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S E L I G M A N
[PHOTO]
SELIGMAN
HIGH-YIELD
BOND SERIES
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SEEKING TO MAXIMIZE CURRENT INCOME BY INVESTING IN A
DIVERSIFIED PORTFOLIO OF HIGH-YIELDING CORPORATE BONDS
DECEMBER 31, 1997 o ANNUAL REPORT
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OVER THE LONG TERM -- J. & W. SELIGMAN & CO. INCORPORATED
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TIME IS THE TEST
In an industry that has changed dramatically in recent years, it's comforting
to know that stability, tradition, and consistent professional service can still
be found in an investment management firm.
J. & W. Seligman & Co. Incorporated has been providing financial services for
more than 130 years. From its beginning, Seligman has followed a long-term
approach to making money for its clients, by managing investment products and
services of the highest quality. Today, Seligman manages the Seligman Group of
Funds, which offers investors more than 50 investment options.
A PLACE IN HISTORY
Established in 1864, Seligman played a major role in the geographical
expansion and industrial development of the United States. The firm helped
finance the westward path of the railroads and the building of the Panama Canal.
In the late 1800s and early 1900s, the firm was instrumental in financing the
fledgling automobile and steel industries. Seligman also participated in the
original underwritings for some of the nation's most prominent companies,
including General Motors, Victor Talking Machine, United Artists Theater
Circuit, and Maytag. In 1929, Seligman introduced Tri-Continental Corporation --
which today is the nation's largest diversified closed-end investment company.
In 1930, Seligman began managing its first mutual fund, Broad Street Investing
Co., now known as Seligman Common Stock Fund.
SELIGMAN HIGH-YIELD BOND SERIES
Seligman High-Yield Bond Series was introduced on March 11, 1985, with the
objective of maximizing current income for its shareholders. Seligman High-Yield
Bond Series invests in high-yield, higher-risk, lower-quality corporate bonds.
Astute professional management has been key to the Fund's success -- employing a
highly disciplined approach to controlling the risks inherent in investing in
lower-rated corporate issues.
[PHOTO]
JAMES, JESSE, AND JOSEPH SELIGMAN
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TABLE OF CONTENTS
To the Shareholders ................................... 1
Interview With Your Portfolio Manager ................. 2
Performance Overview .................................. 4
Portfolio Overview .................................... 6
Portfolio of Investments .............................. 8
Statement of Assets and Liabilities ................... 13
Statement of Operations ............................... 14
Statements of Changes in Net Assets ................... 15
Notes to Financial Statements ......................... 16
Financial Highlights .................................. 18
Report of Independent Auditors ........................ 20
Trustees .............................................. 21
Executive Officers and For More Information ........... 22
Glossary of Financial Terms ........................... 23
"Management applies stringent investment disciplines in selecting appropriate
bonds for the portfolio. These disciplines focus on fundamental credit and
equity analysis, which is intended to protect the portfolio against potential
downgrades or defaults on bonds held."
--FRED E. BROWN,
FUND CHAIRMAN
1985-1988
"Investment strategy focuses on investing in domestic corporate issues that we
believe have good prospects, while avoiding distressed, defaulted, and
foreign-denominated securities."
--WILLIAM C. MORRIS,
FUND CHAIRMAN
1989-PRESENT
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TO THE SHAREHOLDERS
This was another strong year of performance for Seligman High-Yield Bond
Series. The Fund posted a total return of 14.26% based on the net asset value of
Class A shares for the 12-month period ended December 31, 1997, outperforming
the 13.26% total return of the Lipper High Current Yield average. The Fund also
outpaced the 12.83% total return of the Merrill Lynch High Yield Master Index.
The US economic expansion stretched into its seventh year, with real domestic
growth of 3.8%. Consumer price inflation slowed to under 2%, interest rates
moved steadily lower, productivity rose, and unemployment levels reached 27-year
lows. Meanwhile, the federal budget deficit virtually disappeared and corporate
profits posted a third consecutive year of strong gains. Despite year-end
problems in Asia, the domestic business environment remained positive.
The growth of the economy supported corporate profitability, the high-yield
marketplace, and a record number of primary offerings. More companies are now
using the high-yield marketplace for rapid access to institutional investors'
capital, rather than traditional bank or private placement channels. This growth
of the high-yield marketplace has also allowed privately-held issuers to
establish a reputation on Wall Street and test the waters for eventual initial
public offerings. Meanwhile, demand for high-yield products grew further in
1997, particularly among pension funds, as the asset class continued to carve
out an identity separate from other fixed-income investment choices.
The Fund's continued strong performance is due in large part to the quality
of the fundamental research done by the Seligman High-Yield Team. The underlying
cash flow and credit quality of bonds available for purchase are rigorously
analyzed, and bonds held in the portfolio are also submitted to constant
monitoring. The Fund's strategy of investing primarily in US high-yield bond
issuers also proved beneficial.
While we expect that the rate of economic growth will become more moderate in
1998, the low-inflation environment should continue to support the financial
markets. The strong economy has produced opportunities for high-yield issuers to
reduce debt and improve overall credit quality. Additionally, high-yield bonds
continue to offer attractive yields relative to other fixed-income investments.
The volatility of the equity markets in 1997 highlighted the importance of
setting long-term investment goals and the attractiveness of the high-yield
sector. While short-term investors are at the mercy of daily market changes,
long-term investors can focus on their investment goals rather than the markets'
gyrations. Creating and maintaining a personal investment portfolio that is
diversified across industry groups and includes several asset classes, such as
high-yield, may help limit the impact of shifts in the market environment.
Thank you for your continued interest in Seligman High-Yield Bond Series. We
look forward to serving your investment needs in the many years to come. A
discussion with your Portfolio Manager, the Fund's portfolio of investments, and
financial statements, follow this letter. Additional information on the Fund's
investment results appears starting on page 4.
By order of the Trustees,
/s/ William C. Morris
-----------------
William C. Morris
Chairman
/s/ Brian T. Zino
-------------
Brian T. Zino
President
January 30, 1998
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1
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, DANIEL J. CHARLESTON
Q. HOW DID SELIGMAN HIGH-YIELD BOND SERIES PERFORM IN 1997?
A. Seligman High-Yield Bond Series posted strong results in 1997, with a total
return of 14.26% based on the net asset value of Class A shares. This return
outpaced the Lipper High Current Yield average's total return of 13.26% and
the 12.83% total return of the Merrill Lynch High Yield Master Index.
Q. WHAT IS YOUR INVESTMENT STRATEGY?
A. As was mentioned in the Mid-Year Report, our investment strategy remains
consistent. On a macro level, we will stay focused on investing in
high-yield issuers in the US. This strategy served us especially well during
the latter half of 1997, as certain emerging markets experienced increased
volatility. We will also continue to underweight cyclical and zero coupon
bonds and avoid distressed and defaulted issues.
While the primary market issued a record $120 billion during 1997, your
Fund continued to maintain a disciplined credit selection process. Emphasis
was placed on non-cyclical industries such as cable, telecommunications, and
gaming. Strategically, we seek to invest in individual issues with
predictable cash flows, good call protection, improving credit quality, and
high relative value.
Q. WERE ANY CHANGES MADE TO THE PORTFOLIO COMPOSITION OVER THE COURSE OF THE
YEAR?
A. No material shifts were made to the Fund's composition. Slight increases
within the telecommunications, paging, and health care sectors were offset
by minor decreases in the gaming, cable, and consumer products industries.
Q. CABLE TELEVISION HAD ANOTHER STRONG YEAR. WHAT'S AHEAD?
A. Cable bonds performed well in 1997 and we think the outlook remains bright.
There were several reasons for the rally in cable. The most obvious factors
were Microsoft's decision to invest in the industry and Tele-Communications'
new partnership arrangements. It also appears that the Federal
Communications Commission is no longer interested in re-regulating cable
rates. Despite concerns regarding growing competition in the industry, cable
companies were generally able to increase rates substantially, indicating
significant competitive advantages relative to other video providers.
Looking forward, we will continue to position cable as a core sector in
the portfolio. While we do not expect a repeat of the exceptional market
performance in 1997 because yields have contracted, several positive trends
are now present that could boost returns in the future. First, system
swapping by providers (where providers swap customers in respective regions
to concentrate services in areas where they have the greatest market share)
should allow cable companies to further build up their large concentrations
of customers, adding efficiency to operations and concentrating holdings --
which is advantageous in a competitive environment. Second, cable companies
have the most advanced systems -- capable of delivering services beyond
simple one-way video delivery. Using the existing cable infrastructure to
offer two-way products such as high-speed Internet access and telephony
should signifi-
[PHOTO]
SELIGMAN HIGH-YIELD TEAM: (FROM LEFT) TIMOTHY FINN, BRIAN HESSEL, JEANNE CRUZ,
(SEATED) DANIEL J. CHARLESTON (PORTFOLIO MANAGER)
A TEAM APPROACH
Seligman High-Yield Bond Series is managed by the Seligman
High-Yield Team, headed by Daniel J. Charleston. He is assisted
by seasoned research professionals who are responsible for
evaluating companies in specific industry groups. Mr. Charleston
draws on his team to select companies whose bonds have the
potential for high yields at acceptable levels of investment
risk consistent with the Fund's objective.
