<PAGE> 1
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
Robert R. Fortune
Chairman and President July 28, 1995
Dear Shareholder:
In the first six months of 1995, our Fund earned $.69 per share from net
investment income. In the same period of 1994, the earnings were also $.69 per
share.
Monthly dividends of $.115 were paid in each month from January to June
1995. However, the January dividend was treated as taxable in 1994.
Comments on the fixed income markets and on the performance of our Fund are
provided in the accompanying Adviser's Report.
Yours sincerely,
Robert R. Fortune
<PAGE> 2
INVESTMENT ADVISER'S REPORT
The full effect of one and one-half years of the Federal Reserve's policy
of monetary restraint caused economic growth in the first half of 1995 to slow
greater than investors' expectations. U.S. fixed income markets provided strong
returns for the first half of 1995 fueled by the significant decline in interest
rates shown in the table below.
<TABLE>
<CAPTION>
12/31/94 06/30/95 CHANGE
-------- -------- ------
<S> <C> <C> <C>
2-year Treasury Notes 7.69% 5.79% -1.90%
5-year Treasury Notes 7.83% 5.97% -1.86%
10-year Treasury Notes 7.83% 6.20% -1.63%
30-year Treasury Notes 7.88% 6.62% -1.26%
</TABLE>
The portfolio benefitted from its relatively long duration and being fully
invested in corporate bonds as the corporate sector was the best performer in
the period. Total return for corporates was 13.80% versus governments at 11.20%.
Investment returns are shown below:
<TABLE>
<CAPTION>
TOTAL RETURNS
PERIODS ENDED JUNE 30, 1995
ANNUALIZED
-----------------------
12 2 5 10
QTR. YTD MOS. YRS. YRS. YRS.
------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Independence Square Income Securities, Inc.*...... 7.51% 14.07% 14.47% 6.89% 10.67% 10.30%
Lehman Bros. Gov't/Corp. Bond Index............... 6.49% 11.80% 12.76% 5.41% 9.60% 9.96%
Lipper Invt. Grade Closed-End Bond Funds (Avg.)... 6.73% 12.47% 13.50% 5.83% 10.40% 10.50%
Lipper Invt. Grade Closed-End Bond Funds:
ISIS Rank/No. of Funds.......................... 6/17 4/17 6/17 3/17 7/16 9/16
ISIS Percentile Rank............................ 36% 24% 36% 18% 44% 57%
</TABLE>
- ------------------
*The cumulative total returns are based on the net asset value on the first day
of the periods presented and assume (i) no payment of any sales load or
commissions and (ii) reinvestment of dividends and distributions at the net
asset value next determined after each ex-dividend date in the period.
We have decreased our projected 1995 GDP growth rate to 2.8% from our
earlier estimate of 3.3%. We project inflation, as measured by the CPI, to
increase from 2.6% in 1994 to 3.1% in 1995 with a further increase to 3.4% in
1996. We continue to expect long-term interest rates to remain in a range of
6.50% to 7.25% throughout 1995 with a bias toward lower rates later in the year.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
July 28, 1995
<PAGE> 3
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT COST VALUE
- ----------- ----------- ------------
<C> <S> <C> <C>
BONDS AND OTHER DEBT OBLIGATIONS--100.0%
$ 1,000,000 Ahmanson (H.F.) & Co., 9.875%, 11/15/1999................................ $ 995,465 $ 1,113,750
1,000,000 Alltel Corp., 8.875%, 3/01/2022.......................................... 956,480 1,062,500
1,000,000 Arizona Public Service Co., 10.25%, 5/15/2020............................ 1,000,000 1,167,500
500,000 Arizona Public Service Co., 9.50%, 4/15/2021............................. 490,265 570,000
500,000 BankAmerica Corp., 9.50%, 4/01/2001...................................... 497,265 565,000
300,000 Boeing Co., 7.25%, 6/15/2025............................................. 302,220 295,125
1,000,000 Chase Manhattan Corp. Sub Notes, 10.00%, 6/15/1999....................... 1,117,080 1,111,250
1,000,000 Chrysler Corp., 10.95%, 8/01/2017........................................ 997,500 1,125,000
