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CIRCLE INCOME SHARES, INC.
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LOGO 1999
SEMI-ANNUAL REPORT
SIX MONTHS ENDED
DECEMBER 31, 1999
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CIRCLE INCOME SHARES, INC.
CORPORATE DESCRIPTION
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Circle Income Shares, Inc. ("the Company") is a closed-end investment company
with $31.2 million in net capital as of December 31, 1999. The primary
investment objective of the Company is to provide as high a level of current
income as is consistent with prudent investment risk through investment
principally in debt securities, with capital appreciation as a secondary
investment objective. The Company primarily invests in Corporate and
mortgage-backed fixed income securities including some high yield, high risk
fixed-income securities of domestic and foreign companies. The Company's stock
is traded on the over-the-counter market as a national issue, under the NASDAQ
symbol CINS. Banc One Investment Advisors Corporation is the Company's
investment advisor.
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Report from Management...................................... 1
Schedule of Portfolio Investments........................... 2-4
Statement of Assets and Liabilities......................... 5
Statement of Operations..................................... 6
Statements of Changes in Net Assets......................... 7
Notes to Financial Statements............................... 8-9
Financial Highlights........................................ 10
Dividend Reinvestment Plan.................................. 11-13
Board of Directors.......................................... 14
Officers.................................................... 14
</TABLE>
The Company's 1999 Annual Meeting of Shareholders was held on November 19, 1999.
The Directors listed below were all duly elected at that meeting at which, of
the 2,803,476 shares entitled to vote, 2,214,683 shares were represented. The
following votes were recorded in the affirmative for the Directors:
<TABLE>
<S> <C> <C> <C> <C>
Ford 2,205,838 Glor 2,202,554
Greer 2,202,588 Hazelbaker 2,202,588
Keckley 2,202,979
</TABLE>
2,187,796 shares were voted in favor of the appointment of Arthur Anderson LLP,
as the Company's Auditors: 8,280 shares were voted against the proposal and
18,608 shares abstained.
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0
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CIRCLE INCOME SHARES, INC.
REPORT FROM MANAGEMENT
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This Semi-Annual Report reviews the six-month period ended December 31,
1999, and represents the first six months of your Company's 2000 fiscal year.
Net investment income during this period was $1,098,520 or $0.39 per share
compared to net investment income of $1,109,640 or $0.40 per share earned during
the comparable period in fiscal 1999. The net asset value was $11.13 per share
on December 31, 1999 compared with $11.99 a year ago, and $11.44 per share at
the beginning of the fiscal year on June 30, 1999.
The year 1999 was one of recovery for foreign economies and continued strong
growth domestically. Developed economies uniformly experienced higher interest
rates. The Federal Reserve increased short-term rates three times during the
year in response to continued expectations of strong domestic economic growth
and fears of increasing price inflation. United States Treasury yields rose
steadily during the year. At the beginning of 1999, five-year maturity
Treasuries yielded 4.54%, at midyear the yield was 5.83%, and at year-end it
stood at 6.34%. Continued strong growth in the economy and a sunny outlook
fueled optimism and gave assurance to investors enabling risk premiums for
non-government bond sectors (corporates and mortgage-backed securities) to
decrease. Yield spreads, the interest rate differential between non-government
and government sectors declined, creating positive relative performance to the
Treasury market for high-yield corporate, investment-grade corporate and
mortgage sectors.
Weak Treasury performance caused by rising interest rates created low total
returns for the United States bond market in 1999. The Lehman Aggregate Index, a
market indicator of general bond returns, finished the year with a total return
of -0.82%, the second lowest calendar year return on record. (The lowest
calendar year return for the Lehman Aggregate Index was 1994 with a -2.92% total
return). The Circle Income Portfolio emphasizes higher yielding mortgage-backed
securities, investment-grade, and high-yield corporate bonds. Given that each of
these non-Treasury sectors outperformed the Treasury sector for the year, the
total return of the Circle Income Shares Portfolio surpassed the Lehman
Aggregate Index for the calendar year.
The U.S. economy will undoubtedly achieve record growth longevity with an
unprecedented ninth year of positive growth. Current GDP growth estimates for
the domestic economy during the year 2000 are in the 3.0% to 4.0% range.
Inflation as measured by the Consumer Price Index is expected within the 2.5% to
3.0% band. The employment market continues to be very tight with unemployment
under 4.2% and consumer confidence about current conditions at record levels. In
this positive economic environment, your Company's management remains committed
to fulfilling our primary investment objective of providing a high level of
current income consistent with prudent investment risk.
