--------------------------
The latest report from you
Fund's management team
--------------------------
- --------------------------------------------------------------------------------
The
Southeastern
Thrift
and Bank
Fund, Inc.
Annual Report
December 31, 1999
<PAGE>
------------------------------------------
DIRECTORS
Franklin C. Golden
Robert G. Freedman
Fred G. Steingraber
Donald R. Tomlin
H. Hall Ware III
OFFICERS
Franklin C. Golden
President
Robert E. Gramer
Treasurer
James K. Schmidt
Vice President
Reinaldo 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 & Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309-4530
INDEPENDENT AUDITORS
Deloitte & Touche llp
200 Berkeley Street
Boston, Massachusetts 02116
Listed NASDAQ Symbol: STBF
For Shareholder Assistance
Refer to Page 15
-------------------------------------------
===============================PRESIDENT'S MESSAGE==============================
DEAR FELLOW SHAREHOLDERS:
At this momentous turn to a new century and millennium, I, on behalf of your
Board of Directors, wish you all the best for a healthy and prosperous New Year.
The stock market certainly ushered out the 20th Century in momentous
fashion, with all the major market indices ending at new highs. Most spectacular
was the technology-heavy Nasdaq Composite Index, which rose by 85.6% on the
backs of a few hundred technology names.
These dazzling returns, however, masked the much more modest - or even
negative - results of a far greater number of stocks that had no dot-com in
their name or connection to technology. Unfortunately for us, regional bank
stocks were among them. As a result the Fund lost ground for a second year,
returning -11.35% at net asset value, as our southeastern regional banks in
particular fell even further from their 1997 heights.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Franklin C. Golden, President of The Southeastern Thrift and
Bank Fund, Inc., flush right next to third paragraph.]
- --------------------------------------------------------------------------------
We are certainly disappointed and, frankly, frustrated that investors
did not recognize the sector's value - both from a fundamental perspective, as
bank earnings were mostly solid in 1999, and a valuation standpoint, since bank
stocks are now much less expensive than the overall market. But we also
recognize that market sectors rotate in and out of favor, and we encourage
investors to remember that sector investing is more of a long-term proposition.
Most important, as portfolio management team leader Jim Schmidt
discusses in his commentary on the following pages, there are significant
reasons to take heart. Chief among them was the enactment in November of
long-awaited landmark financial reform legislation that we believe will enhance
the environment for financial stocks over the long term.
Very truly yours,
/s/Franklin C. Golden
- ---------------------
Franklin C. Golden, President of The Southeastern Thrift and Bank Fund, Inc.
2
<PAGE>
================================================================================
By James K. Schmidt, CFA, Portfolio Management Team Leader, and
Thomas Finucane and Thomas Goggins, Portfolio Managers
The Southeastern
Thrift and Bank Fund, Inc.
Financial stocks hit by rising interest rates
---------------------------------------------
Bank stocks ran into stiff headwinds during 1999, as the economy remained
remarkably strong, interest rates rose and inflation fears grew. Banks also fell
prey to Y2K concerns and neglect, as investors left the sector to chase
high-flying technology stocks that drove the stock market's major indices to
record levels. Even the passage in November of long-awaited financial reform
legislation - which we expect to be a long-term benefit to financial stocks -
sparked only a two-week rally before bank stocks, with the exception of the
behemoth Citigroup, were quashed again by rate jitters.
Regional bank stocks in particular were hurt by the three interest-rate
hikes implemented by the Federal Reserve in 1999 to cool off the economy and
prevent an inflation spike. There were also a few headline-grabbing earnings
disappointments - stemming largely from problems digesting previous acquisitions
- - at Bank One and First Union, for example. These overshadowed the majority of
banks, whose fundamentals remained strong.
Fund performance
In this difficult environment, most mutual funds that invest in financial stocks
lost ground. The Southeastern Thrift and Bank Fund, Inc. did so as well,
returning -11.35% at net asset value for the year ended December 31, 1999,
compared to the -1.04% return of the average open-end financial services fund,
according to Lipper, Inc. As was the case last year, we underperformed
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of The Southeastern Thrift and
Bank Fund, Inc. Caption below reads "Fund management team members. Standing
(l-r): Jay McKelvey, Tom Goggins and Tom Finucane. Seated (l-r): Lisa Welch,
Jim Schmidt and Patricia Ouimet."]
- --------------------------------------------------------------------------------
"In particular, regional banks in the Southeast... continued to come back down
to earth..."
