HomeMy WebLinkAbout37-93 RESOLUTION•
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RESOLUTION NO. 17-Q3
A RESOLUTION OF THE CITY COUNCIL OF FAYETTEVILLE,
ARKANSAS RATIFYING THE ACTION OF THE FAYETTEVILLE PUBLIC
FACILITIES BOARD, WITH REFERENCE TO THE ISSUANCE OF NOT
TO EXCEED $8,500,000 OF THE FAYETTEVILLE PUBLIC
FACILITIES BOARD, ARKANSAS SINGLE FAMILY MORTGAGE REVENUE
REFUNDING BONDS, SERIES 1993
WHEREAS, The Fayetteville Public Facilities Board (the
"Board") has considered, pursuant to its policies, and adopted a
resolution entitled: 'A resolution authorizing the issuance of not
to exceed $8,500,000 principal amount of Single Family Mortgage
Revenue Refunding Bonds, Series 1993 for the purpose of refunding
the Board's Single Family Mortgage Revenue Bonds, Series 1979; and
authorizing the execution and delivery of a Trust Indenture for the
1993 Bonds and releasing the 1979 Trust Indenture; authorizing the
execution and delivery of an Official Statement relating to the
Series 1993 Bonds; authorizing the execution and delivery of a
Purchase Contract providing for the sale of the Series 1993 Bonds
to the purchaser thereof; and prescribing matters pertaining
thereto"; and
WHEREAS, pursuant to Ordinance 2485 of the City Council of the
City of Fayetteville, Arkansas, as amended, it is necessary for the
City Council to ratify the issuance of obligations of the Board;
and
THEREFORE, BE IT RESOLVED, that the action of the Board in its
resolution authorizing the issuance of not to exceed $8,500,000 of
its bonds designated "The Fayetteville Public Facilities Board
Single Family Mortgage Revenue Refunding Bonds, Series 1993", and
the proposed actions of the Board pursuant to the resolution
described above (of which a copy is hereto attached and by this
reference made a part hereof) is hereby ratified.
This resolution shall be effective from and after the date of
its passage.
ATTEST:
APPROVED:
City lerk
Dated:
MAYOR
neemew.wc5
491893
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THE FAYETTEVILLE PUBLIC FACILITIES BOARD
RESOLUTION NO. 9.3'.2
A RESOLUTION AUTHORIZING THE ISSUANCE OF NOT TO EXCEED
$8,500,000 PRINCIPAL AMOUNT OF SINGLE FAMILY MORTGAGE
REVENUE REFUNDING BONDS, SERIES 1993 FOR THE PURPOSE OF
REFUNDING THE BOARD'S SINGLE FAMILY MORTGAGE REVENUE
BONDS, SERIES 1979; AND AUTHORIZING THE EXECUTION AND
DELIVERY OF A TRUST INDENTURE FOR THE 1993 BONDS AND
RELEASING THE 1979 TRUST INDENTURE; AUTHORIZING THE
EXECUTION AND DELIVERY OF AN OFFICIAL STATEMENT RELATING
TO THE SERIES 1993 BONDS; AUTHORIZING THE EXECUTION AND
DELIVERY OF A PURCHASE CONTRACT PROVIDING FOR THE SALE OF
THE SERIES 1993 BONDS TO THE PURCHASER THEREOF; AND
PRESCRIBING MATTERS PERTAINING THERETO.
WHEREAS, The Fayetteville Public Facilities Board (the
"Board"), is a public body corporate and politic under the
Constitution and laws of the State of Arkansas (the "State"); and
WHEREAS, the Board is authorized by the Constitution and laws
of the State of Arkansas, including Act No. 142 of the Acts of
Arkansas of 1975, as amended (the "Act"), to issue and sell its
revenue bonds and to use the proceeds thereof for the purpose of
financing mortgage loans to low- and moderate -income persons in the
State to purchase single-family residences and to secure the
payment of such revenue bonds as therein provided, all in
accordance with the provisions of the Act; and
WHEREAS, to provide more adequate residential single-family
housing, the Board has previously developed a program and issued
its $18,000,000 City of Fayetteville, Arkansas Residential Housing
Facilities Board, Single Family Mortgage Revenue Bonds, Series 1979
dated April 1, 1979 (the "1979 Bonds"), and used the Bond proceeds
to purchase from certain mortgage lending institutions (the
"Lenders") certain mortgage loans made to finance residential
facilities (the "Mortgage Loans"), which Mortgage Loans were
originated by the Lenders pursuant to the Sale, Servicing and
Administration Agreement, dated as of April 1, 1979 (collectively,
the "Agreement");
WHEREAS, the Board is authorized under the Act to issue and
sell revenue bonds for the purpose of refunding its bonds
previously issued;
WHEREAS, the Board has outstanding $10,305,000 of 1979 Bonds
issued under and secured by that certain Trust Indenture dated as
of April, 1979 as amended by the Supplemental Trust Indenture dated
as of January 30, 1987 (collectively, the "Original indenture"),
between the Board and Worthen National Bank of Arkansas (successor
to The First National Bank of Fayetteville), as trustee;
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WHEREAS, the Board has determined that refunding the
1979 Bonds will result in substantial debt service savings and will
further the public purposes of the Act and the ordinances of the
City creating the Board;
WHEREAS, the Board has determined, in order to accomplish the
refunding of the 197'9..Bonds, to issue its not to exceed $8,500,000
Single Family Mortgage Revenue Refunding Bonds, Series 1993 (the
"1993 Bonds");
WHEREAS, in connection with the issuance of the 1993 Bonds,
the Board and Worthen National Bank of Arkansas, the trustee (the
"Trustee") will enter into a Trust Indenture dated March 1, 1993
(the "Trust Indenture"), additionally in connection with the
issuance of the 1993 Bonds, the Original Indenture for the 1979
Bonds shall be released;
WHEREAS, T. J. Raney & Sons, division of Morgan Keegan and
Company, Inc., (the "Underwriter"), has offered the 1993 Bonds to
the public pursuant to a Preliminary Official Statement of the
Board dated March 22, 1993 (the "Preliminary Official Statement")
and intends to use a subsequent Official Statement of the Board
(the "Official Statement") to effectuate such sale;
WHEREAS, the Underwriter has offered, pursuant to a Bond
Purchase Contract dated March 23, 1993 (the "Purchase Contract"),
to purchase the 1993 Bonds; and
WHEREAS, copies of the proposed Trust Indenture, Preliminary
Official Statement and Purchase Contract have been presented to and
are before the Board at this meeting.
NOW, THEREFORE, BE IT RESOLVED BY THE FAYETTEVILLE PUBLIC
FACILITIES BOARD as follows:
Section 1. All actions heretofore taken by officers of the
Board and the Underwriters in connection with the offer and sale of
the 1993 Bonds, including the preparation and distribution of the
Preliminary Official Statement and the preparation of the Trust
Indenture, are hereby in all respects ratified and approved.
Section 2. There is hereby authorized and directed the
acceptance of the offer by the Underwriter, pursuant to the
Purchase Contract, to purchase not to exceed $8,500,000 principal
amount of 1993 Bonds, bearing interest at rates not to exceed 7.25%
per annum, at a price of not less than 98% of the principal amount
thereof plus accrued interest thereon from April 1, 1993 to the
date of delivery thereof less expenses as provided in the Purchase
Contract. The 1993 Bonds shall be issued in the forms and
denominations set forth in the Purchase Contract (which is
incorporated herein by this reference.
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$action 3. To provide funds sufficient to refund and repay
the 1979 Bonds, and to pay costs of issuance, the Board hereby
authorizes the issuance of revenue refunding bonds under the Act,
to be designated "The Fayetteville Public Facilities Board Single
Family Mortgage Revenue Refunding Bonds, Series 1993" (the "1993
Bonds") in aggregate principal amount not to exceed $8,500,000.
The 1993 Bonds shali..-be issued in the forms and denominations set
forth in the Trust Indenture (the "Indenture"); and shall be
subject to redemption prior to maturity upon the terms and
conditions specified in the Indenture.
Section 4. The 1993 Bonds shall be limited obligations of the
Board and, except to the extent payable from bond proceeds or
moneys from the investment thereof, shall be payable solely from
the revenues and receipts and other amounts received by or on
behalf of the Board by the Trustee pursuant to the Trust Indenture.
The 1993 Bonds and interest thereon shall not constitute a debt or
liability of the Board (except as specifically provided in the
Indenture), the City, the State of Arkansas or any political
subdivision thereof, and their issuance shall not, directly or
indirectly or contingently, obligate the Board, City or the State
of Arkansas or any political subdivision thereof to levy any form
of taxation or make any appropriation for their payment, nor shall
the 1993 Bonds be construed to create any moral obligation on the
part of the City, State of Arkansas or any political subdivision
thereof with respect to their payment. Nothing in the 1993 Bonds,
the Indenture, the proceedings of the Board authorizing the
issuance of the 1993 Bonds or in the Act shall be construed to
create a debt of the State of Arkansas or any political subdivision
thereof within the meaning of any constitutional or statutory
provision.
Section 5. The 1993 Bonds shall be executed on behalf of the
Board by the original or facsimile signatures of the Chairman and
the Secretary of the Board in the manner provided in the Indenture.
If any of the officers who shall have signed or sealed any of said
bonds shall cease to be such officer of the Board before.1993 Bonds
so signed and delivered shall have been actually authenticated by
the Trustee or delivered by the Board, such bonds nevertheless
shall be authenticated, issued and delivered with the same force
and effect as though the person or persons who signed or sealed
such bonds had not ceased to be an officer or officers of the
Board, or also any such bonds may be signed and sealed on behalf of
the Board by such persons who, at the actual date of the execution
of such bonds, shall be the proper officers of the Board, although
at the nominal date of the 1993 Bonds any persons so signing and
sealing shall not have been such officer of the Board.
Section 6. The Trust Indenture is hereby approved in
substantially the form attached hereto as Exhibit "A," and the
Chairman or Vice Chairman is hereby authorized to execute,
acknowledge and deliver the Trust Indenture, and the Secretary is
hereby authorized to attest the same and to affix the corporate
seal of the Board thereto, with such changes therein as shall be
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approved by such persons executing such document, their execution
and delivery to constitute conclusive evidence of such approval.
Section 7. The Board hereby authorizes the completion of the
Official Statement and the Chairman, Vice Chairman or Secretary is
hereby authorized to execute and deliver the Preliminary Official
Statement and the. -Official Statement for and on behalf of the
Board.
Section 8. The Chairman, Vice Chairman and/or Secretary of
the Board are hereby empowered to execute and deliver the
1993 Bonds and all documents, certificates and other instruments
which may be necessary or convenient under the terms of the
Purchase Contract, the Trust Indenture, and this Resolution
including particularly, but not limited to, any amendment to the
Agreement and any investment agreement relating to the 1993 Bonds
or the Trust Indenture.
Section 9. This Resolution shall become effective immediately
upon its adoption and approval by the Chairman or the Vice
Chairman.
APPROVED: March o?oR 1993.
Chairman��_
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IT.J. Raney & Sons
3600 Cantrell Boulevard/P.O. Box -3647
Little Rock, Arkansas 72203
501/666-1566
Division of Morgan Keegan & Company Inc
Members New York Stock Exchange, Inc.
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January 26, 1993
Mr. Dennis Smith, Chairman
City of Fayetteville, Arkansas
Residential Housmg Facilities Board
Re: Refunding Proposal
Dear Mr. Smith:
T.J. Raney&Sons
Division o` Mor ;Gn Keegar A CUE' p -11'.y. INC.
Under cover of tlus letter I am delivering copies of our refunding proposal
for your Series 1979 Single Family Mortgage Revenue Bonds. We have
successfully provided this service to most of the issuers of single family mortgage
revenue bonds in Arkansas. In light of the results of your 1987 restructuring, the
refunding is highly recommended Our program will enhance your current value of
the issue and prevent its father decline.
We will be happy to discuss this with your Board at their convenience.
Please do not hesitate to call if you have any questions.
JMF/lkh
Enclosures
Very truly yours,
ames M. Fowler, Jr.
First Vice President
T J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
TABLE OF CONTENTS
1
HISTORY OF YOUR PROGRAM 1
WHY DO ANYTHING TO THE EXISTING PROGRAM?
PROPOSED TRANSACTION
2
3
EXPERIENCE 4
SUPPORTING SCHEDULES 5
"DO NOTHING" 100% PSA
ANNUAL REPORT 6
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
HISTORY OF YOUR PROGRAM
Single family mortgage revenue bonds were created in the late 1970's. State and local
governments saw a need to promote home ownership for low and moderate income families.
Low income renters were being served through federally assisted multifamily programs, but
home ownership was becoming more difficult especially for the first time buyer. Providing for
safe and sanitary housing for low and moderate income citizens is a public purpose within the
power of state and local governments.
The Public Facilities Boards Act in Arkansas was primarily drafted to give local
governments a legal means of issuing tax-free bonds for housing. In addition, Arkansas created
the Arkansas Housing Development Agency to issue housing bonds on a state-wide basis. In
1977 AHDA issued what was probably the second single family mortgage revenue bond issue in
the country. This was soon followed by issues by municipal and county facilities boards all over
Arkansas. As a result, Arkansas became one of the largest issuers of single family mortgage
revenue bonds in the country at the time.
Single family mortgage revenue bonds produced two beneficial results for state and local
governments. First, they provided housing which benefited low and moderate income
individuals and generated business for the local real estate industry. Second, they actually
generated more revenues than the issuers had to pay on the bonds. These profits, called
arbitrage, could be accumulated and when the bond documents allow their release they may be
used for any public purpose of the City.
