The
Southeastern
Thrift
and Bank
Fund, Inc.
SEMI-ANNUAL REPORT
June 30, 1996
DIRECTORS
Victor Andrews
Robert G. Freedman
Franklin C. Golden
Fred G. Steingraber
Donald R. Tomlin
H. Hall Ware III
OFFICERS
Victor Andrews
Chairman
Franklin C. Golden
President
James B. Little
Treasurer
James K. Schmidt
Vice President
Renaldo Pascual
Secretary
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN, TRANSFER AGENT,
DISTRIBUTION DISBURSING AGENT
AND REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
LEGAL COUNSEL
Kilpatrick & Cody
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Listed NASDAQ Symbol: STBF
John Hancock Closed-End Funds: 1-800-843-0090
A 1 1/4" x 1" photo of Dr. Victor L. Andrews, Chairman of the
Board of Directors, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since February, much of the economic news has been good. Employment
levels are at their highest in years. Real wages may have started
growing again after a long stagnant stretch. And a fair share of
Corporate America logged second-quarter earnings that have exceeded
expectations, despite some glaring, headline-making exceptions in
the technology world. So why has the bond market soured this year
and the stock market been on a roller coaster. Why isn't good
economic news good for the financial markets?
While a healthy economy helps corporate profits grow, an economy
growing too fast, or the fear of that, sends interest rates up in
anticipation of inflation. That could prompt the Federal Reserve,
which views inflation as public enemy number one, to apply the
brakes. One way to do that is to raise short-term interest rates.
This year the Federal Reserve may have followed behind the markets.
In any event, bond rates have risen and prices fallen. Also, yields
on stocks have been rising as stock prices trended downward.
Inflation and the anticipation of it is a powerful inducement of
rising rates and companion price declines.
Those are just a couple of the more orthodox explanations. But
there's another element driving the market and it's far less
tangible or objective. It has to do with perception rather than
reality. By taking the market on a series of dizzying ups and downs
lately, investors are signaling uncertainty. Since the financial
markets look forward, investors seem to be saying that they are
concerned about a number of things -- inflation, the direction of
interest rates, the upcoming election and the possibility that a
wide sweeping market correction is overdue to give us a new
equilibrium.
So what should investors take away from it all? Probably the same
thing you've heard before - that the markets don't move up in a
straight line, but they have historically rewarded patient, long-
term investors. Short-term turmoil is not necessarily a call to
action.
Very truly yours on behalf of the Directors and Officers of the Fund.
/S/ Victor L. Andrews
Dr. Victor L. Andrews, Chairman of the Board of Directors
By James K. Schmidt, CFA, Portfolio Manager
Southeastern Thrift
and Bank Fund, Inc.
Larger banks outperform smaller ones in last six months;
positive earnings announcements continue
while pace of takeovers abates
After both posted stellar results in 1995, the stock and bond
markets have diverged this year. The broader market, as measured by
the S&P 500, returned 10.10% in the first six months of 1996.
Meanwhile bonds, haunted by the specter of a resurgent economy and
rising energy and commodity prices, sold off sharply in anticipation
of higher inflation. The 30-year Treasury bond has declined by 8.10%
since year-end 1995.
After a strong finish in 1995, bank and thrift stocks have also
shown divergent performance in 1996. Larger capitalization stocks,
such as money center banks and large superregionals, have posted
solid gains while returns on smaller- and medium-capitalization
banks and thrifts have lagged. Reflecting the Fund's focus on
smaller, lesser-known issues, the Southeastern Thrift & Bank Fund
underperformed its peers during the recent period. For the six
months ending June 30, 1996, the Fund posted a total return of 5.56%
at net asset value, compared to the 6.65% return of the average
open-end financial services fund, according to Lipper Analytical
Services.
A dichotomy in bank stock
performance appeared in
the first half
of 1996.
A 2 1/2" x 3 1/2" photo of the Fund management team.
Caption reads: "James K. Schmidt (seated) and Fund management
team members (l-r): James Boyd, Patricia Ouimet, Thomas Finucane."
Why is there a dichotomy in bank stock price performance? From our
perspective, the market for financial stocks in 1996 has largely
been liquidity driven, as large sums of mutual fund and
institutional cash flowed into bank stocks. Since this money needs
to be deployed quickly, the larger, liquid stocks are bid up first.
Then, all other things being equal, the smaller banks and thrifts
follow suit. We expect this process to play out in the next few
months, given that none of the other variables -- industry
fundamentals, valuation levels and the consolidation process -- has
changed much and each remains a positive catalyst for stock prices.
