SELIGMAN
-----------------
LARGE-CAP
VALUE FUND
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31, 1998
----------
A Value Approach
to Seeking the
Capital Appreciation
Potential of
Larger Companies
[LOGO]
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.
[PHOTOGRAPH]
Picture of James, Jesse, and Joseph Seligman, 1870
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 changed dramatically in the 134 years since
Seligman first opened 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 ....................................... 10
Statement of Operations ................................................... 11
Statements of Changes in Net Assets ....................................... 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 16
Report of Independent Auditors ............................................ 17
Federal Tax Status of 1998 Dividend and Gain
Distributions for Taxable Accounts ...................................... 18
Board of Directors ........................................................ 19
Executive Officers and For More Information ............................... 20
Glossary of Financial Terms ............................................... 21
- --------------------------------------------------------------------------------
<PAGE>
TO THE SHAREHOLDERS
In 1998, Seligman Large-Cap Value Fund posted a total return of 11.57% based on
the net asset value of Class A shares. This return lagged the 15.63% total
return of the Russell 1000 Value Index and the 28.58% return of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500). A discussion with your
Portfolio Managers regarding the Fund's results begins on page 2.
The past year marked the eighth year of economic expansion in the US, with real
domestic growth of 3.9%. For the stock market, it was the first time in history
that the S&P 500 registered more than 20% gains four years in a row.
Unfortunately for your Fund, the majority of 1998's gains came from
large-capitalization growth stocks. The large-cap value stocks that your Fund
invests in did not fare as well.
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. In the ensuing "flight to quality," investors
from around the world poured money into the largest US growth stocks. In the
rush to own only the very best American growth companies, investors bypassed
value stocks, which by their nature are undervalued and underappreciated by the
market.
Some value stocks are cheap for a reason -- the company has a history of missed
earnings estimates, a poor management team, etc. Other value stocks are cheap
due to a temporary condition -- the company is restructuring, changing
management, etc. A value manager tries to invest in the second type of stock in
anticipation of the market recognizing the company's true value. In 1998
however, cheap stocks stayed cheap as the market rewarded growth over value.
Currency instability and rising global recession/deflation fears exacerbated
already high market volatility throughout the year. The Russian debt default, as
well as the possible collapse of Long-Term Capital Management LP, a large hedge
fund plagued by a series of bad currency investments, left investors nervous. By
late August, a stock market correction threatened to turn into a more
significant decline, as the Dow Jones Industrial Average fell more than 850
points in two days, wiping out all of the year's gains. Value stocks were
punished along with growth stocks, and did not rebound as sharply when the
Federal Reserve cut short-term interest rates.
Subdued inflation, low interest rates, improving prospects in Asia, and a
Federal Reserve leading the fight against global recession are all positive for
the US markets in 1999. However, pressure on corporate profits is likely to
continue, as the US enters a period of slower growth. Valuations on some of the
largest growth stocks seem excessive, and any broadening of the market in 1999
may negatively affect their share prices and reward more reasonably-priced value
stocks. In addition, low commodity prices are impacting much of the world,
making it harder for US multinationals to export. We expect a challenging
environment 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 Large-Cap Value 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,
NEIL T. EIGEN AND RICHARD S. ROSEN
Q. How did Seligman Large-Cap Value Fund perform in 1998?
A. For the 12 months ended December 31, 1998, Seligman Large-Cap Value Fund
posted a total return of 11.57% based on the net asset value of Class A
shares. This compares to the 28.58% return of the Standard &Poor's 500
Composite Stock Price Index (S&P 500) and the 15.63% total return of the
Russell 1000 Value Index. The Fund underperformed relative to the S&P 500
because value stocks in general did not fare as well as growth stocks. The
Fund's underperformance relative to the Russell 1000 Value Index was due to
the Fund's heavy weighting in financial stocks, which were particularly
hard hit during the third quarter. However, many of these stocks began to
recover in the fourth quarter.
Q. Which economic and market factors influenced the Fund's results in 1998?
A. The past year proved difficult for value funds in general, and ours was no
exception. The biggest problem for us in 1998 was the weak economies of
Asia and their dampening effect on global trade. A number of the companies
the Fund owns suffered earnings disappointments because of the shortfall in
business from Asia. This erosion in earnings led to lower stock prices.
In 1998, the S&P 500 returned more than 28%. This impressive return masks
several difficulties experienced by investors in 1998. The first is the
issue of growth versus value. As investors worried about everything from
deflationary pressures in the US to devalued currencies in the emerging
markets, the largest, most liquid growth companies in the US -- companies
with proven track records of growing earnings in the past -- were rewarded
in a "flight to quality." Meanwhile, large-cap value stocks didn't fare as
well. The growth subsector of the S&P 500 was up 40%, while the value
subsector was up only 12%. This was one of the widest growth-to-value
performance disparities in history.
The other issue masked by the large gains in the S&P 500 was the narrowness
of the market. Fifty of the stocks in the S&P 500 were responsible for 94%
of its gain, leaving the other 450 with a rise of about 1.5%. While this
trend was troublesome for active managers in general, it adversely affected
value managers even more, since eight of the top 10 performers within the
S&P 500 were growth-oriented technology companies.
Q. Which factors measurably influenced the Fund's results?
A. The third quarter was particularly difficult period for the Fund as the
world experienced a substantial financial crisis. The Asian crisis spread
throughout emerging markets, culminating in the Russian debt debacle.
- --------------------------------------------------------------------------------
A TEAM APPROACH
Seligman Large-Cap Value Fund is managed by the Seligman Value Team, headed by
Neil T. Eigen, who has 30 years of experience as a value investor. Mr. Eigen and
Richard S. Rosen are assisted in the management of the Fund by seasoned research
professionals who are responsible for identifying reasonably valued
large-capitalization companies with the potential for high returns on equity.
- --------------------------------------------------------------------------------
[PHOTOGRAPH]
Value Team: (from left) Nevis George (Administrative Assistant), Milton Rubin
(Client Services), Richard S. Rosen (Co-Portfolio Manager), (seated) Neil T.
Eigen (Portfolio Manager)
2
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGERS,
NEIL T. EIGEN AND RICHARD S. ROSEN
This crisis, in addition to the subsequent bailout of Long-Term Capital
Management LP, a large US hedge fund, raised concerns that the world
financial system was at risk and resulted in a substantial sell-off of
financial stocks. This sector was the most heavily weighted sector of the
Fund, and performance suffered from August through October. However, the
Fund made up most of the lost ground in the fourth quarter.
Another major factor hurting performance this past year was the strength in
technology stocks in general and Internet stocks in particular, where a
virtual mania developed. This resulted in a speculative trading market that
became extremely divergent. By their nature, value stocks will not do well
in this type of environment. Value stocks are cheap. Some are cheap for a
reason, while others are cheap due to some temporary situation that does
not affect the long-term viability of a company. Seligman Large-Cap Value
Fund invests in value stocks that we believe have strong underlying
fundamentals. Unfortunately, in last year's environment, many stocks that
were cheap, regardless of the reason, got cheaper, as market inflows
focused on a narrow band of already expensive stocks. This divergence is
not healthy, as investors concentrate on a few industry groups at the
expense of the broader market.
Q. What was the Fund's strategy?
A. In 1998, we continued to pursue a strategy of looking for undervalued
companies with below-market price/ earnings ratios, where we see potential
catalysts to accelerating earnings growth rates.
During the course of the year we added to our positions in the paper and
forest products sector, which had been hurt by earnings downgrades due to
the ongoing Asian crisis. We have confidence that when the economies of
Japan, Korea, and China show signs of stabilizing, these stocks will
rebound. We also increased the Fund's exposure to financial stocks during
the third quarter sell-off and, by year-end, this industry had a dramatic
rebound.
Q. What is your outlook?
A. For 1999, we expect a modest slowdown in the growth rate of gross domestic
product (GDP) to about 2.5%. Trade should continue to be under pressure and
there could be a meaningful decline in capital spending. This would result
in a period of slowing job creation and income gains. Unemployment may rise
a bit. However, we anticipate that inflation will remain muted.
We think that one of the major investment themes for 1999 will be
restructuring and consolidating, as managements continue to adjust to a
slow growth environment. In commodity price sensitive businesses, this will
slowly bring supply into better balance.
We think corporate profits will be hard to grow in a slow growth economic
environment. Profit margins for US non-financial companies peaked in the
third quarter of 1997 and have been declining since then. This has resulted
in moderating cash flows and, ultimately, in reduced levels of capital
spending. Thus, stock selection will be important. Nonetheless, we expect
moderately positive overall returns for the year.
3
<PAGE>
PERFORMANCE OVERVIEW
This chart compares a $10,000 hypothetical investment made in Seligman
Large-Cap Value Fund since the commencement of operations on April 25, 1997,
through December 31, 1998, to a $10,000 investment made in the Russell 1000
Index, the Russell 1000 Value Index, and Standard &Poor's 500 Composite Stock
Price Index (S&P500) from April 30, 1997, to December 31, 1998. The results for
Seligman Large-Cap Value Fund were determined with and without the initial 4.75%
maximum sales charge for Class A shares, with the 4% contingent deferred sales
charge ("CDSC") for Class B shares, and without the 1% CDSC for Class D shares,
and assume that all distributions within the period are invested in additional
shares. It is important to keep in mind that the Russell 1000 Index, the Russell
1000 Value Index, and the S&P500 exclude the effect of fees and sales charges.
Seligman Large-Cap Value Fund will no longer be compared to the Russell
1000 Index after December 31, 1998, as it measures the performance of 1,000
widely held large-capitalization stocks. Instead, the Fund will be compared to
the Russell 1000 Value Index, which the Manager believes is a more appropriate
benchmark because it measures the value performance of large-cap stocks, and the
Fund invests primarily in those types of stocks. Therefore, your Fund will
continue to be compared to the Russell 1000 Value Index and the S&P 500.
