SELIGMAN
--------------
HIGH-YIELD
BOND SERIES
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31, 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.
[PHOTOGRAPH]
James, Jesse, and Joseph Seligman, 1870
TIMES CHANGE...
Established in 1864, Seligman's history of providing financial services has been
marked not by fanfare, but rather by a quiet and firm adherence to financial
prudence. While the world has changed dramatically in the 134 years since
Seligman first opened its doors, the firm has continued to offer its clients
high-quality investment solutions through changing times.
In the late 19th century, as the country grew, Seligman helped finance the
westward expansion of the railroads, the construction of the Panama Canal, and
the launching of urban transit systems. In the first part of the 20th century,
as America became an industrial power, the firm helped fund the growing capital
needs of the nascent automobile and steel industries.
With the formation of Tri-Continental Corporation in 1929 -- today, the nation's
largest diversified publicly-traded closed-end investment company -- Seligman
began shifting its emphasis from investment banking to investment management.
Despite the stock market crash and ensuing depression, Seligman was convinced of
the importance that investment companies could have in building wealth for
individual investors and began managing its first mutual fund in 1930.
In the decades that followed, Seligman has continued to offer forward-looking
investment solutions, including funds that focus on technology stocks, municipal
bonds, and international securities.
...VALUES ENDURE
Seligman is proud of its distinctive past and of the traditional values that
continue to shape the firm's business decisions and investment judgment. While
much has changed over the years, the firm's commitment to providing prudent
investment management that seeks to build wealth for clients over time is an
enduring value that will guide Seligman into the new millennium.
TABLE OF CONTENTS
To the Shareholders ....................................................... 1
Interview With Your Portfolio 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
Federal Tax Status of 1998 Dividend and
Gain Distributions for Taxable Accounts ................................ 22
Trustees .................................................................. 23
Executive Officers and For More Information ............................... 24
Glossary of Financial Terms ............................................... 25
<PAGE>
TO THE SHAREHOLDERS
In an extremely difficult market environment, Seligman High-Yield Bond Series
posted a total return of 1.32% based on the net asset value of Class A shares
for the year ended December 31, 1998. This return outpaced the -0.44% total
return of the Fund's peers, as measured by the Lipper High Current Yield
average. The Fund's return lagged the 3.66% total return of the Merrill Lynch
High Yield Master Index. A discussion with your Portfolio Manager regarding the
Fund's results begins on page 2. The past year was one of continued growth for
the US economy, with real domestic growth of 3.9%, marking the eighth year of
economic expansion. The widely watched stock market measure, the S&P 500, rose
28.58% in 1998, the first time in history that the S&P 500 registered more than
20% gains four years in a row. But, despite the strong year-end numbers, 1998
gave investors quite a ride. In fact, the past year was the most volatile for
both stock and bond markets since 1987.
A number of factors led to the markets' volatility in 1998 -- some domestic,
many international. The international economic background in 1998 was one of
steadily deteriorating conditions as the financial crisis, originally limited to
a few Asian countries, spread throughout other regions. Worldwide concern grew
in August of 1998 when Russia defaulted on its debt and devalued its currency.
Fear then spread to Latin America as Brazil struggled in vain to protect its
currency, the real.
The uncertain international economic environment led investors everywhere to
seek high-quality investments, particularly US Treasury securities. This "flight
to quality," combined with the first Federal budget surplus in three decades,
drove US Treasury bond yields to 30-year lows. (Bonds prices, which move in the
opposite direction of their yields, headed higher.) The 30-year US Treasury bond
yield closed the year at 5.09%, down from 5.92% on December 31, 1997. The yield
had fallen as low as 4.70% before ending the year above the 5% level.
Although Seligman High-Yield Bond Series does not invest in emerging market
debt, the performance of Seligman High-Yield Bond Series, along with the entire
high-yield market, was hurt by the "flight to quality" that took place as
investors worried about overseas events. These concerns caused high-yield bond
funds with significant emerging market exposure to face redemptions from worried
investors. These fund managers were forced to sell their domestic issues to meet
these redemptions, causing an excess of supply in the high-yield market and a
downward repricing of these issues.
The high-yield market rebounded in the fourth quarter as investors perceived
that there was opportunity in high-yield bonds, which appeared to have been
oversold. In addition, the high-yield market gained support from three rate cuts
by the Federal Reserve Board. These actions strengthened investor confidence
because they confirmed the Fed's resolve to protect the US economy from the
global financial crisis. As we begin 1999, the US economy -- which continues to
enjoy subdued inflation, low interest rates, and the first Federal budget
surplus in three decades -- should provide a supportive backdrop for high-yield
issuers, allowing defaults to remain modest.
Seligman continues to work to ensure that all of its operations are prepared for
the challenges posed by the Year 2000 (Y2K) computer problem. We are confident
that there will be no disruption in the investment and shareholder services
provided by your Fund as a result of Y2K. In addition, your portfolio management
team considers the potential ramifications of Y2K when making decisions on which
securities should be held by the Fund.
Thank you for your continued support of Seligman High-Yield Bond Series in 1998.
We look forward to serving your investment needs in 1999.
By order of the Trustees,
/s/ William Morris
William C. Morris
Chairman
\s\ Brian T. Zino
Brian T. Zino
President
January 29, 1999
1
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGER,
DANIEL J. CHARLESTON
Q. How did the Fund perform in 1998?
A. The Fund performed relatively well last year, outperforming most high-yield
mutual funds, while underperforming relative to the Merrill Lynch High
Yield Master Index, which has significantly more BB-rated bonds than the
Fund. The first, second, and fourth quarters were quite strong for the
Fund, but the events of the third quarter offset most of that gain.
Overall, the Fund was up 1.32% based on the net asset value of Class A
shares, the Merrill Lynch High Yield Master Index was up 3.66%, and the
Lipper High Current Yield average returned -0.44%.
Q. How was performance affected in the third quarter?
A. A highly unusual series of events combined to force a liquidity squeeze on
the high-yield market. These adverse events included a collapse in equity
markets, the Asian and Russian financial crises, and the bailout of
Long-Term Capital Management (LTCM). Any one of these events taken
individually would have been shrugged off by the market; however, because
they all hit at once, the market became illiquid.
Q. Why did events in emerging markets affect the Fund if the Fund does not
invest in those markets?
A. As far as emerging market debt is concerned, Russia and a number of Asian
countries had issued a considerable amount of high-yield bonds over the
past few years. When default rumors started, the mutual funds that had
direct emerging market exposure faced significant redemptions. In order to
meet their redemptions, those funds sold their most stable assets -- their
domestic high-yield issues. While Seligman High-Yield Bond Fund has made it
a policy not to have direct emerging market exposure, the selling pressure
that was created by those funds with emerging market exposure led to
downward repricing of domestic high-yield issues, which hurt your Fund's
performance.
Q. What about the equity markets' impact on the high-yield market?
A. A strong equity market is positive for high-yield issuers, because it
represents another potential source of financing. When stock prices started
to decline in the third quarter, the initial and secondary markets for
stocks dried up. Therefore, many high-yield issuers lost this potential
source of financing and, thus, some financial flexibility.
Q. How did the bailout of LTCM affect the high-yield market?
A. When the bailout of LTCM was announced, downward pricing pressure occurred
because LTCM had significant high-yield investments. Unfortunately, because
LTCM was so secretive about its holdings, investors could not predict what
bonds would be impacted most, so the entire market repriced downward.
Q. Why did the high-yield market snap back in the fourth quarter?
A. The market rebounded in the fourth quarter for a number of reasons, the
most compelling being that
[PHOTO]
High-yield Team: (standing from left) Deborah Joseph (Administrative Assistant),
TimFinn, Jeanne Cruz, James Didden, (seated) Brian Hessel, 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>
investors stepped up to buy in an oversold market. Mutual fund investors,
pension funds, and insurance companies poured billions of dollars into
high-yield bonds in the fourth quarter. Other important factors included
Federal Reserve Chairman Alan Greenspan's positive statements, the Federal
Reserve's rate cuts, and the recovery of the equity markets.
Q. Which sectors of the high-yield market performed well for the year?
A. Defensive sectors such as cable, publishing, and gaming all did well in
1998. Cable got a boost from AT&T's purchase of TCI and Paul Allen's
purchases of Marcus and Charter Communications. Everybody seems to be
endorsing cable as the next generation carrier of video, telephone, and
Internet access. In publishing, we increased the Fund's exposure to Liberty
Group Publishing and Regional Independent Media, which are both regional
newspaper chains. In gaming, we like the prospects for Atlantic City, but
feel that the Las Vegas Strip may be slightly overexpanded.
