<PAGE> 1
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
Robert R. Fortune
Chairman and President July 30, 1997
Dear Shareholder:
Our Fund earned $.69 per share from net investment income in the first six
months of 1997. Earnings in the same period of 1996 were $.68 per share.
Monthly dividends of $.115 per share were paid from January to July 1997,
however, the January dividend was treated as taxable in 1996.
Comments on the fixed income markets and on the performance of our Fund are
provided in the accompanying Investment Adviser's Report.
Yours sincerely,
/s/ Robert R. Fortune
Robert R. Fortune
<PAGE> 2
INVESTMENT ADVISER'S REPORT
Total return (investment income plus or minus the change in market value)
of the Fund for the first half of 1997 was 3.67%. The Fund matched the
performance of the Lipper Investment Grade Closed End Bond Average and
outperformed the Lehman Government/Corporate Index by 0.93%, as shown in the
table below:
<TABLE>
<CAPTION>
TOTAL RETURNS ANNUALIZED
PERIODS ENDED JUNE 30, 1997 ----------
6 1 2
QTR. MOS. YEAR YRS.
------- ------ ----- ----------
<S> <C> <C> <C> <C>
Independence Square Income Securities, Inc.*...... 4.21% 3.67% 9.22% 6.88%
Lehman Bros. Gov't/Corp. Bond Index............... 3.64% 2.74% 7.75% 6.19%
Lipper Invest. Grade Funds (Avg.)................. 4.33% 3.67% 9.91% 7.66%
Lipper Investment Grade Bond Funds:
ISIS Rank/No. of Funds.......................... 10/16 9/16 12/16 12/16
ISIS Percentile Rank............................ 63% 56% 75% 75%
</TABLE>
- ------------------
*The cumulative total returns are based on the net asset values on the first and
last 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.
The Federal Reserve raised short term interest rates by 25 basis points
during March because of their inflationary concerns. During the second quarter
the economy slowed considerably from the pace of the first quarter, overcoming
investors' concerns of higher inflation. Yields rose across the curve with the
ten year Treasury Note experiencing the smallest rise in rates as shown below:
<TABLE>
<CAPTION>
12/31/96 06/30/97 CHANGE
-------- -------- ------
<S> <C> <C> <C>
2-year Treasury Note 5.87% 6.05% 0.18%
5-year Treasury Note 6.21% 6.37% 0.16%
10-year Treasury Note 6.42% 6.49% 0.07%
30-year Treasury Bond 6.64% 6.78% 0.14%
</TABLE>
We have revised our estimate for 1997 GDP growth rate to 3.6% from 2.8%,
based on strong first quarter growth and expectations of a slight rebound from
the depressed second quarter levels. We are revising our inflation outlook, as
measured by the Consumer Price Index, from 2.9% to 2.6% in 1997. We are
maintaining our expectation that long term interest rates will remain in a range
of 6.5% to 7.5% as investors balance increased growth with benign inflation.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
<PAGE> 3
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(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 $ 1,067,500
1,000,000 Arizona Public Service Co., 10.25%, 5/15/2020............................ 1,000,000 1,122,500
500,000 Arizona Public Service Co., 9.500%, 4/15/2021............................ 490,265 565,000
500,000 BankAmerica Corp., 9.500%, 4/01/2001..................................... 497,265 544,375
145,000 Boeing Co., 7.250%, 6/15/2025............................................ 146,073 143,912
1,000,000 Chase Manhattan Corp. Sub Notes, 10.00%, 8/15/1999....................... 1,117,080 1,063,750
1,000,000 Chrysler Corp., 10.95%, 8/01/2017........................................ 997,500 1,057,500
1,000,000 Citicorp Capital Sub Notes, 9.750%, 8/01/1999............................ 983,110 1,062,500
1,000,000 Cleveland Electric Co., 10.00%, 6/01/2020................................ 988,250 1,057,500
1,000,000 Comerica Bank, 8.375%, 7/15/2024......................................... 983,750 1,055,000