On the management front, we would like to acknowledge the departure of a
long time Circle Director, E. Lynn Plaster. Lynn has served on the Circle Board
since November 1983 and he has helped guide your Fund through many different and
often challenging market cycles. We have appreciated his contributions and we
wish Lynn the very best in his retirement. His position on the Board will not be
replaced.
<TABLE>
<S> <C>
/s/ Bruce J. Glor /s/ Jeffrey W. Fountain
Bruce J. Glor Jeffrey W. Fountain
President Executive Vice President & Chief Investment Officer
</TABLE>
January 13, 2000
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1
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CIRCLE INCOME SHARES, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (NOTE 1)
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DECEMBER 31, 1999 (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM OBLIGATIONS (0.80%)*
$ 249.9 American Express Corporation 5.35% Commercial Paper, due
01/03/00.................................................. $ 249.9
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TOTAL SHORT-TERM OBLIGATIONS (COST $249.9).................. 249.9
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U.S. GOVERNMENT INSTRUMENTALITY OBLIGATIONS (24.63%)*
Government National Mortgage Association, Single Family:
11.8 13.00%, due 1/15/15, Pool # 121789.......................... 13.4
78.5 9.00%, due 9/15/16, Pool # 179836........................... 82.8
48.9 9.00%, due 10/15/16, Pool # 170831.......................... 51.5
6.2 9.00%, due 6/15/18, Pool # 234162........................... 6.5
62.2 9.00%, due 7/15/18, Pool # 216264........................... 65.6
16.1 9.00%, due 11/15/19, Pool # 275501.......................... 16.9
137.2 9.00%, due 3/15/20, Pool # 160559........................... 144.3
51.1 10.00%, due 11/15/20, Pool # 299559......................... 55.2
5.9 10.00%, due 11/15/20, Pool # 299818......................... 6.3
89.4 9.00%, due 7/15/21, Pool # 313183........................... 93.9
17.4 9.00%, due 11/15/21, Pool # 218409.......................... 18.3
472.0 9.00%, due 1/15/22, Pool # 316247........................... 494.8
689.7 9.00%, due 1/15/25, Pool # 369632........................... 722.5
364.6 8.50%, due 11/15/25, Pool # 405529.......................... 375.3
746.6 7.00%, due 12/15/26, Pool # 780481.......................... 723.8
705.2 7.00%, due 2/15/28, Pool # 408006........................... 680.9
780.1 7.00%, due 4/15/28, Pool # 360750........................... 753.3
997.8 7.50%, due 9/15/29, Pool # 511482........................... 986.5
288.9 8.00%, Series 2, due 9/25/26, Pool # 2285................... 291.0
283.4 8.00%, Series 2, due 2/20/27, Pool # 2379................... 285.2
728.9 6.50%, Series 2, due 2/20/29, Pool # 2714................... 682.7
Federal Home Loan Mortgage Corporation:
4.5 10.00%, due 9/1/01, Pool # 213106........................... 4.6
67.1 8.50%, due 1/1/08, Gold Pool # G10164....................... 68.7
93.9 10.25%, due 6/1/09, Pool # 160081........................... 98.4
9.5 14.75%, due 3/1/10, Pool # 170027........................... 10.8
6.1 14.50%, due 12/1/10, Pool # 170040.......................... 6.9
9.8 13.50%, due 1/1/11, Pool # 170042........................... 11.0
15.7 15.00%, due 3/1/11, Pool # 170045........................... 18.0
2.1 14.50%, due 3/1/11, Pool # 170046........................... 2.4
25.2 14.50%, due 12/1/11, Pool # 181072.......................... 29.0
0.5 13.50%, due 10/1/12, Pool # 183150.......................... 0.6
27.5 12.50%, due 1/1/14, Pool # 304168........................... 30.1
4.2 13.00%, due 6/1/14, Pool # 170096........................... 4.7
499.6 7.50%, due 11/1/29, Gold Pool # C32536...................... 495.0
</TABLE>
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2
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CIRCLE INCOME SHARES, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (NOTE 1) (CONTINUED)
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DECEMBER 31, 1999 (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT INSTRUMENTALITY OBLIGATIONS (CONTINUED):
Federal National Mortgage Association:
$ 17.7 10.00%, due 10/1/01, Pool # 34458........................... $ 18.0
60.7 9.00%, due 3/1/17, Pool # 177563............................ 63.0
91.5 10.00%, due 12/1/18, Pool # 68374........................... 98.0
44.0 9.00%, due 1/1/19, Pool # 70318............................. 46.0
122.8 9.00%, due 3/1/25, Pool # 250228............................ 127.7
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TOTAL U.S. GOVERNMENT INSTRUMENTALITY OBLIGATIONS (COST
$7,810.0)................................................. 7,683.6
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CORPORATE BONDS (73.18%)*
Financial (12.96%):
750.0 Enterprise Rental Car USA Finance Company, 6.95% 144A Notes,
due 3/1/04................................................ 725.1
1,000.0 First Interstate (Wells Fargo), 9.125% Subordinated Notes,
due 2/1/04................................................ 1,052.4
1,000.0 General Motors Acceptance Corporation, 8.50% Notes, due
1/1/03.................................................... 1,027.5
