Document:

Securities and Exchange Commission Order dated June 22, 2011

 Exhibit 10.1 
 UNITED STATES OF AMERICA 
 Before the 

SECURITIES AND EXCHANGE COMMISSION 
 SECURITIES EXCHANGE ACT OF 1934 
 Release No. 64720 / June 22, 2011

 INVESTMENT ADVISERS ACT OF 1940 
 Release No. 3218 / June 22, 2011 
 INVESTMENT COMPANY ACT OF 1940

 Release No. 29704 / June 22, 2011 
 ACCOUNTING AND AUDITING ENFORCEMENT 
 Release No. 3296 / June 22, 2011

 ADMINISTRATIVE PROCEEDING 

File No. 3-13847 
  

					
	  

In the Matter of
  
 MORGAN ASSET MANAGEMENT, INC.;
 MORGAN KEEGAN & COMPANY, INC.;

JAMES C. KELSOE, JR.; and
 JOSEPH
THOMPSON WELLER, CPA,
  
 Respondents.
	  		  	ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, SECTIONS 203(e), 203(f) AND
203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND SECTIONS 9(b) AND 9(f) OF THE INVESTMENT COMPANY ACT OF 1940, AND IMPOSING SUSPENSION PURSUANT TO SECTION 4C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e)(1)(iii) OF THE
COMMISSION’S RULES OF PRACTICE

 I. 
 On April 10, 2010, the Commission instituted public administrative and cease -and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”),
Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Investment Company Act”) against Morgan Asset Management, Inc. (“Morgan
Asset”); Morgan Keegan & Company, Inc. (“Morgan Keegan”); 

 
James C. Kelsoe, Jr. (“Kelsoe”); and Joseph Thompson Weller, CPA (“Weller”); pursuant to Section 15(b)(4) of the Exchange Act against Morgan Keegan; pursuant to
Section 15(b)(6) of the Exchange Act against Morgan Asset, Kelsoe and Weller; pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”) against Morgan Asset and Morgan Keegan; pursuant to Sections
203(f) and 203(k) of the Advisers Act against Kelsoe and Weller; and pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice against Weller. Respondents Morgan Asset, Morgan Keegan, Kelsoe
and Weller (collectively “Respondents”) have submitted an Offer of Settlement which the Commission has determined to accept. 
 II. 
 Solely for the purpose of these proceedings and any other proceedings
brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are
admitted, Respondents consent to the entry of this Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 4C and 15(b) of the Securities Exchange Act of 1934, Sections 203(e), 203(f) and 203(k) of the
Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Imposing Suspension Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e)(1)(iii) of the Commission’s Rules of
Practice (“Order”), as set forth below. 
 III. 

On the basis of this Order and Respondent’s Offer, the Commission finds1 that, 

 

	A.	RESPONDENTS 

 1. Morgan
Asset, incorporated in Tennessee on April 10, 1986, has been an investment adviser registered with the Commission at all relevant times. Morgan Asset’s principal place of business is in Birmingham, Alabama. Morgan Asset is a
wholly-owned subsidiary of MK Holding, Inc., which in turn is a wholly-owned subsidiary of Regions Financial Corporation. 
 2.
Morgan Keegan, incorporated in Tennessee on June 27, 1969, has been registered with the Commission as a broker-dealer at all relevant times and as an investment adviser since July 27, 1992. During the relevant time period, Morgan
Keegan served as the principal 
  
  

	1 	 The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any other person or entity in this or any other
proceeding. 

  
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underwriter and sole distributor of shares of the open-end Funds described in paragraph 5, below. Morgan Keegan’s principal place of business is in Memphis, Tennessee. 

3. Kelsoe, 49 years of age, is a resident of Memphis, Tennessee. During 2007, Kelsoe was the senior portfolio manager for Morgan
Asset. Kelsoe is a Chartered Financial Analyst and previously held Series 7 and 65 licenses. Kelsoe was associated with Morgan Keegan at all relevant times, and was a registered representative of the firm from August 1994 through November 2008.

 4. Weller, 46 years of age, is a resident of Memphis, Tennessee. Weller has been employed by Morgan Keegan since 1992.
During the relevant period, he was Morgan Keegan’s Controller and the head of its Fund Accounting Department reported to him. He holds Series 7, 27, and 66 licenses and is a CPA who was previously licensed in the State of Tennessee. That
license is currently lapsed. Since at least January 1, 1993, Weller has been associated with the investment adviser arm of Morgan Keegan. Additionally, from at least December 1997 through the present, Weller has been a registered representative
associated with the broker-dealer arm of Morgan Keegan. 
  

	B.	OTHER RELEVANT ENTITIES 

 5.
Helios Select Fund, Inc., formerly known as Morgan Keegan Select Fund, Inc. (“Select Fund”), incorporated in Maryland on October 27, 1998, has been an investment company registered with the Commission since its inception. In 2007, the
Select Fund contained three open-end portfolios: the Select High Income portfolio, the Select Intermediate Bond portfolio, and the Select Short Term Bond portfolio. 
 6. Helios High Income Fund, Inc., formerly known as RMK High Income Fund, Inc., a closed-end fund incorporated in Maryland on April 16, 2003, has been an investment company registered with the
Commission since its inception. 
 7. Helios Multi-Sector High Income Fund, Inc., formerly known as RMK Multi-Sector High Income
Fund, Inc., a closed-end fund incorporated in Maryland on November 14, 2005, has been an investment company registered with the Commission since its inception. 
 8. Helios Strategic Income Fund, Inc., formerly known as RMK Strategic Income Fund, Inc., a closed-end fund incorporated in Maryland on January 16, 2004, has been an investment company registered
with the Commission since its inception. 
 9. Helios Advantage Income Fund, Inc., formerly known as RMK Advantage Income Fund,
Inc., a closed-end fund incorporated September 7, 2004, has been an investment company registered with the Commission since its inception. 

  
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	C.	FACTS 

 Overview

 10. Morgan Asset, through Kelsoe, as Portfolio Manager, managed the Helios Select Fund, Inc., the Helios High Income
Fund, Inc., the Helios Multi-Sector High Income Fund, Inc., the Helios Strategic Income Fund, Inc., and the Helios Advantage Income Fund, Inc. (collectively, the “Funds”) from at least November 2004 through July 29, 2008. 

11. Respondent Morgan Keegan, a registered broker-dealer and registered investment adviser, was the principal
underwriter and distributor of shares of the open-ended Funds. Each of the Funds’ Boards of Directors was responsible for pricing the Funds’ securities in accordance with the Funds’ valuation policies and procedures (“valuation
procedures”). Although the Funds’ prospectuses stated that Morgan Asset would price the securities, each Fund’s Board of Directors delegated the pricing responsibility to Morgan Keegan. Morgan Keegan priced each Fund’s securities
and calculated the Fund’s daily net asset value2
(“NAV”) through its Fund Accounting Department (“Fund Accounting”). Weller was an officer and treasurer of the Funds. Weller, Morgan Keegan’s Controller, along with other Morgan Keegan personnel, staffed a “Valuation
Committee” that oversaw Fund Accounting’s processes and evaluated the prices assigned to securities. Morgan Keegan and Weller failed to adequately fulfill Morgan Keegan’s responsibilities, as delegated to it by the Funds’ Boards
of Directors, to price the Funds’ securities in accordance with their valuation policies and procedures regarding valuation. For example, at various times from January 2007 through July 2007, Fund Accounting accepted unsubstantiated “price
adjustments,” submitted by Kelsoe, that inaccurately inflated the prices of certain securities, contrary to the Funds’ valuation procedures. Fund Accounting failed to document justifications for such pricing adjustments. 

12. The Funds’ valuation policies and procedures required the comparison of fair values to prices provided by other sources.
Pursuant to that requirement, Fund Accounting periodically obtained broker-dealer price confirmations for certain fair valued securities. Unbeknownst to Fund Accounting and the Funds’ independent auditor (“Independent Auditor”), the
Portfolio Manager, Kelsoe, actively screened and influenced a broker-dealer to change the price confirmations that Fund Accounting and the Independent Auditor obtained from the broker-dealer. Kelsoe also failed to advise Fund Accounting or the
Funds’ Boards of Directors when he received information indicating that the Funds’ prices for certain securities should be reduced. 
  

 

	2	 The “net
asset value” or “NAV” of an investment company is the company’s total assets minus its total liabilities. An investment company calculates the NAV of a single share (or the “per share NAV”) by dividing its NAV by the
number of shares that are outstanding. 

  
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 13. Each of the Funds held, in varying amounts, securities backed by subprime mortgages, and
the market for such securities deteriorated in the first half of 2007. Morgan Keegan utilized practices which were not reasonably designed to determine that the Funds’ NAVs were accurate. Morgan Asset, through Kelsoe, engaged in actions that
forestalled declines in the NAVs of the Funds that would have occurred as a result of the deteriorating market, absent his intervention. 
 14. Many of the securities that were held by the Funds and backed by subprime mortgages lacked readily available market quotations and, as a result, were required by the Investment Company Act to be
priced by the Funds’ Boards of Directors, using “fair value” methods. Under Section 2(a)(41)(B) of the Investment Company Act, the Funds were required to use market values for portfolio securities with readily available market
quotations and use fair value for all other portfolio assets, as determined in good faith by the board of directors. The fair value of securities for which market quotations are not readily available is the price the Funds would reasonably expect to
receive on a current sale of the securities.3 

15. The Funds adopted valuation procedures for pricing the Funds’ portfolio securities and assigned the task of following those
procedures to Morgan Keegan. The Funds’ valuation procedures for fair-valued securities mandated that such securities should be valued in “good faith” by the Valuation Committee, considering a series of general and specific factors
including, among others, “fundamental analytical data relating to the investment,” “an evaluation of the forces which influence the market in which the securities are purchased or sold” and “events affecting the
security.” The procedures required the Valuation Committee to maintain a written report “documenting the manner in which the fair value of a security was determined and the accuracy of the valuation made based on the next reliable public
price quotation for that security.” The procedures also required that values assigned to securities be periodically validated through, among other means, broker-dealer price confirmations. Fund Accounting also used broker-dealer price
confirmations to set current values. The procedures specified that prices obtained from a broker-dealer could only be overridden when there was “a reasonable basis to believe that the price provided [did] not accurately reflect the fair value
of the portfolio security.” Whenever a price was overridden, the procedures mandated the basis for overriding the price to be “documented and provided to the Valuation Committee for its review.” 

