EX-99.17(H) 12 c56926_module.txt EX-17(h) -------------------------------------------------------------------------------- Seligman High-Yield Fund -------------------------------------------------------------------------------- Annual Report December 31, 2008 Seeking a High Level of Current Income and the Potential for Capital Appreciation by Investing in a Diversified Portfolio of High-Yield Securities [SELIGMAN INVESTMENTS LOGO] -------------------------------------------------------------------------------- Table of Contents Interview With Your Portfolio Managers 2 Performance and Portfolio Overview 4 Understanding and Comparing Your Fund's Expenses 9 Portfolio of Investments 10 Statement of Assets and Liabilities 16 Statement of Operations 17 Statements of Changes in Net Assets 18 Notes to Financial Statements 19 Financial Highlights 27 Report of Independent Registered Public Accounting Firm 31 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement 32 Proxy Results 36 Trustees and Officers 37 Required Federal Income Tax Information 41 Additional Fund Information 42 1 Interview With Your Portfolio Managers NOTE: IN CONJUNCTION WITH THE ACQUISITION OF THE FUND'S PREVIOUS INVESTMENT MANAGER BY RIVERSOURCE INVESTMENTS, LLC, THE SELIGMAN HIGH YIELD TEAM IS NO LONGER RESPONSIBLE FOR THE PORTFOLIO MANAGEMENT OF THE FUND. THE FUND IS NOW MANAGED BY RIVERSOURCE INVESTMENTS. Q: HOW DID SELIGMAN HIGH-YIELD FUND PERFORM DURING THE YEAR ENDED DECEMBER 31, 2008? A: For the year ended December 31, 2008, Seligman High-Yield Fund posted a total return of -32.2%, based on the net asset value of Class A shares. In comparison, the Fund's peers, as measured by the Lipper High Current Yield Funds Average returned -26.0%. The Barclays Capital U.S. Corporate High Yield 2% Issuer Capped Index returned -25.9%. The JPMorgan Global High Yield Index returned -26.8%. Q: HOW DID MARKET CONDITIONS AND ECONOMIC EVENTS IMPACT THE PERFORMANCE OF THE FUND DURING THE YEAR? A: High-yield bonds lost ground as 2008 began to unfold amid continued market-wide risk aversion. Treasury prices continued their rally, with the 10-year note leading all major indices. As equities enjoyed a short-lived rally during the second quarter, treasuries sold off and spreads began to narrow. The end of June brought a reversal of course as equities began to sell off and spreads began to widen once again. An ongoing litany of bad news, beginning in mid-September with the bankruptcy of Lehman Brothers, drove credit markets, in general, and the high yield corporate bond market, in particular, to decline sharply. High yield corporate bond spreads, or the yield differential between these securities and Treasuries, widened significantly, as a succession of financial institutions went out of business, were forced to merge or were taken over by the US government. The effect of the near-collapse of the financial system on the high yield corporate bond market was compounded during the period by poor technical and fundamental factors. On the technicals side, there was tremendous forced selling, as hedge funds and others liquidated portfolios. This hit the high yield bank loan sector particularly hard, but dragged down high yield corporate bonds as well. At the same time, growing concerns about a consumer-led recession led to weak fundamentals for many companies issuing debt. The toxic combination of these factors led to extremely high levels of investor risk aversion and thus the significant market decline in the high yield corporate bond market. At the end of the November, high yield corporate bond spreads stood at the widest levels seen in recent history. December saw relief as the US government stepped in with a bailout of GMAC. This injection of capital into the auto industry fueled a rally that, considering the scarcity of available issues, caused levels to trade up sharply. Q: WHAT INVESTMENT STRATEGIES AND TECHNIQUES MATERIALLY IMPACTED THE FUND'S PERFORMANCE DURING THE YEAR? A: The Fund lagged its benchmark early in the year, due primarily to its long-term strategic allocation to select equities and equity-linked notes. A broad-based decline across all sectors of the benchmark generated disappointing per- 2 Interview With Your Portfolio Managers formance for the Fund. The Fund's positioning in the health care, wireline telecommunications and cable TV industries were increased as these defensive, comparatively stable sectors proved to be less volatile than others in the high yield bond market. The automotive industry and technology sector fared poorly during the year, and though the Fund's positions in these areas were decreased in the second half, the Fund's exposure weighed negatively on relative investment results. The Fund's positioning in the gaming industry also detracted from investment results. The Fund's exposure to this area was increased during the year based on a long-held and widespread view that gaming was a rather recession-resistant industry. However, the gaming industry surprised many when it was hit hard during the period by the downturn in the economy, especially casinos in Las Vegas. Within gaming, we focused on what are considered new jurisdictions, such as Native American casinos, which we still consider to be compelling opportunities, and steered away from established locations, such as Las Vegas and Atlantic City. An overweight exposure to the energy sector further detracted from the Fund's results, which was hurt by declining oil and gas prices during the period. We reduced the Fund's position as energy prices declined, but not fast enough to completely avoid feeling the impact of the sector's downturn. A modest position in chemicals also hurt, as many companies in this area proved to be sensitive to economic pressures. ---------- THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE PORTFOLIO MANAGERS, ARE PROVIDED FOR GENERAL INFORMATION ONLY, AND DO NOT CONSTITUTE SPECIFIC TAX, LEGAL, OR INVESTMENT ADVICE TO, OR RECOMMENDATION FOR, AND PERSON. THERE CAN BE NO GUARANTEE AS TO THE ACCURACY OF MARKET FORECASTS. OPINIONS, ESTIMATES, AND FORECASTS MAY BE CHANGED WITHOUT NOTICE. 3 Performance and Portfolio Overview This section of the report is intended to help you understand the performance of Seligman High-Yield Fund and to provide a summary of the Fund's portfolio characteristics. PERFORMANCE DATA QUOTED IN THIS REPORT REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE OR INDICATE FUTURE INVESTMENT RESULTS. 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. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. TOTAL RETURNS OF THE FUND (EXCEPT FOR CLASS I SHARES) AS OF THE MOST RECENT MONTH-END WILL BE AVAILABLE AT WWW.SELIGMAN.COM(1) BY THE SEVENTH BUSINESS DAY FOLLOWING THAT MONTH-END. CALCULATIONS ASSUME REINVESTMENT OF DISTRIBUTIONS, IF ANY. PERFORMANCE DATA QUOTED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT AN INVESTOR MAY PAY ON DISTRIBUTIONS OR THE REDEMPTION OF SHARES. The chart on page 5 compares $10,000 hypothetical investments made in Class A shares, with and without the initial 4.5% maximum sales charge, and in Class B shares, without contingent deferred sales charge ("CDSC"), to a $10,000 investment made in the JP Morgan Global High Yield Index for the ten-year period ended December 31, 2008. The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. The performance of Class C, Class I and Class R shares, which commenced on later dates, and of Class A and Class B shares for other periods, with and without applicable sales charges and CDSCs, is not shown in the chart but is included in the total returns table that follows the chart. The performance of Class C, Class I and Class R shares will differ from the performance shown for Class A and Class B shares, based on the differences in sales charges and fees paid by shareholders. RETURNS FOR CLASS A SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT OF THE INITIAL 4.5% MAXIMUM SALES CHARGE THAT BECAME EFFECTIVE ON JANUARY 7, 2008. ALTHOUGH FOR ALL PERIODS PRESENTED THE FUND'S CLASS A SHARES REFLECT THE 4.5% MAXIMUM SALES CHARGE, THE ACTUAL RETURNS FOR PERIODS PRIOR TO JANUARY 7, 2008 WOULD HAVE BEEN LOWER IF THE 4.75% MAXIMUM SALES CHARGE THEN IN EFFECT WAS INCURRED. RETURNS FOR CLASS B SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT OF THE MAXIMUM 5% 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 C AND CLASS R SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT OF THE 1% CDSC, CHARGED ON REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE. RETURNS FOR CLASS C SHARES WOULD HAVE BEEN LOWER FOR PERIODS PRIOR TO JUNE 4, 2007 IF THE 1% INITIAL SALES CHARGE THEN IN EFFECT WAS INCURRED. ON MAY 16, 2008, CLASS D SHARES OF THE FUND WERE CONVERTED TO CLASS C SHARES AT THEIR RESPECTIVE NET ASSET VALUES. EFFECTIVE AT THE CLOSE OF BUSINESS ON MAY 16, 2008, CLASS D SHARES ARE NO LONGER OFFERED BY THE FUND. CLASS I SHARES DO NOT HAVE SALES CHARGES, AND RETURNS ARE CALCULATED ACCORDINGLY. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. ---------- (1) The website reference is an inactive textual reference and information contained in or otherwise accessible through the website does not form a part of this report or the Fund's prospectuses or statement of additional information. 4 Performance and Portfolio Overview [THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE.]
Class A With Class A Without Class B JP Morgan Global Date Sales Charge Sales Charge Without CDSC High Yield Index 12/31/1998 $ 9,546.7 $ 10,000 $ 10,000 $10,000 $9,649.26 $10,107.4 $10,091.9 $10,192 $9,569.68 $10,024.1 $9,989.64 $10,302 $9,302.63 $9,744.33 $ 9,691.2 $10,129 12/31/1999 $9,518.67 $9,970.63 $9,895.91 $10,338 $ 9,288.7 $9,729.75 $9,636.81 $10,164 $9,310.08 $9,752.14 $9,637.69 $10,214 $9,231.18 $ 9,669.5 $9,551.45 $10,248 12/31/2000 $8,564.58 $8,971.25 $8,841.28 $ 9,736 $8,508.79 $8,912.81 $8,766.67 $10,241 $7,925.86 $ 8,302.2 $8,130.74 $10,154 $7,179.12 $7,520.01 $7,368.16 $ 9,703 12/31/2001 $7,198.75 $7,540.57 $7,372.45 $10,270 $7,163.68 $7,503.84 $ 7,321.1 $10,499 $ 6,695.9 $7,013.85 $6,830.37 $10,241 $6,560.53 $6,872.05 $6,680.08 $ 9,930 12/31/2002 $6,826.76 $7,150.91 $6,937.74 $10,489 $ 7,150.5 $7,490.02 $7,252.72 $11,182 $7,639.48 $8,002.22 $7,733.51 $12,246 $7,841.94 $8,214.29 $7,923.54 $12,628 12/31/2003 $8,322.57 $8,717.73 $8,369.96 $13,375 $8,323.85 $8,719.08 $8,355.56 $13,737 $ 8,280.8 $8,673.99 $8,296.03 $13,680 $8,569.28 $8,976.17 $8,594.29 $14,286 12/31/2004 $8,909.07 $ 9,332.1 $8,918.48 $14,919 $8,792.48 $9,209.97 $8,761.05 $14,748 $8,959.97 $9,385.41 $8,937.26 $15,087 $9,040.71 $9,469.98 $9,001.76 $15,251 12/31/2005 $9,044.54 $9,473.99 $8,989.31 $15,378 $9,267.03 $9,707.05 $9,193.41 $15,807 $9,210.83 $9,648.18 $9,121.48 $15,852 $9,515.56 $9,967.39 $9,376.94 $16,420 12/31/2006 $9,929.33 $10,400.8 $9,799.89 $17,138 $10,143.2 $10,624.8 $ 10,011 $17,659 $10,227.1 $10,712.7 $10,093.8 $17,760 $ 10,222 $10,707.3 $10,088.7 $17,787 12/31/2007 $10,002.1 $10,477.1 $9,871.75 $17,633 $9,561.28 $10,015.3 $9,436.64 $17,118 $9,642.14 $ 10,100 $9,516.44 $17,441 $8,718.81 $ 9,132.8 $8,605.15 $16,027 12/31/2008 $6,800.88 $7,123.81 $6,712.23 $12,902
Investment Results TOTAL RETURNS For Periods Ended December 31, 2008 --------------------------------------------------------------------------------
