S E L I G M A N
- ------------------
INCOME
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1998
-------------------------
SEEKING HIGH
CURRENT INCOME
AND IMPROVEMENT OF INCOME AND
CAPITAL VALUE OVER
THE LONGER TERM
[GRAPHIC OMITTED]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
<PAGE>
SELIGMAN -- TIMES CHANGE ... VALUES ENDURE
J. & W. SELIGMAN & CO. INCORPORATED IS A FIRM WITH A LONG TRADITION OF
INVESTMENT EXPERTISE, OFFERING A BROAD ARRAY OF INVESTMENT CHOICES TO HELP
TODAY'S INVESTORS SEEK THEIR LONG-TERM FINANCIAL GOALS.
TIMES CHANGE...
Established in 1864, Seligman's history of providing financial
services has been marked not by fanfare, but rather by a quiet
and firm adherence to financial prudence. While the world has
[GRAPHIC changed dramatically in the 134 years since Seligman first opened
OMITTED] its doors, the firm has continued to offer its clients
high-quality investment solutions through changing times.
In the late 19th century, as the country grew, Seligman helped
finance the westward expansion of the railroads, the construction
of the Panama Canal, and the launching of urban transit systems.
In the first part of the 20th century, as America became an
industrial power, the firm helped fund the growing capital needs
of the nascent automobile and steel industries.
With the formation of Tri-Continental Corporation in 1929 --
today, the nation's largest diversified publicly-traded
closed-end investment company -- Seligman began shifting its emphasis from
investment banking to investment management. Despite the stock market crash and
ensuing depression, Seligman was convinced of the importance that investment
companies could have in building wealth for individual investors and began
managing its first mutual fund in 1930.
In the decades that followed, Seligman has continued to offer forward-looking
investment solutions, including funds that focus on technology stocks, municipal
bonds, and international securities.
...Values Endure
Seligman is proud of its distinctive past and of the traditional values that
continue to shape the firm's business decisions and investment judgment. While
much has changed over the years, the firm's commitment to providing prudent
investment management that seeks to build wealth for clients over time is an
enduring value that will guide Seligman into the new millennium.
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 ................................. 17
Report of Independent Auditors ....................... 19
Federal Tax Status of 1998 Dividend and
Gain Distributions for Taxable Accounts ............ 20
Board of Directors ................................... 21
Executive Officers and For More Information .......... 22
Glossary of Financial Terms .......................... 23
<PAGE>
TO THE SHAREHOLDERS
For 1998, Seligman Income Fund posted a total return of 7.26% based on the net
asset value of Class A shares. This return compares to the 7.85% total return of
the Fund's peers, as measured by the Lipper Income Funds Average, and the 8.69%
return of the Lehman Brothers Aggregate Bond Index, which measures the
performance of the bond markets. A discussion with your Portfolio Managers
begins on page 2.
The past year was one of continued growth for the US economy, with real domestic
growth of 3.9%, marking the eighth year of economic expansion. A widely watched
stock market measure, the S&P 500, rose 28.58% in 1998, the first time in
history that the S&P 500 registered more than 20% gains four years in a row.
But, despite the strong year-end numbers, 1998 gave investors quite a ride. In
fact, the past year was the most volatile for both stock and bond markets since
1987.
A number of factors led to the markets' volatility in 1998--some domestic, many
international. The international economic background in 1998 was one of steadily
deteriorating conditions as the financial crisis, originally limited to a few
Asian countries, spread throughout other regions. Worldwide concern grew in
August of 1998 when Russia defaulted on its debt and devalued its currency. Fear
then spread to Latin America as Brazil struggled in vain to protect its
currency, the real.
The uncertain international economic environment led investors to seek
high-quality investments, particularly US Treasury securities. This "flight to
quality," combined with the first Federal budget surplus in three decades, drove
US Treasury bond yields to 30-year lows. (Bonds prices, which move in the
opposite direction of their yields, headed higher.) The 30-year US Treasury bond
yield closed the year at 5.09%, down from 5.92% on December 31, 1997. The yield
had fallen as low as 4.70% before ending the year above the 5% level. Corporate
bonds did not fare as well, by comparison to US Treasury bonds.
Bond prices gained additional support when the Federal Reserve Board cut the
federal-funds rate three times during the second half of the year. These actions
confirmed the Fed's resolve to protect the US economy from the global financial
crisis and markets responded favorably throughout November and December.
The economic outlook for 1999 remains positive for US stock and bond markets,
with subdued inflation, low interest rates, improving prospects in Asia, and a
Federal Reserve leading the fight against global recession. However, we believe
that the coming year will be a challenging one, confronted with economic
uncertainties and continued high volatility.
Seligman continues to work to ensure that all of its operations are prepared for
the challenges posed by the Year 2000 (Y2K) computer problem. We are confident
that there will be no disruption in the investment and shareholder services
provided by your Fund as a result of Y2K. In addition, your portfolio management
team considers the potential ramifications of Y2K when making decisions on which
securities should be held by the Fund.
Thank you for your continued support of Seligman Income Fund in 1998. We look
forward to serving your investment needs in 1999.
By order of the Board of Directors,
/s/ William C. Morris
- --------------------------
William C. Morris
Chairman
/s/ Brian T. Zino
-------------------------
Brian T. Zino
President
January 29, 1999
1
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGERS,
CHARLES C. SMITH, JR. AND RODNEY COLLINS
Q. HOW DID SELIGMAN INCOME FUND PERFORM IN THE LAST 12 MONTHS?
A. For the 12 months ended December 31, 1998, Seligman Income Fund posted a
total return of 7.26% based on the net asset value of Class A shares.
During the same time, the Lipper Income Funds Average posted a total return
of 7.85%, and the Lehman Brothers Aggregate Bond Index, which measures the
results of the bond markets, posted a total return of 8.69%. The Fund
continued to maintain a favorable dividend yield compared to the Standard &
Poor's 500 Composite Stock Price Index (S&P 500) and its fund peer group.
Q. WHICH ECONOMIC AND MARKET FACTORS AFFECTED THE FUND'S INVESTMENT RESULTS IN
1998?
A. In 1998, the US economy expanded for the eighth year in a row. Low
inflation, continued corporate earnings growth, and a benign interest rate
environment all helped propel US equity and fixed-income markets higher.