Q. Which sectors underperformed?
A. The high-yield bonds that suffered the most were those issued by companies
that require additional funding to meet their respective business plans.
Fortunately, the Fund's exposure to those issues was minimal. An area
particularly hit hard was nursing homes. The prospective payment system
recently put in place has created some short-term challenges in this area,
but we think that there are long-term opportunities in nursing home
providers. In our opinion, this sector was oversold in 1998.
Q. Which sectors did you add to in 1998?
A. The most significant additions were in health care, paging, publishing, and
rural cellular providers.
Q. Have there been any changes to your team this year?
A. Yes. James Didden joined as an Investment Associate. James has both
investment and legal experience with his most recent work as a tax
specialist. James has already made a significant contribution to the team.
Q. What is your outlook?
A. The US economy is sound -- modest GDP growth, low interest rates, and the
first Federal budget surplus in three decades. Defaults in the high-yield
market should remain modest. Technicals are positive. All these factors
point to a good environment for issuers with well-grounded credit
fundamentals.
In this environment, our investment strategy remains unchanged. We prefer
domestic issuers with predictable cash flows, dominant market shares, high
cash flow margins which are indicative of pricing power, and strong
management teams. We have no emerging market exposure, and we avoid
purchasing defaulted and distressed bonds.
3
<PAGE>
PERFORMANCE OVERVIEW
This chart compares a $10,000 hypothetical investment made in Seligman
High-Yield Bond Series Class A shares for the 10-year period ended December 31,
1998, to a $10,000 investment made in the Lipper High Current Yield and the
Merrill Lynch High Yield Master Index (Merrill High Yield Master Index) for the
same period. The results for Seligman High-Yield Bond Series Class A shares were
determined with and without the initial 4.75% maximum sales charge, and assumes
that all distributions within the period are invested in additional shares. 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 Merrill High Yield
Master Index exclude the effect of fees and/or sales charges.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Seligman High-Yield Bond
Series Class A Merrill
------------------------- Lipper High Yield
Without With High Current Master
Sales Load Sales load Yield Index
---------- ---------- ----- -----
12/31/88 $10,000 $9,525 $10,000 $10,000
3/31/89 $10,190 $9,706 $10,175 $10,209
6/30/89 $10,581 $10,079 $10,485 $10,576
9/30/89 $10,586 $10,083 $10,337 $10,577
12/31/89 $10,384 $9,891 $9,906 $10,423
3/31/90 $9,998 $9,523 $9,529 $10,206
6/30/90 $10,341 $9,850 $9,936 $10,646
9/30/90 $9,899 $9,429 $9,237 $10,000
12/31/90 $9,629 $9,171 $8,939 $9,970
3/31/91 $10,805 $10,292 $10,215 $11,329
6/30/91 $11,398 $10,857 $10,914 $12,027
9/30/91 $12,129 $11,553 $11,644 $12,734
12/31/91 $12,585 $11,987 $12,232 $13,418
3/31/92 $13,736 $13,084 $13,238 $14,431
6/30/92 $14,134 $13,463 $13,658 $14,952
9/30/92 $14,909 $14,201 $14,218 $15,634
12/31/92 $15,111 $14,393 $14,375 $15,856
3/31/93 $16,168 $15,401 $15,346 $16,840
6/30/93 $16,850 $16,050 $16,052 $17,512
9/30/93 $17,147 $16,333 $16,349 $17,957
12/31/93 $18,010 $17,155 $17,094 $18,580
3/31/94 $17,902 $17,052 $16,930 $18,236
6/30/94 $17,885 $17,035 $16,713 $18,025
9/30/94 $17,965 $17,112 $16,680 $18,270
12/31/94 $18,151 $17,289 $16,455 $18,363
3/31/95 $19,096 $18,189 $17,185 $19,470
6/30/95 $20,277 $19,314 $18,099 $20,705
9/30/95 $21,214 $20,206 $18,672 $21,309
12/31/95 $21,911 $20,871 $19,226 $22,017
3/31/96 $22,788 $21,706 $19,774 $22,338
6/30/96 $23,295 $22,188 $20,168 $22,644
9/30/96 $24,314 $23,159 $21,122 $23,528
12/31/96 $25,159 $23,964 $21,891 $24,452
3/31/97 $24,968 $23,782 $22,044 $24,709
6/30/97 $26,519 $25,259 $23,219 $25,883
9/30/97 $28,145 $26,808 $24,458 $26,895
12/31/97 $28,747 $27,382 $24,790 $27,589
3/31/98 $30,045 $28,618 $25,856 $28,359
6/30/98 $30,371 $28,929 $25,949 $28,835
9/30/98 $28,315 $26,970 $24,053 $27,803
12/31/98 $29,126 $27,743 $24,716 $28,601
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.
4
<PAGE>
PERFORMANCE OVERVIEW
Investment Results Per Share
TOTAL RETURNS
For Periods Ended December 31, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS B CLASS D
SINCE SINCE
SIX ONE FIVE 10 INCEPTION INCEPTION
*MONTHS* YEAR YEARS YEARS 4/22/96 9/21/93
-------- ---- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (8.66)% (3.54)% 9.01% 10.74% n/a n/a
Without Sales Charge (4.10) 1.32 10.09 11.28 n/a n/a
Class B**
With CDSC+ (9.03) (4.03) n/a n/a 7.44% n/a
Without CDSC (4.46) 0.57 n/a n/a 8.40 n/a
Class D**
With 1% CDSC (5.50) (0.35) n/a n/a n/a n/a
Without CDSC (4.59) 0.57 9.17 n/a n/a 9.58%
Lipper High Current Yield*** (4.75) (0.44) 7.65 9.47 8.35++ 8.18+++
Merrill Lynch High Yield
Master Index*** (0.81) 3.66 9.01 11.08 9.69++ 9.27+++
NET ASSET VALUE
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------- --------------------
<S> <C> <C> <C>
Class A $6.95 $7.61 $7.55
Class B 6.95 7.61 7.55
Class D 6.95 7.62 7.55
DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For the Year Ended December 31, 1998
<CAPTION>
CAPITAL
DIVIDENDS@ YIELD@@ GAIN (LOSS)
----------- ------ ------------
<S> <C> <C> <C> <C> <C>
Class A $0.6879 9.88% Paid $0.021## WEIGHTED AVERAGE
Class B 0.6333 9.61 Realized (0.003) Maturity 7.82 years
Class D 0.6333 9.61 Unrealized (0.351)ss.
</TABLE>
RATINGS#
December 31, 1998
MOODY'S S&P
---------- --------
Baa/BBB -- 0.6%
Ba/BB 3.7% 5.3
B/B 77.1 71.5
Caa/CCC 14.9 17.5
C/C -- 0.4
Non-rated 4.3 4.7
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 charge
("CDSC"), charged on redemptions made within one year of the date of
purchase, declining to 1% in the sixth year and 0% thereafter. Returns for
Class D shares are calculated with and without the effect of the 1% CDSC,
charged on redemptions made within one year of the date of purchase.
*** The Lipper 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 CDSC is 5% for periods of one year or less, and 3% since inception.
++ From April 30, 1996.
+++ From September 30, 1993.
@ Represents per share amount paid or declared during the year ended December
31, 1998.
@@ Current yield, representing the annualized yield for the 30-day period
ended December 31, 1998, has been computed in accordance with SEC
regulations and will vary.
# Percentages based on current market values of long-term holdings.
## Represents realized gains from 1997, which were paid on June 17, 1998.
ss. Represents the per share amount of net unrealized depreciation of portfolio
securities as of December 31, 1998.