3
<PAGE>
================================================================================
The Southeastern Thrift and Bank Fund, Inc.
"With this legislation in place, we added to our non-bank financial exposure..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Common Stock Holdings." The
first listing is Cullen/Frost Bankers 4.3%, the second is CCB Financial Corp.
4.0%, the third First Tennessee National 3.7%, the fourth Centura Banks 3.5% and
the fifth Regions Financial Corp. 3.4%. A note below the table reads "As a
percentage of net assets on December 31, 1999."]
- --------------------------------------------------------------------------------
because we didn't own the select few enormous multinational financial companies
that did well. Indeed, our focus on regional banks and thrifts hurt us since
these smaller-sized companies were decidedly out of favor.
In particular, regional banks in the Southeast, which had risen to
dizzying heights in 1997, continued to come back down to earth in 1999, despite
mostly solid earnings growth. Given our southeastern concentration, this
especially took its toll on the Fund, since some of our largest names were hit
hard, like CCB Financial, Centura, Regions Financial, AmSouth and BB&T.
Fundamentals still strong
We recognize that sector investing is a long-term proposition. While
sector-specific funds are subject to different and sometimes greater volatility
than the market as a whole, they can also provide long-term investors with
greater outperformance. Despite the current backdrop, we remain
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Piedmont
Bancorp followed by an up arrow with the phrase "Takeover boosts this small N.C.
bank's stock." The second listing is Trustmark Corp. followed by a sideways
arrow with the phrase "Mississippi regional weathers storm better than peers."
The third listing is Wachovia Corp. followed by a down arrow with the phrase
"Market doubts bank's once superb loan quality." A note below the table reads
"See `Schedule of Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
encouraged by the generally positive fundamentals we are witnessing in our
companies. The global financial crisis that was feared in the fall of 1998 never
materialized and economic growth has been better than we had anticipated. As a
result, our banks have shown excellent loan growth and low credit losses.
Bank earnings were up approximately 12% for 1999, even in a rising
interest-rate environment. This is further proof that the stock market
unfortunately overestimates the impact that rising rates have on bank profits.
Many banks have become less reliant on net interest margins - the difference
between what banks pay on deposits and charge on loans - by generating more fee
income. That said, we do expect a small decrease in net profit margins in 2000;
nonetheless, we still anticipate bank earnings growth of approximately 8% to 10%
over 1999.
Consolidation slows, but remains a key theme
Consolidation activity slowed down from its torrid pace of 1998 for a number of
reasons. Y2K computer issues were a distraction; banks were still digesting some
recent acquisitions and the pricing environment became more difficult. During
1999, nine of the Fund's holdings announced mergers, including Mercantile
Bancorp, which merged with Firstar, and First American, which merged with
AmSouth. As we have discussed in prior reports, even though changes in the
market environment will impact the pace of merger activity, the process of
industry consolidation is bound to continue to address the overcapacity that
still exists in the U.S. banking system.
Reform legislation: catalyst for rebound?
An important catalyst for a financial-stock rally was provided late in the year
by the passage of
4
<PAGE>
================================================================================
The Southeastern Thrift and Bank Fund, Inc.
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1999." The chart
is scaled in increments of 2% with -12% at the bottom and 0% at the top. The
first bar represents the -11.35% total return for the Southeastern Thrift and
Bank Fund, Inc. The second bar represents the -1.04% total return for Average
open-end financial services fund. A note below the chart reads "The total return
for The Southeastern Thrift and Bank Fund, Inc. is at net asset value with all
distributions reinvested. The average open-end financial services fund is
tracked by Lipper, Inc."]
- --------------------------------------------------------------------------------
historic financial-services reform legislation, which temporarily boosted
financial stocks. Although the rally was short-lived, this development is
clearly a long-term positive for financial stocks. The Gramm-Leach-Bliley bill
amends the Glass-Steagall and Bank Holding Company Acts to permit banks,
insurance companies and securities brokers to affiliate in the same holding
company. As a result, we expect a period of consolidation to result, featuring
just such cross-industry combinations. Specifically, we think there will be
further cases of banks buying brokers, and, more importantly, for the first time
we should see banks interested in acquiring insurance companies. This
consolidation should produce more efficient and profitable financial services
providers. It will also reward shareholders through takeover premiums and a
greater industry focus on operating with maximum efficiency to generate
shareholder value.
