<PAGE> 1
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
Robert R. Fortune
Chairman and President August 4, 1999
Dear Shareholder:
Our Fund earned $0.64 per share from net investment income in the first six
months of 1999. Earnings in the same period of 1998 were $0.65 per share.
Monthly dividends, each of $0.11 per share, were paid from January to July
1999. The January 1999 dividend was earned and was taxable in 1998.
Interesting comments on the performance of our Fund compared to its peer
group and benchmark are contained in the accompanying Investment Adviser's
Report.
Your comments or questions about Independence Square Income Securities,
Inc. are welcomed.
Yours sincerely,
/s/ Robert R. Fortune
Robert R. Fortune
<PAGE> 2
INVESTMENT ADVISER'S REPORT
The Fund significantly outperformed both its peer group and benchmark
during the six months ended June 30, 1999, returning 1.44% above the Lipper
Investment Grade Fund peer group average and 1.92% more than the Lehman
Corporate Bond Index. The Fund's non-investment grade holdings aided
performance, as those securities greatly outperformed their investment grade
counterparts during the first half of 1999. Historical investment returns are
shown in the table below:
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF JUNE 30, 1999:
ANNUALIZED
------------------
QUARTER YTD 1 YEAR 2 YEARS 5 YEARS
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Independence Square Income Securities*......... -0.50% -0.34% 2.32% 7.15% 8.46%
Lehman Corporate Index......................... -1.56% -2.26% 1.89% 6.53% 8.36%
Lipper Investment Grade Funds Avg.............. -1.31% -1.78% 0.47% 6.01% 8.15%
ISIS Rank.................................... 4/16 2/16 2/16 3/16 6/16
ISIS Percentile.............................. 24 12 12 18 36
</TABLE>
- ---------------
Source: Lipper Analytical Services, Inc.
* 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 past six months have witnessed continued rapid expansion of the U.S.
economy, with gross domestic product growth exceeding the historical
non-inflationary level of 2%. In spite of strong domestic economic growth,
inflationary forces continue to remain contained; still, the Federal Reserve
chose to raise its target for the federal funds rate from 4.75% to 5.00% at its
June meeting. The Fed cited an easing of financial strain, tight labor markets
and a firming of foreign economies in the release accompanying the move. The Fed
dropped its tightening bias to a neutral bias, which should reduce the
likelihood of another hike at the August 24th meeting. However, an additional
25-50 basis points of tightening by year end is possible, as the combination of
a very strong domestic economy and an improving situation in Europe and Japan
may allow for tighter monetary policy.
Interest rates increased significantly across the yield curve as indicated
in the table below:
<TABLE>
<CAPTION>
12/31/98 6/30/99 CHANGE
-------- -------- ------
<S> <C> <C> <C>
2-year Treasury Note........................................ 4.53% 5.52% 0.99%
5-year Treasury Note........................................ 4.54% 5.65% 1.11%
10-year Treasury Note....................................... 4.65% 5.79% 1.14%
30-year Treasury Bond....................................... 5.09% 5.97% 0.88%
</TABLE>
In tandem with the Fed's recent rate tightening, BlackRock has taken a
defensive interest rate stance. With the Treasury curve currently pricing in the
possibility of another Fed tightening by year-end, we believe that interest
rates will trade in a relatively narrow range until the economy shows signs of
slowing.
July 28, 1999 BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
<PAGE> 3
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT COST VALUE
- ---------- ----------- -----------
<C> <C> <S> <C> <C>
U.S. TREASURY NOTES 2.5%
$ 410,000 U.S. Treasury Note, 6.125%, 8/15/2007....................... $ 434,760 $ 414,277
400,000 U.S. Treasury Note, 4.75%, 11/15/2008....................... 385,375 366,965
----------- -----------
TOTAL U.S. TREASURY NOTES................................... 820,135 781,242
----------- -----------
U.S. AGENCY OBLIGATIONS 8.7%
900,000 Federal National Mortgage Association, 7.50%, 8/01/2006..... 929,638 916,236