AVERAGE ANNUAL --------------------------------------------------------------- CLASS C CLASS I CLASS R SINCE SINCE SINCE SIX ONE FIVE TEN INCEPTION INCEPTION INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 11/30/01 4/30/03 ---------------------------------------------------------------------------------------------------------------------- CLASS A ---------------------------------------------------------------------------------------------------------------------- With Sales Charge (32.91)% (35.30)% (4.91)% (3.78)% n/a n/a n/a ---------------------------------------------------------------------------------------------------------------------- Without Sales Charge (29.70) (32.24) (4.01) (3.33) n/a n/a n/a ---------------------------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------------------------------------------------------------------------------- With CDSC+ (33.32) (35.84) (4.99) n/a n/a n/a n/a ---------------------------------------------------------------------------------------------------------------------- Without CDSC (30.00) (32.78) (4.73) (3.91)++ n/a n/a n/a ---------------------------------------------------------------------------------------------------------------------- CLASS C ---------------------------------------------------------------------------------------------------------------------- With 1% CDSC (30.91) (33.63) n/a n/a n/a n/a n/a ---------------------------------------------------------------------------------------------------------------------- Without CDSC (30.25) (33.02) (4.80) n/a (4.35)% n/a n/a ---------------------------------------------------------------------------------------------------------------------- CLASS I (29.80) (31.99) (3.62) n/a n/a (0.62)% n/a ---------------------------------------------------------------------------------------------------------------------- CLASS R ---------------------------------------------------------------------------------------------------------------------- With 1% CDSC (30.69) (33.03) n/a n/a n/a n/a n/a ---------------------------------------------------------------------------------------------------------------------- Without CDSC (30.03) (32.42) (4.25) n/a n/a n/a (1.97)% ---------------------------------------------------------------------------------------------------------------------- BENCHMARKS** ---------------------------------------------------------------------------------------------------------------------- Barclays Capital U.S. Corporate High-Yield 2% Issuer Capped Index (25.07) (25.88) (0.84) 2.28 2.12# 2.93 1.44 ---------------------------------------------------------------------------------------------------------------------- JP Morgan Global High Yield Index (26.02) (26.83) (0.72) 2.58 2.36 3.25 1.68 ---------------------------------------------------------------------------------------------------------------------- Lipper High Current Yield Funds Average (24.71) (26.01) (1.53) 1.19 0.89 1.81 0.73 ----------------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 6. 5 Performance and Portfolio Overview Investment Results NET ASSET VALUE PER SHARE 12/31/08 6/30/08 12/31/07 -------------------------------------------------------------------------------- CLASS A $ 1.94 $ 2.92 $ 3.17 -------------------------------------------------------------------------------- CLASS B 1.94 2.92 3.17 -------------------------------------------------------------------------------- CLASS C 1.94 2.93 3.18 -------------------------------------------------------------------------------- CLASS I 1.94 2.93 3.17 -------------------------------------------------------------------------------- CLASS R 1.94 2.93 3.17 -------------------------------------------------------------------------------- DIVIDEND PER SHARE AND YIELD INFORMATION For Periods Ended December 31, 2008 -------------------------------------------------------------------------------- DIVIDENDSo SEC 30-DAY YIELDSoo --------------------------------------------------------------- $ 0.2671 8.60% --------------------------------------------------------------- 0.2456 8.01 --------------------------------------------------------------- 0.2456 8.00 --------------------------------------------------------------- 0.2775 11.90 --------------------------------------------------------------- 0.2600 8.44 --------------------------------------------------------------- ---------- * Returns for periods of less than one year are not annualized. ** Effective November 7, 2008, to better align the primary benchmark index with the investment strategy of the Fund, the Barclays Capital U.S. High-Yield 2% Issuer Capped Index (Barclays Capital Index) is replaced with the JP Morgan Global High Yield Index ("JP Morgan Index"), which will be used as the primary benchmark for the Fund going forward. Information on both indices will be included for a one year transition period. Thereafter, only the JP Morgan Index will be included. The Barclays Capital Index, the JP Morgan Index and the Lipper High Current Yield Funds Average ("Lipper Average") are unmanaged benchmarks that assume reinvestment of all distributions. The Lipper Average excludes the effect of fees, taxes and sales charges. The Barclays Capital Index and JP Morgan Index also exclude the effect of expenses. The Lipper Average is an average of funds that aim at high (relative) current yield from fixed income securities, have no quality or maturity restrictions, and tend to invest in lower-grade debt instruments. The Barclays Capital Index covers the US corporate bond market of high-yield bonds denominated in US dollars, and is included for comparison with Fund performance. The JP Morgan Index is used to mirror the investable universe of the U.S. dollar global high yield corporate debt market of both developed and emerging markets. Investors cannot invest directly in an average or an index. o Represents per share amount paid or declared for the year ended December 31, 2008. oo Current yield, representing the annualized yield for the 30-day period ended December 31, 2008, has been computed in accordance with SEC regulations and will vary. + The CDSC is 5% if you sell your shares within one year of purchase and 2% for the five-year period. ++ Ten-year return of Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. # From May 28, 1999. 6 Performance and Portfolio Overview Largest Industries December 31, 2008 -------------------------------------------------------------------------------- PERCENT OF NET ASSETS [THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE.] Media Non-Cable $ 12,898,567 Electric $ 12,841,136 Health Care $ 11,034,800 Independent Energy $ 8,976,550 Wirelines $ 7,006,151 Largest Portfolio Changes July 1 to December 31, 2008 -------------------------------------------------------------------------------- LARGEST PURCHASES -------------------------------------------------------------------------------- Invista 9.25%, 5/1/2012* -------------------------------------------------------------------------------- Lamar Media 6.625%, 8/15/2015* -------------------------------------------------------------------------------- Echostar 6.625%, 10/1/2014* -------------------------------------------------------------------------------- Liberty Media 5.7%, 5/15/2013* -------------------------------------------------------------------------------- Qwest 7.625%, 6/15/2015* -------------------------------------------------------------------------------- Shingle Springs Tribal Gaming Authority 9.375%, 6/15/2015* -------------------------------------------------------------------------------- Nielsen Finance 10%, 8/1/2014* -------------------------------------------------------------------------------- Flextronics International 6.25%, 11/15/2014* -------------------------------------------------------------------------------- IASIS Healthcare/IASIS Capital 8.75%, 6/15/2014* -------------------------------------------------------------------------------- DirecTV Holdings/DirecTV Financing 6.375%, 6/15/2015* -------------------------------------------------------------------------------- LARGEST SALES -------------------------------------------------------------------------------- CDX HY 10 TR 8.875%, 6/29/2013** -------------------------------------------------------------------------------- Ikon Office Solutions 7.75%, 9/15/2015** -------------------------------------------------------------------------------- Mandalay Resort Group 9.375%, 2/15/2010** -------------------------------------------------------------------------------- Reddy Ice Holdings 0% (10.5%), 11/1/2012** -------------------------------------------------------------------------------- Aquila 14.875%, 7/1/2012** -------------------------------------------------------------------------------- KI Holdings 0% (9.875%), 11/15/2014** -------------------------------------------------------------------------------- AES 9.375%, 9/15/2010 -------------------------------------------------------------------------------- Gerdau Ameristeel 10.375%, 7/15/2011** -------------------------------------------------------------------------------- Seagate Technology 6.375%, 10/1/2011** -------------------------------------------------------------------------------- Omega Healthcare Investors 7%, 1/15/2016** -------------------------------------------------------------------------------- Largest portfolio changes from the previous period to the current period are based on cost of purchases and proceeds from sales of securities, listed in descending order. ---------- * Position added during the period. ** Position eliminated during the period. 7 Performance and Portfolio Overview Top Ten Companies+ December 31, 2008 -------------------------------------------------------------------------------- PERCENT OF NET SECURITY VALUE ASSETS -------------------------------------------------------------------------------- HCA $ 3,754,425 2.8 -------------------------------------------------------------------------------- Dynegy Holdings 2,672,500 2.0 -------------------------------------------------------------------------------- Qwest 2,546,000 1.9 -------------------------------------------------------------------------------- Liberty Media 2,388,292 1.8 -------------------------------------------------------------------------------- Georgia-Pacific 2,372,300 1.8 -------------------------------------------------------------------------------- Chesapeake Energy 2,348,500 1.7 -------------------------------------------------------------------------------- Windstream 2,176,751 1.6 -------------------------------------------------------------------------------- AES 2,148,750 1.6 -------------------------------------------------------------------------------- Echostar 2,135,625 1.6 -------------------------------------------------------------------------------- El Paso 2,081,811 1.5 -------------------------------------------------------------------------------- The amounts shown for the top ten companies represent the aggregate value of the Fund's investments in securities issued by the companies or their affiliates. There can be no assurance that the securities presented have remained or will remain in the Fund's portfolio. Information regarding the Fund's portfolio holdings should not be construed as a recommendation to buy or sell any security or as an indication that any security is suitable for a particular investor. RATINGSss. December 31, 2008 -------------------------------------------------------------------------------- MOODY'S -------------------------------------------------------------------------------- Baa 2.6% -------------------------------------------------------------------------------- Ba 32.4 -------------------------------------------------------------------------------- B 44.5 -------------------------------------------------------------------------------- Caa 18.5 -------------------------------------------------------------------------------- Below Caa 2.0 -------------------------------------------------------------------------------- DURATION* December 31, 2008 4.0 years -------------------------------------------------------------------------------- --------- + Excludes short-term holdings. ss. Credit ratings are those issued by Moody's Investors Services, Inc. Percentages are based on the market values of long-term corporate bond holdings. * Duration is the average amount of time that it takes to receive the interest and principal of a bond or portfolio of bonds. The duration formula is based on a formula that calculates the weighted average of the cash flows (interest and principal payments) of the bond, discounted to present time. 8 Understanding and Comparing Your Fund's Expenses As a shareholder of the Fund, you incur ongoing expenses, such as management fees, distribution and/or service (12b-1) fees (as applicable), and other Fund expenses. The information below is intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to compare them with the ongoing expenses of investing in other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing expenses only and do not reflect any transactional costs, such as sales charges (also known as loads) on certain purchases or redemptions. Therefore, the table is useful in comparing ongoing expenses only, and will not help you to determine the relative total expenses of owning different funds. In addition, if transactional costs were included, your total expenses would have been higher. The table is based on an investment of $1,000 invested at the beginning of July 1, 2008 and held for the entire six-month period ended December 31, 2008. ACTUAL EXPENSES The table below provides information about actual expenses and actual account values. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value at the beginning of the period by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During Period" for the Fund's share class that you own to estimate the expenses that you paid on your account during the period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical expenses and hypothetical account values based on the actual expense ratio of each class and an assumed rate of return of 5% per year before expenses, which is not the actual return of any class of the Fund. The hypothetical expenses and account values may not be used to estimate the ending account value or the actual expenses you paid for the period. You may use this information to compare the ongoing expenses of investing in the Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds.