16. In filings with the Commission, the Funds stated that the fair value of securities would be determined by Morgan Asset’s
Valuation Committee using procedures adopted by the Funds’ board of directors. In fact, the responsibility was delegated to Morgan Keegan, which primarily staffed the Valuation Committee. Morgan Keegan and the Valuation Committee did not

  
  

	3	 See AICPA
Audit and Accounting Guide - Investment Companies (Sect. 2.35-2.39), which incorporates Accounting Series Release No. 118 (“ASR 118”). The Commission has provided interpretative guidance related to financial reporting in the
Accounting Series Releases, which is included in the Codification of Financial Reporting Policies. Thus, conformity with the ASR 118 is required by Commission rules and complies with Generally Accepted Accounting Principles (“GAAP”).
See also Articles 1 -01(a) and 6.03 of Regulation S-X. 

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reasonably satisfy their responsibilities under the Funds’ procedures in several ways. Among other things: (i) the Valuation Committee left pricing decisions to lower level employees in
Fund Accounting who did not have the training or qualifications to make fair value pricing determinations; (ii) Fund Accounting personnel relied on Kelsoe’s “price adjustments” to determine the prices assigned to portfolio
assets, without obtaining a reasonable basis for or documentation supporting the price adjustments or applying the factors set forth in the procedures; (iii) Fund Accounting personnel gave Kelsoe discretion beyond the parameters of the
valuation procedures in validating the prices of portfolio securities by allowing him to determine which dealer price confirmations to use and which to ignore, without obtaining documentation to support his adjustments; and (iv) the Valuation
Committee and Fund Accounting did not ensure that the fair value prices assigned to many of the portfolio securities were periodically re-evaluated, allowing them to be carried at stale values for months at a time. 

17. Morgan Asset adopted its own procedures to determine the actual fair value to assign to portfolio securities and to
“validate” those values “periodically.” Among other things, those procedures provided that “[q]uarterly reports listing all securities held by the Funds that were fair valued during the quarter under review, along with
explanatory notes for the fair values assigned to the securities, shall be presented to the Board for its review.” Morgan Asset failed to fully implement this provision of its pricing policy. 

18. At various times between January 2007 and July 2007, Kelsoe had his assistant send “price adjustments” to Fund Accounting.
The adjustments were communications by Kelsoe to Fund Accounting concerning the values of specific portfolio securities. In many instances, these adjustments were arbitrary and did not reflect fair value. The price adjustments were routinely entered
upon receipt by the staff accountant into a spreadsheet used to calculate the NAVs of the Funds. 
 19. Fund Accounting did not
generally request, and Kelsoe did not generally supply, supporting documentation for his price adjustments. Fund Accounting and the Funds did not record which securities had been assigned values by Kelsoe. 

20. As part of the Funds’ valuation procedures, Fund Accounting sometimes requested third party broker-dealer price confirmations as
a means to validate the values it had assigned to the Funds’ fair valued securities. The Funds’ Independent Auditor used similar requests for third party broker-dealer price confirmations as part of its annual year-end audits of the Funds.
Fund Accounting or the Independent Auditor would periodically send such requests to broker-dealers asking them to provide price confirmations for various portfolio securities. 
 21. During the period from January through July 2007, when month-end dealer price confirmations were received by Fund Accounting, an employee of Fund Accounting performed a review to estimate whether they
contained any securities prices that varied from current portfolio values by more than five percent. If so, then Kelsoe determined whether the current values should be maintained or a new value—which may or may not have been the price given by
the broker-dealer—should be assigned to the security. Thus, Fund Accounting generally allowed Kelsoe to 

  
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determine whether broker-dealer price confirmations were used or ignored. In some instances, when price confirmations were received that were substantially lower than current portfolio values,
Fund Accounting personnel, acting at the direction of Kelsoe, lowered values of bonds over a period of days, in a series of pre-planned reductions to values at or closer to, but still above, the price confirmations. As a result, during the interim
days, Fund Accounting did not price those bonds at their current fair value. 
 22. During the period from January through July
2007, Fund Accounting failed to record which bond values were not adjusted in response to dealer price confirmations at Kelsoe’s direction. 
 23. The head of Fund Accounting reported to Weller, and Weller was a member of the Valuation Committee. He knew, or was reckless in not knowing, of the deficiencies in the implementation of the valuation
procedures set forth above, and failed to remedy them or otherwise make sure fair-valued securities were accurately priced and the Funds’ NAVs were accurately calculated. During the period from January through July 2007, Weller was aware that:
(i) the Valuation Committee did not adequately supervise Fund Accounting’s application of the valuation factors; (ii) Kelsoe was supplying fair value price adjustments for specific securities to Fund Accounting but the members of the
Valuation Committee did not generally know which securities Kelsoe supplied fair values for or what those fair values were, and did not generally receive supporting documentation for those values; and (iii) the only other pricing test regularly
applied by the Valuation Committee was a “look back” test, which compared the sales price of any security sold by a Fund to the valuation of that security used in the NAV calculation for the five business days preceding the sale. The test
only covered securities after they were sold; thus, at any given time, the Valuation Committee never knew how many securities’ prices could ultimately be validated by it. Weller nevertheless signed the Funds’ annual and semi-annual
financial reports on Forms N-CSR, filed with the Commission, including certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. 
 24. During the period from January 2007 through July 2007, Morgan Keegan, acting through Weller and Fund Accounting, failed to employ reasonable procedures to price the Funds’ portfolio securities
and, as a result of that failure, did not calculate current NAVs for the Funds. Despite these failures, Morgan Keegan published daily NAVs of the Funds which it could not know were accurate and, as distributor of the open-end portfolios, sold and
redeemed shares to investors based on those NAVs. 
 25. On various dates from January 2007 through July 2007, Morgan Asset,
through Kelsoe, screened and influenced the price confirmations obtained from at least one broker-dealer (“the Submitting Firm”). Among other things, the Submitting Firm was induced to provide interim price confirmations that were lower
than the values at which the Funds were valuing certain bonds, but higher than the initial confirmations that the Submitting Firm had intended to provide. The interim price confirmations enabled the Funds to avoid marking down the value of
securities to reflect current fair value. Kelsoe was aware that use of the interim price confirmations was inconsistent with the valuation procedures and did not reflect fair value, that the Submitting Firm

  
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would be providing lower price confirmations in response to future pricing validation requests, and that the Funds would be required to further mark down the value of the securities to reflect
their already diminished value, but that information was not disclosed to Fund Accounting, the Funds’ Boards of Directors or the Independent Auditor. In some instances, even after causing the Submitting Firm to increase its price confirmations,
Kelsoe subsequently provided price adjustments to Fund Accounting that were higher than even the Submitting Firm’s increased price confirmations. These adjustments were not consistent with the Funds’ procedures. In other instances, the
Submitting Firm was induced to not provide price confirmations to Fund Accounting (or, depending on the period, to the Independent Auditor), where those price confirmations would have been significantly lower than the Funds’ current valuations
of the relevant bonds. Fund Accounting and the Funds’ Boards were not advised that the Submitting Firm had proposed price confirmations which were lower than the current valuations recorded by the Funds, and that the Submitting Firm had
refrained from submitting price confirmations to Fund Accounting or had submitted price confirmations at higher prices than it had originally planned. 
 26. In each of the Funds’ annual and semi-annual reports filed with the Commission on Forms N-CSR during the relevant period (including, among others, the Annual Report for the Morgan Keegan Select
Fund, Inc. for the year-ended June 30, 2007 filed with the Commission on October 4, 2007), Kelsoe included a signed letter to investors reporting on the Funds’ performance “based on net asset value.” In fact, the performance
reported was materially misstated. Untrue statements of material fact concerning the Funds’ performance were made in the Funds’ annual and semi-annual reports filed with the Commission on Forms N-CSR. Morgan Asset, through Kelsoe, also
provided a quarterly valuation packet reflecting inflated prices for certain securities to the Funds’ Boards, failed to disclose to the Funds’ Boards information indicating that the Funds’ NAVs were inflated and that broker-dealer
price confirmations were being screened and caused to be altered, and provided Fund Accounting with unsubstantiated price adjustments. In addition, the prospectuses incorrectly described Morgan Asset as responsible for fair valuation of the
Funds’ portfolios. 
  

	D.	VIOLATIONS 

 27.
Investment advisers owe their clients, including investment company clients, a fiduciary duty. Transamerica Mortgage Advisers, Inc. v. Lewis, 444 U.S.11, 17 (1979); SEC v. Capital Gains Research Bureau, Inc. 375 U.S. 180, 195-97
(1963). Misstatements or omissions of fact by an investment adviser, such as those made to the Funds’ boards, violate an adviser’s fiduciary duty and constitute fraud when they are material. Similarly, the failure to disclose to the
Funds’ boards that Morgan Asset and Morgan Keegan were not complying with stated valuation procedures constitutes fraud. In addition, the knowing or reckless failure to value securities, for which market quotations are not readily available,
consistent with fair value requirements under the Investment Company Act and that materially affects a fund’s NAV constitutes fraud. See, In re Piper Capital Management, Inc., Exch. Act. Rel.48409 (August 26, 2003). Section 206(1)
of the Advisers Act makes it unlawful for an investment adviser to employ any device, scheme or artifice to defraud any client or prospective client. Section 206(2) makes it unlawful for an investment adviser to engage in any transaction,
practice or course of business that operates as a fraud or deceit upon any client or prospective client. As a result of the conduct described above, 

  
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Respondent Morgan Asset willfully violated, and Kelsoe willfully aided and abetted and caused violations of, Sections 206(1) and 206(2) of the Advisers Act. 