The method for generating profits in a successful single family mortgage revenue bond
issue is the same method utilized by any well run bank. You loan money out at rates of return
that will not only pay for the cost of borrowing that money, but pay for all your operating
expenses and provide a profit. Since facilities boards are able to borrow their money at lower
tax-exempt rates, they have a greater potential to experience a profit. Basically the formula is to
have your program assets (consisting of mortgages, reserve funds, and moneys held pending
disbursement) invested at a higher rate than the interest on program liabilities (the bonds) plus
operating expenses. The resulting profit, while it is being accumulated in the program, is
considered program equity. In most cases, the bond rating agencies required that program
earnings be retained and equity be held until the bonds are paid off.
In April 1979, your Board authorized the sale of $18,000,000 of its Bonds; $15,000,000
of the proceeds of the sale of the Bonds were placed in an Acquisition Fund to be used to
purchase mortgage loans made to qualifying low and moderate income families within the City.
The balance was used to fund reserve funds and pay issuance expenses. These mortgage loans
were onginally 30 years in term and bear and interest rate of 8.10%. As expected, the program
operated profitably and earnings were accumulated. The 1979 bond documents, however,
prevented the release of those profits.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
In 1987 the Board authorized the restructuring of the 1979 bond issue. The restructuring
provided a way to indirectly release the program equity. It did so by reducing the reserve fund
requirements. Portions of those reserve fund investments were liquidated and bond insurance
was purchased to replace them. From that point on, if an unexpected default occurred, the bond
trustee could call upon a bond insurer to cover deficiencies rather than liquidating reserve fund
investments to cover them. This transaction benefited the Board by releasing moneys otherwise
trapped in the bond indenture. It burdened the program by selling high yielding investments that
helped create profits and by adding new expenses annually. This caused the program to change
from one with projected operating profits to one with projected operating losses. Enough equity
was left in the program to insure its soundness. While the program will experience losses under
most interest rate scenarios, there are sufficient moneys to be drawn from the remaining equity
to cover those losses.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
WHY DO ANYTHING TO THE EXISTING PROGRAM?
You must ask yourself why you should do anything at all to your single family program?
How can the proposed program be expected to perform? Can it produce more money than doing
the proposed transaction? When can the City receive the money? What are the assumptions
used?
The program currently has equity of $148,402. If the bonds were paid off today that
equity would be available to the City. The Bond Indenture requires that all surplus funds be
used to call bonds early. Section 516 says that funds will be distributed to the City only after
full payment of the Bonds and fees of the Trustee, paying agent and bond insurer. That is
currently projected to be in the year 2010. As such, it has less value than it would if it were
available today.
Assets
As of November 15, 1992 the program has a balance sheet as follows:
Outstanding Mortgages
Debt Service Reserve Fund
Mortgage Reserve Fund
Other Liquid Funds
TOTAL ASSETS
Liabilities
Accrued Interest
Outstanding Bonds
TOTAL LIABILITIES
Program Equity
$ 7,573,914
2,204,725
212,107
493.564
$10,484,310
30,908
10,305.000
$10,335,908
$ 148.402
In order to illustrate the eamings potential of the various program assets we have
developed the following chart which shows the relative amount of the various assets and each
asset's current earnings rate. The mortgage loans and the Debt Service Reserve Fund constitutue
significantly all of the assets and are invested at fixed rates for the life of the program. As such,
the earning potential is not likely to change materially for the remaining life of the program.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
PROGRAM ASSETS AND
CURRENT INVESTMENT RATES
Mortgage Loans
($7,573,914
8.10%
Mortgage Reserve
($212,107)
6.50%
Other Liquid Assets
($493,564)
5.35%
Debt Ser. Reserve
($2,204,725)
8.20%
The overall weighted average earnings rate of the program is 7.96%.
To understand the earning potential of the program assets you have to look at the
program expenses. Based upon information provided by the bond trustee, current program
expenses (as a percentage of bonds outstanding) are as follows:
Annual Expenses:
Bond Rate 7.2000%
Bond Insurance (FGIC) .3750%
Administrator .1225%
Servicers .2756% (1)
Pool Insurance .0814% (1)
Special Hazard .0257% (1)
Fixed Fees .2160% (2)
Total Annual Expenses 8 2962%
(1) These are percentage fees based on the mortgage balance, but have been adjusted to
reflect a percentage of the outstanding bonds.
(2) These are fees that have not been charged a percentage of bonds but as flat fees.
Historically they are approximately $22,258 per year. These include audits, trustee and
paying agent fees, publication of notices, and legal expenses. Audit fees have been
estimated at $2,500 per year. No historical audit fees were provided by the Trustee.
T J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
The resulting analysis is that the program assets are earning currently 7.96% and the
program liabilities cost 8.29%. You can see that some amount of the earnings on the program
equity is needed to maintain a positive cash flow. Except for the fact that sufficient program
equity was left at the time of restructuring, the program would lose money due to the negative
spread.
The passage of time will do more to negatively impact the spread. As shorter maturity,
lower interest coupon bonds pay off, the average interest rate on the remaining bonds will
increase. As mortgages amortize and prepay there will be fewer assets earning at the 8.10%
mortgage rate. The result is that over time the average rate on the liabilities will increase and
the average rate on the assets will decrease, thereby increasing the negative spread.
T J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
We prepared some extensive analysis to compare the benefits of the proposed transaction
to the old program. In order to make an apples to apples comparison, we assumed that each
program stayed in existence until 2011. The cash distributed was assumed to be reinvested at
certain rates until that date. The "do nothing" scenarios assumed that the mortgages prepaid at
100% the PSA prepayment speed. The PSA prepayment speed is the recognized assumption
used in the mortgage-backed securities industry. As moneys were projected to be received by
the Board, they were assumed to be reinvested at 8%, 7% and 6% until May 2011.
The following chart compares our proposed transaction to the 1979 program "do
nothing" at 100% PSA and at the various reinvestment rates.
PROPOSED TRANSACTION VS 'DO NOTHING"
800,000
600,000
400,000
200,000
0
8.0% 7.0%
Suporting schedules are found in Exhibit A
6.0%
PROPOSED
TRANSACTION
" DO NOTHING "
100% PSA
These amounts assume
that distributions to the
Board are reinvested at
the rates shown below
until May 2011.
The future value of the proposed transaction is much greater than doing nothing. Using a
present value analysis you get the same result. Using an 8% discount factor, the present value of
the old program is $102,680. As is more fully described in the next section, our proposed
transaction the present value at the same discount rate is $172,156.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
PROPOSED TRANSACTION
We propose that the Board authorize the issuance of refunding bonds and that the
proceeds of the refunding bonds, along with the liquidation of all the existing reserves, be used
to pay or defease the 1979 Bonds as provided for in the Trust Indenture, fund the required
reserves for the Refunding Bonds, and pay the necessary costs of issuance. The net cash in
excess of these purposes can be released to the City to be used for any lawful purpose. The
following sources and uses of funds shows how this works.
Estimated Sources
Proceeds from Refunding Bonds
Accrued Interest
Liquidation of Trustee -held Revenues
Total Estimated Sources
Estimated Uses
Cost to Call 1979 Bonds
Cost of Issuance
Underwriter's Discount
New Reserve Fund
Pro -Ration of Existing Insurance
Net Funds Received by Board/City at Closing
Total Estimated Uses
Total Value of Transaction
Net Funds Received by Board/City at Closing
Total Value of Future Residuals
Total Value of Transaction
Present Value of Transaction
Net Funds Received by Board/City at Closing
Present Value of Future Residuals
$ 8,151,550
114,487
2.952.990
$11,219,027
$10,421,244
110,950
159,000
378,696
34,105
115.032
$11,219,027
$ 115,032
150.635
$ 265,667
$ 115,032
57.124
$ 172,156
In addition to the $115,032 received by you at closing, it is projected that you will
receive another $150,635 over the life of the issue. Using an 8.0% discount rate to currently
value the residual payments the proposed transaction has a total present value of approximately
$57,124.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
We have analyzed the transaction utilizing tax-exempt current refundings, taxable
advance refundings and mortgage sale techniques. We recommend our structure because it
utilizes the most efficient of all structures Mortgage sale techniques have not been successful
because of surpnses often found in the quality of the existing mortgage portfolio.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
EXPERIENCE
Firm Profile
T. J. Raney & Sons is the number one underwriter in Arkansas in housing finance. T. J.
Raney & Sons is an operating division of Morgan Keegan & Company, Inc. based in Memphis.
Morgan Keegan is a full service brokerage and investment banking firm that provides a wide
range of services to governmental, corporate and individual clients throughout the United States
and Europe. The firm is a publicly held company with its stock listed on the New York Stock
Exchange. The firm is also one of the South's largest New York Stock Exchange member firms.
Morgan Keegan has 22 offices and over 800 employees.
Morgan Keegan has been one of the major innovators in mortgage financing in the
1980's and 90's We have developed proprietary structures for current and advance refundings
of housing bonds that set us apart from all other investment firms working in the area of housing
bond refundings today. The February, 1992 issue of Institutional Investor ranked Morgan
Keegan the 12th largest senior managing underwriter of housing bonds in the country for 1991.
Project Team
The full resources of T. J. Raney & Sons/Morgan Keegan will be available to insure the
successful completion of the proposed refunding. A team of investment bankers, computer
analysts, mortgage delivery specialists, traders and other professionals from the firm will be
assigned to this financing. The team will be lead by Jim Fowler from the Little Rock office and
Rob Baird from the Memphis office. The following are brief resumes of the primary members
of the investment banking team.
James M. Fowler. Jr„ First Vice President of T. J. Raney & Sons, is a graduate of Hendrix
College where he earned a B.A. degree, the University of Arkansas at Fayetteville School of
Law where he earned a J. D. degree, and Southern Methodist University where he eamed a
Master of Law degree. Prior to joining T. J. Raney & Sons, Mr. Fowler was a member of the
Rose Law Firm, a professional association, where he practiced in the municipal and corporate
securities law area. He became associated with T. J. Raney & Sons in 1983. Mr. Fowler will be
the pnmary contact.
Robert A. Baird, Mr. Baird is a First Vice President in the firm's housing financing group. He
has over fourteen years of experience in the public finance and mortgage finance field and has
represented Morgan Keegan as senior banker for over $2 billion of financings managed or
co -managed by the firm. He has served as one of the primary bankers on a majority of the
single family mortgage revenue bond issues senior managed by Morgan Keegan. Additionally,
he has extensive experience in structunng a wide vanety of debt secunties which have been sold
in the taxable and tax-exempt markets. He also serves as one of the firm's representatives to the
National Council of State Housing Agencies and the Association of Local Housing Finance
Agencies.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
National Council of State Housing Agencies and the Association of Local Housing Finance
Agencies.
C. David Ramsey, Mr. Ramsey is a Managing Director of the firm and has primary
responsibility for Morgan Keegan's mortgage finance and public finance investment banking
activities. He also serves on the management committee for the firm's Fixed Income Capital
Markets Group which includes all sales, trading and underwriting of fixed income securities.
Mr. Ramsey has over twenty-two years of experience in the securities industry with nine of these
years being with Morgan Keegan. He was a driving force behind the development of the
Municipal Refunding Collateralized Mortgage Obligations Program which is a proprietary
financing program offered by the firm to state and local housing issuers throughout the country.
He is one of the firm's representatives as an affiliate member of the National Council of State
Housing Agencies.
Robert M. Fockler, Mr. Fockler is a First Vice President in Morgan Keegan's investment
banking group. Mr Fockler directs the structunng and analysis of all tax-exempt and taxable
housing bond issues managed by the firm. He has served as a senior banker in connection with a
number of the mortgage revenue bond refundings managed by Morgan Keegan. In addition, Mr.
Fockler coordinates the development and enhancement of the department's software for the
analysis of all mortgage products.
Frank B. Horrell. CPA, Mr. Horrell is a First Vice President in Morgan Keegan's Mortgage
Finance Department He joined Morgan Keegan in 1984 and since that time has worked with
financial institutions on asset restructunngs, debt financings, and investment strategies. In
regard to the firm's mortgage revenue bond refunding program, he and his staff work closely
with loan administrators, loan servicers, pool insurers and bond trustees on the review and
reconciliation of loan and trust balances. Mr. Horrell is a member of the American Institute of
Certified Public Accountants and the Missouri Society of CPA's.
Jeffery W. Van Patten, Associate Vice President for the Public Finance Department of T. J.
Raney & Sons, has eleven years experience as a Financial Analyst. Prior to joining T. J. Raney
& Sons, Mr. Van Patten was employed as a Financial Consultant in Little Rock, Arkansas.
Previously, he was Senior Financial Analyst with Zale Corporation where he developed Zale's
first multi-level planning model. Mr. Van Patten was raised in Searcy, Arkansas, and received
his 13 S. and M.B.A. degrees from Arkansas State University. Mr. Van Patten will provide
technical analysis while working with the firm's underwriters and the client in the preparation of
financial models and projections throughout the structunng penod.
T. J. Raney & Sons, Division of
Morgan Keegan & Company, Inc.
Housing Finance Group
RELEVANT EXPERIENCE
Our firm is the proven leader in Arkansas for single family housing bond refundings.
The transactions listed below relate only to single family housing bond refundings that we senior
managed. This does not include the new money single family transactions in excess of $1
billion that we have senior managed or co -managed. No other firm can match our number of
issues or dollar amount for these types of transactions
Completed Refunding Programs for
Single Family Bond Issues
o City of Little Rock
o City of N. Little Rock
o City of Sherwood
o ADFA
o Mississippi Co.
o City of W. Memphis
o Greene Co.
o City of Rogers
o Union Co.
o City of Jonesboro
o City of Harrison
$49,833,203
$50,905,000
58,240,000
5118,363,674
$7,130,000
$8,630,000
59,985,000
513,635,000
$17,033.220
$9,910,000
$5,385,000
Morgan Keegan & Company, Inc.
