- --------------------------------------------------------------------------------
50TH ANNUAL REPORT
- --------------------------------------------------------------------------------
SELIGMAN
INCOME
FUND, INC.
- --------------------------------------------------------------------------------
December 31, 1996
[Logo Omitted]
- --------------------------------------------------------------------------------
AN INCOME FUND
ESTABLISHED IN 1947
SELIGMAN FINANCIAL SERVICES, INC.
AN AFFILIATE OF
[Logo Omitted]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
THIS REPORT IS INTENDED ONLY FOR THE INFORMATION OF SHAREHOLDERS OR THOSE WHO
HAVE RECEIVED THE OFFERING PROSPECTUS COVERING SHARES OF CAPITAL STOCK OF
SELIGMAN INCOME FUND, INC., WHICH CONTAINS INFORMATION ABOUT THE SALES CHARGES,
MANAGEMENT FEE, AND OTHER COSTS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE
INVESTING OR SENDING MONEY.
EQIN2 12/96
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SELIGMAN INCOME FUND, INC.
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A mutual fund that seeks to provide shareholders with high current income
consistent with prudent risk of capital, and with the possibility of improvement
in income and capital value over the longer term.
<TABLE>
<CAPTION>
HIGHLIGHTS OF 1996
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------- --------------------
CLASS A CLASS B* CLASS D CLASS A CLASS D
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Assets (in thousands)............................. $296,291 $2,961 $81,957 $318,307 $86,701
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value per Share............................. $14.97 $14.95 $14.95 $14.63 $14.60
With June 1996 Gain Distribution
Taken in Shares..................................... 15.06 15.04 15.04 -- --
Increase in Net Asset Value with Gain
Distributions Taken in Shares (1) .................. 2.94% 4.23% 3.02% -- --
- ----------------------------------------------------------------------------------------------------------------------
Dividends Paid per Share.............................. $0.730 $0.461 $0.611 $ 0.78 $ 0.65
With December 1995 and June 1996 Gain
Distributions Taken in Shares....................... 0.746 0.463 0.625 -- --
- ----------------------------------------------------------------------------------------------------------------------
Distribution of Realized Gain per Share............... 0.087 0.087 0.087 $0.276 $0.276
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses per Dollar of
Average Net Assets................................... $0.0114 $0.0189(2) $0.0190 $0.0100 $0.0179
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* From April 22, 1996 (commencement of operations).
(1) Excluding effect of dividends paid.
(2) Annualized.
1
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TO THE SHAREHOLDERS
- --------------------------------------------------------------------------------
Seligman Income Fund had a successful year in 1996. It maintained a
dividend yield that was more than twice that of the Standard & Poor's 500
Composite Stock Price Index and increased the portfolio's capital value by
investing in carefully selected bonds and stocks for income and growth. The
Fund's investment results begin on page 6.
In 1996, the performance of the fixed-income markets was mixed. In the
first two quarters of the year, the markets were hindered by persistent concerns
that the economy's unexpected vigor would produce higher levels of inflation.
Performance improved in the last two quarters of the year, as low levels of
inflation prevailed despite continued economic growth. The yield on the
benchmark 30-year Treasury bond reflected the changing perceptions of
inflationary pressure, rising from 5.95% on December 31, 1995, to 6.87% on June
30, 1996, and ending the year slightly lower at 6.64%. Further, the Ibbotson
Long-term Government Bond Index had a lackluster total return of -0.93% for the
year.
During 1996, a constructive economic environment supported strong corporate
earnings in most industries. The increased competitiveness of US industry and
the low inflation environment provided strong fundamental support to higher
equity prices, and improved results in the fixed-income markets, particularly in
the last half of the year.
Currently, there are no clear indications that there will be either runaway
economic expansion or recession in 1997. Looking ahead, the environment for the
US financial markets remains generally positive, given continued modest economic
growth, low inflation, and bipartisan efforts to balance the federal budget
without raising taxes. While we always recognize that there could be further
short-term volatility, we remain positive about the long-term outlook for the
financial markets and your Fund.
On a final note, the volatility witnessed in the financial markets in 1996
is not unusual in the challenging world of investing. Because it is time, not
timing, that counts, we believe the best investment strategy is long-term
investing. A professional financial advisor can help you formulate a long-term
investment plan to help you seek your financial goals, and can provide the
insight and support needed to weather the day-to-day uncertainty that
accompanies investing.
A discussion with your Portfolio Managers and the Fund's portfolio of
investments follow this letter.
We thank you for your continued interest in Seligman Income Fund, and look
forward to serving your investment needs in the many years to come.
By order of the Board of Directors,
/s/ William C. Morris
- ---------------------
William C. Morris
Chairman
/s/ Brian T. Zino
-----------------
Brian T. Zino
President
January 31, 1997
2
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ANNUAL PERFORMANCE OVERVIEW
- --------------------------------------------------------------------------------
The following is a discussion with your Portfolio Managers regarding Seligman
Income Fund, and a chart and table comparing your Fund's performance to the
performance of the Standard & Poor's 500 Composite Stock Price Index (S&P 500),
the Lehman Brothers Aggregate Bond Index, and the Lipper Income Funds Average.
YOUR PORTFOLIO MANAGERS
- -----------------------
[Photo]
- -----------------------
SELIGMAN GROWTH AND INCOME TEAM: (FROM LEFT) RODNEY COLLINS (CO-PORTFOLIO
MANAGER), MARGARET DOYLE, JONATHAN ROTH, ODETTE GALLI, (SEATED) MELANIE RAVENELL
(ADMINISTRATIVE ASSISTANT), CHARLES C. SMITH, JR. (CO-PORTFOLIO MANAGER), AMY
FUJII
CHARLES C. SMITH, JR. is a Managing Director of J. & W. Seligman & Co.
Incorporated and has been Portfolio Manager and Vice President of Seligman
Income Fund since December 1991. Mr. Smith is also Vice President and Portfolio
Manager of Seligman Common Stock Fund and Tri-Continental Corporation.
Additionally, he is Vice President of Seligman Portfolios, Inc. and Portfolio
Manager of its Seligman Common Stock and Seligman Income Portfolios. Mr. Smith
joined Seligman in 1985 as Vice President, Investment Officer. He was promoted
to Senior Vice President, Senior Investment Officer in August 1992, and to
Managing Director in January 1994. RODNEY COLLINS, Vice President of J. & W.
Seligman & Co. Incorporated, was named Co-Portfolio Manager of Seligman Income
Fund in 1996. Mr. Collins joined Seligman in 1992 as an investment associate in
the Seligman Growth and Income Team. Messrs. Smith and Collins are supported by
a group of investment professionals dedicated to the income and growth
investment discipline, and to the objectives of Seligman Income Fund.
IAIN C. CLARK, Chief Investment Officer of Seligman Henderson Co., Seligman
Income Fund's Subadviser, is responsible for the international investment
activities of the Fund. Mr. Clark is also head of International Investments for,
and a Director of, Henderson plc, an investment manager in London, England. He
has been with Henderson since 1985.
HOW DID SELIGMAN INCOME FUND PERFORM IN THE LAST 12 MONTHS?
"Seligman Income Fund's blended weighting of equity and fixed-income holdings
produced a total return of 8.22% based on the net asset value of Class A shares
for the year ended December 31, 1996, which outperformed the 3.63% total return
of the Lehman Brothers Aggregate Bond Index, but lagged the 10.76% total return
of the Lipper Income Funds Average, as measured by Lipper Analytical Services.
Due to the composition of its portfolio, the Fund lagged the all-equity S&P 500,
but maintained a dividend yield that was more than twice that of the S&P 500."
WHICH FACTORS AFFECTED THE FUND'S PERFORMANCE IN 1996?
"In the first half of 1996, a stronger-than-expected rate of economic growth
provoked fears of inflationary pressure, which pushed interest rates higher.
This caused the fixed-income portion of the portfolio to experience pricing
pressure. However, the economic picture became more clear as moderate growth
prevailed and inflation did not noticeably increase. By the third quarter,
concerns about the rate of inflation had subsided, and interest rates declined
through the balance of the year. As a result, bond market performance improved
in the second half of 1996.
