<PAGE> 1
--------------------------------------------------------------------------------
CIRCLE INCOME SHARES, INC.
--------------------------------------------------------------------------------
LOGO 2000
ANNUAL REPORT
FISCAL YEAR ENDED
JUNE 30, 2000
<PAGE> 2
CIRCLE INCOME SHARES, INC.
CORPORATE DESCRIPTION
--------------------------------------------------------------------------------
Circle Income Shares, Inc. ("the Company") is a closed-end investment company
with $30.7 million in net capital as of June 30, 2000. 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
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Report from Management...................................... 1
Five-Year Summary of Distributions.......................... 2
Projected Dividend Dates.................................... 2
Federal Tax Status.......................................... 2
Schedule of Portfolio Investments........................... 3-5
Statement of Assets and Liabilities......................... 6
Statement of Operations..................................... 7
Statements of Changes in Net Assets......................... 8
Notes to Financial Statements............................... 9-10
Financial Highlights........................................ 11
Report of Independent Public Accountants.................... 12
Dividend Reinvestment Plan.................................. 13-15
Directors................................................... 16
Officers.................................................... 16
</TABLE>
--------------------------------------------------------------------------------
0
<PAGE> 3
CIRCLE INCOME SHARES, INC.
REPORT FROM MANAGEMENT
--------------------------------------------------------------------------------
This Annual Report reviews Circle Income Shares' results for the fiscal year
ended June 30, 2000. Net investment income for the latest fiscal year,
$2,204,683 or $0.79 per share was nearly equal to the 1999 fiscal year's net
investment income of $2,208,420 or $0.79 per share. Higher interest rates at the
close of the fiscal year, however, generated a lower per share net asset value
of $10.95, a decrease from $11.44 per share from the prior fiscal year-end.
Total net assets at fiscal year-end were $30,703,875.
Dividends during the 2000 fiscal period were paid at the monthly rate of
$0.065. Total annual distributions per share for the fiscal year were $0.78. It
has been your Company's practice to make dividend payments on the first Friday
of each month to shareholders of record two weeks prior to payment date. A table
showing projected dividend record and payment dates for the 2001 fiscal year is
included on page two of the Report.
During the first half of the fiscal year, interest rates generally moved
higher. The ten-year maturity United States Treasury yield began the fiscal year
at 5.79% and increased 100 basis points to reach a fiscal year high in January
2000 of 6.79%. Ten-year Treasury yields declined during the first calendar
quarter 2000, reaching a second-half fiscal year low of 5.77% in early April.
During the final quarter of the fiscal year, yields soared to 6.56% and then
dropped to approximately 6.00% at June 30th fiscal year-end.
Strong economic growth and the fear of higher inflation drove interest rates
upward during the last six months of the year 1999. Real GDP growth rocketed
from a 1999 2nd quarter 1.9% to 5.7% and 7.3% in the 3rd and 4th quarters,
respectively. The Federal Reserve began raising short-term interest rates in an
effort to slow a racing economy. The first rate increase came on June 30th,
1999. The Federal Reserve has increased the federal funds rate a total of six
times during the last twelve months. The federal funds rate presently stands at
6.5%, up from 4.75% a year ago. Increased productivity has enabled the economy
to grow rapidly without dramatically increasing price inflation. Prices, as
measured by the Consumer Price Index, are expected to rise approximately 3.2%
during the year 2000, an increase over the low 2.7% rate for the year 1999.
Unemployment levels hit 30-year lows with the vigorous economic growth and the
increased demand for labor. Consumer confidence has remained ebullient as
evidenced by strong consumer spending levels.
The Federal Reserve's goal of slower economic growth increased fear in the
credit sectors. Investors, worried about increased default rates in a slowing
economy, demanded higher yields in corporate sectors. Both investment grade and
high-yield corporate sectors, along with mortgage-backed securities,
underperformed Treasuries during the past twelve months. The Circle Income
Portfolio, consisting of these three sectors for the realization of higher
yields relative to Treasuries, experienced less total return than the Lehman
Aggregate Index during the latest twelve month period.