500.0 Goldman Sachs Company, 6.75% 144A Notes, due 2/15/06........ 477.7
750.0 Sumitomo Bank International Finance, 8.50% Notes, due
6/15/09................................................... 760.2
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Total Financial............................................. 4,042.9
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Healthcare (2.29%):
750.0 Tenet Healthcare, 8.625% Senior Subordinated Notes, due
1/15/07................................................... 713.4
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Total Healthcare............................................ 713.4
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Housing (2.33%):
750.0 Ryland Group, 9.625% Senior Subordinated Notes, due
6/1/04.................................................... 727.5
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Total Housing............................................... 727.5
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Industrial (7.12%):
750.0 Ball Corporation, 7.75% Senior Notes, due 8/01/06........... 731.2
1,000.0 Ford Motor Company, 9% Debentures, due 9/15/01.............. 1,033.8
500.0 Owens Illinois Company, 7.35% Senior Notes, due 5/15/08..... 456.5
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Total Industrial............................................ 2,221.5
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Lumber (3.41%):
1,000.0 Georgia Pacific, 9.50% Debentures, due 5/15/22.............. 1,064.1
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Total Lumber................................................ 1,064.1
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Real Estate (3.56%):
750.0 Equity Office Properties Operating LP, 7.25% Senior Notes,
due 2/15/18............................................... 660.0
500.0 Simon DeBartolo Group LP, 7% Notes, due 7/15/09............. 450.5
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Total Real Estate........................................... 1,110.5
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</TABLE>
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3
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CIRCLE INCOME SHARES, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (NOTE 1) (CONTINUED)
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DECEMBER 31, 1999 (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Retail (4.01%):
$ 750.0 Federated Department Stores, 8.125% Senior Notes, due
10/15/02.................................................. $ 765.0
500.0 Fred Meyer Stores Inc., 7.45% Senior Notes, due 3/01/08..... 486.9
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Total Retail................................................ 1,251.9
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Telecommunication and Entertainment (20.17%):
750.0 CSC Holdings, Inc. 8.125% Senior Notes, due 7/15/09......... 759.4
800.0 News America Holdings, 7.75% Senior Debentures, due
1/20/24................................................... 754.9
1,000.0 Sprint Corporation, 9.50% Debentures, due 4/1/03............ 1,063.2
1,000.0 Tele-Communications, Inc., 9.80% Senior Debentures, due
2/1/12.................................................... 1,168.3
1,000.0 Time Warner Entertainment, 8.875% Senior Notes, due
10/1/12................................................... 1,078.1
750.0 Westinghouse Electric, 8.625% Debentures, due 8/1/12........ 784.3
750.0 WorldCom, Inc., 6.95% Senior Notes, due 8/15/28............. 681.0
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Total Telecommunications and Entertainment.................. 6,289.2
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Technology (2.43%):
750.0 Applied Materials, Inc., 8% Senior Notes, due 9/1/04........ 756.0
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Total Technology............................................ 756.0
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Transportation (12.56%):
992.0 American Airlines, Inc., 10.18% Pass-Through Certificates,
Series 1991-A2, due 1/2/13................................ 1,094.0
642.0 Delta Airlines, 10% Equipment Trust Certificates, Series
1991-K, due 12/5/14, 144A................................. 697.1
1,000.0 Federal Express, 9.65% Notes, due 6/15/12................... 1,099.1
1,000.0 United Airlines, 9.125% Debentures, due 1/15/12............. 1,028.1
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Total Transportation........................................ 3,918.3
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Utilities (2.34%):
750.0 Calenergy Company, Inc., 7.23% Senior Notes, due 9/15/05.... 730.8
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Total Utilities............................................. 730.8
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TOTAL CORPORATE BONDS (COST $22,562.8)...................... 22,826.1
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TOTAL INVESTMENTS AT MARKET VALUE (COST $30,622.7).......... $ 30,759.6
===========
</TABLE>
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* Percentages indicated are based on net assets of $31,192.3
The accompanying notes to financial statements are an integral part of this
schedule.