3
<PAGE>
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ANNUAL PERFORMANCE OVERVIEW (CONTINUED)
- --------------------------------------------------------------------------------
"In the equity markets, the appreciation of a small number of the largest
companies pushed major indices such as the S&P 500 to record highs. These
advances were due to the health of the economy, continued corporate
profitability, and increased mutual fund inflows. Overall, the Fund benefited
from the improving interest rate environment in the second half of the year, and
the strength of the equity markets throughout the year."
WHAT WAS YOUR INVESTMENT STRATEGY?
"In the last 12 months, a bottom-up approach to investing was followed, focusing
on identifying value in the markets. In the fixed-income portion of the
portfolio, bonds of slightly longer maturities were purchased in the first half
of the year to take advantage of any reduction in interest rates in the second
half of the year. The investment strategy focused on purchasing corporate bonds
with improving credit fundamentals such as strong cash flow and debt reduction.
The Fund's holdings were also concentrated in high-quality US Government
securities to provide solid yield and stability.
"Further, the asset class weightings in the Fund were strategically
modified. The yield was maintained while the portfolio's overall volatility, as
measured by the beta of the portfolio, was reduced. Beta measures the volatility
of an investment, as compared to that of the overall market (represented by the
S&P 500). At December 31, the portfolio was overweighted, in historical terms,
in fixed-income securities, and the weighting in convertible stocks had been
reduced to historically low levels. The portfolio's exposure to convertible
stocks was also reduced due to the poor quality of new convertible offerings
brought to market, which had high premiums and inadequate yields."
WHICH SECTORS MOST AFFECTED THE FUND'S PERFORMANCE?
"In the fixed-income portion of the portfolio, banking and financial service
corporate bonds did very well. Otherwise, credit card companies such as Capital
One Bank and First USA Bank had a strong year, and should continue to do so in
the future. In the energy sector, Oryx Energy and Tosco were the strongest
performers, and profits were taken. In retail, the business outlook for
Federated Department Stores improved, and the stock provided a competitive
yield.
"In the equity portion of the portfolio, we concentrated on energy and financial
issues. Both sectors had good performances in the last two quarters of 1996 as
interest rates declined and the equity markets posted strong gains. The
strongest stocks in energy included Atlantic Richfield and Shell Transport and
Trading, and the gains of Citicorp dramatically improved the performance of the
Fund's financial sector. However, the convertible markets did not keep pace with
the impressive advances of the equity markets in 1996."
WHAT IS THE OUTLOOK?
"Currently, we are reexamining the relative attractiveness versus risk of each
asset class in the portfolio. In 1997, we will look to increase the Fund's
exposure to domestic common stocks and corporate bonds, while reducing exposure
to convertible stocks and bonds. We will focus on maintaining the Fund's yield
and low level of risk while remaining fully invested to take advantage of the
strong equity markets. As we believe that we are entering a period of moderate
economic growth, the portfolio has been repositioned to take advantage of
possible declines in interest rates."
4
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SELIGMAN INCOME FUND, INC.
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
PERCENT
OF TOTAL
DECEMBER 31,
---------------
1996 1995
- --------------------------------------------------------
US GOVERNMENT AND GOVERNMENT
- --------------------------------------------------------
AGENCY SECURITIES ................... 12.0 10.6
Corporate Bonds........................ 28.7 35.5
Convertible Bonds...................... 19.3 19.5
Convertible Preferred Stocks........... 16.1 14.4
Asset-Backed Securities................ 3.7 --
- --------------------------------------------------------
TOTAL CORPORATE FIXED INCOME .......... 67.8 69.4
- --------------------------------------------------------
COMMON STOCKS ......................... 19.3 15.4
- --------------------------------------------------------
NET CASH AND SHORT-TERM
HOLDINGS ............................. 0.9 4.6
- --------------------------------------------------------
TOTAL ................................. 100.0 100.0
- --------------------------------------------------------
DIVERSIFICATION OF NET ASSETS BY
INDUSTRY
PERCENT
OF TOTAL
DECEMBER 31,
---------------
1996 1995
- --------------------------------------------------------
Automotive............................. 0.4 2.3
Banking and Finance.................... 20.6 18.4
Broadcasting........................... -- 1.2
Chemicals.............................. 0.6 3.9
Commercial Services.................... -- 1.0
Computer and Business Services......... -- 0.9
Consumer Goods and Services............ 2.4 3.2
Diversified............................ 0.6 0.8
Drugs and Health Care.................. 1.7 0.9
Electric Utilities..................... 7.6 5.4
Electronics............................ 0.6 --
Energy ................................ 8.8 10.1
Environmental Services................. 1.8 0.6
Food................................... -- 1.6
Insurance.............................. 8.1 8.2
Machinery.............................. 2.3 0.9
Media.................................. 4.7 --
Office Equipment....................... 0.6 --
Paper.................................. 2.3 0.9
Publishing............................. -- 1.4
Retailing.............................. 5.8 3.4
Shipbuilding........................... 0.4 --
Steel.................................. 0.8 0.8
Technology............................. 5.2 4.0
Transportation......................... 3.6 3.9
Utilities/Telecommunications........... 5.0 6.2
Miscellaneous.......................... 3.2 4.8
- --------------------------------------------------------
TOTAL CORPORATE FIXED INCOME
SECURITIES AND COMMON STOCKS ......... 87.1 84.8
- --------------------------------------------------------
US GOVERNMENT AND GOVERNMENT
AGENCY SECURITIES .................... 12.0 10.6
- --------------------------------------------------------
NET CASH AND SHORT-TERM
HOLDINGS ............................. 0.9 4.6
- --------------------------------------------------------
TOTAL ................................. 100.0 100.0
- --------------------------------------------------------
5
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PERFORMANCE COMPARISON CHART DECEMBER 31, 1996
- --------------------------------------------------------------------------------
This chart compares a $10,000 hypothetical investment made in Seligman Income
Fund Class A shares, with and without the maximum initial sales charge of 4.75%,
for the 10-year period ended December 31, 1996, to a $10,000 hypothetical
investment made in the Standard & Poor's 500 Composite Stock Price Index (S&P
500), the Lehman Brothers Aggregate Bond Index (Lehman Index), and the Lipper
Income Funds Average (Lipper Income Average) for the same period. The
performances of Seligman Income Fund Class B and D shares are not shown in this
chart, but are included in the table on page 7. It is important to keep in mind
that the S&P 500 and the Lehman Index exclude the effects of any fees or sales
charges, and the Lipper Income Average excludes the effect of sales charges.