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2
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, DANIEL J. CHARLESTON
cantly bolster cash flows in the future. Finally, we believe that wireline
cable TV systems should be very attractive to traditional telecommunications
providers looking to provide local service, such as AT&T. The cable network
has the high capacity that is a valuable asset in the burgeoning world of
telecommunications.
Q. YOU MENTION CABLE TELEVISION COMPETITION. WHO IS THE COMPETITION?
A. Competition for video delivery is already occurring. Several "Baby Bells,"
satellite TV providers, wireless cable companies, power utilities, and
bundled service overbuilders (thus named because these independent service
providers build their systems in the proximity of the municipally-franchised
cable companies' systems) are in competition with traditional cable TV
providers throughout the country. However, the economics of the wireline
cable TV business make it very difficult to be profitable for all but the
first to market, due to the huge fixed costs of installing wiring.
Exceptions to this rule, in our view, include satellite TV providers, who do
not incur the cost of physical wiring, and overbuilders in areas of very
high population density.
We own the bonds of satellite TV providers Echostar (Dish Network), TCI
Satellite (Primestar), and Pegasus Communications (DirecTV rural reseller).
We also own overbuilder RCN Corporation, which bundles video, telephone,
long distance, and Internet access services. RCN Corporation provides these
services from Boston to Washington, DC, where the density, as measured by
homes passed per mile of cable, is the highest in the country.
Q. WHAT PROMPTED THE INCREASE IN PAGING HOLDINGS?
A. Select paging bonds saw significantly improved performance in the last six
months of 1997. We see four fundamental reasons for strength in the
industry. First, rational pricing has returned after two years of price
wars. Second, the PCS (Personal Communications Services) threat to the
industry has proven overblown to date. Third, the growth in the number of
units continues to be in the double digits. Finally, cash flow margins
remain high and stable.
Q. WHAT HAPPENED TO OTHER CORE INDUSTRIES IN THE FUND, SUCH AS
TELECOMMUNICATIONS AND RADIO BROADCASTING?
A. The Fund has continued to benefit from the consolidations in the
telecommunications and radio broadcasting industries. In the
telecommunications industry, two of the Fund's holdings were positively
affected by the announcement of the MCI-WorldCom transaction. On the same
day that WorldCom announced that it was buying MCI for $34 billion, WorldCom
also announced the acquisition of Brooks Fiber Properties for $2.9 billion.
Given the fact that MCI/WorldCom/Brooks Fiber will be an investment-grade
credit, the value of the Fund's holding in Brooks Fiber increased
substantially, and our holding was subsequently sold. In addition, because
Brooks Fiber owns 22% of Verio, the value of the Fund's holding in Verio
also increased substantially.
In the radio broadcasting sector, the Fund benefited from the announced
acquisition of SFX Broadcasting by Capstar Broadcasting and Hicks, Muse,
Tate & Furst for $2.1 billion. The Fund's holdings in SFX bonds and
preferred stock and Capstar bonds and preferred stock have all performed
well as a result of this transaction, which creates the largest group of
radio broadcasting stations in the country. We expect that both the
telecommunications and radio broadcasting industries will continue to
consolidate, given the economies of scale that are created with such
business consolidations. Because the consolidations typically result in
improved credit characteristics for the combined entity, we continue to
remain invested in both sectors.
Q. HOW HAVE YOU HANDLED INVESTMENT IN THE HEALTH CARE SECTOR?
A. During 1997 we increased our investment in medical products. These companies
are attractive as their products generate recurring revenue, thus insulating
the industry against economic downturns. We continue to apply our general
investment philosophy to this sector, investing in companies with leading
market share, good operating earnings, and strong management teams.
Q. WHAT IS THE OUTLOOK FOR THE HIGH-YIELD MARKET?
A. The high-yield asset class continues to deliver, in our view, good relative
value in the current solid economic growth and low-interest-rate
environment. Demand for high-yield bonds continues to accelerate,
particularly from the pension fund community. The funding of
collateralized-bond obligations and inflows into high-yield mutual funds are
indicative of steady investment interest. Fundamentals, as they relate to
the credit cycle in the United States, are positive for several reasons.
First, the low-interest-rate environment has allowed high-yield issuers to
reduce their borrowing costs, leading to lower interest expense and improved
credit quality. Second, a strong stock market has enabled high-yield issuers
to access the initial public offering market. Proceeds raised have primarily
been used to deleverage their balance sheets. Finally, favorable mergers and
acquisitions activity and fewer leveraged buy-outs should benefit the
high-yield market over time.
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3
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PERFORMANCE OVERVIEW
This chart compares a $10,000 hypothetical investment made in Seligman
High-Yield Bond Series Class A shares, with and without the initial 4.75%
maximum sales charge, for the 10-year period ended December 31, 1997, to a
$10,000 investment made in the Lipper High Current Yield, the Lipper High-Yield
Bond Fund Index (Lipper High-Yield Index), and the Merrill Lynch High Yield
Master Index (Merrill High Yield Master Index) for the same period. The
performances of Seligman High-Yield Bond Series Class B and Class D shares are
not shown in this chart but are included in the table on page 5. It is important
to keep in mind that the Lipper High Current Yield and the Lipper High-Yield
Index exclude the effect of sales charges, and the Merrill High Yield Master
Index excludes the effect of fees and sales charges.
Seligman High-Yield Bond Series will no longer be compared to the Lipper
High-Yield Index after December 31, 1997. Instead, the Fund will be compared to
the Lipper High Current Yield because it represents the performance of the
entire universe of funds that have similar investment objectives to your Fund.
The Manager believes that the Lipper High Current Yield is more appropriate than
the more narrowly focused Lipper High-Yield Index, which measures the
performance of only 30 funds. Therefore, your Fund will continue to be compared
to the Lipper High Current Yield and the Merrill High Yield Master Index.
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[The following table represents a line graph in the printed report.]
Seligman High-Yield
Bond Series Class A
---------------------
W/O Load With load Lipper Avg Lipper Index ML HY
-------- --------- ---------- ------------ -----
12/31/87 ........... $10,000 $ 9,528 $10,000 $10,000 $10,000
3/31/88 ............ 10,479 9,985 10,554 10,607 10,535
6/30/88 ............ 10,724 10,218 10,866 10,942 10,824
9/30/88 ............ 10,875 10,362 11,089 11,149 11,085
12/31/88 ........... 11,138 10,612 11,297 11,357 11,347
3/31/89 ............ 11,349 10,814 11,498 11,561 11,584
6/30/89 ............ 11,785 11,229 11,848 11,874 12,000
9/30/89 ............ 11,790 11,234 11,677 11,638 12,001
12/31/89 ........... 11,565 11,020 11,184 11,042 11,827
3/31/90 ............ 11,135 10,610 10,758 10,551 11,581
6/30/90 ............ 11,518 10,974 11,217 11,025 12,081
9/30/90 ............ 11,026 10,505 10,434 10,185 11,347
12/31/90 ........... 10,724 10,218 10,080 9,815 11,313
3/31/91 ............ 12,034 11,467 11,507 11,356 12,855
6/30/91 ............ 12,695 12,096 12,287 12,194 13,647
9/30/91 ............ 13,509 12,872 13,106 13,081 14,450
12/31/91 ........... 14,016 13,355 13,766 13,763 15,226
3/31/92 ............ 15,299 14,577 14,903 15,009 16,375
6/30/92 ............ 15,742 15,000 15,376 15,494 16,966
9/30/92 ............ 16,605 15,821 16,010 16,108 17,740
12/31/92 ........... 16,830 16,036 16,194 16,291 17,992
3/31/93 ............ 18,008 17,158 17,286 17,424 19,109
6/30/93 ............ 18,767 17,882 18,087 18,260 19,871
9/30/93 ............ 19,098 18,197 18,426 18,600 20,376
12/31/93 ........... 20,059 19,113 19,263 19,527 21,083
3/31/94 ............ 19,938 18,998 19,082 19,319 20,693
6/30/94 ............ 19,919 18,980 18,834 19,062 20,453
9/30/94 ............ 20,009 19,065 18,798 19,056 20,731
12/31/94 ........... 20,216 19,263 18,544 18,810 20,837
3/31/95 ............ 21,268 20,265 19,364 19,728 22,094
6/30/95 ............ 22,584 21,518 20,388 20,769 23,494
9/30/95 ............ 23,627 22,513 21,031 21,488 24,180
12/31/95 ........... 24,404 23,253 21,655 22,084 24,983
3/31/96 ............ 25,380 24,183 22,273 22,648 25,348
6/30/96 ............ 25,945 24,721 22,714 23,012 25,695
9/30/96 ............ 27,080 25,802 23,779 24,082 26,697
12/31/96 ........... 28,021 26,699 24,649 24,882 27,746
3/31/97 ............ 27,808 26,496 24,827 24,984 28,038
6/30/97 ............ 29,535 28,142 26,138 26,293 29,370
9/30/97 ............ 31,347 29,868 27,554 27,685 30,518
12/31/97 ........... 32,017 30,507 27,917 28,095 31,306
The securities in which the Fund invests are subject to greater risk of loss
of principal and interest than are higher-rated investment-grade bonds.