The year was one of tremendous investor demand for US stocks and bonds.
Much of this demand was caused by the continuing "flight to quality" as
investors tried to insulate themselves from troubles in Asia and Latin
America by investing in the US. On the equity side, this trend, while
positive for the biggest stocks in the US, caused a narrowing of the market
that left many stocks with much lower returns. In fact, 50 stocks in the
S&P 500 accounted for about 94% of the performance of the entire Index. On
the fixed-income side, this trend proved positive for US Treasuries, as
investors around the world rushed to buy securities backed by the US
government. US corporate bonds, on the other hand, did not fare as well in
comparison.
Seligman Income Fund benefited from the strong demand for US large-cap
stocks as well as from declining interest rates. But market performance in
1998 was far from a straight line that moved continually higher. In the
third quarter of the year, the equity market actually weakened
significantly. The bond markets also experienced considerable volatility
throughout the year as investors sought the safety and stability of US
government bonds during periods of equity market turmoil. Your Fund did
well during this period, primarily because of its more conservative nature.
Q. What is your investment strategy?
A. As we have reported previously, we have repositioned the Fund's equity
portfolio to increase earnings stability and reduce overall volatility.
While still diversified among industry groups and individual holdings, the
portfolio has been pared down to focus on companies with dividend yields
equal to or greater than the S&P
A TEAM APPROACH
Seligman Income Fund is managed by the Seligman Growth and Income Team,
headed by Charles C. Smith, Jr. Mr. Smith and Rodney Collins are assisted
in the management of the Fund by seasoned research professionals who are
responsible for identifying the most attractive corporate and government
securities and dividend-paying common stocks, consistent with the Fund's
objective.
[GRAHIC OMITTED]
GROWTH AND INCOME TEAM: (FROM LEFT) AMY FUJII, JOHN ROTH, MELANIE RAVENELL
(ADMINISTRATIVE ASSISTANT), (SEATED) CHARLES SMITH (PORTFOLIO MANAGER), RODNEY
COLLINS (CO-PORTFOLIO MANAGER)
2
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGERS,
CHARLES C. SMITH, JR. AND RODNEY COLLINS
500. Valuations of the companies we invest in must beat the lower end of
their industry group. Our investment approach led us to be underweight in
many of the excessively valued large-capitalization stocks that were hit
the hardest by last summer's market downturn.
Due to our concerns regarding large-capitalization equity valuations, we
ended 1998 underweighted in equities. If the stock market corrects in 1999,
we would use that opportunity to add to positions in high-quality companies
at more attractive valuations.
In 1998, we significantly reduced the Fund's international holdings. With
ongoing problems in the global economy, we felt that the US market offered
greater return potential. We continued to reduce the convertible securities
in Seligman Income Fund's portfolio, which helped increase the Fund's
returns without increasing overall risk. We also increased the Fund's
fixed-income holdings, as we felt that interest rates were at attractive
levels.
With the strong results in the equity markets in 1998, our underweighting
in stocks impacted our performance relative to our peer group, while our
fixed-income exposure was heavily weighted to corporate bonds, which
underperformed Treasuries. However, our investment strategy continues to
offer a significant yield advantage and less investment risk than is
offered by our average competitor.
Q. WHAT IS YOUR OUTLOOK?
A. We continue to believe that the US economy offers an attractive environment
for investing in financial markets. We do not anticipate a significant rise
in interest rates in 1999, as long as corporate profits and overall
economic growth continue to moderate.
Deflationary concerns outside the US should benefit the fixed-income
marketplace. At the same time, we remain cautious of the high valuations of
many of the largest stocks in the market. We fear that many of these
valuations have been driven by liquidity concerns, not fundamentals.
Therefore, we are focusing on identifying companies whose valuations more
fully reflect their future prospects, and where there is a catalyst for
earnings acceleration going forward.
We believe that difficulties in world markets are likely to continue to
have an impact on US stocks in 1999 and that volatility, which was an
ever-present market factor last year, will not subside quickly. In such an
environment, Seligman Income Fund will continue to adhere to its
disciplined investment strategy based on fundamental analysis.
3
<PAGE>
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,
and assumes that all distributions within the period are invested in additional
shares, for the 10-year period ended December 31, 1998, to a $10,000 investment
made in the Lehman Brothers Aggregate Bond Index (Lehman Bond Index), the Lipper
Income Funds Average 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 Lehman Bond Index, the Lipper
Income Funds Average, and the S&P 500 exclude the effect of fees and/or sales
charges.
[The following table represents a chart in the printed material]
W/O Load With load Lipper Lehman Bro S&P 500
12/31/88 10,000 9,525 10,000 10,000 10,000
3/31/89 10,342 9,851 10,428 10,114 10,709
6/30/89 11,038 10,514 11,111 10,920 11,655
9/30/89 11,253 10,719 11,633 11,043 12,903
12/31/89 11,511 10,964 11,823 11,454 13,169
3/31/90 11,418 10,876 11,558 11,363 12,772
6/30/90 11,484 10,939 11,901 11,779 13,576
9/30/90 10,248 9,761 11,071 11,880 11,710
12/31/90 10,555 10,054 11,702 12,481 12,760
3/31/91 11,714 11,158 12,777 12,830 14,614
6/30/91 12,076 11,503 12,878 13,038 14,580
9/30/91 13,137 12,513 13,817 13,779 15,360
12/31/91 13,734 13,082 14,640 14,477 16,647
3/31/92 14,440 13,754 14,640 14,292 16,226
6/30/92 15,003 14,291 15,059 14,870 16,534
9/30/92 15,689 14,944 15,587 15,509 17,055
12/31/92 16,143 15,377 15,987 15,551 17,913
3/31/93 17,193 16,377 16,952 16,193 18,696
6/30/93 17,625 16,788 17,326 16,622 18,787
9/30/93 18,244 17,378 17,944 17,056 19,272
12/31/93 18,722 17,834 18,051 17,066 19,719
3/31/94 17,973 17,120 17,377 16,576 18,972
6/30/94 17,684 16,845 17,308 16,406 19,051
9/30/94 18,040 17,184 17,751 16,506 19,983
12/31/94 17,706 16,865 17,425 16,568 19,979
3/31/95 18,658 17,772 18,493 17,404 21,925
6/30/95 20,021 19,071 19,694 18,463 24,019
9/30/95 20,831 19,842 20,697 18,825 25,928
12/31/95 21,353 20,340 21,596 19,627 27,489
3/31/96 21,456 20,438 22,062 19,280 28,965
6/30/96 21,765 20,732 22,468 19,390 30,266
9/30/96 22,069 21,021 22,894 19,748 31,201
12/31/96 23,108 22,012 23,958 20,341 33,803
3/31/97 23,277 22,172 23,993 20,227 34,709
6/30/97 24,649 23,479 25,833 20,969 40,770
9/30/97 25,791 24,567 27,337 21,666 43,823
12/31/97 26,357 25,106 27,801 22,302 45,082
3/31/98 27,833 26,512 29,311 22,650 51,371
6/30/98 27,949 26,623 29,427 23,180 53,066
9/30/98 27,381 26,081 28,168 24,161 47,786
12/31/98 28,271 26,929 29,983 24,243 57,964
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.