1,000,000 Citicorp Capital Sub Notes, 9.75%, 8/01/1999............................. 983,110 1,110,000
1,000,000 Cleveland Electric Co., 10.00%, 6/01/2020................................ 988,250 1,020,000
1,000,000 Comerica Bank, 8.375%, 7/15/2024......................................... 983,750 1,070,000
300,000 Comerica Co., 9.75%, 5/01/1999........................................... 288,840 330,750
1,000,000 Commonwealth Edison Co., 9.50%, 5/01/2016................................ 987,500 1,072,500
500,000 Commonwealth Edison Co., 9.625%, 7/01/2019............................... 499,450 547,500
1,000,000 Domtar, Inc., 11.25%, 9/15/2017.......................................... 997,500 1,073,750
500,000 First Chicago Corp., 8.875%, 3/15/2002................................... 503,660 558,125
1,000,000 First Interstate Bank, 9.00%, 11/15/2004................................. 1,000,000 1,086,250
500,000 First Union Corp., 8.00%, 8/15/2009...................................... 498,965 542,500
400,000 Florida Power & Light Co., 7.00%, 9/01/2025.............................. 405,964 377,000
1,000,000 Ford Motor Credit Co., 9.14%, 12/30/2014................................. 997,660 1,167,500
132,000 General Electric Capital Corp., 5.92%, 7/31/1995......................... 132,000 132,000
1,000,000 General Motors Corp., 8.125%, 4/15/2006.................................. 974,550 1,037,500
500,000 Great Western Financial Senior Notes, 8.60%, 2/01/2002................... 494,710 545,000
1,000,000 GTE Corp., 7.83%, 5/01/2023.............................................. 1,000,000 995,000
500,000 Harris Bancorp, 9.375%, 6/01/2001........................................ 493,285 569,375
1,000,000 International Business Machines Corp., 8.375%, 11/01/2019 ............... 1,006,330 1,110,000
1,000,000 International Paper Co., Debenture, 8.125%, 11/01/2019................... 979,860 1,042,500
500,000 New England Power Co., 8.00%, 8/01/2022.................................. 494,350 524,375
800,000 New York State Electric & Gas Corp., 9.875%, 5/01/2020................... 793,000 874,000
1,000,000 Norsk-Hydro, 7.75%, 6/15/2023............................................ 995,350 1,033,750
1,000,000 OPC Scherer Funding Corp., Serial Facility Bond, 9.70%, 6/30/2011........ 1,000,000 1,146,250
1,000,000 Ohio Edison Corp., 9.75%, 7/15/2019...................................... 997,500 1,070,000
14,965 Participation in Asset Exchange.......................................... 14,965 14,801
500,000 Penney (J.C.) Co., Inc. 8.25%, 8/15/2022................................. 497,445 540,625
500,000 PECO Energy Co., 8.75%, 4/01/2022........................................ 500,510 533,125
1,000,000 PECO Energy Co., 8.625%, 6/01/2022....................................... 983,840 1,067,500
</TABLE>
<PAGE> 4
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
SCHEDULE OF INVESTMENTS -- (Continued)
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT COST VALUE
- ----------- ----------- ------------
<C> <S> <C> <C>
BONDS AND OTHER DEBT OBLIGATIONS--(CONTINUED)
$ 300,000 Potomac Electric Power, 8.625%, 8/15/2019................................ $ 294,360 $ 316,125
1,000,000 Quebec-Hydro, 8.40%, 1/15/2022........................................... 1,016,790 1,072,500
1,000,000 Texas Utilities Electric Co., 8.875%, 2/01/2022.......................... 1,029,240 1,077,500
1,000,000 Virginia Electric & Power Corp. Series B, 8.625%, 10/01/2024............. 1,014,120 1,088,750
----------- -----------
TOTAL INVESTMENTS........................................................ $30,203,129* $32,756,676
=========== ============
</TABLE>
- ------------------
*Aggregate cost for federal income tax purposes at June 30, 1995 was
$30,203,129. The gross unrealized appreciation (depreciation) for all
securities is as follows: excess of value over tax cost $2,600,600; excess of
tax cost over value ($47,053).