28. Section 206(4) of the Advisers Act prohibits fraudulent, deceptive or manipulative practices or courses of business by an
investment adviser. Rule 206(4)-7 requires investment advisers to “[a]dopt and implement written policies and procedures reasonably designed to prevent violation” of the Advisers Act and the rules thereunder by their supervised persons. An
adviser’s failure “to have adequate compliance policies and procedures in place will constitute a violation of our rules independent of any other securities law violation.” Compliance Programs of Investment Companies and Investment
Advisers, Advisers Act Release No. 2204, 68 F.R. 74714, 74715 (Dec. 24, 2003) (“Compliance Programs Release”). As a result of the conduct described above, Respondent Morgan Asset willfully violated, and Respondent Kelsoe willfully
aided and abetted and caused violations of, Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. 
 29.
Section 34(b) of the Investment Company Act prohibits untrue statements of material fact or omissions to state facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading,
in any registration statement, report or other document filed pursuant to the Investment Company Act or the keeping of which is required pursuant to Section 31(a) of the Investment Company Act. Any person who makes a material misrepresentation
concerning a Fund’s performance in the Fund’s annual and semi-annual reports filed with the Commission, or in the records required to be maintained by the Fund, or submits inflated prices to be included in the Fund’s NAV calculations
and the records forming the basis for the Fund’s financial statements, violates Section 34(b). As a result of the conduct described above, Respondents Morgan Asset and Kelsoe willfully violated, and Respondent Morgan Keegan willfully
aided, abetted, and caused violations of, Section 34(b) of the Investment Company Act. 
 30. Rule 22c-1 under the
Investment Company Act prohibits the sale or redemption of shares in a registered investment company “except at a price based on the current net asset value of such security which is next computed after receipt of a tender of such security for
redemption or of an order to purchase or sell such security.” For an NAV to be deemed current, Section 2(a)(41) of the Investment Company Act and Rule 2a-4 thereunder require portfolio securities for which market quotations are not readily
available to be valued at fair value. As a result of the conduct described above, Respondent Morgan Keegan willfully violated, 4 and Respondents Morgan Asset, Kelsoe and Weller willfully aided and abetted and caused violations of, Rule 22c -1
promulgated under the Investment Company Act. 
 31. Rule 38a-1 under the Investment Company Act requires that a registered
investment company adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws by the fund and to provide for oversight of compliance by the fund’s investment adviser. Failure of a
fund to have adequate compliance 
  
  

	4 	 A willful violation of the securities laws means merely “‘that the person charged with the duty knows what he is doing.’”
Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). 

  
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policies and procedures in place and/or to implement them will constitute a violation of Rule 38a-1 independent of any other securities law violations. Compliance Programs Release. Morgan
Keegan and Morgan Asset knowingly and substantially assisted the Funds’ failure to implement fair valuation procedures, which resulted in prices that did not reflect current NAVs. Morgan Keegan, Morgan Asset, Kelsoe and Weller thereby willfully
aided and abetted and caused the Funds’ violations of Rule 38a-1. 
 UNDERTAKINGS 

32. Respondent Morgan Keegan undertakes as follows: 
 A. Morgan Keegan shall not, for a period of three years from the date of the Order, be involved in, or responsible for, recommending to, or determining on behalf of, a registered investment company’s
board of directors or trustees or such company’s valuation committee, the value of any portfolio security for which market quotations are not readily available. 
 B. If, after three years but within six years from the date of the Order, Morgan Keegan becomes involved in, or responsible for, determining or recommending determinations to a registered investment
company’s board of directors or trustees or valuation committee of the value of any portfolio security for which market quotations are not readily available and which are held by or on behalf of such registered investment company, Morgan Keegan
shall promptly notify Commission counsel identified below or his successor and within 30 days of beginning such valuation activity, shall hire, at its expense, an Independent Consultant (“Consultant”) not unacceptable to the
Commission’s staff, to review the valuations provided by Morgan Keegan to any registered investment company for the next two quarters following the beginning of such valuation activity, and make an Initial Report with recommendations thereafter
on Morgan Keegan’s policies, procedures and practices with regard to such valuations. The Initial Report shall describe the review performed and the conclusions reached, and will include any recommendations deemed necessary to make the
policies, procedures, and practices adequate and consistent with GAAP and the Investment Company Act. Morgan Keegan shall cooperate fully with the Consultant and shall provide the Consultant with access to its files, books, records, and personnel as
reasonably requested for the review. Morgan Keegan shall cause the review to begin no later than 60 days after beginning such valuation activity. 
 C. At the end of that review, and in no event more than 200 days from after beginning such valuation activity, to require the Consultant to submit the report and recommendations to Morgan Keegan and to
William P. Hicks of the Commission’s Atlanta Regional Office or his successor. 
 D. Within 30 days of receipt of the
Initial Report, Morgan Keegan shall in writing respond to the Initial Report. In such response, Morgan Keegan shall advise the Consultant and the Commission’s staff of the recommendations from the Initial Report that it has determined to accept
and the recommendations that it considers to be unduly burdensome. With respect to any 

  
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recommendation that Morgan Keegan deems unduly burdensome, Morgan Keegan may propose an alternative policy, procedure or system designed to achieve the same objective or purpose. 

E. Morgan Keegan shall attempt in good faith to reach agreement with the Consultant within 60 days of the date of the receipt of the
Initial Report with respect to any recommendation that Morgan Keegan deems unduly burdensome. If the Consultant and Morgan Keegan are unable to agree on an alternative proposal, Morgan Keegan shall abide by the recommendation of the Consultant.

 F. Within 90 days of the date of the receipt of the Initial Report, Morgan Keegan shall, in writing, advise the Consultant
and the Commission’s staff of the recommendations and proposals that it is adopting. 
 G. No later than one year after the
date of the Consultant’s Initial Report, Morgan Keegan shall cause the Consultant to conduct a follow-up review of Morgan Keegan’s efforts to implement the recommendations contained in the Initial Report, and Morgan Keegan shall cause the
Consultant to submit a Final Report to the Commission’s staff. The Final Report shall set forth the details of Morgan Keegan’s efforts to implement the recommendations contained in the Initial Report, and shall state whether Morgan Keegan
has fully complied with the recommendations in the Initial Report. 
 H. Morgan Keegan shall cause the Consultant to complete
the aforementioned review and submit a written Final Report to Morgan Keegan and to the Commission’s staff within 400 days of the date of the Initial Report. The Final Report shall recite the efforts the Consultant undertook to review Morgan
Keegan’s policies, procedures, and practices; set forth the Consultant’s conclusions and recommendations; and describe how Morgan Keegan is implementing those recommendations. 

I. Morgan Keegan shall take all necessary and appropriate steps to adopt and implement all recommendations contained in the
Consultant’s Final Report. 
 J. To ensure the independence of the Consultant, Morgan Keegan: (a) shall not have the
authority to terminate the Consultant without the prior written approval of the Commission’s staff; (b) shall compensate the Consultant, and persons engaged to assist the Consultant, for services rendered pursuant to this Order at their
reasonable and customary rates; (c) shall not be in and shall not have an attorney-client relationship with the Consultant and shall not seek to invoke the attorney-client or any other privilege or doctrine to prevent the Consultant from
transmitting any information, reports, or documents to the Commission staff; and (d) during the period of engagement and for a period of two years after the engagement, shall not enter into any employment, customer, consultant, attorney-client,
auditing, or other professional relationship with the Consultant. 
 K. Morgan Keegan shall cause the Consultant to enter into
an agreement that provides that for the period of engagement and for a period of two years from completion of the engagement, the Consultant shall not enter into any employment, consultant, attorney-client,

  
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auditing or other professional relationship with Morgan Keegan, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. The agreement will
also provide that the Consultant will require that any firm with which he/she is affiliated or of which he/she is a member, and any person engaged to assist the Consultant in performance of his/her duties under this Order shall not, without prior
written consent of the Atlanta Regional Office Commission staff, enter into any employment, consultant, attorney-client, fiduciary, auditing or other professional relationship with Morgan Keegan, or any of its present or former affiliates,
directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement. Notwithstanding the foregoing, the Consultant may serve as a Consultant for Morgan Asset,
pursuant to paragraph 34 below. 
 L. Certification of Compliance by Respondent. Morgan Keegan shall certify, in writing,
compliance with the undertaking(s) set forth above. The certification shall identify the undertaking(s), provide written evidence of compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance. The
Commission staff may make reasonable requests for further evidence of compliance, and Respondent agrees to provide such evidence. The certification and supporting material shall be submitted to William P. Hicks, Associate Regional Director in the
Commission’s Atlanta Regional Office, or any other member of the Commission’s staff identified to receive the report by the staff, with a copy to the Office of Chief Counsel of the Enforcement Division, no later than sixty (60) days
from the date of the completion of the undertakings. 
 33. Morgan Keegan further undertakes as follows: 

Ongoing Cooperation by Morgan Keegan. Morgan Keegan undertakes to cooperate fully with the Commission in any and all
investigations, litigations or other proceedings relating to or arising from the matters described in this Order or involving, directly or indirectly, trading in or valuation of, the securities of the funds described in this Order. In connection
with such cooperation, Morgan Keegan has undertaken: 
 To produce, without service of a notice or subpoena, any and all
documents and other information reasonably requested by the Commission’s staff, or by the Distribution Agent to be appointed pursuant to the Order, with a custodian declaration as to their authenticity, if requested; 

To use its best efforts to cause its employees and former employees to be interviewed by the Commission’s staff, at the option of
the staff with representatives of other government agencies present, at such times and places as the staff reasonably may direct. Live interviews on 72 hours notice at the Commission’s Atlanta office or its headquarters office, or at any U.S or
state government office in Memphis Tennessee, and telephone interviews on 48 hours notice, at the option of the staff, shall be deemed to be reasonable. 
 To use its best efforts to cause its employees to appear and testify truthfully and completely without service of a notice or subpoena in such investigations, depositions, hearings or trials as may be
requested by the Commission’s staff; and 

  
 12 

 In connection with any interviews of Morgan Keegan employees to be conducted pursuant to
this undertaking, requests for such interviews may be provided by the Commission’s staff to Morgan Keegan’s General Counsel, or such other counsel that may be substituted by Morgan Keegan. 