5
<PAGE>
PORTFOLIO OVERVIEW
Diversification of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS
DECEMBER 31,
---------------------
ISSUES COST VALUE 1998 1997
------ -------------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS, CONVERTIBLE ISSUES,
AND PREFERRED STOCKS:
Advertising .............................. 1 $ 10,726,125 $ 11,070,000 0.4 0.6
Agriculture .............................. -- -- -- -- 0.4
Automotive and Related ................... 1 5,114,062 5,000,000 0.2 --
Broadcasting ............................. 10 101,187,342 115,278,574 4.0 5.3
Cable Systems and Satellite Video ........ 15 262,994,848 256,432,155 9.0 13.1
Cellular ................................. 5 109,228,500 107,887,068 3.8 2.7
Chemicals ................................ 2 46,485,953 44,475,000 1.6 1.0
Computer and Related Services ............ 4 65,992,935 51,753,250 1.8 4.1
Consumer Products ........................ 13 161,464,555 140,256,500 4.9 3.8
Containers ............................... 1 20,858,194 20,600,000 0.7 1.1
Energy ................................... 3 29,223,705 24,695,875 0.9 0.6
Equipment ................................ 3 43,548,276 43,915,600 1.5 1.1
Financial Services ....................... 4 64,879,838 54,138,750 1.9 2.3
Food ..................................... 8 130,911,926 114,489,773 4.0 3.8
Gaming/Hotel ............................. 10 219,803,895 213,176,500 7.5 11.1
Health Care/Medical Products ............. 10 188,493,798 180,099,550 6.3 4.9
Industrial/Manufacturing ................. 8 108,410,986 106,442,795 3.8 1.8
Leisure .................................. 4 56,565,584 52,331,937 1.8 2.3
Metals ................................... 2 37,419,592 27,711,500 1.0 1.7
Paging ................................... 5 154,081,648 152,589,000 5.3 5.1
Paper and Packaging ...................... 1 21,556,651 18,430,125 0.6 1.1
Printing and Publishing .................. 11 179,335,267 174,776,569 6.1 2.3
Record Storage ........................... 1 8,250,625 8,325,000 0.3 0.5
Retailing ................................ 5 71,097,616 70,490,000 2.5 1.4
Supermarkets ............................. 3 56,256,468 57,517,500 2.0 2.0
Technology ............................... 6 139,758,970 127,306,578 4.4 3.4
Telecommunications ....................... 34 481,541,954 455,798,492 15.9 14.2
Textiles ................................. 1 11,703,163 12,161,250 0.4 --
Theaters ................................. 1 23,039,060 16,706,250 0.6 1.2
Transportation ........................... 1 23,240,568 23,737,500 0.8 0.7
Utilities ................................ 1 10,914,913 12,076,048 0.4 0.6
--- -------------- -------------- ----- -----
174 2,844,087,017 2,699,669,139 94.4 94.2
SHORT-TERM HOLDINGS AND
OTHER ASSETS LESS LIABILITIES ............ 2 158,492,546 158,492,546 5.6 5.8
--- -------------- -------------- ----- -----
NET ASSETS .................................. 176 $3,002,579,563 $2,858,161,685 100.0 100.0
=== ============== ============== ===== =====
</TABLE>
Largest Industries
December 31, 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Percent of
Net Assets AMOUNT
--------- ------
TELECOMMUNICATIONS 15.90% $455,798,492
CABLE SYSTEMS AND SATELLITE VIDEO 9.00% 256,432,155
GAMING/HOTEL 7.50% 213,176,500
HEALTH CARE/MEDICAL PRODUCTS 6.30% 180,099,550
PRINTING AND PUBLISHING 6.10% 174,776,569
6
<PAGE>
PORTFOLIO OVERVIEW
Largest Portfolio Changes
During Past Six Months
PRINCIPAL AMOUNT OR SHARES
-------------------------------
HOLDINGS
ADDITIONS INCREASE 12/31/98
- --------- ----------- -----------
CORPORATE BONDS:
ALARIS Medical
0% (11 1/8%), 8/1/2008 ............. $26,000,000 $26,000,000
Centennial Cellular
10 3/4%, 12/15/2008 ................ 20,000,000 20,000,000
Golden Sky Systems
12 3/8%, 8/1/2006 .................. 30,000,000 30,000,000
Metrocall
11%, 9/15/2008 ..................... 22,650,000 22,650,000
Price Communications
Cellular Holdings
11 1/4%, 8/15/2008 ................. 18,400,000 18,400,000
Sun Healthcare Group
9 1/2%, 7/1/2007 ................... 15,200,000 26,700,000
Texas Petrochemicals
11 1/8%, 7/1/2006 .................. 12,000,000 30,000,000
Trump Atlantic City Funding
11 1/4%, 5/1/2006 .................. 12,500,000 52,500,000
Verio 11 1/4%, 12/1/2008 ............... 13,200,000 13,200,000
PREFERRED STOCKS:
Crown Castle International
12 3/4% ............................ 15,255 shs. 15,255 shs.
PRINCIPAL AMOUNT
-------------------------------
HOLDINGS
REDUCTIONS DECREASE 12/31/98
- ---------- ----------- -----------
CORPORATE BONDS:
Centennial Cellular
10 1/8%, 5/15/2008 ................. $ 9,500,000 --
Clearview Cinema Group
10 7/8%, 6/1/2008 .................. 10,000,000 --
Diamond Triumph Automotive
9 1/4%, 4/1/2008 ................... 8,675,000 $ 5,000,000
ITCDeltaCom
11%, 6/1/2007 ...................... 7,500,000 --
MJD Communications
9 1/2%, 5/1/2008 ................... 5,805,000 --
Premier Parks
12%, 8/15/2003 ..................... 7,250,000 --
Premier Parks
0% (10%), 4/1/2008 ................. 15,000,000 --
Ryder TRS 10%, 12/1/2006 ............... 15,000,000 --
Sprint Spectrum
11%, 8/15/2006 ..................... 15,000,000 --
Unisys 12%, 4/15/2003 .................. 5,000,000 15,000,000
Largest portfolio changes from the previous period to the current period are
based on cost of purchases and proceeds from sales of securities.
- --------------------------------------------------------------------------------
Largest Portfolio Holdings
December 31, 1998
SECURITY VALUE
- ------- -----------
Paging Network 10%,
10/15/2008 .......................................... $55,728,750
Trump Atlantic City Funding
11 1/4%, 5/1/2006 ................................... 46,462,500
Casino America
12 1/2%, 8/1/2003 ................................... 41,663,125
Intermedia Capital Partners IV
11 1/4%, 8/1/2006 ................................... 40,115,000
EchoStar DBS
12 1/2%, 7/1/2002 ................................... 38,692,500
Advanced Micro Devices 11%,
8/1/2003 ............................................ 37,450,000
Price Communications Wireless
11 3/4%, 7/15/2007 .................................. 37,100,000
NEXTLINK Communications
12 1/2%, 4/15/2006 .................................. 36,890,000
Viasystems 9 3/4%,
6/1/2007 ............................................ 35,250,000
Pinnacle Holdings
0% (10%), 3/15/2008 ................................. 33,076,250
- --------------------------------------------------------------------------------
7
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
PRINCIPAL
AMOUNT
OR WARRANTS VALUE
----------- ---------------
CORPORATE BONDS 86.6%
