<PAGE>
SELIGMAN
-----------
HIGH-YIELD
BOND SERIES
MID-YEAR REPORT
JUNE 30, 1998
SEEKING TO MAXIMIZE
CURRENT INCOME BY
INVESTING IN A
DIVERSIFIED PORTFOLIO OF
HIGH-YIELDING
CORPORATE BONDS
[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.
[GRAPHIC]
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 for these 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 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 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 ................................. 19
Report of Independent Auditors ....................... 21
Trustees ............................................. 22
Executive Officers and For More Information .......... 23
Glossary of Financial Terms .......................... 24
<PAGE>
TO THE SHAREHOLDERS
Seligman High-Yield Bond Series posted strong results in the first half of the
year, with a total return of 5.65% based on the net asset value of Class A
shares. The Fund's return outpaced the Lipper High Current Yield average's total
return of 4.42%, and the 4.51% total return of the Merrill Lynch High Yield
Master Index.
Overall, the economic environment was positive for high-yield investors in the
first six months of the year. The US economy continued its pace of strong
growth, helped by low inflation, steady wage increases, strong consumer
spending, a tight labor market, and healthy consumer confidence. However, some
economic indicators toward the end of the second quarter suggested the start of
a deceleration in the pace of economic growth. While the strong economy provided
a solid environment for profit growth among many companies, the expectation of
slower growth heightened investor interest in the high-yield sector.
Further, the potential for slower growth, coupled with concern about the Asian
financial crisis, convinced the Federal Reserve Board to leave short-term
interest rates unchanged in the first half of the year. Low interest rates
enabled high-yield issuers to reduce their borrowing costs, leading to lower
interest rate expenses and improved credit quality. Additionally, the strong
economy and stock market enabled high-yield issuers to gain greater access to
the market for initial public offerings. This allowed issuers to raise proceeds
in order to deleverage their balance sheets and improve their credit. Finally,
increasing consolidations within certain industries benefited the Fund through
bond redemptions at premiums, and improved credit ratings.
Looking ahead, the Asian financial crisis only modestly affected the US economy
in the first half of 1998, and we believe its full impact is yet to come. The
current benign business environment could become less stable. But, the Asian
crisis has tempered inflationary forces, and as a result, interest rates should
remain low. Therefore, we believe the high-yield asset class will remain
attractive to investors because it offers good relative value in this economic
environment.
As you may know, companies are modifying their computer systems to recognize
dates of January 1, 2000, and beyond. This is often referred to as the "Y2K"
problem. Unless systems are updated, many applications may interpret the last
two digits of the year to mean 1900 instead of 2000. J. & W. Seligman & Co.
Incorporated, the Seligman Investment Companies, and Seligman Data Corp., your
shareholder service agent, have jointly established a team to ensure that your
investment and shareholder services are not disrupted. This team is supported by
consulting firms specializing in Y2K solutions. Substantial work has been
performed to date, and we are confident that there will be no disruption in the
services provided by your Fund.
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. The
Fund's portfolio of investments and financial statements follow this letter.
Information on the Fund's investment results appears on page 4.
By order of the Trustees,
/s/William C. Morris
- ---------------------
William C. Morris
Chairman
/s/Brian T. Zino
-----------------
Brian T. Zino
President
July 31, 1998
1
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGER,
DANIEL J. CHARLESTON
Q. HOW DID SELIGMAN HIGH-YIELD BOND SERIES PERFORM IN THE FIRST SIX MONTHS OF
1998?
A. Seligman High-Yield Bond Series posted strong results in the first half of
the year, with a total return of 5.65% based on the net asset value of Class
A shares. The Fund's return outpaced the Lipper High Current Yield average's
total return of 4.42%, and the 4.51% total return of the Merrill Lynch High
Yield Master Index.
Q. WHAT WAS YOUR INVESTMENT STRATEGY?
A. We have a consistent strategy of investing in non-cyclical domestic issuers
with predictable cash flows. Our disciplined credit-selection process
enables us to avoid emerging-market, distressed, and defaulted issuers. We
look for bonds with good call protection, improving credit quality, and high
relative value. Historically, this type of strategy has produced strong
returns with low volatility.
Q. WERE ANY MAJOR CHANGES MADE TO THE PORTFOLIO SINCE THE END OF 1997?
A. No material shifts were made to the Fund's composition. The portfolio
remains concentrated in fairly defensive sectors such as telecommunications,
cable, paging, gaming, and media. In addition, the portfolio's holdings in
radio, publishing, and tower company bonds showed consistently strong
performance.
Q. WHAT IS THE TOWERS BUSINESS?
A. Growing domestic demand for cellular telephones, pagers, and PCS (Personal
Communications Services) has necessitated the construction of wireless
communications towers throughout the country. Fears of health problems
caused by concentrated radio waves, as well as the unsightly nature of these
towers, has limited the availability of tower sites. But coming demand for
next-generation cellular and two-way paging build-outs will require
thousands of sites. Limited supply and growing demand signal favorable
conditions for tower owners. Two of the Fund's holdings, Pinnacle Holdings
and Crown Castle International, are already established tower builders, and
have performed well as a result. We do not anticipate increasing our
position in this sector, as we identified this industry's potential early,
and we believe we have already realized much of the profit potential of this
area.
Q. HOW DID THE AT&T/TCI MERGER ANNOUNCEMENT AFFECT THE PORTFOLIO?
A. The announced acquisition of Tele-Communications Inc. (TCI) by AT&T is a
good example of the synergy of cable technology platforms with telephony and
data applications. Cable companies have existing advanced infrastructure
systems that are capable of delivering services such as high-speed Internet
access and telephony. These businesses are poised for growth as demand from
corporations and consumers increases. As a result of the announcement, the
prices of the cable bonds in the portfolio rose, and the yields declined. We
may decrease our cable holdings somewhat, but cable will remain a core
industry in the portfolio.
[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.
2
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGER,
DANIEL J. CHARLESTON
Q. HOW DID THE VARIOUS JURISDICTIONS IN THE GAMING INDUSTRY PERFORM?
A. In Las Vegas, Aztar, Coast Hotels & Casinos, and Ameristar Casinos all
performed well in the first six months, although Coast Hotels & Casinos was
somewhat negatively impacted by the expansion of a nearby competitor.
Ameristar's new Reserve Casino in Henderson, Nevada, has been impacted by a
slower-than-expected start-up. While we profited from our positions in Las
Vegas, we believe the city's gaming industry may be overbuilt, so we will
diligently monitor our holdings in the area.
In Atlantic City, Aztar, which operates the TropWorld Casino, had a good
first six months. However, due to local restrictions on access, Trump
Casinos experienced some challenges. Overall, we believe Atlantic City will
offer some strong investment opportunities in the future. There were also
some strong performances in the newer gaming jurisdictions. Casino America
and Casino Magic of Louisiana were among the best performers in the Fund's
portfolio in the first half.