1,800,000 Student Loan Marketing Association, 4.60%, 7/01/1999........ 1,800,000 1,800,000
----------- -----------
TOTAL U.S. AGENCY OBLIGATIONS............................... 2,729,638 2,716,236
----------- -----------
BONDS AND OTHER DEBT OBLIGATIONS 88.8%
1,000,000 Ahmanson (H.F.) & Company, 9.875%, 11/15/1999............... 995,465 1,013,966
500,000 BankAmerica, 9.50%, 4/01/2001............................... 497,265 526,980
550,000 Calpine Corp., 9.250%, 2/01/2004............................ 555,500 556,875
1,000,000 Citicorp Capital Sub Notes, 9.75%, 8/01/1999................ 983,110 1,003,551
1,000,000 Cleveland Electric Illuminating, 9.00%, 7/01/2023........... 1,061,810 1,037,537
1,000,000 Comerica Bank, 8.375%, 7/15/2024............................ 983,750 1,059,715
500,000 Commonwealth Edison Company, 8.625%, 2/01/2022.............. 537,500 501,780
1,000,000 Delta Airlines, Inc., 9.25%, 3/15/2022...................... 1,141,490 1,132,351
500,000 Federal Express, 9.625%, 10/15/2019......................... 551,345 520,000
500,000 First Chicago NBD Corp., 8.875%, 3/15/2002.................. 503,660 529,228
1,000,000 First Interstate Bancorp., 9.00%, 11/15/2004................ 1,000,000 1,098,152
500,000 First Union Corp., 8.00%, 8/15/2009......................... 498,965 526,178
1,000,000 Ford Motor Credit Co., 9.14%, 12/30/2014.................... 997,660 1,092,324
500,000 Great Western Financial Senior Notes, 8.60%, 2/01/2002...... 494,710 523,505
300,000 GTE California, Inc., 8.07%, 4/15/2024...................... 322,233 307,536
1,000,000 Gulf States Utilities 8.70%, 4/01/2024...................... 1,057,420 1,037,300
500,000 Harris Bancorp, 9.375%, 6/01/2001........................... 493,285 527,908
Horton (D.R.), Inc. Co. Guarantee Notes, 10.00%,
250,000 4/15/2006................................................... 257,500 260,000
500,000 Hydro-Quebec, 8.40%, 1/15/2022.............................. 508,395 559,330
1,000,000 Hydro-Quebec, 8.875%, 3/01/2026............................. 1,195,260 1,186,778
1,000,000 Jersey Central Power and Light, 8.45%, 3/24/2025............ 1,026,150 1,068,340
800,000 New York State Electric & Gas Corp., 9.875%, 5/01/2020...... 793,000 836,000
1,000,000 News America Holdings, 9.50%, 7/15/2024..................... 1,178,140 1,176,205
Nextlink Communications, Inc. Sr. Notes, 12.50%,
1,000,000 4/15/2006................................................... 1,065,000 1,092,500
5,470 + Participation in Asset Exchange, 7.00%, 12/01/2020.......... 5,470 5,470
500,000 Penney (J.C.) & Company, 8.25%, 8/15/2022................... 497,445 492,437
</TABLE>
<PAGE> 4
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT COST VALUE
- ---------- ----------- -----------
<C> <C> <S> <C> <C>
Sinclair Broadcast Group Sr. Sub. Notes, 10.00%,
$ 200,000 9/30/2005................................................... $ 205,250 $ 209,000
1,000,000 TCI Communications, 8.75%, 2/15/2023........................ 957,060 1,053,942
1,000,000 Texas Utilities Co., 8.875%, 2/01/2022...................... 1,029,240 1,055,256
500,000 Texas Utilities Co., 8.75%, 11/01/2023...................... 546,545 527,220
1,000,000 Time Warner Entertainment, Inc., 8.375%, 7/15/2033.......... 990,210 1,087,741
500,000 Time Warner, Inc. Debentures, 9.150%, 2/01/2023............. 527,845 587,014
1,000,000 U.S. West, 8.875%, 6/01/2031................................ 1,060,720 1,102,811
450,000 United Air Lines, 9.210%, 1/21/2017......................... 522,328 490,500
1,000,000 Veritas DGC, Inc., 9.75%, 10/15/2003........................ 1,023,750 1,030,000
Virginia Electric & Power Corp. Series B, 8.625%,
1,000,000 10/01/2024.................................................. 1,014,120 1,020,351
----------- -----------
TOTAL BONDS AND OTHER DEBT OBLIGATIONS...................... 27,078,596 27,835,781
----------- -----------
TOTAL INVESTMENTS 100.0%.................................... $30,628,369* $31,333,259
=========== ===========
</TABLE>
- ---------------
+ Non-income producing.
* Aggregate cost for federal income tax purposes at June 30, 1999 was
$30,628,369. The aggregate gross unrealized appreciation (depreciation) for
all securities is as follows: excess of value over tax cost $959,055; excess
of tax cost over value $(254,165).
