Dear Fellow Shareholders:
Over the past year, the stock market in the U.S. has been influenced by the
actions of the Federal Reserve. With the economy showing amazing strength
and signs of inflation appearing, the Fed raised short-term interest rates
six times in the past year. The rising interest rate environment, especially
in the last six months, has led to difficult market conditions. Technology,
biotech and utility stocks have dominated the performance of the broader
market over the last year, even though technology stocks have experienced
a significant correction of late. Retail, financial and transportation
sectors, due to rising interest rates and the prospects of a slower
economy, have been the weakest performing sectors.
The Morgan Keegan Southern Capital Fund returned -0.85% for the last year
(the Funds fiscal year) and -3.86% for the past six months. The performance
of the Fund mirrored that of the region and trailed the popular market
indices. The technology and energy sectors were among the Funds strongest
while financial and retail were the weakest. The communications sector,
however, was the Funds most disappointing. WorldCom, the Funds largest
position, was denied permission by the U.S. justice department to merge
with Sprint and, as a result, significantly underperformed the rest of
its sector. We continue to believe in the long-term prospects of WorldCom
as it is one of the fastest growing communications companies in the world.
We are optimistic about the market going forward. It appears the Federal
Reserve is nearly finished raising interest rates. The economy is showing
signs of slowing and appears to be headed towards a soft landing. Inflation,
while higher than in recent years, is in check despite the fact that oil
prices have soared. Corporate earnings continue to be very strong, providing
a healthy backdrop for the market. We expect financial and technology sectors
to lead the next market rally. Financial stocks, which have dramatically
underperformed the market, should rebound as the Fed ends a series of rate
hikes and signals a new interest rate cycle. Technology stocks, largely
responsible for the market rally the last few years, should rebound from
their recent correction as they continue to constitute the engine that
powers our economy.
The Southern Capital Fund has generated admirable returns since inception
even though stock performance in our region has recently been challenging.
The broader market has been dominated by the performance of technology and
other so-called new economy stocks which are not as prevalent in our
region. At this time, our Board of Directors proposes to expand the
investment opportunities of the Fund by lifting its Southern limitations.
We feel this will add more diversity and flexibility to the Fund. These
changes will broaden the investment opportunities of the Fund and
still allow us to participate in the opportunities of our region.
Carefully read the enclosed proxy information regarding lifting the
Southern limitations from the Fund and joining the Morgan Keegan Select
Fund Family. As we enter a new millenium, we feel the timing of the
proposed changes is appropriate and will enhance the future of the Fund.
We appreciate your support at this exciting time.
/s/Allen Morgan /s/E. Elkan Scheidt
Allen Morgan, Jr. E. Elkan Scheidt
President and Director Portfolio Manager
July 22, 2000
Below are the performance comparisons of the Southern Capital
Fund and other selected indices.
<TABLE>
<CAPTION>
Six months Twelve months
ended 6/30/00 ended 6/30/00
<S> <C> <C>
Southern Capital Fund* -3.86% -0.85%
Dow Jones Industrials -8.44% -3.31%
S&P 500 Index -0.42% 7.24%
</TABLE>
[FN]
*Fund results in this report were computed without a sales charge
unless otherwise indicated. Load-adjusted return for the six months
ended 6/30/00 was -6.75% and for the fiscal year was -3.82%. Past
performance is not indicative of future results. Share price and
return will vary, so you may have a gain or loss of principal when
you sell your shares.
*Stocks mentioned in this report may or may not be currently owned
by the Fund.
</FN>
<PAGE>
Morgan Keegan
Southern Capital Fund, Inc.