34. Respondent Morgan Asset undertakes as follows: 
 A. Morgan Asset shall not, for a period of three years from the date of the Order, be involved in, or responsible for, recommending to, or determining on behalf of, a registered investment company’s
board of directors or trustees or such company’s valuation committee, the value of any portfolio security for which market quotations are not readily available. 
 B. If, after three years but within six years from the date of the Order, Morgan Asset becomes involved in, or responsible for, determining or recommending determinations to a registered investment
company’s board of directors or trustees or valuation committee of the value of any portfolio security for which market quotations are not readily available and which are held by or on behalf of such registered investment company, Morgan Asset
shall promptly notify Commission counsel identified below or his successor and within 30 days of beginning such valuation activity, shall hire, at its expense, an Independent Consultant (“Consultant”) not unacceptable to the
Commission’s staff, to review the valuations provided by Morgan Asset to any registered investment company for the next two quarters following the beginning of such valuation activity, and make an Initial Report with recommendations thereafter
on Morgan Asset’s policies, procedures and practices with regard to such valuations. The Initial Report shall describe the review performed and the conclusions reached, and will include any recommendations deemed necessary to make the policies,
procedures, and practices adequate and consistent with GAAP and the Investment Company Act. Morgan Asset shall cooperate fully with the Consultant and shall provide the Consultant with access to its files, books, records, and personnel as reasonably
requested for the review. Morgan Asset shall cause the review to begin no later than 60 days after beginning such valuation activity. 
 C. At the end of that review, and in no event more that 200 days from after beginning such valuation activity, to require the Consultant to submit the report and recommendations to Morgan Asset and to
William P. Hicks of the Commission’s Atlanta Regional Office or his successor. 
 D. Within 30 days of receipt of the
Initial Report, Morgan Asset shall in writing respond to the Initial Report. In such response, Morgan Asset shall advise the Consultant and the Commission’s staff of the recommendations from the Initial Report that it has determined to accept
and the recommendations that it considers to be unduly burdensome. With respect to any recommendation that Morgan Asset deems unduly burdensome, Morgan Asset may propose an alternative policy, procedure or system designed to achieve the same
objective or purpose. 
 E. Morgan Asset shall attempt in good faith to reach agreement with the Consultant within 60 days of
the date of the receipt of the Initial Report with respect to any recommendation 

  
 13 

 
that Morgan Asset deems unduly burdensome. If the Consultant and Morgan Asset are unable to agree on an alternative proposal, Morgan Asset shall abide by the recommendation of the Consultant.

 F. Within 90 days of the date of the receipt of the Initial Report, Morgan Asset shall, in writing, advise the Consultant and
the Commission’s staff of the recommendations and proposals that it is adopting. 
 G. No later than one year after the
date of the Consultant’s Initial Report, Morgan Asset shall cause the Consultant to conduct a follow-up review of Morgan Asset’s efforts to implement the recommendations contained in the Initial Report, and Morgan Asset shall cause the
Consultant to submit a Final Report to the Commission’s staff. The Final Report shall set forth the details of Morgan Asset’s efforts to implement the recommendations contained in the Initial Report, and shall state whether Morgan Asset
has fully complied with the recommendations in the Initial Report. 
 H. Morgan Asset shall cause the Consultant to complete the
aforementioned review and submit a written Final Report to Morgan Asset and to the Commission’s staff within 400 days of the date of the Initial Report. The Final Report shall recite the efforts the Consultant undertook to review Morgan
Asset’s policies, procedures, and practices; set forth the Consultant’s conclusions and recommendations; and describe how Morgan Asset is implementing those recommendations. 

I. Morgan Asset shall take all necessary and appropriate steps to adopt and implement all recommendations contained in the
Consultant’s Final Report. 
 J. To ensure the independence of the Consultant, Morgan Asset: (a) shall not have the
authority to terminate the Consultant without the prior written approval of the Commission’s staff; (b) shall compensate the Consultant, and persons engaged to assist the Consultant, for services rendered pursuant to this Order at their
reasonable and customary rates; (c) shall not be in and shall not have an attorney-client relationship with the Consultant and shall not seek to invoke the attorney-client or any other privilege or doctrine to prevent the Consultant from
transmitting any information, reports, or documents to the Commission staff; and (d) during the period of engagement and for a period of two years after the engagement, shall not enter into any employment, customer, consultant, attorney-client,
auditing, or other professional relationship with the Consultant. 
 K. Morgan Asset shall cause the Consultant to enter into an
agreement that provides that for the period of engagement and for a period of two years from completion of the engagement, the Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship
with Morgan Asset, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. The agreement will also provide that the Consultant will require that any firm with which he/she is affiliated or of
which he/she is a member, and any person engaged to assist the Consultant in performance of his/her duties under this Order shall not, without prior written consent of the Atlanta Regional Office

  
 14 

 
Commission staff, enter into any employment, consultant, attorney-client, fiduciary, auditing or other professional relationship with Morgan Asset, or any of its present or former affiliates,
directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement. Notwithstanding the foregoing, the Consultant may serve as a Consultant for Morgan
Keegan, pursuant to paragraph 32 above. 
 L. Certification of Compliance by Respondent. Morgan Asset shall certify, in
writing, compliance with the undertaking(s) set forth above. The certification shall identify the undertaking(s), provide written evidence of compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.
The Commission staff may make reasonable requests for further evidence of compliance, and Respondent agrees to provide such evidence. The certification and supporting material shall be submitted to William P. Hicks, Associate Regional Director in
the Commission’s Atlanta Regional Office, or any other member of the Commission’s staff identified to receive the report by the staff, with a copy to the Office of Chief Counsel of the Enforcement Division, no later than sixty
(60) days from the date of the completion of the undertakings. 
 35. Morgan Asset further undertakes as follows:

 Ongoing Cooperation by Morgan Asset. Morgan Asset undertakes to cooperate fully with the Commission in any and all
investigations, litigations or other proceedings relating to or arising from the matters described in this Order or involving, directly or indirectly, trading in or valuation of, the securities of the funds described in this Order. In connection
with such cooperation, Morgan Asset has undertaken: 
 To produce, without service of a notice or subpoena, any and all
documents and other information reasonably requested by the Commission’s staff or by the Distribution Agent to be appointed pursuant to the Order, with a custodian declaration as to their authenticity, if requested; 

To use its best efforts to cause its employees and former employees to be interviewed by the Commission’s staff, at the option of
the staff with representatives of other government agencies present, at such times and places as the staff reasonably may direct. Live interviews on 72 hours notice at the Commission’s Atlanta office or its headquarters office, or at any U.S or
state government office in Memphis Tennessee, and telephone interviews on 48 hours notice, at the option of the staff, shall be deemed to be reasonable. 
 To use its best efforts to cause its employees to appear and testify truthfully and completely without service of a notice or subpoena in such investigations, depositions, hearings or trials as may be
requested by the Commission’s staff; and 
 In connection with any interviews of Morgan Asset employees to be conducted
pursuant to this undertaking, requests for such interviews may be provided by the Commission’s staff to Morgan Asset’s General Counsel, or such other counsel that may be substituted by Morgan Asset. 

  
 15 

 36. Morgan Keegan and Morgan Asset undertake to, pursuant to and in compliance with this
Order and with orders being entered in Joint Administrative Proceedings (File Nos. SC-2010-0016 (Alabama), 2010-AH-021 (Kentucky) and 08011 (South Carolina), and the separate Tennessee matter File No. 12.06-107077J (collectively “the State
Proceedings”), and the sanctions described in Financial Industry Regulatory Authority Letter of Acceptance, Waiver and Consent No. 2007011164502, jointly and severally pay the total sum of $200 million, including the disgorgement, interest
and penalties to be ordered in this matter. 
 37. Kelsoe undertakes to, pursuant to and in compliance with this Order and with
orders being entered in the State Proceedings, to pay$500,000 in penalties, including the penalties to be ordered in this matter pursuant to paragraph IV. L. 
 In determining whether to accept the Offer, the Commission has considered the undertakings in paragraphs 33, 35, 36 and 37, above. 
 IV. 
 In view of the foregoing, the Commission deems it appropriate and in
the public interest to impose the sanctions agreed to in Respondents’ Offer. 
 Accordingly, pursuant to Sections 4C and
15(b) of the Exchange Act, Sections 203(e), 203(f) and 203(k) of the Advisers Act, Sections 9(b) and 9(f) of the Investment Company Act, and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, it is hereby ORDERED that: 

A. Respondents Morgan Keegan and Morgan Asset are censured. 
 B. Respondent Morgan Keegan shall cease and desist from committing or causing any violations and any future violations of, Section 34(b) of the Investment Company Act and Rules 22c-1 and 38a-1
promulgated under the Investment Company Act. 
 C. Respondent Morgan Asset shall cease and desist from committing or causing
any violations and any future violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and Section 34(b) of the Investment Company Act and Rules 22c-1 and 38a-1 promulgated under the Investment Company
Act. 
 D. Respondent Kelsoe shall cease and desist from committing or causing any violations and any future violations of
Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and Section 34(b) of the Investment Company Act and Rules 22c-1 and 38a-1 promulgated under the Investment Company Act. 

E. Respondent Weller shall cease and desist from committing or causing any violations and any future violations of Rules 22c-1 and 38a-1
promulgated under the Investment Company Act. 

  
 16 

 F. Respondent Kelsoe be, and hereby is barred from association with any broker, dealer,
investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and is prohibited from serving or acting as an employee, officer, director, member of an advisory board,
investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter. 

Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process,
and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against the Respondent, whether or not the Commission has fully or partially
waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the
conduct that served as the basis for the Commission order; and (d) any restitution order by a self -regulatory organization, whether or not related to the conduct that served as the basis for the Commission order. 

G. Respondent Kelsoe be, and hereby is, barred from participating in any offering of a penny stock, including: acting as a promoter,
finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. 

H. Respondent Weller be, and hereby is suspended from association in a supervisory capacity with any broker, dealer, investment adviser,
municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, for a period of 12 months, effective on the second Monday following the entry of this Order, and is prohibited from serving or
acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal
underwriter, for a period of 12 months, effective on the second Monday following the entry of this Order. 
 I. Respondent
Weller be, and hereby is, suspended from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the
issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock for a period of 12 months, effective on the second Monday following the entry of this Order. 