Senior Managed Single Family Bond Issues
ALABAMA (AL)
ARKANSAS (AR)
DELAWARE (DE)
FLORIDA (FL)
ILLINOIS (IL)
KANSAS (KS)
LOUISIANA (LA)
$46,730,000
$297,050,097
$11,133,000
$206,981,000
$130,414,535
$17,565,000
$240,838,463
MISSISSIPPI (MS)
NEBRASKA (NE)
NEW MEXICO (NM)
OKLAHOMA (OK)
TENNESSEE (TN)
WEST VIRGINIA (WV)
•
,�t
DE
•
$15,000,000
$92,852,515
$50,964,399
$38,903,190
$84,130,000
$170,697,445
OD
O 0
v o
CNJ
REPRINTED FROM THE ARKANSAS DEMOCRAT -GAZETTE
AUGUST 28, 1992
Morgan Keegan earnings up 300%
masa.ew sea
Fresh off its best year ever.
trgan Keegan Inc. also is the
iding issuer of long-term mu -
•1p aII bonds in Arkansas for
s first six months of 1992. at -
runt to an independent sur-
Areport issued this week
owed the Memphis -based in-
stment firm recording net
rnings of $25.7 million. up
Ire than 300 percent from the
.7 million recorded last year.
a &m's fiscal year ended July
Earnings were up newly $2
r share to $280. from the 85
nts paid out in 199E Revenues
t a .arord high as wall, reach-
11
II
II
II
ing 3182.6 million from the
3116.3 million taken in last year.
Earnings were up nearly
$2 per share, from the
85 cents paid in 1991.
At the same time, Morgan
Keegan announced that a study
by the Securities Data Co. of
New York showed the invest-
ment firm was the leading is-
suer of municipal bonds in
Arkansas for the first six months
of the year. Morgan Keegan.
which owns T.J. Raney & Sons
of Little Rock. was a managing
underwriter for 3388 million of
the 5540.7 million in municipals
Issued through June.
Little Rock investment house
Stephens Inc.. long known for
its work involving municipal
bond issues, ranked second in
the Securities Data study, with
$2832 million issued.
'What this means to
Arkansas Investors is that T.f.
Raney & Sons is strong and in a
better position than ever to tu!-
fil! the securities investment
needs of Arkansas." Bob
Snider, managing director of the
Little Rock office, said.
Morgan Keegan. in the same
survey, also ranked first in Ten-
nessee and second in Louisiana
in the municipal issues over the
same peri,d.
..
a
Managing Fun hag 1991
Pt , -' amount
No. of
underwriters
(fllflnl
Issues
1.
Morgan Keegan & Co. Inc.
308.0
28
2.
Shin nne Inc.
2532
29
3.
A6 Edwards A Sans Ina
54.9
7
4.
MI. Crawford & Lallord Inc.
829
19
S.
Prudential SeawNs Inc.
51.7
12
5.
Edward o. Jones & Co
50.1
5
7.
Fat Tennessee Bank NA Menphb
45.1
23
&
Morris Lynch 5 Co.
43.2
13
9.
Crews & Associates. Inc.
41.8
10
10.
Kdder. Peabody & Co. Ina
41.1
3
11.
The First Boston Corp.
37.8
2
12.
Goldman. Sachs a Co.
34.4
1
13.
Doan Witter Reynolds Inc.
31.9
13
14.
Simmons let Narl Bank aI fine BMI
31.4
12
15.
Flat Commercial Bar
29.1
9
__ srwora
II
' li
Fayetteville, Arkansas Public Facilities Board
Single Family Mortgage Revenue Bonds, Series 1979
25 -Jan -93 01:31:18 PM
' Future Value of Projected Cash Flows
Assuming a Reinvestment Rate of
8.00% Projected Cash Flows
'• "Do -Nothing" Proposed • "Do -Nothing" Proposed
"100% PSA" Transaction "100% PSA" Transaction
'• May -93 0 115,032 0.00 115,032.00
Nov -93 0 119,633 0.00 0.00
May -94 0 124,419 0.00 0.00
' Nov -94 0 129,395 0.00 0.00
May -95 0 134,571 0.00 0.00
Nov -95 0 139,954 0.00 0.00
May -96 0 145,552 0.00 0.00
Nov -96 0 151,374 0.00 0.00
May -97 0 157,429 0.00 0.00
Nov -97 0 163,726 0.00 0.00
May -98 0 170,275 0.00 0.00
Nov -98 0 177,086 0.00 0.00
May -99 0 184,170 0.00 0.00
Nov -99 0 191,537 0.00 0.00
' May -2000 0 199,198 0.00 0.00
Nov -2000 0 207,166 0.00 0.00
May -2001 0 215,453 0.00 0.00
Nov -2001 0 224,071 0.00 0.00
' May -2002 0 233,034 0.00 0.00
Nov -2002 0 242,355 0.00 0.00
May -2003 0 252,049 0.00 0.00
Nov -2003 0 262,131 0.00 0.00
' May -2004 0 272,616 0.00 0.00
Nov -2004 0 283,521 0.00 0.00
May -2005 0 294,862 0.00 0.00
Nov -2005 0 306,656 0.00 0.00
'• May -2006 0 318,923 0.00 0.00
Nov -2006 0 331,680 0.00 0.00
May -2007 0 344,947 0.00 0.00
' Nov -2007 0 358,745 0.00 0.00
May -2008 0 373,095 0.00 0.00
Nov -2008 0 388,018 0.00 0.00
May -2009 0 449,831 0.00 46,292.00
' Nov -2009 0 572,167 0.00 104,343.00
May -2010 0 595,054 0.00 0.00
Nov -2010 0 618,856 0.00 0.00
May -2011 438,251 643,610 438,251.00 0.00
' 438,251.00 -_--265,667.00
Is Assumes distributions are reinvested at rate shown above
until May 2011.
I
I
I1
Fayetteville, Arkansas Public Facilities Board
Single Family Mortgage Revenue Bonds, Series 1979
25 -Jan -93 01:30:52 PM
Future Value of Projected Cash Flows
Assuming a Reinvestment Rate of
7.00% Projected Cash Flows
"Do -Nothing" Proposed• "Do -Nothing" Proposed
"100% PSA" Transaction "100% PSA" Transaction
'• May -93 0 115,032 0.00 115,032.00
Nov -93 0 119,058 0.00 0.00
May -94 0 123,225 0.00 0.00
Nov -94 0 127,538 0.00 0.00
'• May -95 0 132,002 0.00 0.00
Nov -95 0 136,622 0.00 0.00
May -96 0 141,404 0.00 0.00
' Nov -96 0 146,353 0.00 0.00
May -97 0 151,475 0.00 0.00
Nov -97 0 156,777 0.00 0.00
May -98 0 162,264 0.00 0.00
' Nov -98 0 167,943 0.00 0.00
May -99 0 173,821 0.00 0.00
Nov -99 0 179,905 0.00 0.00
May -2000 0 186,202 0.00 0.00
' Nov -2000 0 192,719 0.00 0.00
May -2001 0 199,464 0.00 0.00
Nov -2001 0 206,445 0.00 0.00
May -2002 0 213,671 0.00 0.00
Nov -2002 0 221,149 0.00 0.00
May -2003 0 228,889 0.00 0.00
Nov -2003 0 236,901 0.00 0.00
' May -2004 0 245,192 0.00 0.00
Nov -2004 0 253,774 0.00 0.00
May -2005 0 262,656 0.00 0.00
Nov -2005 0 271,849 0.00 0.00
' May -2006 0 281,364 0.00 0.00
Nov -2006 0 291,211 0.00 0.00
May -2007 0 301,404 0.00 0.00
Nov -2007 0 311,953 0.00 0.00
' May -2008 0 322,871 0.00 0.00
Nov -2008 0 334,172 0.00 0.00
May -2009 0 392,160 0.00 46,292.00
' Nov -2009 0 510,228 0.00 104,343.00
May -2010 0 528,086 0.00 0.00
Nov -2010 0 546,569 0.00 0.00
May -2011 438,251 565,699 438,251.00 0.00
438,251.00 265,667.00
"Assumes distributions are reinvested at rate shown above
until May 2011.
Fayetteville, Arkansas Public Facilities Board
Single Family Mortgage Revenue Bonds, Series 1979
25 -Jan -93 01:29:13 PM
' Future Value of Projected Cash Flows
Assuming a Reinvestment Rate of
6.00% Projected Cash Flows
' "Do -Nothing" Proposed"Do-Nothing" Proposed
"100% PSA" Transaction "100% PSA" Transaction
' May -93 0 115,032 0.00 115,032.00
Nov -93 0 118,483 0.00 0.00
May -94 0 122,037 0.00 0.00
' Nov -94 0 125,699 0.00 0.00
May -95 0 129,470 0.00 0.00
Nov -95 0 133,354 0.00 0.00
May -96 0 137,354 0.00 0.00
' Nov -96 0 141,475 0.00 0.00
May -97 0 145,719 0.00 0.00
Nov -97 0 150,091 0.00 0.00
May -98 0 154,593 0.00 0.00
' Nov -98 0 159,231 0.00 0.00
May -99 0 164,008 0.00 0.00
Nov -99 0 168,928 0.00 0.00
' May -2000 0 173,996 0.00 0.00
Nov -2000 0 179,216 0.00 0.00
May -2001 0 184,593 0.00 0.00
Nov -2001 0 190,130 0.00 0.00
' May -2002 0 195,834 0.00 0.00
Nov -2002 0 201,709 0.00 0.00
May -2003 0 207,761 0.00 0.00
Nov -2003 0 213,993 0.00 0.00
' May -2004 0 220,413 0.00 0.00
Nov -2004 0 227,026 0.00 0.00
May -2005 0 233,836 0.00 0.00
Nov -2005 0 240,851 0.00 0.00
May -2006 0 248,077 0.00 0.00
Nov -2006 0 255,519 0.00 0.00
May -2007 0 263,185 0.00 0.00
' Nov -2007 0 271,080 0.00 0.00
May -2008 0 279,213 0.00 0.00
Nov -2008 0 287,589 0.00 0.00
May -2009 0 342,509 0.00 46,292.00
' Nov -2009 0 457,127 0.00 104,343.00
May -2010 0 470,841 0.00 0.00
Nov -2010 0 484,966 0.00 0.00
May -2011 438,251 499,515 438,251.00 0.00
' 438,251.00 265,667.00
C
• Assumes distributions are reinvested at rate shown above
until May 2011.
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ITO OUR SHAREHOLDERS:
W
tching the Olympic Games this summer, I reflected on the year Just passed at
Morgan Keegan. I was particularly struck by the parallels between sports and
corporate life during the rowing competition. The most successful crews depend not
only on the strength of the individual members. but on their ability to move in per-
' feet synchrony, pulling and pushing at precisely the same moment against water and
wind resistance. It was that kind of team effort and precision execution that made
1992 a gold medal year at Morgan Keegan.
Revenues were a record $182,664,000. a 57 percent increase over the
'
$116,517,000 posted in 1991. Net income also reached a record $25.791.000, com-
pared to the $7,704,000 reported last year. Earnings per share were $2.80 versus
$0.85 in fiscal 1991.
Best of all, 1992's results were not the product of some one-time extraordi-
nary event, but reflect the successful and systematic implementation of strategies set
four and five years ago. Acquisitions made (luring that period are now fully
' absorbed, and the people brought on hoard have made significant contributions to
our firm. Of course, the smooth integration of these new associates would not have
been possible without the extra efforts of established Morgan Keegan employees,
' whose hard work helped us accomplish those transitions with a minimum of disrup-
tion or downtime. The net result, which you will see detailed elsewhere in this annual
report, is that Morgan Keegan has risen to a new level of performance. Our sales
' force has matured, our investment banking efforts have come of age. and the firm is
clearly moving forward at an improved pace.
For much of the fiscal year, the firms fine performance was mirrored in the
' price of its stock. During calendar 1991, the value of Morgan Keegan, Inc. common
stork increased by over 305%. placing the company among the top ten performers on
the New York Stock Exchange. But because it apparently believes so strongly in the
' cyclical nature of the investment industry, the market at large ultimately devalued
our stock, as it did most other brokerage firm stocks. Many analysts tend to be pes-
simistic about the long-term growth prospects of our industry. We think the future
ve. cting our tinuctic e ' of
board declared a four -for -three re'stock split last Septembr, outlook, three -`for -two
,lock split in February and a 500,000 share stock repurchase program in June.
' ldditionally,immediately after 1992 earnings were announced, your directors
declared a quarterly cash dividend of $0.07 per share, marking a 900 percent increase
in the dividend since our first dividend was paid in 1983.
' As veterans of the investment business, we recognize that the securities indus-
try is cyclical. Most businesses are. But we see our industry on the threshold of
what could be a prolonged period of significant growth. That's why the theme of this
' annual report is "Momentum." Among the many remarkable things accomplished
by the men and women of Morgan Keegan this past year is one achievement with last-
ing significance. We've developed momentum, the thrust of which can enable our
' firm to make the most of the increasing number of opportunities which await our
industry in this decade.
Allen B. Morgan, Jr.
