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S E L I G M A N
[PHOTO]
SELIGMAN
INCOME
FUND, INC.
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SEEKING HIGH CURRENT INCOME AND FUTURE
GROWTH OF CAPITAL
DECEMBER 31, 1997 o ANNUAL REPORT
<PAGE>
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OVER THE LONG TERM -- J. & W. SELIGMAN & CO. INCORPORATED
- -----------------------------------------------------------------------------
TIME IS THE TEST
In an industry that has changed dramatically in recent years, it's comforting
to know that stability, tradition, and consistent professional service can still
be found in an investment management firm.
J. & W. Seligman & Co. Incorporated has been providing financial services for
more than 130 years. From its beginning, Seligman has followed a long-term
approach to making money for its clients, by managing investment products and
services of the highest quality. Today, Seligman manages the Seligman Group of
Funds, which offers investors more than 50 investment options.
A PLACE IN HISTORY
Established in 1864, Seligman played a major role in the geographical
expansion and industrial development of the United States. The firm helped
finance the westward path of the railroads and the building of the Panama Canal.
In the late 1800s and early 1900s, the firm was instrumental in financing the
fledgling automobile and steel industries. Seligman also participated in the
original underwritings for some of the nation's most prominent companies,
including General Motors, Victor Talking Machine, United Artists Theater
Circuit, and Maytag. In 1929, Seligman introduced Tri-Continental Corporation --
which today is the nation's largest diversified closed-end investment company.
In 1930, Seligman began managing its first mutual fund, Broad Street Investing
Co., now known as Seligman Common Stock Fund.
SELIGMAN INCOME FUND
Seligman began managing the Whitehall Fund, now known as Seligman Income
Fund, in 1947. For 50 years the Fund has helped investors achieve their
financial goals through all market conditions, by staying true to its objective
of providing high current income consistent with prudent risk of capital, with
the possibility of improvement of capital value over the long term.
[PHOTO]
JAMES, JESSE, AND JOSEPH SELIGMAN
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TABLE OF CONTENTS
To the Shareholders ................................ 1
Interview With Your Portfolio Managers ............. 2
Performance Overview ............................... 4
Portfolio Overview ................................. 6
Portfolio of Investments ........................... 8
Statement of Assets and Liabilities ................ 11
Statement of Operations ............................ 12
Statements of Changes in Net Assets ................ 13
Notes to Financial Statements ...................... 14
Financial Highlights ............................... 16
Report of Independent Auditors ..................... 18
Tax Status of 1997 Distributions ................... 19
Board of Directors and Executive Officers .......... 20
Glossary of Financial Terms ........................ 21
"The Fund began operations on March 31, 1947, with the objective of providing,
in one security, a rounded investment program embracing bonds, preferred stocks,
and common stocks."
-- FRANCIS F. RANDOLPH,
FUND CHAIRMAN
1947-1967
"Your Fund manager continues the strategy of keeping the Fund well diversified
among common stocks, convertible securities, and high-grade corporate and US
government securities."
-- WILLIAM C. MORRIS,
FUND CHAIRMAN
1989-PRESENT
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TO THE SHAREHOLDERS
Nineteen ninety-seven was a successful year for Seligman Income Fund. The
Fund continued to provide high current income with prudent risk of capital,
offering returns superior to those available in a high-quality bond portfolio.
The Fund posted a total return of 14.06% based on the net asset value of Class A
shares and maintained a dividend yield of 5.00%, more than twice that of the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). Seligman Income
Fund outperformed the bond market as represented by the 9.65% total return of
the Lehman Brothers Aggregate Bond Index, and offered investors an opportunity
to participate in the positive equity markets.
This was the seventh year of economic expansion in the US, with real domestic
growth of 3.8%. Consumer price inflation slowed to under 2%, interest rates
moved steadily lower, productivity rose, and unemployment levels reached 27-year
lows. Meanwhile, the federal budget deficit virtually disappeared and corporate
profits posted a third consecutive year of strong gains. Despite year-end
problems in Asia, the domestic business environment was positive.
Although there were occasional setbacks tied to fears of inflation and
concerns regarding the possibility of further Federal Reserve Board
interventions, 1997 was a successful year for the fixed-income markets. Once the
effect of the March adjustment in the federal funds rate subsided, yields
progressively trended downward as prices improved. Investors slowly grew more at
ease with the rate of economic growth and the sustainability of the
low-inflation environment. This prompted a rally that began at the end of the
second quarter. Further, while the crisis in Asia slowed the equity markets in
the third and fourth quarters, fixed-income instruments became more attractive.
The yield on the benchmark 30-year US Treasury bond stood at 5.92% on December
31, 1997, significantly lower than the 6.64% yield on December 31, 1996.
In 1997, Seligman Income Fund's balanced portfolio participated in both the
equity and bond market rallies without exposing investor capital to undue risk
or volatility. The Fund continued to offer high current income and a
conservative level of exposure to the equity markets. It remains a good
investment choice for those investors who seek long-term returns greater than
those available from a high-quality bond portfolio and who want protection
against inflation.
We expect the fixed-income markets will continue to offer attractive returns
in this low-inflation environment. If the rate of economic growth slows in 1998,
the Fed may need to reduce short-term interest rates, supporting the continued
performance of the fixed-income and equity markets. Further, depending on the
impact of the Asian crisis on US corporate earnings, fixed-income securities
could become even more attractive relative to equities. Considering that the
Fund's equity investments are concentrated in higher dividend-yield issues, we
believe the Fund is particularly well positioned for 1998.
We expect that 1998 will bring rising uncertainty in the financial markets
and that this market environment will highlight the importance of setting
long-term investment goals. While short-term investors are at the mercy of daily
market changes, long-term investors can focus on their investment goals rather
than on the markets' gyrations.
Thank you for your continued interest in Seligman Income Fund. We look
forward to serving your investment needs in the many years to come. A discussion
with your Portfolio Managers, the Fund's portfolio of investments, and financial
statements, follow this letter. Additional information on the Fund's investment
results appears starting on page 4.
By order of the Board of Directors,
/s/ William C. Morris
- --------------------------
William C. Morris
Chairman
/s/ Brian T. Zino
-----------------
Brian T. Zino
President
January 30, 1998
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1
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INTERVIEW WITH YOUR PORTFOLIO MANAGERS, CHARLES C. SMITH, JR. AND RODNEY COLLINS
Q. HOW DID SELIGMAN INCOME FUND PERFORM IN 1997?
A. Seligman Income Fund performed well in 1997, posting a total return of
14.06% based on the net asset value of Class A shares. The Fund maintained a
dividend yield that was more than twice that of the Standard & Poor's 500
Composite Stock Price Index (S&P 500) while it continued to protect
investors against the erosive impact of inflation. The Fund outpaced the
9.65% total return of the Lehman Brothers Aggregate Bond Index, which
measures the performance of the bond markets. For the same period, the
Fund's peers, as measured by the Lipper Income Funds Average, posted a total
return of 15.83%.
Q. WHAT ECONOMIC AND MARKET FACTORS INFLUENCED THE FUND'S PERFORMANCE?
A. Overall, the economic background was positive for both the fixed-income and
equity portions of the Fund's portfolio. Inflation remained modest despite
the robust growth of the economy, prompting a sustained decline in interest
rates. The low-interest-rate environment in turn led to a rally in the
fixed-income markets throughout the year. The Federal Reserve Board's
decision to leave interest rates unchanged after a March increase in the
federal funds rate further supported the fixed-income markets. Finally, the
onset of the Asian financial crisis drove a fourth-quarter rally, which
gained momentum as investors sought refuge from the volatility of the global
equity markets in the safe haven of the US Treasury bond market. All of
these factors contributed to the strong performance of Seligman Income
Fund's bond portfolio.