We expect the Federal Reserve to continue to increase short-term interest
rates until the economy has slowed to a sustainable, less inflationary, 3%
growth rate. Treasury bond yields will likely continue to rise in this
environment. Economic growth will remain positive with a moderating rate of
price inflation. There is little expectation for a recession in the near future.
Your Company's portfolio will continue to be invested in the higher yielding
mortgage-backed, investment grade corporate and high-yield corporate sectors,
thus seeking to provide a high level of current income consistent with the
prudent management of investment risk.
<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>
July 6, 2000
--------------------------------------------------------------------------------
1
<PAGE> 4
CIRCLE INCOME SHARES, INC.
FIVE-YEAR SUMMARY OF DISTRIBUTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 PER SHARE DISTRIBUTIONS
------------------ -----------------------
<S> <C>
2000 .780
1999 .780
1998 .840
1997 .870
1996 .895
</TABLE>
PROJECTED DIVIDEND DATES-FISCAL 2001
--------------------------------------------------------------------------------
Listed below are the expected dividend distribution dates for the next twelve
months. These dates are subject to change by the Board of Directors.
<TABLE>
<CAPTION>
RECORD DATE PAYMENT DATE RECORD DATE PAYMENT DATE
----------- ------------ ----------- ------------
<S> <C> <C> <C>
July 21, 2000 August 4, 2000 January 19, 2001 February 2, 2001
August 18, 2000 September 1, 2000 February 16, 2001 March 2, 2001
September 22, 2000 October 6, 2000 March 23, 2001 April 6, 2001
October 20, 2000 November 3, 2000 April 20, 2001 May 4, 2001
November 17, 2000 December 1, 2000 May 18, 2001 June 1, 2001
December 22, 2000 January 5, 2001 June 22, 2001 July 6, 2001
</TABLE>
FEDERAL TAX STATUS
--------------------------------------------------------------------------------
Of the distributions made to corporations during the fiscal year ended June 30,
2000, no portion qualifies for the dividends received deduction under Internal
Revenue Code Section 243. Detailed information on the taxability of dividends is
mailed to shareholders annually.
--------------------------------------------------------------------------------
2
<PAGE> 5
CIRCLE INCOME SHARES, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (NOTE 1)
--------------------------------------------------------------------------------
JUNE 30, 2000 (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM OBLIGATIONS ( 1.29%)*
$ 396.8 Ford Motor Credit Corporation, 6.72% Commercial Paper, due
7/03/00................................................... $ 396.8
-----------
TOTAL SHORT-TERM OBLIGATIONS (COST $396.8).................. 396.8
-----------
U.S. GOVERNMENT INSTRUMENTALITY OBLIGATIONS (24.59%)*
Government National Mortgage Association, Single Family:
11.6 13.00%, due 1/15/15, Pool # 121789.......................... 13.2
77.0 9.00%, due 9/15/16, Pool # 179836........................... 80.5
48.2 9.00%, due 10/15/16, Pool # 170831.......................... 50.4
3.1 9.00%, due 6/15/18, Pool # 234162........................... 3.2
61.6 9.00%, due 7/15/18, Pool # 216264........................... 64.0
15.9 9.00%, due 11/15/19, Pool # 275501.......................... 16.6
136.0 9.00%, due 3/15/20, Pool # 160559........................... 141.2
50.7 10.00%, due 11/15/20, Pool # 299559......................... 53.8
5.8 10.00%, due 11/15/20, Pool # 299818......................... 6.2
70.7 9.00%, due 7/15/21, Pool # 313183........................... 73.4
17.3 9.00%, due 11/15/21, Pool # 218409.......................... 18.0