June 30, 2000
<TABLE>
<S> <C> <C>
BEVERAGES3.3%
Anheuser-Busch Companies, Inc. 14,000 $1,045,625
The Coca-Cola Company 21,500 1,234,906
CONSTRUCTION4.6%
*The Shaw Group 68,000 1,3,204,500
DATA PROCESSING9.9%
*Acxiom Corporation 40,000 1,090,000
*Concord EFS, Inc. 160,100 4,162,600
Electronic Data Systems Corporation 24,500 1,010,625
*NOVA Corporation 23,000 642,563
ENERGY/ENERGY RELATED10.9%
Exxon Mobil Corporation 19,942 1,565,447
*Gulf Island Fabrication, Inc. 67,500 1,147,500
Noble Affiliates, Inc. 20,000 745,000
*Noble Drilling Corporation 15,000 617,813
*Patterson Energy 100,000 2,850,000
Santa Fe International 18,000 628,875
FINANCIAL SERVICES4.0%
Bank of America Corporation 18,000 774,000
Coastal Bancorp, Inc. 45,000 646,875
Compass Bancshares, Inc. 24,471 417,536
First Federal Bancshares (Arkansas) 25,000 368,750
First Tennessee National Corporation 33,000 546,563
HEALTH CARE/PHARMACEUTICAL8.7%
*Health Management Associates 100,000 1,306,250
Merck & Co., Inc. 16,000 1,226,000
*Orthodontic Centers of America, Inc. 60,000 1,357,500
*Renal Care Group, Inc. 87,000 2,127,420
INDUSTRIAL EQUIPMENT2.2%
General Electric Company 21,000 1,113,000
*NS Group, Inc. 20,000 418,750
NEWSPAPER / BROADCASTING1.5%
Gannett Co., Inc. 17,000 1,016,813
PAPER PRODUCTS2.4%
*Buckeye Technologies, Inc. 75,000 1,645,313
REAL ESTATE INVESTMENT TRUSTS0.6%
RFS Hotel Investors, Inc. 35,000 411,250
RESTAURANT1.8%
*OCharleys Inc. 90,000 1,226,250
RETAIL8.0%
*AutoZone, Inc. 44,900 987,800
Dollar General Corporation 80,801 1,575,620
The Home Depot, Inc. 60,000 2,996,250
TECHNOLOGY23.9%
*America Online, Inc. 17,000 896,750
*Cree, Inc. 26,500 3,537,750
*Finisar Corporation 20,000 523,750
*Microsoft Corporation 25,500 2,040,000
*Qlogic Corporation 20,500 1,354,281
*RF Micro Devices, Inc. 19,500 1,708,688
*SCI Systems, Inc. 94,200 3,691,463
Texas Instruments Incorporated 41,000 2,816,188
TELECOMMUNICATIONS15.4%
*BellSouth Corporation 24,000 1,023,000
*CommScope, Inc. 42,000 1,722,000
*Dycom Industries, Inc. 46,125 2,121,750
*SBC Communications Inc. 24,000 1,038,000
*WorldCom, Inc. 104,597 4,798,387
TRANSPORTATION2.6%
*EGL, Inc. 60,000 1,845,000
Total Equity Securities
(Cost $39,378,453) $69,224,398
</TABLE>
[FN]
*Non-Income Producing
</FN>
<PAGE>
<TABLE>
<S> <C>
STATE STREET BANK & TRUST COMPANY:
*Dated June 30, 2000, 3.00%, to be
repurchased at $615,153 on $0615,000)
July 3, 2000 (Euro Deposit)
Total Investments (cost $39,993,453) 100.7%) $69,839,398)
Other assets and liabilities, (net) (.7)% ((452,460))
Net Assets 100.0%) $69,386,938)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Assets:
Investments, at value
Equity securities $69,224,398
Repurchase agreements 615,000
Total investments (Cost $39,993,453) 69,839,398
Cash 2,733
Receivable for securities sold 211,503
Receivable for fund shares sold 242
Dividends and interest receivable 25,484
Other assets 16,113
TOTAL ASSETS 70,095,473
Liabilities:
Payable for fund shares redeemed 327,006
Accrued expenses 107,472
Due to affiliates 274,057
TOTAL LIABILITIES 708,535
Net Assets $69,386,938
NET ASSETS consist of:
Accumulated net realized gains on investments 4,387,120
Net unrealized appreciation of investments 29,845,945
Par value 2,583
Additional paid-in capital 35,151,290
Net Assets $69,386,938
NET ASSET VALUE and Redemption Price Per Share
($69,386,938 divided by 2,582,794
Shares of Common Stock Outstanding) $26.87
Offering Price (based upon 3% commission) $27.70
</TABLE>
[FN]
See accompanying notes to audited financial statements.
</FN>
<PAGE>
<TABLE>
<S> <C>
Investment Income:
Dividends $ 00784,343
Interest 49,509
833,852
Expenses:
Investment advisory fee 823,851
Service fee 205,963
Distribution fee 205,963
Legal 46,400
Audit 15,700
Accounting and transfer agent fees 90,000
Custodian costs 15,700
Registration fees 24,049
Directors fees 12,000
Other 6,600
1,446,226
Net Investment Loss (612,374)
Realized and unrealized gains (losses) on investments:
Realized gain from securities transactions, net:
Proceeds from sales $40,080,061
Cost of securities sold $34,959,134
Net realized gain on investment transactions 5,120,927
Change in unrealized appreciation for the period (5,367,219)
Net loss on investments (246,292)
Decrease in net assets resulting from operations $(858,666)
</TABLE>
[FN]
See accompanying notes to audited financial statements.