ACTUAL HYPOTHETICAL -------------------------- --------------------------- BEGINNING ENDING EXPENSES PAID ENDING EXPENSES PAID ACCOUNT ANNUALIZED ACCOUNT DURING PERIOD ACCOUNT DURING PERIOD VALUE EXPENSE VALUE 7/1/08 TO VALUE 7/1/08 TO 7/1/08 RATIO* 12/31/08 12/31/08** 12/31/08 12/31/08** --------------------------------------------------------------------------------------------- Class A $ 1,000.00 1.53% $ 703.00 $ 6.55 $ 1,017.45 $ 7.76 --------------------------------------------------------------------------------------------- Class B 1,000.00 2.36 700.00 10.09 1,013.27 11.95 --------------------------------------------------------------------------------------------- Class C 1,000.00 2.19 697.50 9.35 1,014.12 11.10 --------------------------------------------------------------------------------------------- Class I 1,000.00 0.90 702.00 3.84 1,020.62 4.56 --------------------------------------------------------------------------------------------- Class R 1,000.00 1.76 699.70 7.51 1,016.30 8.90 ---------------------------------------------------------------------------------------------
---------- * Expenses of Class B, Class C, Class I and Class R shares differ from the expenses of Class A shares due to the differences in 12b-1 fees and other class-specific expenses paid by each share class. See the Fund's prospectuses for a description of each share class and its fees, expenses and sales charges. ** Expenses are equal to the annualized expense ratio based on actual expenses for the period July 1, 2008 to December 31, 2008, multiplied by the average account value over the period, multiplied by 184/366 (number of days in the period). 9 Portfolio of Investments December 31, 2008
PRINCIPAL AMOUNT VALUE CORPORATE BONDS 92.6% --------------------------------------------------------------------------------- AEROSPACE & DEFENSE 1.8% --------------------------------------------------------------------------------- Alion Science and Technology 10.25%, 2/1/2015 $ 1,300,000 $ 593,125 --------------------------------------------------------------------------------- L3 Communications 5.875%, 1/15/2015 2,000,000 1,810,000 --------------------------------------------------------------------------------- 2,403,125 --------------------------------------------------------------------------------- AUTOMOTIVE 0.9% --------------------------------------------------------------------------------- Ford Motor 7.45%, 7/16/2031 4,250,000 1,211,250 --------------------------------------------------------------------------------- BUILDING MATERIALS 0.7% --------------------------------------------------------------------------------- Gibraltar Industries 8%, 12/1/2015 1,590,000 898,350 --------------------------------------------------------------------------------- CHEMICALS 3.9% --------------------------------------------------------------------------------- Chemtura 6.875%, 6/1/2016 2,285,000 1,176,775 --------------------------------------------------------------------------------- Invista 9.25%, 5/1/2012* 2,685,000 1,892,925 --------------------------------------------------------------------------------- MacDermid 9.5%, 4/15/2017 1,000,000 525,000 --------------------------------------------------------------------------------- Momentive Performance Materials 10.125%, 12/1/2014 3,000,000 945,000 --------------------------------------------------------------------------------- Nalco 8.875%, 11/15/2013 825,000 701,250 --------------------------------------------------------------------------------- 5,240,950 --------------------------------------------------------------------------------- CONSUMER CYCLICAL SERVICES 1.7% --------------------------------------------------------------------------------- Service Corporation 7%, 6/15/2017 1,725,000 1,302,375 --------------------------------------------------------------------------------- West 11%, 10/15/2016 2,000,000 940,000 --------------------------------------------------------------------------------- 2,242,375 --------------------------------------------------------------------------------- CONSUMER PRODUCTS 2.4% --------------------------------------------------------------------------------- Jarden 7.5%, 5/1/2017 1,905,000 1,309,688 --------------------------------------------------------------------------------- Visant 0% (10.25%+), 12/1/2013 2,525,000 1,881,125 --------------------------------------------------------------------------------- 3,190,813 --------------------------------------------------------------------------------- ELECTRIC 9.5% --------------------------------------------------------------------------------- AES 9.375%, 9/15/2010 2,250,000 2,148,750 --------------------------------------------------------------------------------- Allegheny Energy Supply 7.8%, 3/15/2011 2,000,000 1,980,000 --------------------------------------------------------------------------------- Dynegy Holdings: --------------------------------------------------------------------------------- 8.75%, 2/15/2012 1,000,000 885,000 --------------------------------------------------------------------------------- 8.375%, 5/1/2016 2,500,000 1,787,500 --------------------------------------------------------------------------------- Edison Mission Energy 7%, 5/15/2017 1,950,000 1,706,250 --------------------------------------------------------------------------------- Energy Future Holdings 10.875%, 11/1/2017* 955,000 682,825 --------------------------------------------------------------------------------- Mirant Americas Generation 8.5%, 10/1/2021 500,000 382,500 --------------------------------------------------------------------------------- NRG Energy 7.375%, 2/1/2016 1,900,000 1,771,750 --------------------------------------------------------------------------------- Sierra Pacific Resources 8.625%, 3/15/2014 609,000 552,105 --------------------------------------------------------------------------------- TXU 5.55%, 11/15/2014 2,000,000 944,456 --------------------------------------------------------------------------------- 12,841,136 ---------------------------------------------------------------------------------
---------- See footnotes on page 15. 10 Portfolio of Investments December 31, 2008
PRINCIPAL AMOUNT VALUE ENTERTAINMENT 0.6% ----------------------------------------------------------------------------------------- AMC Entertainment 11%, 2/1/2016 $ 1,000,000 $ 703,750 ----------------------------------------------------------------------------------------- HRP Myrtle Beach Operations 7.382%, 4/1/2012##++ 1,000,000 55,000 ----------------------------------------------------------------------------------------- 758,750 ----------------------------------------------------------------------------------------- ENVIRONMENTAL 1.8% ----------------------------------------------------------------------------------------- Browning-Ferris Industries 7.4%, 9/15/2035 1,500,000 1,240,632 ----------------------------------------------------------------------------------------- Crown Cork & Seal 8%, 4/15/2023 1,500,000 1,185,000 ----------------------------------------------------------------------------------------- 2,425,632 ----------------------------------------------------------------------------------------- FOOD AND BEVERAGE 4.8% ----------------------------------------------------------------------------------------- ASG Consolidated/ASG Finance 11.5%, 11/1/2011 1,500,000 1,282,500 ----------------------------------------------------------------------------------------- Constellation Brands 8.375%, 12/1/2011 500,000 477,500 ----------------------------------------------------------------------------------------- Cott Beverages USA 8%, 12/15/2011 2,200,000 1,353,000 ----------------------------------------------------------------------------------------- Del Monte: ----------------------------------------------------------------------------------------- 8.625%, 12/15/2012 975,000 950,625 ----------------------------------------------------------------------------------------- 6.75%, 2/15/2015 375,000 324,375 ----------------------------------------------------------------------------------------- Pinnacle Foods Finance 9.25%, 4/1/2015 1,515,000 984,750 ----------------------------------------------------------------------------------------- Smithfield Foods: ----------------------------------------------------------------------------------------- 7%, 8/1/2011 650,000 464,750 ----------------------------------------------------------------------------------------- 7.75%, 7/1/2017 1,000,000 575,000 ----------------------------------------------------------------------------------------- 6,412,500 ----------------------------------------------------------------------------------------- GAMING 4.7% ----------------------------------------------------------------------------------------- Boyd Gaming 7.125%, 2/1/2016 2,175,000 1,294,125 ----------------------------------------------------------------------------------------- FireKeepers Development Authority 13.875%, 5/1/2015# 1,000,000 625,000 ----------------------------------------------------------------------------------------- Indianapolis Downs LLC & Capital 11%, 11/1/2012* 1,495,000 822,250 ----------------------------------------------------------------------------------------- MGM Mirage 13%, 11/15/2013* 525,000 502,688 ----------------------------------------------------------------------------------------- Pokagon Gaming Authority 10.375%, 6/15/2014* 1,000,000 865,000 ----------------------------------------------------------------------------------------- San Pasqual 8%, 9/15/2013 1,000,000 730,000 ----------------------------------------------------------------------------------------- Seneca Gaming 7.25%, 5/1/2012 150,000 121,500 ----------------------------------------------------------------------------------------- Shingle Springs Tribal Gaming Authority 9.375%, 6/15/2015* 2,700,000 1,363,500 ----------------------------------------------------------------------------------------- 6,324,063 ----------------------------------------------------------------------------------------- GAS DISTRIBUTORS 0.5% ----------------------------------------------------------------------------------------- Southwestern Energy 7.5%, 2/1/2018* 855,000 752,400 ----------------------------------------------------------------------------------------- GAS PIPELINES 1.5% ----------------------------------------------------------------------------------------- El Paso: ----------------------------------------------------------------------------------------- 12%, 12/12/2013 400,000 401,000 ----------------------------------------------------------------------------------------- 6.875%, 6/15/2014 130,000 105,601 ----------------------------------------------------------------------------------------- 7%, 6/15/2017 2,000,000 1,575,210 ----------------------------------------------------------------------------------------- 2,081,811 -----------------------------------------------------------------------------------------
---------- See footnotes on page 15. 11 Portfolio of Investments December 31, 2008
PRINCIPAL AMOUNT VALUE HEALTH CARE 8.2% ----------------------------------------------------------------------------------------- CHS Community Health System 8.875%, 7/15/2015 $ 1,415,000 $ 1,308,875 ----------------------------------------------------------------------------------------- DaVita 7.25%, 3/15/2015 1,500,000 1,432,500 ----------------------------------------------------------------------------------------- HCA: ----------------------------------------------------------------------------------------- 9.125%, 11/15/2014* 500,000 465,000 ----------------------------------------------------------------------------------------- 6.5%, 2/15/2016 2,000,000 1,240,000 ----------------------------------------------------------------------------------------- 9.25%, 11/15/2016 500,000 460,000 ----------------------------------------------------------------------------------------- 9.625%, 11/15/2016 890,000 696,425 ----------------------------------------------------------------------------------------- 7.5%, 11/6/2033 1,900,000 893,000 ----------------------------------------------------------------------------------------- IASIS Healthcare/IASIS Capital 8.75%, 6/15/2014 1,800,000 1,404,000 ----------------------------------------------------------------------------------------- Omnicare 6.875%, 12/15/2015 1,350,000 1,113,750 ----------------------------------------------------------------------------------------- Select Medical 8.834%, 9/15/2015# 2,250,000 1,181,250 ----------------------------------------------------------------------------------------- Vanguard Health Holding 9%, 10/1/2014 1,000,000 840,000 ----------------------------------------------------------------------------------------- 11,034,800 ----------------------------------------------------------------------------------------- HOME CONSTRUCTION 0.7% ----------------------------------------------------------------------------------------- K Hovnanian Enterprises 11.5%, 5/1/2013 875,000 669,375 ----------------------------------------------------------------------------------------- Toll 8.25%, 12/1/2011 250,000 228,750 ----------------------------------------------------------------------------------------- 898,125 ----------------------------------------------------------------------------------------- INDEPENDENT ENERGY 6.7% ----------------------------------------------------------------------------------------- Chesapeake Energy 7.625%, 7/15/2013 3,050,000 2,348,500 ----------------------------------------------------------------------------------------- Connacher Oil and Gas 10.25%, 12/15/2015* 1,485,000 601,425 ----------------------------------------------------------------------------------------- EXCO Resources 7.25%, 1/15/2011 1,300,000 1,020,500 ----------------------------------------------------------------------------------------- Forest Oil 7.25%, 6/15/2019 2,000,000 1,470,000 ----------------------------------------------------------------------------------------- Petrohawk Energy 9.125%, 7/15/2013 1,125,000 916,875 ----------------------------------------------------------------------------------------- Quicksilver Resources 7.125%, 4/1/2016 1,700,000 918,000 ----------------------------------------------------------------------------------------- Range Resources 7.25%, 5/1/2018 1,000,000 840,000 ----------------------------------------------------------------------------------------- SandRidge Energy 8.625%, 4/1/2015## 1,625,000 861,250 ----------------------------------------------------------------------------------------- 8,976,550 ----------------------------------------------------------------------------------------- LODGING 2.6% ----------------------------------------------------------------------------------------- Felcor Lodging 9%, 6/1/2011 2,750,000 2,048,750 ----------------------------------------------------------------------------------------- Host Marriott 6.75%, 6/1/2016 2,000,000 1,470,000 ----------------------------------------------------------------------------------------- 3,518,750 ----------------------------------------------------------------------------------------- MEDIA CABLE 4.3% ----------------------------------------------------------------------------------------- CCH II Capital 10.25%, 10/1/2013* 415,000 143,175 ----------------------------------------------------------------------------------------- CCO Holdings 8.75%, 11/15/2013 1,500,000 952,500 ----------------------------------------------------------------------------------------- Charter Communications Operating Capital 8.375%, 4/30/2014* 2,000,000 1,540,000 ----------------------------------------------------------------------------------------- CSC Holdings: ----------------------------------------------------------------------------------------- 6.75%, 4/15/2012 1,000,000 920,000 ----------------------------------------------------------------------------------------- 8.5%, 6/15/2015* 1,100,000 973,500 ----------------------------------------------------------------------------------------- Mediacom Broadband 8.5%, 10/15/2015 1,000,000 656,250 ----------------------------------------------------------------------------------------- Virgin Media Finance 8.75%, 4/15/2014 800,000 604,000 ----------------------------------------------------------------------------------------- 5,789,425 -----------------------------------------------------------------------------------------
---------- See footnotes on page 15. 12 Portfolio of Investments December 31, 2008
