<PAGE> 1
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
Robert R. Fortune
Chairman and President May 1, 1995
Dear Shareholder:
Our Fund earned $.34 per share from net investment income in the first
quarter of 1995. Earnings in the first quarter of 1994 were also $.34 per share.
Monthly dividends of $.115 per share were paid in February, March and April
of 1995, and also in January 1995, except that the January dividend was treated
as taxable in 1994.
The enclosed Investment Adviser's Report provides commentary on the economy
and data on the Fund's performance in the first quarter of 1995 and on a longer
term basis.
Yours sincerely,
Robert R. Fortune
<PAGE> 2
INVESTMENT ADVISER'S REPORT
The first quarter of 1995 proved to be considerably better than all of 1994
for bond investors. The fixed income market provided its best quarterly return
in nearly three years as investors' expectations of increased inflation due to
continued strong economic activity were not realized and interest rates
declined. As shown in the table below, interest rates declined across the yield
curve:
<TABLE>
<CAPTION>
12/31/94 03/31/95 CHANGE
-------- -------- ------
<S> <C> <C> <C>
2-year Treasury Notes 7.69% 6.78% -0.91%
5-year Treasury Notes 7.83% 7.07% -0.76%
10-year Treasury Notes 7.83% 7.19% -0.64%
30-year Treasury Notes 7.88% 7.43% -0.45%
</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 first quarter. Total return for corporates was 5.92% versus governments at
4.71%. Investment returns are shown below:
<TABLE>
<CAPTION>
TOTAL RETURNS
PERIODS ENDED MARCH 31, 1995
ANNUALIZED
-----------------------
12 2 5 10
QUARTER MOS. YRS. YRS. YRS.
------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Independence Square Income Securities, Inc.*...... 6.10% 4.40% 4.84% 9.77% 10.62%
Lehman Bros. Gov't/Corp. Bond Index............... 4.98% 4.57% 3.67% 9.01% 10.14%
Lipper Invt. Grade Closed-End Bond Fds (Avg.)..... 5.32% 4.19% 4.22% 9.70% 10.82%
Lipper Invt. Grade Closed-End Bond Funds:
ISIS Rank/No. of Funds.......................... 3/17 8/17 2/17 9/16 9/16
ISIS Percentile Rank............................ 18% 48% 12% 57% 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 project that real GDP growth will slow from the 4.1% rate of 1994 to
3.3% in 1995. We project inflation, as measured by the CPI, to increase from
2.6% in 1994 to 3.2% in 1995 with a further increase to 3.6% in 1996. We expect
long-term interest rates to remain in a range of 7-7 3/4% throughout 1995 with a
bias toward lower rates later in the year.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
April 27, 1995
<PAGE> 3
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
STATEMENT OF NET ASSETS
MARCH 31, 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 $ 1,077,500
1,000,000 Alltel Corp., 8.875%, 3/01/2022.......................................... 956,480 1,013,750
1,000,000 Arizona Public Service Co., 10.25%, 5/15/2020............................ 1,000,000 1,115,000
500,000 Arizona Public Service Co., 9.50%, 4/15/2021............................. 490,265 536,250
500,000 BankAmerica Corp., 9.50%, 4/01/2001...................................... 497,265 538,125
300,000 Boeing Co., 7.25%, 6/15/2025............................................. 302,220 268,500
1,000,000 Chase Manhattan Corp. Sub Notes, 10.00%, 6/15/1999....................... 1,117,080 1,075,000
1,000,000 Chrysler Corp., 10.95%, 8/01/2017........................................ 997,500 1,132,500
1,000,000 Citicorp Capital Sub Notes, 9.75%, 8/01/1999............................. 983,110 1,067,500
1,000,000 Cleveland Electric Co., 10.00%, 6/01/2020................................ 988,250 980,000
1,000,000 Comerica Bank, 8.375%, 7/15/2024......................................... 983,750 975,000
300,000 Comerica Co., 9.75%, 5/01/1999........................................... 288,840 319,875
1,000,000 Commonwealth Edison Co., 9.50%, 5/01/2016................................ 987,500 1,032,500
500,000 Commonwealth Edison Co., 9.625%, 7/01/2019............................... 499,450 513,750
1,000,000 Domtar, Inc., 11.25%, 9/15/2017.......................................... 997,500 1,046,250
500,000 First Chicago Corp., 8.875%, 3/15/2002................................... 503,660 523,750
1,000,000 First Interstate Bank, 9.00%, 11/15/2004................................. 1,000,000 1,052,500
500,000 First Union Corp., 8.00%, 8/15/2009...................................... 498,965 494,375
1,000,000 Florida Power & Light Co., 7.00%, 9/01/2025.............................. 1,014,910 867,500
1,000,000 Ford Motor Credit Co., 9.14%, 12/30/2014................................. 997,660 1,082,500
1,000,000 General Motors Corp., 8.125%, 4/15/2006.................................. 974,550 957,500
500,000 Great Western Financial Senior Notes, 8.60%, 2/01/2002................... 494,710 518,750
1,000,000 GTE Corp., 7.83%, 5/01/2023.............................................. 1,000,000 910,000
500,000 Harris Bancorp, 9.375%, 6/01/2001........................................ 493,285 539,375
1,000,000 International Business Machines Corp., 8.375%, 11/01/2019................ 1,006,330 1,012,500
1,000,000 International Paper Co., Debenture, 8.125%, 11/01/2019................... 979,860 982,500
500,000 New England Power Co., 8.00%, 8/01/2022.................................. 494,350 481,250
800,000 New York State Electric & Gas Corp., 9.875%, 5/01/2020................... 793,000 850,000
1,000,000 Norsk-Hydro, 7.75%, 6/15/2023............................................ 995,350 933,750
1,000,000 Oglethorpe Power Facilities Bond Georgia, 9.70%, 6/30/2011............... 1,000,000 1,080,000
1,000,000 Ohio Edison Corp., 9.75%, 7/15/2019...................................... 997,500 1,070,000
16,499 Participation in Asset Exchange.......................................... 16,499 15,658