Investors should carefully assess the risks associated with an investment in
this Fund.
The performances of Class B and D shares will be greater than or less than
the performance shown for Class A shares, based on the differences in sales
charges and fees paid by shareholders.
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4
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PERFORMANCE OVERVIEW
INVESTMENT RESULTS PER SHARE
TOTAL RETURNS
FOR PERIODS ENDED DECEMBER 31, 1997
AVERAGE ANNUAL
----------------------------------------------------------------
CLASS B CLASS D
SINCE SINCE
SIX ONE FIVE 10 INCEPTION INCEPTION
MONTHS* YEAR YEARS YEARS 4/22/96 9/21/93
---------- ---------- ------- ------- ------- ------------
CLASS A**
<S> <C> <C> <C> <C>
With Sales Charge 3.30% 8.86% 12.63% 11.80% n/a n/a
Without Sales Charge 8.40 14.26 13.73 12.34 n/a n/a
CLASS B**
With CDSL 3.00 8.24 n/a n/a 11.13% n/a
Without CDSL 8.00 13.24 n/a n/a 13.31 n/a
CLASS D**
With 1% CDSL 7.00 12.24 n/a n/a n/a n/a
Without CDSL 8.00 13.24 n/a n/a n/a 11.80%
LIPPER HIGH CURRENT YIELD*** 6.81 13.26 11.51 10.81 13.87 10.26
LIPPER HIGH-YIELD INDEX*** 6.86 12.91 11.50 10.88 13.26 10.18
MERRILL HIGH YIELD MASTER INDEX*** 6.60 12.83 11.72 12.09 13.48 10.64
</TABLE>
NET ASSET VALUE
DECEMBER 31, 1997 JUNE 30, 1997 DECEMBER 31, 1996
----------------- ------------- -----------------
CLASS A $7.55 $7.29 $7.25
CLASS B 7.55 7.29 7.26
CLASS D 7.55 7.29 7.26
DIVIDEND AND YIELD INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
DIVIDENDSo YIELDoo
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CLASS A $0.6838 8.01%
CLASS B 0.6277 7.65
CLASS D 0.6277 7.65
RATINGS000
AT DECEMBER 31, 1997
MOODY'S S&P
------- ---
Ba/BB 2.3% 5.6%
B/B 87.1 83.3
Caa/CCC 5.4 6.1
Non-rated 5.2 5.0
WEIGHTED AVERAGE
MATURITY 8.35 years
Performance data quoted represent changes in prices and assume that all
distributions within the periods are invested in additional shares. The rates of
return will vary and the principal value of an investment will fluctuate.
Shares, if redeemed, may be worth more or less than their original cost. Past
performance is not indicative of future investment results.
- --------------
* Returns for periods of less than one year are not annualized.
** Return figures reflect any change in price per share and assume the
investment of dividend and capital gain distributions. Returns for Class A
shares are calculated with and without the effect of the initial 4.75%
maximum sales charge. Returns for Class B shares are calculated with and
without the effect of the maximum 5% contingent deferred sales load
("CDSL"), 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% CDSL,
charged on redemptions made within one year of the date of purchase.
*** The Lipper High Current Yield, the Lipper High-Yield Index, and the Merrill
High Yield Master Index are unmanaged benchmarks that assume investment of
dividends and exclude the effect of fees or sales charges. The monthly
performance of the Lipper High Current Yield is used in the Performance
Overview. Investors cannot invest directly in an average or an index.
+ The CDSL is 5% for periods of one year or less, and 4% since inception.
++ From April 30, 1996.
+++ From September 30, 1993.
o Represents per share amount paid or declared for the year ended December
31, 1997.
oo Current yield, representing the annualized yield for the 30-day period
ended December 31, 1997, has been computed in accordance with SEC
regulations and will vary.
ooo Percentages based on current market values of long-term holdings.
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PORTFOLIO OVERVIEW
DIVERSIFICATION OF NET ASSETS
DECEMBER 31, 1997
PERCENT OF NET ASSETS
DECEMBER 31,
-----------------------
ISSUES COST VALUE 1997 1996
------ -------------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Short-Term Holdings and Other Assets Less Liabilities 1 $ 108,339,395 $ 108,339,395 5.8 4.4
--- -------------- -------------- ----- -----
Corporate Bonds, Convertible Issues, and
Preferred Stocks:
Advertising ...................................... 1 10,461,125 11,000,000 0.6 --
Aerospace ........................................ -- -- -- -- 0.8
Agriculture ...................................... 1 7,556,944 7,734,375 0.4 --
Broadcasting ..................................... 8 88,136,145 99,330,285 5.3 5.2
Cable Systems .................................... 18 244,449,011 243,800,125 13.1 15.9
Cellular ......................................... 5 65,388,024 68,892,500 3.7 4.1
Chemicals ........................................ 1 15,945,625 16,200,000 0.9 2.0
Computer and Related Services .................... 4 72,321,664 77,292,000 4.1 3.0
Consumer Products ................................ 7 70,270,950 71,295,000 3.8 4.1
Containers ....................................... 2 20,483,137 21,300,000 1.1 2.1
Energy ........................................... 1 10,289,875 10,975,000 0.6 0.9
Environmental Services ........................... -- -- -- -- 1.1
Equipment ........................................ 1 20,182,869 20,900,000 1.1 --
Financial Services ............................... 5 40,270,696 42,304,875 2.3 1.1
Food ............................................. 5 68,944,913 70,982,500 3.8 3.3
Funeral .......................................... -- -- -- -- 0.9
Gaming/Hotel ..................................... 12 195,837,664 206,874,300 11.1 12.7
Health Care/Medical Products ..................... 7 87,758,272 90,821,250 4.9 4.1
Industrial ....................................... -- -- -- -- 0.6
Leisure .......................................... 4 40,873,001 42,407,500 2.3 1.3
Manufacturing .................................... 5 32,556,879 33,702,807 1.8 2.1
Metals ........................................... 3 37,881,215 32,995,875 1.8 2.5
Paging ........................................... 3 81,961,205 86,756,250 4.6 3.0
Paper and Packaging .............................. 1 20,274,734 20,700,000 1.1 2.5
Publishing ....................................... 7 40,595,498 42,651,650 2.3 1.5
Record Storage ................................... 1 8,250,625 8,512,500 0.5 1.4
Retailing ........................................ 2 25,619,750 26,650,000 1.4 1.1
Supermarkets ..................................... 3 38,102,532 37,833,750 2.0 4.5
Technology ....................................... 5 63,139,840 63,524,062 3.4 --
Telecommunications ............................... 19 235,505,313 254,542,257 13.7 10.8
Theaters ......................................... 2 22,052,644 23,126,250 1.2 0.9
Transportation ................................... 1 12,782,425 13,250,000 0.7 --
Utilities 1 10,634,600 11,999,060 0.6 2.1
--- -------------- -------------- ----- -----
135 1,688,527,175 1,758,354,171 94.2 95.6
--- -------------- -------------- ----- -----
Net Assets 136 $1,796,866,570 $1,866,693,566 100.0 100.0
=== ============== ============== ===== =====
</TABLE>
LARGEST PORTFOLIO HOLDINGS
AT DECEMBER 31, 1997
SECURITY VALUE
- -------- -----------
Paging Network 10%, 10/15/2008 ................................ $36,443,750
Intermedia Capital Partners IV 11 1/4%, 8/1/2006 .............. 33,000,000
Casino America 12 1/2%, 8/1/2003 .............................. 32,737,500
TCI Satellite Entertainment 10 7/8%, 2/15/2007 ................ 31,575,000
MobileTelecommunicationTechnologies 13 1/2%, 12/15/2002 ....... 30,872,500
IXC Communications 12 1/2%, 10/1/2005 ......................... 28,937,500
Unisys 11 3/4%, 10/15/2004 .................................... 28,687,500
Unisys 12%, 4/15/2003 ......................................... 28,437,500
Trump Atlantic City Funding 11 1/4%, 5/1/2006 ................. 28,219,100
Coast Hotels & Casinos 13%, 12/15/2002 ........................ 26,105,000
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PORTFOLIO OVERVIEW
LARGEST PORTFOLIO CHANGES
DURING PAST SIX MONTHS
PRINCIPAL AMOUNT OR SHARES
-----------------------------
HOLDINGS
ADDITIONS INCREASE 12/31/97
- --------- ----------- -----------
CORPORATE BONDS:
<S> <C> <C>
Advanced Micro Devices 11%, 8/1/2003 .......................... $20,000,000 $20,000,000
Ameriserve Food 10 1/8%, 7/15/2007 ............................. 20,000,000 20,000,000
Ameristar Casinos 10 1/2%, 8/1/2004 ............................ 17,250,000 17,250,000
BTI Telecom 10 1/2%, 9/15/2007 ................................. 15,000,000 15,000,000
Digital Television Services 12 1/2%, 8/1/2007 .................. 15,000,000 15,000,000
Nextel Communications 0% (10.65%), 9/15/2007 .................. 25,000,000 25,000,000
Paging Network 10%, 10/15/2008 ................................ 17,500,000 35,000,000
Price Communications 11 3/4%, 7/15/2007 ........................ 20,000,000 20,000,000
Powertel 11 1/8%, 6/1/2007 ..................................... 14,055,000 17,500,000
RCN 10%, 10/15/2007 ........................................... 15,000,000 15,000,000
HOLDINGS
REDUCTIONS DECREASE 12/31/97
- ---------- ----------- ------------
CORPORATE BONDS:
Brooks Fiber Properties 0% (10 7/8%), 3/1/2006 ................. $11,000,000 --
Comcast 10 5/8%, 7/15/2012 ..................................... 9,000,000 $ 7,500,000
Fonorola 12 1/2%, 8/15/2002 .................................... 7,500,000 --
Intermedia Communications 13 1/2%, 6/1/2005 .................... 10,500,000 --
NL Industries 11 3/4%, 10/15/2003 .............................. 9,000,000 --
PriCellular Wireless 0% (12 1/4%), 10/1/2003 ................... 10,000,000 --
Spinnaker Industries 10 3/4%, 10/15/2006 ....................... 12,500,000 --
Syratech 11%, 4/15/2007 ........................................ 9,000,000 --
S.D. Warren 12%, 12/15/2004 .................................... 10,000,000 --
Preferred Stocks:
S.D. Warren 14% ................................................ 173,140 shs. --
Largest portfolio changes from the previous period to the current period are
based on cost of purchases and proceeds from sales of securities.