On the equity side, the strength of the economy led to rising corporate
profits and high levels of consumer confidence. Investors' appetite for US
common stocks continued to grow throughout the year, supporting a rally in
the US equity markets that increased the value of the Fund's equity
holdings. In the fourth quarter, however, the outlook became more uncertain,
as the Asian financial crisis raised concerns regarding future US corporate
profitability and increased the likelihood of a slowdown in US economic
growth. Equity investors retreated into the largest, most liquid common
stocks and defensive issues with stable earnings and dividends, such as
those contained in Seligman Income Fund's portfolio. The Fund, therefore,
benefited from the change in the market environment.
Although this was another strong year for the US equity markets, the
Fund's international holdings also posted strong returns, contributing
positively to the performance of the equity portion of the Fund's portfolio.
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[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. (PORTFOLIO MANAGER), AMY FUJII
A TEAM APPROACH
Seligman Income Fund is managed by the Seligman Growth and Income Team, headed
by Charles C. Smith, Jr. Mr. Smith and Mr. Collins are assisted in the
management of the Fund by seasoned research professionals who are responsible
for identifying the most attractive convertible issues, corporate and government
securities, and dividend-paying common stocks, consistent with the Fund's
objective.
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2
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INTERVIEW WITH YOUR PORTFOLIO MANAGERS, CHARLES C. SMITH, JR. AND RODNEY COLLINS
Q. WHAT WAS YOUR INVESTMENT STRATEGY?
A. The portfolio was restructured in 1997 without reducing the Fund's yield or
increasing volatility. The most significant change was the decrease in the
Fund's exposure to convertible stocks and bonds due to the unattractive
valuations found in the group. We anticipate that the convertible portion of
the Fund's portfolio will continue to play a lesser role as long as
valuations remain excessive. Assets were placed in high-quality fixed-income
securities and in common stocks. In the fixed-income portion of the
portfolio, we continue to hold bonds with intermediate maturities, as these
are somewhat less volatile than longer maturities, but can still benefit
from declining interest rates. The majority of our bond holdings are focused
in investment-grade issues. The common stock portion of the portfolio
remains broadly diversified in issues which, on average, offer higher yields
than the S&P 500 and future dividend growth potential. We believe the
current asset allocation strategy should increase future dividend growth
potential.
Q. WHAT IS THE OUTLOOK?
A. There will probably be continued equity market volatility in 1998 due to the
uncertain impact of the Asian financial crisis on the economy. We believe
that the portfolio's conservative investment strategy and substantial
dividend yield should be attractive to investors in an environment of
reduced expectations regarding future equity returns. The fixed-income
portion of the portfolio should continue to benefit from the
low-interest-rate environment. There is a possibility that the Fed will need
to reduce interest rates next year to counter the effect of the Asian crisis
on the US economy. With this supportive background in place, we believe that
Seligman Income Fund could outperform less diversified income-oriented
portfolios, including utility and investment-grade bond alternatives.
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3
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PERFORMANCE OVERVIEW
This chart compares a $10,000 hypothetical investment made in Seligman Income
Fund Class A shares, with and without the initial 4.75% maximum sales charge,
for the 10-year period ended December 31, 1997, to a $10,000 investment made in
the Lipper Income Funds Average, the Lehman Brothers Aggregate Bond Index
(Lehman Bond Index) and the Standard &Poor's 500 Composite Stock Price Index
(S&P 500) for the same period. The performances of Seligman Income Fund Class B
and Class D shares are not shown in this chart but are included in the table on
page 5. It is important to keep in mind that the Lipper Income Funds Average
excludes the effect of sales charges and the S&P 500 and the Lehman Bond Index
exclude the effect of fees and sales charges.
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[The following table represents a line chart in the printed report]
<TABLE>
<CAPTION>
Seligman Income Fund Lipper
Class A Lehman Bond Income Funds
Without Sales Charge With Sales Charge S&P 500 Index Average
-------------------- ----------------- -------- ----------- ------------
<C> <C> <C> <C> <C> <C>
12/31/87 ........... $10,000 $ 9,524 $ 10 000 $ 10,000 $10,000
3/31/88 ............ 10,565 10,062 10,569 10,376 10,599
6/30/88 ............ 10,901 10,382 11,273 10,498 10,948
9/30/88 ............ 10,990 10,467 11,311 10,707 11,107
12/31/88 ........... 11,053 10,527 11,661 10,789 11,233
3/31/89 ............ 11,431 10,887 12,487 10,912 11,668
6/30/89 ............ 12,201 11,620 13,590 11,781 12,356
9/30/89 ............ 12,438 11,846 15,046 11,915 12,891
12/31/89 ........... 12,723 12,117 15,356 12,358 13,045
3/31/90 ............ 12,620 12,019 14,893 12,259 12,810
6/30/90 ............ 12,694 12,089 15,830 12,708 13,171
9/30/90 ............ 11,327 10,788 13,655 12,817 12,335
12/31/90 ........... 11,666 11,111 14,879 13,465 12,924
3/31/91 ............ 12,948 12,331 17,040 13,842 14,086
6/30/91 ............ 13,348 12,712 17,001 14,067 14,272
9/30/91 ............ 14,520 13,829 17,911 14,866 15,299
12/31/91 ........... 15,181 14,458 19,412 15,619 16,136
3/31/92 ............ 15,960 15,200 18,921 15,419 16,254
6/30/92 ............ 16,583 15,793 19,280 16,042 16,713
9/30/92 ............ 17,341 16,515 19,887 16,732 17,335
12/31/92 ........... 17,843 16,993 20,888 16,777 17,734
3/31/93 ............ 19,004 18,099 21,801 17,470 18,733
6/30/93 ............ 19,481 18,553 21,907 17,933 19,151
9/30/93 ............ 20,165 19,205 22,473 18,401 19,794
12/31/93 ........... 20,694 19,708 22,994 18,412 19,989
3/31/94 ............ 19,866 18,920 22,123 17,884 19,307
6/30/94 ............ 19,546 18,616 22,215 17,700 19,228
9/30/94 ............ 19,940 18,990 23,302 17,808 19,714
12/31/94 ........... 19,570 18,638 23,297 17,875 19,397
3/31/95 ............ 20,623 19,641 25,566 18,776 20,550
6/30/95 ............ 22,129 21,076 28,008 19,920 21,831
9/30/95 ............ 23,025 21,928 30,234 20,310 22,937
12/31/95 ........... 23,602 22,478 32,055 21,175 23,932
3/31/96 ............ 23,715 22,586 33,776 20,801 24,455
6/30/96 ............ 24,057 22,912 35,292 20,919 24,901
9/30/96 ............ 24,393 23,231 36,383 21,306 25,375
12/31/96 ........... 25,542 24,325 39,417 21,945 26,533
3/31/97 ............ 25,728 24,503 40,474 21,822 26,539
6/30/97 ............ 27,245 25,947 47,540 22,623 28,566
9/30/97 ............ 28,507 27,150 51,101 23,374 30,236
12/31/97 ........... 29,132 27,745 52,569 24,062 30,733
</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.