Strategy constant, with new additions
With this legislation in place, we added to our non-bank financial exposure,
since the Fund has the ability to invest a portion of its assets in more
diversified financial companies - the ones we believe stand to benefit from
industry deregulation more than regional banks. We recently bought insurance
companies AFLAC and Protective Life, and kept our positions in Household
International and regional brokerage firm Raymond James. Beyond that, our focus
remained on banks and thrifts in the Southeast with solid fundamentals that we
can buy at bargain prices. We also continued to take profits and trim our stakes
in the larger-sized regional banks that had better performance.
Interest rates, cheap stock prices
Uncertainty could keep bank stocks in its grip for a while longer. With the
economy still on a roll, and the market and the Fed focused on inflation, the
possibilities for further rate hikes remain real. Our longer-term outlook, on
the other hand, is much brighter. Bank-stock valuations are very compelling,
selling at 50% less than the price-to-earnings ratio of the S&P 500 Index. If
bank fundamentals remain solid, which we mostly expect, investors should begin
to recognize the attractive opportunities the sector currently offers. This
valuation anomaly, coupled with landmark industry deregulation, provide powerful
arguments for a sustained financial-stock rebound, and the biggest source of
encouragement for long-term investors.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
"Bank-stock valuations are very compelling..."
5
<PAGE>
=============================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 December 31, 1999. You'll
also find the net asset value per share as of that date.
Statement of Assets and Liabilities
December 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments at value - Notes A & C:
Common stocks (cost - $39,966,225).......................... $70,299,931
Short-term investments (cost - $29,228) .................... 29,228
Joint repurchase agreement (cost - $11,267,000) ............ 11,267,000
---------------
81,596,159
Cash ........................................................ 676
Receivable for investments sold ............................. 102,912
Interest receivable ......................................... 1,167
Dividends receivable ........................................ 278,070
---------------
Total Assets ........................ 81,978,984
-----------------------------------------------------
Liabilities:
Payable for investments purchased ........................... 209,278
Payable to transfer agent ................................... 9,261,287
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 58,747
Accounts payable and accrued expenses ....................... 71,483
---------------
Total Liabilities ................... 9,600,795
-----------------------------------------------------
Net Assets:
Capital paid-in ............................................. 37,213,160
Accumulated net realized gain on investments ................ 4,758,367
Net unrealized appreciation of investments .................. 30,333,706
Undistributed net investment income ......................... 72,956
---------------
Net Assets .......................... $72,378,189
=====================================================
Net Asset Value Per Share:
(Based on 3,986,504 shares outstanding - 50 million
shares authorized with $0.001 per share par value) ......... $18.16
=============================================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended December 31, 1999
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................... $2,127,392
Interest .................................................... 215,849
---------------
2,343,241
---------------
Expenses:
Investment advisory fee - Note B ........................... 589,245
Administration fee - Note B ................................ 135,980
Directors' fees ............................................ 62,069
Custodian fee .............................................. 47,053
Auditing fee ............................................... 39,050
Legal fees ................................................. 31,573
Miscellaneous .............................................. 20,828
Printing ................................................... 20,762
Transfer agent fee ......................................... 8,827
---------------
Total Expenses ...................... 955,387
-----------------------------------------------------
Net Investment Income ............... 1,387,854
-----------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ....................... 12,290,751
Change in net unrealized appreciation/depreciation
of investments ............................................. (26,211,560)
---------------
Net Realized and Unrealized
Loss on Investments ................. (13,920,809)
-----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ........... ($12,532,955)
=====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
=============================FINANCIAL STATEMENTS===============================
The Southeastern Thrift and Bank Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ....................................................................... $1,308,866 $1,387,854
Net realized gain on investments sold ....................................................... 9,550,161 12,290,751
Change in net unrealized appreciation/depreciation of investments ........................... (17,458,922) (26,211,560)
------------ -------------
Net Decrease in Net Assets Resulting from Operations ....................................... (6,599,895) (12,532,955)
------------ -------------
Distributions to Shareholders:
Dividends from net investment income ($0.3200 and $0.3500 per share, respectively) .......... (1,275,681) (1,395,277)
Distributions from capital gains ($1.9622 and $2.3232 per share, respectively) .............. (7,822,359) (9,261,287)
------------ -------------
Total Distributions to Shareholders ........................................................ (9,098,040) (10,656,564)
------------ -------------
Net Assets:
Beginning of period ......................................................................... 111,265,643 95,567,708
------------ -------------
End of period (including undistributed net investment income
of $80,379 and $72,956, respectively) ...................................................... $95,567,708 $72,378,189
============ =============
Analysis of Common Share Transactions:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1999
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- -----------
Shares outstanding, beginning of period ........................ 3,986,504 $37,213,160 3,986,504 $37,213,160
---------- ------------ --------- -----------
Shares outstanding, end of period .............................. 3,986,504 $37,213,160 3,986,504 $37,213,160
========== ============ ========= ===========
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.