PRINCIPAL AMOUNT VALUE MEDIA NON-CABLE 9.6% ----------------------------------------------------------------------------------------- Dex Media 0% (9%+), 11/15/2013 $ 3,225,000 $ 612,750 ----------------------------------------------------------------------------------------- Dex Media West 9.875%, 8/15/2013 500,000 120,000 ----------------------------------------------------------------------------------------- DirecTV Holdings/DirecTV Financing 6.375%, 6/15/2015 1,675,000 1,553,563 ----------------------------------------------------------------------------------------- Echostar 6.625%, 10/1/2014 2,550,000 2,135,625 ----------------------------------------------------------------------------------------- Intelsat Jackson Holdings 11.25%, 6/15/2016 1,725,000 1,578,375 ----------------------------------------------------------------------------------------- Lamar Media 6.625%, 8/15/2015 2,835,000 2,062,462 ----------------------------------------------------------------------------------------- LBI Media 8.5%,8/1/2017 1,000,000 355,000 ----------------------------------------------------------------------------------------- Liberty Media: ----------------------------------------------------------------------------------------- 5.7%, 5/15/2013 2,740,000 1,809,981 ----------------------------------------------------------------------------------------- 8.5%, 7/15/2029 1,000,000 578,311 ----------------------------------------------------------------------------------------- LIN Television 6.5%, 5/15/2013 1,000,000 482,500 ----------------------------------------------------------------------------------------- Nielsen Finance 10%, 8/1/2014 2,000,000 1,610,000 ----------------------------------------------------------------------------------------- 12,898,567 ----------------------------------------------------------------------------------------- METALS 2.2% ----------------------------------------------------------------------------------------- Freeport-McMoRan Copper & Gold 8.375%, 4/1/2017 2,000,000 1,642,272 ----------------------------------------------------------------------------------------- Noranda Aluminium Acquisition 6.595%, 5/15/2015# 2,310,000 796,950 ----------------------------------------------------------------------------------------- Peabody Energy 6.875%, 3/15/2013 500,000 476,250 ----------------------------------------------------------------------------------------- 2,915,472 ----------------------------------------------------------------------------------------- NON-CAPTIVE DIVERSIFIED 1.2% ----------------------------------------------------------------------------------------- Ford Motor Credit 10.25%, 9/15/2010 1,500,000 1,200,417 ----------------------------------------------------------------------------------------- GMAC 6.75%, 12/1/2014* 614,000 421,830 ----------------------------------------------------------------------------------------- 1,622,247 ----------------------------------------------------------------------------------------- OIL FIELD SERVICES 0.9% ----------------------------------------------------------------------------------------- Bristow Group 7.5%, 9/15/2017 1,000,000 675,000 ----------------------------------------------------------------------------------------- Helix Energy Solutions 9.5%, 1/15/2016* 950,000 508,250 ----------------------------------------------------------------------------------------- 1,183,250 ----------------------------------------------------------------------------------------- OTHER FINANCIAL INSTITUTIONS 0.7% ----------------------------------------------------------------------------------------- Cardtronics 9.25%, 8/15/2013 1,400,000 945,000 ----------------------------------------------------------------------------------------- PACKAGING 1.5% ----------------------------------------------------------------------------------------- Owens-Brockway Glass Container 8.25%, 5/15/2013 2,000,000 1,980,000 ----------------------------------------------------------------------------------------- PAPER 3.5% ----------------------------------------------------------------------------------------- Cascades 7.25%, 2/15/2013 500,000 257,500 ----------------------------------------------------------------------------------------- Domtar 7.875%, 10/15/2011 1,000,000 855,000 ----------------------------------------------------------------------------------------- Georgia-Pacific: ----------------------------------------------------------------------------------------- 7.125%, 1/15/2017# 340,000 287,300 ----------------------------------------------------------------------------------------- 8.875%, 5/15/2031 3,000,000 2,085,000 ----------------------------------------------------------------------------------------- Graham Packaging 9.5%, 8/15/2013 500,000 347,500 ----------------------------------------------------------------------------------------- Newpage 10%, 5/1/2012 1,565,000 696,425 ----------------------------------------------------------------------------------------- Smurfit-Stone Container 8%, 3/15/2017 1,000,000 195,000 ----------------------------------------------------------------------------------------- 4,723,725 -----------------------------------------------------------------------------------------
---------- See footnotes on page 15. 13 Portfolio of Investments December 31, 2008
PRINCIPAL AMOUNT VALUE PHARMACEUTICALS 0.7% ----------------------------------------------------------------------------------------- Warner Chilcott 8.75%, 2/1/2015 $ 1,000,000 $ 895,000 ----------------------------------------------------------------------------------------- RETAILERS 0.6% ----------------------------------------------------------------------------------------- Neiman Marcus 9%, 10/15/2015 1,000,000 445,000 ----------------------------------------------------------------------------------------- Toys R Us 7.375%, 10/15/2018 1,000,000 365,000 ----------------------------------------------------------------------------------------- 810,000 ----------------------------------------------------------------------------------------- TECHNOLOGY 3.6% ----------------------------------------------------------------------------------------- Communications & Power Industries 8%, 2/1/2012 1,700,000 1,447,125 ----------------------------------------------------------------------------------------- Flextronics International 6.25%, 11/15/2014 2,000,000 1,500,000 ----------------------------------------------------------------------------------------- SS&C Technologies 11.75%, 12/1/2013 690,000 609,787 ----------------------------------------------------------------------------------------- Sunguard Data System 9.125%, 8/15/2013 1,500,000 1,305,000 ----------------------------------------------------------------------------------------- 4,861,912 ----------------------------------------------------------------------------------------- TRANSPORTATION SERVICES 0.7% ----------------------------------------------------------------------------------------- Hertz 8.875%, 1/1/2014 1,635,000 1,013,700 ----------------------------------------------------------------------------------------- WIRELESS 4.9% ----------------------------------------------------------------------------------------- Centennial Communications 9.6325%, 1/1/2013# 675,000 658,125 ----------------------------------------------------------------------------------------- Cricket Communications 9.375%, 11/1/2014 1,000,000 905,000 ----------------------------------------------------------------------------------------- MetroPCS Wireless 9.25%, 11/1/2014 1,590,000 1,431,000 ----------------------------------------------------------------------------------------- Nextel Communications 7.375%, 8/1/2015 1,930,000 810,969 ----------------------------------------------------------------------------------------- Sprint Capital: ----------------------------------------------------------------------------------------- 7.625%, 1/30/2011 1,510,000 1,261,413 ----------------------------------------------------------------------------------------- 8.375%, 3/15/2012 610,000 488,318 ----------------------------------------------------------------------------------------- Sprint Nextel 6%, 12/1/2016 1,500,000 1,059,015 ----------------------------------------------------------------------------------------- 6,613,840 ----------------------------------------------------------------------------------------- WIRELINES 5.2% ----------------------------------------------------------------------------------------- Citizens Communications 6.625%, 3/15/2015 650,000 477,750 ----------------------------------------------------------------------------------------- Fairpoint Communications 13.125%, 4/1/2018* 1,000,000 485,000 ----------------------------------------------------------------------------------------- Level 3 Financing 12.25%, 3/15/2013 2,165,000 1,320,650 ----------------------------------------------------------------------------------------- Qwest: ----------------------------------------------------------------------------------------- 7.625%, 6/15/2015 2,000,000 1,650,000 ----------------------------------------------------------------------------------------- 6.5%, 6/1/2017 800,000 596,000 ----------------------------------------------------------------------------------------- 6.875%, 9/15/2033 500,000 300,000 ----------------------------------------------------------------------------------------- Windstream: ----------------------------------------------------------------------------------------- 8.625%, 8/1/2016 1,575,000 1,401,751 ----------------------------------------------------------------------------------------- 7%, 3/15/2019 1,000,000 775,000 ----------------------------------------------------------------------------------------- 7,006,151 ----------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost $152,114,929) 124,469,669 -----------------------------------------------------------------------------------------
See footnotes on page 15. 14 Portfolio of Investments December 31, 2008
SHARES OR PRINCIPAL AMOUNT VALUE PREFERRED STOCK 0.1% ---------------------------------------------------------------------------------------------- GMAC 9%*(Cost $125,408) 153 shs. $ 125,408 ---------------------------------------------------------------------------------------------- SHORT-TERM HOLDINGS 5.5% ---------------------------------------------------------------------------------------------- MONEY MARKET FUND 3.5% ---------------------------------------------------------------------------------------------- SSgA U.S. Treasury Money Market Fund (Cost $4,761,918) 4,761,918 4,761,918 ---------------------------------------------------------------------------------------------- CORPORATE BONDS 2.0% ---------------------------------------------------------------------------------------------- Ford Motor 5.8%, 1/12/2009 $ 1,600,000 1,595,473 ---------------------------------------------------------------------------------------------- Midwest Generation 8.3%, 7/2/2009 697,732 694,243 ---------------------------------------------------------------------------------------------- Qwest Communications 5.649%, 2/15/2009# 333,000 333,000 ---------------------------------------------------------------------------------------------- Total Corporate Bonds (Cost $2,606,692) 2,622,716 ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $7,368,610) 7,384,634 ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $159,608,947) 98.2% 131,979,711 ---------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES 1.8% 2,436,694 ---------------------------------------------------------------------------------------------- NET ASSETS 100.0% $ 134,416,405 ==============================================================================================
---------- * The security may be offered and sold only to "qualified institutional buyers" under Rule 144A of the Security Act of 1933. # Floating rate security, the interest rate is reset periodically. The interest rate disclosed reflects the rate in effect at December 31, 2008. ## Pay-in-kind bond. + Deferred-interest debentures pay no interest for a stipulated number of years, after which they pay the indicated coupon rate. ++ Security in default and non-income producing. Industry classifications have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements. 15 Statement of Assets and Liabilities December 31, 2008 ASSETS: ----------------------------------------------------------------------------------------------------------------------------------- Investments, at value: ----------------------------------------------------------------------------------------------------------------------------------- Corporate bonds (cost $152,114,929) $ 124,469,669 ----------------------------------------------------------------------------------------------------------------------------------- Preferred stocks (cost $125,408) 125,408 ----------------------------------------------------------------------------------------------------------------------------------- Money market fund (cost $4,761,918) 4,761,918 ----------------------------------------------------------------------------------------------------------------------------------- Other short-term holdings (cost $2,606,692) 2,622,716 ----------------------------------------------------------------------------------------------------------------------------------- Total investments (cost $159,608,947) 131,979,711 ----------------------------------------------------------------------------------------------------------------------------------- Cash 142,786 ----------------------------------------------------------------------------------------------------------------------------------- Restricted cash 4,000 ----------------------------------------------------------------------------------------------------------------------------------- Interest receivable 3,331,127 ----------------------------------------------------------------------------------------------------------------------------------- Receivable for shares of Beneficial Interest sold 717,375 ----------------------------------------------------------------------------------------------------------------------------------- Expenses prepaid to shareholder service agent 10,675 ----------------------------------------------------------------------------------------------------------------------------------- Other 9,178 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS: 136,194,852 ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES: ----------------------------------------------------------------------------------------------------------------------------------- Payable for shares of Beneficial Interest repurchased 969,647 ----------------------------------------------------------------------------------------------------------------------------------- Dividends payable 596,019 ----------------------------------------------------------------------------------------------------------------------------------- Management fee payable 70,385 ----------------------------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees payable 51,561 ----------------------------------------------------------------------------------------------------------------------------------- Accrued expenses and other 90,835 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,778,447 ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $ 134,416,405 =================================================================================================================================== COMPOSITION OF NET ASSETS: ----------------------------------------------------------------------------------------------------------------------------------- Shares of Beneficial Interest, at par (unlimited shares authorized; $0.001 par value; 69,337,153 shares outstanding): ----------------------------------------------------------------------------------------------------------------------------------- Class A $ 43,798 ----------------------------------------------------------------------------------------------------------------------------------- Class B 3,766 ----------------------------------------------------------------------------------------------------------------------------------- Class C 17,008 ----------------------------------------------------------------------------------------------------------------------------------- Class I 2,868 ----------------------------------------------------------------------------------------------------------------------------------- Class R 1,897 ----------------------------------------------------------------------------------------------------------------------------------- Additional paid-in capital 1,351,608,169 ----------------------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income (Note 7) (485,137) ----------------------------------------------------------------------------------------------------------------------------------- Accumulated net realized loss (Note 7) (1,189,146,728) ----------------------------------------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (27,629,236) ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $ 134,416,405 =================================================================================================================================== NET ASSET VALUE PER SHARE: ----------------------------------------------------------------------------------------------------------------------------------- CLASS A ($84,811,826 / 43,798,359 shares) $ 1.94 ----------------------------------------------------------------------------------------------------------------------------------- CLASS B ($7,296,400 / 3,765,759 shares) $ 1.94 ----------------------------------------------------------------------------------------------------------------------------------- CLASS C ($33,068,990 / 17,008,315 shares) $ 1.94 ----------------------------------------------------------------------------------------------------------------------------------- CLASS I ($5,561,768 / 2,868,183 shares) $ 1.94 ----------------------------------------------------------------------------------------------------------------------------------- CLASS R ($3,677,421 / 1,896,537 shares) $ 1.94 -----------------------------------------------------------------------------------------------------------------------------------
---------- See Notes to Financial Statements. 16 Statement of Operations For the Year Ended December 31, 2008 INVESTMENT INCOME: -------------------------------------------------------------------------------- Interest $ 19,195,286 -------------------------------------------------------------------------------- Dividends 225,442 -------------------------------------------------------------------------------- Other income 217,738 -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 19,638,466 -------------------------------------------------------------------------------- EXPENSES: -------------------------------------------------------------------------------- Management fee 1,353,866 -------------------------------------------------------------------------------- Distribution and service (12b-1) fees 1,004,938 -------------------------------------------------------------------------------- Shareholder account services 834,096 -------------------------------------------------------------------------------- Custody and related services 97,335 -------------------------------------------------------------------------------- Registration 86,441 -------------------------------------------------------------------------------- Auditing and legal fees 68,876 -------------------------------------------------------------------------------- Shareholder reports and communications 45,087 -------------------------------------------------------------------------------- Directors' fees and expenses 16,262 -------------------------------------------------------------------------------- Miscellaneous 24,860 -------------------------------------------------------------------------------- TOTAL EXPENSES 3,531,761 -------------------------------------------------------------------------------- NET INVESTMENT INCOME 16,106,705 -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS: -------------------------------------------------------------------------------- Net realized loss on investments (70,475,177) -------------------------------------------------------------------------------- Net change in unrealized depreciation of investments (16,697,310) -------------------------------------------------------------------------------- NET LOSS ON INVESTMENTS (87,172,487) -------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM OPERATIONS $ (71,065,782) ================================================================================ ---------- See Notes to Financial Statements. 17 Statements of Changes In Net Assets