396.0 9.00%, due 1/15/22, Pool # 316247........................... 411.4
587.3 9.00%, due 1/15/25, Pool # 369632........................... 606.7
297.6 8.50%, due 11/15/25, Pool # 405529.......................... 304.8
704.9 7.00%, due 12/15/26, Pool # 780481.......................... 686.2
670.6 7.00%, due 2/15/28, Pool # 408006........................... 651.9
682.0 7.00%, due 4/15/28, Pool # 360750........................... 663.1
965.2 7.50%, due 9/15/29, Pool # 511482........................... 958.2
263.2 8.00%, Series 2, due 9/25/26, Pool #2285.................... 264.9
253.4 8.00%, Series 2, due 2/20/27, Pool #2379.................... 255.0
703.3 6.50%, Series 2, due 2/20/29, Pool #2714.................... 663.8
Federal Home Loan Mortgage Corporation:
1.5 10.00%, due 9/1/01, Pool # 213106........................... 1.6
57.6 8.50%, due 1/1/08, Gold Pool # G10164....................... 58.7
88.0 10.25%, due 6/1/09, Pool # 160081........................... 91.5
8.3 14.75%, due 3/1/10, Pool # 170027........................... 9.4
5.1 14.50%, due 12/1/10, Pool # 170040.......................... 5.9
8.7 13.50%, due 1/1/11, Pool # 170042........................... 9.7
14.5 15.00%, due 3/1/11, Pool # 170045........................... 16.7
2.1 14.50%, due 3/1/11, Pool # 170046........................... 2.4
24.5 14.50%, due 12/1/11, Pool # 181072.......................... 28.1
0.5 13.50%, due 10/1/12, Pool # 183150.......................... 0.5
26.3 12.50%, due 1/1/14, Pool # 304168........................... 28.6
4.2 13.00%, due 6/1/14, Pool # 170096........................... 4.7
494.3 7.50%, due 11/1/29, Gold Pool # C32536...................... 487.8
492.2 8.00%, due 3/1/30, Gold Pool # C37157....................... 494.9
</TABLE>
--------------------------------------------------------------------------------
3
<PAGE> 6
CIRCLE INCOME SHARES, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (NOTE 1) (CONTINUED)
--------------------------------------------------------------------------------
JUNE 30, 2000 (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:
$ 12.9 10.00%, due 10/1/01, Pool # 34458........................... $ 13.1
56.3 9.00%, due 3/1/17, Pool # 177563............................ 57.8
90.6 10.00%, due 12/1/18, Pool # 68374........................... 95.8
41.0 9.00% , due 1/1/19, Pool # 70318............................ 42.2
109.7 9.00%, due 3/1/25, Pool #250228............................. 112.9
-----------
TOTAL U.S. GOVERNMENT INSTRUMENTALITY OBLIGATIONS (COST
$7,673.5)................................................. 7,548.8
-----------
CORPORATE BONDS (72.71%)*
Financial (13.10%):
750.0 Enterprise Rental Car USA Finance Company, 6.95% 144A Notes,
due 3/1/04 (a)............................................ 716.7
1,000.0 First Interstate (Wells Fargo), 9.125% Subordinated Notes,
due 2/1/04................................................ 1,052.1
1,000.0 General Motors Acceptance Corporation, 8.50% Notes, due
1/1/03.................................................... 1,016.2
500.0 Goldman Sachs Company, 6.75% 144A Notes, due 2/15/06 (a).... 481.5
750.0 Sumitomo Bank International Finance, 8.50% Notes, due
6/15/09................................................... 755.8
-----------
Total Financial............................................. 4,022.3
-----------
Healthcare (2.33%):
750.0 Tenet Healthcare, 8.625% Senior Subordinated Notes, due
1/15/07................................................... 714.4
-----------
Total Healthcare............................................ 714.4
-----------
Housing (2.29%):
750.0 Ryland Group, 9.625% Senior Subordinated Notes, due
6/1/04.................................................... 703.1
-----------