4
<PAGE>
PERFORMANCE OVERVIEW
INVESTMENT RESULTS PER SHARE
TOTAL RETURNS
FOR PERIODS ENDED DECEMBER 31, 1998
<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
---------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A**
With Sales Charge (3.66)% 2.16% 7.54% 10.41% n/a n/a
Without Sales Charge 1.15 7.26 8.59 10.95 n/a n/a
CLASS B**
With CDSC+ (4.03) 1.45 n/a n/a 9.12% n/a
Without CDSC 0.67 6.28 n/a n/a 10.07 n/a
CLASS D**
With 1% CDSC (0.20) 5.39 n/a n/a n/a n/a
Without CDSC 0.74 6.36 7.74 n/a n/a 8.26%
LEHMAN BROS. AGGREGATE BOND INDEX*** 4.58 8.69 7.27 9.26 9.20++ 7.25+++
LIPPER INCOME FUNDS AVERAGE*** 1.89 7.85 10.68 11.61 11.98++ 10.62+++
S&P 500*** 9.22 28.58 24.06 19.21 29.00++ 22.63+++
NET ASSET VALUE
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1998 DECEMBER 31, 1997
---------------------- ---------------- ----------------------
<S> <C> <C> <C>
CLASS A $14.35 $15.23 $14.81
CLASS B 14.30 15.19 14.79
CLASS D 14.30 15.18 14.78
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<CAPTION>
DIVIDENDS
PAID CAPITAL GAIN
------------- ---------------
<S> <C> <C> <C>
CLASS A $0.650 PAID $0.856o
CLASS B 0.540 UNDISTRIBUTED REALIZED --
CLASS D 0.540 UNREALIZED 1.024oo
</TABLE>
Performance data quoted represent changes in prices 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 charge ("CDSC"), 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% CDSC, charged on redemptions made within one
year of the date of purchase.
*** The Lehman Bros. Aggregate Bond Index, the Lipper Income Funds Average, 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 Lehman Bros. Aggregate Bond Index and the S&P 500
exclude the effect of fees and sales charges. Investors cannot invest
directly in an index or an average.
+ The CDSC is 5% for periods of one year or less, and 3% since inception.
++ From April 30, 1996.
+++ From April 30, 1993.
o Includes the $0.132 of undistributed realized capital gains from 1997,
which were paid on June 24, 1998. ooRepresents the per share amount of net
unrealized appreciation of portfolio securities as of December 31, 1998.
5
<PAGE>
PORTFOLIO OVERVIEW
DIVERSIFICATION OF NET ASSETS
PERCENT OF TOTAL
DECEMBER 31,
--------------------
1998 1997
--------- ---------
Aerospace and Defense 0.7 0.6
Automotive and Related 1.2 1.9
Banking and Finance 14.5 19.4
Business Services 1.4 1.3
Capital Goods 0.2 --
Chemicals 1.8 3.2
Consumer Goods and Services 8.4 5.5
Diversified -- 1.2
Drugs and Health Care 4.4 4.1
Electric and Gas Utilities 4.4 5.7
Electronics -- 1.4
Energy 7.1 9.1
Environmental Services -- 1.0
Food 0.5 0.5
Funeral Services 1.3 1.4
Hotels/Motels -- 0.6
Insurance 4.0 4.4
Leisure 1.4 --
Machinery 1.0 2.1
Media 4.8 3.2
Metals -- 0.3
Office Equipment -- 0.6
Paper and Packaging 0.2 2.2
Retailing 5.0 4.5
Technology 7.5 1.8
Tobacco 2.9 0.8
Transportation 0.8 0.2
Utilities/Telecommunications9.3 4.3
Miscellaneous -- 0.2
--------- ---------
Total Corporate
Fixed-Income Securities
and Common Stocks 82.8 81.5
US Government and
Government Agency
Securities 13.1 17.9
SHORT-TERM HOLDINGS
AND OTHER ASSETS
LESS LIABILITIES 4.1 0.6
--------- ---------
TOTAL 100.0 100.0
===================
LARGEST INDUSTRIES+
DECEMBER 31, 1998
[The following table represents a chart in the printed material]
BANKING AND FINANCE ............. 14.5% $51,519,197
UTILITIES/TELECOMMUNICATIONS .... 9.3% 33,423,101
CONSUMER GOODS AND SERVICES ..... 8.4% 29,670,197
ENERGY .......................... 7.1% 25,117,995
RETAILING ....................... 5.0% 17,546,620
- --------------------------
+ Excludes US Government and Government Agency securities.