[The following table represents points that appear on the line chart in the
printed version]
SELIGM INCOME FUND - CLASS A
With Without Lipper
Sales Sales Lehman Income
Charge Charge S&P 500 Index Average
------ ------ ------- ----- -------
12/31/86 .. 9,525.16 10,000.01 10,000.00 10,000.00 10,000.00
9,842.06 10,332.70 12,135.00 10,166.00 10,767.22
9,581.59 10,059.24 12,744.18 9,984.03 10,718.00
9,404.69 9,873.53 13,585.29 9,711.46 10,776.62
12/31/87 .. 9,144.35 9,600.21 10,524.53 10,275.70 10,009.25
9,661.16 10,142.78 11,123.37 10,662.07 10,600.61
9,968.66 10,465.61 11,864.19 10,787.88 10,943.68
10,049.77 10,550.77 11,904.53 11,002.56 11,104.52
12/31/88 .. 10,107.24 10,611.10 12,272.38 11,086.18 11,241.00
10,452.98 10,974.08 13,142.49 11,212.56 11,660.68
11,156.57 11,712.75 14,302.97 12,106.20 12,355.74
11,374.07 11,941.08 15,834.82 12,243.00 12,876.51
12/31/89 .. 11,634.07 12,214.04 16,161.01 12,698.44 13,049.86
11,540.56 12,115.85 15,674.57 12,596.85 12,820.19
11,607.43 12,186.06 16,660.50 13,057.90 13,187.92
10,357.86 10,874.19 14,371.35 13,170.20 12,368.68
12/31/90 .. 10,668.09 11,199.89 15,659.02 13,836.61 12,972.49
11,839.72 12,429.93 17,934.27 14,224.03 14,108.29
12,205.89 12,814.34 17,893.03 14,454.46 14,291.65
13,277.86 13,939.75 18,850.30 15,275.48 15,313.97
12/31/91 .. 13,881.65 14,573.63 20,429.96 16,049.94 16,138.27
14,594.65 15,322.18 19,913.08 15,844.50 16,231.40
15,163.69 15,919.59 20,291.43 16,484.62 16,686.29
15,857.38 16,647.86 20,930.61 17,193.46 17,314.81
12/31/92 .. 16,316.40 17,129.78 21,983.42 17,239.88 17,706.57
17,377.64 18,243.92 22,944.09 17,951.89 18,681.76
17,814.12 18,702.15 23,056.52 18,427.61 19,106.01
18,439.63 19,358.84 23,651.38 18,908.58 19,746.32
12/31/93 .. 18,923.25 19,866.58 24,200.09 18,919.92 19,932.72
18,166.00 19,071.57 23,282.91 18,376.92 19,256.60
17,873.88 18,764.88 23,380.69 18,187.64 19,168.54
18,233.57 19,142.50 24,524.01 18,298.58 19,642.94
12/31/94 .. 17,895.66 18,787.75 24,519.11 18,368.12 19,329.78
18,858.11 19,798.17 26,907.27 19,293.87 20,468.15
20,235.84 21,244.59 29,476.91 20,468.87 21,733.33
21,054.51 22,104.06 31,820.32 20,870.05 22,823.62
12/31/95 .. 21,582.45 22,658.33 33,735.91 21,759.12 23,821.28
21,686.08 22,767.13 35,547.53 21,373.98 24,310.71
21,998.87 23,095.51 37,140.06 21,495.81 24,733.59
22,305.61 23,417.56 38,287.68 21,893.49 25,217.00
12/31/96 .. 23,356.28 24,520.61 41,480.88 22,550.29 26,385.56
Performance data quoted represent changes in prices and assume that all
distributions within the periods are invested in additional shares. The rates of
return and principal value of an investment will fluctuate. Shares, if redeemed,
may be worth more or less than their original cost. Past performance is not
indicative of future investment results.
6
<PAGE>
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SELIGMAN INCOME FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS PER SHARE
TOTAL RETURNS*
FOR PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AVERAGE ANNUAL
----------------------------------------------------
CLASS B CLASS D
SINCE SINCE
INCEPTION THREE ONE FIVE 10 INCEPTION
4/22/96 MONTHS YEAR YEARS YEARS 5/3/93
--------- -------- ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A
With Sales Charge n/a (0.25)% 3.08% 9.89% 8.85% n/a
Without Sales Charge n/a 4.71 8.22 10.97 9.38 n/a
CLASS B
With 5% CDSL 2.58% (0.41) n/a n/a n/a n/a
Without CDSL 7.58 4.59 n/a n/a n/a n/a
CLASS D
With 1% CDSL n/a 3.59 6.43 n/a n/a n/a
Without CDSL n/a 4.59 7.43 n/a n/a 7.48%
S&P 500** 15.00+ 8.34 22.96 15.22 15.27 18.29++
LEHMAN INDEX** 6.10+ 3.00 3.63 7.04 8.47 6.22++
LIPPER INCOME AVERAGE** 8.03+ 4.63 10.76 10.32 10.18 9.89++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE
DECEMBER 31, 1996 SEPTEMBER 30, 1996 JUNE 30, 1996 MARCH 31, 1996 DECEMBER 31, 1995
-------------------- ------------------- -------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Class A $14.97 $14.48 $14.46 $14.52 $14.63
CLASS B 14.95 14.45 14.43 14.43+++ n/a
CLASS D 14.95 14.45 14.43 14.49 14.60
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CAPITAL GAIN
---------------------------------------------------
DIVIDEND PAID PAID REALIZED UNREALIZEDo
------------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C>
CLASS A $0.730 $0.087 $0.223 $1.253
CLASS B 0.461*** 0.087 0.223 1.253
CLASS D 0.611 0.087 0.223 1.253
</TABLE>
The performances of Class B and D shares will be greater than or less than the
performance shown for Class A shares, based on the differences in sales charges
and fees paid by shareholders.
- ----------
* Return figures reflect any change in price per share and assume the
reinvestment of dividends and capital gain distributions. Return figures for
Class A shares are calculated with and without the effect of the initial
4.75% maximum sales charge. Class A share returns reflect the effect of the
0.25% Administration, Shareholder Services and Distribution Plan after
January 1, 1993, only. Returns for Class B shares are calculated with and
without the effect of the maximum 5% contingent deferred sales load
("CDSL"), charged only on certain redemptions made within one year of the
date of purchase, declining to 1% in the sixth year and 0% thereafter.
Returns for Class D shares are calculated with and without the effect of the
1% CDSL, charged only on redemptions made within one year of the date of
purchase. The rates of return will vary and the principal value of an
investment will fluctuate. Shares, if redeemed, may be worth more or less
than their original cost. Past performance is not indicative of future
investment results.
** The S&P 500, the Lehman Index, and the Lipper Income Average are unmanaged
benchmarks that assume investment of dividends. The S&P 500 and the Lehman
Index do not reflect fees and sales charges, and the Lipper Income Average
does not reflect sales charges. The monthly performance of the Lipper Income
Average is used in the Performance Comparison Chart and Investment Results
per Share. Investors may not invest directly in an index or an average.
*** For the period April 22, 1996, to December 31, 1996.
+ From April 30, 1996.
++ From April 30, 1993.
+++ As of April 22, 1996.
o Represents the per share amount of net unrealized appreciation of portfolio
securities as of December 31, 1996.
7
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SELIGMAN INCOME FUND, INC.
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF 1996
DIVIDEND AND GAIN DISTRIBUTIONS
FOR TAXABLE ACCOUNTS
The quarterly dividends paid to Class A, B, and D shareholders in 1996 are
taxable as ordinary income for federal tax purposes. It makes no difference
whether you received them in cash or in shares. Under the Internal Revenue Code,
23% of the dividends paid to Class A, B, and D shareholders has been designated
as qualifying for the dividend received deduction available to corporate
shareholders. In order to claim the dividend received deduction for this
distribution, corporate shareholders must have held the Fund's shares for at
least 46 days.
A distribution of $0.087 per share, consisting of $0.065 from net long-term
and $0.022 from net short-term gain realized on investments during the period
November 1, 1995, to December 31, 1995, was paid on June 26, 1996, to Class A,
B, and D shareholders. The distribution from net long-term gain is designated as
a "capital gain dividend" for federal income tax purposes and is taxable to
shareholders in 1996 as a long-term gain from the sale of capital assets, no
matter how long your shares may have been owned or whether the distribution was
paid in additional shares or cash. However, if shares on which a capital gain
distribution was received are subsequently sold, and such shares were held for
six months or less from the date of purchase, any loss on the sale would be
treated as long-term to the extent it offsets the long-term gain distribution.
Net short-term gain is taxable as ordinary income whether paid to you in cash or
shares.
If the gain distribution was paid in shares, the per share cost basis for
federal income tax purposes was $14.33 for Class A shares and $14.30 for Class B
and D shares.
A year-end statement of account showing activity for 1996, a Form 1099-DIV,
and if applicable, a Form 1099-B have been mailed to each shareholder. The Form
1099-B shows the proceeds of any redemptions paid to the shareholder during the
year and reported to the Internal Revenue Service as required by federal
regulations. Form 1099-DIV shows the amount of the dividends and the
distribution on investments paid to the shareholder during the year.
8
<PAGE>
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SELIGMAN INCOME FUND, INC.