Total Housing............................................... 703.1
-----------
Industrial (7.03%):
750.0 Ball Corporation, 7.75% Senior Notes, due 8/01/06........... 701.3
1,000.0 Ford Motor Company, 9% Debentures, due 9/15/01.............. 1,016.4
500.0 Owens Illinois Company, 7.35% Senior Notes, due 5/15/08..... 440.8
-----------
Total Industrial............................................ 2,158.5
-----------
Lumber (3.39%):
1,000.0 Georgia Pacific, 9.50% Debentures, due 5/15/22.............. 1,041.9
-----------
Total Lumber................................................ 1,041.9
-----------
Real Estate (3.56%):
750.0 Equity Office Properties Operating LP, 7.25% Senior Notes,
due 2/15/18............................................... 649.7
500.0 Simon DeBartolo Group LP, 7% Notes, due 7/15/09............. 445.4
-----------
Total Real Estate........................................... 1,095.1
-----------
</TABLE>
--------------------------------------------------------------------------------
4
<PAGE> 7
CIRCLE INCOME SHARES, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (NOTE 1) (CONTINUED)
--------------------------------------------------------------------------------
JUNE 30, 2000 (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Retail (4.00%):
$ 750.0 Federated Department Stores, 8.125% Senior Notes, due
10/15/02.................................................. $ 750.0
500.0 Fred Meyer Stores Inc., 7.45% Senior Notes, due 3/01/08..... 476.9
-----------
Total Retail................................................ 1,226.9
-----------
Telecommunications and Entertainment (19.87%):
750.0 CSC Holdings, Inc., 8.125% Senior Notes, due 7/15/09........ 723.8
800.0 News America Holdings, 7.75% Senior Debentures, due
1/20/24................................................... 724.2
1,000.0 Sprint Corporation, 9.50% Debentures, due 4/1/03............ 1,041.1
1,000.0 Tele-Communications, Inc., 9.80% Senior Debentures, due
2/1/12.................................................... 1,136.1
1,000.0 Time Warner Entertainment, 8.875% Senior Notes, due
10/1/12................................................... 1,045.4
750.0 Westinghouse Electric, 8.625% Debentures, due 8/1/12........ 769.7
750.0 WorldCom, Inc., 6.95% Senior Notes, due 8/15/28............. 660.7
-----------
Total Telecommunications and Entertainment.................. 6,101.0
-----------
Technology (2.47%):
750.0 Applied Materials, Inc., 8% Senior Notes, due 9/1/04........ 759.7
-----------
Total Technology............................................ 759.7
-----------
Transportation (12.29%):
992.0 American Airlines, Inc., 10.18% Pass-Through Certificates,
Series 1991-A2, due 1/2/13................................ 1,095.9
642.0 Delta Airlines, 10% Equipment Trust Certificates, Series
1991-K, due 12/5/14, 144A (a)............................. 642.5
1,000.0 Federal Express, 9.65% Notes, due 6/15/12................... 1,079.4
1,000.0 United Airlines, 9.125% Debentures, due 1/15/12............. 955.9
-----------
Total Transportation........................................ 3,773.7
-----------
Utilities (2.38%):
750.0 Calenergy Company, Inc., 7.23% Senior Notes, due 9/15/05.... 729.3
-----------
Total Utilities............................................. 729.3
-----------
TOTAL CORPORATE BONDS (COST $22,563.0)...................... 22,325.9
-----------
TOTAL INVESTMENTS AT MARKET VALUE (COST $30,633.3).......... $ 30,271.5
===========
</TABLE>
------------------
* Percentages indicated are based on net assets of $30,703.9
(a) Securities exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
The accompanying notes to financial statements are an integral part of this
schedule.