300,000 Comerica Co., 9.750%, 5/01/1999.......................................... 288,840 316,875
500,000 Commonwealth Edison Co., 8.625%, 2/01/2022............................... 537,500 506,250
500,000 Commonwealth Edison Co., 8.375%, 9/15/2022............................... 504,230 501,250
1,000,000 Delta Airlines, Inc., 9.250%, 3/15/2022.................................. 1,141,490 1,142,500
500,000 Federal Express, 9.625%, 10/15/2019...................................... 551,345 536,875
500,000 First Chicago NBD Corp., 8.875%, 3/15/2002............................... 503,660 538,750
1,000,000 First Interstate Bancorp., 9.000%, 11/15/2004............................ 1,000,000 1,047,500
500,000 First Union Corp., 8.000%, 8/15/2009..................................... 498,965 520,000
1,000,000 Ford Motor Credit Co., 9.140%, 12/30/2014................................ 997,660 1,095,000
500,000 Great Western Financial Senior Notes, 8.600%, 2/01/2002.................. 494,710 531,875
300,000 GTE California, 8.070%, 04/15/2024....................................... 322,233 300,000
1,000,000 Gulf States Utilities, 8700%, 4/01/2024.................................. 1,057,420 1,026,250
500,000 Harris Bancorp, 9.375%, 6/01/2001........................................ 493,285 543,750
1,000,000 Hydro-Quebec, 10.70%, 10/15/2007......................................... 1,081,500 1,011,250
500,000 Hydro-Quebec, 8.400%, 1/15/2022.......................................... 508,395 539,375
1,000,000 Jersey Central Power and Light, 8.450%, 3/24/2025........................ 1,026,150 1,050,000
500,000 New England Power Co., 8.000%, 8/01/2022................................. 494,350 503,125
800,000 New York State Electric & Gas Corp., 9.875%, 5/01/2020................... 793,000 921,000
1,000,000 OPC Scherer Funding Corp. Serial Facility Bond, 9.700%, 6/30/2011........ 1,000,000 1,051,040
8,606 Participation in Asset Exchange, 7.000%, 12/01/2020...................... 8,606 8,491
500,000 PECO Energy Co., 8.750%, 4/01/2022....................................... 500,510 530,625
1,000,000 PECO Energy Co., 8.625%, 6/01/2022....................................... 983,840 1,055,000
500,000 Penney (J.C.) & Company, 8.250%, 8/15/2022............................... 497,445 506,875
1,000,000 TCI Communications Inc., 8.750%, 2/15/2023............................... 957,060 995,000
1,000,000 Tenneco Inc., 7.625%, 8/15/2017.......................................... 999,080 1,000,000
1,000,000 Texas Utilities Co., 8.875%, 2/01/2022................................... 1,029,240 1,055,000
</TABLE>
<PAGE> 4
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
SCHEDULE OF INVESTMENTS -- (Concluded)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT COST VALUE
- ----------- ----------- ------------
<C> <S> <C> <C>
BONDS AND OTHER DEBT OBLIGATIONS--(CONTINUED)
$ 500,000 Texas Utilities Co., 8.750%, 11/01/2023.................................. $ 546,545 $ 541,250
1,000,000 Time Warner Entertainment, Inc., 8.375%, 7/15/2033....................... 990,210 1,016,250
500,000 Time Warner, Inc. Debentures, 9.150%, 2/01/2023.......................... 527,845 549,375
1,000,000 U.S. West, 8.875%, 6/01/2031............................................. 1,060,720 1,072,500
1,000,000 Virginia Electric & Power Corp. Series B, 8.625%, 10/01/2024............. 1,014,120 1,081,250
----------- -----------
TOTAL INVESTMENTS........................................................ $30,608,712 $ 31,833,818
=========== ===========
</TABLE>
- ------------------
*Aggregate cost for federal income tax purposes at June 30, 1997 was
$30,608,712. The aggregate gross unrealized appreciation (depreciation) for
all securities is as follows: excess of value over tax cost $1,458,360; excess
of tax cost over value ($233,254).