7
<PAGE>
=============================FINANCIAL STATEMENTS===============================
The Southeastern Thrift and Bank Fund, Inc.
Financial Highlights
Selected data for each share of common stock outstanding throughout each period
indicated, investment returns, key ratios and supplemental data are listed as
follows:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1995 (1) 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $9.930 $14.380 $17.560 $27.910 $23.970
---------- ---------- ---------- ---------- ----------
Net Investment Income ....................................... 0.219 0.280 0.316 0.328 0.348
Net Realized and Unrealized Gain (Loss) on Investments ...... 4.513(2) 3.295(2) 10.372(2) (1.986) (3.485)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ........................... 4.732 3.575 10.688 (1.658) (3.137)
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................... (0.219) (0.274) (0.310) (0.320) (0.350)
Distributions from Net Realized Gain on
Investments Sold .......................................... (0.063) (0.121) (0.028) (1.962) (2.323)
---------- ---------- ---------- ---------- ----------
Total Distributions ........................................ (0.282) (0.395) (0.338) (2.282) (2.673)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $14.380 $17.560 $27.910 $23.970 $18.160
========== ========== ========== ========== ==========
Per Share Market Value, End of Period ....................... $13.750 $16.375 $30.250 $22.375 $15.500
Total Investment Return at Market Value ..................... 45.66% 21.96% 91.59% (18.37%) (18.94%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $57,297 $69,980 $111,266 $95,568 $72,378
Ratio of Expenses to Average Net Assets ..................... 1.31% 1.13% 1.06% 0.97% 1.05%
Ratio of Net Investment Income to Average Net Assets ........ 1.73% 1.79% 1.45% 1.22% 1.52%
Portfolio Turnover Rate ..................................... 14% 13% 16% 9% 14%
(1) All per share amounts and net asset values have been restated to reflect the
2-for-1 stock split effective November 30, 1995.
(2) Net of federal income taxes of $0.35 for December 31, 1995, $0.48 for
December 31, 1996 and $0.64 for December 31, 1997 on net long-term capital
gains retained by the Fund.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, distributions 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.
8
<PAGE>
=============================FINANCIAL STATEMENTS===============================
The Southeastern Thrift and Bank Fund, Inc.
Schedule of Investments
December 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on December 31, 1999. It's divided into two main categories: common 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. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
COMMON STOCKS
Banks, Savings and Loans - Southeastern (by state)
Alabama (17.14%)
Alabama National Bancorp. ........................ 39,250 $740,844
AmSouth Bancorp. ................................. 106,688 2,060,412
Colonial BancGroup, Inc. ......................... 186,112 1,930,912
Compass Bancshares, Inc. ......................... 57,025 1,272,370
First Southern Bancshares ........................ 2,347 27,577
Peoples Banctrust Co., Inc. ...................... 52,000 734,500
Regions Financial Corp. .......................... 98,272 2,469,084
Security Federal Bancorp., Inc. .................. 33,600 504,000
Southern Banc Co., Inc. .......................... 32,900 271,425
SouthTrust Corp. ................................. 63,395 2,397,123
----------
12,408,247
----------
Florida (6.92%)
Capital City Bank Group, Inc. .................... 53,850 1,157,775
Commercial Bankshares, Inc. ...................... 28,253 603,908
Community Savings Bankshares, Inc. ............... 54,000 678,375
Gateway American Bancshares, Inc. ................ 100,000 262,500
Pointe Financial Corp. ........................... 20,000 170,000
Republic Security Financial Corp. ................ 92,910 664,887
Seacoast Banking Corp. (Class A) ................. 51,500 1,474,187
----------
5,011,632
----------
Georgia (7.70%)
ABC Bancorp. ..................................... 24,000 255,000
CCF Holding Co. .................................. 36,047 522,682
Century South Banks, Inc. ........................ 39,500 883,812
Eagle Bancshares, Inc. ........................... 40,000 575,000
Flag Financial Corp. ............................. 108,750 761,250
Premier Bancshares, Inc. ......................... 91,400 1,245,325