ADVERTISING 0.4%
Adams Outdoor Advertising
10 3/4%, due 3/15/2006 $10,250,000 $ 11,070,000
--------------
AUTOMOTIVE AND
RELATED 0.2%
Diamond Triumph Automotive
9 1/4%, due 4/1/2008* 5,000,000 5,000,000
--------------
BROADCASTING 1.9%
Capstar Broadcassting
10 3/4%, due 5/15/2006 11,000,000 12,100,000
Capstar Broadcasting Partners
0% (12 3/4%+), due 2/1/2009 22,550,000 18,378,250
Cumulus Media 10 3/8%,
due 7/1/2008 11,000,000 11,715,000
Paxson Communications
11 5/8%, due 10/1/2002 11,375,000 11,716,250
--------------
53,909,500
--------------
CABLE SYSTEMS AND
SATELLITE VIDEO 8.3%
Avalon Cable Holdings 0%
(11 7/8%+), due 12/1/2008* 16,780,000 9,417,775
Avalon Cable of Michigan
Holdings 9 3/8%,
due 12/1/2008* 4,530,000 4,654,575
Charter Communications
Southeast Holdings
11 1/4%, due 3/15/2006 21,500,000 24,295,000
Charter Communications
Southeast Holdings
0% (14%+), due 3/15/2007 26,750,000 23,941,250
CSC Holdings 10 1/2%,
due 5/15/2016 13,675,000 16,136,500
Digital Television Services
12 1/2%, due 8/1/2007 17,500,000 19,162,500
EchoStar DBS 12 1/2%,
due 7/1/2002 33,500,000 38,692,500
Intermedia Capital Partners IV
11 1/4%, due 8/1/2006 35,500,000 40,115,000
Northland Cable Television
10 1/4%, due 11/15/2007 13,500,000 14,276,250
Pegasus Communications
9 3/4%, due 12/1/2006* 6,020,000 6,065,150
Pegasus Communications
(warrants expiring 1/1/2007)@ 875 wts. 15,313
Rogers Cablesystems 11%,
due 12/1/2015 $22,250,000 26,143,750
TCI Satellite Entertainment
10 7/8%, due 2/15/2007 39,500,000 13,232,500
--------------
236,148,063
--------------
PRINCIPAL
AMOUNT VALUE
----------- ---------------
CELLULAR 3.2%
American Cellular 101/2%,
due 5/15/2008* $17,500,000 $ 16,975,000
Centennial Cellular 103/4%,
due 12/15/2008* 20,000,000 20,000,000
Price Communications
Cellular Holdings
11 1/4%, due 8/15/2008 18,400,000 17,480,000
Price Communications Wireless
11 3/4%, due 7/15/2007 35,000,000 37,100,000
--------------
91,555,000
--------------
CHEMICALS 1.6%
Koppers Industry 9 7/8%,
due 12/1/2007 15,000,000 14,775,000
Texas Petrochemicals 11 1/8%,
due 7/1/2006 30,000,000 29,700,000
--------------
44,475,000
--------------
COMPUTER AND RELATED
SERVICES 1.8%
DecisionOne 9 3/4%,
due 8/1/2007 22,250,000 10,346,250
DecisionOne Holdings 0%
(11 1/2%+), due 8/1/2008 10,200,000 2,397,000
Unisys 12%, due 4/15/2003 15,000,000 16,875,000
Unisys 11 3/4%, due 10/15/2004 19,000,000 22,135,000
--------------
51,753,250
--------------
CONSUMER PRODUCTS 4.9%
AKI 10 1/2%, due 7/1/2008* 7,875,000 7,520,625
AKI Holding 0% (13 1/2%+),
due 7/1/2009 6,690,000 2,642,550
Albecca 10 3/4%,
due 8/15/2008* 4,455,000 4,388,175
Amscan Holdings 9 7/8%,
due 12/15/2007 15,750,000 14,568,750
Anchor Advanced Products
11 3/4%, due 4/1/2004 19,500,000 21,255,000
Diamond Brands 0%
(12 7/8%+), due 4/15/2009 15,875,000 5,635,625
Diamond Brands Operating
10 1/8%, due 4/15/2008 15,650,000 14,163,250
French Fragrances 10 3/8%,
due 5/15/2007 15,460,000 15,305,400
Global Health Sciences 11%,
due 5/1/2008 29,250,000 19,451,250
Iron Age 9 7/8%, due 5/1/2008 20,375,000 17,420,625
Iron Age Holding 0%
(12 1/8%+), due 5/1/2009 6,550,000 2,980,250
Moll Industries 10 1/2%,
due 7/1/2008 10,500,000 10,342,500
Windmere-Durable Holdings
10%, due 7/31/2008 4,875,000 4,582,500
--------------
140,256,500
--------------
- ----------
See footnotes on page 12.
8
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
PRINCIPAL
AMOUNT VALUE
----------- ---------------
CONTAINERS 0.7%
U.S. Can 10 1/8%, due
10/15/2006 $20,000,000 $ 20,600,000
--------------
ENERGY 0.9%
Abraxas Petroleum 11 1/2%,
due 11/1/2004 12,750,000 9,690,000
Universal Compression 0%
(9 7/8%+), due 2/15/2008 10,175,000 6,155,875
Universal Compression
Holdings 0% (11 3/8%+),
due 2/15/2009 14,750,000 8,850,000
--------------
24,695,875
--------------
EQUIPMENT 1.5%
Neff 10 1/4%, due 6/1/2008 8,675,000 8,544,875
Neff 10 1/4%, due 6/1/2008* 6,035,000 5,944,475
Williams Scotsman 9 7/8%,
due 6/1/2007 28,500,000 29,426,250
--------------
43,915,600
--------------
FINANCIAL SERVICES 1.9%
AMRESCO 10%,
due 3/15/2004 17,500,000 12,468,750
Dollar Financial Group 10 7/8%,
due 11/15/2006 17,250,000 17,508,750
Ocwen Capital Trust I 10 7/8%,
due 8/1/2027 16,000,000 12,880,000
Veritas Capital Trust 10%,
due 1/1/2028 12,500,000 11,281,250
--------------
54,138,750
--------------
FOOD 3.6%
AFC Enterprises 10 1/4%,
due 5/15/2007 16,545,000 17,289,525
Agrilink Foods 11 7/8%,
due 11/1/2008* 4,500,000 4,601,250
AmeriKing 10 3/4%,
due 12/1/2006 14,000,000 14,665,000
AmeriServe Food Distributors
10 1/8%, due 7/15/2007 33,625,000 29,253,750
B&G Foods 9 5/8%,
due 8/1/2007 11,500,000 11,270,000
Carrols 9 1/2%, due 12/1/2008* 5,710,000 5,838,475
Packaged Ice 9 3/4%,
due 2/1/2005 19,750,000 19,848,750
--------------
102,766,750
--------------
GAMING/HOTEL 7.5%
Alliance Gaming 10%,
due 8/1/2007 10,000,000 9,050,000
Ameristar Casinos 10 1/2%,
due 8/1/2004 23,850,000 21,822,750
PRINCIPAL
AMOUNT VALUE
----------- ---------------
GAMING/HOTEL (continued)
Aztar 13 3/4%,
due 10/1/2004 $ 8,500,000 $ 9,456,250
Casino America 12 1/2%,
due 8/1/2003 37,450,000 41,663,125
Casino Magic of Louisiana
13%, due 8/15/2003 12,875,000 14,613,125
Coast Hotels & Casinos 13%,
due 12/15/2002 19,750,000 22,218,750
Fitzgeralds Gaming 12 1/4%,
due 12/15/2004 12,500,000 6,937,500
Showboat Marina Casino
Partnership 13 1/2%,
due 3/15/2003 14,500,000 16,457,500
Trump Atlantic City Funding
11 1/4%, due 5/1/2006 52,500,000 46,462,500
Trump Hotels & Casino
Resorts Funding 15 1/2%,
due 6/15/2005 23,000,000 24,495,000
--------------
213,176,500
--------------
HEALTH CARE/MEDICAL
PRODUCTS 6.0%
Alaris Medical 9 3/4%,
due 12/1/2006 24,000,000 24,600,000
Alaris Medical 0% (11 1/8%+),
due 8/1/2008* 26,000,000 14,300,000
Alliance Imaging 9 5/8%,
due 12/15/2005 12,150,000 12,089,250
Dade International 11 1/8%,
due 5/1/2006 24,650,000 27,484,750
Everest Healthcare Services
9 3/4%, due 5/1/2008 20,000,000 19,900,000
Graphic Controls 12%,
due 9/15/2005 12,500,000 14,437,500
Paracelsus Healthcare 10%,
due 8/15/2006 22,175,000 20,068,375
Sun Healthcare Group
9 1/2%, due 7/1/2007 26,700,000 21,760,500
Vencor 9 7/8%,
due 5/1/2005 20,000,000 17,300,000
--------------
171,940,375
--------------
INDUSTRIAL/
MANUFACTURING 3.5%
Airxcel 11%, due 11/15/2007 20,350,000 20,553,500
Alliance Laundry System
9 5/8%, due 5/1/2008* 13,950,000 13,461,750
BPC Holding 12 1/2%,
due 6/15/2006 15,650,000 16,354,250
Coyne International Enterprises
11 1/4%, due 6/1/2008 12,000,000 11,820,000
Day International Group
9 1/2%, due 3/15/2008 12,500,000 12,281,250
- ----------
See footnotes on page 12.