- --------------------------------------------------------------------------------
LARGEST PORTFOLIO CHANGES
DURING PAST THREE MONTHS
PRINCIPAL AMOUNT
----------------------------
HOLDINGS
ADDITIONS INCREASE 12/31/96
- ----------- ----------- ------------
US GOVERNMENT AND
GOVERNMENT AGENCY
SECURITIES
US Treasury Bonds 7 7/8%,
2/15/2021 ............................. $ 5,000,000 $ 5,000,000
US Treasury Notes 6 1/4%,
10/31/2001 ............................ 10,000,000 10,000,000
Corporate Bonds
Barnett Capital Trust 8.06%,
12/1/2026 ............................ 5,000,000 5,000,000
Enersis 7.40%, 12/1/2016 ............... 5,000,000 5,000,000
James River, 6.70%,
11/15/2003 ........................... 5,000,000 5,000,000
Oryx Energy 8 3/8%,
7/15/2004 ............................ 5,000,000 5,000,000
Woolworth 7%, 6/1/2000 ................ 5,000,000 5,000,000
ASSET-BACKED SECURITIES
Money Store Home
Equity Trust 1996-D
6.83%, 6/15/2021 .................... 5,000,000 5,000,000
Saxon Asset Securities
Trust 1996, 6 3/4%,
9/25/2022 ............................ 5,000,000 5,000,000
UCFC 1996-D 6.918%,
10/15/2018 ........................... 4,000,000 4,000,000
PRINCIPAL AMOUNT
OR SHARES
----------------------------
HOLDINGS
REDUCTIONS DECREASE 12/31/96
- ----------- ----------- ------------
US GOVERNMENT AND
GOVERNMENT AGENCY
SECURITIES
US Treasury Notes 5 3/4%,
10/31/2000 ............................ $6,000,000 --
Government National
Mortgage Association
Obligations 10%, with
various maturities from
1/15/2018 to 8/15/2021 ............... 7,617,512 --
CORPORATE BONDS
Alco Capital 5.435%,
2/22/1999 ............................ 5,000,000 --
Continental Cablevision,
8.30%, 5/15/2006 ..................... 5,000,000 --
Equitable Companies, 9%,
12/15/2004 ........................... 5,000,000 --
Key Bank Oregon, 7 3/8%,
9/15/2008 ............................ 5,000,000 --
Oryx Energy, 8%,
10/15/2003 ........................... 5,000,000 --
Time Warner 9 1/8%,
1/15/2013 ............................ 5,000,000 --
CONVERTIBLE PREFERRED STOCKS
Ceredian, 5 1/2% ....................... 40,000 shs. --
ASSET-BACKED SECURITIES
Advanta Mortgage Loan Trust
1996-2 7.44%, 8/25/2018 ............... $5,000,000 --
Largest portfolio changes from the previous quarter to the current quarter are
based on cost of purchases and proceeds from sales of securities.
LARGEST PORTFOLIO HOLDINGS
AT DECEMBER 31, 1996
SECURITY VALUE
- ----------- -----------
Federal National Mortgage Association
7 1/2%, 11/01/2026.................... $21,692,672
US Treasury Notes
6 1/4%, 10/31/2001.................... 10,009,380
Carlton Communications
7 1/2%, 8/14/2007..................... 7,961,174
US Treasury Bonds
7 7/8%, 2/15/2021..................... 5,650,005
General Signal
5 3/4%, 6/1/2002...................... 5,456,250
AEGON N.V. 8%,
8/15/2006............................. 5,325,335
United Companies Financial
9.35%, 11/11/1999..................... 5,270,295
Midland Bank 7.65%, 5/1/2025............ 5,254,020
Federated Department Stores
8 1/2%, 6/15/2003..................... 5,202,870
Capital One Bank 8 1/8%,
3/1/2000.............................. 5,195,430
9
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
---------- -------
US GOVERNMENT AND
GOVERNMENT AGENCY
SECURITIES 12.0%
US Treasury Bonds
7 7/8%, 2/15/2021 ................... $ 5,000,000 $ 5,650,005
US Treasury Notes
6 1/4%, 10/31/2001 .................. 10,000,000 10,009,380
MORTGAGE-BACKED SECURITIES:++
Federal National Mortgage
Association 7 1/2%, 11/1/2026 ....... 21,672,342 21,692,672
Government National Mortgage
Association Obligations 7 1/2%,
with various maturities from
1/15/2023 to 12/15/2024 ............. 8,294,529 8,310,082
------------
TOTAL US GOVERNMENT
AND GOVERNMENT
AGENCY SECURITIES
(Cost $44,839,274) ....... 45,662,139
------------
CORPORATE BONDS 28.7%
BANKING AND FINANCE 11.4%
American Savings Bank 6 5/8%,
2/15/2006+ .......................... 5,000,000 4,788,600
Bank of Boston Capital 8 1/4%,
12/1/2026+ .......................... 3,000,000 3,067,800
Barnett Capital Trust 8.06%,
12/1/2026+ .......................... 5,000,000 5,050,800
CAF 7 3/8%, 7/21/2000 .................. 5,000,000 5,131,465
Capital One Bank 8 1/8%, 3/1/2000 ...... 5,000,000 5,195,430
First USA Bank 5.85%,
2/22/2001 ........................... 5,000,000 4,828,460
Franchise Finance 7%,
11/30/2000 .......................... 5,000,000 5,005,595
Midland Bank 7.65%, 5/1/2025 ........... 5,000,000 5,254,020
United Companies Financial
9.35%, 11/1/1999 .................... 5,000,000 5,270,295
------------
43,592,465
------------
ELECTRIC UTILITIES 2.6%
Empresa Electrica Guacolda
7.60%, 4/30/2001+ ................... 5,000,000 5,086,300
Enersis 7.40%, 12/1/2016 ............... 5,000,000 4,847,955
------------
9,934,255
------------
ENERGY 1.4%
Oryx Energy 8 3/8%, 7/15/2004 .......... 5,000,000 5,195,155
------------
DRUGS AND
HEALTH CARE 0.8%
Allegiance 7%, 10/15/2026 .............. 3,000,000 3,025,245
-------------
INSURANCE 1.4%
AEGON N.V. 8%, 8/15/2006 ............... 5,000,000 5,325,335
-------------
MACHINERY 1.3%
Anixter 8%, 9/15/2003 .................. 5,000,000 5,091,105
-------------
MEDIA 2.6%
News America Holdings
7.43%, 10/1/2026 .................... 5,000,000 5,064,740
Viacom 7 3/4%, 6/1/2005 ................ 5,000,000 4,903,925
------------
9,968,665
------------
PAPER 1.3%
James River 6.70%, 11/15/2003 .......... 5,000,000 4,898,800
------------
RETAILING 3.2%
Federated Department Stores
8 1/2%, 6/15/2003 ................... 5,000,000 5,202,870
Kohl's 7 3/8%, 10/15/2011 .............. 1,800,000 1,804,383
Woolworth 7%, 6/1/2000 ................. 5,000,000 5,037,885
------------
12,045,138
------------
SHIPBUILDING 0.4%
Newport News Shipbuilding
8 5/8%, 12/1/2006+ .................. 1,300,000 1,335,750
------------
TECHNOLOGY 1.0%
Solectron 7 3/8%, 3/1/2006+ ............ 4,000,000 3,971,612
------------
UTILITIES/
TELECOMMUNICATIONS 1.3%
Tele Communications
6.275%, 9/15/2003 ................... 5,000,000 5,023,635
------------
TOTAL CORPORATE BONDS
(Cost $107,893,193) ................... 109,407,160
------------
CONVERTIBLE BONDS 19.3%
CONSUMER GOODS AND
SERVICES 0.5%
Bell Sports 4 1/4%, 11/15/2000 ........ 2,500,000 1,937,500
------------
DIVERSIFIED 0.6%
MascoTech 4 1/2%, 12/15/2003 ........... 2,750,000 2,234,375
------------
- ----------
See footnotes on page 13.