SunTrust Banks, Inc. ............................. 19,292 1,327,531
----------
5,570,600
----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Louisiana (2.62%)
ISB Financial Corp. .............................. 22,000 $302,500
Whitney Holding Corp. ............................ 43,000 1,593,687
----------
1,896,187
----------
Mississippi (5.76%)
BancorpSouth, Inc. ............................... 64,900 1,058,681
Hancock Holding Co. .............................. 19,165 742,644
Lamar Capital Corp. .............................. 50,000 556,250
People Holding Co. (The) ......................... 23,400 675,675
Trustmark Corp. .................................. 52,500 1,134,492
----------
4,167,742
----------
North Carolina (21.36%)
Bank of America Corp. ............................ 13,424 673,717
BB&T Corp. ....................................... 67,188 1,839,272
CCB Financial Corp. .............................. 66,914 2,914,941
Centura Banks, Inc. .............................. 56,587 2,496,901
First Charter Corp. .............................. 27,250 405,344
First Citizens BancShares, Inc. (Class A) ........ 17,556 1,224,531
First Savings Bancorp., Inc. ..................... 9,910 185,813
First Union Corp. ................................ 34,322 1,126,191
FNB Financial Service Corp. ...................... 42,250 443,625
Haywood Bancshares, Inc. ......................... 53,400 1,098,037
LSB Bancshares, Inc. ............................. 37,752 594,594
Mutual Community Savings Bank .................... 17,070 140,828
Piedmont Bancorp., Inc. .......................... 15,000 169,688
Rowan Bankcorp, Inc. ............................. 15,000 290,625
South Street Financial Corp. ..................... 40,000 280,000
Wachovia Corp. ................................... 23,173 1,575,764
----------
15,459,871
----------
South Carolina (3.12%)
Carolina First Corp. ............................. 10,000 182,500
First Financial Holdings, Inc. ................... 103,500 1,656,000
Plantation Financial Corp. ....................... 28,000 420,000
----------
2,258,500
----------
Tennessee (5.43%)
First Tennessee National Corp. ................... 93,080 2,652,780
National Commerce Bancorp. ....................... 30,000 680,625
Union Planters Corp. ............................. 15,079 594,678
----------
3,928,083
----------
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
=============================FINANCIAL STATEMENTS===============================
The Southeastern Thrift and Bank Fund, Inc.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Virginia (5.27%)
Commonwealth Bankshares, Inc. ................... 39,653 $366,790
Community Bankshares, Inc. ...................... 3,000 66,000
F & M National Corp. ............................ 29,414 810,723
First Virginia Banks, Inc. ...................... 28,725 1,235,175
Guaranty Financial Corp. ........................ 32,500 268,125
Heritage Bancorp., Inc. ......................... 15,000 55,313
Marathon Financial Corp. ........................ 11,500 73,672
Rockingham Heritage Bank* ....................... 34,400 369,800
Salem Bank & Trust .............................. 30,779 400,127
Shore Financial Corp. ........................... 21,000 168,000
----------
3,813,725
----------
TOTAL BANKS, SAVINGS AND
LOANS - SOUTHEASTERN (75.32%) 54,514,587
-------- ----------
ISSUER, DESCRIPTION, STATE
- --------------------------
Banks and Thrifts - Other Regions (17.12%)
Bank of the Ozarks, Inc. (AR) ................... 32,500 633,750
CB Bancshares, Inc. (HI) ........................ 10,977 323,135
Century Bancshares, Inc.* (DC) .................. 11,025 71,663
Cullen/Frost Bankers., Inc. (TX) ................ 120,800 3,110,600
Equitable Federal Savings Bank* (MD) ............ 34,000 578,000
Firstar Corp. (WI) .............................. 21,791 460,335
Local Financial Corp.* (OK) ..................... 90,000 933,750
Mercantile Bankshares Corp. (MD) ................ 38,000 1,213,625
One Valley Bancorp., Inc. (WV) .................. 28,800 882,000
Prosperity Banchares, Inc. (TX) ................. 24,000 384,000
Provident Financial Group, Inc. (OH) ............ 19,000 681,625
SFC Acquisition Corp.* (AR) (r) ................. 50,000 556,250
Simmons First National Corp.
(Class A) (AR) ................................. 30,000 750,000
Summit Bancshares, Inc. (TX) .................... 65,500 1,211,750
Superior Financial Corp.* (AR) .................. 23,750 264,219
Texas Regional Bancshares, Inc.