[THE FOLLOWING TABLE WAS PRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Class A Class A Russell
with without Class D 1000
Sales Sales Class B without Russell Value
Charge Charge with CDSC CDSC 1000 Index* Index* S&P 500*
------- ------- --------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
4/25/97 9,520 10,000 10,000 10,000
4/30/97 9,613 10,098 10,098 10,098 10,000 10,000 10,000
5/31/97 10,173 10,686 10,672 10,672 10,640 10,559 10,609
6/30/97 10,813 11,359 11,331 11,331 11,080 11,012 11,084
7/31/97 11,813 12,409 12,381 12,381 11,987 11,840 11,966
8/31/97 11,333 11,905 11,863 11,863 11,421 11,419 11,296
9/30/97 11,813 12,409 12,367 12,367 12,047 12,108 11,914
10/31/97 11,360 11,933 11,891 11,891 11,657 11,770 11,516
11/30/97 12,120 12,731 12,661 12,661 12,163 12,291 12,050
12/31/97 12,308 12,928 12,846 12,846 12,410 12,649 12,256
1/31/98 12,335 12,957 12,874 12,874 12,503 12,471 12,392
2/28/98 13,432 14,109 14,011 14,011 13,394 13,310 13,286
3/31/98 13,906 14,607 14,494 14,494 14,069 14,125 13,966
4/30/98 13,973 14,678 14,551 14,551 14,214 14,220 14,107
5/31/98 14,095 14,806 14,664 14,664 13,907 14,009 13,864
6/30/98 14,000 14,706 14,565 14,565 14,422 14,189 14,427
7/31/98 13,621 14,308 14,167 14,167 14,249 13,939 14,274
8/31/98 11,319 11,890 11,766 11,766 12,118 11,865 12,210
9/30/98 11,509 12,089 11,950 11,950 12,935 12,546 12,992
10/31/98 12,768 13,412 13,258 13,258 13,957 13,518 14,049
11/30/98 13,662 14,351 14,167 14,167 14,821 14,148 14,901
12/31/98 13,732 14,424 13,839 14,239 15,765 14,629 15,759
</TABLE>
* From April 30, 1997
A portfolio with fewer holdings may be subject to greater volatility than a
portfolio with a greater number of holdings.
4
<PAGE>
PERFORMANCE OVERVIEW
Investment Results Per Share
TOTAL RETURNS
For Periods Ended December 31, 1998
AVERAGE ANNUAL
-----------------------
SINCE
SIX ONE INCEPTION
MONTHS* YEAR 4/25/97
---------- ------- ------------
Class A**
With Sales Charge (6.61)% 6.31% 20.71%
Without Sales Charge (1.92) 11.57 24.29
Class B**
With CDSC+ (7.24) 5.85 21.27
Without CDSC (2.24) 10.85 23.33
Class D**
With 1% CDSC (3.24) 9.85 n/a
Without CDSC (2.24) 10.85 23.33
Russell 1000 Index*** 9.31 27.02 31.41++
Russell 1000 Value Index*** 3.10 15.63 25.62++
S&P 500*** 9.22 28.58 31.37++
NET ASSET VALUE
DECEMBER 31, 1998 JUNE 30, 1998 DECEMBER 31, 1997
------------------- ------------- -------------------
Class A $10.04 $10.34 $9.09
Class B 9.96 10.25 9.04
Class D 9.96 10.25 9.04
DIVIDEND AND CAPITAL GAIN (LOSS) INFORMATION
For the Year Ended December 31, 1998
DIVIDEND PAID CAPITAL GAIN (LOSS)
--------------- ---------------------
Class A $0.040 Paid $0.059
Class B -- Realized (0.040)
Class D -- Unrealized 0.671+++
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. Return figures for
Class A shares are calculated with and without the effect of the initial
4.75% maximum sales charge. Returns for Class B shares are calculated with
and without the effect of the maximum 5% contingent deferred sales charge
("CDSC"), charged on 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 Russell 1000 Index, the Russell 1000 Value Index, and the S&P 500 are
unmanaged benchmarks that assume investment of dividends and exclude the
effect of fees and sales charges. Investors cannot invest directly in an
index.
+ The CDSC is 5% for periods of one year or less, and 4% since inception.
++ From April 30, 1997.
+++ Represents the per share amount of net unrealized appreciation of portfolio
securities as of December 31, 1998.
5
<PAGE>
PORTFOLIO OVERVIEW
Diversification of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS
DECEMBER 31,
-------------------
ISSUES COST VALUE 1998 1997
----- ------------- ------------- ----- -----
<S> <C> <C> <C> <C> <C>
COMMON STOCKS:
Aerospace ................................ 2 $ 9,294,919 $ 9,416,250 6.3 6.6
Automotive and Related ................... 2 6,892,149 8,887,094 6.0 5.9
Banking .................................. 3 14,715,916 16,051,623 10.8 11.2
Drugs and Health Care .................... 2 7,267,724 8,971,681 6.1 6.1
Electric Utilities ....................... 1 3,938,034 4,721,750 3.2 3.2
Energy ................................... 1 4,233,637 3,902,175 2.6 3.4
Finance and Insurance .................... 5 21,165,714 22,341,942 15.0 15.2
Food ..................................... 1 4,343,015 3,045,000 2.1 2.7
Household Products and Furnishings ....... 3 13,822,945 15,183,288 10.2 9.6
Industrial Equipment ..................... 1 3,339,294 4,592,813 3.1 3.0
Medical Products and Technology .......... 2 7,537,736 10,130,269 6.8 6.8
Office Equipment ......................... 1 3,661,955 5,097,600 3.4 3.3
Packaging ................................ 1 4,811,300 3,389,375 2.3 3.4
Paper and Forest Products ................ 2 10,013,303 9,716,637 6.6 --
Retail Trade ............................. 3 13,146,216 11,917,875 8.0 10.9
Specialty Materials ...................... 1 4,644,501 4,039,062 2.7 3.3
Tobacco .................................. 1 4,656,917 6,056,200 4.1 3.4
----- ------------- ------------- ----- -----
32 137,485,275 147,460,634 99.3 98.0
SHORT-TERM HOLDINGS AND
OTHER ASSETS LESS LIABILITIES 1 1,064,107 1,064,107 0.7 2.0
----- ------------- ------------- ----- -----
NET ASSETS 33 $138,549,382 $148,524,741 100.0 100.0
===== ============= ============= ===== =====
</TABLE>
Largest Industries
December 31, 1998
[THE FOLLOWING TABLE WAS PRESENTED AS A BAR GRAPH IN THE PRINTED MATERIALS.]
Percent of Total Dollar
Net Assets Amount
---------- ------------
FINANCE AND INSURANCE 14.90% $22,341,942
BANKING 10.80% $16,051,623
HOUSEHOLD PRODUCTS AND FURNISHINGS 10.20% $15,183,288
RETAIL TRADE 8.00% $11,917,875
MEDICAL PRODUCTS AND TECHNOLOGY 6.80% $10,130,269
6
<PAGE>
PORTFOLIO OVERVIEW
Largest Portfolio Changes
During Past Six Months
SHARES
----------------------
HOLDINGS
ADDITIONS INCREASE 12/31/98
- ------------- ---------- ---------
Armstrong World Industries .......... 29,000 79,000
Champion International .............. 70,700 119,900
Crown Cork &Seal .................... 30,000 110,000
The Equitable Companies ............. 25,000 80,000
Goodrich (B.F.) ..................... 45,000 120,000
Penney (J.C.) ....................... 29,000 75,000
St. Paul Companies .................. 31,000 119,846
Sears, Roebuck ...................... 38,100 101,100
United Healthcare ................... 103,000 103,000
Washington Mutual ................... 30,000 120,500
Largest portfolio changes from the previous period to the current period are
based on cost of purchases of securities.
- --------------------------------------------------------------------------------
Largest Portfolio Holdings
December 31, 1998
SECURITY VALUE
- -------- ----------
Summit Bancorp .......................... $6,553,125
Philip Morris ........................... 6,056,200
Bank of New York ........................ 5,796,000
Kimberly-Clark .......................... 5,221,100
Dial .................................... 5,197,500
SECURITY VALUE
- -------- ----------
Medtronic ............................... $5,197,500
United Technologies ..................... 5,111,250
Xerox ................................... 5,097,600
Baxter International .................... 4,932,769
Georgia-Pacific Group ................... 4,860,687
- --------------------------------------------------------------------------------
7
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
SHARES VALUE
------------ ------------
COMMON STOCKS 99.3%
AEROSPACE 6.3% Goodrich (B.F.)