Chart with heading "Top Five Common Stock Holdings" at the top of the
left hand column. Chart lists five holdings: 1) First union Corp. 5.8%;
2) Union Planters 5.3%; 3) Southtrust Corp. 5.1%; 4) Southern National
Corp. 4.9%; 5) NationsBank 4.3%. A footnote below states "As a percentage
of total net assets on June 30, 1996".
Bank earnings
continued to grow in the first and
second
quarters.
Fundamentals sound...and priced inexpensively
After record-breaking earnings in 1993 and 1994, banks and thrifts
were thought to be hard-pressed to repeat their past performance.
Nonetheless, according to recently released FDIC data, commercial
bank earnings for 1995 exceeded 1994 by almost 10%, while thrift
income grew at an even higher 14% rate. Net interest margins for the
overall industry, that is the amount banks earn from the difference
between what they charge borrowers and pay depositors, continued
their mild compression, falling from 4.36% for 1994 to 4.29% for
1995. But that was more than offset by strong loan growth, up 10.4%
from December 1994. While banks were able to post these solid gains
in net income, few compromised the quality of their earnings.
Although problem loan levels continued to fall, banks still
increased their loss provisions by 15% over the levels set aside in
1994, as a prudent measure against the recent increases in loan
balances. Finally, bank earnings benefited from a moderation in non-
interest expense growth. The primary driver behind this trend was
the elimination of FDIC premiums for the highest rated banks, which
represent the bulk of the industry.
Table entitled "Scorecard" at bottom of left hand column. The header
for the left column is "Investment"; the header for the right column
is "Recent performance...and what's behind the numbers." The first
listing is "Salem Bank & Trust" followed by an up arrow and the phrase
"Strong southwest Virginia economy fuels stock price." The second
listing is "HFNC Financial" followed by an up arrow and the phrase
"Successful conversion of Charlotte Mutual." The third listing is
"Seacoast Banking" followed by a down arrow and the phrase "Good value,
but little market interest in small banks." Footnote below reads "See
"Schedule of Investments". Investment holdings are subject to change."
These trends continued to play out in 1996. In the first quarter,
the median bank in the Fund posted a 15% gain in core earnings-per-
share over the same period in 1995. These results were driven by
stable margins, static expenses and fewer outstanding shares due to
stock repurchases. Currently, our forecast for 12% earnings growth
for full-year 1996 over 1995 looks attainable given the recent mild
resurgence in economic activity. Our belief is that overall asset
quality has not deteriorated, although loan losses are rising in the
highly-publicized credit card portion of loan portfolios. With
employment and real personal income on the rise, we believe any
increase in problem loans will be mild and will not jeopardize our
earnings estimates. And initial second quarter reports appear to
confirm our assumptions, as it looks as though we will see year-
over-year gains at least equal to those of the first quarter.
Bar chart with heading "Fund Performance" at the top of left hand
column. Under the heading is the footnote: "For the six months ended
June 30, 1996." The chart is scaled in increments of 4% from top to
bottom, with 8% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 5.56% total return
for The Southeastern Thrift and Bank Fund, Inc. The second represents
the 6.65% total return for the average open-end financial services
fund. Footnote below reads: "The total return for The Southeastern
Thrift and Bank Fund is at net asset value with all distributions
reinvested. The average open-end financial services fund is tracked
by Lipper Analytical Services."
Currently, the average regional bank stock in the Fund trades at an
inexpensive 10.4 times 1996 estimated earnings-per-share, or 62% of
the S&P's multiple of 16.8 times. In spite of the steady
appreciation on the group over the last five years, this relative
multiple is still near the inexpensive end of its 30-year range of
50%-110%. With future earnings evolving in a much more predictable
pattern, we continue to believe that bank price-earnings multiples
still have the potential to expand.
The shrinking industry
Over the past several years, many of the Fund's smaller thrifts and
community banks have been acquired by larger super regionals. This
year, only one takeover has been announced by a Fund holding (Home
Financial in Florida by First Union). Industrywide, while there have
been nearly as many mergers in 1996 as in 1995, the size of the
transactions has been much smaller. As the year unfolds, we expect a
resumption of merger activity among major banks. At the moment, some
of the key acquirers are preoccupied with integrating the operations
they acquired last year. Nonetheless, we continue to believe that
the forces which have driven the industry to consolidate from 14,000
banks in 1985 to 9,900 today are as strong as ever and will
eventually result in fewer than 5,000 banks in existence.
"We recently bought
our first
non-bank financial stocks."