</FN>
<PAGE>
<TABLE>
<S> <C> <C>
2000 1999
Increase (decrease) in net assets from operations
Net investment loss $00(612,374) $00(596,208)
Net realized gain (loss)
on investment transactions 5,120,927 (48,165)
Change in unrealized appreciation (5,367,219) 5,017,540
Increase (decrease) in net assets
resulting from operations (858,666) 4,373,167
Capital share transactions, net (25,648,197) 5,900,039
Distributions to shareholders from:
Net realized gain on investments (2,479,628)
Return of capital (106,784)
(2,586,412)
Total increase (decrease) in net assets (26,506,863) 7,686,794
Net Assets:
Beginning of period 95,893,801 88,207,007
End of period $69,386,938 $95,893,801
</TABLE>
[FN]
See accompanying notes to audited financial statements.
</FN>
<PAGE>
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Organization:
The Fund commenced operations on September 22, 1986 and is
registered under the Investment Company Act of 1940 as an open-end, diversified
management investment company. The Fund invests primarily in equity securities
in Southern based companies that offer the opportunity for capital appreciation.
Security Valuation:
Investments in securities traded on national securities exchanges are stated at
the last reported sales price on the day of valuation. Securities traded in the
over-the-counter market and listed securities for which no sale was reported on
that date are stated at the last quoted bid price. Short-term securities are
valued at amortized cost or original cost plus accrued interest, both of which
approximate market.
Federal Income Taxes:
The Funds policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
Realized Gains and Losses on Securities:
The Fund determines the gain or loss realized on sales of securities by
comparing the identified cost of the security lot sold with the net sales
proceeds.
Other Policies:
The Fund follows industry practice and records security transactions on the
trade date. Dividend income and distributions to shareholders are recognized on
the ex-dividend date and interest is recognized on an accrual basis.
Income distributions and capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for post-October 31 losses and wash sale transactions.
On the statement of assets and liabilities, as a result of permanent book to
tax differences, undistributed net investment income has been increased
$612,374 resulting in a reclassification to additional paid-in capital and
accumulated net realized gains.
Repurchase Agreements:
It is the Funds policy for securities purchased under agreements to resell to
have market value equal to or greater than the Funds purchase price and to
have such securities taken into possession by the Funds custodian.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
NOTE 2: CAPITAL SHARE TRANSACTIONS
At June 30, 2000, there were 100 million shares of .001 par value capital
shares authorized, and paid-in capital aggregated $35,153,873.
<PAGE>
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
2000 1999
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold ,103,111 $2,727,676 ,716,481) $18,341,166)
Shares reinvested , 106,506) 2,573,186)
Shares redeemed (1,059,300) (28,375,873) (604,584) (15,014,313)
Net increase
(decrease) (956,189) (25,648,197) ) 218,403) $. 5,900,039)
</TABLE>
NOTE 3: INVESTMENT TRANSACTIONS
Purchases of investment securities (excluding short-term investments and other
investments that are usually held until maturity) aggregated $16,307,487 in
2000.
At June 30, 2000, the accumulated unrealized appreciation of securities with
gains was $31,509,099 and the accumulated unrealized depreciation of securities
with losses was $1,663,154 . The tax basis of the Funds securities is
$40,068,511.
NOTE 4: INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
The Fund pays advisory fees for investment management and advisory services to
Morgan Asset Management, Inc. (Advisor) under a management and investment
advisory agreement (Agreement) that provides for fees to be computed at an
annual rate of 1% of the Funds average daily net assets up to $100 million and
.75% of the Funds average daily net assets over $100 million. The Advisor has
agreed to reimburse expenses exclusive of taxes, interest on borrowings,
brokerage commissions, distribution fees, and extraordinary expenses to the
extent that they exceed 1.5% of the Funds average daily net assets for any
full fiscal year.
Morgan Keegan & Co., Inc. acts as a distributor of the Funds shares pursuant
to an agreement, Distribution Agreement. To compensate Morgan Keegan &
Company, Inc. for acting as distributor and for its expenses incurred under the
Distribution Agreement, the Fund has adopted a Plan of Distribution pursuant to
Rule 12b-1 (the plan) under the Investment Company Act of 1940. Under the
Plan, the Fund pays Morgan Keegan & Company, Inc. a distribution fee and a
service fee, which each are accrued daily and paid quarterly, of one-quarter of
one percent (.25%) on an annualized basis of the Funds average daily net
assets. Amounts due to and from the Advisor and Morgan Keegan & Company, Inc.
are presented net as Due to Affiliates. The Fund also pays Morgan Keegan &
Company, Inc. for all fund accounting services and transfer agent services
which amount to $90,000, annually. Commissions of $6,520 were paid to Morgan
Keegan & Company, Inc. for execution of portfolio transactions.