9
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
PRINCIPAL
AMOUNT VALUE
----------- ---------------
INDUSTRIAL/
MANUFACTURING(continued)
Great Lakes Acquisition
0% (13 1/8%+), due
5/15/2009 $ 6,500,000 $ 3,347,500
Great Lakes Carbon
10 1/4%, due 5/15/2008 20,575,000 20,832,187
--------------
98,650,437
--------------
LEISURE 1.8%
Affinity Group Holding
11%, due 4/1/2007 25,000,000 26,000,000
AMF Bowling Worldwide
0% (12 1/4%+),
due 3/15/2006 15,250,000 8,768,750
AMF Group 10 7/8%,
due 3/15/2006 4,025,000 3,280,375
Premier Parks 9 1/4%,
due 4/1/2006 13,750,000 14,282,812
--------------
52,331,937
--------------
METALS 1.0%
Renco Metals 11 1/2%,
due 7/1/2003 16,650,000 17,232,750
Royal Oak Mines 12 3/4%,
due 8/15/2006 20,750,000 10,478,750
--------------
27,711,500
--------------
PAGING 5.3%
Metrocall 9 3/4%,
due 11/1/2007 26,000,000 24,960,000
Metrocall 11%,
due 9/15/2008* 22,650,000 22,876,500
Mobile Telecommunication
Technologies 13 1/2%,
due 12/15/2002 22,500,000 25,593,750
Paging Network 10%,
due 10/15/2008 57,750,000 55,728,750
ProNet 11 7/8%,
due 6/15/2005 22,000,000 23,430,000
--------------
152,589,000
--------------
PAPER AND
PACKAGING 0.6%
Crown Paper 11%,
due 9/1/2005 20,825,000 18,430,125
--------------
PRINTING
AND PUBLISHING 5.3%
Advanstar Communications
9 1/4%, due 5/1/2008 19,525,000 19,720,250
PRINCIPAL
AMOUNT VALUE
----------- ---------------
PRINTING AND
PUBLISHING (continued)
American Lawyer Media
9 3/4%, due 12/15/2007 $15,525,000 $ 16,029,562
American Lawyer Media
Holdings 0% (12 1/4%+),
due 12/15/2008 5,750,000 3,565,000
Liberty Group Publishing
9 3/8%, due 2/1/2008 15,000,000 14,775,000
Liberty Group Publishing
0% (11 5/8%+), due 2/1/2009 26,500,000 14,707,500
NBC Acquisition 0% (10 3/4%+),
due 2/15/2009 35,750,000 20,735,000
Perry-Judd 10 5/8%,
due 12/15/2007 14,225,000 15,007,375
Regional Independent
Media Group 10 1/2%,
due 7/1/2008 20,625,000 20,934,375
TransWestern Holdings 0%
(11 7/8%+), due 11/15/2008 21,400,000 14,231,000
Von Hoffman Press 10 7/8%,
due 5/15/2007* 10,750,000 11,126,250
--------------
150,831,312
--------------
RECORD STORAGE 0.3%
Pierce Leahy 11 1/8%,
due 7/15/2006 7,500,000 8,325,000
--------------
RETAILING 2.5%
Central Tractor 10 5/8%,
due 4/1/2007 16,000,000 16,480,000
Cole National Group 9 7/8%,
due 12/31/2006 10,250,000 10,660,000
Frank's Nursery & Crafts
10 1/4%, due 3/1/2008 9,000,000 8,910,000
Musicland Group 9 7/8%,
due 3/15/2008 17,800,000 17,355,000
TM Group Holdings 11%,
due 5/15/2008* 17,000,000 17,085,000
--------------
70,490,000
--------------
SUPERMARKETS 2.0%
Jitney-Jungle Stores of
America 12%,
due 3/1/2006 15,000,000 16,800,000
Jitney-Jungle Stores of
America 10 3/8%,
due 9/15/2007 18,375,000 18,926,250
Pathmark Stores 11 5/8%,
due 6/15/2002 22,350,000 21,791,250
--------------
57,517,500
--------------
- ----------
See footnotes on page 12.
10
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
PRINCIPAL
AMOUNT
OR WARRANTS VALUE
----------- ---------------
TECHNOLOGY 4.1%
Advanced Micro Devices 11%,
due 8/1/2003 $35,000,000 $ 37,450,000
Hadco 91/2%, due 6/15/2008 21,250,000 21,143,750
MCMS 93/4%, due 3/1/2008 20,225,000 17,191,250
Therma-Wave 10 5/8%,
due 5/15/2004 15,000,000 7,575,000
Viasystems 9 3/4%,
due 6/1/2007 37,500,000 35,250,000
--------------
118,610,000
--------------
TELECOMMUNICATIONS 13.6%
BTI Telecom 10 1/2%,
due 9/15/2007 22,750,000 16,721,250
CapRock Communications
12%, due 7/15/2008 10,000,000 9,300,000
Crown Castle International
0% (10 5/8%+), due 11/15/2007 17,750,000 12,513,750
Exodus Communications
11 1/4%, due 7/1/2008 4,720,000 4,743,600
Facilicom International
10 1/2%, due 1/15/2008 26,500,000 21,332,500
GCI 9 3/4%, due 8/1/2007 15,000,000 14,925,000
GlobalStar 11 1/4%,
due 6/15/2004 25,125,000 19,095,000
GlobalStar 10 3/4%,
due 11/1/2004 6,400,000 4,608,000
Golden Sky Systems 12 3/8%,
due 8/1/2006* 30,000,000 31,200,000
ICG Holdings 0% (11 5/8%+),
due 3/15/2007 16,500,000 10,725,000
Intermedia Communications
(warrants expiring 6/1/2000)*@ 4,000 wts. 165,132
IXC Communications 9%,
due 4/15/2008 $ 8,500,000 8,563,750
Nextel Communications
0% (10.65%+),
due 9/15/2007 25,000,000 16,062,500
NEXTLINK Communications
12 1/2%, due 4/15/2006 34,000,000 36,890,000
Orbcomm Global 14%,
due 8/15/2004 7,470,000 7,731,450
Pinnacle Holdings 0%
(10%+), due 3/15/2008 56,300,000 33,076,250
Powertel 11 1/8%, due 6/1/2007 22,500,000 22,500,000
PSINet 10%, due 2/15/2005 17,750,000 17,661,250
RCN 10%, due 10/15/2007 15,275,000 14,664,000
Splitrock Services 11 3/4%,
due 7/15/2008 4,340,000 3,775,800
Splitrock Services (warrants
expiring 7/15/2008)@ 4,340 wts. 47,740
PRINCIPAL
AMOUNT,
SHARES OR
OR WARRANTS VALUE
----------- ---------------
TELECOMMUNICATIONS (continued)
Talton Holdings 11%,
due 6/30/2007 $18,000,000 $ 17,190,000
Verio 13 1/2%,
due 6/15/2004 21,125,000 22,920,625
Verio (warrants expiring
6/15/2004)@ 90,000 wts. 3,150,000
Verio 10 3/8%, due 4/1/2005 $16,000,000 15,760,000
Verio 11 1/4%, due 12/1/2008* 13,200,000 13,332,000
Viatel 11 1/4%,
due 4/15/2008 9,625,000 9,889,688
--------------
388,544,285
--------------
TEXTILE 0.4%
Tropical Sportswear Int'l.