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$30,608,712)................................... $31,833,818
Cash........................................................................ 280,990
Accrued interest receivable................................................. 626,740
Prepaid expenses............................................................ 522
-----------
32,742,070
-----------
LIABILITIES
Accrued expenses............................................................ 140,368
-----------
NET ASSETS applicable to 1,820,511 capital shares outstanding, $0.10 par value
(Authorized 10,000,000 shares).............................................. $32,601,702
===========
NET ASSET VALUE PER SHARE ($32,601,702 / 1,820,511)........................... $17.91
=======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest............................. $1,388,347
----------
Expenses
Fees:
Investment adviser............... 60,197
Directors and officers........... 18,175
Custodian........................ 7,987
Transfer agent................... 7,286
Legal and audit.................. 18,785
Taxes (other than income).......... 1,328
Printing........................... 8,256
Insurance.......................... 752
Miscellaneous...................... 4,017
----------
Total expenses................... 126,783
----------
Net investment income................ $1,261,564
==========
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain from security transactions
(excluding short-term securities):
Proceeds from sales................... $2,801,854
Cost of securities sold............... 2,784,846
----------
Net realized gain..................... 17,008
----------
Unrealized appreciation (depreciation)
of investments:
Beginning of period................... 1,349,878
End of period......................... 1,225,106
----------
Decrease in unrealized appreciation... (124,772)
----------
Net realized and unrealized loss on
investments......................... (107,764)
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... $1,153,800
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income....................................................... $ 1,261,564 $ 2,550,353
Net realized gain from security transactions................................ 17,008 427,477
Decrease in unrealized appreciation of investments.......................... (124,772) (2,133,937)
-----------
Net increase in net assets resulting from operations...................... 1,153,800 843,893
Dividends to shareholders from net investment income
($.58 in 1997 and $1.38 in 1996)............................................ (1,046,794) (2,512,305)
-----------
Total increase (decrease) in net assets................................... 107,006 (1,668,412)
NET ASSETS
Beginning of period........................................................... 32,494,696 34,163,108
-----------
End of period (including undistributed net investment
income of $317,534 in 1997 and $102,764 in 1996)............................ $32,601,702 $32,494,696
=========== ===========
</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>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31
1997 -----------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period............................. $ 17.85 $ 18.77 $ 16.58 $ 18.57 $ 17.76 $ 17.32
------- ------- ------- ------- ------- -------
Net Investment Income.............. 0.69 1.40 1.38 1.38 1.41 1.46
Net Gains or (Losses) on Securities
(realized and unrealized)....... (0.05) (0.94) 2.19 (1.99) 0.82 0.42
------- ------- ------- ------- ------- -------
Total From Investment
Operations................. 0.64 0.46 3.57 (0.61) 2.23 1.88
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment
income)......................... (0.58) (1.38) (1.38) (1.38) (1.42) (1.44)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period....... $ 17.91 $ 17.85 $ 18.77 $ 16.58 $ 18.57 $ 17.76
======= ======= ======= ======= ======= =======
Per Share Market Value,
End of Period...................... $ 16.375 $ 16.25 $ 17.25 $ 15.25 $ 17.25 $17.125
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN, based on
market value(1).................... 5.96% 3.72% 22.71% (4.0%) 9.0% 7.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000's)...................... $ 32,602 $32,495 $34,163 $30,179 $33,808 $32,324
Ratio of Expenses to Average Net
Assets.......................... 0.79%(2) 0.68% 0.76% 0.85% 0.81% 0.85%
Ratio of Net Investment Income to
Average Net Assets.............. 7.89%(2) 7.80% 7.64% 7.88% 7.61% 8.27%
Portfolio Turnover Rate............ 7% 33% 22% 28% 32% 18%
</TABLE>
- ------------------
(1) See Note G.
(2) Annualized.
See accompanying notes to financial statements.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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'
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, 1997.
C. Purchases and sales of investment securities other than short term
obligations for the period ended June 30, 1997 were $2,564,030 and
$2,081,540, respectively.
D. Values for securities listed on a national securities exchange are based
on the latest quoted sale prices on June 30, 1997. 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, 1996 a capital loss carryover of $19,962 was available
to offset possible future realized capital gains. The carryover expires
as follows: $15,937 in 2002, and $4,025 in 2003.
F. At June 30, 1997, net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital............................................... $31,062,016
Undistributed net investment income........................... 317,534
Accumulated net realized loss on investments.................. (2,954)
Net unrealized appreciation of investments.................... 1,225,106
-----------
Total......................................................... $32,601,702
===========
</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
- --------------------------------------------------------------------------------
INDEPENDENCE SQUARE INCOME SECURITIES,
INC.
One Aldwyn Center
Villanova, PA 19085
(610) 964-8882
BOARD OF DIRECTORS
ROBERT R. FORTUNE
G. WILLING PEPPER
DAVID R. WILMERDING, JR.
OFFICERS
ROBERT R. FORTUNE, Chairman and
President
ROBERT T. ARNOLD, Executive 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
(800) 852-4750
(302) 791-2748 (Delaware)
- --------------------------------------------------------------------------------
INDEPENDENCE
SQUARE
INCOME
SECURITIES,
INC.
Semiannual Report
to Shareholders
June 30, 1997
