MORGAN KEEGAN SOUTHERN CAPITAL FUND INC
DEFS14A, 2000-08-29
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                            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.
--------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)


--------------------------------------------------------------------------------
    (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:


<PAGE>





                    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


<PAGE>





                    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.


<PAGE>

                                    By order of the Board of Directors,



                                    Allen B. Morgan, Jr.
                                    President

August 28, 2000
Memphis, Tennessee


<PAGE>






-------------------------------------------------------------------------------
                            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.

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



<PAGE>


                    MORGAN KEEGAN SOUTHERN CAPITAL FUND, INC.

                                 50 FRONT STREET
                            MEMPHIS, TENNESSEE 38103
                                ----------------

                                 PROXY STATEMENT

                         SPECIAL MEETING OF SHAREHOLDERS
                                OCTOBER 18, 2000
                                 ---------------

                               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


<PAGE>


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


                                       2
<PAGE>


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

                                   3

<PAGE>


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


                                  4
<PAGE>

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.


                                  5
<PAGE>

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


                                  6
<PAGE>


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.


                                  7
<PAGE>

      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.


                                  8
<PAGE>

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.
      ----------

      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.


                                  9
<PAGE>

      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


                                      B-2
<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;



                                      B-3
<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;

                                      B-4
<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.

                                      B-5
<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.


                                      B-8
<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


                                      B-10
<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."

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

-----------------------------------------------     ---------------------------
Signature                                          Date

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

-----------------------------------------------     ---------------------------
Signature (Joint Owners)                           Date


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