Q. HOW HAVE INCREASING MERGERS AND ACQUISITIONS IN SOME INDUSTRIES IMPACTED THE
FUND'S HOLDINGS?
A. Recent mergers and acquisitions activity has benefited the Fund because when
a high-yield bond holding is acquired by another company, its bonds are
tendered at significant premiums to the market. Also, consolidations offer
attractive investment opportunities for high-yield investors, because these
typically result in improved credit characteristics for the new entity. The
performances of many of our positions in a variety of industries improved
because of consolidations in the first half.
More specifically, we have taken advantage of the trend toward economies of
scale in the publishing industry. Decreasing newspaper circulation, rising
ad prices, and increasing paper costs should fuel the ongoing consolidation
of regional newspapers, as companies combine to maintain and increase
profitability. The Fund benefited from the acquisitions of such publishing
holdings as Petersen Publishing, Regional Independent Media, Liberty Group
Publishing, and American Lawyer Media Holdings.
Other consolidations that benefited the Fund included Ryder Truck and SFX
Broadcasting, both of which were sold to strategic buyers; PriCellular
Wireless, which was sold to a financial buyer; and Showboat, which was
acquired by Harrah's Entertainment.
Q. WHAT IS HAPPENING IN HEALTH CARE?
A. The Fund benefited from the strategy began last year to increase investment
in medical products companies. These companies are attractive for several
reasons: their products have recurring revenue; the market is growing due to
the medical advances and the aging of the US population; and the release of
new patented products is exerting a growing influence on the share prices of
parent companies. Some strong performers in the first half were Everest
Healthcare, Alaris Medical, Alliance Imaging, Dade International, and Sun
Healthcare Group.
Q. WHAT IS THE OUTLOOK FOR THE HIGH-YIELD MARKET?
A. We believe the high-yield asset class will remain attractive to investors
because it offers good relative value in the current low-interest-rate
environment. Low interest rates have enabled high-yield issuers to reduce
their borrowing costs, leading to lower interest expense and improved credit
quality. In addition, the Asian crisis has tempered inflationary forces, and
interest rates should remain low. Further, the strong US equity market has
given high-yield issuers greater access to the market for initial public
offerings, allowing issuers to raise proceeds to de-leverage their balance
sheets and improve their credit. Meanwhile, demand for high-yield bonds
should continue to accelerate, fueled by mutual funds and new allocations
from pension funds. Additionally, supplies of high-yield new issues have
been kept in check by a disciplined buy-side investment community. Finally,
increasing consolidations within certain industries also benefit the market.
These positive fundamentals should continue to make high-yield bonds an
attractive investment, and benefit Seligman High-Yield Bond Series.
3
<PAGE>
PERFORMANCE OVERVIEW
INVESTMENT RESULTS PER SHARE
TOTAL RETURNS
FOR PERIODS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-------------------------------------------------
CLASS B CLASS D
SINCE SINCE
SIX ONE FIVE 10 INCEPTION INCEPTION
MONTHS* YEAR YEARS YEARS 4/22/96 9/21/93
------- ------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A**
With Sales Charge 0.59 9.14% 11.41% 11.63% n/a n/a
Without Sales Charge 5.65 14.52 12.51 12.17 n/a n/a
CLASS B**
With CDSL+ 0.27 8.69 n/a n/a 11.56% n/a
Without CDSL 5.27 13.69 n/a n/a 12.76 n/a
CLASS D**
With 1% CDSL 4.41 12.84 n/a n/a n/a n/a
Without CDSL 5.41 13.84 n/a n/a n/a 11.74%
LIPPER HIGH CURRENT YIELD*** 4.42 11.45 9.90 10.23 12.43++ 10.12+++
MERRILL LYNCH HIGH YIELD MASTER INDEX*** 4.51 11.40 10.49 11.70 13.04++ 10.48+++
</TABLE>
NET ASSET VALUE
JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1997
------------- ----------------- -------------
CLASS A $7.61 $7.55 $7.29
CLASS B 7.61 7.55 7.29
CLASS D 7.62 7.55 7.29
RATINGS#
JUNE 30, 1998
MOODY'S S&P
------- -----
Ba/BB 4.4% 6.2%
B/B 81.7 78.6
Caa/CCC 9.5 10.9
Non-rated 4.4 4.3
WEIGHTED AVERAGE
MATURITY 8.38 years
DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1998
DIVIDENDSo YIELDoo CAPITAL GAIN
--------- ----- ------------
CLASS A $0.3394 8.71% PAID $0.021ooo
CLASS B 0.3117 8.37 REALIZED 0.037
CLASS D 0.3117 8.37 UNREALIZED 0.220ss.
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 and the Merrill Lynch 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 3% since inception.
++ From April 30, 1996.
+++ From September 30, 1993.
o Represents per share amount paid or declared during the six months ended
June 30, 1998.
oo Current yield, representing the annualized yield for the 30-day period ended
June 30, 1998, has been computed in accordance with SEC regulations and will
vary.
ooo Represents realized gains from 1997, which were paid on June 17, 1998.
# Percentages based on current market values of long-term holdings.
ss. Represents the per share amount of net unrealized appreciation of portfolio
securities as of June 30, 1998.
4
<PAGE>
PERFORMANCE OVERVIEW
GROWTH OF AN
ASSUMED $10,000
INVESTMENT IN
CLASS A SHARES
JUNE 30, 1988, TO
JUNE 30, 1998
[The following table represents a chart in the printed report]
6/30/88 9,524* Initial Amount Invested
9/30/88 9,658
12/31/88 9,891
3/31/89 10,079
6/30/89 10,466
9/30/89 10,471
12/31/89 10,271
3/31/90 9,889
6/30/90 10,228
9/30/90 9,791
12/31/90 9,524
3/31/91 10,687
6/30/91 11,274
9/30/91 11,997
12/31/91 12,447
3/31/92 13,586
6/30/92 13,980
9/30/92 14,746
12/31/92 14,946
3/31/93 15,992
6/30/93 16,666
9/30/93 16,690
12/31/93 17,814
3/31/94 17,707
6/30/94 17,690
9/30/94 17,770
12/31/94 17,953
3/31/95 18,887
6/30/95 20,056
9/30/95 20,983
12/31/95 21,672
3/31/96 22,540
6/30/96 23,041
9/30/96 24,049
12/31/96 24,885
3/31/97 24,695
6/30/97 26,230
9/30/97 27,838
12/31/97 28,433
3/31/98 29,718
6/30/98 30,040 Total Value at June 30, 1998
GROWTH OF AN
ASSUMED $10,000
INVESTMENT IN
CLASS B SHARES
APRIL 22, 1996,+ TO
JUNE 30, 1998
[The following table represents a chart in the printed report]
4/22/96 10,000 Initial Amount Invested
5/31/96 10,153
6/30/96 10,127
7/31/96 10,117
8/31/96 10,254
9/30/96 10,565
10/31/96 10,539
11/30/96 10,725
12/31/96 10,911
1/31/97 10,999
2/28/97 11,224
3/31/97 10,792
4/30/97 10,936
5/31/97 11,236
6/30/97 11,440
7/31/97 11,742
8/31/97 11,795
9/30/97 12,119
10/31/97 12,078
11/30/97 12,207
12/31/97 12,356
1/31/98 12,662
2/28/98 12,727
3/31/98 12,891
4/30/98 12,935
5/31/98 12,949
6/30/98 13,007** Total Value at June 30, 1998
GROWTH OF AN
ASSUMED $10,000
INVESTMENT IN
CLASS D SHARES
SEPTEMBER 21, 1993,+ TO
JUNE 30, 1998
[The following table represents a chart in the printed report]
9/21/93 10,000 Initial Amount Invested
9/30/93 10,030
12/31/93 10,453
3/31/94 10,381
6/30/94 10,342
9/30/94 10,360
12/31/94 10,422
3/31/95 10,937
6/30/95 11,588
9/30/95 12,100
12/31/95 12,472
3/31/96 12,965
6/30/96 13,209
9/30/96 13,780
12/31/96 14,232
3/31/97 14,078
6/30/97 14,923
9/30/97 15,808
12/31/97 16,116
3/31/98 16,814
6/30/98 16,987 Total Value at June 30, 1998
These charts reflect the growth of a $10,000 investment for a 10-year period for
Class A shares and since inception for Class B and Class D shares, assuming that
all distributions within the periods are invested in additional shares. Since
the measured periods vary, the charts are plotted using different scales and are
not comparable.