' Chairman
Brlurn On Equip
40
3n
29
II) I
88 :;n w
I\ I hiT11F..\'T SERI ICES FOR I \Ahl IDl ILS I
I
1
T
e Eranoinist magazine rail- Ir 1441 h. the ]eeade of the retail inyeslor. There are
any reasana, not the Iea.t of whirh is the aging of .\merira. Between niiw and the
year 21101). tin erie a'- erne- roll- will jump by 10 million people in the 40-19 year
old rate gory. andim nine million in the ill 39 year old croup. Thc•r numbers repre-
sent the impact of the 7h million American hah% boomer- born between 144h and '
1461. Tri deterimne what Ihn mran s la the future of fmaneiol see ire•. we need nnh
la look at i urrrnt %tati-ties \lthough Ihr} r.ow rrprrsent only approximately 23
percent of the pi pillat ion. \meR, an aver ufl ouu 7. }'rrrent if the count r\ , finn-
till alaaeb. and rontrol some .0 prrrrnt of the total nel worth of American
housrholds. That ennrrntration will only intro -if' once the hats hoomers swill the '
at er-30 ranks.
TMiu.. hank deposits and a rriifii air- it deposit rompri-e le• - than 211 per-
nmtofhnixrhold apart-. down tram almost 311 prrrrnt just liear • acs. Stuek-
I excluding mutual funds I rurrentlt make up nnh ] 1.8 l.errent of hou-ehold finan-
t iaf! assets. a t at redurlinn from the 35.h percent they ri'presenlyd in 19.0. but an
itrfrta/ea.1 afmnst 2 pert rot over 19911. Inahv-t- e-tintale That if the percentage of
hoe Behold holdings in equities increases h. on ii line half of .'ne prrrrnt. it would
mean the pu reha-r of 833 billion of stork- There air ether •ieris that money i- mo\-
ins out of banks and into +lirk- and hands. Mutual fund ales in 199] were a recii nl
$231.1 billion. nine perreni higher than the prelims record. and a i. pert rot '
increase mer 14911 Odd lot trading in the Sew York SIntk Exchance. cnn.idered
by nio.t to lie an indiranon of retail activity . wag a record :132.8 million share + in
1991. \nd the number of sharenwner- a- a percent of the 1.S. population i• rising.
now 2] pen•ent rnmparrd to ] 1 pert eel iii year- awl
What i- Morgan Keegan doing to capitalize on the moll emrnt of the indn ideal
investor iota the seeuritie= markets? Continuing to open branch offii i's. for line
thing This year the firm opened a new offirc in I airhope. \lahama. Living it more
nffit t•s in the -late of Alaluama than any other •erurilies firm.
Reretltll . Morgan ]trepan became one of onl a %eleel number of firms in
the country to offer $19.0011.1101) worth of •\pt ia in-uram-r proteel ion to holders of
its rash manaremrnt aecaunl. the Morgan heecan Ar•re•s \reliant, an arruunl with a
t ariely of t u -tomes cony enienre feature..
In allempling iii better serve the individual in estor. Morgan Keegan ik al]
hiring mare experienced l.rokers. In 1992. for example. 93 prrrrnt of its in i pelt menl
brokers had at least one }car's ex pe nrnre. rnmparrd In only 3I pert ent same five
years deli. And this year Morgan Keegan hired an rxperieuced training III rrrlor and
a+si-taiii to latter prepare in r•lntenl broker- to provde superior spry ire.
tin the technical side. Morgan heeaan lass tear i•nnyerted its mainframet
I
J
computer to Tandem Computer's most powerful
' system, the Cyclone`". With more than three times
the processing power of the previous system. the
Cyclone greatly enhances the speed with which sF a.
' transactions are processed and trades confirmed.
It has upgraded response time to "enter key". elim-
mating the three to four second delay when an
'
inquiry is entered into the computer, and the
Cyclone provides the firm twice the customer 4,4
' capacity as it had prior to the new system's instal-
lation.
Additionally, the derision was made to 0!;
convert to a completely new quote system for retail
'brokers. A committee was formed to evaluate the
options and select the most comprehensive. rus-
t Comer -sensitive system on the market. Their r �r
determination is expected this fall, with implemen-
tation of the system to be completed in early 1993.
The results of these efforts to better serve
the individual investor are clear. In fiscal 1992.
I
more than 25.000 new accounts were opened. a
firm record, and an increase of over 42 percent from the previous record. Branch
revenues were a record $85.799.4$h. more than 50 percent better than the year
before. Also, assets under management at the firm grew significantly. The
Southern Capital Fund doubled in size. going from $15 million to $30 million.
' Preferred Manager assets increased by more than 50 percent. from $52 mil-
lion to $83 million, and money under management with the Southern
Capital Advisors went from $61 million to some $113 million.
The retail area of Morgan Keegan has ambitious
•
plans for expanding existing offices and
' adding new ones. Currently it aims to •
add some 100 investment brokers during •As
A •
the next two years, and open three to
four new offices during that same time • A •
period. If the nineties are to be the
•
' decade of the retail investor. Morgan • A
Keegan is certainly well prepared.
1
11 1 R R F"! S
1
Dun1t 11, Iinhlr'-h nmu-r11rnnen drh1 olfennr lunlp••d frl'm r24)1 billion u1 It19n
In lner n':u half Iri]lrlm dollar• last .ear. %h, -ii of lhr in era -e wa- atln}:nlahle
111 a -•^t Lail. ell dl•I11. w'1 ir•I.:Ii'lutll %i rltl all% rinwili.11'r: .11 \eer- a,1.•..rai ell .3lIII
hillinn In 1'141. mor•• than th'• r'.•..rd amount ..] total d. Lt undw'wrn:•'n Ihr ii.' .poll•
sear. No Iinna]IN. t11, n❑in:'er FI a --el i•arkt'd oftrlinc• Lallnnnrd Ii' In 1,'•r, ert.
growing from 585 in 1990 to 856 isllae- la-i sear. l lie minilir r tpf • Ira l,ht iorpurati
bond underwritings also hit a record. ].n18. moire Iran dolliJr Iht presi.ii • seal.
Net issuance of U. S. goveTlrel:: -ein ril le• ha- :ores- rr,, in •I ea dils. till].
bulleI Ly growing deficits and --,,wart •ale• !'s scrimp ill n,:•'n''i ••. \r1 i-•uanl r of
t.. S. 6OTernment securities tatWi5.1 11'l l lllo .ail V'ar. a Ii'' 11••1-el'rt Illl'rea•,'
Ober the yrerious year. Net new Lwen,l ee of nn,:nr';.al 11111111• ha • •I,INed •l.m•'wl:dl
due iii b.41 constraints faced by hale and lnraI c, erl,inr» l Howrsrr. 11•r
�uingdeclint in interest rates has s{la w ned a nun: her :.1 11.111114 ilia1 l.onII it] a n Iill"%.
Capitalizing on these trend- ha • Ilrr•l Ih•• aim a \101 an Ker.an'- -t r1ii;
flaed income capital markers group. Th r'wah Ihr rlfort• of n- hr. .k.r•. in'. -llama
hankers. trader- and research anal -i-. Ill.• fiaell nU''Isle _1rn11}' I'^•Iei1 a rl: I.erren:
increase in revenue,,, and an even <Orr 1m I' re- I, 1.11, Ivarrent _rna 111 In IV't i1, •nle.
during the fiscal year just ended.
Special credit goes to the filed .urn ml• Is t •Imenl hr.nl. er•. 1 hr•t l]1 men
and women vaulted .Morgan Keepn into fir-i jib.. a- Iead mana_'n:1 blood und•n
writer in Arkansas. Lnsisiana anti Tenn, --o,• }Hill,'"1. the finan•'ina• th••.N
completed in fiscal 1992 were nlrl ISted to Ill,, ?ml l l-ea•I. I'ut ra•1 Erd fro:'' Calii ill nil]
toNewJrrorl-and from l'9oridatolllinul•. fhelall.\1:.ranKr, a;mla•IsIfir ar}I'dn•
rllrur and rn m811al;rr in 1 1.1 nf(rrrl - Ielallmg nnlrr, Ihan :1_^ 8 billin. all inrrra•e of
3'r pru . ill in rr iii, prls loll %i'Jl
\fid sear. \Llruun hrr2an added t lit. fig1 'ill nua inu•the°nI L:ulkine
•trrncll. In pun•ha•ing, a Illa]orltl 1111. re -I in hnoxsdh }a -ell CInl Iwrland Set Ilrili, -
Ii iiiij ails. Iiie Thi. (ill .ear ,)It mall atil •peri.dirr- In undrnlrilin¢ and fimull'lal '
adsi-urs •rn i<r•'e-muniripal l•urr- hi'ilhoL1 IPllrp-.al \1 r onling ti l l a:1111112•
ronlpl.ed in Rnnd Bucrr nl.12ar I:le. rhr effort -of I ,umhrrIa nd'• •rsrn ins ldm ee- base '
laude it tFe fn -1 or .ermu1 Ivadutc finam•ial a.I%i-ur in All, -lair in'al. of the pa -I
fn ear -
In a relalisrh ins olaiilr oral for I mere-: rase-, 1railin„ prnfi16 1.ould not l.e I
r>,pr111-11 111 ellml. but the ford r'1enllu' Ira ter- al \turcan Kveaal: defied the "1111 rn
I
Li
I'
tional wisdom. Trading profits for the municipal government. corporate and mort-
gage backed trading desks grew some 70 percent. to over $4.5 million. The efforts of
Morgan Keegan's bond traders were no doubt aided by the timely and thoughtful
analysis of macro- and micro -economic trends provided by Morgan Keegan's eight
fixed income analysts.
As would be indicated by the
national boom in asset hacked financings,
Morgan Keegan's mortgage finance group
has experienced truly phenomenal growth.
Revenues for the group have expanded
more than 300 percent in the past five
years, jumping 63 percent last year alone. r ;
In the past year, mortgage backed securi-
ties were second only to stocks in the mix
of products sold to Morgan Keegan clients.
One reason continues to be Morgan
Keegan's pioneering work in the municipal
refunding of collateralized mortgage obliga-
tions (MR CMO). During fiscal 1992, the
mortgage finance group saw its number of
transactions grow by 89 percent. for an
increase in revenues of more than 78 percent, placing Morgan Keegan among the top
financiers nationally in mortgage backed securities. The current low interest rate
environment bodes well for Morgan Keegan's continued leadership in refunding debt
for borrowers nationwide.
Product Mix
I p r.n-M
• Corporate Bonds
Government Bonds
Mortgage Barked Securities
• Special Products
Municipal Bonds & Bond Funds
• Storks & Options
5
1, ,)1 IT) r. IP1TI1. x 11?hE1'
La•I ,-air Na- the hiuge-I on rrrairll lair I . S. I llrla•rale III111erMnting ]elhit\. I
I:1•N r•'r,irll III \T41 i.ilhlln it 1'111111\ Na- 1 --hell }•\ %lineman rnlpor;Itil.n-. inr-Iud
ilia' a rernrd ; InnanI if, lammon -i,, I.. ;th•IIII half.if \.:nil It Na- in Na\ of Imtial puhli•-
I.tfrl'IIIC`- Nhl.'11 al-•. hll i. !IC%' rei or,{. Iii. rind the I°1411•, 11 Iwearne fa-hi.alalde fair
lo nit'r11 an , in.:..1111•• :I. I,,. on. more hiuhI% II'\I'rh•IWIl. r.'I Irl.-r' egiiil\ Nni II' 1. -flag
m11re dl•III. I itst I t ar the "rr-equiIiraItail:' lit lmeri'an hu-ue--r. bezan. illarl.iva
the rir-t \Par VIl•w . 11i1.i 111aI rl.mpanie. i-•bed mire ✓Ill..[\ 11141 Ihr\ rellrel1. I1 Ha-
rald• of lira• IWI-i aI Inc \ear'. I \rr' III Inr t quit\ mat KM -..,lid Mnrgan hlvegau- rquil\
1 ajleal lllurb i- 41rallll Nth prl't,er.\ pu'I:i, m d III I'rap the rem ird-.
It. \''111L'- t •r ii a gnlup more Thar dl»Ill.rd..illd net imam.' jumped 11 11hr
11•.11lrrdl .1311 per'. 111. I i llarilrl.lar-q•111firuiui, I- •- Ihr lucre;]-, In !IA -111 r-- dome ill the
-lo.'L- fuIlLNrd h\ M•11-zall Krr,Zan re-earl'h anl.h•I-. I ommi--i'ul- generated h,
ti a•In:_ In 11'i-' ,1,.,4 -,,ere up more :llan I all perrrnl. K real Iri}nlbe t,. Iii, qualm
III I.I.U- uellrra•rll h\ Mors:ul K•'er.ul'- 12 rgllll\ I ,''.,'are} anal\>.l- anr, (heir fn r
a.- 14• I $1 e`
F•irther r\.drn, l .A their-ure.-- N.I- irf]t-. ll-i in Ihr ,'.mtinn.ed vIll'I.11.•111 part-
larnldn:'. IIf 'IIa1all N.l"[aa - F •en- Lilt if .i111 I.-, 1I1- i' a 1i -t of 1•rlmaril\
-r•I.ii,Iar\ fall'} llrl.e• NhtbP - .,, l.. Itr. Il:aal, ht la he inrffti 1.1111\ 1glred time to IInn-'-
I .piitb-d Cn,n,IF plerntia I. until -rill erect rharle- air nn apprrt ilrtril a --et- Lh,lwll }I\
a enlup ii Mail --•an Keegan lltlalt-•- .1114111:\ e.iiii''nt br11LI-r-. Ihr }o.'lh l i i I- I nnl
pn-rd of l-aimplllti. follimed I.N. Mail var. hr -!all. Nith -e erlb.n- eel lemed Nrrl\h at
F•.Lu• (1r..1111111Y•tlllg- Ilire it- 1•nllallor ill 1.188. the I n'n. List ha- a ilierlalrll:t•1l
}.nth the ,.\!1 11111 and the \ %TI) to irdil a-.- [hi- pa -1 anal . i!ie lalnr of Ihr Fow•ll-
I.rl. •'\eladmdil blend ilia om..,I:d 1•'au-al tiara r11.1-. inrrea-ed mnre than 811 per-
t 4n1. rbamPb rr.t In a _u.:i 1•ereent Iln'1 ea -r 111th. •3P3' i4)• awl a .1(.8111'rrrlll jump 1-I
Ihr '\ %N1) %tl r.i'npr -illmd.-\.