Political and regulatory update
There are several important regulatory and legal issues brewing in
Washington whose ramifications could positively impact bank and
thrift stocks. In a major victory for thrifts, the Supreme Court
recently upheld their right to proceed with lawsuits against the
U.S. Government. These lawsuits stem from the 1989 savings and loan
"bailout" bill which changed the accounting rules in a manner that
was detrimental to savings and loans that had purchased failing
thrifts. In its decision, the Supreme Court upheld the appeals court
victory that plaintiff thrifts won last year. It has now been
established that the Government is liable to these savings and loans
for breach of contract. What remains to be determined is what the
damages are. There is a wide range of possible methods for
determining damages. It looks to us that some of our holdings will
receive substantial payments within the next two years and that the
present value of these payments is not fully reflected in current
stock prices.
Another recent Supreme Court ruling affirmed a national bank's
ability to sell insurance products in small towns. We believe this
decision removes a significant roadblock to the formation of
insurance subsidiaries by national banks. In essence, the
Comptroller of the Currency will soon permit national banks to
commence selling insurance products through bank subsidiaries. State
banks in most jurisdictions would be afforded similar powers. The
power to distribute, but not necessarily underwrite, insurance will
serve as a powerful new way for banks to generate fee revenues.
The Southeastern Thrift and Bank Fund, Inc.
"...our longer
outlook calls
for more
moderate
economic
growth..."
Portfolio composition...and outlook
Strategically, the Fund continues its focus on undervalued regional
banks and thrifts in the Southeast which exhibit healthy earnings
prospects and which might benefit from consolidation. While the
Fund remains concentrated in these names, we recently bought our first
non-bank financial stocks, including Union Acceptance, a consumer
finance company, and Security First Network Bank, a technology firm
which serves the financial services industry. On the thrift side,
the Fund's investments centered on recently-converted S&Ls which
trade at significant discounts to their book values. Approximately
72% of the Fund's net assets were invested in bank stocks at the end
of June, with 25% in thrifts, 2% in non-bank stocks and 1% cash.
We continue to see solid, long-term investment value in the bank and
thrift stocks the Fund holds. The overall economic picture is good
for banks: steady but not excessive growth should result in
manageable inflation. Although interest rates will likely rise in
the short term, our longer outlook calls for more moderate economic
growth and a trend toward more stable rates. What's more, the stocks
remain inexpensive compared to the overall market, despite
increasing profitability. And finally, even with the inevitable
swings, favorable earnings and the continued merger activity both
augur well for stock prices.
- -------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through
the end of the Fund's period discussed in this report. Of course,
the manager's views are subject to change as market and other
conditions warrant.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
The Southeastern Thrift and Bank Fund, Inc.
The Statement of Assets and Liabilities is the Fund's balance sheet
and shows the value of what the Fund owns, is due and owes on June
30, 1996. You'll also find the net asset value per share as of that
date.
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Notes A & C:
Common stocks (cost - $29,493,093) $ 58,590,576
Preferred stocks (cost - $904,000) 968,375
Short-term investments (cost - $29,313) 29,313
Joint repurchase agreement (cost - $880,000) 880,000
-------------
60,468,264
Cash 1,649
Receivable for investments sold 1,469
Interest receivable 1,339
Dividends receivable 159,275
-------------
Total Assets 60,631,996
- -----------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 40,000
Payable to John Hancock Advisers, Inc. - Note B 39,945
Accounts payable and accrued expenses 69,050
-------------
Total Liabilities 148,995
- -----------------------------------------------------------------------------
Net Assets:
Capital paid-in 28,835,268
Accumulated net realized gain on investments 1,985,689
Net unrealized appreciation of investments 29,161,858
Undistributed net investment income 500,186
-------------
Net Assets $ 60,483,001
=============================================================================
Net Asset Value Per Share:
(based on 3,984,966 shares outstanding - 50 million
shares authorized with $0.001 per share par value) $ 15.18
=============================================================================
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows
net gains for the period stated.