J. Respondent Weller is denied the privilege of appearing or practicing before the Commission as an accountant. 

After two years from the date of this Order, Respondent Weller may request that the Commission consider his reinstatement by submitting
an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 

  
 17 

 1. a preparer or reviewer, or a person responsible for the preparation or review, of any
public company’s financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent Weller’s work in his practice before the Commission will be reviewed either by the independent audit
committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or 
 2. an independent accountant. Such an application must satisfy the Commission that: 
 (a) Respondent Weller, or the public accounting firm with which he is associated, is registered with the Public Company Accounting Oversight Board (“Board”) in accordance with the Sarbanes-Oxley
Act of 2002, and such registration continues to be effective; 
 (b) Respondent Weller, or the registered public accounting
firm with which he is associated, has been inspected by the Board and that inspection did not identify any criticisms of or potential defects in the Respondent’s or the firm’s quality control system that would indicate that the Respondent
will not receive appropriate supervision; 
 (c) Respondent Weller has resolved all disciplinary issues with the Board,
and has complied with all terms and conditions of any sanctions imposed by the Board (other than reinstatement by the Commission); and 
 (d) Respondent Weller acknowledges his responsibility, as long as Respondent appears or practices before the Commission as an independent accountant, to comply with all requirements of the Commission and
the Board, including, but not limited to, all requirements relating to registration, inspections, concurring partner reviews and quality control standards. 
 The Commission will consider an application by Respondent Weller to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other
disciplinary issues with the applicable state boards of accountancy. However, if state licensure is dependent on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission’s review may
include consideration of, in addition to the matters referenced above, any other matters relating to Respondent’s character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 

K. Respondents Morgan Keegan and Morgan Asset shall jointly and severally pay disgorgement of $20,500,000 and prejudgment interest of
$4,500,000 to the Securities and Exchange Commission, and a civil penalty of $75,000,000 to the Securities and Exchange Commission, within ten (10) business days of the entry of this Order. 

L. Respondent Kelsoe shall pay a civil penalty of $250,000 to the Securities and Exchange Commission, within ten (10) days of this
Order. 

  
 18 

 M. Respondent Weller shall pay a civil penalty of $50,000 to the Securities and Exchange
Commission, within ten (10) days of this Order. 
 N. All payments pursuant to paragraphs IV. K, L and M, above, shall be
made by certified check, bank cashier’s check, or United States postal money order payable to the Securities and Exchange Commission. The payment shall be delivered or mailed to the Office of Financial Management, Accounts Receivable,
Securities and Exchange Commission, 100 F Street, NE, Stop 6042, Washington DC 20549, and shall be accompanied by a letter identifying Respondent as a respondent in this action; setting forth the title and civil action number of this action and the
name of this Court; and specifying that payment is made pursuant to this Order, a copy of which cover letter and money order or check shall be sent to William P. Hicks, Associate Regional Administrator, Securities and Exchange Commission, 3475 Lenox
Rd., N.E., Suite 500, Atlanta, GA 30326-1232. If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717 and/or SEC Rule of Practice 600. 

Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair Fund is created for the disgorgement, interest, and
penalties described in Paragraphs IV. K, L and M and any funds paid in connection with related actions pursuant to Paragraph III. 36, above. Regardless of whether any such distribution is made from such Fair Fund, amounts ordered to be paid as civil
money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor Action,
they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of any award of compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in this action (“Penalty
Offset”). If the court in any Related Investor Action grants such a Penalty Offset, Respondents agree that any Respondent receiving such offset shall, within 30 days after entry of a final order granting the Penalty Offset, notify the
Commission’s counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to
change the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a “Related Investor Action” means a private damages action brought against any of the Respondents by or on behalf of one or more investors
based on substantially the same facts as alleged in the Order instituted by the Commission in this proceeding. 
 O. The
disgorgement, interest, civil penalties, and any other funds which may be paid to the Fair Fund through or as the result of related actions, shall be aggregated in the Fair Fund, which shall be maintained in an interest-bearing account, and shall be
distributed pursuant to a distribution plan (the “Plan”) to be administered in accordance with the Commission Rules of Practice governing Fair Funds and disgorgement plans. A Fund Administrator (the “Administrator”) shall be
appointed by the Commission. The Administrator shall identify the investors in the Funds who suffered losses as a result of the violations determined herein, evaluate investor claims and propose and effectuate a plan to distribute the Fair Fund
resulting from this order. The Fair Fund shall be used to compensate injured customers for their loss. Under no circumstances shall any part of the Fair Fund be returned to Morgan Keegan, Morgan Asset, 

  
 19 

 
Kelsoe or Weller. Respondent Morgan Keegan shall pay all reasonable costs and expenses of such distribution within thirty (30) days after receipt of an invoice for such services. 

P. Morgan Keegan shall comply with the undertakings specified in Paragraph 32 above. 

Q. Morgan Asset shall comply with the undertakings specified in Paragraph 34 above. 

By the Commission. 
  

	
	Elizabeth M. Murphy
	Secretary

  
 20Financial Industry Regulatory Authority Letter

 Exhibit 10.2 
 FINANCIAL INDUSTRY REGULATORY AUTHORITY 
 LETTER OF ACCEPTANCE, WAIVER AND
CONSENT 
 NO. 2007011164502 
  

	TO:	 Department of Enforcement 
Financial Industry Regulatory Authority (“FINRA”) 

 

	RE:	 Morgan Keegan & Company, Inc., Respondent 
Member Firm 
CRD No. 4161 

Pursuant to FINRA Rule 9216 of FINRA’s Code of Procedure, Morgan Keegan & Company, Inc. (“Morgan Keegan” or the
“Firm”) submits this Letter of Acceptance, Waiver and Consent (“AWC”) for the purpose of proposing a settlement of the alleged rule violations described below. This AWC is submitted on the condition that, if accepted, FINRA will
not bring any future actions against Morgan Keegan alleging violations based on the same factual findings described herein. 

I. 

ACCEPTANCE AND CONSENT 
  

	 	A.	 Morgan Keegan hereby accepts and consents, without admitting or denying the findings, and solely for the purposes of this proceeding and any other
proceeding brought by or on behalf of FINRA, or to which FINRA is a party, prior to a hearing and without an adjudication of any issue of law or fact, to the entry of the following findings by FINRA: 

BACKGROUND 
 Morgan Keegan, with principal offices in Memphis, Tennessee is a regional broker-dealer that has been registered with FINRA and the Securities and Exchange Commission since 1969. Morgan Keegan is a wholly
owned subsidiary of Regions Financial Corporation, a financial holding company headquartered in Birmingham, Alabama. With over 2,800 registered representatives and 320 branch offices in 20 states, primarily in the Southeast United States, Morgan
Keegan offers products and services including mutual funds, securities brokerage, asset management, financial planning, securities underwriting, and sales and trading. Morgan Keegan has no relevant disciplinary history. 

 OVERVIEW 

During the period January 1, 2006 through September 30, 2007 (the relevant period), member firm Morgan Keegan &
Company, Inc. marketed and sold to retail investors the Regions Morgan Keegan Select Intermediate Bond Fund (the “Intermediate Fund”), which was invested predominantly in structured products. 

During all or part of the relevant period, sales materials for the Intermediate Fund contained exaggerated claims, failed to provide a
sound basis for evaluating the facts regarding the Intermediate Fund, were not fair and balanced, and did not adequately disclose the impact of market conditions in the summer of 2007 that caused substantial losses to the value of the Intermediate
Fund. The firm’s supervision of the preparation and the review of the Intermediate Fund’s sales materials and internal guidance were not reasonably designed to achieve compliance with NASD rules. 

The Intermediate Fund was marketed as a relatively safe, investment grade fixed income mutual fund investment. It ultimately suffered
risks far different from the risks certain investors expected in an investment grade fixed income bond fund, such as the risks associated with the fund’s investments in lower investment grade tranches of asset-backed and mortgage-backed
securities and the risks associated with the portfolio manager’s strategy. Those investments later led to a substantial decline in value of the fund. During the relevant period those risks were not explicitly reflected in the sales materials or
internal guidance described below. Certain sales materials for the Intermediate Fund also failed to provide a sound basis to evaluate the fund’s objectives, diversification, and other information regarding the fund. 

The Intermediate Fund invested predominantly in structured products, including mezzanine and subordinated tranches of structured
securities (including sub-prime products), to achieve greater returns. In 2007, serious turmoil in the asset-backed securities market impacted the fund. Nevertheless, Morgan Keegan allowed the use of sales material for the Intermediate Fund that did
not adequately disclose these difficulties to customers or that a portion of the fund portfolio was adversely affected by then-current economic conditions. 
 By using certain sales materials that contained exaggerated claims which caused the Intermediate Fund sales materials not to be fair and balanced, and that failed to provide investors with a sound basis
for evaluating the fund, Morgan Keegan violated NASD Rules 2210 (Communications with the Public) and 2110 (Just and Equitable Principles). By failing to establish, maintain and enforce a system, including written supervisory procedures, reasonably
designed to achieve compliance with NASD’s advertising rules, Morgan Keegan violated NASD Rules 3010 (Supervision) and 2110. 
 Morgan Keegan performed due diligence and provided research, investment advice, and performance updates regarding the Intermediate Fund, some of which portrayed the fund as a safer investment than it was.
By failing to establish, maintain and enforce a system, including 

  
 2 

 
written supervisory procedures, reasonably designed to ensure that its internal guidance provided a sound basis for evaluating the facts regarding the Intermediate Fund, and did not contain
exaggerated claims regarding the Intermediate Fund, Morgan Keegan also violated NASD Rules 3010 and 2110. 
 FACTS AND
VIOLATIVE CONDUCT 
  

	I.	The Intermediate Fund Held Out-of-Favor Investments 

 Morgan Keegan sold to retail investors the Intermediate Fund, advised by Morgan Asset Management (MAM), an investment adviser affiliate of Morgan Keegan. MAM’s senior portfolio manager selected the
investments for the portfolio. 
 As a portfolio manager who created “unique” products, he primarily invested in
out-of-favor bonds that he believed were undervalued and would generate above average yields. From the outset, the Intermediate Fund was intended to be of low correlation to conventional indices — that is, to behave differently than broad-based
fixed income indices — and provide a steady stream of above-market income to investors. Although the portfolio invested in conventional corporate debt instruments or equity products, the majority of the portfolio was invested in asset-backed
securities or structured products (that is, securities backed by specific collateral, such as mortgages). 
 Certain
mortgage-backed securities began to experience serious turmoil in early 2007, most notably in the sub-prime home equity arena, which negatively affected the Intermediate Fund. 