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4
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PERFORMANCE OVERVIEW
INVESTMENT RESULTS PER SHARE
TOTAL RETURNS
FOR PERIODS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AVERAGE ANNUAL
------------------------------------------------------
CLASS B CLASS D
SINCE SINCE
SIX ONE FIVE 10 INCEPTION INCEPTION
MONTHS* YEAR YEARS YEARS 4/22/96 5/3/93
--------- ------- ------- ------- ------------ ------------
CLASS A**
<S> <C> <C> <C> <C> <C> <C>
With Sales Charge 1.88% 8.61% 9.24% 10.74% n/a n/a
Without Sales Charge 6.93 14.06 10.30 11.29 n/a n/a
CLASS B**
With CDSL+ 1.80 8.30 n/a n/a 10.18% n/a
Without CDSL 6.64 13.24 n/a n/a 12.37 n/a
CLASS D**
With 1% CDSL 5.60 12.18 n/a n/a n/a n/a
Without CDSL 6.56 13.17 n/a n/a n/a 8.67%
LIPPER INCOME FUNDS AVERAGE*** 7.59 15.83 11.62 11.88 14.33++ 11.21+++
LEHMAN BOND INDEX*** 6.36 9.65 7.48 9.18 9.51++ 6.94+++
S&P 500*** 10.58 33.36 20.27 18.05 29.25++ 21.39+++
</TABLE>
NET ASSET VALUE
DECEMBER 31, 1997 JUNE 30, 1997 DECEMBER 31, 1996
-------------------- -------------- --------------------
CLASS A $14.81 $15.33 $14.97
CLASS B 14.79 15.30 14.95
CLASS D 14.78 15.30 14.95
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
DIVIDENDS
PAID CAPITAL GAIN
------------- --------------
CLASS A $0.740 PAID $1.436o
CLASS B 0.624 REALIZED 1.173
CLASS D 0.624 UNREALIZED 1.451oo
Performance data quoted represent changes in price and assume that all
distributions within the periods are invested in additional shares. 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.
- ----------
* Returns for periods of less than one year are not annualized.
** Return figures reflect any change in price per share and assume the
investment of dividend and capital gain distributions. Returns for Class A
shares are calculated with and without the effect of the initial 4.75%
maximum sales charge. Returns for Class A shares reflect the effect of the
service fee of up to 0.25% under the 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 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 on redemptions made within one
year of the date of purchase.
*** The Lipper Income Funds Average, the Lehman Bond Index, and the S&P 500 are
unmanaged benchmarks that assume investment of dividends. The Lipper Income
Funds Average excludes the effect of sales charges. The monthly performance
of the Lipper Income Funds Average is used in the Performance Overview. The
S&P 500 and the Lehman Index exclude the effect of fees and sales charges.
Investors cannot invest directly in an index or an average.
+ The CDSL is 5% for periods of one year or less, and 4% since inception.
++ From April 30, 1996.
+++ From April 30, 1993.
o Includes the $0.250 of undistributed realized capital gains from 1996,
which were paid to shareholders on June 25, 1997.
oo Represents the per share amount of net unrealized appreciation of portfolio
securities as of December 31, 1997.
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5
<PAGE>
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PORTFOLIO OVERVIEW
DIVERSIFICATION OF NET ASSETS
PERCENT OF TOTAL
DECEMBER 31,
-------------------
1997 1996
------ ------
Aerospace and Defense ................ 0.6 --
Automotive and Related ............... 1.9 0.4
Banking and Finance .................. 19.4 20.6
Business Services .................... 1.3 --
Chemicals ............................ 3.2 0.6
Consumer Goods and Services .......... 5.5 2.4
Diversified .......................... 1.2 0.6
Drugs and Health Care ................ 4.1 1.7
Electric and Gas Utilities ........... 5.7 7.6
Electronics .......................... 1.4 0.6
Energy ............................... 9.1 8.8
Environmental Services ............... 1.0 1.8
Food ................................. 0.5 --
Funeral Services ..................... 1.4 --
Hotels/Motels ........................ 0.6 --
Insurance ............................ 4.4 8.1
Machinery ............................ 2.1 2.3
Media ................................ 3.2 4.7
Metals ............................... 0.3 --
Office Equipment ..................... 0.6 0.6
Paper and Packaging .................. 2.2 2.3
Retailing ............................ 4.5 5.8
Shipbuilding ......................... -- 0.4
Steel ................................ -- 0.8
Technology ........................... 1.8 5.2
Tobacco .............................. 0.8 --
Transportation ....................... 0.2 3.6
Utilities/Telecommunications ......... 4.3 5.0
Miscellaneous ........................ 0.2 3.2
----- -----
Total Corporate Fixed-Income
Securities and Common Stocks ......... 81.5 87.1
US Government and Government
Agency Securities .................... 17.9 12.0
Short-Term Holdings and
Other Assets Less Liabilities ........ 0.6 0.9
----- -----
Total ................................ 100.0 100.0
===== =====
LARGEST PORTFOLIO HOLDINGS
AT DECEMBER 31, 1997
SECURITY VALUE
- -------- --------------
Government National Mortgage
Association 7 1/2%, 4/15/2027 ............. $ 22,535,371
US Treasury Notes 6 5/8%, 5/15/2007 ......... 18,004,071
Government National Mortgage
Association 7 1/2%, 2/15/2027 ............. 9,022,258
Tele-Communications 9.80%, 2/1/2012 ......... 6,309,705
Time Warner 9 1/8%, 1/15/2013 ............... 5,984,230
Salomon Smith Barney Holdings 7 5/8% ........ 5,534,375
US Treasury Bonds 6 5/8%, 2/15/2027 ......... 5,428,130
St. Paul Capital 6% ......................... 5,400,000
Oryx Energy 8 1/8%, 10/15/2005 .............. 5,382,205
Petroleum Geo-Services 7 1/2%, 3/31/2007 .... 5,335,190
COMPOSITION OF NET ASSETS
PERCENT OF TOTAL
DECEMBER 31,
-------------------
1997 1996
------ -----
Corporate Bonds ................ 31.3 28.7
Convertible Preferred Stocks ... 7.5 16.1
Convertible Bonds .............. 3.8 19.3
Asset-Backed Securities ........ 2.8 3.7
- ----------------------------------------------------------
Total Corporate
Fixed-Income Securities ........ 45.4 67.8
- ----------------------------------------------------------
Common Stocks .................. 36.1 19.3
- ----------------------------------------------------------
US Government and
Government Agency
Securities ..................... 17.9 12.0
- ----------------------------------------------------------
Short-Term Holdings and Other
Assets Less Liabilities ........ 0.6 0.9
- ----------------------------------------------------------
Total .......................... 100.0 100.0
- ----------------------------------------------------------
- -----
6
<PAGE>
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PORTFOLIO OVERVIEW
LARGEST PORTFOLIO CHANGES
DURING PAST SIX MONTHS
PRINCIPAL AMOUNT
OR SHARES
-----------------------------
HOLDINGS
ADDITIONS INCREASE 12/31/97
- --------- ------------ ---------------
US Government Securities:
US Treasury Bonds
6 5/8%, 2/15/2027 ....................... $ 5,000,000 $ 5,000,000
US Treasury Notes
6 5/8%, 5/15/2007 ....................... 17,000,000 17,000,000
CORPORATE BONDS:
Associates Corp. of North
America 6 1/2%, 8/15/2002 ............... 3,500,000 3,500,000
First Data 6 3/8%, 12/15/2007 .............. 4,800,000 4,800,000
Homeside Lending
6.86%, 7/2/2001 ......................... 5,000,000 5,000,000
Millennium America
7%, 11/15/2006 .......................... 5,000,000 5,000,000
Staples 7 1/8%, 8/15/2007 .................. 5,000,000 5,000,000
Tele-Communications
9.80%, 2/1/2012 ......................... 5,000,000 5,000,000
CONVERTIBLE PREFERRED STOCKS:
Federal Mogul 7% ........................... 96,000shs. 96,000shs.