11%, due 6/15/2008 11,500,000 12,161,250
--------------
THEATERS 0.6%
Hollywood Theaters 10 5/8%,
due 8/1/2007 22,500,000 16,706,250
--------------
TRANSPORTATION 0.8%
Atlas Air 10 3/4%,
due 8/1/2005 22,500,000 23,737,500
--------------
UTILITIES 0.4%
Midland Cogeneration
Venture 11 3/4%, 7/23/2005 10,250,000 12,076,048
--------------
TOTAL CORPORATE BONDS
Cost ($2,605,510,192) 2,474,113,307
--------------
PREFERRED STOCKS 6.9%
BROADCASTING 1.3%
Capstar Broadcasting
Partners 12% 93,212 shs. 10,649,471
Capstar Communications 12 5/8% 50,000 6,050,000
Cumulus Media 13 3/4% 6,611 7,123,353
Sinclair Capital 11 5/8% 130,000 14,202,500
--------------
38,025,324
--------------
CABLE SYSTEMS AND
SATELLITE VIDEO 0.7%
Pegasus Communications
12 3/4% (Series A) 15,897 16,731,592
Pegasus Communications
12 3/4% (units) 3,500 3,552,500
--------------
20,284,092
--------------
CELLULAR 0.6%
Rural Cellular 11 3/8% 17,514 16,332,068
--------------
FOOD 0.4%
Nebco Evans Holding 11 1/4% 233,294 11,723,023
--------------
11
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1998
SHARES VALUE
----------- ---------------
HEALTH CARE/
MEDICAL PRODUCTS 0.3%
River Holding 11 1/2% 135,422 $ 8,159,175
--------------
INDUSTRIAL/
MANUFACTURING 0.3%
Day International Group 12 1/4% 8,447 7,792,358
--------------
PRINTING AND
PUBLISHING 0.8%
Liberty Group Publishing
14 3/4% 948,327 23,945,257
--------------
TECHNOLOGY 0.3%
MCMS 12 1/2% 109,048 8,696,578
--------------
TELECOMMUNICATIONS 2.2%
Crown Castle International
12 3/4%* 15,255 15,388,481
Global Crossing Holding 10 1/2% 68,550 6,735,038
IXC Communications 12 1/2% 10,568 10,832,477
Nextel Communications 11 1/8% 25,444 22,963,210
NEXTLINK
Communications 14% 150,157 7,995,860
--------------
63,915,066
--------------
TOTAL PREFERRED STOCKS
(Cost $218,347,563) 198,872,941
--------------
CONVERTIBLE PREFERRED
STOCKS 0.9%
BROADCASTING 0.8%
Chancellor Media $3 150,000 14,006,250
Chancellor Media $3* 100,000 9,337,500
--------------
23,343,750
--------------
SHARES VALUE
----------- ---------------
TELECOMMUNICATIONS 0.1%
IXC Communications 6 3/4%* 90,655 $ 3,002,947
Viatel 10% 3,049 336,194
--------------
3,339,141
--------------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $20,229,262) 26,682,891
--------------
SHORT-TERM HOLDINGS 3.7%
(Cost $103,900,000) 103,900,000
--------------
TOTAL INVESTMENTS 98.1%
(Cost $2,947,987,017) 2,803,569,139
OTHER ASSETS LESS
LIABILITIES 1.9% 54,592,546
--------------
NET ASSETS 100.0% $2,858,161,685
==============
- ----------
* 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>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C>
Investments, at value:
Long-term holdings (cost $2,844,087,017) ..................................... $2,699,669,139
Short-term holdings (cost $103,900,000) ...................................... 103,900,000 $2,803,569,139
--------------
Cash ............................................................................................. 322,389
Receivable for interest and dividends ............................................................ 67,426,482
Receivable for Shares of Beneficial Interest sold ................................................ 14,922,368
Receivable for securities sold ................................................................... 493,816
Expenses prepaid to shareholder service agent .................................................... 462,497
Other ............................................................................................ 65,075
................................................................................................. --------------
Total Assets ..................................................................................... 2,887,261,766
--------------
LIABILITIES:
Payable for Shares of Beneficial Interest repurchased ............................................ 14,206,839
Dividend payable ................................................................................. 10,398,898
Accrued expenses, taxes, and other ............................................................... 4,494,344
--------------
Total Liabilities ................................................................................ 29,100,081
--------------
Net Assets ....................................................................................... $2,858,161,685
==============
COMPOSITION OF NET ASSETS:
Shares of Beneficial Interest, at par (unlimited shares authorized; $0.001 par
value; 411,387,238 shares outstanding):
Class A ........................................................................................ $151,183
Class B ........................................................................................ 149,436
Class D ........................................................................................ 110,768
Additional paid-in capital ....................................................................... 3,000,170,218
Undistributed net investment income .............................................................. 4,786,112
Accumulated net realized loss .................................................................... (2,788,154)
Net unrealized depreciation of investments ....................................................... (144,417,878)
--------------
Net Assets ....................................................................................... $2,858,161,685
==============
NET ASSET VALUE PER SHARE:
Class A ($1,050,340,166 / 151,182,905 shares) .................................................... $6.95
=====
Class B ($1,037,993,680 / 149,435,774 shares) .................................................... $6.95
=====
Class D ($769,827,839 / 110,768,559 shares) ...................................................... $6.95
=====
</TABLE>
- ----------
See Notes to Financial Statements.
13
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Interest ............................................ $ 238,943,441
Dividends ........................................... 17,901,982
-------------
Total Investment Income .............................................. $ 256,845,423
EXPENSES:
Distribution and service fees ....................... 17,308,118
Management fee ...................................... 14,375,619
Shareholder account services ........................ 4,612,741
Registration ........................................ 625,957
Shareholder reports and communications .............. 293,673
Custody and related services ........................ 284,791
Auditing and legal fees ............................. 89,088
Trustees' fees and expenses ......................... 39,778
Miscellaneous ....................................... 347,274
-------------
Total Expenses ....................................................... 37,977,039
-------------
Net Investment Income ................................................ 218,868,384
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments ................... (1,259,258)
Net change in unrealized appreciation of investments (214,244,874)
-------------
Net Loss on Investments .............................................. (215,504,132)
-------------
Increase in Net Assets from Operations ............................... $ 3,364,252
=============
</TABLE>
- ----------
See Notes to Financial Statements.
14
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income ....................................................................... $ 218,868,384 $ 118,769,147
Net realized gain (loss) on investments ..................................................... (1,259,258) 8,663,643
Net change in unrealized appreciation of investments ........................................ (214,244,874) 47,951,783
------------- -------------
Increase in Net Assets from Operations ...................................................... 3,364,252 175,384,573
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A .................................................................................. (87,074,109) (52,770,232)
Class B .................................................................................. (71,515,694) (29,874,994)
Class D .................................................................................. (57,845,902) (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 ................................................... (223,392,163) (116,415,714)
------------- -------------
<CAPTION>
SHARES
-----------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997
---------- ----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
<S> <C> <C> <C> <C>
Net proceeds from sale of shares:
Class A .............................................. 80,413,014 50,672,448 594,288,030 373,051,522
Class B .............................................. 78,733,227 57,673,666 579,656,818 424,606,561
Class D .............................................. 51,489,047 37,881,266 379,577,409 278,799,066
Investment of dividends:
Class A .............................................. 6,694,630 3,776,320 48,928,569 27,853,774
Class B .............................................. 4,467,385 1,826,561 32,568,827 13,519,667
Class D .............................................. 4,758,316 2,805,300 34,810,415 20,704,607
Exchanged from associated Funds:
Class A .............................................. 61,852,001 17,851,841 452,271,367 131,875,215
Class B .............................................. 6,769,539 3,688,065 48,425,027 27,115,290
Class D .............................................. 8,049,511 6,529,814 58,615,401 47,980,993
Shares issued in payment of gain distributions:
Class A .............................................. 258,290 -- 1,968,170 --
Class B .............................................. 201,710 -- 1,537,030 --
Class D .............................................. 194,174 -- 1,479,611 --
--------------- --------------- --------------- ---------------
Total ................................................... 303,880,844 182,705,281 2,234,126,674 1,345,506,695
--------------- --------------- --------------- ---------------
Cost of shares repurchased:
Class A .............................................. (30,909,303) (13,770,227) (226,531,287) (101,399,738)
Class B .............................................. (8,616,802) (2,704,575) (62,888,247) (20,021,448)
Class D .............................................. (14,976,376) (7,327,368) (109,341,373) (53,826,777)
Exchanged into associated Funds:
Class A .............................................. (66,540,471) (15,408,040) (488,820,731) (114,001,958)
Class B .............................................. (9,097,294) (3,899,595) (65,245,307) (28,866,957)
Class D .............................................. (9,593,313) (5,638,449) (69,803,699) (41,466,552)
--------------- --------------- --------------- ---------------
Total ................................................... (139,733,559) (48,748,254) (1,022,630,644) (359,583,430)
--------------- --------------- --------------- ---------------
Increase in Net Assets from
Transactions in Shares of
Beneficial Interest .................................. 164,147,285 133,957,027 1,211,496,030 985,923,265
=============== =============== --------------- ---------------
Increase in Net Assets ...................................................................... 991,468,119 1,044,892,124
NET ASSETS:
Beginning of year ........................................................................... 1,866,693,566 821,801,442
--------------- ---------------
End of Year (including undistributed net investment
income of $4,786,112 and $2,353,433, respectively) ....................................... $ 2,858,161,685 $ 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 charge ("CDSC") of 1% on
redemptions within 18 months of purchase. Class B shares are sold without an
initial sales charge but are subject to a distribution fee of 0.75%, a service
fee of up to 0.25% on an annual basis, and a CDSC, if applicable, of 5% on
redemptions in the first year of purchase, declining to 1% in the sixth year and
0% thereafter. Class B shares will automatically convert to Class A shares on
the last day of the month that precedes the eighth anniversary of their date of
purchase. Class D shares are sold without an initial sales charge but are
subject to a distribution fee of up to 0.75% and a service fee of up to 0.25% on
an annual basis, and a CDSC, if applicable, of 1% imposed on redemptions made
within one year of purchase. The three classes of shares represent interests in
the same portfolio of investments, have the same rights and are generally
identical in all respects except that each class bears its separate distribution
and certain other class expenses, and has exclusive voting rights with respect
to any matter on which a separate vote of any class is required.