COMPOSITION OF NET ASSETS
PERCENT OF TOTAL
DECEMBER 31,
----------------------
1998 1997
--------- ---------
Corporate Bonds .................... 43.9 31.3
Convertible Preferred Stocks ....... 3.1 7.5
Convertible Bonds .................. -- 3.8
Asset-Backed Securities ............ -- 2.8
- --------------------------------------------------------------------------------
Total Corporate
Fixed-Income Securities .......... 47.0 45.4
- --------------------------------------------------------------------------------
Common Stocks ...................... 35.8 36.1
- --------------------------------------------------------------------------------
US Government and
Government Agency
Securities ....................... 13.1 17.9
Short-Term Holdings and
Other Assets Less Liabilities .... 4.1 0.6
- --------------------------------------------------------------------------------
TOTAL .............................. 100.0 100.0
- --------------------------------------------------------------------------------
6
<PAGE>
PORTFOLIO OVERVIEW
LARGEST PORTFOLIO CHANGES
DURING PAST SIX MONTHS
PRINCIPAL AMOUNT
-------------------------------
HOLDINGS
ADDITIONS INCREASE 12/31/98
- ------------- ------------ ------------
US GOVERNMENT AND
GOVERNMENT AGENCY
SECURITIES:
FHLMCGold
5 1/2%, 7/1/2013 $9,217,171 $9,217,171
Federal National
Mortgage Association:
5.90%, 6/19/2003 5,000,000 5,000,000
6.35%, 5/18/2005 5,000,000 5,000,000
5.795%, 1/1/2009 4,800,000 4,800,000
6%, 12/1/2028 5,750,025 5,750,025
Government National
Mortgage Association:
6 1/2%, 12/15/2028 5,000,000 5,000,000
6%, 12/20/2028 5,500,000 5,500,000
CORPORATE BONDS:
GMAC
6 1/2%, 12/5/2005 4,200,000 4,200,000
International Business
Machines
5.37%, 9/22/2003 4,500,000 4,500,000
Sprint Capital
6 1/8%, 11/15/2008 4,500,000 4,500,000
PRINCIPAL AMOUNT
OR SHARES
---------------------------------
HOLDINGS
REDUCTIONS DECREASE 12/31/98
- -------------- -------------------------
US GOVERNMENT AND
GOVERNMENT AGENCY
SECURITIES:
US Treasury Notes:
6 1/4%, 8/31/2002 $6,000,000 $4,000,000
6 5/8%, 5/15/2007 4,000,000 --
6 3/8%, 8/15/2027 5,000,000 --
Government National
Mortgage Association
6 1/2%, 8/15/2027 36,037,703 --
CORPORATE BONDS:
Chase Manhattan
6 3/8%, 4/1/2008 5,000,000 --
Mid America Energy
6 3/8%, 6/15/2006 3,000,000 --
COMMON STOCKS:
Avon Products 42,900 shs. --
Edison International 111,200 --
Texaco 54,000 --
ASSET-BACKED SECURITIES:
The Money Store
Home Equity Trust
6.47%, 12/15/2025 $5,000,000 --
Largest portfolio changes from the previous period to the current period are
based on cost of purchases and proceeds from sales of securities.
LARGEST PORTFOLIO HOLDINGS
DECEMBER 31, 1998
SECURITY VALUE
- ---------- ---------------
FHLMCGold 5 1/2%, 7/1/2013 $9,104,842
Tele-Communications
9.80%, 2/1/2012 6,687,635
Time Warner 9 1/8%, 1/15/2013 6,344,705
Salomon Smith Barney
Holdings 7 5/8% 6,325,000
GTE 6,305,406
Federal National Mortgage
Association 6%, 12/1/2028 $5,676,356
MCI WorldCom 7 3/4%, 4/1/2007 5,649,175
Viacom 7 3/4%, 6/1/2005 5,466,535
Anheuser-Busch 5,453,438
Government National Mortgage
Association 6%, 12/20/2028 5,451,875
7
<PAGE>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
PRINCIPAL
AMOUNT VALUE
------------- ------------
US GOVERNMENT AND
GOVERNMENT AGENCY
SECURITIES 13.1%
US Treasury Notes
6 1/4%, 8/31/2002 $4,000,000 $ 4,205,000
Bay Transportation
7.30%, 6/1/2021 1,750,000 1,911,490
FHLMC Gold
5 1/2%, 7/1/2013+ 9,217,171 9,104,842
Federal National
Mortgage Association:
5.90%, 6/19/2003 5,000,000 5,066,980
6.35%, 5/18/2005 5,000,000 5,117,940
5.795%, 1/1/2009 4,800,000 4,824,000
6%, 12/1/2028+ 5,750,025 5,676,356
Government National
Mortgage Association,
Mortgage-backed
Passed-through Certificates:
6 1/2%, 12/15/2028+ 5,000,000 5,054,700
6%, 12/20/2028+ 5,500,000 5,451,875
---------------
TOTAL US GOVERNMENT
AND GOVERNMENT
AGENCY SECURITIES
(Cost $46,121,599) 46,413,183
---------------
CORPORATE BONDS 43.9%
BANKING AND FINANCE 8.6%
American General Finance
6.20%, 3/15/2003 4,000,000 4,074,704
AT&T Capital
6 1/4%, 5/15/2001 5,000,000 4,936,380
Capital One Bank
8 1/8%, 3/1/2000 5,000,000 5,088,555
Franchise Finance
7%, 11/30/2000 5,000,000 4,973,835
GMAC
6 1/2%, 12/5/2005 4,200,000 4,411,113
Heller Financial
5 7/8%, 11/1/2000 3,800,000 3,797,842
United Companies Financial
9.35%, 11/1/1999 2,000,000 1,769,572
United Companies Financial
8 3/8%, 7/1/2005 3,000,000 1,659,564
---------------
30,711,565
---------------
CHEMICALS 1.4%
Praxair
6 5/8%, 10/15/2007 5,000,000 5,042,180
---------------
CONSUMER GOODS
AND SERVICES 3.4%
Equifax
6.30%, 7/1/2005 1,500,000 1,546,877
Service Corp. International
6 1/2%, 3/15/2008 5,000,000 5,138,360
CONSUMER GOODS
AND SERVICES (continued)
Whitman
7 1/2%, 2/1/2003 5,000,000 5,324,260
---------------
12,009,497
---------------
DRUGS AND
HEALTH CARE 0.6%
Cardinal Health
6 1/4%, 7/15/2008 2,000,000 2,051,176
---------------