- ----------
* Net of the 4.75% maximum initial sales charge.
** Excludes the effect of the 3% CDSL.
Inception date.
5
<PAGE>
PORTFOLIO OVERVIEW
DIVERSIFICATION OF NET ASSETS
JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS
-----------------------
JUNE 30, DECEMBER 31,
ISSUES COST VALUE 1998 1997
------ -------------- -------------- -------- ------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS, CONVERTIBLE ISSUES,
AND PREFERRED STOCKS:
Advertising ........................ 1 $ 10,461,125 $ 10,975,000 0.4 0.6
Agriculture ........................ -- -- -- -- 0.4
Automotive and Related ............. 1 13,890,044 13,982,687 0.6 --
Broadcasting ....................... 9 79,374,804 90,812,940 3.6 5.3
Cable Systems and Satellite Video .. 11 223,898,732 239,845,183 9.3 13.1
Cellular ........................... 4 65,305,036 68,103,375 2.7 2.7
Chemicals .......................... 3 25,910,375 26,411,225 1.0 1.0
Computer and Related Services ...... 4 76,173,715 77,425,000 3.0 4.1
Consumer Products .................. 14 168,310,045 171,611,125 6.7 3.8
Containers ......................... 1 19,531,944 19,875,000 0.8 1.1
Energy ............................. 4 27,832,443 27,437,000 1.1 0.6
Equipment .......................... 2 32,700,056 33,472,750 1.3 1.1
Financial Services ................. 4 57,519,707 59,530,000 2.3 2.3
Food ............................... 6 99,713,809 101,008,449 4.0 3.8
Gaming/Hotel ....................... 10 199,087,836 209,647,500 8.2 11.1
Health Care/Medical Products ....... 9 137,163,286 139,149,812 5.4 4.9
Industrial/Manufacturing ........... 8 91,190,998 92,460,462 3.6 1.8
Leisure ............................ 5 60,836,601 62,565,000 2.4 2.3
Metals ............................. 2 36,212,125 34,196,250 1.3 1.7
Paging ............................. 4 116,320,756 120,733,750 4.7 5.1
Paper and Packaging ................ 2 20,834,949 21,516,600 0.8 1.1
Printing and Publishing ............ 12 139,865,802 139,742,660 5.4 2.3
Record Storage ..................... 1 8,250,625 8,418,750 0.3 0.5
Retailing .......................... 6 70,964,518 72,406,850 2.8 1.4
Supermarkets ....................... 3 49,592,811 52,028,062 2.0 2.0
Technology ......................... 6 103,904,625 98,796,250 3.9 3.4
Telecommunications ................. 28 386,440,735 401,134,591 15.6 14.2
Textiles ........................... 1 10,272,538 10,378,125 0.4 --
Theaters ........................... 2 30,829,000 31,025,000 1.2 1.2
Transportation ..................... 1 18,144,925 18,637,500 0.7 0.7
Utilities .......................... 1 10,634,600 12,027,670 0.5 0.6
------ -------------- -------------- ----- -----
165 2,391,168,565 2,465,354,566 96.0 94.2
SHORT-TERM HOLDINGS AND
OTHER ASSETS LESS LIABILITIES ...... 1 102,532,771 102,532,771 4.0 5.8
------ -------------- -------------- ----- -----
NET ASSETS ............................ 166 $2,493,701,336 $2,567,887,337 100.0 100.0
====== ============== ============== ===== =====
</TABLE>
LARGEST INDUSTRIES
JUNE 30, 1998
[The following table represents a table in the printed report.]
Percent of
Net Assets Net Assets
---------- ------------
TELECOMMUNICATIONS 15.6% $401,134,591
CABLE SYSTEMS AND SATELLITE VIDEO 9.3% 239,845,183
GAMING/HOTEL 8.2% 209,647,500
CONSUMER PRODUCTS 6.7% 171,611,125
PRINTING AND PUBLISHING 5.6% 139,742,660
6
<PAGE>
PORTFOLIO OVERVIEW
LARGEST PORTFOLIO CHANGES
DURING PAST SIX MONTHS
PRINCIPAL AMOUNT OR SHARES
-----------------------------
HOLDINGS
ADDITIONS INCREASE 6/30/98
- --------- ----------- -----------
CORPORATE BONDS:
Everest Healthcare Services
9 3/4%, 5/1/2008 $18,000,000 $18,000,000
Facilicom International
10 1/2%, 1/15/2008 25,000,000 25,000,000
Global Health Sciences
11%, 5/1/2008 25,500,000 25,500,000
NBC Acquisition
0% (10 3/4%), 2/15/2009 30,000,000 30,000,000
Packaged Ice
9 3/4%, 2/1/2005 17,500,000 17,500,000
Pinnacle Holdings
0% (10%), 3/15/2008 47,500,000 47,500,000
PSINet 10%, 2/15/2005 21,250,000 21,250,000
PREFERRED STOCKS:
Liberty Group
Publishing 14 3/4% 726,277 shs. 726,277 shs.