Manufacturer and supplier of
systems and component parts
for the aerospace industry 120,000 $ 4,305,000
United Technologies
Manufacturer of elevators, jet
engines, flight systems, and
automotive parts 47,000 5,111,250
------------
9,416,250
------------
AUTOMOTIVE AND RELATED 6.0%
Ford Motor
Manufacturer and distributor of
automobiles, trucks, and
related parts 74,000 4,342,875
General Motors
Manufacturer and distributor of
automobiles, trucks, and
related parts 63,500 4,544,219
------------
8,887,094
------------
BANKING 10.8%
Bank of New York
Commercial bank 144,000 5,796,000
BankAmerica
Commercial bank 61,580 3,702,498
Summit Bancorp
Operator of commercial banks 150,000 6,553,125
------------
16,051,623
------------
DRUGS AND HEALTH CARE 6.1%
Bristol-Myers Squibb
Developer and manufacturer
of health and personal care
products 33,900 4,536,244
United Healthcare
Health maintenance
organization 103,000 4,435,437
------------
8,971,681
------------
ELECTRIC UTILITIES 3.2%
Dominion Resources
Provider of electric services in
the mid-Atlantic region 101,000 4,721,750
------------
ENERGY 2.6%
Texaco
Explorer, producer, transporter,
refiner, and marketer of natural
gas, oil, and petroleum products 73,800 3,902,175
------------
FINANCE AND INSURANCE 15.0%
Citigroup
Provider of investment services
and life insurance 83,400 4,128,300
The Equitable Companies
Provider of insurance and
investment management 80,000 4,630,000
Fannie Mae
Provider of mortgage financing 65,100 4,817,400
St. Paul Companies
Property and casualty insurer 119,846 4,164,648
Washington Mutual
Regional finance company for
small- and mid-sized businesses 120,500 4,601,594
------------
22,341,942
------------
FOOD 2.1%
Dole Food
Producer and marketer of
fresh and packaged fruits
and vegetables 101,500 3,045,000
------------
HOUSEHOLD PRODUCTS
AND FURNISHINGS 10.2%
Armstrong World Industries
Manufacturer and marketer of
interior furnishings 79,000 4,764,688
Dial
Manufacturer and marketer of
personal care, household, and
laundry products 180,000 5,197,500
Kimberly-Clark
Manufacturer of consumer paper
products; newsprint 95,800 5,221,100
------------
15,183,288
------------
INDUSTRIAL EQUIPMENT 3.1%
General Electric
Supplier of diversified
electronics 45,000 4,592,813
------------
MEDICAL PRODUCTS
AND TECHNOLOGY 6.8%
Baxter International
Manufacturer and distributor of
hospital and laboratory products 76,700 4,932,769
Medtronic
Manufacturer of pacemakers and
related cardiovascular products 70,000 5,197,500
------------
10,130,269
------------
- ----------
See footnotes on page 9.
8
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
SHARES VALUE
------------ ------------
OFFICE EQUIPMENT 3.4%
Xerox
Developer, manufacturer,
and marketer of office
automation products 43,200 $ 5,097,600
------------
PACKAGING 2.3%
Crown Cork & Seal
Manufacturer of packaging
products 110,000 3,389,375
------------
PAPER AND
FOREST PRODUCTS 6.6%
Champion International
Manufacturer of paper
products 119,900 4,855,950
Georgia-Pacific Group
Manufacturer of building
products and paper 83,000 4,860,687
------------
9,716,637
------------
RETAIL TRADE 8.0%
May Department Stores
Department store operator 68,000 4,105,500
Penney (J.C.)
Operator of retail department
stores and drugstores 75,000 3,515,625
Sears, Roebuck
Large retail store operator 101,100 4,296,750
------------
11,917,875
------------
SPECIALTY MATERIALS 2.7%
Raychem
Diversified product manufacturer
for the aerospace, automotive,
cable television, and
communications industries 125,000 $ 4,039,062
------------
TOBACCO 4.1%
Philip Morris
Manufacturer of tobacco
products, food, and beverages 113,200 6,056,200
------------
TOTAL COMMON STOCKS
(Cost $137,485,275) 147,460,634
SHORT-TERM HOLDINGS 0.6%
(Cost $900,000) 900,000
------------
TOTAL INVESTMENTS 99.9%
(Cost $138,385,275) 148,360,634
OTHER ASSETS
LESS LIABILITIES 0.1% 164,107
------------
NET ASSETS 100.0% $148,524,741
============
- ----------
Descriptions of companies have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value:
Common stocks (cost $137,485,275) ................................................. $147,460,634
Short-term holdings (cost $900,000) ............................................... 900,000 $ 148,360,634
-------------
Cash .................................................................................................... 62,585
Receivable for Capital Stock sold ....................................................................... 377,511
Receivable for dividends and interest ................................................................... 231,586
Expenses prepaid to shareholder service agent ........................................................... 33,715
Deferred organization expenses .......................................................................... 8,589
Other ................................................................................................... 27,747
-------------
Total Assets ............................................................................................ 149,102,367
-------------
LIABILITIES:
Payable for Capital Stock repurchased ................................................................... 277,064
Accrued expenses, taxes, and other ...................................................................... 300,562
-------------
Total Liabilities ....................................................................................... 577,626
-------------
Net Assets .............................................................................................. $ 148,524,741
=============
COMPOSITION OF NET ASSETS:
Capital Stock, at par ($0.001 par value; 1,000,000,000 shares authorized;
14,876,547 shares outstanding):
Class A ............................................................................................... $ 4,910
Class B ............................................................................................... 5,659
Class D ............................................................................................... 4,308
Additional paid-in capital .............................................................................. 139,135,961
Distribution in excess of net investment income ......................................................... (1,108)
Accumulated net realized loss ........................................................................... (600,348)
Net unrealized appreciation of investments .............................................................. 9,975,359
-------------
Net Assets .............................................................................................. $ 148,524,741
=============
NET ASSET VALUE PER SHARE:
Class A ($49,297,119 / 4,909,406 shares) ................................................................ $10.04
======
Class B ($56,341,709 / 5,659,395 shares) ................................................................ $9.96
======
Class D ($42,885,913 / 4,307,746 shares) ................................................................ $9.96
======
</TABLE>
- ----------
See Notes to Financial Statements.
10
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ........................................................................... $ 2,188,321
Interest ............................................................................ 89,744
-----------
Total Investment Income ............................................................................... $ 2,278,065
EXPENSES:
Management fee ...................................................................... 862,479
Distribution and service fees ....................................................... 763,172
Shareholder account services ........................................................ 265,935
Registration ........................................................................ 89,193
Shareholder reports and communications .............................................. 65,067
Auditing and legal fees ............................................................. 26,768
Custody and related services ........................................................ 24,683
Directors' fees and expenses ........................................................ 5,468
Amortization of deferred organization expenses ...................................... 2,576
Miscellaneous ....................................................................... 5,903
-----------
Total Expenses ........................................................................................ 2,111,244
-----------
Net Investment Income ................................................................................. 166,821
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments .................................................... (600,348)
Net change in unrealized appreciation of investments ................................ 6,792,088
-----------
Net Gain on Investments ............................................................................... 6,191,740
-----------
Increase in Net Assets from Operations ................................................................ $ 6,358,561
===========
</TABLE>
- ----------
See Notes to Financial Statements.
11
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
APRIL 25, 1997*
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ......................................................................... $ 166,821 $ 34,008
Net realized gain (loss) on investments ....................................................... (600,348) 1,395,588
Net change in unrealized appreciation of investments .......................................... 6,792,088 3,183,271
------------ ------------
Increase in Net Assets from Operations ........................................................ 6,358,561 4,612,867
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A .................................................................................... (192,895) (22,102)
Net realized gain on investments:
Class A .................................................................................... (282,285) (268,929)
Class B .................................................................................... (326,267) (188,489)
Class D .................................................................................... (219,836) (114,588)
------------ ------------
Decrease in Net Assets from Distributions ..................................................... (1,021,283) (594,108)
------------ ------------
<CAPTION>
SHARES
--------------------------------------
YEAR ENDED APRIL 25, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ------------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares:
Class A ................................................. 2,732,752 2,081,806 26,848,150 17,203,013
Class B ................................................. 3,343,264 1,758,227 33,045,799 14,700,536
Class D ................................................. 1,904,014 769,857 18,793,866 6,526,662
Investment of dividends:
Class A ................................................. 17,633 2,282 171,043 20,514
Exchanged from associated Funds:
Class A ................................................. 2,456,260 673,049 24,149,943 5,675,733
Class B ................................................. 1,184,929 216,546 11,389,752 1,850,949
Class D ................................................. 2,084,910 538,684 20,284,370 4,563,959
Shares issued in payment of gain distributions:
Class A ................................................. 26,432 28,791 260,093 248,471
Class B ................................................. 29,903 19,544 290,656 167,688
Class D ................................................. 21,341 12,598 207,435 108,094
------------ ------------ ------------ ------------
Total ...................................................... 13,801,438 6,101,384 135,441,107 51,065,619
------------ ------------ ------------ ------------
Cost of shares repurchased:
Class A ................................................. (1,351,175) (117,118) (12,554,489) (997,479)
Class B ................................................. (357,377) (52,380) (3,440,426) (455,672)
Class D ................................................. (318,189) (30,230) (3,037,090) (264,838)
Exchanged into associated Funds:
Class A ................................................. (1,580,952) (67,357) (15,313,160) (583,297)
Class B ................................................. (413,592) (69,669) (3,869,171) (594,926)
Class D ................................................. (530,094) (145,145) (5,026,493) (1,250,982)
------------ ------------ ------------ ------------
Total ...................................................... (4,551,379) (481,899) (43,240,829) (4,147,194)
------------ ------------ ------------ ------------
Increase in Net Assets from Capital
Share Transactions ...................................... 9,250,059 5,619,485 92,200,278 46,918,425
============ ============ ------------ ------------
Increase in Net Assets ........................................................................ 97,537,556 50,937,184
NET ASSETS:
Beginning of period ........................................................................... 50,987,185 50,001
------------ ------------
End of Period (including distribution in excess of net investment
income and undistributed net investment income of $(1,108) and
$11,906, respectively) ...................................................................... $148,524,741 $ 50,987,185
============ ============
</TABLE>
- ----------
* Commencement of operations.