ASSET-BACKED SECURITIES:
The Money Store Home Equity
Trust 1997-D
6.555%, 12/15/2038 ...................... 5,000,000 $ 5,000,000
United Companies Financial
1997-C 6.88%, 9/15/2022 ................. 5,000,000 5,000,000
PRINCIPAL AMOUNT
OR SHARES
-------------------------------
HOLDINGS
REDUCTIONS DECREASE 12/31/97
- ---------- ---------------- -----------
US GOVERNMENT SECURITIES:
US Treasury Notes
6 1/4%, 7/31/1998 ....................... $12,000,000 --
CORPORATE BONDS:
CITGO Petroleum
7 7/8%, 5/15/2006 ....................... 4,000,000 --
Comcast Cable Communications
8 7/8%, 5/1/2017 ........................ 5,000,000 --
First USA Bank
5.85%, 2/22/2001 ........................ 5,000,000 --
Harman International Industries
7.32%, 7/1/2007 ......................... 5,000,000 --
Midland Bank
7.65%, 5/1/2025 .......................... 5,000,000 --
Norfolk Southern
6.95%, 5/1/2002 .......................... 3,500,000 --
Tele-Communications
6.275%, 9/15/2003 ........................ 5,000,000 --
CONVERTIBLE BONDS:
Apache 6%, 1/15/2002 ........................ 3,000,000 --
CONVERTIBLE PREFERRED STOCKS:
Kmart Financing 7 3/4% ...................... 75,000shs. --
Largest portfolio changes from the previous period to the current period are
based on cost of purchases and proceeds from sales of securities.
LARGEST INDUSTRIES+
AT DECEMBER 31, 1997
[The following table represents a bar chart in the printed report]
- ------------------------------------------------------------------------------
Percent of
Net Assets
----------
Banking and Finance 19.4% $68,883,774
Energy 9.2% $32,549,823
Electric and Gas Utilities 5.7% $20,247,120
Consumer Goods and Services 5.5% $19,499,262
Insurance 4.4% $15,672,807
- ------------------------------------------------------------------------------
- ----------
+ Excludes US Government and Government Agency Securities.
---
7
<PAGE>
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PORTFOLIO OF INVESTMENTS
December 31, 1997
PRINCIPAL
AMOUNT VALUE
--------- -----
US GOVERNMENT AND
GOVERNMENT AGENCY
SECURITIES 17.9%
US Treasury Bonds
6 5/8%, 2/15/2027 $ 5,000,000 $ 5,428,130
US Treasury Notes
6 5/8%, 5/15/2007 17,000,000 18,004,071
MORTGAGE-BACKED
SECURITIES:++
Government National
Mortgage Association
Obligations: 7 1/2%, with
various maturities from
1/15/2023 to 12/15/2027 39,149,679 40,165,504
-----------
TOTAL US GOVERNMENT
AND GOVERNMENT
AGENCY SECURITIES
(Cost $61,512,378) 63,597,705
-----------
CORPORATE BONDS 31.3%
BANKING AND FINANCE 9.1%
Associates Corp. of North
America 6 1/2%, 8/15/2002 3,500,000 3,536,190
Capital One Bank
8 1/8%, 3/1/2000 5,000,000 5,179,530
Corp Andina de Fomento
7 1/4%, 3/1/2007+ 5,000,000 5,099,680
Franchise Finance
7%, 11/30/2000 5,000,000 5,079,925
Homeside Lending
6.86%, 7/2/2001 5,000,000 5,087,365
The Money Store
8 3/8%, 4/15/2004 3,000,000 3,128,910
United Companies Financial
9.35%, 11/1/1999 2,000,000 2,101,246
United Companies Financial
8 3/8%, 7/1/2005 3,000,000 3,165,780
-----------
32,378,626
-----------
BUSINESS SERVICES 1.3%
First Data 6 3/8%, 12/15/2007 4,800,000 4,782,974
-----------
CHEMICALS 1.9%
Geon 6 7/8%, 2/15/2005 1,800,000 1,818,288
Millennium America
7%, 11/15/2006 5,000,000 5,112,565
-----------
6,930,853
-----------
ELECTRIC AND GAS
UTILITIES 1.4%
Empresa Electrica Guacolda
(Chile) 7.95%, 4/30/2003+ 5,000,000 5,124,800
-----------
PRIN. AMT.
OR SHARES VALUE
---------- -----
ENERGY 4.0%
Barrett Resources
7.55%, 2/1/2007 $ 3,300,000 $ 3,428,218
Oryx Energy
8 1/8%, 10/15/2005 5,000,000 5,382,205
Petroleum Geo-Services
7 1/2%, 3/31/2007 5,000,000 5,335,190
-----------
14,145,613
-----------
FUNERAL SERVICES 1.4%
Loewen Group International
7 1/2%, 4/15/2001 5,000,000 5,153,540
-----------
HOTELS/MOTELS 0.6%
Felcor Suites
7 3/8%, 10/1/2004+ 2,000,000 2,017,042
-----------
MACHINERY 1.5%
Anixter 8%, 9/15/2003 5,000,000 5,256,975
-----------
MEDIA 3.2%
News America Holdings
7.43%, 10/1/2026 5,000,000 5,332,970
Time Warner
9 1/8%, 1/15/2013 5,000,000 5,984,230
-----------
11,317,200
-----------
PAPER AND PACKAGING 1.0%
Owens-Illinois
7.85%, 5/15/2004 3,500,000 3,679,386
-----------
RETAILING 2.9%
Staples 7 1/8%, 8/15/2007 5,000,000 5,116,300
Woolworth 7%, 6/1/2000 5,000,000 5,069,285
-----------
10,185,585
-----------
TECHNOLOGY 1.2%
Solectron 7 3/8%, 3/1/2006 4,000,000 4,144,492
-----------
<PAGE>
UTILITIES/
TELECOMMUNICATIONS 1.8%
Tele-Communications
9.80%, 2/1/2012 5,000,000 6,309,705
-----------
TOTAL CORPORATE BONDS
(Cost $108,059,915) 111,426,791
-----------
CONVERTIBLE
PREFERRED STOCKS 7.5%
AUTOMOTIVE
AND RELATED 1.4%
Federal Mogul 7%+ 96,000shs. 4,848,000
-----------
BANKING AND
FINANCE 1.6%
Salomon Smith Barney
Holdings 7 5/8% 137,500 5,534,375
-----------
- ----------
See footnotes on page 10.
- -----
8
<PAGE>
==============================================================================
PORTFOLIO OF INVESTMENTS
December 31, 1997
PRIN. AMT.