Mallina a-leniflr:ult rin:tribilliban In the III lluL'- adntiral•le '4'2 re -nil- N.re
the not a116 in pr''\rim iii- in Ihr in-uwlional -all-. 'ffnrl- in Ro-tn1 and \eN It airA.
'ale- in those idl],,'. inrl .a -Pd 111 1 13 perrrltl and 1 •ln perrenl. rr-pl-i'tn 1.41 . ]-he
I.erflirlllaare of 1he equil) 1111.11. 1'adel- N13--lulllarl\-p.'rlaen lal . Trading praflt.
:air the Group greb II, nit.r•' Iran i?. i S million. marl- 1}tan lull pore. nt franc the
'air briar. .
Rut prrilap- the milli -mi,I;mdrilg perfairnlauu I- it file rimp N a• turred i11 b'
i1. 111\.--III.e111 hanker-. Ill--1n1111111R• to) the Rational ila-mitrld fair ralnit♦ fll:allring-.
Mar•;ut hee.Lan'- banIrr- -.1 rrt•nrd after roo,ird in Ii -eat •'r'_. 1 le \ managed or in
n1.111h,rll a ri•t bard 2.1 ulf. riri - 1.•.r a rl•rs.r,i '99141 nhlliai11 rapil.rl rai-eii. 1'h.• -e
Iif.'rilu- _,n. rated a riI or, llin 1.1111 of 1-imnli-•bill• fir Ill,' firm. a rerllrll ambauni of
II
I,
II
syndicate revenues and when combined with revenues
from municipal underwriting and mortgage banking,
produced 16 percent of firmwide revenues, up from
only nine percent the previous year. Over the past
three years, investment banking revenues firmwide
have grown by more than 334 percent.
During the past year. the corporate invest-
ment bankers also enjoyed record merger and
acquisition advisory activity and initiated the Morgan
Keegan Merchant Banking Fund. L.Y.. To date. the
Fund has made three investments, and is actively con-
sidering additional investment opportunities.
Firmwide, 1992 was an outstanding year.
Every month outpaced the previous monthly record
for sales at Morgan Keegan. Records were established
in virtually every category: revenues, net income,
return on equity. net profit margin. Among a 20 -firm
peer group of regional securities firms. Morgan
Keegan ranked first in pre-tax return on equity. sec-
ond in pre-tax profit margins and third in five-year
revenue growth.
Morgan Keegan reached a new level of performance in 1992. one that propels
it into a future filled with encouraging signs for the American securities markets.
Fortunately for Morgan Keegan shareholders and employees, the firm now has the
momentum to take fall advantage of the opportunities which await it.
!t detailed report on the sperifu- performance of each Focus tut selection is oradable on request. Obrousk. peat per-
formanre does not guarantee future success. and the ren oils reported here could only have been obtained if each
recommendrawn had been acted upon.
Focus List Annual Performance
In Perrem I
+100
+80
-20
88 89
Focus S&P 500 NASDAQ
I , '
1'I:\ 1FAN FI\1\CI 11 Sf VIM
Nis IrLa11 hl-. tall. 1.11 .r111I1.1 d IIr 1.
l I•a 1. rule,] ii,, i
I442
I'1"]
IW illI
lir, mile -
1 MI1111.4, 11-.
I i.11 d.lrll]i: 1.
t IH..3i13
1.,111
1.111
11, •r Ill.- I n11111er
4.Q 11
.i,,:7
1 . 11
111111t .
'114')
?.1• 11
:'.1311
II-•lrl'
�•h32
1.'1'1
1.'
37.11(1
?i. t i-'I
.111;
1'rlll1114d tnlllLlrt1U11.:
t .Irrll 'II.- .1] 1.11:1.
28.161
1 1 77 CI
mama i:aJ.I9 nnlil•.
12.1)3,
]h.;
,u
'.1111
- 3o,1•I nn. nl -• 4111 1311
714..1148
in
p:'1
.l.1"1.
99.�9A
333
In]e-talrnl 11ankuw:
1.111 'n air .l911-Ilir.
\L.na q.al ••]v n b•
I nd^r'-ili•ic magJci r v --It .1:111 rtl pr Ir••.
IIIIPr1'.t:
19trr,' nll RJr11111.IIJ11'.r.
I titan -I •n w ru ri: 1. IN u.•I I
I111w•r
}\711'llw.
Ili, ,'r-a61.n
I. 1 •r 111 n.rrn;cl ,ru• I a rar n•
1.mn nni• d' Im.
Ii a, r i ll nU l; rnlll1tin-x1
IIi 1111x'14 sill] Wi1111]Illr111 I1 .l•
III Pi .1
lair•. .Itflriii ir Ill Isms lava•
I .1]119 Ist er.1.1131•\Ir I ".I
n1 9rl1.1.- I lx•I nn• ills l .rnr
19'114' tat in 1•-qY Ii n lit
rl 111 •n911•
Per 4here Rata*
\et ill'. Inse
`•Irl,}.uldrr- nlutl,
I Ither I late 1 al 'ear ,•I1 d r
I1 Ie].n"I.
`La 6nl.ldrr• 1vl.11t%
1 mnnnn •11arr. xa-Ia1ud np'
1 1/ v.lrvl f1 . V rl Jn 1 x 1. ..I Y a • 1•'a 1'. 14"l I . V IaL l 4.' I F' • f r1. A ni µl 11
\•.1.s•.! IF1 lL•I I' hl' o 011 '4u•f.r&.UVI''i '4r•F 1IN-
16.:311 7111;! ?.4lIi
4.146 i. I NI
311•.152 U'f.U: ..IKC
.]!111 Li71t. 1.1..
114.5111 1:.11;
I.33b ?.wll
114'?.bhl - If .:]; - 1',,1x4]
r< 41.311
- nI..iWl
1• 1::21:3
4.•3:1
.i.::ll
H."7I)
4.1
II
:I,:
1311II.
a..,.'
i..1I'I
12..11,2
I?.'1
'
1?. 11.
3.8''23
1.1
U-
1,122
1.122
1."_:111.
441
'I 111.173
+• 017.'3I4
111). 1 i1
1'=.141
1?.?411
1 1 Il l
I(.. 4410
)4 2.1.14
' •,.11:
p _e
2.911 f .Ni II]
I
A 9.211 a.AI :IL]
IF 131.118 p311I.1O1 $:1,ih.IMll '
A :h,h1N1 ' u1Lfl. : 34.1488
V,_9h H,(1:411 9.:!1.1
II
II
II 1
(In
thousands, except per share
amounts)
1988
1986
1985
1983
1989
1987
1984
$ 13,675
S 12,901
$ 10.829
$ 7.073
$ 5.514
$ 4.415 $
5.028
1,848
2.088
2.313
1,440
1,185
987
974
2,339
2,509
2.56$
2.030
1,345
568
8:37
4,192
3.943
6.711
6.001
! 3.569
1.271
1,324
22,054
22.120
16.544
11,613
7.241
8,163
21,441
14,369
15.421
17.723
14,430
10.432
6.672
9.205
5,993
6.101
4.550
7,428
6,625
4.031
4.516
14.707
14.829
19.927
17..391
17,072
7.487
5,374
35.069
42.200
18.190
19,095
36.651
39.449
34,129
S :3.461
2.225
8.152
3,923
95
2.872
1,390
213
19
394
314
358
883
564
4.057
3.302
5,267
3.835
935
1.561
867
7.731
13.813
8,072
5.316
2.821
5.546
1.388
5.698
5,406
4.753
3,497
2,548
2.550
1,176
6.129
3.401
2.307
1.681
1.410
I
1.227
1.201
11.827
7,060
5,178
3.777
2.377
3,958
8,813
567
108
601
1,105
249
2.750
_
902
$ 79.431
$ 73.556
$ 86.395
$ 69,810
$ 51.337
$ 34,632 $
33.057
$ 43.953
2,966
7.996
1,990
6,852
7,931
2,326
2,330
$ 76.344
3,087
715
$ 2.372
$ 42.242
2,900
7.366
2,649
5,755
4,620
2,179
1,989
3,856
1,351
$ 2.505
8 .23 $ .22
$ 4.91 $ 4.75
$397.007 $236.209
$ 48.432 $ 49.325
9,875 10.389
1
$50,119
2.044
6.744
3,040
4.645
3.928
1.934
1.342
12.599
5,900
$ 6,699
$ .64
$ 4.72
$195.128
S 55.999
11.865
$ 40,846
1,897
5,801
2,009
3,848
3,113
1.476
1,146
9,774
4.300
$ 5,474
$ .59
$ 3.60
$180,318
$ 33,889
9,414
$ 29.532
$ 19.922
1,588
1.266
4,869
3.485
2.060
1.504
2,784
1.872
2,476
1.464
1,087
828
1,399
1,203
5,542
2,300
3.088
1,275
S 3,242
$ 1,813
S .35
$ .19
$ 3.11
$ 2.79
$100,837 $146.850
$ 28,740 $ 25,598
9,254 9,248
$ 18.132
1,231
2,362
965
872
1.318
575
1.039
$
26,494
6.563
2.950
$
3,613
$
.55
$
2.63
$
83,052
$
24.017
9.153
tt}t}rnm U. FINANCIAL I`el)HutTII I\ 11 \ u 1111 El)
\1m Ceu IVv❑all. fill. . Ind '111)'l Inu Iii. IIn-:ll e-alld.. 4l 'il)I Iw- .II.Ir, an1'llllli.I
?'unlmarl ul ,,IuarirrlHr-ult.
I r.l l6 141 I'am:n
`luar'rl 111la I ler 'llartrr 1lucrlr•r
Fi.ral 1'1'11:
Rrl .nilr. f:i;423 `1:.11'1: A1u93- X1.:.9711
I n 4 'lilt b.' 111• in l nnu• I,ll1. ;.ri J- 11.1'24) 12AI:;
Net ills dilly 4.1-2 r..1111
Net 111111111 I rr.Ilal r ,i3 7.1 .83 ;1
Fi.ral I '19 I :
8al+-nir, 1121.331 "]; .a8 f3.ii..
In41•Iai I:u-•I I, foil IIll"ilnn lave. • I{ 1.'11141 ,..1.i. .,911;
'Iii uu nn. i2 I.'10 3.11tll '1.192
\+I iii' lull 1rr-Ilan .3l '
Fi.ral 1'1911:
Re' .Jl4 T23.1311 `2i IlQ3 f:'1. 111 f66, 1114
1111 'Ill,' 11.x.. 114 foil r IIU'Uhll Id\r, 8I1 lh r j_]1)• 1.132
\•1 inrnn. I Ill., I haJ 433 .1.911 811;
\rl Ili' nil r 11U -.I Ire1 •11.Ire I 11.1 1.2'I .IN
Fi.ral 19811: `1 '1'1 ` 2
'
it •'l ••nur. Al $.: h9 7.; 9.411 S1.3n9
Inl i.nu•L-:.ire 11111 m1• L.l'1•, '2414) ]:129
Net iui ml . 21X1 21•ri n] i ].341
Net lm 4111 ;i,r.hai r .'1_2 112 1Hi
Fi-cal 1988:
!1;.9111 14.4)3 I'1.275
In11 III Ii In iurl ml 4ilr. :w): 8.;1 I.'1;ia
Net iii. nn . Y77 :: ; 1 1.21 : 3.3;
\P: iln.4l . 1•er .hill r 43 .ni 11 .113
1
Slatpnbl•al I:umparll.uu of Prlwlueliou
] 99. 1'911 14'91 4h1 {'199
'I' ital peach. turl 1,1136.;311.3311 A8h.11HJ.413 .n;. i::.:,:i7 f:14:423.12'1 +:14.871 I.IHH
Prrl or I ibi 11c" in pr"due it 1c +38.3rr . 2H.;' i .1 2.Ar. • f ;'
\unibrr'.f Ili'i.,t, :36.128 _t; 3.^911 "'N r''1 :191,94: 141 .8:iS
141 rrll_l l-o•unii.. i.ir. llnrli' Fit % 363 ` 3141 i. i1J2 + 2'N, p 2 'Ir,
\usher oil i'i%r.tmriLI 11r14111 r- II)') 3'Jq 1; ; 11111 9:19
Number 1.fl, . rm4 Ili Ilr1i11 r.
olrr : lr . 869 32ti 243 :114) 931
T aal nt. iri'. of 1•rz.phn •l•. 96') 878 3ln 823 ;b3
1i rr.1,.r : ulll:m,-i. ire, pei
im•,tn.-nl In Aer ulrr I lr A 32;.1196 194. Ih; 1'31.;9;
\ n nd ire III r lw ar Ili»I, IIa•n1-d 25.323 1;.79'1 ]1i.2..1 Ii."3'1 17.524
1
MANAGEMENT'S FINANCIAL DISCUSSION
I
C
I
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I
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I
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I
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GENERAL BUSINESS ENVIRONMENT
Morgan Keegan, Inc. (the "Company") oper-
ates a full service regional brokerage business
Through its principal subsidiary, Morgan Kee-
gan & Company. Inc. The Company is involved
in the origination, underwriting. distribution,
trading and brokerage of fixed income and equi-
ty securities. The Company is not involved with
high yield securities, bridge loan financing, or
any other ventures that management feels may
not be appropriate for the Company's strategic
approach. Many highly volatile factors affect
revenues, including general market conditions,
interest rates, investor sentiment, world affairs.
competitive conditions and tax policies, all of
which are outside the Company's control. Also.
certain expenses are relatively fixed. As a
result, net earnings can vary significantly from
year to year, regardless of management's efforts
to enhance revenue and control costs.