Statement of Operations
Six months ended June 30, 1996 (Unaudited)
- -------------------------------------------
<S> <C>
Investment Income:
Dividends $ 790,556
Interest 49,504
-----------
840,060
-----------
Expenses:
Investment management fee - Note B 191,454
Administration fee - Note B 44,182
Director's fees 30,437
Legal fees 20,150
Custodian fee 17,911
Auditing fee 13,643
Printing 8,936
Miscellaneous 8,489
Transfer agent fee 4,672
-----------
Total Expenses 339,874
- -----------------------------------------------------------------------------
Net Investment Income 500,186
- -----------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 1,985,689
Change in net unrealized appreciation/depreciation
of investments 699,850
-----------
Net Realized and Unrealized Gain
on Investments 2,685,539
- -----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 3,185,725
=============================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Southeastern Thrift and Bank Fund, Inc.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS FISCAL PERIOD
ENDED YEAR ENDED ENDED
JUNE 30, 1996 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1994 (a)
----------------- ---------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 500,186 $ 872,309 $ 296,315
Net realized gain on investments sold 1,985,689 2,872,899 1,714,433
Change in net unrealized appreciation/depreciation of investments 699,850 15,128,944 (4,391,932)
------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 3,185,725 18,874,152 (2,381,184)
------------ ------------ ------------
Distributions to Shareholders:
Dividends from net investment income (none, $0.2189 and $0.1300
per share, respectively) -- (872,309) (518,046)
Distributions from capital gains (none, $0.0633 and $0.1752
per share, respectively) -- (252,208) (697,927)
------------ ------------ ------------
Total Distributions to Shareholders -- (1,124,517) (1,215,973)
------------ ------------ ------------
Net Assets:
Beginning of period 57,297,276 39,547,641 43,144,798
------------ ------------ ------------
End of period (including undistributed net investment income of
$500,186, none and none, respectively) $ 60,483,001 $ 57,297,276 $ 39,547,641
============ ============ ============
<CAPTION>
Analysis of Common Share Activity:
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED FISCAL PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994 (a)
----------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding, beginning of period 3,984,966 $ 28,835,268 1,992,483 $ 26,214,577 1,992,483 $ 24,647,975
Reclassification of net long-term capital gains
(net of Federal income taxes of none, $1,411,141
and $848,364, respectively) - Note A -- -- -- 2,620,691 -- 1,575,534
Reclassification of Capital Accounts -- -- -- -- -- (8,932)
Shares issued in stock split - Note A -- -- 1,992,483 -- -- --
---------- ------------- --------- ------------- --------- ------------
Shares outstanding, end of period 3,984,966 $ 28,835,268 3,984,966 $ 28,835,268 1,992,483 $ 26,214,577
========== ============= ========= ============= ========= ============
(a) Effective October 24, 1994, the fiscal period changed from June 30 to December 31.
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous
period. The difference reflects earnings less expenses, any investment gains and losses and distributions paid to shareholders.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Southeastern Thrift and Bank Fund, Inc.
<TABLE>
<CAPTION>
Financial Highlights (a)
Selected data for each share of common stock outstanding throughout the period indicated, investment returns, key ratios and
supplemental data are listed as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS FISCAL
ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
----------------------------------------
(UNAUDITED) 1995 1994(b) 1994 1993 1992 1991
----------- ----------- ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $14.380 $ 9.930 $10.830 $ 9.040 $ 6.430 $ 3.860 $ 3.870
------- ------- ------- -------- --------- ------- -------
Net Investment Income 0.126 0.219 0.075 0.105 0.055 0.050 0.065
Net Realized and Unrealized Gain (Loss)
on Investments 0.674 4.513(c) (0.670)(c) 2.232(c) 2.555 2.580 --
------- ------- ------- -------- --------- ------- -------
Total from Investment Operations 0.800 4.732 (0.595) 2.337 2.610 2.630 0.065
------- ------- ------- -------- --------- ------- -------
Less Distributions:
Dividends from Net Investment Income -- (0.219) (0.130) (0.103) -- (0.050) (0.085)
Distributions from Net Realized
Gain on
Investments Sold -- (0.063) (0.175) (0.444) -- -- --
Distributions from Paid-in Capital -- -- -- -- -- (0.010) --
------- ------- ------- -------- --------- ------- -------
Total Distributions -- (0.282) (0.305) (0.547) -- (0.060) (0.085)
------- ------- ------- -------- --------- ------- -------
Plus Increase from Repurchase of Capital
Shares -- -- -- -- -- -- 0.01
------- ------- ------- -------- --------- ------- -------
Net Asset Value, End of Period $15.180 $14.380 $ 9.930 $ 10.830 $ 9.040 $ 6.430 $ 3.860
======= ======= ======= ======== ======= ======= =======
Per Share Market Value, End of Period $12.750 $13.750 $ 9.625 $ 10.625 $ 7.875 $ 5.500 $ 3.125
Total Investment Return at Market Value (7.27%)(d) 45.66% (6.53%) 42.98% 43.18% 78.15% ( 1.48%)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $60,483 $57,297 $39,548 $43,145 $36,024 $25,623 $15,371
Ratio of Expenses to Average Net Assets 1.18%* 1.31% 1.46%* 1.46% 1.69% 2.17% 2.76%
Ratio of Net Investment Income to Average
Net Assets 1.70%* 1.73% 1.35%* 1.01% 0.71% 1.06% 1.84%
Portfolio Turnover Rate 8% 14% 7% 23% 42% 42% 18%
Average Broker Commission Rate
(per share of security)(e) $ 0.05 N/A N/A N/A N/A N/A N/A
* On an annualized basis.
