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 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: TOTAL RETURNS AS OF JUNE 30, 1999: Annualized --------------------- Quarter Ytd 1 Year 2 Years 5 Years ------- ------ ------ ------- ------- 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 - --------------- 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: 12/31/98 6/30/99 Change -------- ------- ------ 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% 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 INDEPENDENCE SQUARE INCOME SECURITIES, INC. SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited) Principal Amount Cost Value - -------------- ------------ ----------- 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................................ 493,285 527,908 250,000 Horton (D.R.), Inc. Co. Guarantee Notes, 10.00%, 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 1,000,000 Nextlink Communications, Inc. Sr. Notes, 12.50%, 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 INDEPENDENCE SQUARE INCOME SECURITIES, INC. SCHEDULE OF INVESTMENTS (Continued) June 30, 1999 (Unaudited) Principal Amount Cost Value - ----------- ----------- ----------- $ 200,000 Sinclair Broadcast Group Sr. Sub. Notes, 10.00%, 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 1,000,000 Virginia Electric & Power Corp. Series B, 8.625%, 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 =========== =========== _______________ + 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) 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 (divided by) 1,822,752 shares)........ $ 17.58 =========== See accompanying notes to financial statements. INDEPENDENCE SQUARE INCOME SECURITIES, INC. STATEMENT OF OPERATIONS Six Months Ended June 30, 1999 (Unaudited) 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) =========== STATEMENT OF CHANGES IN NET ASSETS Six Months Ended June 30, Year Ended 1999 December 31, (Unaudited) 1998 ------------- ------------ 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 =========== =========== See accompanying notes to financial statements. INDEPENDENCE SQUARE INCOME SECURITIES, INC. FINANCIAL HIGHLIGHTS (For a Share of the Fund Outstanding Throughout Each Period) Six Months Ended Year Ended December 31 June 30, ------------------------------------------------ 1999 1998 1997 1996 1995 1994 ----------- ---- ---- ---- ---- ---- (Unaudited) 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% ________________ /1/ See Note F. /2/ Annualized. See accompanying notes to financial statements. 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: 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 =========== 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. 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