OR SHARES VALUE
---------- -----
DRUGS AND
HEALTH CARE 1.0%
McKesson 5%+ 46,000shs. $ 3,519,000
----------
ENERGY 0.4%
Lomak Petroleum 5 3/4%+ 33,500 1,582,875
----------
ENVIRONMENTAL
SERVICES 1.0%
Browning-Ferris Industries 7 1/4% 100,000 3,400,000
----------
INSURANCE 1.5%
St. Paul Capital 6% 75,000 5,400,000
----------
OFFICE EQUIPMENT 0.6%
IKON Office Solutions $5.04 32,500 2,201,875
----------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $22,531,360) 26,486,125
----------
CONVERTIBLE BONDS 3.8%
DIVERSIFIED 0.6%
MascoTech 4 1/2%, 12/15/2003 2,500,000 2,187,500
----------
DRUGS AND
HEALTH CARE 0.6%
Ciba-Geigy 6 1/4%, 3/15/2016 2,000,000 2,200,000
----------
ELECTRONICS 0.5%
Park Electrochemical
5 1/2%, 3/1/2006 2,000,000 1,890,000
----------
ENERGY 1.2%
Santa Fe Pipelines
11.162%, 8/15/2010 2,500,000 4,237,500
----------
INSURANCE 0.3%
LibLife International (UK)
6 1/2%, 9/30/2004 750,000 879,381
----------
TECHNOLOGY 0.6%
Xilinx 5 1/4%, 11/1/2002+ 2,000,000 1,947,500
----------
TOTAL CONVERTIBLE BONDS
(Cost $11,076,250) 13,341,881
----------
COMMON STOCKS 36.1%
AEROSPACE AND
DEFENSE 0.6%
General Dynamics 26,900shs. 2,325,169
----------
AUTOMOTIVE AND
RELATED 0.5%
Chrysler 50,000 1,759,375
----------
SHARES VALUE
------ -----
BANKING AND FINANCE 5.9%
Ahmanson (H.F.) 37,000 $ 2,476,687
Banco Bilbao Vizcaya (Spain) 46,200 1,494,969
Bank of Ireland (Ireland) 190,000 2,927,969
Bank of New York 30,600 1,769,063
BankAmerica 12,700 927,100
Citicorp 11,600 1,466,675
First Union 25,000 1,281,250
ING Groep (Netherlands) 82,666 3,483,679
National Australia Bank
(ADRs) (Australia) 60,000 4,237,500
Societe Generale (France) 6,360 866,816
-------------
20,931,708
-------------
CHEMICALS 1.3%
Bayer (Germany) 57,000 2,115,572
duPont (E.I.) de Nemours 17,600 1,057,100
Goodrich (B.F.) 33,000 1,367,438
-------------
4,540,110
-------------
CONSUMER GOODS
AND SERVICES 5.5%
Allied Domecq (UK) 140,000 1,271,809
Anheuser-Busch 20,000 880,000
B.A.T. Industries (UK) 200,000 1,831,735
General Mills 34,400 2,463,900
PepsiCo 80,300 2,925,931
RJR Nabisco Holdings 64,000 2,400,000
Russell 50,100 1,330,781
Sara Lee 59,200 3,333,700
The Stanley Works 28,900 1,363,719
Xerox 23,000 1,697,687
-------------
19,499,262
-------------
DIVERSIFIED 0.6%
Alexander & Baldwin 29,600 813,075
Tenneco 36,000 1,422,000
-------------
2,235,075
-------------
DRUGS AND
HEALTH CARE 2.5%
American Home Products 15,600 1,193,400
Baxter International 42,200 2,128,462
Bristol-Myers Squibb 29,200 2,763,050
Schering-Plough 46,500 2,888,813
-------------
8,973,725
-------------
ELECTRIC AND GAS
UTILITIES 4.3%
Companhia Energetica de
Minas Gerais (ADRs)
"CEMIG" (Brazil) 22,700 1,021,500
Duke Energy 36,000 1,993,500
Electricidade de Portugal
(ADRs) (Portugal) 48,200 1,867,750
- ----------
See footnotes on page 10.
-----
9
<PAGE>
==============================================================================
PORTFOLIO OF INVESTMENTS
December 31, 1997
SHARES VALUE
------ -----
ELECTRIC AND GAS
UTILITIES (CONTINUED)
Endesa (ADRs) (Spain) 100,000 $ 1,818,750
FPL Group 34,500 2,041,969
Unicom 64,400 1,980,300
VEBA (Germany) 30,000 2,043,426
Williams Companies 83,000 2,355,125
-------------
15,122,320
-------------
ELECTRONICS 0.9%
AMP 30,400 1,276,800
Thomas & Betts 38,400 1,814,400
-------------
3,091,200
-------------
ENERGY 3.5%
Amoco 18,200 1,549,275
Atlantic Richfield 19,900 1,594,488
Exxon 26,300 1,609,231
Royal Dutch Petroleum
(Netherlands) 32,000 1,734,000
Snyder Oil 91,022 1,661,151
Total (Class B) (France) 15,396 1,676,121
Unocal 71,100 2,759,569
-------------
12,583,835
-------------
FOOD 0.5%
ConAgra 50,000 1,640,625
-------------
INSURANCE 2.6%
American General 30,000 1,621,875
AXA-UAP (France) 9,736 753,603
Irish Life (Ireland) 430,000 2,450,297
Lincoln National 20,700 1,617,188
Marsh & McLennan 20,200 1,506,163
St. Paul Companies 17,600 1,444,300
-------------
9,393,426
-------------
MACHINERY 0.6%
GATX 32,700 2,372,794
-------------
METALS 0.3%
Allegheny Teledyne 41,500 1,073,813
-------------
PAPER AND PACKAGING 1.2%
Bemis 47,000 2,070,937
Mead 25,000 700,000
Union Camp 15,300 821,419
Weyerhaeuser 15,300 750,656
-------------
4,343,012
-------------
RETAILING 1.6%
May Department Stores 25,900 1,364,606
Penney (J.C.) 31,300 1,887,781
Tesco (UK) 287,400 2,326,023
-------------
5,578,410
-------------
SHARES OR
PRIN. AMT. VALUE
---------- -----
TOBACCO 0.8%
Philip Morris 60,300 shs.$ 2,732,344
-------------
TRANSPORTATION 0.2%
Norfolk Southern 25,200 776,475
-------------
UTILITIES/
TELECOMMUNICATIONS 2.5%
Alcatel Alsthom (France) 15,000 1,907,255
Bell Atlantic 21,500 1,956,500
GTE 35,300 1,844,425
SBC Communications 27,200 1,992,400
Telecom Italia-SpA* (Italy) 255,225 1,125,324
-------------
8,825,904
-------------
MISCELLANEOUS 0.2%
Pacific Dunlop (Australia) 275,000 582,278
-------------
TOTAL COMMON STOCKS
(Cost $105,246,248) 128,380,860
-------------
ASSET-BACKED
SECURITIES++ 2.8%
BANKING AND FINANCE 2.8%
The Money Store Home Equity
Trust 1997-D
6.555%, 12/15/2038 $ 5,000,000 4,993,750
United Companies Financial
1997-C 6.88%, 9/15/2022 5,000,000 5,045,315
-------------
TOTAL ASSET-BACKED
SECURITIES
(Cost $9,999,247) 10,039,065
-------------
<PAGE>
SHORT-TERM HOLDINGS 0.9%
(Cost $3,200,000) 3,200,000
-------------
TOTAL INVESTMENTS 100.3%
(Cost $321,625,398) 356,472,427
OTHER ASSETS
LESS LIABILITIES (0.3)% (983,553)
-------------
NET ASSETS 100.0% $ 355,488,874
=============
- ----------
+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. See Notes to Financial Statements.
See Notes to Financial Statements.
- -----
10
<PAGE>
<TABLE>
<CAPTION>
==============================================================================
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS:
Investments, at value:
<S> <C> <C>
Bonds and stocks (cost $256,913,020) ...................... $ 289,674,722
US Government and Government agency securities
(cost $61,512,378) ........................................ 63,597,705
Short-term holdings (cost $3,200,000) ..................... 3,200,000 $ 356,472,427
-------------
Cash 828,150
Receivable for interest and dividends ...................................... 3,163,999
Receivable for securities sold ............................................. 920,112
Receivable for Capital Stock sold .......................................... 181,327
Investment in, and expenses prepaid to, shareholder service agent .......... 67,289
Other 21,711
-------------
Total Assets ............................................................... 361,655,015
-------------
LIABILITIES:
Payable for securities purchased ........................................... 5,026,559
Payable for Capital Stock repurchased ...................................... 498,571
Accrued expenses, taxes, and other ......................................... 641,011
-------------
Total Liabilities ..........................................................