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost-- $30,203,129).................................. $32,756,676
Cash........................................................................ 121,999
Accrued interest receivable................................................. 631,855
-----------
33,510,530
-----------
LIABILITIES
Accrued expenses............................................................ 173,415
-----------
NET ASSETS applicable to 1,820,511 capital shares outstanding, $0.10 par value
(Authorized 10,000,000 shares).............................................. $33,337,115
===========
NET ASSET VALUE PER SHARE ($33,337,115 / 1,820,511 shares).................... $18.31
======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest............................. $1,376,462
Expenses ----------
Fees:
Investment adviser................. 59,439
Directors and officers............. 16,864
Custodian.......................... 7,721
Transfer agent..................... 11,356
Legal and audit.................... 15,915
Taxes (other than income)............ 2,995
Printing............................. 5,941
Insurance............................ 1,312
Miscellaneous........................ 2,814
----------
Total expenses................ 124,357
----------
Net investment income................ 1,252,105
----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized loss from security transactions
(excluding short-term securities):
Proceeds from sales.................... $4,569,751
Cost of securities sold................ 4,684,320
----------
Net realized loss...................... (114,569)
----------
Unrealized appreciation (depreciation)
of investments:
Beginning of period.................... (514,132)
End of period.......................... 2,553,547
----------
Increase in unrealized appreciation.... 3,067,679
----------
Net realized and unrealized gain on
investments.......................... 2,953,110
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................. $4,205,215
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income....................................................... $ 1,252,105 $ 2,510,686
Net realized loss from security transactions................................ (114,569) (303,783)
Increase (decrease) in unrealized appreciation of investments............... 3,067,679 (3,323,530)
----------- -----------
Net increase (decrease) in net assets resulting from operations........... 4,205,215 (1,116,627)
Dividends to shareholders from net investment income
($.575 in 1995 and $1.38 in 1994)........................................... (1,046,794) (2,512,305)
----------- -----------
Total increase (decrease) in net assets................................... 3,158,421 (3,628,932)
NET ASSETS
Beginning of period........................................................... 30,178,694 33,807,626
----------- -----------
End of period (including undistributed net investment
income of $279,535 in 1995 and $74,224 in 1994)............................. $33,337,115 $30,178,694
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30 -----------------------------------------------
1995 1994 1993 1992 1991 1990
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period............................. $ 16.58 $ 18.57 $ 17.76 $ 17.32 $ 16.06 $ 17.05
------- ------- ------- ------- ------- -------
Net Investment Income.............. .69 1.38 1.41 1.46 1.50 1.53
Net Gains or (Losses) on Securities
(realized and unrealized)....... 1.62 (1.99) 0.82 0.42 1.26 (1.01)
------- ------- ------- ------- ------- -------
Total From Investment
Operations................. 2.31 (0.61) 2.23 1.88 2.76 0.52
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment
income)......................... (.58) (1.38) (1.42) (1.44) (1.50) (1.51)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period....... $ 18.31 $ 16.58 $ 18.57 $ 17.76 $ 17.32 $ 16.06
======= ======= ======= ======= ======= =======
Per Share Market Value,
End of Period...................... $ 16.75 $ 15.25 $ 17.25 $17.125 $17.375 $ 15.00
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN, based on
market value(1).................... 9.55%(2) (4.0%) 9.0% 7.0% 27.0% 0.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000's)...................... $33,337 $30,179 $33,808 $32,324 $31,424 $29,113
Ratio of Expenses to Average Net
Assets.......................... .78%(2) 0.85% 0.81% 0.85% 0.90% 1.00%
Ratio of Net Investment Income to
Average Net Assets.............. 7.81%(2) 7.88% 7.61% 8.27% 8.97% 9.35%
Portfolio Turnover Rate............ 15% 28% 32% 18% 6% 25%
</TABLE>
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(1) See Note G.