LARGEST INDUSTRIES
AT DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
[The following table represents a bar graph in the printed report.]
PERCENT OF
NET ASSETS
----------
Telecommunications 13.7% $254,542,257
Cable Systems 13.1% $243,800,125
Gaming/Hotel 11.1% $206,874,300
Broadcasting 5.3% $ 99,330,285
Health Care\Medical Products 4.9% $ 90,821,250
-----
7
</TABLE>
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
December 31, 1997
PRINCIPAL
AMOUNT
OR WARRANTS VALUE
------------- --------
CORPORATE BONDS 88.9%
ADVERTISING 0.6%
ADAMS OUTDOOR ADVERTISING
10 3/4%, due 3/15/2006 $10,000,000 $ 11,000,000
-------------
AGRICULTURE 0.4%
IOWA SELECT FARM
10 3/4%, due 12/1/2005* 7,500,000 7,734,375
-------------
BROADCASTING 2.7%
CAPSTAR BROADCASTING PARTNERS
0% (12 3/4%+), due 2/1/2009 20,000,000 14,600,000
PAXSON COMMUNICATIONS
11 5/8%, due 10/1/2002 15,000,000 16,125,000
SFX BROADCASTING
10 3/4%, due 5/15/2006 17,500,000 19,250,000
-------------
49,975,000
-------------
CABLE SYSTEMS 12.5%
AMERICAN TELECASTING 0
(Warrants expiring 8/15/2000) 5,000wts. 5,000
CABLEVISION SYSTEMS
10 1/2%, due 5/15/2016 $20,000,000 23,350,000
CHARTER COMMUNICATIONS
SOUTHEAST HOLDINGS
11 1/4%, due 3/15/2006 17,500,000 19,512,500
CHARTER COMMUNICATIONS
SOUTHEAST HOLDINGS
0% (14%+), due 3/15/2007 25,000,000 19,875,000
COMCAST
10 5/8%, due 7/15/2012 7,500,000 9,412,500
DIGITAL TELEVISION SERVICES
12 1/2%, due 8/1/2007* 15,000,000 17,025,000
ECHOSTAR DBS
12 1/2%, due 7/1/2002 20,000,000 21,700,000
HEARTLAND WIRELESS COMMUNICATIONS
14%, due 10/15/2004 20,000,000 7,500,000
INTERMEDIA CAPITAL PARTNERS IV
11 1/4%, due 8/1/2006 30,000,000 33,000,000
NORTHLAND CABLE TELEVISION
10 1/4%, due 11/15/2007* 10,000,000 10,575,000
NTL
10%, due 2/15/2007 5,000,000 5,287,500
ROGERS CABLESYSTEMS
11%, due 12/1/2015 21,500,000 24,940,000
TCI SATELLITE ENTERTAINMENT
10 7/8%, due 2/15/2007* 30,000,000 31,575,000
TCI SATELLITE ENTERTAINMENT
0% (121/4% ), due 2/15/2007* 8,250,000 5,527,500
WIRELESS ONE
13%, due 10/15/2003 10,500,000 3,832,500
WIRELESS ONE 0
(Warrants expiring 10/15/2000) 15,000wts. 15,000
-------------
233,132,500
-------------
CELLULAR 3.7%
CENTENNIAL CELLULAR
10 1/8%, due 5/15/2005 9,500,000 10,355,000
CROWN CASTLE INTEMATIONAL
0% (105/8%+), due 11/15/2007* 15,000,000 9,412,500
METROCALL
9 3/4%, due 11/1/2007* 10,000,000 9,925,000
PRICE COMMUNICATIONS WIRELESS
11 3/4%, due 7/15/2007* 20,000,000 21,800,000
PRICELLULAR WIRELESS
10 3/4%, due 11/1/2004 16,000,000 17,400,000
-------------
68,892,500
-------------
CHEMICALS 0.9%
TEXAS PETROCHEMICALS
11 1/8%, due 7/1/2006 15,000,000 16,200,000
-------------
COMPUTER AND RELATED
SERVICES 4.1%
DECISIONONE
9 3/4%, due 8/1/2007 8,600,000 8,879,500
DECISIONONE HOLDINGS
0% (11 1/2%+), due 8/1/2008 17,500,000 11,287,500
UNISYS
12%, due 4/15/2003 25,000,000 28,437,500
UNISYS
11 3/4%, due 10/15/2004 25,000,000 28,687,500
-------------
77,292,000
-------------
- ----------------
See footnotes on page 12.
- -----
8
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
December 31, 1997
PRINCIPAL
AMOUNT VALUE
------------- --------
CONSUMER PRODUCTS 3.8%
AMERICAN PAD & PAPER
13%, due 11/15/2005 $ 5,000,000 $ 5,625,000
AMSCAN HOLDINGS
9 7/8%, due 12/15/2007* 10,000,000 10,275,000
ANCHOR ADVANCED PRODUCTS
11 3/4%, due 4/1/2004 8,000,000 8,640,000
CARSON
10 3/8%, due 11/1/2007* 10,000,000 10,050,000
FRENCH FRAGRANCES
10 3/8%, due 5/15/2007 10,000,000 10,500,000
NORTH ATLANTIC TRADING
11%, due 6/15/2004 7,250,000 7,612,500
RYDER TRS
10%, due 12/1/2006 18,500,000 18,592,500
-------------
71,295,000
-------------
CONTAINERS 1.1%
PLASTIC CONTAINERS
10%, due 12/15/2006 10,000,000 10,650,000
U.S. CAN
10 1/8%, due 10/15/2006 10,000,000 10,650,000
-------------
21,300,000
-------------
ENERGY 0.6%
ABRAXAS PETROLEUM
11 1/2%, due 11/1/2004 10,000,000 10,975,000
-------------
EQUIPMENT 1.1%
WILLIAMS SCOTSMAN
9 7/8%, due 6/1/2007 20,000,000 20,900,000
-------------
FINANCIAL SERVICES 2.3%
AMRESCO
10%, due 3/15/2004 10,000,000 10,425,000
DOLLAR FINANCIAL GROUP
10 7/8%, due 11/15/2006 10,750,000 11,663,750
OCWEN CAPITAL TRUST I
10 7/8%, due 8/1/2027 10,000,000 10,900,000
SUPERIOR NATIONAL CAPITAL TRUST I
10 3/4%, due 12/1/2017* 2,275,000 2,337,562
VERITAS CAPITAL TRUST
10%, due 1/1/2028* 6,825,000 6,978,563
-------------
42,304,875
-------------
FOOD 3.8%
AFC ENTERPRISES
10 1/4%, due 5/15/2007 15,000,000 15,825,000
AMERIKING
10 3/4%, due 12/1/2006 15,000,000 15,825,000
AMERISERVE FOOD
10 1/8%, due 7/15/2007 20,000,000 21,100,000
GORGES/QUIK-TO-FIX FOODS
11 1/2%, due 12/1/2006 12,000,000 12,720,000
INTERNATIONAL HOME FOODS
10 3/8%, due 11/1/2006 5,000,000 5,512,500
-------------
70,982,500
-------------
GAMING/HOTEL 11.1%
ALLIANCE GAMING
10%, due 8/1/2007* 7,500,000 7,546,875
AMERISTAR CASINOS
10 1/2%, due 8/1/2004* 17,250,000 17,681,250
AZTAR
13 3/4%, due 10/1/2004 15,000,000 17,250,000
CASINO AMERICA
12 1/2%, due 8/1/2003 30,000,000 32,737,500
CASINO MAGIC OF LOUISIANA
13%, due 8/15/2003 15,000,000 14,475,000
COAST HOTELS & CASINOS
13%, due 12/15/2002 23,000,000 26,105,000
FITZGERALDS GAMING
12 1/4%, due 12/15/2004* 9,750,000 9,920,625
SHOWBOAT
13%, due 8/1/2009 8,500,000 10,582,500
SHOWBOAT MARINA CASINO
PARTNERSHIP
13 1/2%, due 3/15/2003 15,000,000 18,075,000
TRUMP ATLANTIC CITY FUNDING
11 1/4%, due 5/1/2006 28,795,000 28,219,100
TRUMP ATLANTIC CITY FUNDING
11 1/4%, due 5/1/2006* 3,785,000 3,671,450
TRUMP HOTELS & CASINO
RESORTS
15 1/2%, due 6/15/2005 18,000,000 20,610,000
-------------
206,874,300
-------------
- ------------
See footnotes on page 12.