10
<PAGE>
================================================================================
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
---------- -------
DRUGS AND HEALTH CARE 0.9%
Ciba-Geigy 6 1/4%, 3/15/2016+ .......... $2,000,000 $2,010,000
Greenery Rehabilitation Group
8 3/4%, 4/1/2015 .................... 2,000,000 1,547,500
------------
3,557,500
------------
ELECTRONICS 0.6%
Cirrus Logic 6%, 12/15/2003+ ........... 375,000 343,594
Park Electrochemical 5 1/2%,
3/1/2006 ............................ 2,000,000 1,760,000
------------
2,103,594
------------
ENERGY 1.8%
Apache 6%, 1/15/2002+ .................. 3,000,000 3,821,250
Santa Fe Pipelines
11.162%, 8/15/2010 .................. 2,500,000 3,112,500
------------
6,933,750
------------
ENVIRONMENTAL
SERVICES 1.0%
Molton Metals 5 1/2%, 5/1/2006+ ........ 3,000,000 2,085,000
OHM 8%, 10/1/2006 ...................... 2,000,000 1,855,000
------------
3,940,000
------------
INSURANCE 1.9%
Leucadia National
5 1/4%, 2/1/2003 .................... 3,000,000 3,142,500
LibLife International (UK)
6 1/2%, 9/30/2004 ................... 750,000 858,281
Trenwick Group
6%, 12/15/1999 ...................... 3,000,000 3,161,250
------------
7,162,031
------------
MACHINERY 1.0%
Cooper Industries
7.05%, 1/1/2015 ..................... 2,724,000 2,873,820
Teco Electric and Machinery
(Taiwan) 2 3/4%, 4/15/2004 .......... 1,000,000 746,250
------------
3,620,070
------------
MEDIA 2.1%
Carlton Communications (UK)
7 1/2%, 8/14/2007 ................... 2,600,000 7,961,174
------------
RETAILING 0.9%
CML Group 5 1/2%, 1/15/2003 ............ 2,000,000 1,460,000
Proffitts 4 3/4%, 11/1/2003 ........... 2,000,000 2,005,000
------------
3,465,000
------------
PRIN. AMT.
OR SHARES
----------
TECHNOLOGY 4.2%
Bay Networks
5 1/4%, 5/15/2003+ .................. 2,000,000 1,805,000
BroadBand Technologies
5%, 5/15/2001+ ...................... 4,000,000 3,060,000
Cray Research 6 1/8%, 2/1/2011 ......... 1,500,000 1,194,375
Data General 7 3/4%, 6/1/2001 .......... 2,000,000 2,060,000
Evans & Sutherland Computer
6%, 3/1/2012 ........................ 2,000,000 1,752,500
Platinum Technology
6 3/4%, 11/15/2001 .................. 3,300,000 4,038,375
Xilinx 5 1/4%, 11/1/2002+ .............. 2,000,000 1,990,000
------------
15,900,250
------------
TRANSPORTATION 1.5%
Airborne Freight
6 3/4%, 8/15/2001 ................... 1,750,000 1,754,375
British Airways (UK)
9 3/4%, 6/15/2005 ................... 700,000o 2,965,525
Nippon Yusen (Japan) 2%,
9/29/2000 ........................... 115,000,000* 1,078,868
------------
5,798,768
------------
MISCELLANEOUS 2.0%
General Signal 5 3/4%, 6/1/2002 ........ 5,000,000 5,456,250
TriMas 5%, 8/1/2003 .................... 2,000,000 2,200,000
------------
7,656,250
------------
UTILITIES/
TELECOMMUNICATIONS 0.3%
Network Equipment
7 1/4%, 5/15/2014 ................... 1,470,000 1,269,712
------------
TOTAL CONVERTIBLE BONDS
(Cost $66,438,723) 73,539,974
------------
CONVERTIBLE PREFERRED
STOCKS 16.1%
BANKING AND FINANCE 0.9%
Ahmanson (H.F.) (Series D) 6% .......... 50,000shs. 3,487,500
------------
CONSUMER GOODS AND
SERVICES 0.9%
RJR Nabisco Holdings $0.6012 ........... 500,000 3,375,000
------------
11
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
ENERGY 2.9%
Snyder Oil (Class A) 6% ................ 150,000 $ 3,637,500
Unocal 6 1/4% .......................... 55,800 3,180,600
Williams Cos. $3.50 .................... 50,000 4,400,000
------------
11,218,100
------------
ENVIRONMENTAL
SERVICES 0.8%
Browning-Ferris Industries 7 1/4% ..... 100,000 2,850,000
------------
INSURANCE 3.8%
Alexander & Alexander
(Series A) $3.625+ .................. 65,000 3,380,000
American General (Series A) $3.00 ...... 50,000 2,762,500
FSA 7 5/8% ............................. 137,500 4,245,313
St. Paul Capital 6% .................... 75,000 4,153,125
------------
14,540,938
------------
OFFICE EQUIPMENT 0.6%
Ikon Office Solutions $5.04 ............ 22,500 2,148,750
------------
PAPER 1.0%
International Paper 5 1/4%+ ............ 80,000 3,660,000
------------
RETAILING 1.2%
Kmart Financing 7 3/4% ................. 75,000 3,656,250
Venture Stores $3.25 ................... 40,000 735,000
------------
4,391,250
------------
STEEL 0.7%
U.S. Steel $3.25 ....................... 60,000 2,662,500
------------
TRANSPORTATION 2.1%
GATX $3.875 ............................ 50,000 2,918,750
Interpool 5 3/4% ....................... 20,000 2,067,500
Sea Containers $4.00 ................... 70,000 3,185,000
------------
8,171,250
------------
UTILITIES/
TELECOMMUNICATIONS 0.2%
Mobile Telecommunication
Technologies $2.25+ .................... 50,000 912,500
------------
MISCELLANEOUS 1.0%
Corning (Delaware) 6% .................. 60,000 3,817,500
------------
OTHER .................................. 80,000
------------
TOTAL CONVERTIBLE PREFERRED
STOCKS
(Cost $58,067,803) .................. 61,315,288
------------
COMMON STOCKS 19.3%
AUTOMOTIVE 0.4%
Ford Motor ............................. 50,000 1,593,750
------------
BANKING AND
FINANCE 4.6%
Banco de Santander (Spain) ............. 52,732 3,373,646
Citicorp ............................... 44,999 4,634,897
Grupo Financiera Banamex
Accival (Class B) (Mexico) ......... 443,000 924,766
HSBC Holdings (UK) ..................... 70,000 1,497,834
ING Groep (Netherlands) ................ 81,433 2,930,702
National Australia Bank (ADRs)
(Australia) ......................... 60,000 3,532,500
Societe Generale (France) .............. 6,360 687,468
------------
17,581,813
------------
CHEMICALS 0.6%
Bayer (Germany) ........................ 57,000 2,311,461
------------
CONSUMER GOODS AND
SERVICES 1.0%
Allied Domecq (UK) ..................... 140,000 1,094,459
B.A.T. Industries (UK) ................. 200,000 1,659,413
Christian Dior (France) ................ 7,570 1,220,827
------------
3,974,699
------------
ELECTRIC UTILITIES 5.0%
Central & South West ................... 60,100 1,540,063
Central Costanera (ADRs)+
(Argentina) ......................... 14,000 430,500
CINergy ................................ 102,300 3,414,263
Empresa Nacionale de
Electricidad (ADRs) (Spain) ......... 25,000 1,750,000
Entergy ................................ 100,000 2,775,000
FPL Group .............................. 100,000 4,600,000
Hong Kong Electric
(Hong Kong) ......................... 800,000 2,658,220
VEBA (Germany) ......................... 30,000 1,724,026
------------
18,892,072
------------
ENERGY 2.7%
Atlantic Richfield ..................... 20,000 2,650,000
BP Prudhoe Bay Royalty Trust ........... 80,000 1,360,000
Shell Transport and
Trading (ADRs) (UK) ................. 50,000 5,118,750
Total SA (Class B) (France) ........... 15,396 1,251,852
------------
10,380,602
------------
12
<PAGE>
================================================================================
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
INSURANCE 1.0%
AXA-UAP (France) ....................... 9,736 $ 619,052
GCR Holdings ........................... 57,000 1,264,688
Irish Life (UK) ........................ 430,000 1,999,258
------------
3,882,998
------------
RETAILING 0.5%
Tesco (UK) ............................. 287,400 1,744,752
------------
STEEL 0.1%
Pohang Iron & Steel (ADRs)
(South Korea) .......................... 15,000 303,750
------------
UTILITIES/
TELECOMMUNICATIONS 3.2%
Alcatel Alsthom (France) ............... 15,000 1,204,624
British Telecommunications
(ADRs) (UK) ........................ 30,000 2,058,750
Frontier ............................... 100,000 2,262,500
GTE .................................... 100,000 4,550,000
Tele Danmark (ADSs)
(Denmark) ........................... 50,000 1,362,500
Telecom Italia-Di Risp (Italy) ......... 439,000 856,021
------------
12,294,395
------------
MISCELLANEOUS 0.2%
Pacific Dunlop (Australia) ............. 275,000 699,380
------------
OTHER .................................. 141,009
------------
TOTAL COMMON STOCKS
(Cost $54,526,929) .................... 73,800,681
------------
PRIN. AMT.