NEBCO EVANS HOLDING
11 1/4% 220,706 220,706
Nextel Communications
11 1/8% 20,508 20,508
PRINCIPAL AMOUNT OR SHARES
-----------------------------
HOLDINGS
REDUCTIONS DECREASE 6/30/98
- ---------- ----------- -----------
CORPORATE BONDS:
Comcast 10 5/8%,
7/15/2012 $ 7,500,000 --
IXC Communications
12 1/2%, 10/1/2005 25,000,000 --
Petersen Publishing
11 1/8%, 11/15/2006 10,000,000 --
Plastic Containers
10%, 12/15/2006 10,000,000 --
Plitt Theaters
10 7/8%, 6/15/2004 10,000,000 --
PriCellular Wireless
10 3/4%, 11/1/2004 16,000,000 --
Showboat 13%, 8/1/2009 8,500,000 --
COVERTIBLE BONDS:
EMC 3 1/4%, 3/15/2002 6,250,000 --
Xilinx 5 1/4%, 11/1/2002 12,500,000 --
PREFERRED STOCKS:
Chancellor Media 12% 105,881 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 PORTFOLIO HOLDINGS
JUNE 30, 1998
SECURITY VALUE
- -------- -----------
Paging Network
10%, 10/15/2008 $52,000,000
Intermedia Capital Partners IV
11 1/4%, 8/1/2006 39,900,000
Casino America
12 1/2%, 8/1/2003 39,725,000
Trump Atlantic City Funding
11 1/4%, 5/1/2006 39,000,000
NEXTLINK Communications
12 1/2%, 4/15/2006 34,200,000
SECURITY VALUE
- -------- -----------
EchoStar DBS
12 1/2%, 7/1/2002 $33,525,000
Pinnacle Holdings
0% (10%), 3/15/2008 31,350,000
TCI Satellite Entertainment
10 7/8%, 2/15/2007 30,750,000
Price Communications Wireless
11 3/4%, 7/15/2007 30,387,500
Advanced Micro Devices
11%, 8/1/2003 26,437,500
7
<PAGE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
PRINCIPAL
AMOUNT VALUE
------------ ------------
CORPORATE BONDS 88.8%
ADVERTISING 0.4%
Adams Outdoor Advertising
10 3/4%, due 3/15/2006 $ 10,000,000 $ 10,975,000
------------
AUTOMOTIVE AND
RELATED 0.6%
Diamond Triumph Automotive
9 1/4%, due 4/1/2008* 13,675,000 13,982,687
------------
BROADCASTING 2.0%
Capstar Broadcasting Partners
0% (123/4%+), due 2/1/2009 20,000,000 15,350,000
Cumulus Media
10 3/8%, due 7/1/2008 6,060,000 6,181,200
Paxson Communications
11 5/8%, due 10/1/2002 15,000,000 16,162,500
SFX Broadcasting
10 3/4%, due 5/15/2006 11,510,000 12,776,100
------------
50,469,800
------------
CABLE SYSTEMS AND
SATELLITE VIDEO 8.7%
Charter Communications
Southeast Holdings
11 1/4%, due 3/15/2006 21,000,000 23,257,500
Charter Communications
Southeast Holdings
0% (14%+), due 3/15/2007 25,000,000 20,687,500
CSC Holdings
10 1/2%, due 5/15/2016 15,000,000 17,587,500
Digital Television Services
12 1/2%, due 8/1/2007 15,250,000 17,461,250
EchoStar DBS
12 1/2%, due 7/1/2002 30,000,000 33,525,000
Intermedia Capital Partners IV
11 1/4%, due 8/1/2006* 35,000,000 39,900,000
Northland Cable Television
10 1/4%, due 11/15/2007 15,000,000 16,087,500
Rogers Cablesystems
11%, due 12/1/2015 21,500,000 24,993,750
TCI Satellite Entertainment
10 7/8%, due 2/15/2007 30,750,000 30,750,000
------------
224,250,000
------------
CELLULAR 2.1%
American Cellular
10 1/2%, due 5/15/2008* 12,500,000 12,531,250
Centennial Cellular
10 1/8%, due 5/15/2005 9,500,000 10,687,500
Price Communications Wireless
11 3/4%, due 7/15/2007 27,500,000 30,387,500
------------
53,606,250
------------
CHEMICALS 1.0%
Koppers Industries
9 7/8%, due 12/1/2007 4,075,000 4,197,250
Marsulex 95/8%, due 7/1/2008* 2,540,000 2,593,975
Texas Petrochemicals
11 1/8%, due 7/1/2006 18,000,000 19,620,000
------------
26,411,225
------------
COMPUTER AND RELATED
SERVICES 3.0%
DecisionOne
9 3/4%, due 8/1/2007 20,000,000 19,400,000
DecisionOne Holdings
0% (111/2%+), due 8/1/2008 20,000,000 12,200,000
Unisys 12%, due 4/15/2003 20,000,000 22,650,000
Unisys 11 3/4%, due 10/15/2004 20,000,000 23,175,000
------------
77,425,000
------------
CONSUMER PRODUCTS 6.7%
AKI 101/2%, due 7/1/2008* 3,630,000 3,666,300
AKI Holding
0% (131/2%+), due 7/1/2009* 3,990,000 2,114,700
American Pad & Paper
13%, due 11/15/2005 7,500,000 7,612,500
Amscan Holdings
9 7/8%, due 12/15/2007 15,000,000 15,225,000
Anchor Advanced Products
11 3/4%, due 4/1/2004 19,000,000 20,995,000
Carson 10 3/8%, due 11/1/2007 12,500,000 12,906,250
Diamond Brands Operating
10 1/8, due 4/15/2008* 15,000,000 15,112,500
Diamond Brands
0% (12 7/8%+), due 4/15/2009* 14,575,000 7,870,500
French Fragrances
10 3/8%, due 5/15/2007 14,885,000 16,001,375
Global Health Sciences
11%, due 5/1/2008* 25,500,000 25,308,750
Iron Age 9 7/8%, due 5/1/2008* 13,000,000 12,935,000
Iron Age Holdings
0% (12 1/8%+), due 5/1/2009* 6,550,000 3,700,750
Moll Industries
10 1/2%, due 7/1/2008* 10,500,000 10,762,500
Ryder TRS
10%, due 12/1/2006 15,000,000 17,400,000
------------
171,611,125
------------
- ----------
See footnotes on page 12.