-----
9
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
December 31, 1997
PRINCIPAL
AMOUNT VALUE
------------- --------
HEALTH CARE/MEDICAL
PRODUCTS 4.9%
ALARIS MEDICAL SYSTEMS
9 3/4%, due 12/1/2006 $16,000,000 $ 16,880,000
ALLIANCE IMAGING
9 5/8%, due 12/15/2005 4,500,000 4,601,250
DADE INTERNATIONAL
11 1/8%, due 5/1/2006 16,000,000 17,680,000
GRAPHIC CONTROLS
12%, due 9/15/2005 13,000,000 14,560,000
PARACELSUS HEALTHCARE
10%, due 8/15/2006 17,000,000 17,425,000
PARAGON HEALTH NETWORK
0% (10 1/2%+), due 11/1/2007* 15,000,000 9,375,000
SUN HEALTHCARE GROUP
9 1/2%, due 7/1/2007* 10,000,000 10,300,000
-------------
90,821,250
-------------
LEISURE 2.3%
AFFINITY GROUP HOLDING
11%, due 4/1/2007 17,000,000 18,190,000
AMF GROUP
0% (12 1/4%+), due 3/15/2006 10,000,000 7,912,500
PREMIER PARKS
12%, due 8/15/2003 11,000,000 12,292,500
PREMIER PARKS
9 3/4%, due 1/15/2007 3,750,000 4,012,500
-------------
42,407,500
-------------
MANUFACTURING 1.8%
AIRXCEL
11%, due 11/15/2007* 10,000,000 10,350,000
BPC HOLDING
12 1/2%, due 6/15/2006 12,000,000 13,260,000
CLARK-SCHWEBEL
12 1/2%, due 7/15/2007* 4,231,448 4,548,807
INTERNATIONAL KNIFE & SAW
11 3/8%, due 11/15/2006 2,950,000 3,200,750
WERNER HOLDINGS
10%, due 11/15/2007* 2,275,000 2,343,250
-------------
33,702,807
-------------
METALS 1.8%
KOPPERS INDUSTRY
9 7/8%, due 12/1/2007* 2,275,000 2,354,625
RENCO METALS
11 1/2%, due 7/1/2003 15,000,000 16,012,500
ROYAL OAK MINES
11%, due 8/15/2006 20,750,000 14,628,750
-------------
32,995,875
-------------
PAGING 4.6%
MOBILE TELECOMMUNICATION
TECHNOLOGIES
13 1/2%, due 12/15/2002 26,500,000 30,872,500
PAGING NETWORK
10%, due 10/15/2008 35,000,000 36,443,750
PRONET
11 7/8%, due 6/15/2005 18,000,000 19,440,000
-------------
86,756,250
-------------
PAPER AND PACKAGING 1.1%
CROWN PAPER
11%, due 9/1/2005 20,000,000 20,700,000
-------------
PUBLISHING 2.3%
AMERICAN LAWYER MEDIA HOLDINGS
9 3/4%, due 12/15/2007* 10,000,000 10,200,000
AMERICAN LAWYER MEDIA HOLDINGS
0% (12 1/4%+), due 12/15/2008* 3,450,000 1,966,500
PERRY-JUDD
10 5/8%, due 12/15/2007* 3,800,000 3,971,000
PETERSEN PUBLISHING
11 1/8%, due 11/15/2006 10,000,000 11,350,000
TRANSWESTERN HOLDINGS
0% (11 7/8%+), due 11/15/2008* 9,150,000 5,535,750
TRANSWESTERN PUBLISHING
9 5/8%, due 11/15/2007* 2,270,000 2,372,150
VON HOFFMAN PRESS
10 3/8%, due 5/15/2007*+ 6,750,000 7,256,250
-------------
42,651,650
-------------
- --------------
See footnotes on page 12.
- -----
10
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
December 31, 1997
PRINCIPAL
AMOUNT
OR WARRANTS VALUE
------------- --------
RECORD STORAGE 0.5%
PIERCE LEAHY
11 1/8%, due 7/15/2006 $ 7,500,000 $ 8,512,500
-------------
RETAILING 1.4%
CENTRAL TRACTOR
10 5/8%, due 4/1/2007 15,000,000 15,900,000
COLE NATIONAL GROUP
9 7/8%, due 12/31/2006 10,000,000 10,750,000
-------------
26,650,000
-------------
SUPERMARKETS 2.0%
JITNEY-JUNGLE STORES OF AMERICA
12%, due 3/1/2006 16,000,000 18,240,000
JITNEY-JUNGLE STORES OF AMERICA
10 3/8%, due 9/15/2007 10,000,000 10,425,000
PATHMARK STORES
11 5/8%, due 6/15/2002 11,250,000 9,168,750
-------------
37,833,750
-------------
TECHNOLOGY 2.3%
ADVANCED MICRO DEVICES
11%, due 8/1/2003 20,000,000 21,500,000
THERMA-WAVE
10 5/8%, due 5/15/2004 10,500,000 10,972,500
VIASYSTEMS
9 3/4%, due 6/1/2007 10,000,000 10,387,500
-------------
42,860,000
-------------
TELECOMMUNICATIONS 12.7%
BTI TELECOM
10 1/2%, due 9/15/2007* 15,000,000 15,375,000
GCI
9 3/4%, due 8/1/2007 11,250,000 11,728,125
GLOBALSTAR
11 1/4%, due 6/15/2004 12,500,000 12,593,750
ICG HOLDINGS
0% (11 5/8%+), due 3/15/2007 15,500,000 10,617,500
INTERMEDIA COMMUNICATIONS
0% (12 1/2%+), due 5/15/2006 10,000,000 7,900,000
INTERMEDIA COMMUNICATIONS
0% (11 1/4%+), due 7/15/2007 10,000,000 7,175,000
INTERMEDIA COMMUNICATIONS
(Warrants expiring 6/1/2000)*o 4,000wts. 440,000
ITC DELTACOM
11%, due 6/1/2007 15,600,000 17,238,000
IXC COMMUNICATIONS
12 1/2%, due 10/1/2005 25,000,000 28,937,500
NEXTEL COMMUNICATIONS
0% (10.65%+), due 9/15/2007* 25,000,000 15,875,000
NEXTLINK COMMUNICATIONS
12 1/2%, due 4/15/2006 22,500,000 25,762,500
POWERTEL
11 1/8%, due 6/1/2007 17,500,000 19,075,000
RCN
10%, due 10/15/2007* 15,000,000 15,637,500
RCN
0% (11 1/8%+), due 10/15/2007* 12,500,000 7,875,000
SPRINT SPECTRUM
11%, due 8/15/2006 15,000,000 16,950,000
TALTON HOLDINGS
11%, due 6/30/2007* 10,000,000 10,900,000
VERIO
13 1/2%, due 6/15/2004* 10,500,000 12,600,000
-------------
236,679,875
-------------
THEATERS 1.2%
HOLLYWOOD THEATERS
10 5/8%, due 8/1/2007* 11,500,000 12,276,250
PLITT THEATERS
10 7/8%, due 6/15/2004 10,000,000 10,850,000
-------------
23,126,250
-------------
TRANSPORTATION 0.7%
ATLAS AIR
10 3/4%, due 8/1/2005 12,500,000 13,250,000
-------------
UTILITIES 0.6%
MIDLAND COGENERATION VENTURE
11 3/4%, due 7/23/2005 10,000,000 11,999,060
-------------
TOTAL CORPORATE BONDS
(Cost $1,601,001,632) 1,659,804,817
--------------
- --------------
See footnotes on page 12.