(a) All per share amounts and net asset values have been restated to reflect the 2 for 1 stock split effective November 30, 1995.
(b) Effective October 24, 1994, the fiscal period end changed from June 30 to December 31.
(c) Net of Federal Income taxes of $0.35 for December 31, 1995, $0.215 for December 31, 1994 and $0.260 for June 30, 1994 on net
long-term capital gains retained by the Fund.
(d) Not annualized.
(e) Average broker commission rate (per share of security) as required by amended disclosure requirements effective September 1,
1995.
The Financial Highlights summarizes the impact of the following factors on a single share for the period indicated: net investment
income, dividends and gains (losses) of the Fund. It shows how the Fund's net asset value for a share has changed since the end of
the previous period. It also shows the total investment return for each period based on the market value of fund shares.
Additionally, important relationships between some items presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Fund on June 30,
1996. It's divided into three main categories: common stocks, preferred stocks and short-term
investments. The stocks are further broken down by location. Under each location is a list of
the stocks owned by the Fund.
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- ------------ ------------
<S> <C> <C> <C>
Banks, Savings and Loans - Southeastern (by state)
Alabama
Colonial BancGroup, Inc. 49,278 $ 1,650,813
Compass Bancshares, Inc. 26,500 867,875
First Southern Bancshares 51,917 648,962
Peoples Banctrust Co., Inc. 22,000 522,500
Regions Financial Corp. 30,400 1,421,200
Security Federal Bancorp., Inc.+ 33,600 571,200
Southern Banc Co., Inc. 34,900 444,975
Southtrust Corp. 108,930 3,063,656
Valley Federal Savings Bank+ 18,011 576,352
------------
9,767,533
------------
Florida
American Bancshares, Inc. * 40,000 335,000
BankUnited Financial Corp. (Class A) * 20,000 145,000
Barnett Banks, Inc. 10,000 610,000
Commercial Bankshares, Inc. 20,000 275,000
Community Savings, FA 26,666 426,656
Fidelity Federal Savings Bank of Florida 550 7,288
First Financial Bancorp., Inc. - Perry 33,275 721,651
First Palm Beach Bancorp. 25,000 534,375
Home Financial Corp. 20,000 260,000
Seacoast Banking Corp. of
Florida (Class A) 30,000 660,000
------------
3,974,970
------------
Georgia
ABC Bancorp. 10,000 185,000
CCF Holding Co. 35,000 428,750
Central & Southern Holding Co. 68,600 587,388
Eagle Bancshares, Inc. 60,000 952,500
First Liberty Financial Corp. 29,100 640,200
Flag Financial Corp. 67,500 810,000
------------
3,603,838
------------
Louisiana
ISB Financial Corp. 25,000 368,750
Teche Holding Co. 25,000 328,125
Whitney Holding Corp. 37,500 1,134,375
------------
1,831,250
------------
Mississippi
BancorpSouth, Inc. 22,700 488,050
Hancock Holding Co. 17,100 692,550
Peoples Holding Company (The) 15,600 551,850
Trustmark Corp. 28,500 598,500
------------
2,330,950
------------
North Carolina
CCB Financial Corp. 40,007 2,050,359
Centura Banks, Inc. 42,837 1,574,260
First Citizens BancShares, Inc. (Class A) 21,556 1,325,694
First Savings Bank of Moore County, Inc. 9,910 184,574
First Union Corp. 57,647 3,509,261
Green Street Financial Corp. 9,690 125,970
Haywood Bancshares, Inc. 53,400 987,900
HFNC Financial Corp. * 7,596 124,859
LSB Bancshares, Inc. 33,202 531,232
Mutual Community Savings Bank * 17,070 213,375
NationsBank Corp. 31,350 2,590,294
Piedmont Bancorp., Inc. 20,000 262,500
Rowan Savings Bank SSB, Inc. * 20,000 315,000
Southern National Corp. 93,935 2,982,436
Stone Street Bancorp., Inc. 40,000 675,000
------------
17,452,714
------------
South Carolina
American Federal Bank - FSB 50,000 837,500
Carolina First Corp. 18,828 329,490
PALFED, Inc. 94,960 1,187,000
Plantation Financial Corp.* 20,000 200,000
United Carolina Bancshares, Inc. 15,000 333,750
------------
2,887,740
------------
Tennessee
First American Corp. 13,279 559,378
First Tennessee National Corp. 47,240 1,446,725
Union Planters Corp. 106,311 3,229,197
------------
5,235,300
------------
Virginia
Commonwealth Bankshares, Inc. * 21,200 206,700
F & M National Corp. 25,625 467,656
FFVA Financial Corp. 26,000 474,500
Mainstreet Bankgroup, Inc. 50,000 812,500
Premier Bankshares Corp. 40,000 670,000
Salem Bank & Trust N.A. 21,000 315,000
Security Bank Corp. * 10,000 87,500
------------
3,033,856
------------
TOTAL BANKS, SAVINGS AND
LOANS -- SOUTHEASTERN 50,118,151
------------
Banks and Thrifts -- Other Regions
American National Bancorp., Inc.