For almost the entire fiscal year, strong mar-
kets aided virtually every facet of the Compa-
ny's business.
RESULTS OF OPERATIONS
For the second consecutive year. the Compa-
ny set records for revenues, net income and
earnings per share. During fiscal 1992, the
Company's revenues rose 57% to $182,664,000
which exceeded the prior year's record rev-
enues by $66,147,000. In fiscal 1991. the rev-
enues had increased toll 16,517,000 which was
31% above fiscal 1990. The record revenue lev-
els contributed significant volume which, when
coupled with the expense cutting and manage-
ment procedures adopted in previous years.
resulted in the $2.80 earnings per share, which
more than tripled the previous year's record
3.85 per share. The stronger markets began
about the middle of fiscal 1991 and were the
driving force in increasing the earnings per
share from 1.01 in fiscal 1990 to the $.85 for
fiscal 1991.
The, largest percentage increase within the
revenue classification was investment banking.
Fiscal 1992 saw revenues increase 319,904.000
or 187% to $30,552,000. This was due to
increases in managed and co -managed origina-
tions, participation in syndicate groups, and
private placements of equity and debt securi-
ties that went along with exceedingly favorable
market conditions for most of the year. For fis-
cal 1991. investment banking revenues
increased 51% to $10,648,000 due primarily to
the improved equity markets, beginning in the
second half of the year. resulting in the Com-
pany's participation in several large deals.
Principal transactions increased $31.223.000
or 54% from $57,563,000 to 388,786,000, which
accounted for almost one half of the increase in
total revenues. Substantial contributing factors
to the increase were the investor interest in the
equity over-the-counter markets and the con-
tinued strong markets for U.S. government
securities. In fiscal 1991. revenues from princi-
pal transactions had risen $19.832,000, or a
similar 53%, resulting primarily from the favor-
able markets in the last half of that fiscal year.
Operating expenses increased 336,160.000, or
35%, to 3140,473.000 in fiscal 1992. More than
90% of the dollar increase resulted from com-
pensation, which increased $33,083,000. or
54%, to 394,348,000. The increase closely cor-
responds to the 57% increase in revenues and
is attributable to the Company's commission
and payout structure. Most of the remaining
operating expense categories increased in the
20% range primarily due to the higher volume.
Interest costs dropped slightly due to the lower
rates throughout the Year, and occupancy and
equipment expense declined due to expense cut-
ting and management.
For fiscal 1991. operating expenses increased
17% to $104,313,000. The largest component
of the increase, compensation, increased
313.022.000 or 27% which closely correspond-
ed to the 31* increase in revenues. The remain-
ing operating expense categories reflected
mostly small increases which management
attributes to the significant cost cutting and
management programs inflated in fiscal 1990.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are highly liquid, con-
sisting mainly of cash or assets readily convert-
ible into cash. These assets are financed by the
Company's equity capital, short-term bank
loans, commercial paper, repurchase transac-
tions and other payables. Changes in the
amount of securities owned by the Company,
customer and broker receivables and securities
purchased under resale agreements affect
directly the amount of the Company's financ-
ing requirements.
Total assets of the Company were
3130,003.000 higher at July 31, 1992 than July
31, 1991 primarily due to increases in securi-
ties owned of 354,214.000 and receivables from
customers of 351.792,000, both of which reflect
the increased market activity. The total liabili-
ties increased by $104,150,000 mostly due to
increases in securities sold under agreements
to repurchase of 129,006,000, securities sold
not yet purchased of 320,016,000 and payables
to customers of $32,308,000.
During the year, the board of directors autho-
rued a four -for -three stock split followed sever-
al months later by a three -for -two stock split.
The splits together effectively doubled the
shares outstanding and the dividend rate and
were meant to allow shareholders to participate
in the outstanding year and to make the shares
more attractive to investors.
During May, 1992, the board of directors
authorized the purchase of an additional
500,000 shares of the Company's stock subject
to availability and acceptable price levels. Dur-
ing the year, the Company began the new buy-
back program purchasing 5.400 shares for a
total of $64,800. Prior to the current year, the
Company had purchased 3,772,620 shares
(adjusted for splits) during the years 1988
through 1991 and decreased capital by
117,079,150.
The Company's broker -dealer subsidiary is
subject to requirements of the Securities and
Exchange Commission and the New York Stock
Exchange relating to liquidity and capital stan-
dards. It has historically operated well in excess
of the minimum requirements. At July 31, 1992,
the net capital of the Company's broker -dealer
subsidiary exceeded the SEC's minimum
requirements by more than 148,000,000, which
is up from $27,000,000 at the end of last year.
Continued expansion is not expected to have a
significantly adverse impact on liquidity or cap-
ital. Funds available from operations and lines
of credit should provide sufficient revenues to
meet capital needs of the foreseeable future.
EFFECTS OF INFLATION
The Company's assets are primarily mone-
tary, consisting of cash, securities owned and
receivables. Because of their liquidity, these
assets are not significantly affected by inflation.
Management believes that replacement costs of
furniture, equipment and leasehold improve-
ments will not materially affect operations.
However, the rate of inflation affects the Com-
pany's expenses, such as those for employee
compensation and communications, which may
not be readily recoverable In the price of ser-
vices offered by the Company.
The table below summarizes the changes in the major categories of revenues and expenses for the
past three years.
Revenues:
1992 vs
1991
1991 vs
1990
Commissions
$11,692
46%r
$ 2,645
12%
Principal transactions
31,223
54%
19,832
53%
Investment banking
19,904
187%
3,616
51%
Interest
1,293
7%
1,067
7%
Other
2,035
37%
349
7%
366.147
57%
327,509
31%
Expenses:
Compensation
$33,083
54%
$13,022
27%
Floor brokerage and clearance
820
22%
2
0%
Communications
1,027
12%
328
4%
Travel and promotional
717
24%
322
12%
Occupancy and equip. costs
(637)
(8%)
405
5%
Interest
(391)
(3%)
362
3%
Taxes, other than income taxes
707
23%
434
16%
Other operating expenses
834
25%
(20)
(1%)
336,160
35%
$14,855
17%
Ijj
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'11+1
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411.14141
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it
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I , i
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CONSOLIDATED STATEMENTS OF INCOME
I
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Morgan Keegan, Inc. and Subsidiaries
(In thousands, except share amounts)
Year ended July 31
1992
I 1991
1990
Revenues
Commissions
$ 37,140
$ 25.448
$ 22.803
Principal transactions
88,786
57,563
37.731
Investment banking
30,.552
10,648
7.032
Interest
18,650
17,357
16,290
Other
7,536
5,501
116,517
5,152
89,008
182,664
Expenses
Compensation
94,348
61,265
48.243
Floor brokerage and clearance
4,571
3.751
3,749
Communications
9,791
8,764
8,436
Travel and promotional
3,699
2,982
2.660
Occupancy and equipment costs
7,557
8,194
7,789
Interest
12,562
12,953
12.591
Taxes, other than income taxes
3,823
3,116
2,682
Other operating expenses
4,122
3,288
104.313
12,204
3,308
89,458
(450)
140,473
Income (Lou) Before Income Taxes 42,191
Income Tax Expense (Credit)
16,400
4.500
8 7,704
8 .85
9,043.764
(475)
$ 25
$ .01
9,315,170
Net Income $ 25,791
Net Income Per Share $ 2.80
Average shares outstanding 9,211,939
See accompanying mores.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Morgan Keegan, Inc. and Subsidiaries
Common
Stock
"lain '
Balance at August 1, 1989
4.937,6(4
Issuance of restricted stock
67,032
Issuance of Common Stork
1,0(1(1
Dividends paid ($.10 per share)
Retirement of Common Stork
(348.111)
Amortization of restricted stork
Net income
Balance at July 31. 1990
4.657,585
Issuance of restricted stock
65,019
Issuance of Common Stock
82,920
Dividends paid ($.I I per share)
Retirement of Common Stock
(286.310)
Amortization of restricted stock
Net income
Balance at July 31, 1991
4.519,214
Stock splits effected in the form of stock dividends
4.518,896
Issuance of restricted stock
95,(46
Issuance of Common Stock
158.206
Dividends paid ($.20 per share)
Retirement of Common Stork
Amortization of restricted stock
Net income
(5.400)
Balance at July 31, 1992 9.285,962
(In thousands, except share amounts)
Common I Additional
Stock
Paid -In
Amount
Capital
$3,086
$19,388
42
(42)
1
8
(218)
(3,083)
685
Stock -
Retained holders'
Earnings Equity
$25,958 $48,432
(962)
25
$25,021
$16,956
$2,911
41
(41)
52
444
(984)
(179)
(1,717)
629
7,704
$2.825
$31,741
$16,271
2,824
(2,824)
59
(59)
99
858
(1.823)
(3) (64)
995
$5,804 $15,177
25,791
$55,709
9
(962)
(3,301)
685
25
$44.888
496
(984)
(1,896)
629
7,714
957
(1,823)
(67)
995
25.791
$76.690
See a corn, anying notes.
I13
:1)1NIL111.1TEH ST.1TE11E\TN Ill CASH F1.1iU
II
M.Ir.an Arrgl.n. htr and 'nh,id:arir•
In Ili n:,ar.d,I
tear rude -d ,luh.i1
1992
'141
1991'
I.anh 11an, trim I lµrratuta irIi\iii.-:
\rt lllr1,11w
- 21. .'1
i .,jlli
:1 25
Now ea,t Ilrin. In.•.Iu•Ird m . arrir.
1 L•prrn a bun :md amnn vah'n
2.165
.11.2M I
2.? 11)
I)rlrrrrd ir. '.me lanr,
131N1)
1.111111
11201
l m,mtUanlal if rr.:nrl141 ..k
995
h2'
6871
2x.631
lu.u'.;
2.801
Inerea.e Idrrrra..•I in nlwrating a..'•t•:
SIN untlr,.rensalrr. fur rrwla•nn parµ iV"
:3.51Nh
:,141
I)rlrl,n, ttuh rlrannp rj anlr audio, iii.] nl her,
111.11
12.11n
1:81
8w P1' j: Ir Irin1 hr.lk'•r,. dralrr,. and rlrann: Irpnnu alirn,
; • 123
111.61),1
8'4 rn a! L • (rim I •u.i,.nle1 ,
L31.7921
I o.'2
i8
13.1)2'
?'N nbr, np11I'-had ,. undo r al: r,N mph- I' ee.. 11
f23.5U91
U 71
113.:83
Sw u-itil., own+d
!.14.2111
I 1.113'
.
11.uu7
I )Ihrr al -'"l-12.1)951
1
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hu•n•aw Idrrrea,e) in uperalina IiabJilur:
}'ata}Ilr I I hr'ukvr•. 'Jr..., r•..iniI rInn nna ,'I=anral,nn.
9.17$
1.9:4
n.188
1a\nh4- to ru,l"nu•r,
3'.3118
i.
X31
11;!)'01
I.u, n m)rr d ra 11• pat able
1.801
')t8
1282"1
I4 until•,., old undrl iP1 rrmr.. nl, la null •nav
II
29.I)I16
112.
1_2'
llu1.:.31I
SIN II-It4•„ill. ant I' 1 1 u,r oohed
211.1116
f._^
n
18.0511
I llhrr hail li iii,,
13.931
94.1.;9
i 1.1
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121 .5431
1 $6.8.''
1:..311
fad' pnnidr.l in Iu.wl furl ulwraling erlililiv+
;.1138
1 VI."ht.1
1;_:8
I.anli )'l11N, From Finaneinlr Srii, iti r.:
\et µro. 1441. 1 lamenMl frnm;
`lulrl 'vrm h,'rrr'wuq,
141.1147
µ1..8A
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9.i:
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1671
.h961
l.i_3'II
lllvderd, raid
11.8231
:14811
4t'2I
I.a.h µ1,'%i,1.41 ht lu-el for fmanring arthitll•.
13.11221
114"131
138.18',
1.811 F1n Fr,.nl In .-tulp Artlt tl3..:
\I.1 µata.nII,I"r furulture. a opnnn+-Il:mu Ira,rh'lld inl'r,i rn)I•nl•
121)361
IId))I
11.3261
1 a.h u.wl for im railing ar Ii' il11+
12.1)361
nI)' 1
11.'32,11
lIlrry-8.r Idrerea.-1 in radl
2.1)111)
11
82'1
-.311;4
Iadl I,I Ie@nnntg iii) ear
9.359
II
.188
I ;a,h al I ii'] o:1 ear
$ 11.3.1')
44.1.1!
+ II.
Jib
IV, to 1;". n4ruL ptu'. ri}11,31 ;'nY _fl J' •) 1 !•M' n'Y':, vm!t'i'VR' nln'YI
1 aVM1•/APV•M.'•.'4LVI t)'.I'I,vPn '"J_. )..:. .r•MI, n lid. 1'II11_.''i 111b.n 1'1!'1
.11 •L' M.rn•41 t/1[ •L41
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Morgan Keegan, Inc. and Subsidiaries
July 31,1992
1. SIGNIFICANT ACCOI'NTING POLICIES
Basis of presentation: The consolidated financial
statemems include the accounts of Morgan Keegan.
Inc. and its subsidiaries I collectively referred to as
the Company). All significant inlereompany balances
and transactions have been eliminated in consolida-
tion. The Company is in one principal line of busi-
ness, that of providing investment services.
Securities Transactions: Securities transactions and
related commission revenue and expense are record-
ed on a settlement -date basis, generally the fifth busi-
ness day following the transaction dale, which is not
materially different from a trade date basis -
Securities: Securities owned and securities sold. nor
yet purchased, are carried at market value and unre-
alized gains and losses are reflected in revenue
InvestmentBanking: Management fees on invest
meal banking transactions and selling concessions are
recorded on settlement date, which is not materially
different from a trade date basis. Underwriting fees
are generally recorded on the date the underwriting
syndicate is closed.