-----
11
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
December 31, 1997
SHARES VALUE
------------- --------
PREFERRED STOCKS 3.8%
BROADCASTING 2.2%
CAPSTAR BROADCASTING PARTNERS 12% 60,000 $ 6,915,000
CHANCELLOR MEDIA 12% 105,881 12,202,785
SFX BROADCASTING 12 5/8% 100,000 11,425,000
SINCLAIR CAPITAL 11 5/8% 100,000 11,075,000
--------------
41,617,785
--------------
CABLE SYSTEMS 0.6%
ECHOSTAR COMMUNICATIONS 12 1/8%* 6,450 6,756,375
PEGASUS COMMUNICATIONS 12 3/4% 3,500 3,911,250
--------------
10,667,625
--------------
TELECOMMUNICATIONS 1.0%
IXC COMMUNICATIONS 12 1/2%* 9,346 10,958,172
NEXTLINK COMMUNICATIONS 14% 110,911 6,904,210
--------------
17,862,382
--------------
TOTAL PREFERRED STOCKS
(Cost $62,111,991) 70,147,792
--------------
CONVERTIBLE BONDS 1.1%
TECHNOLOGY 1.1%
EMC
3 1/4%, due 3/15/2002 $ 6,250,000 $ 8,492,187
XILINX
5 1/4%, due 11/1/2002* 12,500,000 12,171,875
--------------
TOTAL CONVERTIBLE BONDS
(Cost $20,354,052) 20,664,062
--------------
CONVERTIBLE PREFERRED STOCKS 0.4%
(Cost $5,059,500)
BROADCASTING 0.4%
CHANCELLOR MEDIA $3* 100,000shs. 7,737,500
--------------
SHORT-TERM HOLDINGS 3.4%
(Cost $64,100,000) 64,100,000
--------------
TOTAL INVESTMENTS 97.6%
(Cost $1,752,627,175) 1,822,454,171
OTHER ASSETS LESS LIABILITIES 2.4% 44,239,395
--------------
NET ASSETS 100.0% $1,866,693,566
==============
- ----------------
* Rule 144A security.
o Non-income producing security.
+ Deferred interest debentures pay no interest for a stipulated number of years,
after which they pay the indicated coupon rate.
See Notes to Financial Statements.
- -----
12
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS:
Investments, at value:
<S> <C> <C>
Long-term holdings (cost $1,688,527,175) ............................. $1,758,354,171
Short-term holdings (cost $64,100,000) ............................... 64,100,000 $1,822,454,171
--------------
Cash ............................................................................................. 2,433,724
Receivable for interest and dividends ............................................................ 40,793,668
Receivable for Shares of Beneficial Interest sold ................................................ 17,383,621
Expenses prepaid to shareholder service agent .................................................... 240,631
Other ............................................................................................ 65,471
--------------
TOTAL ASSETS ..................................................................................... 1,883,371,286
--------------
LIABILITIES:
Dividends payable ................................................................................ 6,069,772
Payable for Shares of Beneficial Interest repurchased ............................................ 5,363,844
Payable for securities purchased ................................................................. 2,306,281
Accrued expenses, taxes, and other ............................................................... 2,937,823
--------------
TOTAL LIABILITIES ................................................................................ 16,677,720
--------------
NET ASSETS ....................................................................................... $1,866,693,566
==============
COMPOSITION OF NET ASSETS:
Shares of Beneficial Interest, at par (unlimited shares authorized; $.001 par
value; 247,239,953 shares outstanding):
Class A ........................................................................................ $ 99,415
Class B ........................................................................................ 76,978
Class D ........................................................................................ 70,847
Additional paid-in capital ....................................................................... 1,788,969,465
Undistributed net investment income .............................................................. 2,353,433
Undistributed net realized gain .................................................................. 5,296,432
Net unrealized appreciation of investments ....................................................... 69,826,996
--------------
NET ASSETS ....................................................................................... $1,866,693,566
==============
NET ASSET VALUE PER SHARE:
CLASS A ($750,460,846 / 99,414,744 shares) ....................................................... $ 7.55
==============
CLASS B ($581,234,711 / 76,978,009 shares) ....................................................... $ 7.55
==============
CLASS D ($534,998,009 / 70,847,200 shares) ....................................................... $ 7.55
==============
- -----------------
See Notes to Financial Statements.
-----
13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest ............................................................... $133,942,745
Dividends .............................................................. 5,554,714
------------
TOTAL INVESTMENT INCOME ........................................................................... $139,497,459
EXPENSES:
Distribution and service fees .......................................... 8,910,489
Management fee ......................................................... 8,248,354
Shareholder account services ........................................... 2,371,527
Registration ........................................................... 633,159
Custody and related services ........................................... 242,372
Shareholder reports and communications ................................. 170,217
Auditing and legal fees ................................................ 90,262
Trustees' fees and expenses ............................................ 20,939
Miscellaneous .......................................................... 40,993
------------
TOTAL EXPENSES .................................................................................... 20,728,312
------------
NET INVESTMENT INCOME ............................................................................. 118,769,147
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments ....................................... 8,663,643
Net change in unrealized appreciation of investments ................... 47,951,783
------------
NET GAIN ON INVESTMENTS ........................................................................... 56,615,426
------------
INCREASE IN NET ASSETS FROM OPERATIONS ............................................................ $175,384,573
============
</TABLE>
- -----------------
See Notes to Financial Statements.
- -----
14
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996
-------------- ------------
OPERATIONS:
<S> <C> <C>
Net investment income .......................................................... $ 118,769,147 $ 45,266,028
Net realized gain on investments ............................................... 8,663,643 8,372,099
Net change in unrealized appreciation of investments ........................... 47,951,783 13,819,543
-------------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS ......................................... 175,384,573 67,457,670
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A ..................................................................... (52,770,232) (27,035,063)
Class B ..................................................................... (29,874,994) (3,418,270)
Class D ..................................................................... (33,770,488) (14,812,695)
-------------- ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS ...................................... (116,415,714) (45,266,028)
-------------- ------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996
----------- -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:*
Net proceeds from sale of shares:
<S> <C> <C> <C> <C>
Class A ................................. 50,672,448 33,317,666 373,051,522 236,713,393
Class B ................................. 57,673,666 20,232,066 424,606,561 144,036,057
Class D ................................. 37,881,266 24,388,635 278,799,066 173,325,163
Investment of dividends:
Class A ................................. 3,776,320 1,948,207 27,853,774 13,828,199
Class B ................................. 1,826,561 192,948 13,519,667 1,378,143
Class D ................................. 2,805,300 1,287,945 20,704,607 9,145,648
Exchanged from associated Funds:
Class A ................................. 17,851,841 13,049,554 131,875,215 92,654,186
Class B ................................. 3,688,065 480,781 27,115,290 3,420,798
Class D ................................. 6,529,814 4,652,741 47,980,993 32,988,466
----------- ----------- -------------- ------------
Total ...................................... 182,705,281 99,550,543 1,345,506,695 707,490,053
----------- ----------- -------------- ------------
Cost of shares repurchased:
Class A ................................. (13,770,227) (7,112,332) (101,399,738) (50,385,557)
Class B ................................. (2,704,575) (214,512) (20,021,448) (1,530,923)
Class D ................................. (7,327,368) (2,819,462) (53,826,777) (20,024,403)
Exchanged into associated Funds:
Class A ................................. (15,408,040) (11,079,755) (114,001,958) (78,716,704)
Class B ................................. (3,899,595) (297,396) (28,866,957) (2,104,964)
Class D ................................. (5,638,449) (3,862,279) (41,466,552) (27,399,898)
----------- ----------- -------------- ------------
Total ...................................... (48,748,254) (25,385,736) (359,583,430) (180,162,449)
----------- ----------- -------------- ------------
Increase in Net Assets from
Transactions in Shares of Beneficial
Interest ................................... 133,957,027 74,164,807 985,923,265 527,327,604
----------- ----------- -------------- ------------
Increase in Net Assets ......................................................... 1,044,892,124 549,519,246
NET ASSETS:
Beginning of year .............................................................. 821,801,442 272,282,196
-------------- ------------
End of Year (including undistributed net investment income of
$2,353,433 and $0, respectively) ............................................ $1,866,693,566 $821,801,442
============== ============
- ----------------
* The Fund began offering Class B shares on April 22, 1996.
See Notes to Financial Statements.
-----
15
</TABLE>
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
1. MULTIPLE CLASSES OF SHARES -- Seligman High-Yield Bond Series (the "Fund"), a
series of Seligman High Income Fund Series, offers three classes of shares. All
shares existing prior to September 21, 1993, the commencement of Class D shares,
were classified as Class A shares. The Fund began offering Class B shares on
April 22, 1996. Class A shares are sold with an initial sales charge of up to
4.75% and a continuing service fee of up to 0.25% on an annual basis. Class A
shares purchased in an amount of $1,000,000 or more are sold without an initial
sales charge but are subject to a contingent deferred sales load ("CDSL") of 1%
on redemptions within 18 months of purchase. Class B shares are sold without an
initial sales charge but are subject to a distribution fee of 0.75%, a service
fee of up to 0.25% on an annual basis, and a CDSL, if applicable, of 5% on
redemptions in the first year of purchase, declining to 1% in the sixth year and
0% thereafter. Class B shares will automatically convert to Class A shares on
the last day of the month that precedes the eighth anniversary of their date of
purchase. Class D shares are sold without an initial sales charge but are
subject to a distribution fee of up to 0.75% and a service fee of up to 0.25% on
an annual basis, and a CDSL, if applicable, of 1% imposed on redemptions made
within one year of purchase. The three classes of shares represent interests in
the same portfolio of investments, have the same rights and are generally
identical in all respects except that each class bears its separate distribution
and certain other class expenses, and has exclusive voting rights with respect
to any matter on which a separate vote of any class is required.
2. SIGNIFICANT ACCOUNTING POLICIES -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Fund:
a. SECURITY VALUATION -- Investments in bonds, stocks and convertible securities
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. The Fund accretes original issue
discounts and market discounts on purchases of portfolio securities.
d. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks and with broker/dealers deemed to be creditworthy by J. & W.