(Maryland) 87,300 894,825
Banc One Corp. (Ohio) 16,988 577,592
Boatmen's Bancshares, Inc. (Missouri) 16,800 674,100
CB Bancshares, Inc. (Hawaii) 6,477 201,597
Equitable Federal Savings Bank *
(Maryland) 17,000 420,750
First Commercial Corp. (Arkansas) 31,343 963,797
First of America Bank Corp. (Michigan) 11,263 504,019
Mercantile Bancorp. (Missouri) 17,910 796,995
North Central Bancshares, Inc. (Iowa) 20,000 220,000
Pocahontas Federal Savings &
Loan Assn. (Arkansas) 5,000 75,000
Provident Bancorp., Inc. (Ohio) 30,000 1,057,500
Riggs National Corp. (Washington D.C.) 30,000 363,750
Simmons First National Corp.
(Class A) (Arkansas) 20,000 665,000
Summit Bancshares, Inc. (Texas) 10,000 172,500
Texas Regional Bancshares, Inc.
(Class A) (Texas) 5,000 125,000
------------
TOTAL BANKS AND
THRIFTS -- OTHER REGIONS 7,712,425
------------
Other
Affinity Technology Group * 6,000 51,000
PacificAmerica Money Center, Inc.* 4,000 54,000
Security First Network Bank * 1,500 49,500
Sirrom Capital Corp. 8,000 218,000
Union Acceptance Corp. (Class A) * 25,000 387,500
------------
760,000
------------
TOTAL COMMON STOCKS
(Cost $29,493,093) 96.87% 58,590,576
------- ------------
PREFERRED STOCKS
Republic Security Financial Corp.,
Ser C 7.00%, (Florida) 10,000 108,125
Roosevelt Financial Group, Inc.,
Ser F 6.50%, (Missouri) 12,000 860,250
------------
TOTAL PREFERRED STOCKS
(Cost $904,000) 1.60% 968,375
------- ------------
INTEREST PAR VALUE
RATE ---------
--------
SHORT-TERM INVESTMENTS
Cash Equivalents
Deposits in Mutual Banks $29,313 29,313
------------
Joint Repurchase Agreement
Investment in a joint
repurchase agreement
transaction with Toronto-
Dominion Bank Ltd. Dated
06-28-96, due 07-01-96
(secured by U.S. Treasury
Bond, 8.00% due
11-15-21 and U.S.
Treasury Notes, 4.75%
thru 8.75% due
03/31/97 thru
08/15/00) - Note A 5.50% 880,000 880,000
------------
TOTAL SHORT TERM INVESTMENTS 1.50% 909,313
------- ------------
TOTAL INVESTMENTS 99.97% $60,468,264
======= ============
* Non-income producing security.
+ Denotes an affiliated company in which the Fund has ownership of at least 5% of the voting securities (See
Note E of the Notes to Financial Statements).
The percentage shown for each investment category is the total value of that category as a percentage of the
net assets of the fund.
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
NOTES TO FINANCIAL STATEMENTS
The Southeastern Thrift and Bank Fund, Inc.
(UNAUDITED)
NOTE A --
The Southeastern Thrift and Bank Fund, Inc. (the "Fund") is a
diversified closed-end management investment company registered
under the Investment Company Act of 1940. The Fund's primary
investment objective is long-term capital appreciation. Its
secondary investment objective is current income.