Furniture, Equipment and Leasehold Improve-
ments: Furniture, equipment and leasehold improve-
ments are carried at cost. Depreciation and
amortization are provided on a straight-line basis
over the estimated useful lives of the assets.
Repurchase and Reverse Repurchase Agreements:
Securities purchased under agreement to resell and
securities sold under agreement to repurchase are
treated as financing transactions and are carried at
the amounts at which the securities will be subse-
quently resold or reacquired as specified in the
2. SHORT-TERM BORROWINGS
Short-term borrowings represent bank loans
payable on demand used to finance clearance of secu-
rities and to carry customers' margin accounts and
firm positions. These notes bear interest at the bro-
ker loan rate, which was 4.25°k at July 31. 1992. The
notes were collateralized by securities with approxi-
mate market values as follows, in thousands.
3. SECURITIES
Securities owned consist of the following, in thousands -
July 31 1992 1991
U.S. government obligations $143.721 $ 8],257
State and municipal obligations 23.757 33.632
Corporate bonds 11.136 12.230
Bankers' acceptances 294
Stocks 6,025 3,012
$184.639 £130.423
State and municipal obligations include an issue
with a par value of $12.700.000 which has been writ -
respective agreements.
Income Taxes: The parent and its subsidiaries file
consolidated income tax returns. Deferred income
taxes result from temporary differences between
financial reporting and income lax bases of assets
and liabilities. In February 1992. the Financial
Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109. "Account-
ing for Income Taxes" which superseded statement
No. 96. The Company does not expect initial adop-
tion in fiscal 1994 to have a material effect on finan-
cial position, results of operations. or liquidity.
Net Income Per Share: Net income per share is
computed based on the weighted average number of
shares outstanding including shares issuable under
stock options, when dilutive. All earnings per share
data included in the consolidated financial state-
ments and notes thereto have been adjusted to give
effect to the stock splits. (see note 7)
Accounts with Customers: Accounts with customers
include amounts arising from uncompleted transac-
tions and margin balances. Securities which are
owned by customers but held as collateral for receiv-
ables from customers are not included in the finan-
cial statements.
Securities segregated for regulatory purposes:
U.S. Treasury bills with a market value of $9.801,000
have been segregated in a special reserve bank
account for the benefit of customers under rule 15c3-3
of the Securities and Exchange Commission.
Restricted Stock: Amortization of restricted stock
is provided on the straight-line basis over the life of
the restriction which is four or five years.
July 31 1992 1991
Firm -owned securities $121,727 $85.434
Customer -owned securities 25.022 4,543
$146,749 $89,977
The Company also issues its own commercial
paper to investors at fluctuating interest rates (44r
at July 31. 1992). The paper matures over various
terms not to exceed nine months.
ten down to a fair market value of $6,500,000 at July
31, 1992 and 1991, respectively, as determined by
management of the Company.
Securities sold, not yet purchased consist of the fol-
lowing, in thousands:
July 31 1992 1991
U. S. government obligations $ 29,795 $ 10.570
State and municipal obligations 221 264
Corporate bonds 350 798
Stocks 2,349 1,067
$ 32,71.5 $ 12.699
1J
.oTES Tn (.nv.Ul Ibil ED FI\ %%C.1 U. STtTEME\ N I I i 11T1\l ED)
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I-11111 mI ii Ilnl.•1 I n0 rll'1. r 11 all+ I \{ Iri.
Ihruyeh l'r+R .1l9 aill I n` In I .''4'. 191 II .. l •f'? It,
1e hie \eer-. 11. Ied-e- I.IlllJill I r..\i r+ •..l
Ii • ..a- fnlyl l4. ,a .•ills-' '4,I •,I':,111111
r\.4.-, .1111 11 Ma. a. •1,111,.-. in Il:''u•an I-:
I +I+. .11. q:'.
I+l 4,,;..
11111 'L "11,1
S. IIIMIIMI\I> 4Hi I u\IIlf\' II•
lI Iii. 11.1 !•+_, 1h. C.Im1,alr\ lla• I I.II_•Ilr.i
Iii ar -4,run••1.1al II II, n 1.I 14.I IL • 111 #111.rmm,,t-6
'.1114 ]l Ia 1 . 1 ahll In 1 n. r ul a I ruin a .•.,rnre or_a
noatnnn Ibl,•..d.lil alnn.. norm oil' +,.•'I' throat eh
4.h - I It al an,, 4,1 194. 1 •-I I', { • .•. L r 111 , M 11111 hr rr-.r,
rat r nr_a 1].111 t1
fI.- 1 •,11 all . I re. •I ,l.&,I- .uk +I4.lar9 V I.1
t 1. 1\I r:an & I I npa 1.\. In1 .. r :1]m,•l .I+ nii. 1.f
4,r, n.lani• III .1\1I. Jn.rn led I !.n. 11111.1111-n
ii, u'- al rill e I i,l.aion ..f 1. -di r d +-t unllr+ la. -.
MI 11, err. Nei. to, ell,., a 4.. and . Lin ill 4,t I4.
rr 1. I wllh IIle 4,i lrlwl.lir a a9{ -al.- I I Ia1.r,l,
n11m1111 Al ha.,,,]- r- 4,t] 1.I\ --.a r,.1 :-+1119_ aurh,.r
III. Our ]I_ 1'1Pr, el d l argrr 111 coal al brl: ]Ilia -I
all 1.1 1.11 1.- I'd In }-.e. 111\4.
In+umn', 1 romanra I I lint: Ihr 4.t 01,IIIIp 1,111
Ii u•ula rv\, nur k., n11+ .- n-, tlr ]Ir..Iin. I: iu'a
l i 11 n a 9 i• 114,1 +111, : 4, 1 111 I I, i, 4.., I flip I III . d Si r n,
pl.i-. 1. unt-+r. in .roll.-,il r 14IPit ut .hl,- i \'an_an
\e,l rLItP III. 11 v 1911u1 11191111111 I r' nla I".TNII
19.•1 I. it 161 14., . ii i11 111]\ ;1 jr a- I. I'
II.. 1..arr-
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Ia+: -'AT:.
1'1+11 I .'131.
l Fr•r. Il1 814
k1 .•. al Il in I.i n.. Iii,.. -I I- I a. ii . Tarec n:
111111•., I.•I 1k. .ull. •I. II 4,,1114 dj, 1r-' Illur_an
No '.a11 al. .. li. r. IIe•t d it .on 1hv r 4. rd tVr•11,
l..11, r a• uni.-INoriIr-+ a• •I Ihl c _r Iul m. ml..r.
it. it 1• park it and- in ...... nd.na nl..rl.-I ^ an.a
14,]-. ].J, l 4,l •h. 6,nd+ ..h1 h art 16. •11:.11 I ..f n.
. II'- Norio lab] 0.11 h,-119lard g I`..nl. al Ihi
limit n• 1•• 1x9-1 . In] -nailla n, 1 11 al r..11n. wll:
Janual\ 1....11.4, l hr 14,n{ -MI -r. I•. v -1_r ud, .I f91
In.]I I••I I' u.• 4,11hl'..nnll, ha• -in, r 1 n.11 IITPd.•I 14,•4,
.1 en Ili aul
Ha.r.l 11111.11 i1,, 111'4,• rag) r I In rill I.11.,.11
1Ian, ri,1.111 - i ti,- ..l.ui .11 II at it Is' TP: 1•..r . 11,
,l•IP1 e9{ hr -In -:•w-:, d.I•. tun -".11.. e.ii.la•I\
d1•fnd ih• lv-all-
fht r...In11, 1\ '. al- I 1 delend..nl in \ a•In.l, a ht r
a...Lll• I.11d..IJel I i'.P.I I111•.111 -I1"-- at.. 1➢
It. 1,1,11114,1. of malld I•'ll•Ill L.I,Il1t\ I. a4,. I*-il111112
'•I m al IIII IIIIII w111 MI 194,1 I II.I'I I al r1111'
111.-.•: in Ohl 1 nn 1.4.11\. •vau ad I .m h' 119.
I,. RI '19F 14\ I\•'h''E 11 Ill
11•.4, -ioot e -t d 1 hill :.-1.4, ri, de fir ua in Ial1•• 1111 :1t. Ideal - I udrd
hums %] A. •ull.., .,
in lhnu-an I..
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la'II
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4,1 rent
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I :I..muit al I1 i iI11+f iv Ile ii, ri 'ri 11vl"rrn I9, (Ii •.i •all a1 , •h1 frd.•r,l .hoot l•\ ul-, m' Ill ral•' 11.1
Ill, \. al- end. d .14,11 .3 are a, it 1 a., in Ihnu-and-:
Fr{•I J -1.111,11111a1••.Ip'IN.:4,lIre:.nlan.mr-
•ta:I and 1.•r.Il lav r+• fir ll in, 'n91 Iar Iw•ne111
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Ih\1 {'1111. 11.1.1 PI I'\, IJ•Irll
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I
I
I
I
Il
I
I
Morgan Keegan. Inc. and Subsidiaries
July 31,1992
The components of the deferred tax provision (benefit) for the years ended July 31 are as follows, in thousands:
Depreciation
$ (96)
$(95)
$243
Deferred compensation
(235)
(27)
13
Restricted stock
429
(150)
(289)
Nondeductible reserve
(261)
(420)
(53)
Alternative minimum tax
296
Trade date profit
(84)
(15.5)
Other —net
(53)
51
(40)
$(300)
$(500)
$(126)
7. COMMON STOCK
During the year, the Company's board of directors
approved a four -for -three stork split In be effected as
a stock dividend on September 12. 1991 and a three -
for -two split to be effected as a stark dividend on
March 13. 1992. All earnings per share data have
been restated to give effect to the stock splits.
The Board of Directors has reserved 2,050,000
shares for issuance under the Company's Restricted
Stock and Incentive Stock Option Plans of 1983 and
1985. Under provisions of the Restricted Stork and
the Incentive Stork Option Plans. benefits may be
granted to key officers and employees in either, or a
combination of. incentive stock options or restricted
stock awards. Incentive stock options are granted at
the fair market value of the stock at the time of grant.
There were approximately 615.000 remaining shares
available to he granted at July 31. 1992.
The Board of Directors has authorized 150.000
shares to be granted to non -employee directors in the
form of incentive stock options subject to the share-
holder approval at the next annual meeting. As of
July 31. 1992, 24.000 options were outstanding at an
average price of $1021.
Employee stork option activity is summarized as follows:
Average
'
Shares
Price
Aggregate Exercisable
Outstanding at August 1, 1989 10].318
$5.73
$580,293
Cancelled or terminated
25.668
6.41
164,505
'
Exercised
2.000
4.44
8,875
Outstanding at July 31. 1990
73,650
5.53
406,913
Granted
42,000
5.33
223,800 1993-1996
Cancelled or terminated
8,000
6.24
49,874
'
Exercised
16.000
4.60
73,625
Outstanding at July 31. 1991
91,650
5.54
$507.214
Granted
7,200
7.83
56,348 1993-19%
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Exercised
56,]50
5.31
298,224
Outstanding at July 31. 1992
42,700
6.21
$265.338
The Company has approximately 516.000 shares of restricted
stock included in common
stork outstanding which
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was issued at the fair market value at the date of grant.
Under an Employee Stork Purchase Plan, 600.000
shares have been reserved to allow employees to pur-
chase Company shares at a 15% discount, not to
exceed 150,000 shares to all employees in any year.
In 1991, 149,829 shares were issued under the plan
and 102.045 were issued in 1992 leaving 348,126
shares available for future grants at July 31. 1992.
The Company also has reserved another 1,200,000
shares under another Employee Stock Purchase Plan
which is currently dormant.
J
MITES TO Cl I\'OLIDATEII FIN %N11 U. ST4TEMF.\T ,C0NTIM ED'
Mnrpan het all.. In'. slid 'uF-idlenr-
Jib 31.1tt'
11 MEN HI H lSI 4\I1 RI1I.R%E REF11 RI H 4.] 4CREEMEsv'
rill 1 ImF all! ru1Mr• . 1.,ii oil - ill 4 -iii it,, - Ili l "r
aar.— ln.'ln• In 1.',1ni1'ha•^. ¢dtur is in P.. It 11
•In '. .tli di err ilra:l.1 tiling ,.u, 1i1i ii,- 9h i_a
him In relnlr. Il a'i :h1' -el arlllr• •1,141 •e' L.'i•• 1 b- a
_`
R.•loH.'1.,,1-Ita•c aal Mrne9: iiifimm a!ion 8- Iif Jill, .3...a12
1- - gen.an led
a• f.111,..-
\a'et.
.1.141
9epureha-•
I ishilitl
I drr.inp
Mainll
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\mllunr
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jr,.,,']
Hale
Mertpa,e ti..rlwl •erii'lrble-
%:1 I4A
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I 1 1 }rr
I.l Inca-art-lruri'ta-
a1,b1'1
31.,,11
1. 1.91
,.i1I11-
fine,
a 1-:
1.1; 1
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I]aln it1 Ir the i r..III .I Ie,I to im-it: of fi r a iii la
I'irdnl in. Ehr m.l I.rr1 Iif I hr ref t rl'•11-r ac• I-.•
Tent- are naI.'he] .iili a rl ler•e rrll1.1 i ha-.'
..pr. on ent.