 

	II.	Morgan Keegan’s Intermediate Fund Sales Materials Were Not Fair and Balanced and Portrayed the Fund as Relatively Low Risk 

 

	 	A.	The Intermediate Fund Was a Contrarian Fund 

 From the outset, the Intermediate Fund sought “a high level of income” and “capital growth as a secondary objective when consistent with the Fund’s primary objective.” It
outperformed almost all other intermediate bond funds by pursuing a “contrarian” and “unique” strategy of investing heavily in asset- and mortgage-backed securities — with a focus upon subordinate tranches of structured
deals — and little in government securities. As a result, it was a low correlation fund vis-à-vis its benchmark, the Lehman Brothers Intermediate U.S. Aggregate Index. As a Morningstar analyst observed, the Intermediate Fund held nearly
60% of assets rated in the three lowest investment grade categories, “about three times the [intermediate-term bond] category average.” 
 However, as Morgan Keegan’s due diligence analyst observed in 2007 in a never-issued report, the fund’s “specialization in less traditional sectors” put the fund “at risk of
periodic underperformance when these areas are out of favor.” As the Director of the Investments Department stated in an internal May 15, 2007 e-mail: 

  
 3 

 The [Intermediate Fund] has a huge underweight in Govt
bonds, a large overweight in asset-backed securities and an overweight in Corp bonds. Again, these differences result in lower correlation, higher tracking error and most importantly, far different risks than the broad market and than what most
investors would expect from their fixed income portfolio... As a result of the non-traditional exposures, [the fund] simply does not act like a traditional bond fund... Clearly [the fund] acts differently than the market, but the magnitude of
that difference is comparatively large. Again, this is all a result of the holdings within the fund... [T]here are some risk exposures with this fund that are just different than more traditional bond funds. In addition, this fund has a fair
amount of liquidity risk... 
 The Intermediate Fund, which could only be purchased or held in a Morgan Keegan account,
invested significantly in certain asset backed securities. 
  

	 	1.	 The Intermediate Fund invested predominantly in asset-backed securities (including certificate-backed obligations (CBOs) and collateralized debt
obligations (CDOs)) and mortgage-backed securities (including collateralized mortgage obligations (CMOs)). As of January 1, 2006, over 58 percent of fund assets were invested in asset-backed and mortgage-backed securities. In March 2007, when
adverse market conditions began to affect the fund, over 54 percent of the portfolio was invested in asset-backed and mortgage-backed securities. 

  

	 	2.	 The fund invested in the mezzanine and subordinated tranches of structured securities. The lower tranches of structured products, such as CBOs, CDOs
and CMOs, represent lower degrees of credit quality and pay higher interest rates to compensate for the attendant risks. The market for such securities may be less liquid than is the case for traditional fixed-income securities. As of June 30,
2007, 51 percent of the fund’s assets lacked readily ascertainable market values. 

  

	 	3.	 Some of the CDOs the Intermediate Fund invested in were subprime products, including securities backed by mortgage loans to borrowers with poor
credit. In March 2007, when market conditions began to affect the fund, 13.5 percent of the Intermediate Fund portfolio’s assets were invested in subprime products. 

 

	 	B.	The Intermediate Fund Sales Materials Were Not Fair and Balanced and Portrayed the Fund as Relatively Safe 

To sell the Intermediate Fund, Morgan Keegan distributed certain written materials to investors that conveyed that the fund was relatively
safe, but did not disclose certain risks. The firm prepared and made available its own materials (e.g., Preferred Fund Profiles) in addition to distributing materials prepared by MAM (e.g., glossies). 

Not all of the Intermediate Fund glossies and profiles issued and in effect during the relevant period were fair and balanced because
they did not adequately disclose the risks associated with 

  
 4 

 
investing in subordinated tranches of structured products and the quantity held by the Intermediate Fund. 
  

	 	i.	 The Glossies Failed to Convey Effectively the Intermediate Fund’s Objectives, Diversification and Risks 

During the relevant period, Morgan Keegan distributed to retail customers sales material regarding the Intermediate Fund internally
referred to as advertising “glossies.” The glossies were provided in hard copy to brokers to distribute to customers and publicly available on MAM’s website, mkfunds.com. 

The glossies conveyed that the fund was a relatively safe, diversified investment appropriate for investors seeking both capital
preservation and income and failed to provide certain information about the nature of the investments or adequately disclose certain risks. 
 First, the Intermediate Fund prospectuses stated that the fund’s “primary objective” is “a high level income” with a secondary goal of “capital growth” only “when
consistent with the fund’s primary objective.” By contrast, the glossies indicated that the fund should be considered by investors seeking “capital preservation and income.” 

“Capital preservation” involves a significantly less aggressive strategy than “capital growth.” By representing that
the fund was appropriate for investors seeking “capital preservation and income” when the fund’s stated objectives were primarily a “high level of income” with a secondary objective of “capital growth,” the
glossies contained exaggerated statements regarding the objectives of the fund. 
 Second, the glossies used during the relevant
period highlighted the benefits of diversification and stated that the risks associated with the fund were reduced because it maintained a diversified portfolio. 
 The Intermediate Fund was not as diversified in terms of asset classes as some of the glossies portrayed. The glossies for the Intermediate Fund Morgan Keegan used during the relevant period contained pie
charts depicting investments in 10–13 different asset classes, including CMOs, CDOs, CLOs, and variants thereof. 

However, contemporaneous fund materials, such as quarterly updates prepared by the fund manager, depicted the Intermediate Fund as having
only 5–6 asset classes with the majority of exposure to two categories that shared many of the same risks: asset backed securities and CMOs. 
 Had the glossies adequately disclosed the Intermediate Fund’s holdings in two closely related asset classes, they may have alerted investors that the fund was not as diversified as to asset class and
might suffer outsized decline under certain economic conditions. 

  
 5 

	 	ii.	 The Preferred Fund Profiles Failed to Provide a Sound Basis for Evaluating the Facts About The Intermediate Fund

 During the relevant period, Wealth Management Services (“WMS”), a division of Morgan Keegan,
prepared and made available to brokers quarterly “Preferred Fund Profiles” describing the Intermediate Fund and providing financial information as of the end of the previous quarter. 

Morgan Keegan approved the profiles for use with customers. Morgan Keegan described them as “Compliance Approved profiles [that] are
excellent overviews to accompany proposals or to provide educational information on all funds on the Best Ideas List.” Regardless of internal approval, none of the relevant profiles for the Intermediate Fund were submitted to FINRA for review,
as required by NASD Rule 2210(c)(2). 
 At the top of the first page, directly beneath the name of the Intermediate Fund and in
large type, each profile included a subheading providing a short characterization of the fund. 
 Each profile also provided a
narrative section titled “Investment Philosophy,” which described the investment philosophy of the Intermediate Fund. 
  

	 	a.	The 2006 Intermediate Fund Profiles 

 Profiles for the Intermediate Fund issued quarterly through calendar year 2006 described the Intermediate Fund in a subheading simply as “Taxable Fixed Income” and otherwise failed to provide
adequate risk disclosure about the nature of the fund. 
 For example, these profiles did not specifically state that the
Intermediate Fund invested in subordinated tranches of structured deals. 
 The Investment Philosophy section of these profiles
recommended that the Intermediate Fund “is best used as a core plus in a diversified fixed income portfolio.” The term “core plus” is nowhere defined or otherwise explained in the profile. 

Certain relevant facts that were not included in the 2006 profiles for the Intermediate Fund were included in one profile amended in the
fourth quarter of 2006 (performance data as of September 30, 2006). Although only in use for part of the fourth quarter, this profile for the Intermediate Fund disclosed information not included in both previous and subsequent profiles:

  

	 	1.	 The Investment Philosophy section revealed that “Issues included in the portfolio are generally the inferior tranches in structured
deals.” As a consequence, “They trade at large discounts due to a lack of demand and liquidity.” 

  

	 	2.	 The Investment Philosophy section recommended that “Due to the fund’s investment style and its similarities to non-traditional fixed
income strategies it is best used as a low correlation fund.” 

  
 6 

 Neither term “non-traditional” or “low correlation” was defined in the
profile. 
  

	 	b.	The 2007 Intermediate Fund Profiles 

 Morgan Keegan changed the subheading describing the Intermediate Fund from “Enhanced Low Correlation Fixed Income” to “Intermediate Gov’t/Corp. Bond” in early 2007. This
subheading was exaggerated because at the time the change was made, less than four percent of the Intermediate Fund’s investments were in government bonds or agency bonds. 

The Investment Philosophy section returned to language that appeared in the earlier versions of 2006 profiles and no longer stated that
the Intermediate Fund invested in “inferior” tranches of structured deals or that such investments suffer from a “lack of demand and liquidity.” 
 The 2007 profiles for the Intermediate Fund also returned to the prior language contained in the earlier versions of the 2006 profiles: “The strategy is best used as a core plus in a diversified
fixed income portfolio.” 
  

	III.	Morgan Keegan’s Advertising and Sales Literature Failed to Disclose the Impact of Market Conditions on the Intermediate Fund 

Beginning in early 2007, there was turmoil in the mortgage-backed securities market, most notably in the sub-prime home equity arena,
which impacted the Intermediate Fund. Over the following months, portfolio values substantially declined as the market turmoil spread to other types of mortgage-related securities, including all structured finance products, and finally to corporate
debt. 
 Morgan Keegan was aware in early 2007 that the Intermediate Fund was experiencing difficulties related to the holdings
in the fund. In conference calls in February and March 2007, the portfolio manager told some Morgan Keegan brokers that the fund had invested in the subprime market and that net asset values were probably going to be hurt. By early April 2007, the
portfolio manager reported that stress in the market had spread to other areas, and that he was “concern[ed] and alarm[ed]” about the fund’s net asset values. In mid-July 2007, he acknowledged that “it has been a rough couple of
months here with the funds,” and warned that “anything that is in structured finance region is now in a real credit vacuum.” 
 The firm did not disclose adequately to retail investors these effects in its advertising and sales literature for the Intermediate Fund. 