ELECTRIC AND
GAS UTILITIES 1.4%
Consumers Energy
6 3/8%, 2/1/2008 5,000,000 5,049,970
---------------
ENERGY 2.4%
Barrett Resources
7.55%, 2/1/2007 3,300,000 3,180,939
Petroleum Geo-Services
7 1/2%, 3/31/2007 5,000,000 5,327,305
---------------
8,508,244
---------------
FUNERAL SERVICES 1.3%
Loewen Group International
7 1/2%, 4/15/2001 5,000,000 4,475,000
---------------
LEISURE 1.4%
Royal Caribbean Cruises
6 3/4%, 3/15/2008 5,000,000 4,958,930
---------------
MEDIA 4.8%
News America Holdings
7.43%, 10/1/2026 5,000,000 5,379,080
Time Warner 9 1/8%, 1/15/2013 5,000,000 6,344,705
Viacom 7 3/4%, 6/1/2005 5,000,000 5,466,535
---------------
17,190,320
---------------
RETAILING 4.3%
Sears, Roebuck
6%, 3/20/2003 5,000,000 5,054,730
Staples
7 1/8%, 8/15/2007 5,000,000 5,159,805
Woolworth
7%, 6/1/2000 5,000,000 5,001,610
---------------
15,216,145
---------------
TECHNOLOGY 7.5%
Dell Computer
6.55%, 4/15/2008 5,000,000 5,202,775
First Data
5.80%, 12/15/2008 2,400,000 2,378,030
International
Business Machines
5.37%, 9/22/2003 4,500,000 4,552,015
Lexmark International
6 3/4%, 5/15/2008 5,000,000 5,080,360
8
<PAGE>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
PRINCIPAL
AMOUNT
0R SHARES VALUE
------------- ------------
TECHNOLOGY (continued)
Raytheon
6.55%, 3/15/2010 $5,000,000 $ 5,251,595
Solectron
7 3/8%, 3/1/2006 4,000,000 4,219,496
---------------
26,684,271
---------------
TOBACCO 1.5%
Philip Morris
7 1/8%, 8/15/2002 5,000,000 5,246,620
---------------
UTILITIES/
TELECOMMUNICATIONS 5.3%
MCI WorldCom
6.40%, 8/15/2005 2,000,000 2,075,678
MCI WorldCom
7 3/4%, 4/1/2007 5,000,000 5,649,175
Sprint Capital
6 1/8%, 11/15/2008 4,500,000 4,600,044
Tele-Communications
9.80%, 2/1/2012 5,000,000 6,687,635
---------------
19,012,532
---------------
TOTAL CORPORATE BONDS
(Cost $154,375,309) 156,156,450
---------------
CONVERTIBLE PREFERRED
STOCKS 3.1%
BANKING AND FINANCE 1.8%
Salomon Smith Barney
Holdings 7 5/8% 137,500 shs. 6,325,000
---------------
INSURANCE 1.3%
St. Paul Capital 6% 75,000 4,837,500
---------------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $7,513,938) 11,162,500
---------------
COMMON STOCKS 35.8%
AEROSPACE AND
DEFENSE 0.7%
General Dynamics 40,000 2,345,000
---------------
AUTOMOTIVE AND
RELATED 1.2%
DaimlerChrysler 45,999 4,418,779
---------------
BANKING AND FINANCE 4.1%
Bank of New York 91,000 3,662,750
BankAmerica 21,387 1,285,893
Citigroup 43,500 2,153,250
Hartford Financial Services
Group 60,400 3,314,450
Morgan (J.P.) 7,500 787,969
Washington Mutual 85,848 3,278,320
---------------
14,482,632
---------------
BUSINESS SERVICES 1.4%
Electronic Data Systems 22,000 $ 1,105,500
Xerox 33,500 3,953,000
---------------
5,058,500
---------------
CAPITAL GOODS 0.2%
Crown Cork & Seal 27,500 847,344
---------------
CHEMICALS 0.4%
duPont (E.I.) de Nemours 26,400 1,400,850
---------------
CONSUMER GOODS
AND SERVICES 5.0%
Anheuser-Busch 83,100 5,453,438
General Mills 51,400 3,996,350
Russell 100,000 2,031,250
Sara Lee 177,000 4,989,187
Stanley Works 42,900 1,190,475
---------------
17,660,700
---------------
DRUGS AND
HEALTH CARE 3.8%
Abbott Laboratories 80,000 3,920,000
American Home Products 75,000 4,223,437
Baxter International 19,000 1,221,937
Bristol-Myers Squibb 30,200 4,041,137
---------------
13,406,511
---------------
ELECTRIC AND
GAS UTILITIES 3.0%
Sonat 115,000 3,112,187
Unicom 96,300 3,713,569
The Williams Companies 123,800 3,861,013
---------------
10,686,769
---------------
ENERGY 4.7%
BP Amoco (ADRs)
(United Kingdom) 17,500 1,568,438
Chevron 27,900 2,313,956
Exxon 49,000 3,583,125
Mobil 43,200 3,763,800
Royal Dutch Petroleum
(Netherlands) 47,700 2,283,638
Unocal 106,100 3,096,794
---------------
16,609,751
---------------
FOOD 0.5%
ConAgra 60,000 1,890,000
---------------
INSURANCE 2.7%
American General 55,900 4,360,200
Chubb 30,000 1,946,250
Lincoln National 38,800 3,174,325
---------------
9,480,775
---------------
9
<PAGE>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
SHARES VALUE
------ -----
MACHINERY 1.0%
GATX 97,600 $ 3,696,600
---------------
PAPER AND PACKAGING 0.2%
Mead 28,800 844,200
----------------
RETAILING
0.7%
May Department Stores 38,600 2,330,475
----------------
TOBACCO 1.4%
Philip Morris 90,200 4,825,700
----------------
TRANSPORTATION 0.8%
Norfolk Southern 84,900 2,690,269
----------------
UTILITIES/
TELECOMMUNICATIONS 4.0%
DQE 45,000 1,977,188
GTE 93,500 6,305,406
Harris 25,000 915,625
SBC Communications 97,200 5,212,350
----------------
14,410,569
----------------
TOTAL COMMON STOCKS
(Cost $107,419,221) $ 127,085,424
----------------
SHORT-TERM HOLDINGS 3.3%
(Cost $11,900,000) 11,900,000
----------------
TOTAL INVESTMENTS 99.2%
(Cost $327,330,067) 352,717,557
OTHER ASSETS
LESS LIABILITIES 0.8% 2,701,302
-----------------
NET ASSETS 100.0% $355,418,859
=================
+ Investments in mortgage-backed securities are subject to principal paydowns.