See Notes to Financial Statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Organization -- Seligman Large-Cap Value Fund (the "Fund") is a series of
Seligman Value Fund Series, Inc., which was incorporated in the State of
Maryland on January 27, 1997, and subsequently was registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Fund had no operations prior to April 25, 1997 (commencement of
operations),other than those related to organizational matters, and the sale and
issuance to Seligman Advisors, Inc. (the "Distributor")(formerly Seligman
Financial Services, Inc.) of 7,003 Class A shares of Capital Stock for $50,001
on April 4, 1997.
2. Multiple Classes of Shares -- 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.
3. 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 common 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. 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.
c. 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.
Interest income is recorded on an accrual basis.
d. 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.
e. 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.
f. Organization Expenses -- Deferred organization expenses are being amortized
on a straight-line basis over
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
a period of 60 months beginning with the commencement of operations of the
Fund.
4. Short-Term Investments -- At December 31, 1998, the Fund owned short-term
investments which matured in less than seven days.
5. 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 $102,313,346 and $11,016,359,
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 $18,785,511 and $8,810,152, respectively.
6. 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 0.80%
per annum of the Fund's average daily net assets.
The Distributor, agent for the distribution of the Fund's shares and an
affiliate of the Manager, received concessions of $57,852 from sales of Class A
shares, after commissions of $447,485 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 $102,126, or 0.25% 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 $392,609 and $268,437, 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 $12,233.
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
$49,268.
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
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
to the Plan. For the year ended December 31, 1998, Seligman Services, Inc.
received commissions of $3,184 from the sale of shares of the Fund. Seligman
Services, Inc. also received distribution and service fees of $10,268, pursuant
to the Plan.
Seligman Data Corp., which is owned by certain associated investment
companies, charged the Fund at cost $265,935 for shareholder account services.
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 annual
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
$1,108 is included in other liabilities. Deferred fees and related accrued
earnings are not deductible for federal income tax purposes until such amounts
are paid.
7. Loss Carryforward -- At December 31, 1998, the Fund had a net capital loss
carryforward for federal income tax purposes of $600,348, which is available for
offset against future taxable net gains and will expire in 2006. Accordingly, no
capital gain distributions are expected to be paid to shareholders until net
capital gains have been realized in excess of the available capital loss
carryforward.
8. 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.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand each Class's financial
performance from the inception of the Fund. 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 CLASS B CLASS D
------------------- -------------------- --------------------
YEAR 4/25/97* YEAR 4/25/97* YEAR 4/25/97*
ENDED TO ENDED TO ENDED TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period .................. $ 9.09 $ 7.14 $ 9.04 $ 7.14 $ 9.04 $ 7.14
------- ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income (loss) .......................... 0.06 0.03 (0.02) (0.01) (0.02) (0.01)
Net realized and unrealized gain (loss)
on investments ...................................... 0.99 2.06 1.00 2.04 1.00 2.04
------- ------ ------ ------ ------ ------
Total from Investment Operations ...................... 1.05 2.09 0.98 2.03 0.98 2.03
------- ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income .................. (0.04) (0.01) -- -- -- --
Distributions from net realized capital gains ......... (0.06) (0.13) (0.06) (0.13) (0.06) (0.13)
------- ------ ------ ------ ------ ------
Total Distributions ................................... (0.10) (0.14) (0.06) (0.13) (0.06) (0.13)
------- ------ ------ ------ ------ ------
Net Asset Value, End of Period ........................ $10.04 $ 9.09 $ 9.96 $ 9.04 $ 9.96 $ 9.04
======= ====== ====== ====== ====== ======
TOTAL RETURN: 11.57% 29.28% 10.85% 28.46% 10.85% 28.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) .............. $49,297 $23,699 $56,342 $16,930 $42,886 $10,358
Ratio of expenses to average net assets ............... 1.50% 1.47%+ 2.25% 2.25%+ 2.25% 2.25%+
Ratio of net income (loss) to average net assets ...... 0.61% 0.58%+ (0.14)% (0.20)%+ (0.14)% (0.20)%+
Portfolio turnover rate ............................... 10.44% 38.74% 10.44% 38.74% 10.44% 38.74%
Without management fee waiver:**
Ratio of expenses to average net assets ............... 2.07%+ 2.85%+ 2.85%+
Ratio of net income (loss) to average net assets ...... (0.02)%+ (0.80)%+ (0.80)%+
</TABLE>
- ----------
* Commencement of operations.
** The Manager, at its discretion, waived a portion of its fees for certain of
the periods presented.
+ Annualized.
See Notes to Financial Statements.
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders,
Seligman Large-Cap Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Seligman Large-Cap Value Fund as of December
31, 1998, the related statements of operations for the year then ended and of
changes in net assets and the financial highlights for the year then ended and
for the period from April 25, 1997 (commencement of operations)to December 31,
1997. 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 Large-Cap
Value Fund 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.
DELOITTE & TOUCHE LLP
New York, New York
January 29, 1999
- --------------------------------------------------------------------------------
17
<PAGE>
FEDERAL TAX STATUS OF 1998 DIVIDEND AND
GAIN DISTRIBUTIONS FOR TAXABLE ACCOUNTS
- --------------------------------------------------------------------------------
The dividend paid to Class A shareholders in 1998 is taxable as ordinary income
for federal income tax purposes, regardless of whether it was received in cash
or in shares. Under the Internal Revenue Code, 96.06% of the dividend paid to
Class A shareholders has been designated as qualifying for the dividends
received deduction available to corporate shareholders. In order to claim the
dividends received deduction for this distribution, corporate shareholders must
have held the Fund's shares for 46 days or more during the 90-day period
beginning 45 days before each ex-dividend date.
The distribution of $0.059 per share from net short-term gain realized on
investments was paid on November 23, 1998, to Class A, B, and D shareholders.
Net short-term gain is taxable as ordinary income whether paid to you in cash or
shares.
If the gain distribution was paid in shares, the per share cost basis for
federal income tax purposes is $9.84 for Class A shares and $9.72 for Class B
and D shares.
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-DIVshows 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.
- --------------------------------------------------------------------------------
18
<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
- --------------------------------------------------------------------------------
19
<PAGE>
EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
William C. Morris
Chairman
Brian T. Zino
President
Neil T. Eigen
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
- --------------------------------------------------------------------------------
20
<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.
21
<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 Large-Cap Value Fund, 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
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
EQVL2 12/98 [LOGO]Printed on Recycled Paper
SELIGMAN
-------------------
SMALL-CAP
VALUE FUND
[PHOTOGRAPH]
ANNUAL REPORT
DECEMBER 31, 1998
----------
A Value Approach
to Seeking the
Capital Appreciation
Potential of
Smaller Companies
[LOGO]
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.
[PHOTOGRAPH]
James, Jesse, and Joseph Seligman, 1870
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 changed dramatically in the 134 years since
Seligman first opened 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 ....................................... 10
Statement of Operations ................................................... 11
Statements of Changes in Net Assets ....................................... 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 16
Report of Independent Auditors ............................................ 17
Federal Tax Status of 1998 Gain Distribution
for Taxable Accounts .................................................... 18
Board of Directors ........................................................ 19
Executive Officers and For More Information ............................... 20
Glossary of Financial Terms ............................................... 21
- --------------------------------------------------------------------------------
<PAGE>
TO THE SHAREHOLDERS
In 1998, Seligman Small-Cap Value Fund posted a total return of -18.81% based on
the net asset value of Class A shares. This return lagged the -6.45% total
return of the Russell 2000 Value Index and the -0.40% return of the Lipper Small
Cap Funds Average. A discussion with your Portfolio Managers regarding the
Fund's results begins on page 2.
There were three primary reasons for the Fund's disappointing results in 1998.
First, the stocks of smaller companies were out of favor with investors in 1998.
Second, small-cap value stocks performed worse than small-cap growth stocks. And
finally, a number of small-cap value stocks in Seligman Small-Cap Value Fund
were hit with earnings downgrades that caused them to underperform other stocks
in their asset class.
While the past year was one of continued growth for the US stock market,
exceptional performance from an extremely narrow list of stocks masked the true
investment results in the broad markets. Investment results between asset
classes were also more widely dispersed than usual. In fact, the disparity was
almost unprecedented. For example, while the large-capitalization dominated S&P
500 rose 28.58%, the Russell 2000 Index, which measures smaller-capitalization
stocks, actually declined 2.55% for the year.