 

	IV.	Morgan Keegan Provided Incomplete Internal Guidance Regarding the Intermediate Fund 

In addition to the sales materials for the Intermediate Fund made available to the sales force for distribution to customers, Morgan
Keegan provided incomplete internal guidance regarding the 

  
 7 

 
Intermediate Fund. 
 WMS was a resource available to the brokers in
selecting investments for clients, allocating assets, and constructing portfolio models. Although WMS viewed the brokers as its clients and did not sell securities directly to customers, it created the Preferred Fund Profiles for use with customers
and was available to assist the brokers with investment planning, asset allocation, and traditional and alternative investment recommendations, as well as ongoing performance monitoring. 

WMS performed due diligence on traditional and alternative mutual funds and managers, and maintained a list of select mutual funds and
alternative investment products which was available to the firm’s brokers. Morgan Keegan’s website stated to investors that the firm subjected recommended mutual funds to “one of the most detailed, thorough and exhaustive due
diligence processes in the industry,” which “goes beyond [analysis of past performance data] to look deep inside not only the funds, but the fund companies and managers who offer them.” WMS recommended the Intermediate Fund through
its Select List of Investments through mid-2007, during which time it covered the fund. 
 Notwithstanding its statement that it
would conduct rigorous due diligence and provide fulsome and timely disclosure regarding funds it covered, WMS distributed certain information and recommendations to brokers that failed to provide a sound basis to evaluate the facts about the
Intermediate Fund or explain the effect of market conditions on the fund in 2007. 
  

	 	A.	WMS’s Classification of the Intermediate Fund on its Recommended Lists Failed to Convey Effectively the Intermediate Fund’s Investment Style and Risks

 WMS issued quarterly a Recommended List of Investments (renamed “Select Lists of Investments” in
mid-2006). The lists were divided into several sections, including Mutual Funds and Alternative Investments, and further categorized by type of investment. To be accepted on the Select List, a fund had to be rated a “buy.” 

In 2006, WMS classified the Intermediate Fund in both the Core Plus category in the Mutual Funds section and in the Non-Traditional
Mutual Funds category of the Alternative Investments section. 
 On or about January 17, 2007, WMS notified brokers that
the Intermediate Fund had been removed from the “Core Plus” category and classified it solely as a “Non-Traditional Mutual Fund” in the Alternative Investments section. 

The January 2007 reclassification was not due to any change in the holdings of the Intermediate Fund, and WMS stated that the reason for
the change was that “the type of bonds, investment process, and the liquidity of the holdings has [sic] vast similarities to that of a Non-Traditional 

  
 8 

 
fixed income product.” WMS did not further clarify the meaning of “non-traditional” in this context. 
 WMS also stated that “The Investments Department has suggested for some time that the fund be used in lower allocations as a supplement around the Core Bond Fund holding to help reduce
volatility.” This suggested use of the Intermediate Fund was not included in the profiles. 
 The terms
“Non-Traditional Mutual Fund” and “Alternative Investment” suggest different investment styles and products in the financial industry. 
 The reclassification of the Intermediate Fund solely as an alternative investment caused concern among certain Morgan Keegan brokers who had viewed the fund as a more traditional intermediate bond fund.

  

	 	B.	WMS’s Recommended Asset Allocation Models Weighted the Intermediate Fund Higher in Conservative Portfolios Than Aggressive Portfolios

 During the relevant period, WMS had several proprietary asset allocation models to serve clients with
various investment objectives and risk tolerances. Each of these programs had five recommended portfolios, which identified specific investments for allocation within the model portfolio. 

The Intermediate Fund was included in all allocations in models for small portfolios ($10,000 minimum) as well as the two most
conservative allocations for larger portfolios ($50,000 and $500,000 minimums). By weighting the Intermediate Fund more heavily in conservative model recommendations, Morgan Keegan may have created an impression that the Intermediate Fund was safer
than it was. 
  

	V.	Morgan Keegan Failed to Establish, Maintain and Enforce Supervisory Systems Reasonably Designed to Prevent Advertising Violations in the Sale of the Intermediate
Fund 

 The Intermediate Fund could only be purchased through Morgan Keegan, and the firm sold over $676
million in 2006 and in 2007. The Intermediate Fund was substantially invested in investment-grade structured products with certain risks that should have been disclosed to investors. Morgan Keegan had a duty to take appropriate steps to ensure that
its associated persons understood and informed its customers about the risks of the Intermediate Fund. 
 Morgan Keegan did not
adequately implement and enforce systems or written procedures reasonably designed to ensure that its advertising materials or its internal guidance were accurate and complete as to certain risks of the Intermediate Fund. 

  
 9 

	 	A.	Morgan Keegan Failed to Take Reasonable Steps to Ensure WMS Disseminated Fair and Balanced Information 

As described above, Morgan Keegan afforded brokers the opportunity to utilize WMS’s research, promotional, and recommendation
infrastructure when selling securities to investors. In addition, Morgan Keegan provided promotional material to investors describing its internal fund due diligence arm, WMS, and stating that recommended investments were subjected to rigorous due
diligence and ongoing monitoring. The Intermediate Fund remained on WMS’ Select List of Investments through mid-2007, and was covered by a WMS analyst through preferred fund profiles issued by WMS. 

The head of the Investments Department stated that compared to other intermediate bond funds, the Intermediate Fund had “lower
correlation, higher tracking error and most importantly, far different risks than the broad market and than what most investors would expect from their fixed income portfolio.” As a result, WMS’ opinion was that the Intermediate Fund
should be used as a satellite fund around more traditional “core” intermediate bond fund holdings in wealth accumulation portfolios. 
 After holding out WMS as a valuable resource for information and analysis of recommended securities, Morgan Keegan should have taken steps to ensure that WMS more accurately and effectively communicated
certain risks of the Intermediate Fund. 
  

	 	B.	Advertising 

 Morgan
Keegan described the Preferred Fund Profiles as “Compliance Approved,” updated them quarterly, and made them available on the firm’s intranet website to brokers for use with retail investors. The firm substantially revised the
“Investment Philosophy” section of the profiles for the Intermediate Fund in late 2006 and again in early 2007 in connection with a wholesale format change. However, the firm did not conduct supervisory review or approval of the profiles
for the Intermediate Fund during the relevant period for compliance with FINRA’s advertising rules. 
 The glossies for the
Intermediate Fund were subjected to insufficient firm review consisting of ensuring that the narrative text remained unchanged from version to version and that data and charts had been updated by other personnel. In fall 2007, after the Intermediate
Fund had suffered substantial losses, the glossies were changed to more accurately reflect the reference to the fund’s investment objectives. 
 As a consequence, Morgan Keegan utilized marketing materials that were not fair and balanced, did not provide a sound basis for evaluating the Fund and conveyed that the Intermediate Fund was safer than
it was. Further, beginning in March 2007, none of the materials disclosed the effect market conditions were having on the Intermediate Fund. 

  
 10 

	VI	Morgan Keegan Failed to Take Steps Reasonably Designed to Advise Potential Investors of the Impact of Market Conditions in 2007 on the Intermediate Fund

 In 2007, when the values of certain of the Intermediate Fund’s holdings in mortgage backed securities
began to negatively impact the fund, the firm failed to take steps reasonably designed to advise of the effect of market conditions or the risks of investing in the fund under then-current market conditions. Morgan Keegan lacked effective systems,
policies and procedures reasonably designed to timely warn that the market was affecting the performance of the Intermediate Fund. 
 Despite the effect of market conditions on the Intermediate Fund, some brokers sold the fund to customers without disclosing the market effects. The head of Morgan Keegan’s retail sales force advised
brokers and his own customers to “hold on buy more” of the Regions Morgan Keegan bond funds, including the Intermediate Fund. For example, on August 17, 2007, in response to a customer seeking “reassurance,” the head of
Morgan Keegan’s sales force stated: 
 All is well with [the portfolio manager] and the
funds that he manages. The liquidity crises in the bond market caused by the sub prime lending phenomena bled over into bonds of all types, including those owned in the RMK funds. It is temporary and the bonds are still paying and the default rates
are still at low levels. 
 It may take a few months for these prices on bonds to run their
course but in the mean time we are still investing the dividends monthly and just building up more shares at even lower prices. 

VIOLATIONS 
 Failure to Provide a Sound Basis to Evaluate the Intermediate Fund; Lack of Fair and Balanced Presentation; Exaggerated Claims — Intermediate Fund Glossies 

Violations of NASD Conduct Rules 2110 and 2210(d) 
 Morgan Keegan distributed glossies regarding the Intermediate Fund that failed to provide a sound basis for evaluating the facts regarding the Intermediate Fund, and were not fair and balanced.

 The glossies incorrectly implied that the Intermediate Fund’s primary investment objective was capital preservation and
income. 
 The glossies overstated the Intermediate Fund’s asset class diversification. 

The glossies failed to disclose certain information regarding the Intermediate Fund’s investments in securities rated below
investment grade or the risks of those investments. 