As a result of prepayments from refinancing or satisfaction of the underlying
mortgage 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.
10
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments, at value:
Bonds and stocks (cost $269,308,468) ...................................... $294,404,374
US Government and Government Agency securities
(cost $46,121,599) ...................................................... 46,413,183
Short-term holdings (cost $11,900,000) .................................... 11,900,000 $352,717,557
---------------
Cash ............................................................................................. 366,922
Receivable for interest and dividends ............................................................ 3,478,629
Receivable for Capital Stock sold ................................................................ 366,153
Investment in, and expenses prepaid to, shareholder service agent ................................ 69,397
Other ............................................................................................ 18,504
------------
TOTAL ASSETS ..................................................................................... 357,017,162
------------
LIABILITIES:
Payable for Capital Stock repurchased ............................................................ 911,973
Accrued expenses, taxes, and other ............................................................... 686,330
------------
TOTAL LIABILITIES ................................................................................ 1,598,303
------------
NET ASSETS ....................................................................................... $355,418,859
============
COMPOSITION OF NET ASSETS:
Capital Stock, at par ($1 par value; 500,000,000 shares authorized; 24,791,885
shares outstanding):
Class A ........................................................................................ $ 17,845,034
Class B ........................................................................................ 1,475,432
Class D ........................................................................................ 5,471,419
Additional paid-in capital ....................................................................... 306,229,551
Undistributed net investment income .............................................................. 317,364
Distributions in excess of net realized gain ..................................................... (1,307,478)
Net unrealized appreciation of investments ....................................................... 25,387,537
------------
NET ASSETS ....................................................................................... $355,418,859
============
NET ASSET VALUE PER SHARE:
CLASS A ($256,059,779 / 17,845,034 shares) ....................................................... $14.35
======
CLASS B ($21,095,963 / 1,475,432 shares) ......................................................... $14.30
======
CLASS D ($78,263,117 / 5,471,419 shares) ......................................................... $14.30
======
</TABLE>
- -------------------
See Notes to Financial Statements.
11
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest ................................................................... $13,967,498
Dividends 5,269,476
........................................................................... -----------
TOTAL INVESTMENT INCOME (net of foreign tax withheld of $7,629) .................................. $19,236,974
EXPENSES:
Management fee ................................................. 2,159,063
Distribution and service fees .................................. 1,573,830
Shareholder account services ................................... 548,213
Shareholder reports and communications ......................... 93,493
Registration ................................................... 79,407
Auditing and legal fees ........................................ 77,050
Custody and related services ................................... 74,786
Directors' fees and expenses ................................... 13,131
Miscellaneous .................................................. 23,115
-----------
TOTAL EXPENSES ................................................................................... 4,642,088
-----------
NET INVESTMENT INCOME ............................................................................ 14,594,886
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments 20,162,078
Net realized loss from foreign currency transactions (1,061,463)
Net change in unrealized appreciation of investments (10,362,195)
Net change in unrealized depreciation on translation of
assets and liabilities denominated in foreign currencies 904,932
----------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS ........................................ 9,643,352
-----------
INCREASE IN NET ASSETS FROM OPERATIONS ........................................................... $24,238,238
===========
</TABLE>
- -----------------
See Notes to Financial Statements.
12
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 14,594,886 $ 16,391,245
Net realized gain on investments 20,162,078 28,464,970
Net realized loss from foreign currency transactions (1,061,463) (330,664)
Net change in unrealized appreciation of investments (10,362,195) 4,951,521
Net change in unrealized appreciation/depreciation on translation of
assets and liabilities denominated in foreign currencies 904,932 (2,024,316)
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS 24,238,238 47,452,756
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (11,531,796) (13,456,408)
Class B (532,468) (246,429)
Class D (2,819,673) (3,132,293)
Net realized gain on investments:
Class A (14,780,662) (25,021,509)
Class B (1,022,227) (633,473)
Class D (4,478,944) (6,970,215)
------------- -------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS (35,165,770) (49,460,327)
------------- -------------
<CAPTION>
SHARES
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997
------------ --------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
NET PROCEEDS FROM SALE OF SHARES:
Class A 917,312 650,380 13,784,723 9,972,700
Class B 582,101 343,682 8,737,987 5,230,021
Class D 559,494 404,112 8,434,652 6,155,758
Investment of dividends:
Class A 536,032 606,682 7,981,473 9,216,525
Class B 25,995 11,758 383,370 178,238
Class D 153,899 167,968 2,285,557 2,546,388
Exchanged from associated Funds:
Class A 811,991 330,769 12,301,020 5,064,541
Class B 443,306 79,482 6,464,374 1,207,365
Class D 605,553 418,908 9,058,873 6,386,380
Shares issued in payment of gain distributions:
Class A 848,226 1,378,265 12,180,374 20,340,211
Class B 56,336 34,906 803,601 512,347
Class D 282,564 423,625 4,039,407 6,229,511
------------ ------------- ---------------- ----------------
Total 5,822,809 4,850,537 86,455,411 73,039,985
------------ ------------- ---------------- ----------------
Cost of shares repurchased:
Class A (2,451,497) (3,510,451) (36,932,180) (53,806,277)
Class B (91,901) (46,830) (1,368,093) (709,661)
Class D (807,198) (1,022,412) (12,051,407) (15,638,553)
Exchanged into associated Funds:
Class A (1,088,419) (971,157) (16,267,382) (14,983,726)
Class B (122,524) (39,006) (1,801,440) (600,589)
Class D (478,295) (720,259) (7,177,392) (11,014,316)
------------ ------------- ---------------- ----------------
Total (5,039,834) (6,310,115) (75,597,894) (96,753,122)
------------ ------------- ---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS 782,975 (1,459,578) 10,857,517 (23,713,137)
------------ ------------- ---------------- ----------------
------------ -------------
DECREASE IN NET ASSETS (70,015) (25,720,708)
NET ASSETS:
Beginning of year 355,488,874 381,209,582
---------------- ----------------
END OF YEAR (including undistributed net investment income of
$317,364 and $406,565, respectively) $355,418,859 $355,488,874
================ ================
</TABLE>
- ---------------
See Notes to Financial Statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. MULTIPLE CLASSES OF SHARES -- Seligman Income Fund, Inc. (the "Fund") offers
three classes of shares. 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 charge
("CDSC") 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 CDSC, 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 CDSC, 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 an exchange 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, 1998,
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
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
For the year ended December 31, 1998, the Fund redeemed 5,039,834 of its
shares from shareholders aggregating $75,597,894, of which approximately
$3,200,000 represents capital gain distributions. This information is
provided for federal income tax purposes only.