A number of factors led to the markets' narrowness and divergence 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. The global
turmoil continued as Russia defaulted on its debt and devalued its currency, and
problems in Brazil escalated. In the ensuing "flight to quality," investors from
around the world poured money into large, well-known US stocks, with
consistently strong records of earnings growth. Investors put aside concerns
over high valuations in a rush to own only the largest and best American growth
companies. In last year's market environment, small-cap stocks, especially
small-cap value stocks, were ignored.
There were few standouts among small-cap stocks in 1998. Those stocks that did
best were in typical growth areas such as technology, telecommunications, and
health care. Internet stocks, in particular, benefited from a near frenzy, as
investors continually pushed valuations higher. Stocks in typical value sectors,
such as financial services and consumer cyclicals, tended to underperform.
Subdued inflation, low interest rates, improving prospects in Asia, and a
Federal Reserve leading the fight against global recession are all positive for
the US markets in 1999. We expect a challenging environment confronted with
economic uncertainties and continued high volatility. Pressure on corporate
profits is likely to continue, as the US enters a period of slower growth. At
this time, valuations on some of the largest growth stocks seem excessive and
any broadening of the market in 1999 may reward more reasonably priced small-cap
stocks.
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 Small-Cap Value Fund in 1998.
We look forward to serving your investment needs in 1999.
By order of the Board of Directors,
/s/ William Morris
- ------------------
William C. Morris
Chairman
/s/ Brian T. Zino
-----------------
Brian T. Zino
President
January 29, 1999
1
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGERS,
NEIL T. EIGEN AND RICHARD S. ROSEN
Q. How did Seligman Small-Cap Value Fund perform in 1998?
A. We were disappointed with Seligman Small-Cap Value Fund's results in 1998.
The Fund posted a total return of -18.81% based on the net asset value of
Class A shares for the year ended December 31, 1998. This compares to the
-0.40% return of the Lipper Small Cap Funds Average, and the -6.45% return
of the Russell 2000 Value Index.
Q. Which economic and market factors influenced the Fund's results in 1998,
and how did you respond?
A. The greatest influence on both the Fund and the small-cap market was an
ongoing reduction in expectations for corporate earnings throughout 1998.
When conditions are positive, investors are generally willing to pay big
premiums to own the faster rate of earnings growth that small-cap stocks
typically enjoy. The problem, however, is that during periods of earnings
uncertainty (as in 1998), investors do not want to own smaller companies,
almost regardless of valuations. This past year was characterized by
negative earnings estimate revisions in every quarter. The worst might have
been over early in the year, if there had been one big estimate reduction,
but that was not the case. A number of the Fund's holdings received
earnings downgrades during the year, which contributed to the Fund's
underperformance relative to its benchmarks. We anticipate profit pressures
lasting through early 1999.
In 1998, small-cap stocks were at a disadvantage on both the supply and
demand sides of the equation relative to larger-cap stocks. From a supply
standpoint, the stock market experienced a strong year in initial public
offering (IPO) activity. New equity supply tends to hurt small-cap
investors, in that most new issues are for smaller companies. When an IPO
successfully comes to market, fund managers, in general, are forced to
become net sellers of other small-cap holdings to pay for the purchase. In
terms of demand, cash flows into mutual funds also restrained small-cap
performance. In 1998, most mutual fund cash flows poured into two areas --
large-cap stocks and technology. Even the tremendous inflows of money from
foreign investors generally ignored small caps. Share buybacks were also
principally kept within the domain of the largest companies.
We responded to this environment by staying focused on our investment
discipline. We bought what we considered to be quality companies, where
there was an opportunity to make a handsome return over a longer period of
time. In retrospect, a winning strategy for small-cap investors in 1998
would have been to emphasize those "concept" companies that have no
earnings, or high-tech companies, where valuations
[PHOTOGRAPH]
Value Team:(from left) Nevis George (Administrative Assistant), Milton Rubin
(Client Services), Richard S. Rosen (Co-Portfolio Manager), (seated) Neil T.
Eigen (Portfolio Manager)
- --------------------------------------------------------------------------------
A TEAM APPROACH
Seligman Small-Cap Value Fund is managed by the Seligman Value Team, headed by
Neil T. Eigen, who has 30 years of experience as a value investor. Mr. Eigen and
Richard S. Rosen are assisted in the management of the Fund by seasoned research
professionals who are responsible for identifying reasonably valued
small-capitalization companies with the potential for high returns on equity.
- --------------------------------------------------------------------------------
2
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGERS,
NEIL T. EIGEN AND RICHARD S. ROSEN
are well above what a traditional value investor is willing to pay. Given
that we would not compromise our investment disciplines, we remained
committed to our long-term value approach to investing, firmly believing
that at some point our discipline will be rewarded. To change one's
investment style in order to fit with what is working in the market today
is referred to as style rotation, and it is something we will not do.
Q. What was your investment strategy in 1998?
A. Our value style is driven by one overriding theme. We look for companies
for which the market has low expectations but where we see a catalyst that
will make them better companies going forward than they have been in the
past. We then own these stocks for a long period of time.
Though we are value managers, earnings acceleration is generally an
important consideration. In our mind, investing is a long-term proposition.
Investment ideas do not always work right away, and of course, some never
work at all. But sometimes ideas that are working are not immediately
rewarded by the market. That is what we saw in 1998. We are disappointed
about this past year, but not discouraged.
Q. How was Seligman Small-Cap Value Fund's portfolio constructed in 1998, and
how did that affect performance?
A. We constructed the portfolio so that it was well diversified; however, we
also endeavored to limit the number of holdings to stocks in which we have
a strong conviction and which we can know well.
On the positive side, the Fund benefited from having owned five companies
that merged or were bought out in 1998. We do not buy stocks simply because
we think they will be taken over, although takeovers are a logical
development in a portfolio focused on finding those companies that we
believe sell at a discount to their underlying value. Nonetheless, it was a
source of encouragement to see value realized.
As to disappointments, we generally avoid investing in companies where the
movement in the price of a commodity (gold, oil, interest rates, etc.) far
outweighs any impact management can make. We did, however, add two
energy-related investments earlier this year, based on a discount to net
asset value, already significant price declines, unseasonably mild weather
for the prior year, and potential demand recovery in Asia. Unfortunately,
these investments have not yet fulfilled our expectations, although we
believe that at some point energy prices will come back, and with them
these stock prices.
The current economic environment has also created a great deal of earnings
uncertainty, and in some cases stock price anxiety. Some of our holdings
represent good franchises with great futures, but their valuations have
been discounted by near-term uncertainty. History has shown that investors
who sell quality companies based on near-term concerns regret their
actions.
Q. What is your outlook?
A. Small-cap valuations are compelling, but investors will need to remain
patient. Historically, when the asset class has rebounded from a period of
underperformance, it has done so in a rewarding manner, and generally in a
very short period of time.
Avoiding small-cap value stocks simply because the asset class
underperformed other indices in 1998 is short-sighted. Valuations suggest
that a period of significant catch-up for small-cap stocks, in general, and
small-cap value stocks, in particular, is coming. Will it be in 1999? We do
not know. As we have always told our shareholders, we are not market
timers. But for investors seeking long-term capital appreciation, who can
withstand greater volatility, small-cap value is an attractive investment
area.
3
<PAGE>
PERFORMANCE OVERVIEW
This chart compares a $10,000 hypothetical investment made in Seligman
Small-Cap Value Fund since the commencement of operations on April 25, 1997,
through December 31, 1998, to a $10,000 investment made in the Lipper Small Cap
Funds Average, the Russell 2000 Index, and the Russell 2000 Value Index, from
April 30, 1997, to December 31, 1998. The results for Seligman Small-Cap Value
Fund were determined with and without the initial 4.75% maximum sales charge for
Class A shares, with the 4% contingent deferred sales charge ("CDSC") for Class
B shares, and without the 1% CDSC for Class D shares, and assume that all
distributions within the period are invested in additional shares. It is
important to keep in mind that the Lipper Small Cap Funds Average, the Russell
2000 Index, and the Russell 2000 Value Index exclude the effect of fees and/or
sales charges.
