation, the President or a Vice President should sign in
his or her own name indicating this. If the Shareholder is a partnership, a
partner should sign in his or her own name, that he or she is a "Partner."
----------------------------------------------- ---------------------------
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Signature Date
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Signature (Joint Owners) Date