----------
ASSET-BACKED SECURITIES++ 3.7%
BANKING AND FINANCE 3.7%
Money Store Home Equity
Trust
1996-D 6.83%, 6/15/2021 ............. $5,000,000 $ 4,989,065
Saxon Asset Securities Trust 1996,
6ss.%, 9/25/2022 .................... 5,000,000 4,948,437
UCFC 1996-D 6.918%, 10/15/2018 ......... 4,000,000 4,005,000
------------
TOTAL ASSET-BACKED
SECURITIES
(Cost $13,995,975) .................. 13,942,502
------------
TOTAL INVESTMENTS 99.1%
(Cost $345,761,897) ................. 377,667,744
OTHER ASSETS LESS
LIABILITIES 0.9% .................. 3,541,838
------------
NET ASSETS 100.0% .................... $381,209,582
============
- ----------
* Principal amount reported in Japanese yen.
+ Rule 144A security.
++ Investments in mortgage-backed and asset-backed securities are subject to
principal paydowns. As a result of prepayments from refinancing or
satisfaction of the underlying instruments, the average life may be less than
the original maturity. This in turn may impact the ultimate yield realized
from these instruments. 0
o Principal amount reported in British pounds.
See Notes to Financial Statements.
13
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value:
Bonds and stocks (cost $300,922,623) ........ $332,005,605
U.S. Government and Government Agency
securities (cost $44,839,274) ........... 45,662,139
------------
$377,667,744
Cash ........................................ 2,871,026
Receivable for interest and dividends ....... 3,546,320
Receivable for Capital Stock sold ........... 247,179
Investment in, and expenses prepaid to,
shareholder service agent ................ 76,333
Other ....................................... 15,967
------------
TOTAL ASSETS ................................ 384,424,569
------------
LIABILITIES:
Payable for securities purchased 2,133,225
Payable for Capital Stock repurchased 406,169
Accrued expenses, taxes, and other 675,593
------------
TOTAL LIABILITIES ........................... 3,214,987
------------
NET ASSETS .................................. $381,209,582
============
COMPOSITION OF NET ASSETS:
Capital Stock, at par ($1 par value;
500,000,000 shares authorized;
25,468,488 shares outstanding):
Class A .................................... $ 19,786,901
Class B .................................... 198,127
Class D .................................... 5,483,460
Additional paid-in capital .................. 316,337,564
Undistributed net investment income ......... 888,857
Undistributed net realized gain ............. 6,597,078
Net unrealized appreciation of investments .. 30,798,164
Net unrealized appreciation on translation
of assets and liabilities
denominated in foreign currencies ........ 1,119,431
------------
NET ASSETS .................................. $381,209,582
============
NET ASSET VALUE PER SHARE:
CLASS A ($296,291,342 / 19,786,901 SHARES) .. $14.97
======
CLASS B ($2,961,257 / 198,127 SHARES) ....... $14.95
======
CLASS D ($81,956,983 / 5,483,460 SHARES) .... $14.95
======
- ----------
See Notes to Financial Statements.
14
<PAGE>
================================================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Interest ...................................................... $ 17,447,959
Dividends ..................................................... 6,974,878
------------
TOTAL INVESTMENT INCOME (net of foreign taxes
withheld of $115,331) .................... $24,422,837
EXPENSES:
Management fee ................................................ 2,342,764
Distribution and service fees ................................. 1,582,035
Shareholder account services .................................. 609,073
Custody and related services .................................. 177,800
Shareholder reports and communications ........................ 110,088
Registration .................................................. 108,753
Auditing and legal fees ....................................... 65,650
Shareholders' meeting ......................................... 33,597
Directors' fees and expenses .................................. 31,254
Miscellaneous ................................................. 39,736
------------
TOTAL EXPENSES ................................................ 5,100,750
-----------
NET INVESTMENT INCOME ......................................... 19,322,087
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments .............................. 5,841,486
Net realized gain from foreign currency transactions .......... 7,433
Net change in unrealized appreciation of investments .......... 3,571,125
Net change in unrealized appreciation on translation of assets
and liabilities denominated in foreign currencies .......... 987,448
------------
Net Gain on Investments and Foreign Currency Transactions ..... 10,407,492
-----------
INCREASE IN NET ASSETS FROM OPERATIONS ........................ $29,729,579
===========
</TABLE>
- ----------
See Notes to Financial Statements.
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income ............................................. $19,322,087 $19,965,581
Net realized gain on investments .................................. 5,841,486 10,209,134
Net realized gain from foreign currency transactions .............. 7,433 124,087
Net change in unrealized appreciation/depreciation of investments . 3,571,125 40,389,728
Net change in unrealized appreciation on translation of assets and
liabilities denominated in foreign currencies .................. 987,448 (316,625)
----------- -----------
Increase in net assets from operations ............................ 29,729,579 70,371,905
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A .......................................................... (14,995,963) (16,607,821)
Class B .......................................................... (55,035) --
Class D .......................................................... (3,480,362) (3,554,476)
</TABLE>
(Continued on page 16)
15
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (continued):
<S> <C> <C>
Net realized gain on investments:
Class A .......................................................... $(1,799,539) $(5,854,791)
Class B .......................................................... (3,653) --
Class D .......................................................... (494,274) (1,589,987)
----------- -----------
Decrease in net assets from distributions ......................... (20,828,826) (27,607,075)
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
CAPITAL SHARE TRANSACTIONS:* 1996 1995
---------- ---------
Net proceeds from sale of shares:
<S> <C> <C> <C> <C>
Class A ............................. 1,396,344 2,037,105 20,428,865 29,059,201
Class B ............................. 207,814 -- 3,024,908 --
Class D ............................. 894,700 1,319,539 13,071,905 18,613,132
Investment of dividends:
Class A ............................. 702,268 769,996 10,180,313 10,950,044
Class B ............................. 2,581 -- 37,557 --
Class D ............................. 193,834 193,425 2,804,770 2,746,592
Exchanged from associated Funds:
Class A ............................. 4,447,183 2,629,077 64,919,755 38,414,916
Class B ............................. 11,499 -- 170,381 --
Class D ............................. 590,551 785,959 8,537,551 11,323,047
Shares issued in payment
of gain distributions:
Class A ............................. 102,587 340,918 1,470,077 4,950,128
Class B ............................. 222 -- 3,179 --
Class D ............................. 30,841 104,206 441,057 1,509,952
----------- ---------- ------------ ------------
Total ................................ 8,580,424 8,180,225 125,090,318 117,567,012
----------- ---------- ------------ ------------
Cost of shares repurchased:
Class A ............................. (3,856,199) (3,019,135) (56,302,959) (42,874,377)
Class B ............................. (6,522) -- (96,604) --
Class D ............................. (1,261,567) (921,962) (18,398,148) (13,046,572)
Exchanged into associated Funds:
Class A ............................. (4,758,652) (2,948,092) (69,546,031) (42,763,690)
Class B ............................. (17,467) -- (258,956) --
Class D ............................. (903,445) (765,462) (13,186,394) (10,940,934)
----------- ---------- ------------ ------------
Total ................................ (10,803,852) (7,654,651) (157,789,092) (109,625,573)
----------- ---------- ------------ ------------
Increase (decrease) in net assets from
capital share transactions ........ (2,223,428) 525,574 (32,698,774) 7,941,439
=========== ========== ------------ ------------
Increase (decrease) in net assets............................................ (23,798,021) 50,706,269
NET ASSETS:
Beginning of year............................................................ 405,007,603 354,301,334
------------ ------------
End of year (including undistributed net investment income of $888,857
and $131,568, respectively)............................................... $381,209,582 $405,007,603
============ ============
</TABLE>
- ----------
*The Fund began offering Class B shares on April 22, 1996.