1 Ill I . mpaln .11.1 rntar- irw 1nlreii. •I • if -ei u
Iii-. undr aa-r, now, III r, -P I. re1i r-rI-pu:o h..r
ball rirrnl-I r h1 alrnrlll- .rill.mel] under ILi -r
sail emrnl- I r.m, "Jong •li,rI lrm o.arinI are
Ir' rr:1 .: a -.I r. .•eilal I. in Ill... r-oli.air) ••..tv
meal . I .pan. ial rnn.li:., I. p. runlla. lnarcha•rd
4. LMPL111hI RF\U11 r. \•
I he l.nu pnni I.a. a Nil h Ie: I,, -nir.i}ib:lnin
plan at ii air -oil -hann., play . loll line • III.•lintlal.t
all r.pl olI e- hill] au, fneil r.•l ire men, 1i ar 1 I .r
III. RFLI 14TI)Rl RF:Ql IHIML'I
rn- t .rn♦1 an'. ]nnil I d. all-u,1•idl all. \1 Ir
can hr1•pail 1- I lw,laill in...- -i,I je'i t.i ihr peel
-vie- and F. han_. I.nrvn.•n-r. i `t.l i indnrm ii"I
. it Ili rlllr I11e. Ih.IdW•l h. ,• i' r'Ie l 1u 9,1.'1 a1.
under the allern rl -ne'h.1d , hue .Ile.. Iii. I pr n
nil,, a I:rnlrr ]-aler 4nm rneaanc it and •e, until
:nr•..I Lion- .h. r it, ret rapr..l i- I. ••,Far 1'I n1
I. apsrepata dehil La Ian..-- ari -ire from 'u -t liner
:ran -a ln1rn. a- Ill finl-i1. Th.- •Fi met al.,, rrlluir&
a m. m:I•'r II r. o;n, a it• liil-ire-• Joni r. •In. I .illi
dl a.al ii -uL.Irvllllsi Pii 'apr.al I' •I- let apilal i- II -•
.uule• ecl'eru r.1 ii. pr -1.1. a: a held 1. -all Lr. line ill
1.111 111iiaT • lalnl. )I.. 11141:114 nlarn111 illlr..fihie
limier \ilia •e, iIi r- ill . `I ea•r lie eM Il r an.4luil
re it led. Or r little, pal:% I. l 9111 1 ad Ill ldar, an
'11'11\al-n- arro-ml: lot a, d:tl .Hal •e.•m it V. n •air
lwpuic in the rare ii the I un.wn-.
nip I el to a .r1el hike'. I list pl nli•imt- lit ell.en-
-• iiil.'r all l Ii,- fin ra -11 it ii,. 'far. rn 1.1 Jul.
41 I. 1d1191 to ,21 ^,Iaal, } II, i ,.III .in I W".O111 I f1.r
11112. It'll and 'am . 11 --fir -111. I1.
than t' -r of aaireaa', dI lit halal e. end mat p -1i
hill I a mrmhn r ;Inn fn•ni 1-l} an Iona it- I u.ine-- and
gel L.rllic r ].fl I:n illrnd- it I:• Per -appal i- Ir.- ihau
1 ! 'I aayrl able dehll LaL1111 e•
11 J ll:1.11. I'wJ. I hi -uk ",than n.n] liet. ai'u I
.d %)1.101 hall. .lnrh ...• ;H', o i..p:n•palr drhil
I.alanr. - and in 4H.-i1,nf1 in Piro .. of the :''e iii
.-,.pital r. •lui-rm'•ld. Ili Jill' it 1911. iie•nll•idlan
I all yr1 I apnal nl %°'a.3i 2.iIK5 .la lt ..1. 331-0 • fit.
apprw-d to dI I it halal, r• and $27. ihl.;;;. in err•-•• iif
111. j,•1 nI t r1,pical rri]uir. menl.
1°
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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Morgan Keegan, Inc. and Subsidiaries
July 31,1992
11. FINANCIAL. INSTRUMENTS WITH OFF -BALANCE SHEET
RISK
In the normal course of business, the Company's
activities involve the execution, settlement and
financing of various securities transactions. These
activities may expose the Company to risk in the
event the customer is unable to fulfill its contractual
obligations. The Company maintains cash and mar-
gin accounts for its customers located throughout the
United States but primarily in the Southeast.
The Company, as part of its normal brokerage
activities, trades proprietary short positions on secu-
rities. The establishment of short positions exposes
the Company to off -balance sheet risk in the event
prices change, as the Company may be obligated to
cover such positions at a loss. The Company manages
its exposure to these instruments by entering into off-
setting or other positions in a variety of financial
instruments.
As a securities broker/dealer, a substantial por-
tion of the Company's transactions are collateral-
ized. The Company's exposure to credit risk
associated with nonperformance in fulfilling contrac-
tual obligations pursuant to securities transactions
can be directly impacted by volatile trading markets
which may impair the customers' or contra party's
ability to satisfy their obligations to the Company.
Where considered necessary, the Company requires
a deposit of additional collateral, or a reduction of
securities positions.
In the normal course of business, the Company
enters into underwriting and forward and future
commitments. At July 31, 1992, the contract amount
of future contracts to purchase and sell U.S. Gov-
ernment securities was approximately $64 million
and $45 million, respectively. At July 31, 1991 the
contract amount of futures contracts to purchase and
sell U.S. Government securities was approximately
$21 million and $20 million, respectively. The Com-
pany typically settles its position by entering into
equal but opposite contracts and, as such, the con-
tract amounts do not necessarily represent future
cash requirements. (Transactions relating to such
commitments were subsequently settled and had no
material effect on financial position.)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands,
except per share amounts)
Quarter Ended
Oct. 31
Jan. 31
Apr. 30
July 31
1992:
Revenues
$37,923
$48,094
$50,837
$45,810
Expenses
30,226
36,968
38,172
35,107
Income before income taxes
7,697
11,126
12,665
10,703
Net income
4,772
6,701
7,715
6,603
Nei income per share
.53
.73
.83
.71
Dividends per share
.04
.04
.06
.06
Stock price range:
High
11%
16K
21%
16%
Low
6%
10%
11%
10%
1991:
Revenues
$21,830
$27,598
$33,573
$33,516
Expenses
21,848
25,638
28,518
28,309
Income (loss) before income taxes
(18)
1,960
5,055
5,207
Net income
32
1,310
3,180
3,182
Net income per share
.01
.14
.35
.35
Dividends per share
.02
.03
.03
.03
Stock price range:
High
8%
4%
8'/2
9%
Low
4'/6
3X
4Z
7'G
[I
REI't1RT OF INIIEPE'NIEENT AE IIITOR'.
11
Ifnar•I of %lira 1or•
11lrra.in ]he -.an. hi,'
r I ale audilyd the BrrIImp.n%in^_ I'Ilr.ulidalyd ,talement• of finanri'tl uidilion of
\Il.r_11i K.•.•canlnr. and •Ulllldla.^.Pr a• III Jill% .3I. 1111)2 dliii 1')I I. and iii rolilid I im
,. •hitan•d • I a Irnl.•nt- Iif illeome. • lorahnldrr,' rquil%.:mu ca,h fl,., • tnI rarl: of the Ihree
%eaI - .n Ihr period rndrd in]' 3l. 1'ty'2. fhr,e finanrlal %t a lenient• are I'ii' I. •p m•II'llit'
If the 1 .unlpalll'% Illallagemellt. I llir r.-1.on•ihilit% i, to a\Iil-e an kit'i ni n•1 nn thr.•' flu all
l' 10I ,IIIten.elt, IIa`ed on our andil•.
1l r rondurled our audit, in arrordaure uit6:rnrral.' areepleil audilina ,taudard,.
l Ile,e •landard• rrquit r Ilial Me plan and pert irm in audit to nlilain r.'a•ol:ahle a•,ur
u -lie ahi'pl .lieiiier t}le flnan. ill] •talenlmlll• are troll i,l malerlal Iril•datrnl' nt. 1n anihl
111e14id.•, r\Ilmining. ''ti a h^I ha.'-. r% idrin'e . ul'1 orling the arinl.E:• and 'ii-, ll'.Ilrr• ill
Iii,' Ilnali •lill ,Iiltl InI-nt,, %ii i tSl Ill d],l' iiii-Illlll" d„e1,111_ the al'l'iII111Iiitll prine-iple, Ij,l'll
and •r�luflranl .,timalr• mair h% nlanagemrnl. a- uell a• r%alua!inr the in email tlnaneial
.tatrmrnl :•'e•enlalion. P e helir%e dial our audit- prn%ide a rea•'mahlr IIa-i- l,ir our
u}illln•1
Ir our - ]'ininr. flip finanrlal ,t aleni'nI% ref' rrl•iI to d!.ou' pre.'•nil fairh In all nnl:r
I ial it -'el-. Ihr 4liln.I I.i d lrtpd finani ial pariIIon of 1hirgan Arr4au. mu r and wh•idumr•
al .I ul\ 31. l'l''2 and 11in1. and Ihr I on•ohd atoll re-t.t. of Ill -ir n11.•ratinn• aim] I!irir I a•h
floe. fur earh nl :he Ihrer %ear, in th.• p••riod rndrd I1.' 31. ]'N2 in ei,nt'urinil% uilh
arner.,1.'% a 41•] lrn u'rrunlmg prilieipleI.
fU %lengihl•. I rune„ee
r}tI RI:.P! I I. I ) 2
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MORGAN KEEGAN, INC,
Morgan Keegan Tower
Fifty Front Street
Memphis, TN 38103
9011524-4100
Telex:69-74324
Cable:MORKEECO
Directors
Kenneth F. Clark, Jr.
Partner
McDonnell Boyd
Attorneys
William W. Deupree. Jr.
President
Morgan Keegan, Inc.
James E. Harwood, III
President
Sterling Equities, Inc.
Allen Morgan, Jr.
Chairman
Morgan Keegan. Inc.
Donald Ratajczak. Ph.D.
Director
Economic Forecasting Project
Georgia State University
John W. Stokes. Jr.
Vice Chairman
Morgan Keegan & Company. Inc.
Joseph C. Weller
Secretary & Treasurer
Morgan Keegan, Inc.
Peter S. W illmott
Chairman
Willmott Services, Inc.
SUBSIDIARIES
Morgan Keegan & Company, Inc.
Offices
Atlanta Knoxville
Baton Rouge Lafayette
Birmingham Little Rock
Boston Memphis (2)
Bowling Green Mobile
Decatur Montgomery
Fairhope Nashville
Ft. Lauderdale New Orleans
Huntsville New York
Jackson. MS Pensacola
Jackson. TN Shreveport
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MANAGING DIRECTORS
Allen B. Adler
Franklin P. Allen. I11+
Rodney C. Baler, Jr.
George E. Bagwell
Woodley H. Bagwell
Robert A. Baird
Reginald E. Barney
Glen E. Bascom
John B. Carr, Jr.
William F. Clay
Brian N. Dalkon
Charles W. Dean
William W. Ileupree. Jr.s+
Ted B. Donaldson
Michael D. Easterly+
Richard H. Eckel%
G. Douglas Edwards
Tom L. Epperson
Graham D.S. Fulton
James H. Ganier+
John II. Geary
Robe" U. Gooch. Jr.
William K. Gooch
Terry C Graves.. -
Gary M. Grear
Jan L. Gwin
Thomas M. Hahn
Thomas V. Harkins
Roderick E. Hennek
Edwin L. Hoopes. III
R. Davis Howe
William F. Hughes. Jr.
John Edward Jacoby
E. Carl Krausnick, Jr.
Benton G. Landers
Mark A. Lee
William M. Lellyett, Jr.
Willard G. Logan, Jr.
Wiley H. Maiden
John H. Martin
William D. Mathis. 111
Jack W. Mayer
Richard A. MrStay
Allen Morgan. Jr.a+
John G. Moss
William G. Mueller
John M. Murray
Jennifer W. Newman
Jack A. Paratorr
James Parrish
William T. (Dale) Patterson
Minor Perkins
L. Jackson Powell
C. David Ramsey -
J. Mitchell Reese
lirdi II. Reynolds
James C. Roddv
Kenneth L. Rowland
W. Wendell Sanders
Robert L. Snider
Fred B. Smith
John W. Stokcs.Jr e+
James M. Tail, III
David H. Taylor
Phillip C. Taylor
W . (:h-les Warner
Richard E. Watson
Craig T. Weirhmann
Joseph C. Welters.
John J. Zollinger. 111
SUBSIDIARIES
Morgan Keegan Managed Futures, Inc.
Morgan Keegan Mortgage Company. Inc.
Morgan Keegan Insurance Agency of Alabama, Inc.
Morgan Keegan Insurance Agency of latdsiana, Inc.
Margin Keepn Funding Corporation
Merchant Bankers, Inc.
Southern Capital Advisors. Inc.
Cumberland Securities Company. Inc.
CORPORATE INFORMATION
Annual Meeting
Morgan Keegan, Inc. will hold its annual meet-
ing of shareholders on Tuesday. November 24,
1992 al 10:00 a.m. in the boardroom of its ror
porate headquarters, Morgan Keegan Tower.
Fifty Front Street, Memphis, TN.
Transfer Agent & Registrar
Bank of Boston
Boston. MA
Auditors
Ernst & Young
Memphis, TN
Stock Listing
Morgan Keegan, Inc. is traded on the New
York Stock Exchange under the symbol MOB.
The approximate number of shareholders on
September 25. 1992 was 2.950.
Supplemental Information
For copies of the form 10-K annual report filed
with the Securities and Exchange Commission,
or for additional information about the firm,
please contact: Mimi Hall, Morgan Keegan.
Inc., Morgan Keegan Tower. Fifty Front
Street, Memphis. TN 38103. 9011761-2964.
Design: Kirk Hastings Design
Editorial: Great Lines, Inc.
Photography: Steve Murray
G 1992 Morgan Keegan. Inc.
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*Execulire Committee Members
4 alanagement Commuter Members