Seligman Small-Cap Value Fund will no longer be compared to the Russell
2000 Index after December 31, 1998, as it measures the performance of 2,000
widely held small-capitalization stocks. Instead, the Fund will be compared to
the Russell 2000 Value Index, which the Manager believes is a more appropriate
benchmark because it measures the value performance of small-cap stocks, and the
Fund invests primarily in those types of stocks. Therefore, your Fund will
continue to be compared to the Lipper Small Cap Funds Average and the Russell
2000 Value Index.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Seligman Small Cap Value Fund
Lipper Small
Class A Class A Class B Class D Cap Funds Russell 2000 Russell 2000
with Sales without Sales with CDSC without CDSC Average* Index* Value Index*
---------- ------------- --------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
4/25/97 $9,520 $10,000 $10,000 $10,000
4/30/97 $9,600 $10,084 $10,084 $10,084 $10,000 $10,000 $10,000
5/31/97 $10,547 $11,078 $11,064 $11,064 $11,198 $11,112 $10,796
6/30/97 $11,467 $12,045 $12,031 $12,031 $11,794 $11,589 $11,342
7/31/97 $12,027 $12,633 $12,619 $12,619 $12,536 $12,128 $11,819
8/31/97 $12,240 $12,857 $12,829 $12,829 $12,769 $12,405 $12,007
9/30/97 $13,160 $13,824 $13,782 $13,782 $13,729 $13,313 $12,805
10/31/97 $12,627 $13,263 $13,221 $13,221 $13,137 $12,729 $12,457
11/30/97 $12,623 $13,259 $13,203 $13,203 $12,949 $12,646 $12,594
12/31/97 $12,983 $13,638 $13,582 $13,582 $13,061 $12,867 $13,021
1/31/98 $12,209 $12,825 $12,755 $12,755 $12,847 $12,664 $12,785
2/28/98 $13,050 $13,708 $13,624 $13,624 $13,845 $13,600 $13,558
3/31/98 $13,650 $14,338 $14,240 $14,254 $14,498 $14,160 $14,109
4/30/98 $13,370 $14,044 $13,932 $13,946 $14,617 $14,238 $14,178
5/31/98 $12,890 $13,539 $13,441 $13,441 $13,794 $13,471 $13,676
6/30/98 $12,289 $12,909 $12,811 $12,811 $13,903 $13,499 $13,600
7/31/98 $11,502 $12,082 $11,970 $11,970 $12,906 $12,406 $12,535
8/31/98 $9,314 $9,783 $9,685 $9,685 $10,324 $9,996 $10,572
9/30/98 $9,247 $9,713 $9,615 $9,615 $10,930 $10,779 $11,169
10/31/98 $9,727 $10,218 $10,106 $10,106 $11,377 $11,219 $11,501
11/30/98 $10,165 $10,678 $10,566 $10,566 $12,118 $11,807 $11,813
12/31/98 $10,540 $11,072 $10,546 $10,946 $13,008 $12,538 $12,183
</TABLE>
* From April 30, 1997
A portfolio with fewer holdings may be subject to greater volatility than a
portfolio with a greater number of holdings. The stocks of smaller companies may
be subject to above-average market fluctuations.
4
<PAGE>
PERFORMANCE OVERVIEW
Investment Results Per Share
TOTAL RETURNS
For Periods Ended December 31, 1998
AVERAGE ANNUAL
------------------------
SINCE
SIX ONE INCEPTION
MONTHS* YEAR 4/25/97
--------- -------- -----------
Class A**
With Sales Charge (18.31)% (22.71)% 3.17%
Without Sales Charge (14.23) (18.81) 6.23
Class B**
With CDSC+ (19.56) (23.42) 3.20
Without CDSC (14.56) (19.41) 5.51
Class D**
With 1% CDSC (15.56) (20.21) n/a
Without CDSC (14.56) (19.41) 5.51
Lipper Small Cap Funds Average*** (6.44) (0.40) 17.04++
Russell 2000 Index*** (7.12) (2.55) 14.54++
Russell 2000 Value Index*** (10.43) (6.45) 12.56++
NET ASSET VALUE
DECEMBER 31, 1998 JUNE 30, 1998 DECEMBER 31, 1997
----------------- ------------- -----------------
Class A $7.87 $9.21 $9.73
Class B 7.78 9.14 9.69
Class D 7.78 9.14 9.69
CAPITAL GAIN (LOSS) INFORMATION
For the Year Ended December 31, 1998
Paid $0.028
Undistributed Realized --
Unrealized (1.477)+++
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.
- ----------
* Return 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. Return figures for
Class A shares are calculated with and without the effect of the initial
4.75% maximum sales charge. Returns for Class B shares are calculated with
and without the effect of the maximum 5% contingent deferred sales charge
("CDSC"), charged on 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 Lipper Small Cap Funds Average (Lipper Average), the Russell 2000
Index, and the Russell 2000 Value Index are unmanaged benchmarks that
assume investment of dividends. The Lipper Average, the Russell 2000 Index,
and the Russell 2000 Value Index exclude the effect of fees and/or sales
charges. The monthly performance of the Lipper Average is used in the
Performance Overview. Investors cannot invest directly in an average or an
index.
+ The CDSC is 5% for periods of one year or less, and 4% since inception.
++ From April 30, 1997.
+++ Represents the per share amount of net unrealized depreciation of portfolio
securities as of December 31, 1998.
5
<PAGE>
PORTFOLIO OVERVIEW
Diversification of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS
DECEMBER 31,
---------------------
ISSUES COST VALUE 1998 1997
------ ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
COMMON STOCKS:
Advertising ................... 1 $ 4,975,455 $ 5,375,000 3.0 --
Apparel and Textiles .......... 1 3,360,714 6,551,563 3.7 2.2
Appliances .................... 1 3,586,319 1,356,250 0.8 2.2
Automotive and Trucking ....... 1 4,889,950 3,757,813 2.1 2.1
Banking ....................... 2 9,165,654 8,208,281 4.6 8.6
Building and Construction ..... 1 6,219,749 5,398,113 3.0 1.7
Capital Goods ................. 2 7,234,499 5,555,625 3.1 --
Computer Software ............. 1 3,111,025 1,867,344 1.0 2.4
Consumer Goods and Services ... -- -- -- -- 0.8
Distributors .................. 2 6,454,248 7,323,388 4.1 3.5
Energy ........................ -- -- -- -- 2.0
Finance and Insurance ......... 3 11,433,801 8,445,563 4.8 7.1
Food .......................... 1 4,122,919 3,527,500 2.0 2.6
Garden Products ............... 1 5,520,628 2,936,188 1.7 1.2
Industrial Goods and Services . 1 4,455,210 4,265,625 2.4 1.4
Machinery ..................... 1 8,810,892 3,477,734 2.0 2.5
Manufacturing ................. 3 10,730,865 12,682,525 7.1 8.3
Medical Products and Technology 2 10,423,537 10,810,938 6.1 4.1
Oil and Gas ................... 3 13,655,516 8,797,450 5.0 2.6
Packaging/Containers .......... 2 7,454,854 6,089,906 3.4 2.5
Plastics ...................... 1 3,399,581 2,260,125 1.3 0.5
Printing and Publishing ....... 2 11,158,301 10,551,875 5.9 4.9
Restaurants ................... 2 10,866,761 9,965,887 5.6 4.1
Retail Trade .................. 4 16,790,134 16,082,187 9.1 6.6
Shipbuilding .................. 1 3,944,765 4,862,734 2.7 2.3
Specialty Chemicals ........... 2 8,213,531 7,768,562 4.4 4.8
Specialty Metals/Steel ........ 2 11,208,267 4,528,134 2.5 4.2
Tobacco ....................... 1 5,073,850 4,687,187 2.6 4.4
Transportation ................ 2 12,555,923 8,452,969 4.8 6.7
Miscellaneous ................. 1 3,306,789 2,943,125 1.7 2.5
----- ------------- ------------- ----- -----
47 212,123,737 178,529,591 100.5 98.8
OTHER ASSETS LESS LIABILITIES .... -- (887,239) (887,239) (0.5) 1.2
----- ------------- ------------- ----- -----
NET ASSETS ....................... 47 $ 211,236,498 $ 177,642,352 100.0 100.0
===== ============= ============= ===== =====
</TABLE>
6
<PAGE>
PORTFOLIO OVERVIEW
Largest Portfolio Changes
During Past Six Months
SHARES
------------------------
HOLDINGS
ADDITIONS INCREASE 12/31/98
- --------- -------- --------
Acorn Products ................................. 1,000 431,000
BWAY ........................................... 20,000 208,500
Pittson BAX Group .............................. 180,000 390,000
Stage Stores ................................... 350,000 350,000
SHARES
------------------------
HOLDINGS
REDUCTIONS DECREASE 12/31/98
- ---------- -------- --------
Abercrombie & Fitch (Class A) .................. 65,000 90,000
Consolidated Cigar Holding ..................... 165,000 265,000
Cutter & Buck .................................. 105,000 175,000
Dexter ......................................... 60,000 89,000
Elsag Bailey Process Auto
(ADRs) ....................................... 228,300 111,700
Foodmaker ...................................... 96,700 325,000
Furniture Brands International ................. 70,600 179,400
The Wet Seal (Class A) ......................... 50,000 170,000
Windmere-Durable Holdings ...................... 50,000 175,000
Zeigler Coal Holding ........................... 290,000 --
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
- -------- ----------
Foodmaker ................................................ $7,170,312
ChiRex ................................................... 7,012,500
Cutter & Buck ............................................ 6,551,563
Abercrombie & Fitch (Class A) ............................ 6,367,500
Dal-Tile International ................................... 5,398,113
True North Communications ................................ $5,375,000
Cadmus Communications .................................... 5,337,500
Merrill .................................................. 5,214,375
The Wet Seal (Class A) ................................... 5,131,875
Schulman (A.) ............................................ 4,970,625
- --------------------------------------------------------------------------------
Largest Industries
December 31, 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Percent of Total
Net Assets Dollar Amount
---------- -------------
RETAIL TRADE 9.10% $16,082,187
MANUFACTURING 7.10% $12,682,525
MEDICAL PRODUCTS AND TECHNOLOGY 6.10% $10,810,938
PRINTING AND PUBLISHING 5.90% $10,551,875
RESTAURANTS 5.60% $ 9,965,887
7
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
SHARES VALUE
------ ------------
COMMON STOCKS 100.5%
ADVERTISING 3.0%
True North Communications
Advertising Agency 200,000 $ 5,375,000
------------
APPAREL AND TEXTILES 3.7%
Cutter & Buck*+
Designer and marketer of
men's sportswear and
outerwear 175,000 6,551,563
------------
APPLIANCES 0.8%
Windmere-Durable Holdings
Manufacturer and distributor of
electrical appliances for
home use 175,000 1,356,250
------------
AUTOMOTIVE AND
TRUCKING 2.1%
Wabash National
Designer, manufacturer,
and marketer of truck trailers 185,000 3,757,813
------------
BANKING 4.6%
Bank United (Class A)
Financial service provider 105,000 4,111,406
Bay View Capital
Bank operator 190,000 4,096,875
------------
8,208,281
------------
BUILDING AND
CONSTRUCTION 3.0%
Dal-Tile International*
Manufacturer of ceramic tile 520,300 5,398,113
------------
CAPITAL GOODS 3.1%
Apogee Enterprises
Distributor and installer of
windows and glass products 425,000 4,781,250
BMC Industries
Manufacturer of
electronic components 123,900 774,375
------------
5,555,625
------------
COMPUTER SOFTWARE 1.0%
Dialogic*
Manufacturer of communication
software 95,000 1,867,344
------------
DISTRIBUTORS 4.1%
Cubic
Developer, manufacturer, and
distributor of defense and
industrial electronic products 157,500 2,953,125
Elsag Bailey Process
Auto (ADRs)* (Netherlands)
Manufacturer and distributor
of control systems 111,700 4,370,263
------------
7,323,388
------------
FINANCE AND INSURANCE 4.8%
Provider of financial services 100,000 878,125
Berkley (W.R.)