YEAR ENDED DECEMBER 31, --------------------------------- 2008 2007 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: ---------------------------------------------------------------------------------------------------------------------------------- Net investment income $ 16,106,705 $ 21,245,777 ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (70,475,177) 2,476,980 ---------------------------------------------------------------------------------------------------------------------------------- Net change in unrealized depreciation of investments (16,697,310) (20,609,207) ---------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (71,065,782) 3,113,550 ---------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: ---------------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income: ---------------------------------------------------------------------------------------------------------------------------------- Class A (10,333,616) (13,071,745) ---------------------------------------------------------------------------------------------------------------------------------- Class B (1,121,649) (2,389,457) ---------------------------------------------------------------------------------------------------------------------------------- Class C (2,600,952) (1,484,108) ---------------------------------------------------------------------------------------------------------------------------------- Class D (1,111,332) (3,523,423) ---------------------------------------------------------------------------------------------------------------------------------- Class I (590,596) (596,414) ---------------------------------------------------------------------------------------------------------------------------------- Class R (348,560) (180,630) ---------------------------------------------------------------------------------------------------------------------------------- Total (16,106,705) (21,245,777) ---------------------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income: ---------------------------------------------------------------------------------------------------------------------------------- Class A (2,259,499) (60,184) ---------------------------------------------------------------------------------------------------------------------------------- Class B (245,255) (11,001) ---------------------------------------------------------------------------------------------------------------------------------- Class C (568,712) (6,833) ---------------------------------------------------------------------------------------------------------------------------------- Class D (242,998) (16,222) ---------------------------------------------------------------------------------------------------------------------------------- Class I (129,137) (2,746) ---------------------------------------------------------------------------------------------------------------------------------- Class R (76,214) (832) ---------------------------------------------------------------------------------------------------------------------------------- Total (3,521,815) (97,818) ---------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS (19,628,520) (21,343,595) ---------------------------------------------------------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: ---------------------------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 15,054,643 18,867,364 ---------------------------------------------------------------------------------------------------------------------------------- Investment of dividends 11,836,659 12,135,001 ---------------------------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 6,671,692 8,317,206 ---------------------------------------------------------------------------------------------------------------------------------- Total 33,562,994 39,319,571 ---------------------------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (56,761,719) (88,936,830) ---------------------------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (8,444,420) (8,945,482) ---------------------------------------------------------------------------------------------------------------------------------- Total (65,206,139) (97,882,312) ---------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (31,643,145) (58,562,741) ---------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS (122,337,447) (76,792,786) ---------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: ---------------------------------------------------------------------------------------------------------------------------------- Beginning of year 256,753,852 333,546,638 ---------------------------------------------------------------------------------------------------------------------------------- END OF YEAR (includes undistributed (dividends in excess of) net investment income of $(485,137) and $801,910, respectively) $ 134,416,405 $ 256,753,852 ==================================================================================================================================
---------- See Notes to Financial Statements. 18 Notes to Financial Statements 1. ORGANIZATION AND MULTIPLE CLASSES OF SHARES -- Seligman High-Yield Fund (the "Fund") is a series of Seligman High Income Fund Series (the "Series") which is registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end diversified management investment company (Note 11). The Fund offers the following five classes of shares: Class A shares are sold with an initial sales charge of up to 4.5% (4.75% prior to January 7, 2008) and are subject to 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. Effective January 7, 2008, eligible employee benefit plans that have at least $2,000,000 in Plan assets may purchase Class A shares at net asset value, but in the event of a plan termination, will be subject to a CDSC of 1% on redemption of shares purchased within 18 months prior to plan termination. Class B shares are sold without an initial sales charge but are subject to a distribution fee of 0.75% and 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 approximately eight years after their date of purchase. If Class B shares of the Fund are exchanged for Class B shares of another Seligman mutual fund, the holding period of the shares exchanged will be added to the holding period of the shares acquired, both for determining the applicable CDSC and the conversion of Class B shares to Class A shares. Class C 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 Board of Trustees of the Series (the "Board") approved the automatic conversion of all of the Fund's outstanding Class D shares to Class C shares at their relative net asset values. The conversion was implemented on May 16, 2008. Effective at the close of business on May 16, 2008, the Fund no longer offers Class D shares. The conversion did not affect individual shareholder account values. Class I shares are offered to certain institutional clients and other investors, as described in the Fund's Class I shares prospectus. Class I shares are sold without any sales charges and are not subject to distribution or service fees. Class R shares are offered to certain employee benefit plans and are not available to all investors. They are sold without an initial sales charge, but are subject to a distribution fee of up to 0.25% and a service fee of up to 0.25% on an annual basis, and a CDSC, if applicable, of 1% on redemptions made within one year of a plan's initial purchase of Class R shares. All 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 own class-specific 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 accounting principles generally accepted in the United States of America which require management to make certain estimates and assumptions at the date of the financial statements. Actual results may differ from these estimates. The following summarizes the significant accounting policies of the Fund: A. SECURITY VALUATION AND RISK -- Securities traded on an exchange are valued at the last sales price on the primary exchange or market on which they are traded. Fixed income securities not listed on an exchange or security market are valued by independent pricing services based on bid prices, which consider such factors as coupons, maturities, credit ratings, liquidity, specific terms and features, and the US Treasury yield curve, or are valued by RiverSource Investments, LLC ("RiverSource" or the "Manager") based on quotations provided by primary market makers in such securities. Equity securities not listed on an exchange or security market, or equity securities for which there is no last 19 Notes to Financial Statements sales price, are valued at the mean of the most recent bid and asked prices or valued by the Manager based on quotations provided by primary market makers in such securities. Securities for which market quotations are not readily available (or are otherwise no longer valid or reliable) are valued at fair value determined in accordance with procedures approved by the Trustees. This can occur in the event of, among other things, natural disasters, acts of terrorism, market disruptions, intra-day trading halts, and extreme market volatility in the US markets. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the prices used by other mutual funds to determine net asset value or the price that may be realized upon the actual sale of the security. Short-term holdings maturing in 60 days or less are valued at current market quotations or amortized cost if the Manager believes it approximates fair value. Short-term holdings that mature in more than 60 days are valued at current market quotations until the 60th day prior to maturity and are then valued as described above for securities maturing in 60 days or less. Investments in money market funds are valued at net asset value. On January 1, 2008, the Fund adopted Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value Measurements." SFAS 157 establishes a three-tier hierarchy to classify the assumptions, referred to as inputs, used in valuation techniques (as described above) to measure fair value of the Fund's investments. These inputs are summarized in three broad levels: Level 1 - quoted prices in active markets for identical investments; Level 2 - other significant observable inputs (including quoted prices in inactive markets or for similar investments, interest rates, prepayment speeds, credit risk, etc.); and Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining fair value) (Note 3). Observable inputs are those based on market data obtained from sources independent of the Fund, and unobservable inputs reflect the Fund's own assumptions based on the best information available. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. Fixed income securities are subject to interest rate risk, credit risk, prepayment risk and market risk. High-yield securities are subject to higher volatility in yield and market value and a greater risk of loss of principal and interest than higher-rated, investment grade fixed income securities. B. EQUITY-LINKED NOTES -- The Fund may purchase notes created by a counterparty, typically an investment bank. The notes bear interest at a fixed or floating rate. At maturity, the notes must be exchanged for an amount based on the value of one or more equity securities ("Underlying Stocks") of third party issuers. The exchange value may be limited to an amount less than the actual value of the Underlying Stocks at the maturity date. Any difference between the exchange amount and the original cost of the notes will be a gain or loss. C. RESTRICTED CASH -- Restricted cash represents deposits that are being held by banks as collateral for letters of credit issued in connection with the Fund's insurance policies. 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 (12b-1) 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, 2008, distribution and service (12b-1) fees, shareholder account services and registration expenses were class-specific expenses. E. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Investment transactions are recorded on trade dates. Identified cost of investments sold is used for both financial reporting and federal income tax purposes. Dividends receivable are recorded on ex-dividend dates. Interest income is recorded on an accrual basis. The Fund amortizes discount and premium on portfolio securities for financial reporting purposes. F. DISTRIBUTIONS TO SHAREHOLDERS -- Dividends are declared daily and paid monthly. Other distributions paid by the Fund are recorded on ex-dividend dates. 20 Notes to Financial Statements G. 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. Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," requires the Fund to measure and recognize in its financial statements the benefit of a tax position taken (or expected to be taken) on an income tax return if such position will more likely than not be sustained upon examination based on the technical merits of the position. The Fund files income tax returns in the US Federal jurisdiction, as well as New York State and New York City jurisdictions. Based upon its review of tax positions for the Fund's open tax years of 2005 - 2008 in these jurisdictions, the Fund has determined that FIN 48 did not have a material impact on the Fund's financial statements for the year ended December 31, 2008. 3. FAIR VALUE MEASUREMENTS -- A summary of the value of the Fund's investments as of December 31, 2008, based on the level of inputs used in accordance with SFAS 157 (Note 2a), is as follows:
VALUATION INPUTS VALUE ------------------------------------------------------------------------------------------ Level 1 - Quoted Prices in Active Markets for Identical Investments $ 4,887,326 ------------------------------------------------------------------------------------------ Level 2 - Other Significant Observable Inputs 127,092,385 ------------------------------------------------------------------------------------------ Level 3 - Significant Unobservable Inputs -- ------------------------------------------------------------------------------------------ Total $ 131,979,711 ==========================================================================================