8
<PAGE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
PRINCIPAL
AMOUNT VALUE
------------ -----------
CONTAINERS 0.8%
U.S. Can 10 1/8%,
due 10/15/2006 $ 18,750,000 $ 19,875,000
-----------
ENERGY 1.1%
Abraxas Petroleum
11 1/2%, due 11/1/2004 12,500,000 12,968,750
Gothic Production
11 1/8%, due 5/1/2005* 2,910,000 2,800,875
Universal Compression
0% (9 7/8%+), due 2/15/2008* 7,200,000 4,572,000
Universal Compression
Holdings 0% (11 3/8%+),
due 2/15/2009* 11,925,000 7,095,375
-----------
27,437,000
-----------
EQUIPMENT 1.3%
Neff 10 1/4%, due 6/1/2008* 7,275,000 7,347,750
Williams Scotman
9 7/8%, due 6/1/2007 25,000,000 26,125,000
-----------
33,472,750
-----------
FINANCIAL SERVICES 2.3%
AMRESCO
10%, due 3/15/2004 17,500,000 18,068,750
Dollar Financial Group
10 7/8%, due 11/15/2006 11,000,000 11,880,000
Ocwen Capital Trust I
10 7/8%, due 8/1/2027 15,000,000 16,425,000
Veritas Capital Trust
10%, due 1/1/2028 12,500,000 13,156,250
-----------
59,530,000
-----------
FOOD 3.1%
AFC Enterprises
10 1/4%, due 5/15/2007 15,000,000 15,975,000
AmeriKing
10 3/4%, due 12/1/2006 13,500,000 14,512,500
AmeriServe Food Distributors
10 1/8%, due 7/15/2007 25,000,000 25,875,000
Gorges/Quik-To-Fix Foods
11 1/2%, due 12/1/2006 4,250,000 4,228,750
Packaged Ice
9 3/4%, due 2/1/2005* 17,500,000 17,850,000
-----------
78,441,250
-----------
GAMING/HOTEL 8.2%
Alliance Gaming
10%, due 8/1/2007* 10,000,000 10,025,000
Ameristar Casinos
10 1/2%, due 8/1/2004 18,000,000 18,810,000
Aztar 13 3/4%, due 10/1/2004 7,500,000 8,550,000
Casino America
12 1/2%, due 8/1/2003 35,000,000 39,725,000
Casino Magic of Louisiana
13%, due 8/15/2003 12,500,000 14,437,500
Coast Hotels & Casinos
13%, due 12/15/2002 22,000,000 25,300,000
Fitzgeralds Gaming
12 1/4%, due 12/15/2004 12,500,000 12,312,500
Showboat Marina Casino
Partnership
13 1/2%, due 3/15/2003 15,000,000 17,475,000
Trump Atlantic City Funding
11 1/4%, due 5/1/2006 40,000,000 39,000,000
Trump Hotels & Casino
Resorts Funding
15 1/2%, due 6/15/2005 21,250,000 24,012,500
-----------
209,647,500
-----------
HEALTH CARE/MEDICAL
PRODUCTS 5.0%
Alaris Medical
9 3/4%, due 12/1/2006 18,750,000 19,312,500
Alliance Imaging
9 5/8%, due 12/15/2005 12,000,000 12,180,000
Dade International
11 1/8%, due 5/1/2006 20,500,000 22,960,000
Everest Healthcare Services
9 3/4%, due 5/1/2008* 18,000,000 18,495,000
GRAPHIC CONTROLS
12%, due 9/15/2005 14,000,000 15,610,000
Paracelsus Healthcare
10%, due 8/15/2006 20,000,000 19,950,000
Pediatric Services of America
10%, due 4/15/2008 8,500,000 8,457,500
Sun Healthcare Group
9 1/2%, due 7/1/2007 11,500,000 11,730,000
-----------
128,695,000
-----------
- ----------
See footnotes on page 12.
9
<PAGE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
PRINCIPAL
AMOUNT VALUE
------------ -----------
INDUSTRIAL/
MANUFACTURING 3.3%
Airxcel 11%, due 11/15/2007 $ 16,500,000 $ 17,366,250
Alliance Laundry System
9 5/8%, due 5/1/2008* 9,750,000 9,823,125
BPC Holding
12 1/2%, due 6/15/2006 12,000,000 13,200,000
Coyne International
Enterprises
11 1/4%, due 6/1/2008* 10,895,000 10,976,712
Day International Group
9 1/2%, due 3/15/2008 12,500,000 12,562,500
Great Lakes Acquistion
0% (13 1/8%+), due 5/15/2009* 4,925,000 2,708,750
Great Lakes Carbon
10 1/4%, due 5/15/2008* 17,500,000 17,937,500
-----------
84,574,837
-----------
LEISURE 2.4%
Affinity Group Holding
11%, due 4/1/2007 18,000,000 19,350,000
AMF Bowling Worldwide
0% (12 1/4%+), due 3/15/2006 15,000,000 12,131,250
Premier Parks
12%, due 8/15/2003 7,250,000 8,083,750
Premier Parks
9 1/4%, due 4/1/2006 12,500,000 12,968,750
Premier Parks
0% (10%+), due 4/1/2008 15,000,000 10,031,250
-----------
62,565,000
-----------
METALS 1.3%
Renco Metals
11 1/2%, due 7/1/2003 15,500,000 16,662,500
Royal Oak Mines
11%, due 8/15/2006 20,750,000 17,533,750
-----------
34,196,250
-----------
PAGING 4.7%
Metrocall 93/4%, due 11/1/2007 23,000,000 23,460,000
Mobile Telecommunication
Technologies
13 1/2%, due 12/15/2002 20,000,000 23,100,000
Paging Network
10%, due 10/15/2008 50,000,000 52,000,000
ProNet 11 7/8%, due 6/15/2005 20,250,000 22,173,750
-----------
120,733,750
-----------
PAPER AND PACKAGING 0.8%
Crown Paper
11%, due 9/1/2005 17,500,000 19,031,250
Graham Packaging
0% (10 3/4%+), due 1/15/2009* 3,945,000 2,485,350
-----------
21,516,600
-----------
PRINTING AND
PUBLISHING 4.7%
Advanstar Communications
9 1/4%, due 5/1/2008* 17,500,000 17,696,875
American Lawyer Media
9 3/4%, due 12/15/2007 15,000,000 15,600,000
American Lawyer Media
Holdings 0% (121/4%+),
due 12/15/2008 4,750,000 3,045,938
Liberty Group Publishing
9 3/8%, due 2/1/2008 12,500,000 12,687,500
Liberty Group Publishing
0% (11 5/8%+), due 2/1/2009 15,000,000 9,075,000
NBC Acquisition
0% (10 3/4%+), due 2/15/2009 30,000,000 17,400,000
Perry-Judd
10 5/8%, due 12/15/2007 8,875,000 9,363,125
Regional Independent
Media Group
10 1/2%, due 7/1/2008* 11,050,000 11,271,000
TransWestern Holdings
0% (11 7/8%+), due 11/15/2008 20,000,000 13,200,000
Von Hoffman Press
10 3/8%, due 5/15/2007* 10,000,000 10,550,000
Von Hoffman Press
10 7/8%, due 5/15/2007* 750,000 788,438
-----------
120,677,876
-----------
RECORD STORAGE 0.3%
Pierce Leahy
11 1/8%, due 7/15/2006 7,500,000 8,418,750
-----------
RETAILING 2.8%
Central Tractor
10 5/8%, due 4/1/2007 15,250,000 16,241,250
Cole National Group
9 7/8%, due 12/31/2006 12,500,000 13,562,500
Frank's Nursery & Crafts
10 1/4%, due 3/1/2008* 10,000,000 10,150,000
Musicland Group
9 7/8%, due 3/15/2008 15,000,000 14,812,500
SpinCycle
0% (12 3/4%+), due 5/1/2005* 3,090,000 2,209,350
- ----------
See footnotes on page 12.