Morgan Keegan & Co., Inc. also charges a three percent commission on all sales
of the Funds shares except (1) reinvestment of dividends and capital gains; (2)
sales to Morgan Keegan employees, Fund directors, and their immediate families;
and (3) sales of more than $1,000,000 (on which a one percent commission is
charged). Sales commissions retained by Morgan Keegan & Company, Inc. from the
proceeds of capital share transactions were approximately $36,694 for the year
ended June 30, 2000.
Certain officers and directors of the Fund are also officers and directors of
the Advisor and distributor.
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
06/30/00 06/30/99 06/30/98 06/30/97 06/30/96
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $27.10 $26.56 $21.64 $18.06 $14.34
Income from Investment Operations
Net Investment Loss (0.20) (0.17) (0.16) (0.11) (0.07)
Net Gain (Loss)
on Securities (0.03) 1.46 5.57 4.64 4.08
Total from
Investment Operations (0.23) 1.29 5.41 4.53 4.01
Less Distributions
Dividends
(from net investment
income) (0.03)
Distribution
(from realized gains) (0.72) (0.49) (0.87) (0.26)
Distribution
(return of capital) (0.03) (0.08)
Net Asset Value,
end of period $26.87 $27.10 $26.56 $21.64 $18.06
Total Return* (0.85%) 5.20%p) 25.32%p) 26.32%)p 28.30%p)
Ratios/Supplemental Data
Net Assets,
end of period 69,386,938 95,893,801 88,207,007 53,925,763 37,505,196
Expenses to
Average Net Assets** 1.76% 1.74%)p) 1.79%)p) 1.99%)p) 2.00%
Net Investment
Loss to Average
Net Assets (0.74%) (0.68%)p) (0.66%)p) (0.56%)p) (0.49%)p
Portfolio Turnover
Rate 20% 15%)p) 28%)p) 30%)p) 69%
</TABALE>
<FN>
**Total return does not include front end sales load.
**2.2% before excess reimbursement and fee waiver from Advisor in 1996.
See accompanying notes to audited financial statements.
</FN>
<PAGE>
We have audited the accompanying statement of assets and liabilities of Morgan
Keegan Southern Capital Fund, Inc.,
including the schedule of investments, as of June 30, 2000, and the related
statement of operations for the year ended June 30, 2000 and the statements of
changes in net assets for each of the years in the two-year period then ended
and financial highlights for each of the years in the five-year period then
ended. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the over all financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the
financial position of Morgan Keegan Southern Capital Fund, Inc.
as of June 30, 2000, the results of its operations for the year ended June 30,
2000 and changes in its net assets for each of
the years in the two-year period then ended, and financial highlights for each
of the years in the five-year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG
Memphis, Tennessee
July 29, 2000
<PAGE>
ALABAMA
Birmingham
(205) 879-0016
Decatur
(256) 350-1925
Fairhope
(334) 928-0555
Huntsville
(256) 539-6739
Mobile
(334) 316-3100
Montgomery
(334) 262-0100
ARKANSAS
Little Rock
(501) 666-1566
Rogers
(501) 936-7774
FLORIDA
Ft. Lauderdale
(954) 728-2800
Palm Beach
(561) 835-8141
Pensacola
(850) 434-2207
Sarasota
(941) 331-1100
GEORGIA
Alpharetta
(678) 566-2500
Athens
(706) 613-9915
Atlanta
(404) 240-6700
Augusta
(706) 821-2640
Columbus
(706) 257-7900
LaGrange
(706) 880-1300
KENTUCKY
Bowling Green
(270) 781-0430
Covington
(859) 291-9535
Lexington
(606) 253-9769
Louisville
(502) 589-7979
LOUISIANA
Baton Rouge
(225) 344-9020
Lafayette
(337) 232-0644
Mandeville
(504) 727-9923
New Orleans
(504) 529-1556
Shreveport
(318) 424-2000
MASSACHUSETTS
Boston
(617) 542-9515
MISSISSIPPI
Jackson
(601) 368-2200
NEW YORK
New York
(212) 319-0443
NORTH CAROLINA
Charlotte
(704) 442-4700
Durham
(919) 419-2500
Raleigh
(919) 781-8187
Wilmington
(910) 256-2406
TENNESSEE
Jackson
(901) 668-1010
Knoxville
(865) 521-6653
Memphis
Morgan Keegan Tower
(901) 524-4100
Memphis
Crescent Center
(901) 766-7700
Nashville
(615) 255-0600
TEXAS
Austin
(512) 329-6700
Dallas
(214) 365-5500
Houston
Post Oak Park
(713) 840-3600
Houston
Memorial City Plaza
(713) 647-5300
VIRGINIA
Richmond
(804) 225-1100
</PAGE>
</TABLE>