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4
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CIRCLE INCOME SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
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AS OF DECEMBER 31, 1999 (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999
ASSETS: ----
<S> <C>
Investments, at market value (identified cost $30,622.7)
(Note 1).................................................... $30,759.6
Receivable from brokers for investments sold................ 1.1
Accrued interest receivable (Note 1)........................ 658.4
Other assets................................................ 4.6
---------
Total Assets................................................ $31,423.7
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LIABILITIES:
Accrued Expenses:
Investment advisory and custody fees...................... 16.9
Transfer and dividend disbursing agent fees............... 11.4
Other expenses............................................ 20.9
Dividend payable (January 7, 2000 -- $0.065 per share)...... 182.2
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Total Liabilities........................................... $ 231.4
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NET ASSETS:
Common Stock ($1.00 par value; 10,000,000 shares authorized;
2,803,476 shares outstanding)............................. $ 2,803.5
Additional paid-in capital.................................. 30,221.0
Accumulated realized loss on investments.................... (1,978.6)
Net unrealized appreciation of investments (Note 2)......... 136.9
Undistributed net investment income......................... 9.5
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Net Assets applicable to outstanding shares................. $31,192.3
=========
Net Asset Value (NAV) per share............................. $ 11.13
=========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
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5
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CIRCLE INCOME SHARES, INC.
STATEMENT OF OPERATIONS
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FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (ALL AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999
INVESTMENT INCOME: ----
<S> <C>
Interest Income........................................... $ 1,256.0
---------
Expenses:
Investment advisory fee (Note 3).......................... 82.1
Transfer and dividend disbursing agent fee................ 13.6
Directors' fees and expenses.............................. 11.3
Audit fees................................................ 8.9
Mailing expenses.......................................... 7.5
Custodian fee and expenses................................ 8.8
Printing.................................................. 7.7
Legal fees................................................ 7.4
Miscellaneous............................................. 10.3
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Total Expenses.............................................. 157.5
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Net Investment Income....................................... 1,098.5
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions.............. 13.8
Net unrealized depreciation on investments.................. (894.7)
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Net realized gain and unrealized loss on investments........ (880.9)
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Net increase in Net Assets resulting from operations........ $ 217.6
=========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
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6
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CIRCLE INCOME SHARES, INC.
STATEMENTS OF CHANGES IN NET ASSETS
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(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six months Year
ended ended
December 31, June 30,
1999 1999
FROM INVESTMENT ACTIVITIES ---- ----
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 1,098.5 $ 2,208.4
Net realized gain (loss) from investment transactions..... 13.8 (53.0)
Net unrealized depreciation of investments................ (894.7) (1,435.1)
--------- ---------
Net increase in Net Assets resulting from operations........ 217.6 720.3
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends to shareholders from net investment income...... (1,093.4) (2,186.8)
--------- ---------
Net decrease in Net Assets from distributions to
shareholders.............................................. (1,093.4) (2,186.8)
--------- ---------
Net decrease in Net Assets.................................. (875.8) (1,466.5)
--------- ---------
NET ASSETS:
Beginning of Period......................................... 32,068.1 33,534.6
--------- ---------
End of Period............................................... $31,192.3 $32,068.1
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
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7
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CIRCLE INCOME SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
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FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Circle Income Shares, Inc. ("the Company") is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end management
company. The Company's primary investment objective is to seek as high a level
of current income as is consistent with prudent investment risk from a
diversified portfolio principally of debt securities, with capital appreciation
being a secondary investment objective. The Company primarily invests in
Corporate and mortgage-backed fixed income securities, including some high
yield, high risk fixed-income securities. The following is a summary of
significant accounting policies consistently followed by the Company in the
preparation of its financial statements.