10
<PAGE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
PRINCIPAL
AMOUNT
OR WARRANTS VALUE
------------- ---------------
RETAILING (continued)
TM Group Holdings
11%, due 5/15/2008* $ 15,000,000 $ 15,431,250
--------------
72,406,850
--------------
SUPERMARKETS 2.0%
Jitney-Jungle Stores
of America
12%, due 3/1/2006 18,325,000 20,753,062
Jitney-Jungle Stores
of America
10 3/8%, due 9/15/2007 15,000,000 16,087,500
Pathmark Stores
11 5/8%, due 6/15/2002 15,000,000 15,187,500
--------------
52,028,062
--------------
TECHNOLOGY 3.5%
Advanced Micro Devices
11%, due 8/1/2003 25,000,000 26,437,500
Hadco 9 1/2%, due 6/15/2008* 10,000,000 10,000,000
MCMS 9 3/4%, due 3/1/2008 15,000,000 13,950,000
Therma-Wave
10 5/8%, due 5/15/2004 15,000,000 13,575,000
Viasystems
9 3/4%, due 6/1/2007 25,500,000 25,308,750
--------------
89,271,250
--------------
TELECOMMUNICATIONS 13.9%
BTI Telcom
10 1/2%, due 9/15/2007 20,000,000 20,100,000
Crown Castle International
0% (10 5/8%+), due 11/15/2007 17,500,000 12,031,250
Exodus Communications
11 1/4%, due 7/1/2008* 4,720,000 4,755,400
Facilicom International
10 1/2%, due 1/15/2008 25,000,000 24,750,000
GCI 9 3/4%, due 8/1/2007 11,500,000 12,132,500
GlobalStar
11 1/4%, due 6/15/2004 20,000,000 19,500,000
ICG Holdings
0% (11 5/8%+), due 3/15/2007 12,500,000 8,812,500
Intermedia Communications
(Warrants expiring
6/1/2000)*0 4,000 wts. 620,000
ITC DeltaCom
11%, due 6/1/2007 $ 7,500,000 8,493,750
IXC Communications
9%, due 4/15/2008 7,290,000 7,344,675
Level 3 Communications
9 1/8%, due 5/1/2008 15,000,000 14,681,250
MJD Communications
9 1/2%, due 5/1/2008* 5,805,000 5,950,125
Nextel Communications
0% (10.65%+),
due 9/15/2007 23,500,000 15,921,250
NEXTLINK Communications
12 1/2%, due 4/15/2006 30,000,000 34,200,000
Pinnacle Holdings
0% (10%+), due 3/15/2008 47,500,000 31,350,000
Powertel 11 1/8%, due 6/1/2007 21,250,000 22,471,875
PSINet 10%, due 2/15/2005 21,250,000 21,781,250
RCN 10%, due 10/15/2007 15,000,000 15,487,500
Sprint Spectrum
11%, due 8/15/2006 15,000,000 17,362,500
Talton Holdings
11%, due 6/30/2007 15,000,000 16,200,000
Verio 10 3/8%, due 4/1/2005* 15,000,000 15,487,500
Verio (units)
13 1/2%, due 6/15/2004* 11,250 15,975,000
Verio 13 1/2%, due 6/15/2004* $ 4,500,000 5,175,000
Viatel (units)
11 1/4%, due 4/15/2008 5,835 6,126,750
--------------
356,710,075
--------------
TEXTILE 0.4%
Tropical Sportswear Int'l
11%, due 6/15/2008* $10,250,000 10,378,125
--------------
THEATERS 1.2%
Clearview Cinema Group
10 7/8%, due 6/1/2008* 10,000,000 10,225,000
Hollywood Theaters
10 5/8%, due 8/1/2007 20,000,000 20,800,000
--------------
31,025,000
--------------
TRANSPORTATION 0.7%
Atlas Air 10 3/4%, due 8/1/2005 17,500,000 18,637,500
--------------
UTILITIES 0.5%
Midland Cogeneration
Venture 11 3/4%, due 7/23/2005 10,000,000 12,027,670
--------------
TOTAL CORPORATE BONDS
Cost ($2,218,205,828) 2,280,997,182
--------------
- ----------
See footnotes on page 12.
11
<PAGE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
SHARES VALUE
------------ --------------
PREFERRED STOCKS 6.6%
BROADCASTING 1.2%
Capstar Broadcasting
Partnership 12% 78,880 $ 9,327,560
Cumulus Media 13 3/4% 3,515 3,611,663
SFX Broadcasting 12 5/8% 53,156 6,019,917
Sinclair Capital 11 5/8% 100,000 11,109,000
--------------
30,068,140
--------------
CABLE SYSTEMS AND
SATELLITE VIDEO 0.6%
Pegasus
Communications
12 3/4% (Series A) 10,223 11,526,433
Pegasus
Communications
(units) 12 3/4% 3,500 4,068,750
--------------
15,595,183
--------------
CELLULAR 0.6%
Rural Cellular 11 3/8%* 14,425 14,497,125
--------------
FOOD 0.9%
Nebco Evans Holding 11 1/4% 220,706 22,567,199
--------------
HEALTH CARE/MEDICAL
PRODUCTS 0.4%
River Holding 11 1/2%* 102,750 10,454,812
--------------
INDUSTRIAL/
MANUFACTURING 0.3%
Day International Group 12 1/4% 7,750 7,885,625
--------------
PRINTING AND
PUBLISHING 0.7%
Liberty Group Publishing 14 3/4%* 726,277 19,064,784
--------------
TECHNOLOGY 0.4%
MCMS 12 1/2% 100,000 9,525,000
--------------
TELECOMMUNICATIONS 1.5%
IXC Communications 12 1/2%
(Series B) 9,938 11,503,417
Nextel Communications 11 1/8% 20,508 21,174,510
NEXTLINK Communications 14% 125,682 7,383,817
--------------
40,061,744
--------------
TOTAL PREFERRED STOCKS
(Cost $163,358,210) 169,719,612
--------------
CONVERTIBLE PREFERRED
STOCKS 0.6%
BROADCASTING 0.4%
Chancellor Media $3* 100,000 10,275,000
--------------
TELECOMMUNICATIONS 0.2%
IXC Communications 6 3/4%* 90,655 4,362,772
--------------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $9,604,527) 14,637,772
--------------
SHORT-TERM HOLDINGS 2.4%
(Cost $61,670,000) 61,670,000
--------------
TOTAL INVESTMENTS 98.4%
(Cost $2,452,838,565) 2,527,024,566
OTHER ASSETS
LESS LIABILITIES 1.6% 40,862,771
--------------
NET ASSETS 100.0% $2,567,887,337
==============
- ----------
* Rule 144A security.