ACCOUNTING POLICIES
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Investments in listed securities are valued
at the last sales price on the exchange on which such securities are
primarily traded. Listed securities for which no sales are reported
and securities traded in the over-the-counter market are valued at
the average of the most recent bid and asked prices. Investment
securities for which no current market quotations are available are
valued at fair market value as determined in good faith under the
direction of the Fund's Board of Directors. Short-term investments
which mature in less than 61 days when acquired by the Fund are
valued at amortized cost. Short-term investments which mature in
more than 60 days are valued at current market value until the
sixtieth day prior to maturity at which time they are valued at
amortized cost.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with
John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned
subsidiary of The Berkeley Financial Group, may participate in a
joint repurchase agreement. Aggregate cash balances are invested in
one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for
the joint account on the Fund's behalf. The Adviser is responsible
for ensuring that the agreement is fully collateralized at all
times.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities
transactions are recorded on a trade date basis. Realized gain and
loss from securities transactions are recorded using specific lot
basis. Dividend income is recorded on the ex-dividend date and
interest income, including, where applicable, amortization of
discount on short-term investments, is recorded on the accrual
basis.
DISTRIBUTIONS TO SHAREHOLDERS Net investment income and capital
gains distributions are generally distributed annually and are
recorded on the ex-dividend date. Such distributions are determined
in conformity with income tax regulations. Due to permanent book/tax
differences in accounting for certain transactions, this has the
potential for treating certain distributions as return of capital as
opposed to distributions of net investment income or realized
capital gains. The Fund has adjusted for the cumulative effect of
such permanent book/tax differences through December 31, 1995, which
has no effect on the Fund's net assets, net investment income or net
realized gains.
The Fund has the option and has chosen to retain and pay the
applicable Federal income tax on $4,031,832 and $2,423,898 of its
net long-term capital gains for the fiscal periods ended December
31, 1995 and December 31, 1994, respectively.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to Federal income tax on
taxable income which is distributed to shareholders.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles
incorporates estimates made by management in determining the
reported amounts of assets, liabilities, revenues, and expenses of
the Fund.
NOTE B --
INVESTMENT ADVISORY AND
ADMINISTRATION FEES AND
TRANSACTIONS WITH AFFILIATES
The Adviser is the Fund's investment adviser and administrator in
accordance with the agreements described below.
The Fund operates under an investment advisory agreement which
calls for the Adviser to furnish office space, furnishings and
equipment and to provide the services of persons to manage the
investment and reinvestment of the Fund's assets and to continuously
review, supervise and administer the Fund's investment program. In
return, the Fund has agreed to pay the Adviser a monthly advisory
fee at an annual rate of 0.65% of the Fund's average net assets, or
a flat annual fee of $50,000, whichever is higher. In addition, if
total Fund expenses exceed 2% of the Fund's average net assets in
any one year, the Fund may require the Adviser to reimburse the Fund
for such excess, subject to a minimum fee of $50,000.
The Fund has also entered into an administration agreement with the
Adviser pursuant to which the Adviser provides certain
administrative services required by the Fund. In return, the Fund
has agreed to pay a monthly administration fee at an annual rate of
0.15% of the Fund's average net assets, or a flat annual fee of
$22,000, whichever is higher.
The Fund does not pay remuneration to its officers nor to any
director who may be employed by an affiliate of the Fund. Certain
officers of the Fund are officers of the Adviser.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than
obligations of the U.S. government and its agencies and short-term
securities, during the period ended June 30, 1996, aggregated
$4,422,440 and $5,466,516, respectively. There were no purchases or
sales of obligations of the U.S. government and its agencies during
the period ended June 30, 1996.
The cost of investments owned at June 30, 1996 (excluding deposits
in mutual savings banks) for Federal income tax purposes was
$31,306,406. Gross unrealized appreciation and depreciation of
investments aggregated $29,275,008 and $113,150, respectively,
resulting in net unrealized appreciation of $29,161,858.
NOTE D --
SHARES REPURCHASED AND TENDER OFFERS
The Fund from time-to-time may, but is not required to, make open
market repurchases of its shares in order to attempt to reduce or
eliminate the amount of any market value discount or to increase the
net asset value of its shares, or both. In addition, the Board
currently intends each quarter during periods when the Fund's shares
are trading at a discount from the net asset value to consider the
making of tender offers. The Board may at any time, however, decide
that the Fund should not make share repurchases or tender offers.