4. MANAGEMENT AND DISTRIBUTION SERVICES, AND OTHER RELATED PARTY TRANSACTIONS A. MANAGEMENT AND ADMINISTRATIVE SERVICES -- On November 7, 2008, RiverSource, investment manager to the RiverSource complex of funds, and a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise"), announced the closing of its acquisition (the "Acquisition") of J. & W. Seligman & Co. Incorporated ("JWS"). With the Acquisition completed and shareholders of the Fund having previously approved (at a Special Meeting held earlier in November 2008) a new Investment Management Services Agreement between RiverSource and the Fund, RiverSource is the new investment manager of the Fund effective November 7, 2008. The Manager receives a fee (and, prior to November 7, 2008, JWS received 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 0.65% per annum of the Fund's average daily net assets. For the year ended December 31, 2008, RiverSource received $129,155 of such fee and the balance was paid to JWS. Under an Administrative Services Agreement, effective November 7, 2008, Ameriprise administers certain aspects of the Fund's business and other affairs at no cost. Ameriprise provides the Fund with office space, and certain administrative and other services and executive and other personnel as are necessary for Fund operations. Ameriprise pays all of the compensation of Board members of the Fund who are employees or consultants of RiverSource and of the officers and other personnel of the Fund. Ameriprise reserves the right to seek Board approval to increase the fees payable by the Fund under the Administrative Services Agreement. However, Ameriprise anticipates that any such increase in fees would be offset by corresponding decreases in advisory fees under the Investment and Management Services Agreement. If an increase in fees under the Administrative Services Agreement would not be offset by corresponding decreases in advisory fees, the Fund will inform shareholders prior to the effectiveness of such increase. Prior to November 7, 2008, administrative services were provided to the Fund by JWS as part of its former management agreement with the Series. B. DISTRIBUTION SERVICES -- For the year ended December 31, 2008, RiverSource Fund Distributors, Inc. (formerly Seligman Advisors, Inc.) (the "Distributor"), agent for the distribution of the Fund's shares and an affiliate of the Manager, received commissions and concessions of $16,018 from sales of Class A shares. Commissions of $132,592 were also paid to dealers for sales of Class A shares. 21 Notes to Financial Statements 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 monthly, 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, 2008, fees incurred under the Plan aggregated $318,343 or 0.25% per annum of the average daily net assets of Class A shares. Under the Plan, with respect to Class B shares, Class C shares, Class D shares (only through May 16, 2008), and Class R 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, Class C, Class D, and Class R shares for which the organizations are responsible; and, for Class C, Class D, and Class R shares, fees for providing other distribution assistance of up to 0.75% (0.25%, in the case of Class R shares) 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. For the year ended December 31, 2008, fees incurred under the Plan, equivalent to 1% per annum of the average daily net assets of Class B, Class C, and Class D shares, and 0.50% per annum of average daily net assets of Class R shares, amounted to $155,269, $347,617, $161,423, and $22,286, respectively. The Distributor and RiverSource Services, Inc. (formerly Seligman Services, Inc.), also an affiliate of the Manager, are eligible to receive distribution and service (12b-1) fees pursuant to the Plan. For the year ended December 31, 2008, the Distributor and RiverSource Services, Inc. received distribution and service (12b-1) fees of $14,143. The Distributor is entitled to retain any CDSC imposed on certain redemptions of Class A, Class C, Class D, and Class R shares. For the year ended December 31, 2008, such charges amounted to $8,012. The Distributor has sold its rights to third parties to collect any CDSC imposed on redemptions of Class B shares. C. TRANSFER AGENT AND SHAREHOLDER SERVICES -- For the year ended December 31, 2008, Seligman Data Corp., which is owned by certain associated investment companies, charged the Fund at cost $834,096 for shareholder account services in accordance with a methodology approved by the Fund's trustees. Class I shares receive more limited shareholder services than the Fund's other classes of shares (the "Retail Classes"). Seligman Data Corp. does not allocate to Class I the costs of any of its departments that do not provide services to the Class I shareholders. Costs of Seligman Data Corp. directly attributable to the Retail Classes of the Fund were charged to those classes in proportion to their relative net asset values. Costs directly attributable to Class I shares were charged to Class I. The remaining charges were allocated to the Retail Classes and Class I by Seligman Data Corp. pursuant to a formula based on their net assets, shareholder transaction volumes and number of shareholder accounts. The Series and certain other associated investment companies (together, the "Guarantors") have severally but not jointly guaranteed the performance and observance of all the terms and conditions of a lease entered into by Seligman Data Corp., including the payment of rent by Seligman Data Corp. (the "Guaranty"). The lease and the related Guaranty expire in January 2019. The obligation of the Series to pay any amount due under the Guaranty is limited to a specified percentage of the full amount, which generally is based on the Series' percentage of the expenses billed by Seligman Data Corp. to all Guarantors in the most recent calendar quarter. As of December 31, 2008, the Series' potential obligation under the Guaranty is $527,500. As of December 31, 2008, no event has occurred which would result in the Series becoming liable to make any payment under the Guaranty. The Fund would bear a portion of any payments made by the Series under the Guaranty. A portion of the rent paid by Seligman Data Corp. is charged to the Fund as part of Seligman Data Corp.'s shareholder account services cost. 22 Notes to Financial Statements The Series' Board has approved RiverSource Service Corporation ("RSC") as the Fund's new transfer and shareholder service agent, and the termination of the Fund's relationship with Seligman Data Corp., effective on or about May 9, 2009. RSC is an affiliate of RiverSource. The fees and expenses expected to be charged to the Fund by RSC are generally lower than the fees and expenses charged by Seligman Data Corp. Nevertheless, as a result of the termination of the relationship with Seligman Data Corp., the Fund will incur certain non-recurring charges, including charges relating to Seligman Data Corp.'s leases, that would in the aggregate approximate 0.16% of the Fund's net assets as of January 23, 2009 (the "Non-Recurring Charges"). These Non-Recurring Charges will be incurred over a period of several months beginning January 28, 2009. Fund shareholders would bear their proportionate share of the Fund's expenses, including the Non-Recurring Charges. D. DIRECTORS' FEES AND EXPENSES -- Directors' fees and expenses includes the compensation of Board members who are not employees of RiverSource and the Fund's proportionate share of certain expenses of a company providing limited administrative services to the Fund and the other Seligman and RiverSource Funds. These expenses include boardroom and office expense, employee compensation, employee health and retirement benefits and certain other expenses. For the period from November 7, 2008 through December 31, 2008, the Fund paid $78 to this company for such services. The Series 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 and RiverSource Groups of Investment Companies. The cost of such fees and earnings/losses accrued thereon is included in directors' fees and expenses, and the accumulated balance thereof at December 31, 2008, of $2,005 is included in accrued expenses and other liabilities. Deferred fees and related accrued earnings are not deductible by the Fund for federal income tax purposes until such amounts are paid. Certain officers and trustees of the Series are officers or directors of the Manager, Ameriprise, the Distributor, RiverSource Services, Inc., RSC, and/or Seligman Data Corp. 5. COMMITTED LINE OF CREDIT -- The Fund is a participant in a joint $200 million committed line of credit that is shared by substantially all open-end funds in the Seligman Group of Investment Companies. The trustees have currently limited the Fund's borrowings 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 0.12% 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 in June 2009, but is renewable annually with the consent of the participating banks. For the year ended December 31, 2008, the Fund did not borrow from the credit facility. 6. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of portfolio securities, excluding short-term investments, for the year ended December 31, 2008, amounted to $122,099,207 and $161,128,970, respectively. 7. FEDERAL TAX INFORMATION -- Certain components of income, expense and realized capital gain and loss are recognized at different times or have a different character for federal income tax purposes and for financial reporting purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Fund. As a result of the differences described above, the treatment for financial reporting purposes of distributions made during the year from net investment income or net realized gains may differ from their treatment for federal income tax purposes. Further, the cost of investments also can differ for federal income tax purposes. At December 31, 2008, the cost of investments for federal income tax purposes was $160,313,857. The tax basis cost was greater than the cost for financial reporting purposes primarily due to the amortization of premium for financial reporting purposes of $712,150. 23 Notes to Financial Statements At December 31, 2008, the tax basis components of accumulated losses were as follows: Gross unrealized appreciation of portfolio securities $ 1,813,048 ------------------------------------------------------------------------------------------- Gross unrealized depreciation of portfolio securities (30,147,194) ------------------------------------------------------------------------------------------- Net unrealized depreciation of portfolio securities (28,334,146) ------------------------------------------------------------------------------------------- Undistributed ordinary income 229,018 ------------------------------------------------------------------------------------------- Capital loss carryforwards (1,128,589,445) ------------------------------------------------------------------------------------------- Timing differences (post-October losses) (60,572,379) ------------------------------------------------------------------------------------------- Total accumulated losses $ (1,217,266,952) ===========================================================================================
At December 31, 2008, the Fund had net capital loss carryforwards for federal income tax purposes of $1,128,589,445, which are available for offset against future taxable net capital gains, with $668,622,539 expiring in 2009, $444,283,739 expiring in 2010, $1,544,248 expiring in 2012, and $14,138,919 expiring in 2016. The amount was determined after adjustments for certain differences between financial reporting and tax purposes, such as wash sale losses. 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. There can be no assurance that the Fund will be able to utilize all of these capital loss carryforwards before they expire. During the year ended December 31, 2008, prior year's capital loss carryforwards of $255,659,981 expired unused, and this amount was reclassified to additional paid-in capital. In addition, from November 1, 2008 through December 31, 2008, the Fund incurred $60,572,379 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ended December 31, 2009. These losses will be available to offset future taxable net gains. For the years ended December 31, 2008 and 2007, all of the distributions to shareholders were from ordinary income. 8. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST -- Transactions in Shares of Beneficial Interest were as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2008 2007 ------------------------------------------------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 2,598,072 $ 7,081,664 2,729,400 $ 9,144,259 ------------------------------------------------------------------------------------------------- Investment of dividends 2,614,127 6,962,066 2,104,623 7,010,714 ------------------------------------------------------------------------------------------------- Exchanged from associated funds 1,405,326 3,910,060 1,806,733 6,038,741 ------------------------------------------------------------------------------------------------- Converted from Class B* 2,334,550 6,261,029 6,015,436 20,295,266 ------------------------------------------------------------------------------------------------- Total 8,952,075 24,214,819 12,656,192 42,488,980 ------------------------------------------------------------------------------------------------- Cost of shares repurchased (13,178,439) (35,739,150) (14,534,335) (48,718,477) ------------------------------------------------------------------------------------------------- Exchanged into associated funds (2,342,718) (6,569,787) (1,795,032) (6,016,925) ------------------------------------------------------------------------------------------------- Total (15,521,157) (42,308,937) (16,329,367) (54,735,402) ------------------------------------------------------------------------------------------------- Decrease (6,569,082) $(18,094,118) (3,673,175) $(12,246,422) ================================================================================================= CLASS B SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 89,318 $ 259,245 112,758 $ 383,117 ------------------------------------------------------------------------------------------------- Investment of dividends 283,116 765,070 357,206 1,194,988 ------------------------------------------------------------------------------------------------- Exchanged from associated funds 367,731 1,024,093 246,892 827,688 ------------------------------------------------------------------------------------------------- Total 740,165 2,048,408 716,856 2,405,793 ------------------------------------------------------------------------------------------------- Cost of shares repurchased (1,586,525) (4,308,046) (3,947,963) (13,295,661) ------------------------------------------------------------------------------------------------- Exchanged into associated funds (242,065) (661,063) (292,681) (972,233) ------------------------------------------------------------------------------------------------- Converted to Class A* (2,329,669) (6,250,589) (6,000,823) (20,269,764) ------------------------------------------------------------------------------------------------- Total (4,158,259) (11,219,698) (10,241,467) (34,537,658) ------------------------------------------------------------------------------------------------- Decrease (3,418,094) $ (9,171,290) (9,524,611) $(32,131,865) =================================================================================================
---------- See footnotes on page 25. 24 Notes to Financial Statements
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2008+ 2007 ------------------------------------------------------------------------------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 853,117 $ 2,276,708 304,932 $ 1,037,817 ------------------------------------------------------------------------------------------------- Investment of dividends 775,776 1,944,109 250,119 838,384 ------------------------------------------------------------------------------------------------- Exchanged from associated funds 247,617 616,429 98,412 329,611 ------------------------------------------------------------------------------------------------- Converted from Class D** 13,656,923 42,336,450 -- -- ------------------------------------------------------------------------------------------------- Total 15,533,433 47,173,696 653,463 2,205,812 ------------------------------------------------------------------------------------------------- Cost of shares repurchased (3,711,628) (9,634,042) (2,777,948) (9,409,915) ------------------------------------------------------------------------------------------------- Exchanged into associated funds (409,708) (1,057,951) (147,236) (492,795) ------------------------------------------------------------------------------------------------- Total (4,121,336) (10,691,993) (2,925,184) (9,902,710) ------------------------------------------------------------------------------------------------- Increase (decrease) 11,412,097 $ 36,481,703 (2,271,721) $ (7,696,898) ================================================================================================= CLASS D SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 643,675 $ 1,972,315 1,116,139 $ 3,760,170 ------------------------------------------------------------------------------------------------- Investment of dividends 338,561 1,022,653 696,691 2,330,079 ------------------------------------------------------------------------------------------------- Exchanged from associated funds 351,599 1,081,841 330,693 1,117,653 ------------------------------------------------------------------------------------------------- Total 1,333,835 4,076,809 2,143,523 7,207,902 ------------------------------------------------------------------------------------------------- Cost of shares repurchased (1,739,790) (5,284,392) (4,882,575) (16,394,820) ------------------------------------------------------------------------------------------------- Exchanged into associated funds (48,292) (146,503) (435,188) (1,463,413) ------------------------------------------------------------------------------------------------- Converted to Class C** (13,656,923) (42,336,461) -- -- ------------------------------------------------------------------------------------------------- Total (15,445,005) (47,767,356) (5,317,763) (17,858,233) ------------------------------------------------------------------------------------------------- Decrease (14,111,170) $(43,690,547) (3,174,240) $(10,650,331) ================================================================================================= CLASS I SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 449,920 $ 1,034,577 532,585 $ 1,785,760 ------------------------------------------------------------------------------------------------- Investment of dividends 274,394 722,240 176,969 588,755 ------------------------------------------------------------------------------------------------- Total 724,314 1,756,817 709,554 2,374,515 ------------------------------------------------------------------------------------------------- Cost of shares repurchased (356,940) (873,467) (240,107) (806,581) ------------------------------------------------------------------------------------------------- Increase 367,374 $ 883,350 469,447 $ 1,567,934 ================================================================================================= CLASS R SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 872,415 $ 2,419,705 823,413 $ 2,730,739 ------------------------------------------------------------------------------------------------- Investment of dividends 161,502 420,521 52,006 172,081 ------------------------------------------------------------------------------------------------- Exchanged from associated funds 15,509 39,269 1,037 3,513 ------------------------------------------------------------------------------------------------- Total 1,049,426 2,879,495 876,456 2,906,333 ------------------------------------------------------------------------------------------------- Cost of shares repurchased (364,641) (922,622) (93,796) (311,376) ------------------------------------------------------------------------------------------------- Exchanged into associated funds (3,885) (9,116) (34) (116) ------------------------------------------------------------------------------------------------- Total (368,526) (931,738) (93,830) (311,492) ------------------------------------------------------------------------------------------------- Increase 680,900 $ 1,947,757 782,626 $ 2,594,841 =================================================================================================