500,000 Penney (J.C.) Co., Inc. 8.25%, 8/15/2022................................. 497,445 501,875
1,000,000 Philadelphia Electric Co., 8.625%, 6/01/2022............................. 983,840 990,000
300,000 Potomac Electric Power, 8.625%, 8/15/2019................................ 294,360 306,750
1,000,000 Quebec-Hydro, 8.40%, 1/15/2022........................................... 1,016,790 982,500
</TABLE>
<PAGE> 4
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
STATEMENT OF NET ASSETS -- (Continued)
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT COST VALUE
- ----------- ----------- ------------
<C> <S> <C> <C>
BONDS AND OTHER DEBT OBLIGATIONS--(CONTINUED)
$ 1,000,000 Texas Utilities Electric, 9.875%, 11/01/2019............................. $ 992,790 $ 1,070,000
1,000,000 Virginia Electric & Power Corp. Series B, 8.625%, 10/01/2024............. 1,014,120 1,035,000
----------- -----------
Total Bonds and Other Debt Obligations.............................. 30,144,649 30,949,533
----------- -----------
TOTAL INVESTMENTS -- 97.95%.............................................. $30,144,649* 30,949,533
===========
OTHER ASSETS LESS LIABILITIES -- 2.05%................................... 648,587
-----------
TOTAL NET ASSETS -- 100.00%.............................................. $ 31,598,120
===========
</TABLE>
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*Aggregate cost for federal income tax purposes at March 31, 1995 was
$30,144,649. The aggregate gross unrealized appreciation (depreciation) for
all securities is as follows: excess of value over tax cost $1,266,565; excess
of tax cost over value ($461,681).
See accompanying notes to financial statements.
<PAGE> 5
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest..................... $689,093
----------
Expenses
Fees:
Investment adviser....... 29,330
Directors and officers... 8,571
Custodian................ 3,838
Transfer agent........... 5,856
Legal and audit.......... 8,490
Taxes (other than income).... 1,495
Printing..................... 2,791
Insurance.................... 687
Miscellaneous................ 1,565
----------
Total expenses....... 62,623
----------
Net investment income........ 626,470
----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized loss from security
transactions (excluding short-
term securities):
Proceeds from sales............ $3,134,717
Cost of securities sold........ 3,242,060
----------
Net realized loss.............. (107,343)
----------
Unrealized appreciation
(depreciation) of investments:
Beginning of period............ (514,132)
End of period.................. 804,884
----------
Increase in unrealized
appreciation................ 1,319,016
----------
Net realized and unrealized
gain on investments......... 1,211,673
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $1,838,143
==========
</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>
JANUARY 1 YEAR ENDED DECEMBER 31
THROUGH -----------------------------------------------------------
MARCH 31, 1994 1993 1992 1991 1990
1995 ------- ------- ------- ------- -------
-----------
(UNAUDITED)
<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............. 0.34 1.38 1.41 1.46 1.50 1.53
Net Gains or (Losses) on
Securities (realized and
unrealized).................... 0.67 (1.99) 0.82 0.42 1.26 (1.01)
----------- ------- ------- ------- ------- -------
Total From Investment
Operations................ 1.01 (0.61) 2.23 1.88 2.76 0.52
----------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment
income)........................ (0.23) (1.38) (1.42) (1.44) (1.50) (1.51)
----------- ------- ------- ------- ------- -------
Net Asset Value, End of Period...... $ 17.36 $ 16.58 $ 18.57 $ 17.76 $ 17.32 $ 16.06
========== ======== ======== ======== ======== ========
Per Share Market Value, End of
Period............................ $ 16.25 $ 15.25 $ 17.25 $17.125 $17.375 $ 15.00
========== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN, based on
market value(1)................... (2.4%)(2) (4.0%) 9.0% 7.0% 27.0% 0.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in
000's)......................... $31,598 $30,179 $33,808 $32,324 $31,424 $29,113
Ratio of Expenses to Average Net
Assets......................... 0.81%(2) 0.85% 0.81% 0.85% 0.90% 1.00%
Ratio of Net Investment Income to
Average Net Assets............. 8.06%(2) 7.88% 7.61% 8.27% 8.97% 9.35%
Portfolio Turnover Rate........... 10% 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 March 31, 1995.
C. Purchases and sales of investment securities other than short term
obligations for the period ended March 31, 1995 were $2,995,620.00 and
$3,081,050.06.
D. Values for securities listed on a national securities exchange are based
on the latest quoted sale prices on March 31, 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 March 31, 1995, net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital............................................... $31,062,016
Undistributed net investment income........................... 281,977
Accumulated net realized loss on investments.................. (550,757)
Net unrealized appreciation of investments.................... 804,884
-----------
Total......................................................... $31,598,120
===========
</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 Company's dividend
reinvestment plan.
<PAGE> 8
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INDEPENDENCE SQUARE INCOME SECURITIES, INC. INDEPENDENCE
One Aldwyn Center SQUARE
Villanova, PA 19085 INCOME
(215) 964-8882 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.
c/o PFPC INC.
P.O. Box 8950
Wilmington, Delaware 19899 First Quarter Report
(800) 852-4750 to Shareholders
(302) 791-1072 (Delaware) March 31, 1995
- --------------------------------------------------------------------------------