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, 1998, amounted to $332,924,029 and $336,264,185,
respectively; purchases and sales of USGovernment obligations were $100,281,147
and $114,198,314, respectively.
At December 31, 1998, 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
amounted to $31,684,058 and $6,296,568, respectively.
4. SHORT-TERM INVESTMENTS -- At December 31, 1998, the Fund owned short-term
investments which matured in less than seven days.
5. MANAGEMENT FEE, DISTRIBUTION SERVICES, AND OTHER TRANSACTIONS -- 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.
The management fee reflected in the Statement of Operations represents 0.60% per
annum of the Fund's average daily net assets.
Prior to March 31, 1998, Seligman Henderson Co., an entity owned 50% each by
the Manager and Henderson International, Inc., a subsidiary of Henderson plc,
supervised and directed all or a portion of the Fund's foreign investments. For
this service, the Manager paid Seligman Henderson Co. a monthly fee.
Seligman Advisors, Inc. (the "Distributor") (formerly Seligman Financial
Services, Inc.), agent for the distribution of the Fund's shares and an
affiliate of the Manager, received concessions of $32,669 from sales of Class A
shares, after commissions of $250,198 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,
1998, fees incurred under the Plan aggregated $650,606, 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 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, 1998, 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 $139,400 and $783,824, respectively.
The Distributor is entitled to retain any CDSC 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, 1998, such charges amounted to $67,370.
15
<PAGE>
The Distributor has sold its rights to collect any CDSC imposed on
redemptions of Class B shares to the Purchaser. In connection with the sale of
its rights to collect any CDSC 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 Bshares sold. The aggregate amount of such payments
retained by the Distributor for the year ended December 31, 1998, amounted to
$13,034.
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, 1998,
Seligman Services, Inc. received commissions of $3,545 from the sale of shares
of the Fund. Seligman Services, Inc. also received distribution and service fees
of $50,371, pursuant to the Plan.
Seligman Data Corp., which is owned by the Fund and certain associated
investment companies, charged the Fund at cost $548,213 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 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. Directors may elect to have their
deferred fees accrue interest or earn a return based on the performance of the
Fund or other funds in the Seligman Group of Investment Companies. The cost of
such fees and earnings accrued thereon is included in directors' fees and
expenses, and the accumulated balance thereof at December 31, 1998, of $104,230
is included in other liabilities. Deferred fees and related accrued earnings are
not deductible for federal income tax purposes until such amounts are paid.
6. COMMITTED LINE OF CREDIT -- Effective July 1, 1998, the Fund entered into a
joint $800 million committed line of credit that is shared by substantially all
funds in the Seligman Group of Investment Companies. The Fund's borrowings are
limited to 10% of its net assets. Borrowings pursuant to the credit facility are
subject to interest at a rate equal to the overnight federal funds rate plus
0.50%. The Fund incurs a commitment fee of 0.08% per annum on its share of the
unused portion of the credit facility. The credit facility may be drawn upon
only for temporary purposes and is subject to certain other customary
restrictions. The credit facility commitment expires one year from the date of
the agreement but is renewable with the consent of the participating banks. To
date, the Fund has not borrowed from the credit facility.
16
<PAGE>
Financial Highlights
The tables below are intended to help you understand each Class's financial
performance for the past five years or from its inception, if less than five
years. Certain information reflects financial results for a single share of a
Class that was held throughout the periods shown. Per share amounts are
calculated using average shares outstanding. "Total return" shows the rate that
you would have earned (or lost) on an investment in each Class, assuming you
reinvested all your dividends and capital gain distributions. Total returns do
not reflect any sales charges, and are not annualized for periods of less than
one year.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF YEAR $14.81 $14.97 $14.63 $13.05 $14.58
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.64 0.71 0.74 0.76 0.76
Net realized and unrealized gain (loss) on investments 0.41 1.41 0.38 1.89 (1.57)
Net realized and unrealized gain (loss) from
foreign currency transactions -- (0.10) 0.04 (0.01) 0.03
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.05 2.02 1.16 2.64 (0.78)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.65) (0.74) (0.73) (0.78) (0.75)
Distributions from net realized capital gain (0.86) (1.44) (0.09) (0.28) --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (1.51) (2.18) (0.82) (1.06) (0.75)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $14.35 $14.81 $14.97 $14.63 $13.05
====== ====== ====== ====== ======
TOTAL RETURN: 7.26% 14.06% 8.22% 20.60% (5.43)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s omitted) $256,060 $270,688 $296,291 $318,307 $286,355
Ratio of expenses to average net assets 1.10% 1.14% 1.14% 1.00% 1.02%
Ratio of net income to average net assets 4.25% 4.66% 5.11% 5.38% 5.51%
Portfolio turnover rate 124.79% 138.90% 125.92% 111.78% 66.62%
</TABLE>
- ------------------
See footnotes on page 18.