Insurance provider 90,200 3,044,250
RenaissanceRe Holdings
Global provider of reinsurance
and insurance 123,500 4,523,188
------------
8,445,563
------------
FOOD 2.0%
Richfood Holdings
Wholesale food distributor 170,000 3,527,500
------------
GARDEN PRODUCTS 1.7%
Acorn Products*+
Manufacturer and marketer of
lawn and garden tools 431,000 2,936,188
------------
INDUSTRIAL GOODS AND
SERVICES 2.4%
Furon
Manufacturer of component
products 250,000 4,265,625
------------
MACHINERY 2.0%
Stewart & Stevenson Services
Designer, assembler, and
marketer of machinery 362,500 3,477,734
------------
MANUFACTURING 7.1%
Furniture Brands International*
Manufacturer of furniture and
home furnishings 179,400 4,888,650
Giant Cement Holding*
Manufacturer and producer of
cement 199,000 4,950,125
Mueller Industries*
Manufacturer and distributor of
brass, bronze, copper, and
aluminum products 140,000 2,843,750
------------
12,682,525
------------
MEDICAL PRODUCTS AND
TECHNOLOGY 6.1%
Cephalon*
Developer of biopharmaceutical
products to treat neurological
disorders 425,000 3,798,438
ChiRex*
Pharmaceutical contractor 330,000 7,012,500
------------
10,810,938
------------
- ----------
See footnotes on page 9.
8
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
SHARES VALUE
------ ------------
OIL AND GAS 5.0%
Equitable Resources
Energy supplier 165,000 $ 4,805,625
Friede Goldman International*
Provider of offshore drilling
services for international
oil and gas companies 80,600 916,825
Marine Drilling*
Provider of offshore drilling
services for international
oil and gas companies 400,000 3,075,000
------------
8,797,450
------------
PACKAGING/
CONTAINERS 3.4%
Applied Extrusion Technologies*
Developer, producer, and
seller of packaging supplies 363,000 2,949,375
BWAY*
Manufacturer and marketer of
steel containers 208,500 3,140,531
------------
6,089,906
------------
PLASTICS 1.3%
Lamson & Sessions*
Manufacturer and distributor of
thermoplastics and electronics 441,000 2,260,125
------------
PRINTING AND
PUBLISHING 5.9%
Cadmus Communications
Commercial printer 280,000 5,337,500
Merrill
Document management
company 270,000 5,214,375
------------
10,551,875
------------
RESTAURANTS 5.6%
Avado Brands
Restaurant operator 333,800 2,795,575
Foodmaker*
Owner and operator of fast
food restaurants 325,000 7,170,312
------------
9,965,887
------------
RETAIL TRADE 9.1%
Abercrombie & Fitch (Class A)*
Retailer of casual apparel 90,000 6,367,500
Loehmann's*+
Specialty retailer 700,000 1,301,562
Stage Stores*
Clothing retailer 350,000 3,281,250
The Wet Seal (Class A)*
Retailer of young women's
apparel 170,000 5,131,875
------------
16,082,187
------------
SHIPBUILDING 2.7%
Avondale Industries*
Constructor and repairer of
ships for military and
commercial use 167,500 4,862,734
------------
SPECIALTY CHEMICALS 4.4%
Dexter
Manufacturer of specialty
materials 89,000 2,797,937
Schulman (A.)
Manufacturer of specialty
chemicals and plastics 220,000 4,970,625
------------
7,768,562
------------
SPECIALTY METALS/
STEEL 2.5%
Olympic Steel*
Processor and distributor of
steel products 397,000 1,991,203
Universal Stainless &
Alloy Products*+
Manufacturer and marketer of
specialty steel 341,100 2,536,931
------------
4,528,134
------------
TOBACCO 2.6%
Consolidated Cigar Holding*
Manufacturer and marketer
of cigars 265,000 4,687,187
------------
TRANSPORTATION 4.8%
ABC Rail Products*
Manufacturer and marketer of
railroad equipment 335,000 4,114,219
Pittston BAX Group
Provider of global freight
transportation 390,000 4,338,750
------------
8,452,969
------------
MISCELLANEOUS 1.7%
VWR Scientific Products*
Distributor of
laboratory supplies 170,000 2,943,125
------------
TOTAL INVESTMENTS 100.5%
(Cost $212,123,737) 178,529,591
OTHER ASSETS
LESS LIABILITIES (0.5)% (887,239)
------------
NET ASSETS 100.0% $177,642,352
============
- ----------
* Non-income producing security.
+ Affiliated issuers (Fund's holdings representing 5% or more of the
outstanding voting securities).
Descriptions of companies have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value:
Common stocks* (cost $212,123,737) ................................................ $ 178,529,591
Cash ................................................................................ 149,748
Receivable for securities sold ...................................................... 711,976
Receivable for Capital Stock sold ................................................... 648,471
Receivable for dividends and interest ............................................... 65,822
Expenses prepaid to shareholder service agent ....................................... 60,291
Deferred organization expenses ...................................................... 8,589
Other ............................................................................... 36,498
-------------
Total Assets ........................................................................ 180,210,986
-------------
LIABILITIES:
Payable for Capital Stock repurchased ............................................... 2,199,523
Accrued expenses, taxes, and other .................................................. 369,111
-------------
Total Liabilities ................................................................... 2,568,634
-------------
Net Assets .......................................................................... $ 177,642,352
=============
COMPOSITION OF NET ASSETS:
Capital Stock, at par ($0.001 par value; 1,000,000,000 shares authorized;
22,745,839 shares outstanding):
Class A ........................................................................... $ 7,672
Class B ........................................................................... 9,240
Class D ........................................................................... 5,834
Additional paid-in capital .......................................................... 211,392,600
Accumulated net investment loss ..................................................... (1,376)
Distribution in excess of net realized gain ......................................... (177,472)
Net unrealized depreciation of investments .......................................... (33,594,146)
-------------
Net Assets .......................................................................... $ 177,642,352
=============
NET ASSET VALUE PER SHARE:
Class A ($60,383,260 / 7,672,244 shares) ............................................ $7.87
=====
Class B ($71,875,285 / 9,240,164 shares) ............................................ $7.78
=====
Class D ($45,383,807 / 5,833,431 shares) ............................................ $7.78
=====
</TABLE>
- ----------
* Includes affiliated issuers (issuers in which the Fund's holdings represent
5% or more of the outstanding voting securities) with a cost of $19,465,700
and a value of $13,326,244.
See Notes to Financial Statements.
10
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ...................................................................... $ 1,540,636
Interest ....................................................................... 57,121
------------
Total Investment Income ................................................................................. $ 1,597,757
EXPENSES:
Management fee ................................................................. 2,255,973
Distribution and service fees .................................................. 1,673,900
Shareholder account services ................................................... 596,762
Registration ................................................................... 142,688
Shareholder reports and communications ......................................... 95,580
Auditing and legal fees ........................................................ 68,328
Custody and related services ................................................... 66,194
Directors' fees and expenses ................................................... 8,559
Amortization of deferred organization expenses ................................. 2,576
Miscellaneous .................................................................. 8,458
------------
Total Expenses .......................................................................................... 4,919,018
------------
Net Investment Income (Loss) ............................................................................ (3,321,261)
NET REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS:
Net realized gain on investments* .............................................. 1,143,557
Net change in unrealized appreciation of investments ........................... (49,090,217)
------------
Net Loss on Investments ........................................................ (47,946,660)
------------
Decrease in Net Assets from Operations .................................................................. $(51,267,921)
============
</TABLE>
- ----------
* Includes net realized gain from affiliated issuers of $1,852,012.
See Notes to Financial Statements.