SECURITIES VALUATION
Investments in securities traded on a national securities exchange are valued at
the closing price on the last business day of the period; securities traded in
the over-the-counter market and listed securities for which no sale was reported
on that date are valued at the last reported bid price; short-term notes are
stated at cost which approximates market value. Restricted securities and other
securities for which market quotations are not readily available are valued at
fair value as determined under procedures established by the Board of Directors.
INCOME TAXES
It is the Company's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its net investment income to the shareholders. Therefore,
no provision for Federal income taxes is required.
SECURITIES TRANSACTIONS, RELATED INVESTMENT INCOME AND DISTRIBUTIONS
Securities transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains and losses are determined on the basis
of identified cost. Interest income is recorded on a daily basis and dividend
income is recorded on the ex-dividend date. Distributions to shareholders are
recorded on ex-dividend date.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
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8
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CIRCLE INCOME SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (ALL AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for mortgage-backed securities, expiring capital loss
carryforwards, and deferrals of certain losses. Permanent book and tax basis
differences have been reclassified among the components of net assets.
NOTE 2 -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities other than United States government
obligations and short-term notes aggregated $750.0 and $1,500.0, respectively.
The identified cost of investments at December 31, 1999 was $30,622.7 Cost for
Federal tax purposes differs from value at December 31, 1999 by the net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized Appreciation $ 909.1
Unrealized Depreciation (772.2)
-------
NET UNREALIZED APPRECIATION $ 136.9
=======
</TABLE>
NOTE 3 -- INVESTMENT ADVISORY FEE
For the six months ended December 31, 1999, the Company paid fees of $82.1, or
0.50% of average net assets for investment management services to Banc One
Investment Advisors Corporation (the advisor). This fee is based on weekly net
assets at the annual rate of one-half of one percent on the first $50 million
and four-tenths of one percent on the excess over $50 million.
The advisory fee is subject to reduction in any year in which annual expenses
(including the advisory fee, but excluding interest, taxes, brokerage fees,
expenses of any future public offerings of the Company's shares and, where
permitted, extraordinary expenses) exceed one and one-half percent of the
average weekly net assets of the Company during the year to date. In addition,
the advisor pays certain expenses in connection with the Dividend Reinvestment
Plan of the Company. No other fees were received by the advisor from the
Company.
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9
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CIRCLE INCOME SHARES, INC.
FINANCIAL HIGHLIGHTS
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SELECTED PER SHARE DATA OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------------------------------------------
1999 1999 1998 1997 1996 1995
------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year............................. $ 11.44 $ 11.96 $ 11.82 $ 11.60 $ 11.84 $ 11.35
--------- --------- --------- --------- --------- ---------
Net investment income.............. 0.39 0.79 0.83 0.88 0.90 0.89
Net realized and unrealized gain
(loss) on investments............ (0.31) (0.53) 0.15 0.21 (0.24) 0.50
--------- --------- --------- --------- --------- ---------
Net increase in net asset value
resulting from operations........ 0.08 0.26 0.98 1.09 0.66 1.39
--------- --------- --------- --------- --------- ---------
Dividends to shareholders from net
investment income................ (0.39) (0.78) (0.84) (0.87) (0.90) (0.90)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 11.13 $ 11.44 $ 11.96 $ 11.82 $ 11.60 $ 11.84
========= ========= ========= ========= ========= =========
Market value per share, end of
year............................. $ 9.063 $ 10.375 $ 11.375 $ 10.688 $ 10.500 $ 10.250
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(1)
Based on market value per share.... (9.15)%** (2.12)% 14.60% 9.56% 11.15% (4.99)%
Based on net asset value per
share............................ 0.68%** 2.15% 8.38% 9.69% 5.62% 11.45%
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................... 1.00%* 0.90% 0.90% 0.89% 0.89% 0.93%
Net investment income.............. 7.00%* 6.65% 6.97% 7.53% 8.05% 7.97%
SUPPLEMENTAL DATA:
Net assets at end of period
($000)........................... $31,192.3 $32,068.1 $33,534.6 $33,061.0 $32,451.7 $33,114.5
Portfolio turnover rate............ 2.44% 13.52% 27.63% 8.52% 17.75% 34.73%
Number of shares outstanding at end
of period (000).................. 2,803.5 2,803.5 2,803.5 2,797.4 2,797.4 2,797.4
</TABLE>
* Annualized
** Not Annualized
The accompanying notes to financial statements are an integral part of this
schedule.