(Class A) (TX) ................................. 11,500 333,500
----------
12,388,202
----------
Other (4.69%)
AFLAC, Inc. ..................................... 15,000 707,813
Household International, Inc. ................... 14,000 521,500
Protective Life Corp. ........................... 12,500 397,656
Raymond James Financial, Inc. ................... 94,725 1,770,173
----------
3,397,142
----------
TOTAL COMMON STOCKS
(Cost $39,966,225) (97.13%) 70,299,931
--------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- ------
SHORT-TERM INVESTMENTS
Cash Equivalents
Deposits in Mutual Banks.............. $29 $29,228
----------
Joint Repurchase Agreement
Investment in a joint repurchase
agreement transaction with
Barclay's, Inc. - Dated 12-31-99,
due 01-03-00 (Secured by U.S.
Treasury Bond 7.625% due
11-15-22 and U. S. Treasury Note
4.000% due 10-31-00)
- Note A ........................... 2.490% 11,267 11,267,000
----------
TOTAL SHORT-TERM INVESTMENTS (15.61%) 11,296,228
--------- ----------
TOTAL INVESTMENTS (112.74%) 81,596,159
--------- ----------
OTHER ASSETS AND LIABILITIES, NET (12.74%) (9,217,970)
--------- ----------
TOTAL NET ASSETS (100.00%) $72,378,189
========= ===========
* Non-income producing security.
(r) The security listed below is a direct placement security and is restricted
as to resale. The Fund has limited rights to registration under the Securities
Act of 1933 with respect to restricted securities (not including Rule 144A
securities). In certain circumstances the Fund may bear a portion of the cost of
such registrations; otherwise, such costs would be borne by the issuer.
Additional information on this restricted security is as follows:
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
DATE COST NET ASSETS DECEMBER 31, 1999
----------- ----------- ---------- -----------------
SFC Acquisition Corp. 03-30-98 $500,000 0.77% $556,250
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
The Southeastern Thrift and Bank Fund, Inc.
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,
Inc., 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 distributions are generally
distributed semiannually and capital gains distributions are generally
distributed annually. Both 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, 1999, which has no effect on the Fund's net assets, net
investment income or net realized gains.
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. Actual results could differ from these estimates.
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
11
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
The Southeastern Thrift and Bank Fund, Inc.
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 or directors
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 year
ended December 31, 1999, aggregated $12,229,417 and $23,253,983, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended December 31, 1999.
The cost of investments owned at December 31, 1999 (including deposits
in mutual savings banks) for federal income tax purposes was $51,299,873. Gross
unrealized appreciation and depreciation of investments aggregated $32,446,846
and $2,150,560, respectively, resulting in net unrealized appreciation of
$30,296,286.
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.
12
<PAGE>
================================================================================
The Southeastern Thrift and Bank Fund, Inc.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
The Southeastern Thrift and Bank Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Southeastern Thrift and Bank Fund, Inc. (the
"Fund") as of December 31, 1999, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
December 31, 1999 and 1998, and the financial highlights for the each of the
years in the five-year period ended December 31, 1999.These financial statements
and finan-cial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement.An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and signifi-cant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the Fund at
December 31, 1999, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended December 31,
1999.
The Fund has designated distributions to shareholders of $9,261,287 as
a long-term capital gain dividend. This amount was reported on the 1999 U.S.
Treasury Department Form 1099-DIV.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 1999, 100% of the dividends qualify for the corporate
dividends received deduction.
13
<PAGE>
================================================================================
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 seven 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 its 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 (including 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
14
<PAGE>
================================================================================
The Southeastern Thrift and Bank Fund, Inc.
that purpose. At year end, each account will be supplied with detailed
information necessary to determine total tax liability for the calendar year.
All correspondence or additional information concerning the plan should
be directed to the Plan Agent, State Street Bank and Trust Company, P.O. Box
8209, Boston, Massachusetts 02266-8209 (telephone 1-800-426-5523).
YEAR 2000 COMPLIANCE
The Adviser and the Fund's service providers have taken steps to address any
year 2000-related computer problems. However, there is some risk that these
problems could disrupt the issuers in which the Fund invests, the Fund's
operations or financial markets generally.
SHAREHOLDER COMMUNICATION AND ASSISTANCE
If you have any questions concerning The Southeastern Thrift and Bank Fund,
Inc., we will be pleased to assist you. If you hold shares in your own name and
not with a brokerage firm, please address all notices, correspondence, questions
or other communications regarding the Fund to the transfer agent at:
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 426-5523
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
15
<PAGE>
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