Seligman & Co. Incorporated (the "Manager"). Securities received as
collateral subject to repurchase agreements are deposited with the Fund's
custodian and, pursuant to the terms of the repurchase agreement, must have
an aggregate market value greater than or equal to the repurchase price plus
accrued interest, at all times. Procedures have been established to monitor,
on a daily basis, the market value of repurchase agreements' underlying
securities to ensure the existence of the proper level of collateral.
e. MULTIPLE CLASS ALLOCATIONS -- All income, expenses (other than class-specific
expenses), and realized and unrealized gains or losses are allocated daily to
each class of shares based upon the relative value of shares of each class.
Class-specific expenses, which include distribution and service fees and any
other items that are specifically attributable to a particular class, are
charged directly to such class. For the year ended December 31, 1997,
distribution and service fees were the only class-specific expenses.
f. DISTRIBUTIONS TO SHAREHOLDERS-- Dividends are declared daily and paid
monthly. Other distributions paid by the Fund are recorded on ex-dividend
dates. The treatment for financial statement purposes of distributions made
to shareholders during the year from net investment income or net realized
gains may differ from their ultimate treatment for federal income tax
purposes. These differences are caused primarily by differences in the timing
of the recognition of certain components of income, expense, or realized
capital gain for federal income tax purposes. Where such differences are
permanent in nature, they are reclassified in the components of net assets
based on their ultimate characterization for federal income tax purposes. Any
such reclassification will have no effect on net assets, results of
operations, or net asset value per share of the Fund.
3. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of portfolio
securities, excluding US Government obligations and short-term investments, for
the year ended December 31, 1997, amounted to $1,686,931,836 and $780,115,415,
respectively.
At December 31, 1997, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes, and the
tax basis gross unrealized appreciation and depreciation of portfolio securities
amounted to $97,236,023 and $27,409,027, respectively.
4. SHORT-TERM INVESTMENTS -- At December 31, 1997, the Fund owned short-term
investments which matured in less than seven days.
- -----
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
5. MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS -- The
Manager manages the affairs of the Fund and provides the necessary personnel and
facilities. Compensation of all officers of the Fund, all trustees 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 0.65% per annum of the first $1 billion of
the Fund's average daily net assets, 0.55% per annum of the Fund's average daily
net assets in excess of $1 billion. The management fee reflected in the
Statement of Operations represents 0.62% per annum of the Fund's average daily
net assets.
Seligman Financial Services, Inc. (the "Distributor"), agent for the
distribution of the Fund's shares, and an affiliate of the Manager, received
concessions of $1,047,484 from sales of Class A shares after commissions of
$8,095,350 were paid to dealers.
The Fund has an Administration, Shareholder Services and Distribution Plan
(the "Plan") with respect to distribution of its shares. Under the Plan, with
respect to Class A shares, service organizations can enter into agreements with
the Distributor and receive a continuing fee of up to 0.25% on an annual basis,
payable quarterly, of the average daily net assets of the Class A shares
attributable to the particular service organizations for providing personal
services and/or the maintenance of shareholder accounts. The Distributor charges
such fees to the Fund pursuant to the Plan. For the year ended December 31,
1997, fees incurred aggregated $1,399,223, or 0.24% per annum of the average
daily net assets of Class A shares.
Under the Plan, with respect to Class B and Class D shares, service
organizations can enter into agreements with the Distributor and receive a
continuing fee for providing personal services and/or the maintenance of
shareholder accounts of up to 0.25% on an annual basis of the average daily net
assets of the Class B and Class D shares for which the organizations are
responsible; and, for Class D shares only, fees for providing other distribution
assistance of up to 0.75% on an annual basis of such average daily net assets.
Such fees are paid monthly by the Fund to the Distributor pursuant to the Plan.
With respect to Class B shares, a distribution fee of 0.75% on an annual
basis of average daily net assets is payable monthly by the Fund to the
Distributor; however, the Distributor has sold its rights to substantially all
of this fee to a third party (the "Purchaser"), which provides funding to the
Distributor to enable it to pay commissions to dealers at the time of the sale
of the related Class B shares.
For the year ended December 31, 1997, fees incurred under the Plan,
equivalent to 1% per annum of the average daily net assets of Class B and Class
D shares, amounted to $3,531,268 and $3,979,998, respectively.
The Distributor is entitled to retain any CDSL imposed on redemptions of
Class D shares occurring within one year of purchase and on certain redemptions
of Class A shares occurring within 18 months of purchase. For the year ended
December 31, 1997, such charges amounted to $185,777.
The Distributor has sold its rights to collect any CDSL imposed on
redemptions of Class B shares to the Purchaser. In connection with the sale of
its rights to collect any CDSL and the distribution fees with respect to Class B
shares described above, the Distributor receives payments from the Purchaser
based on the value of Class Bshares sold. The aggregate amount of such payments
and the Class B shares distribution fees retained by the Distributor for the
year ended December 31, 1997, amounted to $1,149,148.
Seligman Services, Inc., an affiliate of the Manager, is eligible to receive
commissions from certain sales of shares of beneficial interest of the Fund, as
well as distribution and service fees pursuant to the Plan. For the year ended
December 31, 1997, Seligman Services, Inc. received commissions of $47,851 from
the sales of Fund shares.
Seligman Services, Inc. also received distribution and service fees of
$35,679, pursuant to the Plan. Seligman Data Corp., which is owned by certain
associated investment companies, charged the Fund at cost $2,371,527 for
shareholder account services.
Certain officers and trustees 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 trustees who receive fees
may elect to defer receiving such fees. Interest is accrued on the deferred
balances. The annual cost of such fees and interest is included in trustees'
fees and expenses and the accumulated balance thereof at December 31, 1997, of
$33,589 is included in other liabilities. Deferred fees and the related accrued
interest are not deductible for federal income tax purposes until such amounts
are paid.
6. COMMITTED LINE OF CREDIT -- Effective July 23, 1997, the Fund entered into a
$110 million committed line of credit facility with a group of banks. Borrowings
pursuant to the credit facility will be subject to interest at a rate equal to
the federal funds rate plus 0.50% per annum. The Fund incurs a commitment fee of
0.10% per annum on 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 will expire 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.
-----
17
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
The Fund's financial highlights are presented below. "Per share operating
performance" data is designed to allow investors to trace the operating
performance of each Class, on a per share basis, from the beginning net asset
value to the ending net asset value, so that investors can understand what
effect the individual items have on their investment, assuming it was held
throughout the period. Generally, per share amounts are derived by converting
the actual dollar amounts incurred for each item, as disclosed in the financial
statements, to their equivalent per share amounts, using average shares
outstanding.
"Total return based on net asset value" measures each Class's performance
assuming that investors purchased Fund shares at net asset value as of the
beginning of the period, invested dividends and capital gains paid at net asset
value, and then sold their shares at the net asset value on the last day of the
period. The total return computations do not reflect any sales charges investors
may incur in purchasing or selling shares of the Fund. Total returns for periods
of less than one year are not annualized.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR ........................ $ 7.25 $ 6.96 $ 6.35 $ 6.94 $ 6.42
-------- -------- -------- ------- -------
Net investment income ..................................... .70 .69 .65 .65 .66
Net realized and unrealized investment gain (loss) ........ .28 .29 .61 (.59) .52
-------- -------- -------- ------- -------
INCREASE FROM INVESTMENT OPERATIONS ....................... .98 .98 1.26 .06 1.18
Dividends paid or declared ................................ (.68) (.69) (.65) (.65) (.66)
-------- -------- -------- ------- -------
NET INCREASE (DECREASE) IN NET ASSET VALUE ................ .30 .29 .61 (.59) .52
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF YEAR .............................. $ 7.55 $ 7.25 $ 6.96 $ 6.35 $ 6.94
======== ======== ======== ======= =======
TOTAL RETURN BASED ON NET ASSET VALUE: .................... 14.26% 14.82% 20.72% .78% 19.19%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets ............................ 1.14% 1.16% 1.09% 1.13% 1.20%
Net investment income to average net assets ............... 9.42% 9.80% 9.73% 9.73% 9.68%
Portfolio turnover ........................................ 61.78% 119.33% 173.39% 184.75% 193.91%
NET ASSETS, END OF YEAR (000S omitted) .................... $750,461 $408,303 $182,129 $59,033 $61,333
</TABLE>
- -----------------
See footnotes on page 19.