--------------------------------------------------------------------------------
5
<PAGE> 8
CIRCLE INCOME SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
AS OF JUNE 30, 2000 (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at market value (identified cost $30,633.3)
(Note 1).................................................. $30,271.5
Receivable from brokers for investments sold................ 1.6
Accrued interest receivable (Note 1)........................ 657.1
Other assets................................................ 10.2
---------
Total Assets................................................ $30,940.4
---------
LIABILITIES:
Accrued Expenses:
Investment advisory and custody fees...................... 16.1
Transfer and dividend disbursing agent fees............... 9.2
Other expenses............................................ 29.0
Dividend payable (July 7, 2000 pay date -- $0.065 per
share).................................................... 182.2
---------
Total Liabilities........................................... $ 236.5
---------
NET ASSETS:
Common Stock ($1.00 par value; 10,000.0 shares authorized;
2,803.5 shares outstanding)............................... $ 2,803.5
Additional paid-in capital.................................. 29,412.5
Accumulated realized loss on investments (Note 2)........... (1,172.8)
Net unrealized depreciation of investments (Note 3)......... (361.8)
Undistributed net investment income......................... 22.5
---------
Net Assets applicable to outstanding shares................. $30,703.9
=========
Net Asset Value (NAV) per share............................. $ 10.95
=========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
--------------------------------------------------------------------------------
6
<PAGE> 9
CIRCLE INCOME SHARES, INC.
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 2000 (ALL AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest Income........................................... $ 2,512.5
---------
Expenses:
Investment advisory fee (Note 4).......................... 159.1
Transfer and dividend disbursing agent fee................ 27.3
Directors' fees and expenses.............................. 20.7
Audit fees................................................ 17.1
Mailing expenses.......................................... 17.4
Custodian fee and expenses (Note 4)....................... 16.7
Printing.................................................. 14.2
Legal fees................................................ 13.8
Miscellaneous............................................. 21.5
---------
Total Expenses.............................................. 307.8
---------
Net Investment Income....................................... 2,204.7
---------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from investment transactions (Note 2)..... 11.1
Net unrealized depreciation on investments.................. (1,393.3)
---------
Net realized gain and unrealized loss on investments........ (1,382.2)
---------
Net increase in Net Assets resulting from operations........ $ 822.5
=========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
--------------------------------------------------------------------------------
7
<PAGE> 10
CIRCLE INCOME SHARES, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 (ALL AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
FROM INVESTMENT ACTIVITIES ---- ----
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 2,204.7 $ 2,208.4
Net realized gain/(loss) from investment transactions
(Note 2)............................................... 11.1 (53.0)
Net unrealized depreciation of investments................ (1,393.3) (1,435.1)
--------- ---------
Net increase in Net Assets resulting from operations........ 822.5 720.3
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends to shareholders from net investment income...... (2,186.7) (2,186.8)
--------- ---------
Net decrease in Net Assets from distributions to
shareholders.............................................. (2,186.7) (2,186.8)
--------- ---------
Net decrease in Net Assets.................................. (1,364.2) (1,466.5)
--------- ---------
NET ASSETS:
Beginning of Year........................................... 32,068.1 33,534.6
--------- ---------
End of Year................................................. $30,703.9 $32,068.1
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
--------------------------------------------------------------------------------
8
<PAGE> 11
CIRCLE INCOME SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 2000
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 and net realized gains 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 accrued on a daily basis and dividend
income is recorded on the ex-dividend date. Distributions to shareholders are
recorded on the 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.
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.
--------------------------------------------------------------------------------
9
<PAGE> 12
CIRCLE INCOME SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 2000 (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 2 -- CAPITAL LOSS CARRYFORWARDS
During the fiscal year ended June 30, 2000, the Company realized net capital
gains from security transactions in the amount of $11.1. In addition, $808.5 of
capital loss carryforwards expired in fiscal 2000 and were reclassified to
additional paid-in capital. The total capital loss carryforward at June 30, 2000
is $1,172.8. The capital loss carryforward expires as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT YEAR AMOUNT
---- ------ ---- ------
<S> <C> <C> <C>
2001 $63.6 2006 $321.6
2003 $623.6 2007 $ 53.0
2004 $111.0
</TABLE>
NOTE 3 -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities other than United States government
obligations and short-term notes aggregated $750.0 and $0.0, respectively.
The identified cost of investments at June 30, 2000 was $30,633.3 for both tax
and financial reporting purposes. Cost for Federal tax purposes differs from
value at June 30, 2000 by the net unrealized depreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized Appreciation $ 638.8
Unrealized Depreciation (1,000.6)
---------
NET UNREALIZED APPRECIATION $ (361.8)
=========
</TABLE>
NOTE 4 -- INVESTMENT ADVISORY AND CUSTODIAN AGREEMENTS
For the year ended June 30, 2000, the Company paid fees of $159.1, 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.