11
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
APRIL 25, 1997*
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment loss .............................................................................. $ (3,321,261) $ (1,298,700)
Net realized gain on investments ................................................................. 1,143,557 2,092,282
Net change in unrealized appreciation of investments ............................................. (49,090,217) 15,496,071
------------- -------------
Increase (Decrease) in Net Assets from Operations ................................................ (51,267,921) 16,289,653
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investments:
Class A ....................................................................................... (222,320) (57,925)
Class B ....................................................................................... (269,568) (57,494)
Class D ....................................................................................... (179,287) (41,437)
------------- -------------
Decrease in Net Assets from Distributions ........................................................ (671,175) (156,856)
------------- -------------
<CAPTION>
SHARES
-------------------------------
APRIL 25, 1997*
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
----------- ---------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares:
Class A ...................................................... 2,864,792 7,738,571 25,758,797 69,603,297
Class B ...................................................... 2,907,461 8,892,774 26,305,568 80,894,889
Class D ...................................................... 2,371,845 5,320,090 21,525,345 48,461,463
Exchanged from associated Funds:
Class A ...................................................... 1,272,935 1,921,426 10,646,139 17,411,273
Class B ...................................................... 408,213 545,670 3,503,911 5,021,131
Class D ...................................................... 1,376,302 1,772,296 12,493,032 16,230,693
Shares issued in payment of gain distributions:
Class A ...................................................... 27,525 5,767 206,712 54,554
Class B ...................................................... 33,089 5,544 245,853 52,231
Class D ...................................................... 22,062 4,071 163,918 38,394
----------- ---------- ------------- -------------
Total ........................................................... 11,284,224 26,206,209 100,849,275 237,767,925
----------- ---------- ------------- -------------
Cost of shares repurchased:
Class A ...................................................... (3,480,497) (412,080) (29,705,640) (3,898,861)
Class B ...................................................... (1,578,419) (136,373) (13,327,385) (1,292,238)
Class D ...................................................... (2,125,511) (171,335) (16,902,737) (1,617,237)
Exchanged into associated Funds:
Class A ...................................................... (2,004,039) (269,159) (16,748,650) (2,525,759)
Class B ...................................................... (1,647,820) (189,975) (13,470,487) (1,762,418)
Class D ...................................................... (2,350,039) (386,350) (20,312,582) (3,654,556)
----------- ---------- ------------- -------------
Total ........................................................... (13,186,325) (1,565,272) (110,467,481) (14,751,069)
----------- ---------- ------------- -------------
Increase (Decrease)in Net Assets from
Capital Share Transactions .................................... (1,902,101) 24,640,937 (9,618,206) 223,016,856
----------- ---------- ------------- -------------
Increase (Decrease)in Net Assets ................................................................ (61,557,302) 239,149,653
NET ASSETS:
Beginning of period ............................................................................. 239,199,654 50,001
------------- -------------
End of Period (including accumulated net investment loss of
$1,376 and $369, respectively) ................................................................ $ 177,642,352 $ 239,199,654
============= =============
</TABLE>
- ----------
* Commencement of operations.
See Notes to Financial Statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Organization -- Seligman Small-Cap Value Fund (the "Fund") is a series of
Seligman Value Fund Series, Inc., which was incorporated in the State of
Maryland on January 27, 1997, and subsequently was registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Fund had no operations prior to April 25, 1997 (commencement of
operations), other than those related to organizational matters, and the sale
and issuance to Seligman Advisors, Inc. (the "Distributor") (formerly Seligman
Financial Services, Inc.) of 7,003 Class A shares of Capital Stock for $50,001
on April 4, 1997.
2. Multiple Classes of Shares -- 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.
3. 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 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. 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.
c. 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.
Interest income is recorded on an accrual basis.
d. 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.
e. 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.
For the year ended December 31, 1998, the Fund redeemed 13,186,325 of
its shares from shareholders aggregating $110,467,481, of which
approximately $1,300,000 represents capital gain distributions. This
information is provided for federal income tax purposes only.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
f. Organization Expenses -- Deferred organization expenses are being amortized
on a straight-line basis over a period of 60 months beginning with the
commencement of operations of the Fund.
4. 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 $67,427,233 and $77,168,760,
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 $16,528,433 and $50,122,579, respectively.
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 1.00%
per annum of the Fund's average daily net assets.
The Distributor, agent for the distribution of the Fund's shares and an
affiliate of the Manager, received concessions of $61,808 from sales of Class A
shares, after commissions of $494,543 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 $189,512, or 0.25% 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 $850,237 and $634,151, 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 $71,797.
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
$39,142.
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 $2,646 from the sale
of shares of the Fund and distribution and service fees of $10,913, pursuant to
the Plan.
Seligman Data Corp., which is owned by certain associated investment
companies, charged the Fund at cost $596,762 for shareholder account services.
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
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
interest or earn a return based on the performance of the Fund or other funds in
the Seligman Group of Investment Companies. The annual 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 $1,376 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.
7. Affiliated Issuers -- As defined under the Investment Company Act of 1940, as
amended, affiliated issuers are those issuers in which the Fund's holdings
represent 5% or more of the outstanding voting securities of the issuer. A
summary of the Fund's transactions in the securities of these issuers during the
year ended December 31, 1998, is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
BEGINNING PURCHASES SALES AND ENDING REALIZED DIVIDEND ENDING
AFFILIATE SHARES AND ADDITIONS REDUCTIONS SHARES GAIN INCOME VALUE
- --------- --------- ------------- ---------- ------ --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Acorn Products ............... 290,000 141,000 -- 431,000 -- -- $ 2,936,188
Cutter & Buck ................ 280,000 10,000 115,000 175,000 $1,852,012 -- 6,551,563
Loehmann's ................... 700,000 -- -- 700,000 -- -- 1,301,562
Universal Stainless
& Alloy Products ........... 336,100 5,000 -- 341,100 -- -- 2,536,931
---------- -----------
TOTAL ........................ $1,852,012 $13,326,244
========== ===========
</TABLE>
15
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand each Class's financial
performance from the inception of the Fund. 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 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 Class B Class D
--------------------- -------------------- ---------------------
YEAR 4/25/97* YEAR 4/25/97* YEAR 4/25/97*
ENDED TO ENDED TO ENDED TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period ........... $9.73 $7.14 $9.69 $7.14 $9.69 $7.14
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (loss) ................... (0.09) (0.07) (0.15) (0.11) (0.15) (0.11)
Net realized and unrealized gain (loss)
on investments ............................... (1.74) 2.67 (1.73) 2.67 (1.73) 2.67
------- ------- ------- ------- ------- -------
Total from Investment Operations ............... (1.83) 2.60 (1.88) 2.56 (1.88) 2.56
------- ------- ------- ------- ------- -------
Less Distributions:
Distributions from net realized capital gains .. (0.03) (0.01) (0.03) (0.01) (0.03) (0.01)
------- ------- ------- ------- ------- -------
Total Distributions ............................ (0.03) (0.01) (0.03) (0.01) (0.03) (0.01)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ................. $7.87 $9.73 $7.78 $9.69 $7.78 $9.69
======= ======= ======= ======= ======= =======
TOTAL RETURN: (18.81)% 36.38% (19.41)% 35.82% (19.41)% 35.82%
Ratios/Supplemental Data:
Net assets, end of period (000s omitted) ....... $60,383 $87,510 $71,875 $88,330 $45,384 $63,360
Ratio of expenses to average net assets ........ 1.69% 1.87%+ 2.44% 2.63%+ 2.44% 2.63%+
Ratio of net income (loss) to average net assets (0.98)% (1.12)%+ (1.73)% (1.88)%+ (1.73)% (1.88)%+
Portfolio turnover rate ........................ 30.06% 15.91% 30.06% 15.91% 30.06% 15.91%
</TABLE>
- ----------
* Commencement of operations.
+ Annualized.
See Notes to Financial Statements.
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders,
Seligman Small-Cap Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Seligman Small-Cap Value Fund as of December
31, 1998, the related statements of operations for the year then ended and of
changes in net assets and the financial highlights for the year then ended and
for the period from April 25, 1997 (commencement of operations) to December 31,
1997. 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 Small-Cap
Value Fund as of December 31, 1998, the results of its operations, the changes
in its net assets, and the financial highlights for the respective periods
stated, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
January 29, 1999
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17
<PAGE>
FEDERAL TAX STATUS OF 1998 GAIN
DISTRIBUTION FOR TAXABLE ACCOUNTS
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A distribution of $0.028 per share from net short-term gain realized on
investments was paid on November 23, 1998, to Class A, B, and D shareholders.
Net short-term gain is taxable as ordinary income, regardless of whether it was
paid in cash or shares.
If the distribution was paid in shares, the per share cost basis for federal
income tax purposes is $7.51 for Class A shares and $7.43 for Class B and D
shares.
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.
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18
<PAGE>
BOARD OF DIRECTORS
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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
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Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
4 Board Operations Committee
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19
<PAGE>
EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
William C. Morris
Chairman
Brian T. Zino
President
Neil T. Eigen
Vice President
Lawrence P. Vogel
Vice President
Thomas G. Rose
Treasurer
Frank J. Nasta
Secretary
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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
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20
<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.
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Adapted from the Investment Company Institute's 1998 Mutual Fund Fact Book.
21
<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 Small-Cap Value Fund, 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
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
EQVS2 12/98 [LOGO]Printed on Recycled Paper