(2) Annualized.
See accompanying notes to financial statements.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
A. The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified closed-end management investment company.
Significant accounting policies are as follows: Investments are carried
at value in the accompanying financial statements (See Note D). Security
transactions are accounted for on the trade date. The cost of
investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes. Premiums
and discounts on bonds held for investment are not amortized for
financial reporting or federal income tax purposes inasmuch as the Fund
does not generally intend to hold such securities until maturity. For
federal income tax purposes, discounts on original issue bonds are
amortized over the life of the issue. No provision is made for federal
taxes as it is the Fund's policy to continue to qualify as a regulated
investment company and to make the requisite distribution of taxable
income to its shareholders which will relieve it from all or
substantially all federal income and excise taxes. Dividends payable are
recorded on the dividend record date. Interest income is recorded on an
accrual basis.
B. Under Agreements among the Fund, PNC Bank, National Association (PNC
Bank), and PNC Institutional Management Corporation (PIMC), an indirect
wholly owned subsidiary of PNC Bank, PIMC manages the Fund's portfolio
and serves as its administrative agent. The Fund pays PIMC, as
investment adviser, a quarterly fee of .05% (annually .20%) of the
Fund's average net assets and .5% (annually 2%) of the Fund's gross
income for such quarter.
PIMC has agreed to reimburse the Fund to the extent that the aggregate
expenses borne by the Fund in any fiscal year, exclusive of brokerage
commissions, interest and taxes, exceed 1 1/2% of average net assets up
to $30,000,000 and 1% of any excess. No such fee reimbursement was
necessary during the period ended June 30, 1995.
C. Purchases and sales of investment securities other than short term
obligations for the period ended June 30, 1995 were $4,525,370 and
$4,684,320, respectively.
D. Values for securities listed on a national securities exchange are based
on the latest quoted sale prices on June 30, 1995. Securities not so
listed or not traded on that date are valued at their most recent quoted
bid prices or at prices determined by investment bankers or brokers.
Short-term obligations are valued at cost which approximates market.
E. At December 31, 1994, a capital loss carryover of $443,414 was available
to offset possible future realized capital gains. The carryover expires
as follows: $139,631 in 1998 and $303,783 in 2002.
F. At June 30, 1995, net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital............................................... $31,062,016
Undistributed net investment income........................... 279,535
Accumulated net realized loss on investments.................. (557,983)
Net unrealized appreciation of investments.................... 2,553,547
-----------
Total......................................................... $33,337,115
===========
</TABLE>
G. The "Total Investment Return" is based on a purchase (or sale) at the
market price on the first (or last) day of the period assuming (i) no
payment of any sales load or commissions and (ii) reinvestment of
dividends and distributions at prices obtained by the Fund's dividend
reinvestment plan.
<PAGE> 8
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INDEPENDENCE SQUARE INCOME SECURITIES,
INC.
One Aldwyn Center
Villanova, PA 19085 INDEPENDENCE
(215) 964-8882 SQUARE
INCOME
SECURITIES
INC.
BOARD OF DIRECTORS
ROBERT R. FORTUNE G. WILLING PEPPER
R. STEWART RAUCH DAVID R. WILMERDING, JR.
OFFICERS
ROBERT R. FORTUNE, Chairman and President
ROBERT T. ARNOLD, Executive Vice President
ROBERT J. CHRISTIAN, Vice President
EDWARD J. ROACH, Vice President and Treasurer
GARY M. GARDNER, Secretary
INVESTMENT ADVISER
PNC INSTITUTIONAL
MANAGEMENT CORPORATION
400 Bellevue Parkway
Wilmington, DE 19809
TRANSFER AGENT
PNC BANK, N.A. Semiannual Report
c/o PFPC INC to Shareholders
P.O. Box 8950 June 30, 1995
Wilmington, Delaware 19899
(800) 852-4750
(302) 791-2748 (Delaware)
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