2. Significant Accounting Policies -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Fund:
a. Security Valuation -- Investments in 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
Trustees. Secu-rities 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 year ended
December 31, 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 year ended December 31, 1998, amounted to $1,950,431,577 and $817,349,941,
respectively.
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes, and the tax basis gross unrealized appreciation and depreciation of
portfolio securities amounted to $62,066,129 and $208,077,206, respectively.
4. Short-Term Investments -- At December 31, 1998, the Fund owned short-term
investments which matured in less than seven days.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 and 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 Advisors, Inc. (the "Distributor") (formerly Seligman Financial
Services, Inc.), agent for the distribution of the Fund's shares, and an
affiliate of the Manager, received concessions of $1,128,663 from sales of Class
A shares after commissions of $8,645,519 were paid to dealers.
The Fund has an Administration, Shareholder Services and Distribution Plan
(the "Plan") with respect to distribution of its shares. Under the Plan, with
respect to Class A shares, service organizations can enter into agreements with
the Distributor and receive a continuing fee of up to 0.25% on an annual basis,
payable quarterly, of the average daily net assets of the Class A shares
attributable to the particular service organizations for providing personal
services and/or the maintenance of shareholder accounts. The Distributor charges
such fees to the Fund pursuant to the Plan. For the year ended December 31,
1998, fees incurred under the Plan aggregated $2,302,261, or 0.25% per annum of
the average daily net assets of Class A shares.
Under the Plan, with respect to Class B and Class D shares, service
organizations can enter into agreements with the Distributor and receive a
continuing fee for providing personal services and/or the maintenance of
shareholder accounts of up to 0.25% on an annual basis of the average daily net
assets of the Class B and Class D shares for which the organizations are
responsible; and, for Class D shares only, fees for providing other distribution
assistance of up to 0.75% on an annual basis of such average daily net assets.
Such fees are paid monthly by the Fund to the Distributor pursuant to the Plan.
With respect to Class B shares, a distribution fee of 0.75% on an annual
basis of average daily net assets is payable monthly by the Fund to the
Distributor; however, the Distributor has sold its rights to this fee to a third
party (the "Purchaser"), which provides funding to the Distributor to enable it
to pay commissions to dealers at the time of the sale of the related Class B
shares.
For the year ended December 31, 1998, fees incurred under the Plan,
equivalent to 1% per annum of the average daily net assets of Class B and Class
D shares, amounted to $8,288,106 and $6,717,751, respectively.
The Distributor is entitled to retain any CDSC imposed on redemptions of
Class D shares occurring within one year of purchase and on certain redemptions
of Class A shares occurring within 18 months of purchase. For the year ended
December 31, 1998, such charges amounted to $452,723.
The Distributor has sold its rights to collect any CDSC imposed on
redemptions of Class B shares to the Purchaser. In connection with the sale of
its rights to collect any CDSC and the distribution fees with respect to Class B
shares described above, the Distributor receives payments from the Purchaser
based on the value of Class Bshares sold. The aggregate amount of such payments
retained by the Distributor for the year ended December 31, 1998, amounted to
$578,678.
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, 1998, Seligman Services, Inc. received commissions of
$83,013 from the sale of Fund shares. Seligman Services, Inc. also received
distribution and service fees of $55,399, pursuant to the Plan.
Seligman Data Corp., which is owned by certain associated investment
companies, charged the Fund at cost $4,612,741 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. 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 December 31, 1998, of $37,449
is included in other liabilities. Deferred fees and related accrued earnings are
not deductible for federal income tax purposes until such amounts are paid.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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%. The
Fund incurs a commitment fee of 0.08% per annum on its share of the unused
portion of the credit facility. The credit facility may be drawn upon only for
temporary purposes and is subject to certain other customary restrictions. The
credit facility commitment expires one year from the date of the agreement but
is renewable with the consent of the participating banks. To date, the Fund has
not borrowed from the credit facility.
7. Loss Carryforward -- At December 31, 1998, the Fund had a net loss
carryforward for federal income tax purposes of $443,841, which is available for
offset against future taxable net capital gains, expiring in 2006. Accordingly,
no capital gain distributions are expected to be paid to shareholders until net
capital gains have been realized in excess of the available capital loss
carryforwards.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand each Class's financial
performance for the past five years or from its inception, if less than five
years. Certain information reflects financial results for a single share of
Beneficial Interest of a Class that was held throughout the periods shown. Per
share amounts are calculated using average shares outstanding. "Total return"
shows the rate that you would have earned (or lost) on an investment in each
Class, assuming you reinvested all your dividends and capital gain
distributions. Total returns do not reflect any sales charges, and are not
annualized for periods of less than one year.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Year ................... $7.55 $7.25 $6.96 $6.35 $6.94
----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income ................................ 0.70 0.70 0.69 0.65 0.65
Net realized and unrealized gain (loss) on investments (0.59) 0.28 0.29 0.61 (0.59)
----- ----- ----- ----- -----
Total from Investment Operations ..................... 0.11 0.98 0.98 1.26 0.06
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income ................. (0.69) (0.68) (0.69) (0.65) (0.65)
Distributions from net realized capital gains ........ (0.02) -- -- -- --
----- ----- ----- ----- -----
Total Distributions .................................. (0.71) (0.68) (0.69) (0.65) (0.65)
----- ----- ----- ----- -----
Net Asset Value, End of Year ......................... $6.95 $7.55 $7.25 $6.96 $6.35
===== ===== ===== ===== =====
TOTAL RETURN: ........................................ 1.32% 14.26% 14.82% 20.72% 0.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s omitted) ............... $1,050,340 $750,461 $408,303 $182,129 $59,033
Ratio of expenses to average net assets .............. 1.10% 1.14% 1.16% 1.09% 1.13%
Ratio of net income to average net assets ............ 9.46% 9.42% 9.80% 9.73% 9.73%
Portfolio turnover rate .............................. 35.34% 61.78% 119.33% 173.39% 184.75%
</TABLE>
19
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------
YEAR ENDED
DECEMBER 31, 4/22/96*
------------------------------- TO
1998 1997 12/31/96
------------- -------- --------
Per Share Data:
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................. $7.55 $7.26 $7.06
------------- -------- --------
Income from Investment Operations:
Net investment income ................................ 0.64 0.64 0.45
Net realized and unrealized gain (loss) on investments (0.59) 0.28 0.20
------------- -------- --------
Total from Investment Operations ..................... 0.05 0.92 0.65
------------- -------- --------
Less Distributions:
Dividends from net investment income ................. (0.63) (0.63) (0.45)
Distributions from net realized capital gains ........ (0.02) -- --
------------- -------- --------
Total Distributions .................................. (0.65) (0.63) (0.45)
------------- -------- --------
Net Asset Value, End of Period ....................... $6.95 $7.55 $7.26
============= ======== ========
Total Return: ........................................ 0.57% 13.24% 9.11%
Ratios/Supplemental Data:
Net assets, end of period (000s omitted) ............. $1,037,994 $581,235 $147,970
Ratio of expenses to average net assets .............. 1.85% 1.90% 1.90%+
Ratio of net income to average net assets ............ 8.71% 8.66% 9.11%+
Portfolio turnover rate .............................. 35.34% 61.78% 119.33%++
<CAPTION>
CLASS D
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- -------- --------
Per Share Data:
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ................... $7.55 $7.26 $6.96 $6.35 $6.94
------------- ------------- ------------- -------- --------
Income from Investment Operations:
Net investment income ................................ 0.64 0.64 0.64 0.60 0.57
Net realized and unrealized gain (loss) on investments (0.59) 0.28 0.30 0.61 (0.59)
------------- ------------- ------------- -------- --------
Total from Investment Operations ..................... 0.05 0.92 0.94 1.21 (0.02)
------------- ------------- ------------- -------- --------
Less Distributions:
Dividends from net investment income ................. (0.63) (0.63) (0.64) (0.60) (0.57)
Distributions from net realized capital gains ........ (0.02) -- -- -- --
------------- ------------- ------------- -------- --------
Total Distributions .................................. (0.65) (0.63) (0.64) (0.60) (0.57)
------------- ------------- ------------- -------- --------
Net Asset Value, End of Year ......................... $6.95 $7.55 $7.26 $6.96 $6.35
============= ============= ============= ======== ========
Total Return: ........................................ 0.57% 13.24% 14.10% 19.67% (0.30)%
Ratios/Supplemental Data:
Net assets, end of year (000s omitted) ............... $769,828 $534,998 $265,528 $90,153 $9,249
Ratio of expenses to average net assets .............. 1.85% 1.90% 1.92% 1.91% 2.19%
Ratio of net income to average net assets ............ 8.71% 8.66% 9.02% 8.86% 8.68%
Portfolio turnover rate .............................. 35.34% 61.78% 119.33% 173.39% 184.75%
</TABLE>
- ----------
* Commencement of offering of shares.