? 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
JUNE 30, 1998
<S> <C> <C> <C>
ASSETS:
Investments, at value:
Long-term holdings (cost $2,391,168,565) .................. $2,465,354,566
Short-term holdings (cost $61,670,000) .................... 61,670,000 $2,527,024,566
--------------
Cash .......................................................................... 3,909,703
Receivable for interest and dividends ......................................... 52,318,724
Receivable for Shares of Beneficial Interest sold ............................. 20,962,199
Receivable for securities sold ................................................ 17,944,301
Expenses prepaid to shareholder service agent ................................. 348,208
Other ......................................................................... 313,551
--------------
TOTAL ASSETS .................................................................. 2,622,821,252
--------------
LIABILITIES:
Payable for securities purchased .............................................. 31,639,762
Payable for Shares of Beneficial Interest repurchased ......................... 11,981,402
Dividend payable .............................................................. 7,710,972
Accrued expenses, taxes, and other ............................................ 3,601,779
--------------
TOTAL LIABILITIES ............................................................. 54,933,915
--------------
NET ASSETS .................................................................... $2,567,887,337
==============
COMPOSITION OF NET ASSETS:
Shares of Beneficial Interest, at par (unlimited shares authorized;
$0.001 par value; 337,226,362 shares outstanding):
Class A ..................................................................... $ 128,589
Class B ..................................................................... 114,664
Class D ..................................................................... 93,973
Additional paid-in capital .................................................... 2,479,582,999
Undistributed net investment income ........................................... 3,043,025
Undistributed net realized gain ............................................... 10,738,086
Net unrealized appreciation of investments .................................... 74,186,001
--------------
NET ASSETS .................................................................... $2,567,887,337
==============
NET ASSET VALUE PER SHARE:
CLASS A ($979,091,303 / 128,588,942 shares) ................................... $7.61
=====
CLASS B ($873,057,162 / 114,664,236 shares) ................................... $7.61
=====
CLASS D ($715,738,872 / 93,973,184 shares) .................................... $7.62
=====
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<S> <C> <C>
INVESTMENT INCOME:
Interest ..................................................... $106,519,604
Dividends .................................................... 5,595,099
------------
TOTAL INVESTMENT INCOME ..................................................... $112,114,703
EXPENSES:
Distribution and service fees ................................ 7,872,497
Management fee ............................................... 6,637,196
Shareholder account services ................................. 1,951,656
Registration ................................................. 129,209
Shareholder reports and communications ....................... 106,146
Custody and related services ................................. 96,534
Auditing and legal fees ...................................... 37,571
Trustees' fees and expenses .................................. 19,231
Miscellaneous ................................................ 167,933
------------
TOTAL EXPENSES ............................................................... 17,017,973
-------------
NET INVESTMENT INCOME ........................................................ 95,096,730
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ............................. 12,398,112
Net change in unrealized appreciation of investments ......... 4,359,005
------------
NET GAIN ON INVESTMENTS ...................................................... 16,757,117
------------
INCREASE IN NET ASSETS FROM OPERATIONS ....................................... $111,853,847
============
</TABLE>
- ----------------------
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ............................................................ $ 95,096,730 $ 118,769,147
Net realized gain on investments ................................................. 12,398,112 8,663,643
Net change in unrealized appreciation of investments ............................. 4,359,005 47,951,783
-------------- --------------
INCREASE IN NET ASSETS FROM OPERATIONS ........................................... 111,853,847 175,384,573
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A ....................................................................... (38,987,768) (52,770,232)
Class B ....................................................................... (29,819,383) (29,874,994)
Class D ....................................................................... (25,599,987) (33,770,488)
Net realized gain on investments:
Class A ....................................................................... (2,685,568) --
Class B ....................................................................... (2,340,978) --
Class D ....................................................................... (1,929,912) --
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS ........................................ (101,363,596) (116,415,714)
--------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
--------------- -----------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
<S> <C> <C> <C> <C>
Net proceeds from sale of shares:
Class A ................................... 42,199,767 50,672,448 323,853,864 373,051,522
Class B ................................... 38,516,606 57,673,666 295,558,732 424,606,561
Class D ................................... 25,884,298 37,881,266 198,711,156 278,799,066
Investment of dividends:
Class A ................................... 2,796,748 3,776,320 21,457,545 27,853,774
Class B ................................... 1,774,875 1,826,561 13,617,078 13,519,667
Class D ................................... 2,028,857 2,805,300 15,572,391 20,704,607
Exchanged from associated Funds:
Class A ................................... 27,767,700 17,851,841 213,155,356 131,875,215
Class B ................................... 2,082,102 3,688,065 15,965,575 27,115,290
Class D ................................... 3,367,205 6,529,814 25,828,873 47,980,993
Shares issued in payment of gain
distributions:
Class A ................................... 258,268 -- 1,968,002 --
Class B ................................... 201,665 -- 1,536,690 --
Class D ................................... 194,132 -- 1,479,289 --
----------- -------------- -------------- --------------
Total ........................................ 147,072,223 182,705,281 1,128,704,551 1,345,506,695
----------- -------------- -------------- --------------
Cost of shares repurchased:
Class A ................................... (12,856,502) (13,770,227) (98,604,879) (101,399,738)
Class B ................................... (3,304,221) (2,704,575) (25,362,563) (20,021,448)
Class D ................................... (5,833,991) (7,327,368) (44,800,358) (53,826,777)
Exchanged into associated Funds:
Class A ................................... (30,991,783) (15,408,040) (237,775,934) (114,001,958)
Class B ................................... (1,584,800) (3,899,595) (12,167,923) (28,866,957)
Class D ................................... (2,514,517) (5,638,449) (19,289,374) (41,466,552)
----------- -------------- -------------- --------------
Total ........................................ (57,085,814) (48,748,254) (438,001,031) (359,583,430)
----------- -------------- -------------- --------------
INCREASE IN NET ASSETS FROM
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST .................................. 89,986,409 133,957,027 690,703,520 985,923,265
=========== ============== ============== ==============
INCREASE IN NET ASSETS ......................................................... 701,193,771 1,044,892,124
NET ASSETS:
Beginning of period ............................................................ 1,866,693,566 821,801,442
-------------- --------------
END OF PERIOD (including undistributed net investment income of
$3,043,025 and $2,353,433, respectively) .................................... $2,567,887,337 $1,866,693,566
============== ==============
</TABLE>
See Notes to Financial Statements.
15
<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.
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. 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 six months ended June 30, 1998,
distribution and service fees were the only class-specific expenses.
e. 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 six months ended June 30, 1998, amounted to $1,283,778,291 and $603,577,713,
respectively.
At June 30, 1998, the cost of investments for federal income tax purposes was
substantially the same as the cost
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
for financial reporting purposes, and the tax basis gross unrealized
appreciation and depreciation of portfolio securities amounted to $90,271,766
and $16,085,765, respectively.
4. SHORT-TERM INVESTMENTS -- At June 30, 1998, the Fund owned short-term
investments which matured in less than seven days.