For the year ended June 30, 2000, the Company paid fees of $16.7 to Bank One
Trust Company, NA (an affiliate of the advisor) for custodian fees.
--------------------------------------------------------------------------------
10
<PAGE> 13
CIRCLE INCOME SHARES, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED PER SHARE DATA OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------
<S> <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
--------- --------- --------- --------- ---------
Net investment income...................... 0.79 0.79 0.83 0.88 0.90
Net realized and unrealized gain (loss) on
investments.............................. (0.50) (0.53) 0.15 0.21 (0.24)
--------- --------- --------- --------- ---------
Net increase in net asset value resulting
from operations.......................... 0.29 0.26 0.98 1.09 0.66
--------- --------- --------- --------- ---------
Dividends to shareholders from net
investment income........................ (0.78) (0.78) (0.84) (0.87) (0.90)
--------- --------- --------- --------- ---------
Net asset value, end of year............... $ 10.95 $ 11.44 $ 11.96 $ 11.82 $ 11.60
========= ========= ========= ========= =========
Market value per share, end of year........ $ 9.313 $ 10.375 $ 11.375 $ 10.688 $ 10.500
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(1)
Based on market value per share............ (2.59)% (2.12)% 14.60% 9.56% 11.15%
Based on net asset value per share......... 2.68% 2.15% 8.38% 9.69% 5.62%
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................. 0.99% 0.90% 0.90% 0.89% 0.89%
Net investment income...................... 7.06% 6.65% 6.97% 7.53% 8.05%
SUPPLEMENTAL DATA:
Net assets at end of period ($000)......... $30,703.9 $32,068.1 $33,534.6 $33,061.0 $32,451.7
Portfolio turnover rate.................... 4.53% 13.52% 27.63% 8.52% 17.75%
Number of shares outstanding at end of
period (000)............................. 2,803.5 2,803.5 2,803.5 2,797.4 2,797.4
</TABLE>
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.
--------------------------------------------------------------------------------
11
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND
THE BOARD OF DIRECTORS OF
CIRCLE INCOME SHARES, INC.:
We have audited the accompanying statement of assets and liabilities of CIRCLE
INCOME SHARES, INC. (an Indiana Corporation), including the schedule of
portfolio investments, as of June 30, 2000, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Company'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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and the
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 as of June 30, 2000, by correspondence with the custodian and
sub-custodians. An audit also includes assessing the accounting principles used
and significant 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Circle
Income Shares, Inc. as of June 30, 2000, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Columbus, Ohio
July 14, 2000
--------------------------------------------------------------------------------
12
<PAGE> 15
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.
Computershare Investor Services, LLC (formerly 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:
Computershare Investor Services, LLC
Shareholder Services Division
Attn: Circle Income Shares, Inc. Dividend Reinvestment Plan
P.O. Box 2388
Chicago, Illinois 60690-2388
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
--------------------------------------------------------------------------------
13
<PAGE> 16
--------------------------------------------------------------------------------
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) 588-4990. 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
--------------------------------------------------------------------------------
14
<PAGE> 17
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
15
<PAGE> 18
CIRCLE INCOME SHARES, INC.
--------------------------------------------------------------------------------
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
JEFFREY D. SITZMANN, Vice President
THOMAS F. WILSON, Ph.D., Vice President
ROBERT L. YOUNG, Treasurer
JACQUELINE A. WEITZ, Secretary
--------------------------------------------------------------------------------
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
Computershare Investor Services, LLC
Shareholder Services Division
P.O. Box 2388
Chicago, IL 60690-2388
SHAREHOLDER INQUIRIES
Computershare Investor Services, LLC
Shareholder Services Division
P.O. Box A3504
Chicago, IL 60690-3504
Telephone (312) 588-4990
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
--------------------------------------------------------------------------------
16