+ Annualized.
++ For the year ended December 31, 1996.
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 December
31, 1998, the related statements of operations for the year then ended and of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the Fund's custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Seligman High-Yield
Bond Series as of December 31, 1998, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
January 29, 1999
- --------------------------------------------------------------------------------
21
<PAGE>
FEDERAL TAX STATUS OF 1998 DIVIDEND AND GAIN
DISTRIBUTIONS FOR TAXABLE ACCOUNTS
- --------------------------------------------------------------------------------
The monthly dividends paid to Class A, B, and D shareholders in 1998 are taxable
as ordinary income for federal tax purposes regardless of whether they were
received in cash or in shares. Under the Internal Revenue Code, 6.97% of the
dividends paid to Class A, B, and D shareholders has been designated as
qualifying for the dividends received deduction available to cor-porate
shareholders. In order to claim the dividends received deduction for these
distributions, corporate shareholders must have held the Fund's shares for 46
days or more during the 90-day period beginning 45 days before each ex-dividend
date.
A long-term capital gain distribution of $0.021 per share from 1997
undistributed net realized gain was paid June 17, 1998 to Class A, B, and D
shareholders. In 1997, Congress revised the capital gains provisions so that,
depending on how long a security was owned when it was sold, investors may have
been faced with a 28% capital gains rate, a 20% rate, or both. In October 1998,
Congress simplified the capital gains provisions so that, generally, all gains
on securities held more than one year are to be taxed at a maximum 20% rate. The
distribution from net long-term gain is designated as a "capital gain dividend"
for federal income tax purposes and is taxable to shareholders in 1998 as a
long-term gain from the sale of capital assets, no matter how long shares have
been owned or whether the distribution was paid in additional shares or cash.
However, if shares on which a long-term capital gain distribution was received
are subsequently sold, and such shares were held for six months or less, any
loss on the sale would be treated as long-term to the extent it offsets the
long-term capital gain distribution.
If the gain distribution was paid in shares, the per share cost basis for
federal income tax purposes is $7.62 for Class A, Class B, and Class D shares.
A 1998 year-end statement of account activity and a 1998 tax package, which may
include a Form 1099-DIV, a Form 1099-B, and/or a Cost Basis Statement, have been
mailed to each shareholder. Form 1099-DIV shows the distributions paid to the
shareholder during the year. Form 1099-B shows the proceeds of any redemptions
paid to the shareholder during the year. Cost Basis Statements report all sales
or exchanges from a shareholder's account which may have resulted in a capital
gain or loss in 1998. The information shown on Forms 1099-DIV and 1099-B is
reported to the Internal Revenue Service as required by federal regulations.
- --------------------------------------------------------------------------------
22
<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.
Director, New York Presbyterian Hospital
Betsy S. Michel 2, 4
Trustee, The Geraldine R. Dodge Foundation
Chairman of the Board of Trustees, St. George's School
William C. Morris 1
Chairman
Chairman of the Board,
J. & W. Seligman & Co. Incorporated
Chairman, Carbo Ceramics Inc.
Director, Kerr-McGee Corporation
James C. Pitney 3, 4
Retired Partner, Pitney, Hardin, Kipp & Szuch, Law Firm
James Q. Riordan 3, 4
Director, KeySpan Energy Corporation
Trustee, Committee for Economic Development
Director, Public Broadcasting Service
Richard R. Schmaltz 1
Managing Director, Director of Investments,
J. & W. Seligman & Co. Incorporated
Trustee Emeritus, Colby College
Robert L. Shafer 3, 4
Retired Vice President, Pfizer Inc.
James N. Whitson 2, 4
Director and Consultant, Sammons Enterprises, Inc.
Director, C-SPAN
Director, CommScope, Inc.
Brian T. Zino 1
President
President, J. & W. Seligman & Co. Incorporated
Chairman, Seligman Data Corp.
Director, ICIMutual Insurance Company
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
- --------------------------------------------------------------------------------
23
<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 Advisors, Inc.
100 Park Avenue
New York, NY 10017
Shareholder Service Agent
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
Important Telephone Numbers
(800) 221-2450 Shareholder Services
(800) 445-1777 Retirement Plan
Services
(212) 682-7600 Outside the United States
(800) 622-4597 24-Hour Automated Telephone Access Service
24
<PAGE>
GLOSSARY OF FINANCIAL TERMS
Capital Gain Distribution -- A payment to mutual fund shareholders of profits
realized on the sale of securities in a fund's portfolio. Capital
Appreciation/Depreciation -- An increase or decrease in the market value of a
mutual fund's portfolio securities, which is reflected in the net asset value of
the fund's shares. Capital appreciation/depreciation of an individual security
is in relation to the original purchase price.
Compounding -- The change in the value of an investment as shareholders receive
earnings on their investment's earnings. For example, if $1,000 is invested at a
fixed rate of 7% a year, the initial investment is worth $1,070 after one year.
If the return is compounded, second year earnings will not be based on the
original $1,000, but on the $1,070, which includes the first year's earnings.
Contingent Deferred Sales Charge (CDSC) -- Depending on the class of shares
owned, a fee charged by a mutual fund when shares are sold back to the fund (the
CDSC expires after a fixed time period).
Dividend -- A payment by a mutual fund, usually derived from the fund's net
investment income (dividends and interest less expenses).
Dividend Yield -- A measurement of a fund's dividend as a percentage of the
maximum offering price.
Expense Ratio -- The cost of doing business for a mutual fund, expressed as a
percent of the fund's net assets.
Investment Objective -- The shared investment goal of a fund and its
shareholders.
Management Fee -- The amount paid by a mutual fund to its investment advisor(s).
Multiple Classes of Shares -- Although an individual mutual fund invests in only
one portfolio of securities, it may offer investors several purchase options
which are "classes" of shares. Multiple classes permit shareholders to choose
the fee structure that best meets their needs and goals. Generally, each class
will differ in terms of how and when sales charges and certain fees are
assessed.
National Association of Securities Dealers, Inc. (NASD) -- A self-regulatory
body with authority over firms that distribute mutual funds.
Net Asset Value (NAV) Per Share -- The market worth of one fund share, obtained
by adding a mutual fund's total assets (securities, cash, and any accrued
earnings), subtracting liabilities, and dividing the resulting net assets by the
number of shares outstanding.
Offering Price (OP) -- The price at which a mutual fund's share can be
purchased. The offering price per share is the current net asset value plus any
sales charge.
Portfolio Turnover -- A measure of the trading activity in a mutual fund's
investment portfolio that reflects how often securities are bought and sold.
Prospectus -- The legal document describing a mutual fund to all prospective
shareholders. It contains information required by the Securities and Exchange
Commission (SEC), such as a fund's investment objective and policies, services,
investment restrictions, how shares are bought and sold, fund fees and other
charges, and the fund's financial highlights.
SEC Yield -- SEC Yield refers to the net income earned by a fund during a recent
30-day period. This income is annualized and then divided by the maximum
offering price per share on the last day of the 30-day period. The SEC Yield
formula reflects semiannual compounding.
Securities and Exchange Commission -- The primary US federal agency that
regulates the registration and distribution of mutual fund shares.
Statement of Additional Information -- A document that contains updated or more
detailed information about an investment company and that supplements the
prospectus. It is available at no charge upon request.
Total Return -- A measure of a fund's performance encompassing all elements of
return. Reflects the change in share price over a given period and assumes all
distributions are taken in additional fund shares. The Average Annual Total
Return represents the average annual compounded rate of return for the periods
presented.
Yield on Securities -- For bonds, the current yield is the coupon rate of
interest, divided by the purchase price. For stocks, the yield is measured by
dividing dividends paid by the market price of the stock.
- ----------
Adapted from the Investment Company Institute's 1998 Mutual Fund Fact Book.
25
<PAGE>
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.
SELIGMAN ADVISORS, INC.
an affiliate of
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J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
TXHY2 12/98 Printed on Recycled Paper