5. MANAGEMENT FEE, DISTRIBUTION 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 0.59% 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 $601,622 from sales of Class A shares after commissions of
$4,630,914 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 six months ended June 30,
1998, fees incurred under the Plan aggregated $1,086,524, 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 six months ended June 30, 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 $3,131,101 and $3,654,872, 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 six months
ended June 30, 1998, such charges amounted to $190,788.
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
retained by the Distributor for the six months ended June 30, 1998, amounted to
$295,340.
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 six months
ended June 30, 1998, Seligman Services, Inc. received commissions of $59,121
from the sale of Fund shares. Seligman Services, Inc. also received distribution
and service fees of $26,620, pursuant to the Plan.
Seligman Data Corp., which is owned by certain associated investment
companies, charged the Fund at cost $1,951,656 for shareholder account services.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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. Trustees may elect to have their
deferred fees accrue interest or earn a return based on the performance of the
Fund or other funds in the Seligman Group of Investment Companies. The cost of
such fees and earnings accrued thereon is included in trustees' fees and
expenses, and the accumulated balance thereof at June 30, 1998, of $33,657 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 terminated its
$110 million committed line of credit and 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% on an
overnight basis. 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.
18
<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 Beneficial Interest of the Fund.
Total returns for periods of less than one year are not annualized.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------------
6/30/98 1997 1996 1995 1994 1993
--------- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $7.55 $7.25 $6.96 $6.35 $6.94 $6.42
------ ------ ------ ------ ------ ------
Net investment income 0.34 0.70 0.69 0.65 0.65 0.66
Net realized and unrealized investment
gain (loss) 0.08 0.28 0.29 0.61 (0.59) 0.52
------ ------ ------ ------ ------ ------
INCREASE FROM INVESTMENT OPERATIONS 0.42 0.98 0.98 1.26 0.06 1.18
Dividends paid or declared (0.34) (0.68) (0.69) (0.65) (0.65) (0.66)
Distributions from net realized gain (0.02) -- -- -- -- --
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN NET ASSET VALUE 0.06 0.30 0.29 0.61 (0.59) 0.52
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $7.61 $7.55 $7.25 $6.96 $6.35 $6.94
====== ====== ====== ====== ====== ======
TOTAL RETURN BASED ON NET ASSET VALUE: 5.65% 14.26% 14.82% 20.72% .78% 19.19%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets 1.07% 1.14% 1.16% 1.09% 1.13% 1.20%
Net investment income to average net assets 8.97%+ 9.42% 9.80% 9.73% 9.73% 9.68%
Portfolio turnover 28.07% 61.78% 119.33% 173.39% 184.75% 193.91%
NET ASSETS, END OF PERIOD (000s omitted) $979,091 $750,461 $408,303 $182,129 $59,033 $61,333
</TABLE>
- -------------------------
See footnotes on page 20.
19
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS B
------------------------------------
SIX MONTHS YEAR 4/22/96*
ENDED ENDED TO
6/30/98 12/31/97 12/31/96
------------- --------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $7.55 $7.26 $7.06
------ ------ ------
Net investment income 0.31 0.64 0.45
Net realized and unrealized investment gain 0.08 0.28 0.20
------ ------ ------
INCREASE FROM INVESTMENT OPERATIONS 0.39 0.92 0.65
Dividends paid or declared (0.31) (0.63) (0.45)
Distribution from net realized gain (0.02) -- --
------ ------ ------
NET INCREASE IN NET ASSET VALUE 0.06 0.29 0.20
------ ------ ------
NET ASSET VALUE, END OF PERIOD $7.61 $7.55 $7.26
====== ====== ======
TOTAL RETURN BASED ON NET ASSET VALUE: 5.27% 13.24% 9.11%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets 1.82% 1.90% 1.90%
Net investment income to average net assets 8.22%+ 8.66% 9.11%+
Portfolio turnover 28.07% 61.78% 119.33%++
NET ASSETS, END OF PERIOD (000s omitted) $873,057 $581,235 $147,970
</TABLE>
<TABLE>
<CAPTION>
CLASS D
--------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31 *9/21/93*
ENDED ---------------------------------------------- TO
6/30/98 1997 1996 1995 1994 12/31/93
------------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $7.55 $7.26 $6.96 $6.35 $6.94 $6.74
------- ------- ------- ------- ------- -------
Net investment income 0.31 0.64 0.64 0.60 0.57 0.12
Net realized and unrealized investment
gain (loss) 0.09 0.28 0.30 0.61 (0.59) 0.20
------- ------- ------- ------- ------- -------
Increase (Decrease) from Investment Operations 0.40 0.92 0.94 1.21 (0.02) 0.32
Dividends paid or declared (0.31) (0.63) (0.64) (0.60) (0.57) (0.12)
Distribution from net realized gain (0.02) .-- .-- .-- .-- .--
------- ------- ------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value 0.07 0.29 0.30 0.61 (0.59) 0.20
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $7.62 $7.55 $7.26 $6.96 $6.35 $6.94
======= ======= ======= ======= ======= =======
TOTAL RETURN BASED ON NET ASSET VALUE: 5.41% 13.24% 14.10% 19.67% (0.30)% 4.53%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets 1.82% 1.90% 1.92% 1.91% 2.19% 2.04%
Net investment income to average net assets 8.22%+ 8.66% 9.02% 8.86% 8.68% 7.93%+
Portfolio turnover 28.07% 61.78% 119.33% 173.39% 184.75% 193.91%+++
NET ASSETS, END OF PERIOD (000s omitted) $715,739 $534,998 $265,528 $90,153 $9,249 $2,375
</TABLE>
- -----------------------------------------
* 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.
20
<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 June 30,
1998, the related statements of operations for the six months then ended and of
changes in net assets for the six months then ended and for the year ended
December 31, 1997, 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 June
30, 1998, 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 June 30, 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
July 31, 1998
21
<PAGE>
TRUSTEES
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.
TRUSTEE, The New York and 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, The Brooklyn Union Gas Company
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.
TRUSTEE EMERITUS
Fred E. Brown
DIRECTOR AND CONSULTANT, J. & W. Seligman & Co. Incorporated
- ----------------
Member: 1 Executive Committee
2 Audit Committee
3 Trustee Nominating Committee
4 Board Operations Committee
22
<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 United States
(800) 622-4597 24-Hour Automated Telephone Access Service
23
<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. 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 -- A document that contains updated or more
detailed information about a mutual fund 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 1997 MUTUAL FUND FACT BOOK.
24
<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 COMMON STOCK FUND, INC., WHICH CONTAINS INFORMATION ABOUT THE
SALES CHARGES, MANAGEMENT FEE, AND OTHER COSTS. PLEASE READ THE PROSPECTUS
CAREFULLY BEFORE INVESTING OR SENDING MONEY.
SELIGMAN FINANCIAL SERVICES, INC.
an affiliate of
[LOGO]
J.& W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
EQCS3 6/98 [LOGO] Printed on Recycled Paper