- ---------------
(1) Total investment return is a hypothetical rate of return to the shareholder
which assumes that an initial investment is made at the appropriate rate
(market value or net asset value) calculated on the last business day before
the first day of each fiscal year. All related dividends during the year are
reinvested at the appropriate rate (market value or net asset value), and
the entire investment is liquidated at the appropriate price last calculated
on the last business day of each fiscal year. The total return is calculated
by dividing the ending value of the investment by the beginning value of the
investment. Total investment return excludes the effects of any commissions.
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10
<PAGE> 13
DESCRIPTION OF THE DIVIDEND REINVESTMENT PLAN (UNAUDITED)
- --------------------------------------------------------------------------------
For shareholders who elect to participate in the Plan, all dividends,
including any distributions of capital gain, are automatically invested in
additional shares of the Common Stock of the Company. The Plan does not include
a provision for the investment of additional cash contributions by participants.
An independent broker acts as the Dividend Reinvestment Plan Agent (the
"Plan Agent") for all shareholders who elect to participate in the Plan. Harris
Trust and Savings Bank acts as the Accounting Agent (the "Accounting Agent") and
keeps the books and records for all shareholders who elect to participate in the
Plan. All inquiries regarding the Plan should be sent to the Accounting Agent at
the following address:
Harris Trust and Savings Bank
Shareholder Services Division
Attn: Circle Income Shares, Inc. Dividend Reinvestment Plan
311 West Monroe, 14th Floor
Chicago, Illinois 60606
Each registered shareholder is assigned an account number. This account
number should be used in all correspondence with either Agent.
Dividends are reinvested by the Plan Agent by either (a) directing the
Company to pay the dividend in cash and using the cash to buy shares in the open
market, or (b) directing the Company to pay the dividend in new shares issued at
net asset value. To determine which method is used, the Plan Agent compares the
net asset value per share to the market price per share of the Company's common
stock at the close of business five trading days before the dividend payment
date. For purposes of this comparison, the Plan Agent uses the closing price
plus estimated brokerage commissions, as the market price per share.
If the net asset value is lower than the market price, the Plan Agent
elects, on behalf of all participating shareholders, to take the dividend in
stock and additional shares are issued by the Company and credited to the
participant's account at net asset value.
If the market price is lower than the net asset value, the Plan Agent
elects, on the participating shareholder's behalf, to take the dividend in cash.
The Plan Agent will aggregate the dividends of all participants and apply the
dividends to the purchase of the Company's stock in the open market. The cost of
the stock credited to each participating shareholder's account, if this method
is used, will include the participant's proportion of any brokerage commissions
and transfer taxes which the Plan Agent pays to purchase the shares in the open
market. The Accounting Agent computes the average price of all shares purchased
(including any brokerage commission and transfer taxes), and credits shares to
each participating shareholder's account on the basis of this average price.
Shares purchased by the Plan Agent in the open market are acquired consistent
with a policy of best price and execution.
Regardless of the method used by the Plan Agent to reinvest dividends, once
a shareholder elects to participate in the Plan, the shares credited to the
shareholder's "open account" will earn dividends, and the "open account" will
also be automatically reinvested. Since dividends will seldom, if ever, be in an
amount sufficient to acquire an exact number of full shares, a participating
shareholder's reinvestment
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will normally include a fractional share (computed to three decimal places).
These fractional shares will also earn proportional dividends as full shares do.
After each dividend payment, all participating shareholders will receive
current statements of their accounts. These statements include information for
personal and tax records, and should be permanently retained.
There are no fees or other direct charges, except as noted in the above, to
participate in the Plan. Certain costs of providing the Plan are paid by the
Company's Investment Advisor, except for costs of registration under applicable
securities laws, if it is determined at a later date that registration is
necessary. The Plan may be amended to provide for direct charge in the future.
To begin participation in the Plan, a shareholder must sign and return, to
the Accounting Agent at the address given above, an authorization card which
appoints the Plan Agent as the shareholder's Agent for participation. An
authorization card may be obtained from the Accounting Agent at the address
given above or by calling the Accounting Agent at (312) 461-7763. Participation
will begin with the next dividend payable after the Accounting Agent actually
receives the authorization card, provided that the authorization card is
received 15 days prior to the record date for that dividend. Otherwise, the
shareholder will receive the dividend in the usual manner, and participation
will begin with the next following dividend. Historically, record dates have
normally preceded payment dates by approximately two weeks.