NOTE E --
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of
1940, are those in which the Fund's holdings of an issuer represents
5% or more of the outstanding voting securities of the issuer. A
summary of the Fund's transactions in the securities of these
issuers during the period ended June 30, 1996 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING --------------------------------- ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN INCOME VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Security Federal Bancorp., Inc. 33,600 -- $-- -- $-- 33,600 $-- $10,080 $ 571,200
Valley Federal Savings Bank 18,011 -- -- -- -- 18,011 -- -- 576,352
----------------------
$10,080 $1,147,552
======================
</TABLE>
SUPPLEMENTAL INFORMATION
The Southeastern Thrift and Bank Fund, Inc.
REPURCHASE AGREEMENTS
A repurchase agreement is a contract under which the Fund would
acquire a security for a relatively short period (usually not more
than 7 days) subject to the obligation of the seller to repurchase
and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). The Fund will enter
into repurchase agreements only with member banks of the Federal
Reserve System and with "primary dealers" in U.S. Government
securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom the Fund enters into
repurchase agreements.
Repurchase transactions must be fully collateralized at all times,
but they involve some credit risk to the Fund if the other party
defaults on its obligations and the Fund is delayed or prevented
from liquidating the collateral. The Fund has established a
procedure providing that the securities serving as collateral for
each repurchase agreement must be delivered to the Fund's custodian
either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement
is fully collateralized at all times. In the event of bankruptcy or
other default by a seller on a repurchase agreement, the Fund could
experience delays in liquidating the underlying securities and could
experience losses, including the possible decline in the value of
the underlying securities during the period while the Fund seeks to
enforce it rights thereto, possible subnormal levels of income and
lack of access to income during this period, and expense of
enforcing its rights.
DIVIDEND REINVESTMENT PLAN
The Fund offers its registered stockholders an automatic Dividend
Reinvestment Plan (the "Plan") which enables each participating
stockholder to have all dividends (indicates income dividends and/or
capital gains distributions) payable in cash reinvested by the Plan
Agent in shares of the Fund's Common Stock. However, stockholders
may elect not to enter into, or may terminate at any time without
penalty, their participation in the Plan by notifying State Street
Bank and Trust Company (the "Plan Agent") in writing. Stockholders
who do not participate will receive all dividends in cash.
In the case of stockholders such as banks, brokers or nominees who
hold shares for others who are the beneficial owners, the Plan Agent
will administer the Plan on the basis of record ownership of shares.
These record stockholders will receive dividends under the Plan on
behalf of participating beneficial owners and cash on behalf of non-
participating beneficial owners. These recordholders will then
credit the beneficial owners' accounts with the appropriate stock or
cash distribution.
Whenever the market price of the Fund's stock equals or exceeds net
asset value per share, participating stockholders will be issued
stock valued at the greater of (i) net asset value per share or (ii)
95% of the market price. If the net asset value per share of the
Fund's stock exceeds the market price per share on the record date,
the Plan Agent shall make open market purchases of the Fund's stock
for each participating stockholder's account. These purchases may
begin no sooner than five business days prior to the payment date
for the dividend and will end up to thirty days after the payment
date. If shares cannot be purchased within thirty days after the
payment date the balance of shares will be purchased from the Fund
at the average price of shares purchased on the open market. Each
participating stockholder will be charged a pro rata share of
brokerage commissions on all open market purchases.
The shares issued to participating stockholders, including
fractional shares, will be held by the Plan Agent in the name of the
stockholder. The Plan Agent will confirm each acquisition made for
the account of the participating stockholder as soon as practicable
after the payment date of the distribution.
The reinvestment of dividends does not in any way relieve
participating stockholders of any Federal, state or local income tax
which may be due with respect to each dividend. Dividends reinvested
in shares will be treated on your Federal income tax return as
though you had received a dividend in cash in an amount equal to the
fair market value of the shares received, as determined by the
prices for shares of the Fund on the NASDAQ National Market System
as of the dividend payment date. Distributions from the Fund's long-
term capital gains will be taxable to you as long-term capital
gains. The confirmation referred to above will contain all the
information you will require for determining the cost basis of
shares acquired and should be retained for that purpose. At year
end, each account will be supplied with detailed information
necessary to determine total tax liability for the calendar year.
Additional information may be obtained from the Customer
Service Department, The Southeastern Thrift and Bank Fund, Inc., 101
Huntington Avenue, Boston, Massachusetts 02199-7603; (800) 225-5291.
NOTES
The Southeastern Thrift and Bank Fund, Inc.
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower right.
A tag line below reads "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
S. Hackensack, NJ
Permit No. 750
A recycled logo in lower left hand corner with
caption "Printed on Recycled Paper."
PT0SA 6/96
8/96