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $30,628,369)............... $31,333,259
Cash...................................................... 12,894
Accrued interest receivable............................... 721,762
-----------
32,067,915
-----------
LIABILITIES
Accrued expenses.......................................... 22,809
-----------
NET ASSETS applicable to 1,822,752 capital shares
outstanding, $0.10 par value (Authorized 10,000,000
shares)................................................... $32,045,106
===========
NET ASSET VALUE PER SHARE ($32,045,106 / 1,822,752
shares)................................................... $ 17.58
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
INDEPENDENCE SQUARE INCOME SECURITIES, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................... $ 1,302,404
-----------
Expenses
Fees
Investment adviser............. 58,858
Directors and officers......... 16,206
Custodian...................... 10,209
Transfer agent................. 10,025
Legal and audit................ 24,506
Taxes(other than income)......... 1,249
Printing......................... 5,060
Insurance........................ 690
Miscellaneous.................... 3,993
-----------
Total expenses............ 130,796
-----------
Net investment income.............. $ 1,171,608
===========
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investment
securities....................... $ 29,115
-----------
Unrealized appreciation of
investments:
Beginning of period.............. 2,018,276
End of period.................... 704,890
-----------
Decrease in unrealized
appreciation................... (1,313,386)
-----------
Net realized and unrealized loss
on investments................. (1,284,271)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $ (112,663)
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................... $ 1,171,608 $ 2,381,701
Net realized gain from security transactions............ 29,115 167,192
Decrease in unrealized appreciation of investments...... (1,313,386) (165,310)
----------- -----------
Net increase(decrease) in net assets resulting from
operations........................................... (112,663) 2,383,583
Dividends to shareholders:
From net investment income ($.55 in 1999 and $1.32 in
1998).................................................. (1,002,514) (2,403,446)
From net realized gains ($.09 in 1998).................. 0 (167,146)
Net asset value of shares issued in reinvestment of
dividends (2,241 shares in 1998)....................... 0 40,841
----------- -----------
Total increase(decrease) in net assets................ (1,115,177) (146,168)
NET ASSETS
Beginning of period....................................... 33,160,283 33,306,451
----------- -----------
End of period (including undistributed net investment
income of $208,115 in 1999 and $39,021 in 1998)......... $32,045,106 $33,160,283
=========== ===========
</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 YEAR ENDED DECEMBER 31
JUNE 30, -----------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....... $ 18.19 $ 18.30 $ 17.85 $ 18.77 $ 16.58 $ 18.57
------- ------- ------- ------- ------- -------
Net Investment Income.................... 0.64 1.30 1.36 1.40 1.38 1.38
Net Gains (Losses) on Securities
(realized and unrealized).............. (0.70) -- 0.56 (0.94) 2.19 (1.99)
------- ------- ------- ------- ------- -------
Total From Investment Operations..... (0.06) 1.30 1.92 0.46 3.57 (0.61)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net investment income)... (0.55) (1.32) (1.38) (1.38) (1.38) (1.38)
Dividends (from net realized gains)...... -- (0.09) (0.09) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.................. (0.55) (1.41) (1.47) (1.38) (1.38) (1.38)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period............. $ 17.58 $ 18.19 $ 18.30 $ 17.85 $ 18.77 $ 16.58
======= ======= ======= ======= ======= =======
Per Share Market Value, End of Period...... $ 16.75 $17.875 $ 17.75 $ 16.25 $ 17.25 $ 15.25
======= ======= ======= ======= ======= =======
Total Investment Return, based on market
value(1)................................. (2.22%) 7.88% 19.22% 3.72% 22.71% (4.00%)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in 000's)..... $32,045 $33,160 $33,306 $32,495 $34,163 $30,179
Ratio of Expenses to Average Net
Assets................................. 0.81%(2) 0.76% 0.79% 0.68% 0.76% 0.85%
Ratio of Net Investment Income to Average
Net Assets............................. 7.24%(2) 7.11% 7.52% 7.80% 7.64% 7.88%
Portfolio Turnover Rate.................. 3% 10% 20% 33% 22% 28%
</TABLE>
- ------------------
(1) See Note F.
(2) Annualized.
See accompanying notes to financial statements.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A. Independence Square Income Securities, Inc. (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. 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 ex-dividend and record
date. Interest income is recorded on an accrual basis.
The preparation of financial statements in conformity with generally
accepted principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
B. Under Agreements among the Fund, PNC Bank, National Association (PNC Bank),
and BlackRock Institutional Management Corporation ("BIMC", formerly known
as PNC Institutional Management Corporation), an indirect majority-owned
subsidiary of PNC Bank, BIMC manages the Fund's portfolio and serves as its
administrative agent. The Fund pays BIMC, as investment adviser, an annual
fee of .20% of the Fund's average net assets and 2% of the Fund's gross
income.
BIMC 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 six months ended June 30, 1999.
C. Purchases and sales of investment securities other than short term
obligations for the period ended June 30, 1999 were $820,135 and $963,179,
respectively.
D. Values for securities listed on a national securities exchange are based on
the latest quoted sale prices on June 30, 1999. 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 amortized cost which approximates market value.
E. At June 30, 1999, net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital............................................. $31,102,858
Undistributed net investment income......................... 208,115
Accumulated net realized gain on investments................ 29,243
Net unrealized appreciation of investments.................. 704,890
-----------
Total....................................................... $32,045,106
===========
</TABLE>
F. 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 Automatic Dividend Investment
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
LANGHORNE B. SMITH DAVID R. WILMERDING, JR.
OFFICERS
ROBERT R. FORTUNE, Chairman and President
EDWARD J. ROACH, Vice President and Treasurer
GARY M. GARDNER, Secretary
INVESTMENT ADVISER
BLACKROCK INSTITUTIONAL
MANAGEMENT CORPORATION
400 Bellevue Parkway
Wilmington, DE 19809
TRANSFER AGENT
PNC BANK, N.A.
c/o PFPC INC.
P.O. Box 8950
Wilmington, DE 19899
(800) 852-4750
(302) 791-2748 (Delaware)
INDEPENDENCE
SQUARE
INCOME
SECURITIES,
INC.
Semiannual Report
to Shareholders
June 30, 1999
- --------------------------------------------------------------------------------