- -----
18
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
FINANCIAL HIGHLIGHTS
CLASSB CLASS D
--------------------- --------------------------------------------------------
YEAR 4/22/96* 9/21/93*
ENDED TO YEAR ENDED DECEMBER 31, TO
---------------------------------------------
12/31/97 12/31/96 1997 1996 1995 1994 12/31/93
-------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE,
BEGINNING OF YEAR $ 7.26 $ 7.06 $ 7.26 $ 6.96 $ 6.35 $ 6.94 $ 6.74
-------- -------- -------- -------- ------- ------- -------
Net investment income .64 .45 .64 .64 .60 .57 .12
Net realized and unrealized
investment gain (loss) .28 .20 .28 .30 .61 (.59) .20
-------- -------- -------- -------- ------- ------- -------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS .92 .65 .92 .94 1.21 (.02) .32
Dividends paid or declared (.63) (.45) (.63) (.64) (.60) (.57) (.12)
-------- -------- -------- -------- ------- ------- -------
NET INCREASE (DECREASE) IN
NET ASSET VALUE .29 .20 .29 .30 .61 (.59) .20
-------- -------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 7.55 $ 7.26 $ 7.55 $ 7.26 $ 6.96 $ 6.35 $ 6.94
======== ======== ======== ======== ======= ======= =======
TOTAL RETURN BASED ON NET
ASSET VALUE: 13.24% 9.11% 13.24% 14.10% 19.67% (.30)% 4.53%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets 1.90% 1.90%+ 1.90% 1.92% 1.91% 2.19% 2.04%+
Net investment income to
average net assets 8.66% 9.11%+ 8.66% 9.02% 8.86% 8.68% 7.93%++
Portfolio turnover 61.78% 119.33%++ 61.78% 119.33% 173.39% 184.75% 193.91%+++
NET ASSETS, END OF YEAR (000S omitted) $581,235 $147,970 $534,998 $265,528 $90,153 $ 9,249 $ 2,375
- ---------------------
* Commencement of offering of shares.
+ Annualized.
++ For the year ended December 31, 1996.
+++ For the year ended December 31, 1993.
See Notes to Financial Statements.
-----
19
</TABLE>
<PAGE>
================================================================================
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE TRUSTEES AND SHAREHOLDERS,
SELIGMAN HIGH-YIELD BOND SERIES:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Seligman High-Yield Bond Series as of December
31, 1997, the related statements of operations for the year then ended and of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the Fund's custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Seligman High-Yield
Bond Series as of December 31, 1997, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
January 30, 1998
- --------------------------------------------------------------------------------
- -----
20
<PAGE>
================================================================================
TRUSTEES
- --------------------------------------------------------------------------------
John R. Galvin 2
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, Raytheon Company
DIRECTOR, USLIFE Corporation
Alice S. Ilchman 3
PRESIDENT, Sarah Lawrence College
TRUSTEE, Committee for Economic Development
CHAIRMAN, The Rockefeller Foundation
Frank A. McPherson 2
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
John E. Merow
RETIRED CHAIRMAN AND SENIOR PARTNER,
Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Industries, Inc.
Betsy S. Michel 2
TRUSTEE, Geraldine R. Dodge Foundation
CHAIRMAN OF THE BOARD OF TRUSTEES,
St. George's School
William C. Morris 1
CHAIRMAN
CHAIRMAN OF THE BOARD, J. & W. Seligman & Co.
Incorporated
CHAIRMAN, Carbo Ceramics Inc.
DIRECTOR, Kerr-McGee Corporation
James C. Pitney 3
RETIRED PARTNER,
Pitney, Hardin, Kipp & Szuch, Law Firm
James Q. Riordan 3
DIRECTOR, The Brooklyn Union Gas Company
TRUSTEE, Committee for Economic Development
DIRECTOR, Dow Jones & Co., Inc.
DIRECTOR, Public Broadcasting Service
Richard R. Schmaltz 1
MANAGING DIRECTOR,
J. & W. Seligman & Co. Incorporated
TRUSTEE EMERITUS, Colby College
Robert L. Shafer 3
RETIRED VICE PRESIDENT, Pfizer Inc.
DIRECTOR, USLIFE Corporation
James N. Whitson 2
EXECUTIVE VICE PRESIDENT AND DIRECTOR,
Sammons Enterprises, Inc.
DIRECTOR, CommScope, Inc.
DIRECTOR, C-SPAN
Brian T. Zino 1
PRESIDENT
PRESIDENT, J. & W. Seligman & Co. Incorporated
CHAIRMAN, Seligman Data Corp.
TRUSTEE EMERITUS
Fred E. Brown
DIRECTOR AND CONSULTANT, J. & W. Seligman & Co.
Incorporated
- ----------------
Member: 1 Executive Committee
2 Audit Committee
3 Trustee Nominating Committee
- --------------------------------------------------------------------------------
-----
21
<PAGE>
EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
William C. Morris
CHAIRMAN
Brian T. Zino
PRESIDENT
Daniel J. Charleston
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 Financial Services, Inc.
100 Park Avenue
New York, NY 10017
Shareholder Service Agent
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
Important Telephone Numbers
(800) 221-2450 Shareholder Services
(800) 445-1777 Retirement Plan
Services
(212) 682-7600 Outside the Continental United States
(800) 622-4597 24-Hour Automated
Telephone Access
Service
- --------------------------------------------------------------------------------
- -----
22
<PAGE>
GLOSSARY OF FINANCIAL TERMS
CAPITAL GAIN DISTRIBUTION -- A payment to mutual fund shareholders of profits
realized on the sale of securities in the fund's portfolio. For tax purposes,
these profits may be taxed at different rates, primarily depending upon the
length of time the securities were owned by the fund.
CAPITAL APPRECIATION/DEPRECIATION -- An increase or decrease in the market value
of a mutual fund's portfolio securities, which is reflected in the net asset
value of the fund's shares. Capital appreciation/depreciation of an individual
security is in relation to the original purchase price.
COMPOUNDING -- The change in the value of an investment as shareholders receive
earnings on their investment's earnings. For example, if $1,000 is invested at a
fixed rate of 7% a year, the initial investment is worth $1,070 after one year.
If the return is compounded, second year earnings will not be based on the
original $1,000, but on the $1,070, which includes the first year's earnings.
CONTINGENT DEFERRED SALES LOAD (CDSL) -- Depending on the class of shares owned,
a fee charged by a mutual fund when shares are sold back to the fund (the CDSL
expires after a fixed time period).
DIVIDEND -- A payment by a mutual fund, usually derived from the fund's net
investment income (dividends and interest less expenses).
DIVIDEND YIELD -- A measurement of a fund's dividend as a percentage of the
maximum offering price.
EXPENSE RATIO -- The cost of doing business for a mutual fund, expressed as a
percent of the fund's net assets.
INVESTMENT OBJECTIVE -- The shared investment goal of a fund and its
shareholders.
MANAGEMENT FEE -- The amount paid by a mutual fund to its investment advisor(s).
MULTIPLE CLASSES OF SHARES -- Although an individual mutual fund invests in only
one portfolio of securities, it may offer investors several purchase options
which are "classes" of shares. Multiple classes permit shareholders to choose
the fee structure that best meets their needs and goals. Generally, each class
will differ in terms of how and when sales charges and certain fees are
assessed.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (NASD) -- A self-regulatory
body with authority over firms that distribute mutual funds.
NET ASSET VALUE (NAV) PER SHARE -- The market worth of one fund share, obtained
by adding a mutual fund's total assets (securities, cash, and any accrued
earnings), subtracting liabilities, and dividing the resulting net assets by the
number of shares outstanding.
OFFERING PRICE (OP) -- The price at which a mutual fund's share can be
purchased. The offering price per share is the current net asset value plus any
sales charge.
PORTFOLIO TURNOVER -- A measure of the trading activity in a mutual fund's
investment portfolio that reflects how often securities are bought and sold.
PROSPECTUS -- The legal document describing a mutual fund to all prospective
shareholders. It contains information required by the Securities and Exchange
Commission (SEC), such as a fund's investment objective and policies, services,
investment restrictions, officers and directors, how shares are bought and
redeemed, fund fees and other charges, and the fund's financial statements.
SEC YIELD -- SEC Yield refers to the net income earned by a fund during a recent
30-day period. This income is annualized and then divided by the maximum
offering price per share on the last day of the 30-day period. The SEC Yield
formula reflects semiannual compounding.
SECURITIES AND EXCHANGE COMMISSION -- The primary US federal agency that
regulates the registration and distribution of mutual fund shares.
STATEMENT OF ADDITIONAL INFORMATION -- Document that contains updated or more
detailed information about a mutual fund and supplements the prospectus. It is
available at no charge upon request.
TOTAL RETURN -- A measure of a fund's performance encompassing all elements of
return. Reflects the change in share price over a given period and assumes all
distributions are taken in additional fund shares. The AVERAGE ANNUAL TOTAL
RETURN represents the average annual compounded rate of return for the periods
presented.
YIELD ON SECURITIES -- For bonds, the current yield is the coupon rate of
interest, divided by the purchase price. For stocks, the yield is measured by
dividing dividends paid by the market price of the stock.
- ----------
Adapted from the Investment Company Institute's 1997 MUTUAL FUND FACT BOOK.
-----
23
<PAGE>
SELIGMAN FINANCIAL SERVICES, INC.
AN AFFILIATE OF
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
THIS REPORT IS INTENDED ONLY FOR THE INFORMATION OF
SHAREHOLDERS OR THOSE WHO HAVE RECEIVED THE OFFERING
PROSPECTUS COVERING SHARES OF BENEFICIAL INTEREST OF
SELIGMAN HIGH-YIELD BOND SERIES, WHICH CONTAINS
INFORMATION ABOUT THE SALES CHARGES, MANAGEMENT FEE, AND
OTHER COSTS. PLEASE READ THE PROSPECTUS CAREFULLY
BEFORE INVESTING OR SENDING MONEY.
TXHY2 12/97 Printed on Recycled Paper