6,166,141
-------------
Net Assets ................................................................. $ 355,488,874
=============
COMPOSITION OF NET ASSETS:
Capital Stock, at par ($1 par value; 500,000,000 shares authorized;
24,008,910 shares outstanding):
Class A .................................................................. $ 18,271,389
Class B .................................................................. 582,119
Class D .................................................................. 5,155,402
Additional paid-in capital ................................................. 294,084,005
Undistributed net investment income ........................................ 406,565
Undistributed net realized gain ............................................ 2,144,594
Net unrealized appreciation of investments ................................. 35,749,685
Net unrealized depreciation on translation of assets
and liabilities denominated in foreign currencies .......................... (904,885)
-------------
Net Assets ................................................................. $ 355,488,874
=============
NET ASSET VALUE PER SHARE:
Class A ($270,688,127 / 18,271,389 shares) ................................. $ 14.81
=============
Class B ($8,606,825 / 582,119 shares) ...................................... $ 14.79
=============
Class D ($76,193,922 / 5,155,402 shares) ................................... $ 14.78
=============
- ----------
See Notes to Financial Statements.
-----
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
INVESTMENT INCOME:
<S> <C> <C>
Interest ............................................................. $14,957,685
Dividends ............................................................ 6,243,369
-----------
Total Investment Income (net of foreign taxes withheld of $165,317) .............................. $21,201,054
EXPENSES:
Management fee ....................................................... 2,192,400
Distribution and service fees ........................................ 1,511,099
Shareholder account services ......................................... 630,508
Shareholder reports and communications ............................... 137,715
Custody and related services ......................................... 131,075
Registration ......................................................... 84,360
Auditing and legal fees .............................................. 69,191
Directors' fees and expenses ......................................... 26,097
Miscellaneous ........................................................ 27,364
-----------
Total Expenses ................................................................................... 4,809,809
-----------
Net Investment Income ............................................................................ 16,391,245
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments ..................................... 28,464,970
Net realized loss from foreign currency transactions ................. (330,664)
Net change in unrealized appreciation of investments ................. 4,951,521
Net change in unrealized appreciation on translation of
assets and liabilities denominated in foreign currencies ............. (2,024,316)
-----------
Net Gain on Investments and Foreign Currency Transactions ........................................ 31,061,511
-----------
Increase in Net Assets from Operations ........................................................... $47,452,756
===========
- ----------
See Notes to Financial Statements.
</TABLE>
- -----
12
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
OPERATIONS:
<S> <C> <C>
Net investment income .......................................................... $ 16,391,245 $ 19,322,087
Net realized gain on investments ............................................... 28,464,970 5,841,486
Net realized gain (loss) from foreign currency transactions .................... (330,664) 7,433
Net change in unrealized appreciation of investments ........................... 4,951,521 3,571,125
Net change in unrealized appreciation/depreciation on translation of
assets and liabilities denominated in foreign currencies ....................... (2,024,316) 987,448
------------ ------------
Increase in Net Assets from Operations ......................................... 47,452,756 29,729,579
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A ..................................................................... (13,456,408) (14,995,963)
Class B ..................................................................... (246,429) (55,035)
Class D ..................................................................... (3,132,293) (3,480,362)
Net realized gain on investments:
Class A ..................................................................... (25,021,509) (1,799,539)
Class B ..................................................................... (633,473) (3,653)
Class D (6,970,215) (494,274)
------------ ------------
Decrease in Net Assets from Distributions (49,460,327) (20,828,826)
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996
--------- -----------
CAPITAL SHARE TRANSACTIONS:*
Net proceeds from sale of shares:
<S> <C> <C> <C> <C>
Class A .............................. 650,380 1,396,344 9,972,700 20,428,865
Class B .............................. 343,682 207,814 5,230,021 3,024,908
Class D .............................. 404,112 894,700 6,155,758 13,071,905
Investment of dividends:
Class A .............................. 606,682 702,268 9,216,525 10,180,313
Class B .............................. 11,758 2,581 178,238 37,557
Class D .............................. 167,968 193,834 2,546,388 2,804,770
Exchanged from associated Funds:
Class A .............................. 330,769 4,447,183 5,064,541 64,919,755
Class B .............................. 79,482 11,499 1,207,365 170,381
Class D .............................. 418,908 590,551 6,386,380 8,537,551
Shares issued in payment of
gain distributions:
Class A .............................. 1,378,265 102,587 20,340,211 1,470,077
Class B .............................. 34,906 222 512,347 3,179
Class D .............................. 423,625 30,841 6,229,511 441,057
--------- ---------- ----------- -----------
Total ................................... 4,850,537 8,580,424 73,039,985 125,090,318
--------- ---------- ----------- -----------
Cost of shares repurchased:
Class A .............................. (3,510,451) (3,856,199) (53,806,277) (56,302,959)
Class B .............................. (46,830) (6,522) (709,661) (96,604)
Class D .............................. (1,022,412) (1,261,567) (15,638,553) (18,398,148)
Exchanged into associated Funds:
Class A .............................. (971,157) (4,758,652) (14,983,726) (69,546,031)
Class B .............................. (39,006) (17,467) (600,589) (258,956)
Class D .............................. (720,259) (903,445) (11,014,316) (13,186,394)
--------- ---------- ----------- -----------
Total ................................... (6,310,115) (10,803,852) (96,753,122) (157,789,092)
--------- ---------- ----------- -----------
Decrease in Net Assets from Capital
Share Transactions ...................... (1,459,578) (2,223,428) (23,713,137) (32,698,774)
========= ========== ----------- -----------
Decrease in Net Assets ......................................................... (25,720,708) (23,798,021)
NET ASSETS:
Beginning of year .............................................................. 381,209,582 405,007,603
----------- -----------
End of Year (including undistributed net investment income of
$406,565 and $888,857, respectively) ........................................... $355,488,874 $381,209,582
=========== ===========
- ----------
* The Fund began offering Class B shares on April 22, 1996.
See Notes to Financial Statements.
</TABLE>
-----
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
1. MULTIPLE CLASSES OF SHARES -- 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 18 months of purchase.
Class B shares are sold without an initial sales charge but are subject to a
distribution fee of 0.75%, 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 of 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, if
applicable, of 1% imposed on 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 -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Fund:
a. SECURITY VALUATION -- 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, at the mean of bid and asked prices. Short-term
holdings maturing in 60 days or less are valued at amortized cost.
b. FOREIGN CURRENCY TRANSACTIONS -- The books and records of the Fund are
maintained in US dollars. The market value of investment securities, other
assets and liabilities denominated in foreign currencies are translated into
US dollars at the 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. FEDERAL TAXES -- There is no provision for federal income 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. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- 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, except
that certain dividends from foreign securities where the ex-dividend dates
may have passed are recorded as soon as the Fund is informed of the dividend.
Interest income is recorded on an accrual basis.
e. MULTIPLE CLASS ALLOCATIONS -- 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 shares of each class.
Class-specific expenses, which include distribution and service fees and any
other items that are specifically attributable to a particular class, are
charged directly to such class. For the year ended December 31, 1997,
distribution and service fees were the only class-specific expenses.
f. DISTRIBUTIONS TO SHAREHOLDERS -- The treatment for financial statement
purposes of distributions made to shareholders during the year from net
investment income or net realized gains 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 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 reclassification
will have no effect on net assets, results of operations, or net asset value
per share of the Fund.
3. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of portfolio
securities, excluding US Government obligations and short-term investments, for
the year ended December 31, 1997, amounted to $353,327,757 and $428,946,263,
respectively; purchases and sales of US Government obligations were $133,479,106
and $113,370,057, respectively.
At December 31, 1997, 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
-----
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
the effects of foreign currency translations, amounted to $37,813,748 and
$2,966,719, respectively.
4. SHORT-TERM INVESTMENTS -- At December 31, 1997, the Fund owned short-term
investments which matured in less than seven days.
5. MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS -- J. & W.
Seligman & Co. Incorporated (the "Manager") manages the affairs of the Fund and
provides or arranges for the necessary personnel and facilities. Seligman
Henderson Co. (the "Subadviser"), an entity owned 50% each by the Manager and
Henderson plc, supervises and directs all or a portion of the Fund's foreign
investments. For this service, the Subadviser receives a fee from the Manager,
payable monthly. 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 or by Henderson plc. 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. The
management fee reflected in the Statement of Operations represents 0.60% per
annum of the Fund's average daily net assets.
Seligman Financial Services, Inc. (the "Distributor"), agent for the
distribution of the Fund's shares and an affiliate of the Manager, received
concessions of $36,070 from sales of Class A shares, after commissions of
$276,369 were 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,
1997, fees incurred aggregated $674,872, 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 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 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 provides 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, 1997, 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 $54,805 and $781,422, respectively.
The Distributor is entitled to retain any CDSL imposed on redemptions of
Class D shares occurring within one year of purchase and on certain redemptions
of Class A shares occurring within 18 months of purchase. For the year ended
December 31, 1997, such charges amounted to $11,752.
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 Distributor receives 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, 1997, amounted to $14,432.
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, 1997,
Seligman Services, Inc. received commissions of $8,141 from the sales of shares
of the Fund. Seligman Services, Inc. also received distribution and service fees
of $51,665, pursuant to the Plan.
Seligman Data Corp., which is owned by the Fund and certain associated
investment companies, charged the Fund at cost $630,508 for shareholder account
services. The Fund's investment in Seligman Data Corp. is recorded at 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.
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, 1997, of
$109,433 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.
-----
15
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
The Fund's financial highlights are presented below. "Per share operating
performance" data is designed to allow investors to trace the operating
performance of each Class, on a per share basis, from the beginning net asset
value to the ending net asset value, so that investors can understand what
effect the individual items have on their investment, assuming it was held
throughout the period. Generally, 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.
"Total return based on net asset value" measures each Class's performance
assuming that investors purchased Fund shares at net asset value as of the
beginning of the period, invested dividends and capital gains paid at net asset
value, and then sold their shares at the net asset value 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. 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,
-------------------------------------------------------------
1997o 1996o 1995o 1994o 1993
--------- --------- -------- -------- ---------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ..................... $ 14.97 $ 14.63 $ 13.05 $ 14.58 $ 13.69
--------- --------- -------- -------- ---------
Net investment income .................................. .71 .74 .76 .76 .75
Net realized and unrealized investment gain (loss) ..... 1.41 .38 1.89 (1.57) 1.40
Net realized and unrealized gain (loss)
from foreign currency transactions ..................... (.10) .04 (.01) .03 --
--------- --------- -------- -------- ---------
INCREASE (DECREASE) FROM INVESTMENT
OPERATIONS ............................................. 2.02 1.16 2.64 (.78) 2.15
Dividends paid ......................................... (.74) (.73) (.78) (.75) (.75)
Distributions from net gain realized ................... (1.44) (.09) (.28) -- (.51)
--------- --------- -------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSET VALUE ............. (.16) .34 1.58 (1.53) .89
--------- --------- -------- -------- ---------
NET ASSET VALUE, END OF YEAR ........................... $ 14.81 $ 14.97 $ 14.63 $ 13.05 $ 14.58
========= ========= ======== ======== =========
TOTAL RETURN BASED ON NET ASSET VALUE: 14.06% 8.22% 20.60% (5.43)% 15.98%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets ......................... 1.14% 1.14% 1.00% 1.02% 1.03%
Net investment income to average net assets ............ 4.66% 5.11% 5.38% 5.51% 5.29%
Portfolio turnover ..................................... 138.90% 125.92% 111.78% 66.62% 60.62%
Average commission rate paid ........................... $ .0170 $ .0361
NET ASSETS, END OF YEAR (000S OMITTED) ................. $ 270,688 $ 296,291 $ 318,307 $ 286,355 $ 321,040
- -------------
See footnotes on page 17.
</TABLE>
- -----
16
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B CLASS D
----------------------- --------------------------------------------
YEAR 4/22/96* YEAR ENDED DECEMBER 31, 5/3/93*
ENDED TO TO
12/31/97o 12/31/96o 1997o 1996o 1995o 1994o 12/31/93
--------- --------- ------- ------- ------- ------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ................ $ 14.95 $14.43 $ 14.95 $ 14.60 $ 13.01 $ 14.55 $ 14.42
------- ------- ------- ------- ----- ------- --------
Net investment income ............................. .59 .43 .59 .63 .65 .65 .45
Net realized and unrealized investment gain (loss) 1.41 .59 1.40 .38 1.88 (1.57) .69
Net realized and unrealized gain (loss)
from foreign currency transactions ................ (.10) .05 (.10) .04 (.01) .03 --
------- ------- ------- ------- ----- ------- --------
INCREASE (DECREASE) FROM INVESTMENT
OPERATIONS ........................................ 1.90 1.07 1.89 1.05 2.52 (.89) 1.14
Dividends paid .................................... (.62) (.46) (.62) (.61) (.65) (.65) (.50)
Distributions from net gain realized .............. (1.44) (.09) (1.44) (.09) (.28) -- (.51)
------- ------- ------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN NET ASSET VALUE ........ (.16) .52 (.17) .35 1.59 (1.54) .13
------- ------- ------- ------- ------- ------ --------
NET ASSET VALUE, END OF YEAR ...................... $ 14.79 $ 14.95 $ 14.78 $ 14.95 $ 14.60 $ 13.01 $ 14.55
======= ======= ======= ======= ======= ======= ========
TOTAL RETURN BASED ON NET ASSET VALUE: ............ 13.24% 7.58% 13.17% 7.43% 19.66% (6.20)% 8.02%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets .................... 1.90% 1.89%+ 1.90% 1.90% 1.79% 1.82% 1.84%+
Net investment income to average net assets ....... 3.90% 4.36%+ 3.90% 4.37% 4.58% 4.74% 4.42%+
Portfolio turnover ................................ 138.90% 125.92%++ 138.90% 125.92% 111.78% 66.62% 60.62%+++
Average commission rate paid ...................... $ .0170 $ .0361++ $ .0170 $ .0361
NET ASSETS, END OF YEAR (000S OMITTED) ............ $ 8,607 $ 2,961 $76,194 $81,957 $86,701 $67,946 $ 49,941
</TABLE>
- ------------
* Commencement of offering of shares.
o Per share amounts for the years ended December 31, 1997, 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.
------
17
<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,
1997, 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 statements 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, 1997, by correspondence with the Fund's custodian and brokers;
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, 1997, 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 30, 1998
- --------------------------------------------------------------------------------
-----
18
<PAGE>
================================================================================
FEDERAL TAX STATUS OF 1997 DIVIDEND AND GAIN DISTRIBUTIONS
FOR TAXABLE ACCOUNTS
The quarterly dividends paid to Class A, B, and D shareholders in 1997 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,
22% 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 these
distributions, corporate shareholders must have held the Fund's shares for at
least 46 days or more during the 90-day period beginning 45 days before each
ex-dividend date.