Once a shareholder begins participation in the Plan, dividends are
automatically reinvested until participation is terminated. Additional shares
which are subsequently registered in a shareholder's identical name, address and
account will also participate in the Plan.
The Accounting Agent maintains an "open account" for each participant in
the Plan and credits shares acquired through the Plan to it. Certificates are
not issued for shareholders whose shares are held in an "open account." A
shareholder may withdraw at any time some or all of the full shares held in the
"open account" by sending a written request to the Accounting Agent at the
address given above. Requesting a certificate for any or all of the full shares
does not terminate participation in the Plan. Certificates for fractional shares
will not be issued.
A shareholder's stock certificates may be surrendered to the Accounting
Agent and shares will be credited to the shareholder's "open account" and held
by the Accounting Agent in uncertified form.
A shareholder may terminate participation in the Plan at any time and
receive future dividends in cash by sending a written notice to the Accounting
Agent. Participation will end and the shareholder will receive future dividends
in cash, provided that the Accounting Agent receives the notice 15 days prior to
the record date for that dividend. Otherwise, that dividend will be reinvested
and cash payments will begin the next following dividend.
When a shareholder terminates participation in the Plan, the shareholder's
"open account" will contain a fractional share balance, and, if the shareholder
has been a participant for a sufficient amount of time, will probably contain a
full share balance. At the time participation in the Plan is terminated, the
Accounting Agent will withdraw the full shares then credited to the
shareholder's "open account." This value will be based on the closing price of
the Company's stock in the open market on the effective
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12
<PAGE> 15
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date of the termination of participation. Any fractional shares will be redeemed
in cash. There is no penalty or charge for withdrawal from the Plan. A
shareholder may rejoin the Plan at any time.
The Plan may be amended or terminated at any time only if notice of the
amendment or termination has been sent to participants of the Plan. A notice
would be sent to participants at least thirty days before the record date of the
first dividend affected by the amendment or termination.
The taxability of a shareholder's dividends for Federal income tax purposes
is controlled by Federal tax law and not by the Plan. However, dividends
reinvested through the Plan continue to be taxable for Federal income tax
purposes.
If the Plan Agent reinvests a shareholder's dividend by purchasing shares
in the open market, the dividend is taxable just as if the shareholder received
it in cash. If the Plan Agent reinvests the dividend by taking stock issued by
the Company at net asset value, then, for Federal income tax purposes, the
dividend is considered to be the greater of the net asset value reinvestment
price or the fair market value (the closing price in the open market) on the
payment date; therefore, a participating shareholder's taxable dividend may be
greater than if the shareholder received the dividend in cash.
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<PAGE> 16
CIRCLE INCOME SHARES, INC.
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DIRECTORS
DR. FREDERICK R. FORD, Executive Vice President and Treasurer Emeritus
Purdue University
BRUCE J. GLOR, Executive Vice President
Bank One, Indiana, NA
CHARLES E. GREER, Esquire
STEVEN R. HAZELBAKER, Vice President, CFO and Treasurer
Meridian Mutual Insurance Company
JAMES D. KECKLEY, Retired Executive Vice President
Bank One, Indiana, NA
OFFICERS
BRUCE J. GLOR, President
JEFFREY W. FOUNTAIN, CFA, Executive Vice President and Chief Investment Officer
TIMOTHY P. HOLIHEN, CFA, Vice President
THOMAS F. WILSON, Ph.D., Vice President
ROBERT L. YOUNG, Treasurer
JACQUELINE A. WEITZ, Secretary
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INVESTMENT ADVISOR
Banc One Investment Advisors Corporation
1111 Polaris Parkway, OH1-0211
P.O. Box 710211
Columbus, OH 43271-0211
CUSTODIAN
Bank One Trust Company, NA
100 East Broad Street, OH1-0193
Columbus, OH 43271-0193
TRANSFER & DIVIDEND
DISBURSING AGENT
Harris Trust and Savings Bank
Shareholder Services Division
311 West Monroe Street, 14th Floor
Chicago, IL 60606
SHAREHOLDER INQUIRIES
Harris Trust and Savings Bank
Shareholder Services Division
311 West Monroe Street, 14th Floor
Chicago, IL 60606
Telephone (312) 461-7763
AUDITORS
ARTHUR ANDERSEN LLP
Huntington Center, Suite 2100
41 South High Street
Columbus, OH 43215-6150
COMPANY ADDRESS
P.O. Box 77004
Indianapolis, IN 46277-7004
Telephone (317) 321-8180
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