See Notes to Financial Statements.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Seligman Income Fund, Inc. (the "Fund") offers three classes of shares. All
shares existing prior to May 3, 1993, the commencement of Class D shares, were
classified as Class A shares. The Fund began offering Class B shares on April
22, 1996. Class A shares are sold with an initial sales charge of up to 4.75%
and a continuing service fee of up to 0.25% on an annual basis. Class A shares
purchased in an amount of $1,000,000 or more are sold without an initial sales
charge but are subject to a contingent deferred sales load ("CDSL") of 1% on
redemptions within eighteen months of purchase. Class B shares are sold without
an initial sales charge but are subject to a distribution fee of up to 0.75% and
a service fee of up to 0.25% on an annual basis, and a CDSL, if applicable, of
5% on redemptions in the first year after purchase, declining to 1% in the sixth
year and 0% thereafter. Class B shares will automatically convert to Class A
shares on the last day of the month that precedes the eighth anniversary of
their date of purchase. Class D shares are sold without an initial sales charge
but are subject to a distribution fee of up to 0.75% and a service fee of up to
0.25% on an annual basis, and a CDSL of 1% imposed on certain redemptions made
within one year of purchase. The three classes of shares represent interests in
the same portfolio of investments, have the same rights and are generally
identical in all respects except that each class bears its separate distribution
and certain other class expenses, and has exclusive voting rights with respect
to any matter on which a separate vote of any class is required.
2. Significant accounting policies followed, all in conformity with generally
accepted accounting principles, are given below:
a. Investments in US Government and Government agency securities, bonds, and
stocks are valued at current market values or, in their absence, at fair
values determined in accordance with procedures approved by the Board of
Directors. Securities traded on national exchanges are valued at last sales
prices or, in their absence and in the case of over-the-counter securities,
a mean of bid and asked prices. Short-term holdings maturing in 60 days or
less are valued at amortized cost.
b. The books and records of the Fund are maintained in US dollars. The market
value of investment securities and other assets and liabilities denominated
in foreign currencies are translated into US dollars at the closing daily
rate of exchange as reported by a pricing service. Purchases and sales of
investment securities, income, and expenses are translated into US dollars
at the rate of exchange prevailing on the respective dates of such
transactions.
The Fund separates that portion of the results of operations resulting
from changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of securities held in the portfolio.
Similarly, the Fund separates the effect of changes in foreign exchange
rates from the fluctuations arising from changes in the market prices of
portfolio securities sold during the period.
c. There is no provision for federal income or excise tax. The Fund has elected
to be taxed as a regulated investment company and intends to distribute
substantially all taxable net income and net gain realized.
d. Investment transactions are recorded on trade dates. Identified cost of
investments sold is used for both financial statement and federal income tax
purposes. Dividends receivable and payable are recorded on ex-dividend
dates. Interest income is recorded on an accrual basis.
e. All income, expenses (other than class-specific expenses), and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative value of the shares of each class. Class-specific
expenses, which include
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
distribution and service fees and any other items that are specifically
attributed to a particular class, are charged directly to such class. For
the year ended December 31, 1996, distribution and service fees were the
only class-specific expenses.
f. The treatment for financial statement purposes of distributions made during
the year from net investment income or net realized gain may differ from
their ultimate treatment for federal income tax purposes. These differences
are caused primarily by differences in the timing of the recognition of
certain components of income, expense, or realized capital gain; and the
recharacterization of foreign exchange gains or losses to either ordinary
income or realized capital gains for federal income tax purposes. Where such
differences are permanent in nature, they are reclassified in the components
of net assets based on their ultimate characterization for federal income
tax purposes. Any such reclassifications will have no effect on net assets,
results of operations, or net asset value per share of the Fund.
3. For the year ended December 31, 1996, purchases and sales of portfolio
securities, excluding US Government obligations and short-term investments,
amounted to $368,614,741 and $396,826,373, re-spectively; purchases and sales of
US Government obligations were $109,830,011 and $100,901,212, respectively.
At December 31, 1996, the cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes, and the tax basis gross unrealized appreciation and depreciation of
portfolio securities, including the effects of foreign currency translations,
amounted to $42,173,903 and $10,268,056, respectively.
4. J. & W. Seligman & Co. Incorporated (the "Manager") manages the affairs of
the Fund and provides the necessary personnel and facilities. Compensation of
all officers of the Fund, all directors of the Fund who are employees or
consultants of the Manager, and all personnel of the Fund and the Manager is
paid by the Manager. The Manager receives a fee, calculated daily and payable
monthly, equal to 0.60% per annum of the first $1 billion of the Fund's average
daily net assets, 0.55% per annum of the next $1 billion of the Fund's average
daily net assets, and 0.50% per annum of the Fund's average daily net assets in
excess of $2 billion. Prior to January 1, 1996, the management fee rate was
calculated on a sliding scale of 0.50% to 0.44%, based on average daily net
assets of all the investment companies managed by the Manager. The management
fee reflected in the Statement of Operations represents 0.60% per annum of the
Fund's average daily net assets. Seligman Henderson Co. (the "Subadviser"), an
entity owned 50% each by the Manager and Henderson plc, is entitled to a portion
of the Manager's fee for acting as Subadviser for certain of the international
investments of the Fund.
Seligman Financial Services, Inc. (the "Distributor"), agent for the
distribution of the Fund's shares and an affiliate of the Manager, received
concessions of $65,484 from sales of Class A shares, after commissions of
$503,183 paid to dealers.
The Fund has an Administration, Shareholder Services and Distribution Plan
(the "Plan") with respect to distribution of its shares. Under the Plan, with
respect to Class A shares, service organizations can enter into agreements with
the Distributor and receive a continuing fee of up to 0.25% on an annual basis,
payable quarterly, of the average daily net assets of the Class A shares
attributable to the particular service organizations for providing personal
services and/or the maintenance of shareholder accounts. The Distributor charges
such fees to the Fund pursuant to the Plan. For the year ended December 31,
1996, fees incurred aggregated $728,014, or 0.24% per annum of the average daily
net assets of Class A shares.
Under the Plan, with respect to Class B and Class D shares, service
organizations can enter into agreements
18
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
with the Distributor and receive a continuing fee for providing personal
services and/or the maintenance of shareholder accounts of up to 0.25% on an
annual basis of the average daily net assets of the Class B and Class D shares
for which the organizations are responsible; and, for Class D shares only, fees
for providing other distribution assistance of up to 0.75% on an annual basis of
such average daily net assets. Such fees are paid monthly by the Fund to the
Distributor pursuant to the Plan.
With respect to Class B shares, a distribution fee of up to 0.75% on an
annual basis of average daily net assets is payable monthly by the Fund to the
Distributor; however, the Distributor has sold its rights to substantially all
of this fee to a third party (the "Purchaser"), which provided funding to the
Distributor to enable it to pay commissions to dealers at the time of the sale
of the related Class B shares.
For the year ended December 31, 1996, fees incurred under the Plan,
equivalent to 1% per annum of the average daily net assets of Class B and Class
D shares, amounted to $10,198 and $843,823, respectively.
The Distributor is entitled to retain any CDSL imposed on certain
redemptions of Class D shares occurring within one year of purchase. For the
year ended December 31, 1996, such charges amounted to $23,156.
The Distributor has sold its rights to collect any CDSL imposed on
redemptions of Class B shares to the Purchaser. In connection with the sale of
its rights to collect any CDSL and the distribution fees with respect to Class B
shares described above, the Dis-tributor received payments from the Purchaser
based on the value of Class B shares sold. The aggregate amount of such payments
and the Class B shares distribution fees retained by the Distributor for the
year ended December 31, 1996, was $7,616.
Seligman Services, Inc., an affiliate of the Manager, is eligible to receive
commissions from certain sales of shares of the Fund, as well as distribution
and service fees pursuant to the Plan. For the year ended December 31, 1996,
Seligman Services, Inc. received commissions of $10,898 from sales of shares of
the Fund. Seligman Services, Inc. also received distribution and service fees of
$57,842, pursuant to the Plan.
Seligman Data Corp., owned by the Fund and certain associated investment
companies, charged the Fund at cost $609,073 for shareholder account services.
The Fund's investment in Seligman Data Corp. is recorded at a cost of $3,553.
Certain officers and directors of the Fund are officers or directors of the
Manager, the Subadviser, the Distributor, Seligman Services, Inc., and/or
Seligman Data Corp.
Fees of $15,000 were incurred by the Fund for legal services of Sullivan &
Cromwell, a member of which firm is a director of the Fund.