17
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
-------------------------------------
YEAR ENDED 4/22/96*
DECEMBER 31, TO
---------------------------
1998 1997 12/31/96
--------- --------- ---------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $14.79 $14.95 $14.43
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.52 0.59 0.43
Net realized and unrealized gain on investments 0.39 1.41 0.59
Net realized and unrealized gain (loss) from
foreign currency transactions -- (0.10) 0.05
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.91 1.90 1.07
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.54) (0.62) (0.46)
Distributions from net realized capital gain (0.86) (1.44) (0.09)
------ ------ ------
TOTAL DISTRIBUTIONS (1.40) (2.06) (0.55)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $14.30 $14.79 $14.95
====== ====== ======
TOTAL RETURN: 6.28% 13.24% 7.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $21,096 $8,607 $2,961
Ratio of expenses to average net assets 1.86% 1.90% 1.89%+
Ratio of net income to average net assets 3.49% 3.90% 4.36%+
Portfolio turnover rate 124.79% 138.90% 125.92%++
<CAPTION>
CLASS D
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF YEAR $14.78 $14.95 $14.60 $13.01 $14.55
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.52 0.59 0.63 0.65 0.65
Net realized and unrealized gain (loss) on investments 0.40 1.40 0.38 1.88 (1.57)
Net realized and unrealized gain (loss) from
foreign currency transactions -- (0.10) 0.04 (0.01) 0.03
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.92 1.89 1.05 2.52 (0.89)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.54) (0.62) (0.61) (0.65) (0.65)
Distributions from net realized capital gain (0.86) (1.44) (0.09) (0.28) --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (1.40) (2.06) (0.70) (0.93) (0.65)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $14.30 $14.78 $14.95 $14.60 $13.01
====== ====== ====== ====== ======
TOTAL RETURN: 6.36% 13.17% 7.43% 19.66% (6.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s omitted) $78,263 $76,194 $81,957 $86,701 $67,946
Ratio of expenses to average net assets 1.86% 1.90% 1.90% 1.79% 1.82%
Ratio of net income to average net assets 3.49% 3.90% 4.37% 4.58% 4.74%
Portfolio turnover rate 124.79% 138.90% 125.92% 111.78% 66.62%
</TABLE>
- ---------------------------
* Commencement of offering of shares.
+ Annualized.
++ For the year ended December 31, 1996.
See Notes to Financial Statements.
18
<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,
1998, 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, 1998, by correspondence with the Fund's custodian. 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, 1998, 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.
/S/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
January 29, 1999
19
<PAGE>
FEDERAL TAX STATUS OF 1998 DIVIDEND AND
GAIN DISTRIBUTIONS FOR TAXABLE ACCOUNTS
The quarterly dividends paid to Class A, B, and D shareholders in 1998 are
taxable as ordinary income for federal tax purposes, regardless of whether they
were received in cash or in shares. Under the Internal Revenue Code, 19.94% of
the dividends paid to Class A, B, and D shareholders has been designated as
qualifying for the dividends received deduction available to corporate
shareholders. In order to claim the dividends 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 distribution of $0.132 per share, from net long-term gain realized on
investments during the period November 1, 1997, to December 31, 1997, was paid
on June 24, 1998, to Class A, B, and D shareholders. On November 23, 1998, a
distribution of $0.724 per share, from net long-term gain realized on
investments in 1998, was paid to Class A, B and D shareholders. In 1997,
Congress revised the capital gains provisions, so that depending on how long a
security was owned when it was sold, investors may have been faced with a 28%
capital gains rate, a 20% rate, or both. In October 1998, Congress simplified
the capital gains provisions so that, generally, all gains on securities held
more than one year are to be taxed at a maximum 20% rate. The distributions from
net long-term gain are designated as "capital gain dividends" for federal income
tax purposes and are taxable to shareholders in 1998 as a long-term gain from
the sale of capital assets, no matter how long 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, any loss on the sale would be
treated as long-term to the extent it offsets the long-term capital gain
distribution.
If the gain distributions were paid in shares, the per share cost basis for
federal income tax purposes is $15.09 for Class A shares and $15.05 for Class B
and D shares for the June 24 distribution, and $14.23 for Class A shares and
$14.17 for Class B and D shares for the November 23 distribution.
A 1998 year-end statement of account activity and a 1998 tax package, which
may include a Form 1099-DIV, a Form 1099-B, and/or a Cost Basis Statement, have
been mailed to each shareholder. Form 1099-DIV shows the distributions paid to
the shareholder during the year. Form 1099-B shows the proceeds of any
redemptions paid to the shareholder during the year. Cost Basis Statements
report all sales or exchanges from a shareholder's account which may have
resulted in a capital gain or loss in 1998. The information shown on Forms
1099-DIV and 1099-B is reported to the Internal Revenue Service as required by
federal regulations.
20
<PAGE>
BOARD OF DIRECTORS
JOHN R. GALVIN 2, 4
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, Raytheon Company
ALICE S. ILCHMAN 3, 4
TRUSTEE, Committee for Economic Development
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON 2, 4
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW 2, 4
RETIRED CHAIRMAN AND SENIOR PARTNER,
Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Industries, Inc.
DIRECTOR, New York Presbyterian Hospital
BETSY S. MICHEL 2, 4
TRUSTEE, The 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, 4
RETIRED PARTNER, Pitney, Hardin, Kipp & Szuch, Law Firm
JAMES Q. RIORDAN 3, 4
DIRECTOR, KeySpan Energy Corporation
TRUSTEE, Committee for Economic Development
DIRECTOR, Public Broadcasting Service
RICHARD R. SCHMALTZ 1
MANAGING DIRECTOR, DIRECTOR OF INVESTMENTS,
J. & W. Seligman & Co. Incorporated
TRUSTEE EMERITUS, Colby College
ROBERT L. SHAFER 3, 4
RETIRED VICE PRESIDENT, Pfizer Inc.
JAMES N. WHITSON 2, 4
DIRECTOR AND CONSULTANT, 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, ICI Mutual Insurance Company
DIRECTOR EMERITUS
FRED E. BROWN
DIRECTOR AND CONSULTANT,
J. & W. Seligman &Co. Incorporated
- ----------------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
4 Board Operations Committee
21
<PAGE>
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
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 Advisors, 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 United States
(800) 622-4597 24-Hour Automated
Telephone Access
Service
22
<PAGE>
GLOSSARY OF FINANCIAL TERMS
CAPITAL GAIN DISTRIBUTION -- A payment to mutual fund shareholders of profits
realized on the sale of securities in a fund's portfolio.
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 CHARGE (CDSC) -- Depending on the class of shares
owned, a fee charged by a mutual fund when shares are sold back to the fund (the
CDSC 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, how shares are bought and sold, fund fees and other
charges, and the fund's financial highlights.
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 -- A document that contains updated or more
detailed information about an investment company and that 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 1998 MUTUAL FUND FACT BOOK.
23
<PAGE>
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.
SELIGMAN ADVISORS, INC.
AN AFFILIATE OF
[GRAPHIC OMITTED]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
EQIN2 12/98 [GRAHIC OMITTED] Printed on Recycled Paper