  
 11 

 Each advertising glossy for the Intermediate Fund was generally distributed or available to
Morgan Keegan customers and otherwise met the definition of “sales literature” in NASD Rule 2210(a)(2). 
 By
distributing sales literature for the Intermediate Fund that contained exaggerated claims, failed to provide a sound basis for evaluating the facts regarding the Intermediate Fund, and were not fair and balanced, Morgan Keegan violated NASD Conduct
Rules 2110 and 2210. 
 Failure to Provide a Sound Basis to Evaluate the Intermediate Fund; Lack of Fair and Balanced
Presentation; Exaggerated Claims — Intermediate Fund Profiles 
 Violations of NASD Conduct Rules 2110 and 2210

 Morgan Keegan made available profiles regarding the Intermediate Fund that contained unwarranted information regarding
the Intermediate Fund and failed to provide certain information or certain risks of investing in the fund. 
 The profiles for
the Intermediate Fund failed to disclose certain information regarding the risks of investing in asset-backed securities, including the risks of investing in subordinated tranches of structured products, and the risks associated with the portfolio
manager’s strategy. 
 Each of the profiles for the Intermediate Fund was made available to Morgan Keegan customers and
otherwise met the definition of “sales literature” in NASD Rule 2210(a)(2). 
 By making available communications with
the public regarding the Intermediate Fund that contained exaggerated claims, were not fair and balanced, and failed to provide a sound basis for evaluating the facts regarding the Intermediate Fund, Morgan Keegan violated NASD Conduct Rules 2110
and 2210. 
 Omissions of Certain Information Necessary to Provide a Sound Basis to Evaluate the Intermediate Fund and a Fair
and Balanced Presentation — Glossies and Profiles Regarding the Intermediate Fund 
 Violations of NASD Conduct Rules
2110 and 2210 
 Morgan Keegan distributed glossies regarding the Intermediate Fund during the relevant period. Morgan
Keegan made available profiles regarding the Intermediate Fund during the relevant period. 
 During 2007, market conditions
were having a negative effect on the performance of the Intermediate Fund. 
 The glossies and profiles related to the
Intermediate Fund failed to disclose certain information concerning the effect of market conditions on the fund. 

  
 12 

 By distributing communications with the public that omitted discussion of certain specific
market conditions necessary to provide a sound basis to evaluate the Intermediate Fund and a fair and balanced presentation affecting the Intermediate Fund, Morgan Keegan violated NASD Conduct Rules 2110 and 2210. 

Failure to File Intermediate Fund Profiles with FINRA 
 Violations of NASD Conduct Rules 2110 and 2210(c) 
 During the relevant period, Morgan
Keegan prepared quarterly Preferred Fund Profiles for the Intermediate Fund. 
 Morgan Keegan never submitted the Intermediate
Fund profiles used during the relevant period to FINRA for review. 
 Each of the Intermediate Fund profiles was generally
distributed or available to Morgan Keegan customers and otherwise met the definition of “sales literature” in NASD Rule 2210(a)(2). 
 By distributing sales literature concerning registered companies without filing such materials with FINRA, Morgan Keegan violated NASD Conduct Rules 2110 and 2210(c). 

Failure to Establish, Maintain, and Enforce an Adequate Supervisory System, Including Written Supervisory Procedures, Reasonably
Designed to Achieve Compliance with NASD Rules 
 Violation of NASD Conduct Rules 3010(a), 3010(b), and 2110

  

	 	A.	Advertising and Guidance Regarding the Intermediate Fund 

 Morgan Keegan recommended the Intermediate Fund through its Select List of Investments and undertook to provide thorough due diligence, investment advice, and timely performance updates on the fund. The
Intermediate Fund was substantially invested in asset-backed securities with certain risks that should have been effectively disclosed to investors. 
 Morgan Keegan’s supervisory system and written procedures were not reasonably designed to ensure that its Intermediate Fund profiles, or the Intermediate Fund glossies disclosed certain information
as to risk and did not contain exaggerated claims. As a result, Morgan Keegan failed to adequately describe the nature, holdings and certain risks of the Intermediate Fund. 
 By failing to adequately supervise the review and dissemination of advertising material, Morgan Keegan failed to establish, maintain, and enforce an adequate supervisory system, including written
supervisory procedures, reasonably designed to achieve compliance with NASD rules in the sale of the Intermediate Fund in violation of NASD Conduct Rules 3010(a), 3010(b), and 2110. 

  
 13 

	 	B.	The Effect of Market Conditions in 2007 on the Intermediate Fund 

 Beginning in 2007, when the particular risks associated with the Intermediate Fund’s holdings began to negatively impact the holdings in the fund, the firm failed to take steps reasonably designed to
revise its advertising materials to inform of the effect of market conditions or the specific risks of investing in the fund under the then current market conditions. 
 Morgan Keegan failed to timely revise advertising materials to reflect the impact of market conditions on the Intermediate Fund. Accordingly, Morgan Keegan failed to establish, maintain, and enforce an
adequate supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with the advertising rules in the sale of the Intermediate Fund in violation of NASD Conduct Rules 3010(a), 3010(b), and 2110.

  

	 	B.	Morgan Keegan also consents to the imposition of the following sanctions: 

 A censure and the following undertakings: 
  

	 	1.	 Restitution. Morgan Keegan, in resolution of this matter and related matters with the United States Securities and Exchange Commission
(Administrative Proceeding No. 3-13847), FINRA and the following states: Alabama (SC-2010-0016); Kentucky (Agency Case No. 2010-AH-021/Administrative Action No. 10-PPC0267); Mississippi (Administrative Proceeding File No. S-08-0050); South
Carolina (File No. 08011); and Tennessee (Docket No. 12.06-107077J/Order No. 11-005) (collectively the “State Proceedings”), shall pay the total sum of $200,000,000 for the benefit of investors.1 Morgan Keegan shall provide FINRA with proof of payment. 

 

	 	2.	 Independent Consultant and Training. Pursuant to the Administrative Consent Order in the State Proceedings, Morgan Keegan has consented to
the retention of an Independent Consultant to perform certain reviews as called for therein. Similarly, the Administrative Consent Order in the State Proceedings calls for specified training of Morgan Keegan registered representatives. Those
provisions are adopted and incorporated as part of this AWC. 

 II. 

WAIVER OF PROCEDURAL RIGHTS 
 Morgan Keegan specifically and voluntarily waives the following rights granted under FINRA’s Code of Procedure: 

 

	1 	 Although all $200,000,000 is being paid for the benefit of investors, $100,000,000 of this sum is being designated pursuant to the SEC
Administrative Proceeding as follows: disgorgement of $20,500,000, prejudgment interest of $4,500,000 and a civil penalty of $75,000,000. 

  
 14 

	 	A.	 To have a Complaint issued specifying the allegations against it; 

 

	 	B.	 To be notified of the Complaint and have the opportunity to answer the allegations in writing; 

 

	 	C.	 To defend against the allegations in a disciplinary hearing before a hearing panel, to have a written record of the hearing made and to have a
written decision issued; and 

  

	 	D.	 To appeal any such decision to the National Adjudicatory Council (“NAC”) and then to the U.S. Securities and Exchange Commission and a
U.S. Court of Appeals. 

 Further, Morgan Keegan specifically and voluntarily waives any right to claim bias
or prejudgment of the General Counsel, the NAC, or any member of the NAC, in connection with such person’s or body’s participation in discussions regarding the terms and conditions of this AWC, or other consideration of this AWC, including
acceptance or rejection of this AWC. 
 Morgan Keegan further specifically and voluntarily waives any right to claim that a
person violated the ex parte prohibitions of FINRA Rule 9143 or the separation of functions prohibitions of FINRA Rule 9144, in connection with such person’s or body’s participation in discussions regarding the terms and conditions of this
AWC, or other consideration of this AWC, including its acceptance or rejection. 
 III. 

OTHER MATTERS 
 Morgan
Keegan understands that: 
  

	 	A.	 Submission of this AWC is voluntary and will not resolve this matter unless and until it has been reviewed and accepted by the NAC, a Review
Subcommittee of the NAC, or the Office of Disciplinary Affairs (“ODA”), pursuant to FINRA Rule 9216; 

  

	 	B.	 If this AWC is not accepted, its submission will not be used as evidence to prove any of the allegations against Morgan Keegan; and

  

	 	C.	 If accepted; 

  

	 	1.	 this AWC will become part of Morgan Keegan’s permanent disciplinary record and may be considered in any future actions brought by FINRA or any
other regulator against Morgan Keegan; 

  
 15 

	 	2.	 this AWC will be made available through FINRA’s public disclosure program in response to public inquiries about Morgan Keegan’s
disciplinary record; 

  

	 	3.	 FINRA may make a public announcement concerning this agreement and the subject matter thereof in accordance with FINRA Rule 8313; and

  

	 	4.	 Morgan Keegan may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying,
directly or indirectly, any finding in this AWC or create the impression that the AWC is without factual basis. Morgan Keegan may not take any position in any proceeding brought by or on behalf of FINRA, or to which FINRA is a party, that is
inconsistent with any part of this AWC. Nothing in this provision affects Morgan Keegan’s right to take legal or factual positions in litigation or other legal proceedings in which FINRA is not a party. 

 

	 	D.	 Morgan Keegan may attach a Corrective Action Statement to this AWC that is a statement of demonstrable corrective steps taken to prevent future
misconduct. Morgan Keegan understands that it may not deny the charges or make any statement that is inconsistent with the AWC in this Statement. This Statement does not constitute factual or legal findings by FINRA, nor does it reflect the views of
FINRA or its staff. 

 The undersigned, on behalf of Morgan Keegan, certifies that a person duly authorized to
act on its behalf has read and understands all of the provisions of this AWC and has been given a full opportunity to ask questions about it; that Morgan Keegan has agreed to its provisions voluntarily; and that no offer, threat, inducement, or
promise of any kind, other than the terms set forth herein and the prospect of avoiding the issuance of a Complaint, has been made to induce the Firm to submit it. 
  

							
	 6/3/2011
	 	 Morgan Keegan & Co., Inc.

	Date (mm/dd/yyyy)	 	Respondent
		
		 	Morgan Keegan & Company, Inc.
				
		 	 By:
	 		 	/s/ James T. Ritt
		 		 		 	James T. Ritt
		 		 		 	General Counsel

  
 16 

	
	Reviewed by:
	
	/s/ Peter J. Anderson
	 Peter J. Anderson

	 Counsel for Respondent

	 Sutherland Asbill & Brennan LLP

	 999 Peachtree Street, NE

	 Atlanta, Georgia 30309-3996

 

	 Phone: 404.853.8414

 

  
 17 

  

			
	Accepted by FINRA:	 	
		
	
                    
6/22/2011
 Date
	 	 Signed on behalf of the

Director of ODA, by delegated authority

		
		 	 /S/ DAVID R.
SONNENBERG

		 	David Sonnenberg
		 	 Vice President and Head of Litigation

		 	FINRA Department of Enforcement
		 	 1801 K Street, N.W. Suite 800

		 	Washington, DC 20006-1500
		 	 [Phone Number; Fax Number]

 

  
 18

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