The Fund has a compensation arrangement under which directors who receive
fees may elect to defer receiving such fees. Interest is accrued on the deferred
balances. The annual cost of such fees and interest is included in directors'
fees and expenses, and the accumulated balance thereof at December 31, 1996, of
$102,376 is included in other liabilities. Deferred fees and the related accrued
interest are not deductible for federal income tax purposes until such amounts
are paid.
19
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Fund's financial highlights are presented below. The per share operating
performance data is designed to allow investors to trace the operating
performance, on a per share basis, from each Class' beginning net asset value to
the ending net asset value so that they can understand what effect the
individual items have on their investment, assuming it was held throughout the
period. Generally, the per share amounts are derived by converting the actual
dollar amounts incurred for each item, as disclosed in the financial statements,
to their equivalent per share amounts.
The total return based on net asset value measures each Class' performance
assuming investors purchased Fund shares at net asset value as of the beginning
of the period, reinvested dividends and capital gains paid at net asset value,
and then sold their shares at the net asset value per share on the last day of
the period. The total return computations do not reflect any sales charges
investors may incur in purchasing or selling shares of the Fund. The total
returns for periods of less than one year are not annualized.
Average commission rate paid represents the average commission paid by the
Fund to purchase or sell portfolio securities. It is determined by dividing the
total commission dollars paid by the number of shares purchased and sold during
the period for which commissions were paid. This rate is provided for periods
beginning January 1, 1996.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996o 1995o 1994o 1993 1992
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year............. $14.63 $13.05 $14.58 $13.69 $12.45
------ ------ ------ ------ ------
Net investment income.......................... .74 .76 .76 .75 .92
Net realized and unrealized
investment gain (loss)...................... .38 1.89 (1.57) 1.40 1.21
Net realized and unrealized gain (loss) on
foreign currency transactions............... .04 (.01) .03 -- --
------ ------ ------ ------ ------
Increase (decrease) from investment
operations.................................. 1.16 2.64 (.78) 2.15 2.13
Dividends paid................................. (.73) (.78) (.75) (.75) (.89)
Distributions from net gain realized........... (.09) (.28) -- (.51) --
------ ------ ------ ------ ------
Net increase (decrease) in net asset value..... .34 1.58 (1.53) .89 1.24
------ ------ ------ ------ ------
Net asset value, end of year................... $14.97 $14.63 $13.05 $14.58 $13.69
====== ====== ====== ====== ======
TOTAL RETURN BASED
ON NET ASSET VALUE: 8.22% 20.60% (5.43)% 15.98% 17.54%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets................. 1.14% 1.00% 1.02% 1.03% .84%
Net investment income to average net assets.... 5.11% 5.38% 5.51% 5.29% 6.88%
Portfolio turnover............................. 125.92% 111.78% 66.62% 60.62% 70.43%
Average commission rate paid................... $ .0361
Net assets, end of year (000s omitted)......... $296,291 $318,307 $286,355 $321,040 $213,007
</TABLE>
- ----------
See footnotes on page 21.
20
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS D
--------- ----------------------------------------------------
4/22/96* 5/3/93*
TO YEAR ENDED DECEMBER 31, TO
-----------------------------------------
12/31/96o 1996o 1995o 1994o 12/31/93
--------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period........... $14.43 $14.60 $13.01 $14.55 $14.42
------ ------ ------ ------ ------
Net investment income.......................... .43 .63 .65 .65 .45
Net realized and unrealized
investment gain (loss)...................... .59 .38 1.88 (1.57) .69
Net realized and unrealized gain (loss) on
foreign currency transactions............... .05 .04 (.01) .03 --
------ ------ ------ ------ ------
Increase (decrease) from investment
operations.................................. 1.07 1.05 2.52 (.89) 1.14
Dividends paid................................. (.46) (.61) (.65) (.65) (.50)
Distributions from net gain realized........... (.09) (.09) (.28) -- (.51)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value..... .52 .35 1.59 (1.54) .13
------ ------ ------ ------ ------
Net asset value, end of period................. $14.95 $14.95 $14.60 $13.01 $14.55
====== ====== ====== ====== ======
TOTAL RETURN BASED
ON NET ASSET VALUE: ........................ 7.58% 7.43% 19.66% (6.20)% 8.02%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets................. 1.89%+ 1.90% 1.79% 1.82% 1.84%+
Net investment income to average net assets.... 4.36%+ 4.37% 4.58% 4.74% 4.42%+
Portfolio turnover............................. 125.92%++ 125.92% 111.78% 66.62% 60.62%+++
Average commission rate paid................... $ .0361++ $ .0361
Net assets, end of period (000s omitted)....... $ 2,961 $81,957 $86,701 $67,946 $49,941
</TABLE>
- ----------
* Commencement of offering of shares.
o Per share amounts for the periods ended December 31, 1996, 1995, and 1994,
are calculated based on average shares outstanding.
+ Annualized.
++ For the year ended December 31, 1996.
+++ For the year ended December 31, 1993.
See Notes to Financial Statements.
21
<PAGE>
================================================================================
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
SELIGMAN INCOME FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Seligman Income Fund, Inc. as of December 31,
1996, the related statements of operations for the year then ended and of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial state- ments and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the Fund's custodian; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Seligman Income
Fund, Inc. as of December 31, 1996, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
January 31, 1997
22
<PAGE>
================================================================================
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
FRED E. BROWN
DIRECTOR AND CONSULTANT,
J. & W. Seligman & Co. Incorporated
JOHN R. GALVIN 2, 4
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, USLIFE Corporation
ALICE S. ILCHMAN 3, 4
PRESIDENT, Sarah Lawrence College
TRUSTEE, Committee for Economic Development
DIRECTOR, NYNEX
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON 2, 4
CHAIRMAN AND CEO, Kerr-McGee Corporation
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW
SENIOR PARTNER, Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Aluminum Corporation
BETSY S. MICHEL 2, 4
DIRECTOR OR TRUSTEE,
Various Organizations
WILLIAM C. MORRIS 1
CHAIRMAN
CHAIRMAN OF THE BOARD,
J. & W. Seligman & Co. Incorporated
CHAIRMAN, Carbo Ceramics Inc.
DIRECTOR, Kerr-McGee Corporation
JAMES C. PITNEY 3, 4
PARTNER, Pitney, Hardin, Kipp & Szuch, Law Firm
DIRECTOR, Public Service Enterprise Group
JAMES Q. RIORDAN 3, 4
DIRECTOR, The Brooklyn Union Gas Company
TRUSTEE, Committee for Economic Development
DIRECTOR, Dow Jones & Co., Inc.
DIRECTOR, Public Broadcasting Service
RONALD T. SCHROEDER 1
MANAGING DIRECTOR,
J. & W. Seligman & Co. Incorporated
ROBERT L. SHAFER 3, 4
DIRECTOR OR TRUSTEE,
Various Organizations
JAMES N. WHITSON 2, 4
EXECUTIVE VICE PRESIDENT AND DIRECTOR,
Sammons Enterprises, Inc.
DIRECTOR, C-SPAN
DIRECTOR, Red Man Pipe and Supply Company
BRIAN T. ZINO 1
PRESIDENT
PRESIDENT AND MANAGING DIRECTOR,
J. & W. Seligman & Co. Incorporated
CHAIRMAN AND PRESIDENT, Seligman Data Corp.
- ----------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
4 Board Operations Committee
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
WILLIAM C. MORRIS
CHAIRMAN
BRIAN T. ZINO
PRESIDENT
CHARLES C. SMITH, JR.
VICE PRESIDENT
LAWRENCE P. VOGEL
VICE PRESIDENT
THOMAS G. ROSE
TREASURER
FRANK J. NASTA
SECRETARY
- --------------------------------------------------------------------------------
Manager
J. & W. Seligman & Co.
Incorporated
100 Park Avenue
New York, NY 10017
GENERAL COUNSEL
Sullivan & Cromwell
INDEPENDENT AUDITORS
Deloitte & Touche LLP
GENERAL DISTRIBUTOR
Seligman Financial Services, Inc.
100 Park Avenue
New York, NY 10017
SHAREHOLDER SERVICE AGENT
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
IMPORTANT TELEPHONE NUMBERS
(800) 221-2450 Shareholder Services
(800) 445-1777 Retirement Plan
Services
(800) 622-4597 24-Hour Automated
Telephone Access
Service
23