A net long-term distribution of $0.250 per share, from gain realized on
investments during the period November 1, 1996, to December 31, 1996, was paid
on June 25, 1997, to Class A, B, and D shareholders. On November 21, 1997, a
distribution of $1.186 per share, consisting of $1.137 from net long-term and
$0.049 from net short-term gain realized on investments in 1997, was paid to
Class A, B and D shareholders. The federal Taxpayer Relief Act of 1997 modified
the classification of long-term capital gains to include a "28% Rate Gain"
category. Please note that 100% of the Fund's June 1997 capital gain
distribution is categorized as "28% Rate Gain" while 24% of the November 1997
long-term capital gain distribution is categorized as "28% Rate Gain." The
distributions from net long-term gain are designated as "capital gain dividends"
for federal income tax purposes and are taxable to shareholders in 1997 as a
long-term gain from the sale of capital assets, no matter how long your shares
have been owned or whether the distribution was paid in additional shares or
cash. However, if shares on which a long-term capital gain distribution was
received are subsequently sold, and such shares were held for six months or less
from 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 distributions were paid in shares, the per share cost basis for
federal income tax purposes is $15.41 for Class A shares and $15.38 for Class B
and D shares for the June 25 distribution, and $14.62 for Class A shares, and
$14.57 for Class B and D shares for the November 21 distribution.
A year-end statement of account showing activity for 1997, 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 amounts of the distributions on investments
paid to the shareholder during the year.
-----
19
<PAGE>
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. GALVIN 2
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, Raytheon Company
DIRECTOR, USLIFE Corporation
ALICE S. ILCHMAN 3
PRESIDENT, Sarah Lawrence College
TRUSTEE, Committee for Economic Development
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON 2
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW
RETIRED CHAIRMAN AND SENIOR PARTNER,
Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Industries, Inc.
BETSY S. MICHEL 2
TRUSTEE, Geraldine R. Dodge Foundation
CHAIRMAN OF THE BOARD OF TRUSTEES, St. George's School
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
RETIRED PARTNER, Pitney, Hardin, Kipp & Szuch, Law Firm
JAMES Q. RIORDAN 3
DIRECTOR, The Brooklyn Union Gas Company
TRUSTEE, Committee for Economic Development
DIRECTOR, Dow Jones & Co., Inc.
DIRECTOR, Public Broadcasting Service
RICHARD R. SCHMALTZ 1
MANAGING DIRECTOR, J. & W. Seligman & Co. Incorporated
TRUSTEE EMERITUS, Colby College
ROBERT L. SHAFER 3
RETIRED VICE PRESIDENT, Pfizer Inc.
DIRECTOR, USLIFE Corporation
JAMES N. WHITSON 2
EXECUTIVE VICE PRESIDENT AND DIRECTOR,
Sammons Enterprises, Inc.
DIRECTOR, C-SPAN
DIRECTOR, CommScope, Inc.
BRIAN T. ZINO 1
PRESIDENT
PRESIDENT, J. & W. Seligman & Co. Incorporated
CHAIRMAN, Seligman Data Corp.
DIRECTOR EMERITUS
FRED E. BROWN
DIRECTOR AND CONSULTANT, J. & W. Seligman & Co. Incorporated
- ----------------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating 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
- --------------------------------------------------------------------------------
- -----
20
<PAGE>
================================================================================
GLOSSARY OF FINANCIAL TERMS
CAPITAL GAIN DISTRIBUTION -- A payment to mutual fund shareholders of profits
realized on the sale of securities in the fund's portfolio. For tax purposes,
these profits may be taxed at different rates, primarily depending upon the
length of time the securities were owned by the fund.
CAPITAL APPRECIATION/DEPRECIATION -- An increase or decrease in the market value
of a mutual fund's portfolio securities, which is reflected in the net asset
value of the fund's shares. Capital appreciation/depreciation of an individual
security is in relation to the original purchase price.
COMPOUNDING -- The change in the value of an investment as shareholders receive
earnings on their investment's earnings. For example, if $1,000 is invested at a
fixed rate of 7% a year, the initial investment is worth $1,070 after one year.
If the return is compounded, second year earnings will not be based on the
original $1,000, but on the $1,070, which includes the first year's earnings.
CONTINGENT DEFERRED SALES LOAD (CDSL) -- Depending on the class of shares owned,
a fee charged by a mutual fund when shares are sold back to the fund (the CDSL
expires after a fixed time period).
DIVIDEND -- A payment by a mutual fund, usually derived from the fund's net
investment income (dividends and interest less expenses).
DIVIDEND YIELD -- A measurement of a fund's dividend as a percentage of the
maximum offering price.
EXPENSE RATIO -- The cost of doing business for a mutual fund, expressed as a
percent of the fund's net assets.
INVESTMENT OBJECTIVE -- The shared investment goal of a fund and its
shareholders.
MANAGEMENT FEE -- The amount paid by a mutual fund to its investment advisor(s).
MULTIPLE CLASSES OF SHARES -- Although an individual mutual fund invests in only
one portfolio of securities, it may offer investors several purchase options
which are "classes" of shares. Multiple classes permit shareholders to choose
the fee structure that best meets their needs and goals. Generally, each class
will differ in terms of how and when sales charges and certain fees are
assessed.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (NASD) -- A self-regulatory
body with authority over firms that distribute mutual funds.
NET ASSET VALUE (NAV) PER SHARE -- The market worth of one fund share, obtained
by adding a mutual fund's total assets (securities, cash, and any accrued
earnings), subtracting liabilities, and dividing the resulting net assets by the
number of shares outstanding.
OFFERING PRICE (OP) -- The price at which a mutual fund's share can be
purchased. The offering price per share is the current net asset value plus any
sales charge.
PORTFOLIO TURNOVER -- A measure of the trading activity in a mutual fund's
investment portfolio that reflects how often securities are bought and sold.
PROSPECTUS -- The legal document describing a mutual fund to all prospective
shareholders. It contains information required by the Securities and Exchange
Commission (SEC), such as a fund's investment objective and policies, services,
investment restrictions, officers and directors, how shares are bought and
redeemed, fund fees and other charges, and the fund's financial statements.
SEC YIELD -- SEC Yield refers to the net income earned by a fund during a recent
30-day period. This income is annualized and then divided by the maximum
offering price per share on the last day of the 30-day period. The SEC Yield
formula reflects semiannual compounding.
SECURITIES AND EXCHANGE COMMISSION -- The primary US federal agency that
regulates the registration and distribution of mutual fund shares.
STATEMENT OF ADDITIONAL INFORMATION -- Document that contains updated or more
detailed information about a mutual fund and supplements the prospectus. It is
available at no charge upon request.
TOTAL RETURN -- A measure of a fund's performance encompassing all elements of
return. Reflects the change in share price over a given period and assumes all
distributions are taken in additional fund shares. The AVERAGE ANNUAL TOTAL
RETURN represents the average annual compounded rate of return for the periods
presented.
YIELD ON SECURITIES -- For bonds, the current yield is the coupon rate of
interest, divided by the purchase price. For stocks, the yield is measured by
dividing dividends paid by the market price of the stock.
- ------------
Adapted from the Investment Company Institute's 1997 MUTUAL FUND FACT BOOK.
-----
21
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
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
(212) 682-7600 Outside the Continental
United States
(800) 622-4597 24-Hour Automated Telephone Access Service
- --------------------------------------------------------------------------------
SELIGMAN FINANCIAL SERVICES, INC.
AN AFFILIATE OF
[LOGO]
J.& W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK 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 12/97 Printed on Recycled Paper