---------- + January 1, 2008 to May 16, 2008, in the case of Class D shares. * Automatic conversion of Class B shares to Class A shares approximately eight years after the initial purchase date. The amount of dividends accrued on Class B shares between the last dividend payment date and the conversion date is invested in Class A shares and is included in the conversion from Class B amount. ** Effective May 16, 2008, Class D shares were converted to Class C shares. 9. OTHER MATTERS -- In late 2003, JWS conducted an extensive internal review concerning mutual fund trading practices. JWS's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies then managed by JWS (the "Seligman Funds"); this arrangement was in the process of being closed down by JWS before September 2003. JWS identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, JWS, on a voluntary basis, publicly disclosed these 25 Notes to Financial Statements four arrangements to its clients and to shareholders of the Seligman Funds. JWS also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York ("NYAG"). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against JWS and the Distributor relating to frequent trading in the Seligman Funds. JWS responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that JWS had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against JWS, the Distributor, Seligman Data Corp. and Brian T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by JWS is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by JWS to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by JWS and not by the Seligman Funds. If the NYAG obtains injunctive relief, each of JWS, RiverSource and their affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies, including those funds in the RiverSource complex. Neither JWS nor RiverSource believes that the foregoing legal action or other possible actions will have a material adverse impact on JWS, RiverSource or their current and former clients, including the Seligman Funds and other investment companies managed by RiverSource; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. 10. RECENT ACCOUNTING PRONOUNCEMENT -- In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. As of December 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. 11. SUBSEQUENT EVENTS -- On January 8, 2009, the Series' Board approved in principle the merger of the Fund into RiverSource High Yield Bond Fund. The completion of the merger is subject to approval by shareholders of the Fund. It is currently anticipated that proxy materials regarding the merger will be distributed to shareholders of the Fund during the first or second quarter of 2009, and that a special meeting of shareholders to consider such merger will be scheduled for the second quarter of 2009. 26 Financial Highlights The tables below are intended to help you understand each Class's financial performance for the periods presented. 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 during the period. 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, if any. Total returns do not reflect any sales charges or transaction costs on your investment or taxes investors may incur on distributions or on the redemption of shares, and are not annualized for periods of less than one year.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- CLASS A 2008 2007 2006 2005 2004 ----------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA: ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 3.17 $ 3.39 $ 3.31 $ 3.51 $ 3.55 ----------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: ----------------------------------------------------------------------------------------------------------------------------- Net investment income 0.22 0.25 0.21 0.24 0.27 ----------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.18) (0.22) 0.10 (0.19) (0.04) ----------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.96) 0.03 0.31 0.05 0.23 ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ----------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.22) (0.25) (0.21) (0.24) (0.27) ----------------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income (0.05) -- (0.02) (0.01) --o ----------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.27) (0.25) (0.23) (0.25) (0.27) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $ 1.94 $ 3.17 $ 3.39 $ 3.31 $ 3.51 ============================================================================================================================= TOTAL RETURN (32.24)% 0.81% 9.74% 1.57% 7.03% ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $ 84,812 $ 159,566 $ 183,042 $ 186,311 $ 222,827 ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.47% 1.38% 1.34% 1.36% 1.28% ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 7.92% 7.41% 6.42% 7.05% 7.78% ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64.19% 77.94% 99.04% 79.90% 53.38% -----------------------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 30. 27 Financial Highlights
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- CLASS B 2008 2007 2006 2005 2004 ----------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA: ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 3.17 $ 3.39 $ 3.32 $ 3.52 $ 3.55 ----------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: ----------------------------------------------------------------------------------------------------------------------------- Net investment income 0.19 0.22 0.19 0.21 0.24 ----------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.17) (0.21) 0.09 (0.18) (0.02) ----------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.98) 0.01 0.28 0.03 0.22 ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ----------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.19) (0.22) (0.19) (0.21) (0.24) ----------------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income (0.06) (0.01) (0.02) (0.02) (0.01) ----------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.25) (0.23) (0.21) (0.23) (0.25) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $ 1.94 $ 3.17 $ 3.39 $ 3.32 $ 3.52 ============================================================================================================================= TOTAL RETURN (32.78)% 0.07% 8.62% 0.84% 6.53% ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $ 7,296 $ 22,760 $ 56,664 $ 122,052 $ 228,229 ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.25% 2.13% 2.09% 2.11% 2.03% ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 7.14% 6.66% 5.67% 6.30% 7.03% ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64.19% 77.94% 99.04% 79.90% 53.38% ----------------------------------------------------------------------------------------------------------------------------- CLASS C ----------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA: ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 3.18 $ 3.40 $ 3.33 $ 3.52 $ 3.56 ----------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: ----------------------------------------------------------------------------------------------------------------------------- Net investment income 0.20 0.22 0.19 0.21 0.24 ----------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.19) (0.21) 0.09 (0.17) (0.03) ----------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.99) 0.01 0.28 0.04 0.21 ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ----------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.20) (0.22) (0.19) (0.21) (0.24) ----------------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income (0.05) (0.01) (0.02) (0.02) (0.01) ----------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.25) (0.23) (0.21) (0.23) (0.25) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $ 1.94 $ 3.18 $ 3.40 $ 3.33 $ 3.52 ============================================================================================================================= TOTAL RETURN (33.02)% 0.07% 8.60% 1.13% 6.22% ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $ 33,069 $ 17,788 $ 26,742 $ 33,833 $ 48,012 ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.19% 2.13% 2.09% 2.11% 2.03% ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 7.20% 6.66% 5.67% 6.30% 7.03% ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64.19% 77.94% 99.04% 79.90% 53.38% -----------------------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 30. 28 Financial Highlights
1/1/08 YEAR ENDED DECEMBER 31, TO ------------------------------------------------------ CLASS D 5/16/08* 2007 2006 2005 2004 ----------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA: ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 3.18 $ 3.40 $ 3.33 $ 3.52 $ 3.56 ----------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: ----------------------------------------------------------------------------------------------------------------------------- Net investment income 0.09 0.22 0.19 0.21 0.24 ----------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.06) (0.21) 0.09 (0.17) (0.03) ----------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.03 0.01 0.28 0.04 0.21 ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ----------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.09) (0.22) (0.19) (0.21) (0.24) ----------------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income (0.02) (0.01) (0.02) (0.02) (0.01) ----------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.11) (0.23) (0.21) (0.23) (0.25) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 3.10 $ 3.18 $ 3.40 $ 3.33 $ 3.52 ============================================================================================================================= TOTAL RETURN 0.65% 0.07% 8.60% 1.13% 6.22% ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) -- $ 44,860 $ 58,752 $ 70,959 $ 100,125 ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.19%+ 2.13% 2.10% 2.11% 2.03% ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 7.56%+ 6.66% 5.67% 6.30% 7.03% ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64.19%# 77.94% 99.04% 79.90% 53.38% ----------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- CLASS I 2008 2007 2006 2005 2004 ----------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA: ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 3.17 $ 3.39 $ 3.31 $ 3.51 $ 3.55 ----------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: 0.23 0.26 0.23 0.25 0.29 ----------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.18) (0.22) 0.10 (0.18) (0.04) ----------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.95) 0.04 0.33 0.07 0.25 ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ----------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.23) (0.26) (0.23) (0.25) (0.29) ----------------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income (0.05) -- (0.02) (0.02) --o ----------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.28) (0.26) (0.25) (0.27) (0.29) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $ 1.94 $ 3.17 $ 3.39 $ 3.31 $ 3.51 ============================================================================================================================= TOTAL RETURN (31.99)% 1.18% 10.23% 2.01% 7.46% ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $ 5,562 $ 7,924 $ 6,879 $ 7,299 $ 6,500 ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.89% 0.88% 0.85% 0.91% 0.85% ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 8.50% 7.91% 6.92% 7.50% 8.21% ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64.19% 77.94% 99.04% 79.90% 53.38% -----------------------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 30. 29 Financial Highlights
YEAR ENDED DECEMBER 31, --------------------------------------------------------- CLASS R 2008 2007 2006 2005 2004 ------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA: ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 3.17 $ 3.39 $ 3.31 $ 3.51 $ 3.55 ------------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM INVESTMENT OPERATIONS: ------------------------------------------------------------------------------------------------------------------------------ Net investment income 0.21 0.24 0.20 0.23 0.25 ------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.18) (0.22) 0.10 (0.19) (0.02) ------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS (0.97) 0.02 0.30 0.04 0.23 ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: ------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.21) (0.24) (0.20) (0.23) (0.25) ------------------------------------------------------------------------------------------------------------------------------ Dividends in excess of net investment income (0.05) -- (0.02) (0.01) (0.02) ------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (0.26) (0.24) (0.22) (0.24) (0.27) ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $ 1.94 $ 3.17 $ 3.39 $ 3.31 $ 3.51 ============================================================================================================================== TOTAL RETURN (32.42)% 0.56% 9.48% 1.32% 6.76% ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (000s omitted) $ 3,677 $ 3,856 $ 1,468 $ 689 $ 720 ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 1.72% 1.62% 1.59% 1.61% 1.53% ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 7.67% 7.17% 6.17% 6.80% 7.53% ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 64.19% 77.94% 99.04% 79.90% 53.38% ------------------------------------------------------------------------------------------------------------------------------
---------- + Annualized. * Date of conversion to Class C shares. # Computed at the Fund level for the year ended December 31, 2008. o Less than + or - $0.005. See Notes to Financial Statements. 30 Report of Independent Registered Public Accounting Firm THE TRUSTEES AND SHAREHOLDERS OF SELIGMAN HIGH-YIELD FUND OF SELIGMAN HIGH INCOME FUND SERIES: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Seligman High-Yield Fund, one of the funds constituting Seligman High Income Fund Series, (the "Fund") as of December 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Seligman High-Yield Fund of Seligman High Income Fund Series as of December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York February 27, 2009 31 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement BACKGROUND On July 7, 2008, RiverSource Investments, LLC ("RiverSource"), a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise"), entered into a stock purchase agreement with the shareholders of J. & W. Seligman & Co. Incorporated ("Seligman") under which RiverSource would acquire all of the outstanding capital stock of Seligman (the "Transaction"). The consummation of the Transaction resulted in the automatic termination of the Fund's management agreement with Seligman (the "Seligman Management Agreement"). In anticipation of the termination of the Seligman Management Agreement, at a meeting held on July 29, 2008, the trustees of Seligman High Income Fund Series then serving, of which the Fund is a separate series, unanimously approved an investment management agreement between the Fund and RiverSource (the "Proposed Advisory Agreement"). At the special meeting of shareholders of the Fund held on November 3, 2008, the shareholders approved the Proposed Advisory Agreement. The Transaction closed on November 7, 2008, and upon the closing, RiverSource became the investment advisor to the Fund. BOARD CONSIDERATIONS Prior to their approval of the Proposed Advisory Agreement, the trustees requested and evaluated extensive materials from, and were provided materials and information about the Transaction and matters related to the proposed approval by, Seligman, RiverSource and Ameriprise. In consultation with experienced counsel, who advised on the legal standards for consideration by the trustees, the trustees reviewed the Proposed Advisory Agreement with RiverSource. The independent trustees also discussed the proposed approval with counsel in private sessions. At their meetings on June 12, 2008, July 17, 2008 and July 29, 2008, the trustees discussed the Transaction with Seligman, and the Transaction and RiverSource's plans and intentions regarding the Fund with representatives of Ameriprise and RiverSource. The trustees considered all factors they believed relevant, including the specific matters discussed below. In their deliberations, the trustees did not identify any particular information that was all-important or controlling, and trustees may have attributed different weights to the various factors. The trustees determined that the selection of RiverSource to advise the Fund, and the overall arrangements between the Fund and RiverSource as provided in the Proposed Advisory Agreement, including the proposed advisory fee and the related administration arrangements between the Fund and Ameriprise, were fair and reasonable in light of the services to be performed, expenses incurred and such other matters as the trustees considered relevant. The material factors and conclusions that formed the basis for the trustees' determination included, in addition, the factors discussed in further detail below: (i) the reputation, financial strength and resources of RiverSource, and its parent, Ameriprise; (ii) the capabilities of RiverSource with respect to compliance and its regulatory histories; (iii) an assessment of RiverSource's compliance system by the Fund's Chief Compliance Officer; (iv) that RiverSource and Ameriprise assured the trustees that following the Transaction there will not be any diminution in the nature, quality and extent of services provided to the Fund or its shareholders; (v) that within the past year the trustees had performed a full annual review of the Seligman Management Agreement, as required by the Investment Company Act of 1940 ("1940 Act"), for the Fund and had determined that they were satisfied with the nature, extent and quality of services provided thereunder and that the management fee rate for the Fund was satisfactory; (vi) the potential benefits to the Fund of the combination of RiverSource and Seligman to the Fund, including: greater resources to attract and retain high quality investment personnel; greater depth and breadth of investment management capabilities, including a new team of portfolio managers for the Fund; a continued high level of service to the Fund; and the potential for realization of economies of scale over time since the Fund will be part of a much larger fund complex; 32 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement (vii) the fact that the Fund's total advisory and administrative fees would not increase by virtue of the Proposed Advisory Agreement, but would remain the same; (viii) that RiverSource, and not the Fund, would bear the costs of obtaining all approvals of the Proposed Advisory Agreement; (ix) the qualifications of the personnel of RiverSource and Ameriprise that would provide advisory and administrative services to the Fund; (x) the terms and conditions of the Proposed Advisory Agreement, including the trustees' review of differences from the Seligman Management Agreement; (xi) that RiverSource and Ameriprise have agreed to refrain from imposing or seeking to impose, for a period of two years after the closing of the Transaction, any "unfair burden" (within the meaning of Section 15(f) of 1940 Act) on the Fund; and (xii) that certain members of RiverSource's management have a significant amount of experience integrating other fund families. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED In considering the nature, extent and quality of the services to be provided under the Proposed Advisory Agreement, the trustees of the Fund considered, among other things, the expected impact of the Transaction on the operations of the Fund, the information provided by RiverSource with respect to the nature, extent and quality of services to be provided by it, RiverSource's compliance programs and compliance records, and presentations provided on the quality of RiverSource's investment research capabilities and the other resources it and Ameriprise have indicated that they would dedicate to performing services for the Fund. The trustees noted the professional experience and qualifications of the new portfolio management team proposed for the Fund and other senior personnel of RiverSource. The trustees considered a report by, the Fund's Chief Compliance Officer, assessing RiverSource's compliance system, which was followed by a private session with the Fund's Chief Compliance Officer. They also discussed RiverSource's compliance system with the Chief Compliance Officer for the funds managed by RiverSource. The trustees also considered RiverSource's presentation on the selection of brokers and dealers for portfolio transactions. As administrative services (provided under the Seligman Management Agreement) would be provided to the Fund by Ameriprise at no additional cost under a new administrative services agreement rather than pursuant to the Proposed Advisory Agreement, the trustees considered Ameriprise's capability to provide such administrative services as well as RiverSource's and Ameriprise's roles in coordinating the activities of the Fund's other service providers. The trustees noted that Ameriprise intended to continue Seligman's practice of sub-contracting administrative services provided by Seligman for the Fund to State Street Bank and Trust Company for the foreseeable future. The trustees concluded that, overall, they were satisfied with assurances from RiverSource and Ameriprise as to the expected nature, extent and quality of the services to be provided to the Fund under the Proposed Advisory Agreement and the new administrative services agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY In considering the costs of services to be provided by RiverSource under the Proposed Advisory Agreement, the trustees considered, among other things, the projected pre-tax, pre-distribution expense profitability of RiverSource's proposed relationship with the Fund and discussed the assumptions of RiverSource and the limitations of the information provided. The trustees noted that RiverSource had undertaken to provide profitability information in connection with future contract continuances. The trustees also considered RiverSource's financial condition based on information provided by it. The trustees noted that the proposed fee under the Proposed Advisory Agreement was the same as provided under the Seligman Management Agreement. The trustees recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available 33 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement and is affected by numerous factors. In reviewing the projected profitability information, the trustees considered the effect of fall-out benefits on RiverSource's expenses. The trustees concluded that they were satisfied that RiverSource's estimated future profitability from its relationship with the Fund was not excessive. FALL-OUT BENEFITS The trustees reviewed information about RiverSource's practices with respect to allocating portfolio brokerage for brokerage and research services. The trustees also considered that broker-dealer affiliates of RiverSource, including a broker-dealer affiliate of Seligman (which became an affiliate of RiverSource following the closing of the Transaction) will receive 12b-1 fees from the Fund in respect of shares held in certain accounts, and that the Fund's distributor (which also became a subsidiary of RiverSource following the closing of the Transaction) retains a portion of the 12b-1 fees from the Fund and receives a portion of the sales charges on sales or redemptions of certain classes of shares of the Fund. The trustees recognized that RiverSource's profitability would be somewhat lower without these benefits. The trustees noted that RiverSource may derive reputational and other benefits from its association with the Fund. INVESTMENT RESULTS The trustees received and reviewed detailed performance information on the Fund at each regular Board meeting during the year in addition to the information received for the meeting regarding approval of the Proposed Advisory Agreement. The trustees noted that a new portfolio manager was being proposed by RiverSource for the Fund and that such manager would use an investment process derived from that used by RiverSource High Yield Bond Fund, modified to comply with the Fund's investment strategies as disclosed in its prospectus. The trustees discussed the portfolio management team, its investment strategy and process and historical performance record with representatives of RiverSource. The trustees reviewed performance information of the Fund covering a wide range of periods, including the first six months of the calendar year, the preceding seven calendar years and annualized one-, three- and five-year rolling periods ending June 30, 2008. The trustees reviewed information comparing the Fund to the Lehman Brothers US Corporate High-Yield Index 2% Cap and the Lipper High Current Yield Fund Average, as well as performance relative to the other funds in the Lipper High Current Yield Fund Average and to a group of competitor funds selected by Seligman. The trustees noted that the results of RiverSource High Yield Bond Fund were generally better than that of the Fund for the comparable periods presented, although they lagged its JP Morgan Global High Yield Index benchmark in most periods. The trustees recognized that it is not possible to predict what effect, if any, consummation of the Transaction would have on the future performance of the Fund. MANAGEMENT FEE AND OTHER EXPENSES The trustees considered the proposed advisory fee rate to be paid by the Fund to RiverSource, which is the same as the management fee rate paid by the Fund under the Seligman Management Agreement. In addition to the materials provided by Seligman, RiverSource provided information regarding the fees for each of the RiverSource funds and managed accounts. The trustees noted that the effective advisory fee rates for the RiverSource funds in the same Lipper category as the Fund were lower than the proposed advisory fee rate for the Fund. The trustees recognized that it is difficult to make comparisons of advisory and management fees because there are variations in the services that are included in the fees paid by other funds. In considering the proposed advisory fee rate, the trustees noted that the management fee rate under the Seligman Management Agreement covers administrative services provided by Seligman, whereas the Proposed Advisory Agreement does not include such services, but that Ameriprise will provide such services to the Fund pursuant to a separate administrative services agreement initially without a fee. The trustees further considered that the administrative fees, since they are not included in an advisory agreement, could be increased without stockholder approval, although RiverSource noted that, at that time, it did not have an intention to seek an 34 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement increase, and that any such administrative fee increase would require board approval. The trustees also noted RiverSource's and Ameriprise's covenants in the Transaction's stock purchase agreement regarding compliance with Section 15(f) of the 1940 Act. The trustees compared the Fund's proposed advisory fee rate to the rate paid by other funds in the Fund's Lipper category. The Fund's peer group consisted of the funds in the Lipper High Current Yield Funds Average category having net assets in a range that more closely corresponds to the net assets of the Fund (the "peer group"). The information showed that the Fund's current effective management fee rate was somewhat higher than the average and the median for the funds in the peer group. The trustees noted that the Fund's fee rate schedule includes breakpoints although, at the Fund's current asset levels, it was unlikely to benefit from them in the next year. The trustees also reviewed the Fund's total expense ratio as compared to the fees and expenses of funds within its peer group. In considering the expense ratios of the Fund, the trustees noted that the Fund has elected to have shareholder services provided at cost by Seligman Data Corp. ("SDC"). SDC provides services exclusively to the Seligman Group of Funds, and the trustees believed that the arrangement with SDC has provided the Fund and its shareholders with a consistently high level of service. The trustees noted that RiverSource had previously indicated that no changes to the arrangements with SDC were being proposed at the time by RiverSource. The trustees noted that the Fund's expense ratio was nearly the highest in its peer group and considerably higher than the median and the average for the peer group. Seligman explained that the Fund's relatively high expenses were attributable in part to the Fund's small size relative to the funds in its peer group and high shareholder purchase and redemption activity levels, all of which adversely affected its expense ratio. The trustees concluded that the Fund's expense ratio was acceptable in the Fund's particular circumstances. ECONOMIES OF SCALE The trustees noted that the management fee schedule for the Fund contains breakpoints that reduce the fee rate on assets above specified levels. The trustees recognized that there is no direct relationship between the economies of scale realized by funds and those realized by their investment advisers as assets increase. The trustees do not believe that there is a uniform methodology for establishing breakpoints that give effect to fund-specific economies of scale with respect to services provided by fund advisers. The trustees also observed that in the investment company industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply, and that the advisory agreements for many competitor funds do not have breakpoints at all. The trustees noted that RiverSource had indicated that no changes to the Fund's breakpoint arrangements were proposed to be made at the time. Having taken these factors into account, the trustees concluded that the Fund's breakpoint arrangements were acceptable under the Fund's circumstances. The trustees also recognized that the Fund may benefit from certain economies of scale over time from becoming a part of the larger RiverSource fund complex, based on potential future synergies of operations. 35 Proxy Results Shareholders of Seligman High-Yield Fund voted on two proposals at a Special Meeting of Shareholders held on November 3, 2008. Shareholders voted in favor of each of the proposals. The description of each proposal and number of shares voted are as follows: PROPOSAL 1 To consider and vote upon the proposed Investment Management Services Agreement with RiverSource Investments, LLC: FOR AGAINST ABSTAIN -------------------------------------------------------------------------------- 35,151,212.467 1,628,616.196 1,480,787.304 -------------------------------------------------------------------------------- PROPOSAL 2 (combined votes of both Funds in the Series) To elect ten trustees to the Board: FOR WITHHELD -------------------------------------------------------------------------------- Kathleen Blatz 51,198,749.236 2,437,544.928 -------------------------------------------------------------------------------- Arne H. Carlson 51,131,650.856 2,504,643.308 -------------------------------------------------------------------------------- Pamela G. Carlton 51,203,587.404 2,432,706.760 -------------------------------------------------------------------------------- Patricia M. Flynn 51,212,005.780 2,424,288.384 -------------------------------------------------------------------------------- Anne P. Jones 51,129,788.135 2,506,506.029 -------------------------------------------------------------------------------- Jeffrey Laikind 51,183,153.004 2,453,141.160 -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 51,247,061.722 2,389,232.442 -------------------------------------------------------------------------------- Catherine James Paglia 51,200,482.648 2,435,811.516 -------------------------------------------------------------------------------- Alison Taunton-Rigby 51,166,054.471 2,470,239.693 -------------------------------------------------------------------------------- William F. Truscott 51,230,947.413 2,405,346.751 -------------------------------------------------------------------------------- 36 Trustees and Officers Shareholders elect a Board of Trustees that oversees the Fund's operations. In connection with the acquisition of the Fund's prior investment manager, J. & W. Seligman & Co. Incorporated, by RiverSource Investments, LLC, shareholders of the Fund voted at a Special Meeting of Shareholders held on November 3, 2008 to elect 10 members to the Fund's Board. Messrs. Maher and Richie served on the Fund's Board prior to the acquisition and will continue to do so. Each member of the Board oversees 163 portfolios in the fund complex managed by RiverSource Investments, which includes 59 Seligman Funds and 104 RiverSource Funds. The address of each Director is 901 S. Marquette Ave., Minneapolis, MN 55402. Independent Trustees
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS HELD WITH FUND AND OTHER INFORMATION ----------------------------------------------------------------------------------------------------------------------------------- KATHLEEN BLATZ (54)1,2,6,7 Attorney. Formerly, Chief Justice, Minnesota Supreme Court, 1998-2006. o Trustee: From November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- ARNE H. CARLSON (74)1,2,3,5,6 Formerly, Chairman, RiverSource Funds, 1999-2006; Governor of Minnesota. o Trustee: From November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- PAMELA G. CARLTON (54)4,6,7 President, Springboard -- Partners in Cross Cultural Leadership (consulting company). o Trustee: From November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- PATRICIA M. FLYNN (58)1,3,6 Trustee Professor of Economics and Management, Bentley College. Formerly, Dean, o Trustee: From McCallum Graduate School of Business, Bentley College. November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- ANNE P. JONES (73)1,2,6,7 Attorney and Consultant. o Trustee: From November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- JEFFREY LAIKIND, CFA (73)4,6,7 Director, American Progressive Insurance. Formerly, Managing Director, Shikiar Asset o Trustee: From Management. November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- STEPHEN R. LEWIS, JR. (69)1,2,3,4,6 President Emeritus and Professor of Economics, Carleton College; Director, Valmont o Trustee and Chairman Industries, Inc. (manufactures irrigation systems). of the Board: From November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- JOHN F. MAHER (64)4,6,7 Retired President and Chief Executive Officer, and former Director, Great Western o Trustee: December 2006 Financial Corporation (bank holding company) and its principal subsidiary, Great to Date Western Bank (a federal savings bank). -----------------------------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 38. 37 Trustees and Officers Independent Trustees (continued)
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS HELD WITH FUND AND OTHER INFORMATION ----------------------------------------------------------------------------------------------------------------------------------- CATHERINE JAMES PAGLIA (56)2,3,4,5,6 Director, Enterprise Asset Management, Inc. (private real estate and asset management o Trustee: From company). November 7, 2008 ----------------------------------------------------------------------------------------------------------------------------------- LEROY C. RICHIE (66)3,4,6 Counsel, Lewis & Munday, P.C. (law firm); Director, Vibration Control Technologies, LLC o Trustee: 2000 to Date (auto vibration technology); Lead Outside Director, Digital Ally Inc. (digital imaging) and Infinity, Inc. (oil and gas exploration and production); Director and Chairman, Highland Park Michigan Economic Development Corp.; and Chairman, Detroit Public Schools Foundation; Director, OGE Energy Corp. (energy and energy services provider). Formerly, Chairman and Chief Executive Officer, Q Standards Worldwide, Inc. (library of technical standards); Director, Kerr-McGee Corporation (diversified energy and chemical company); Trustee, New York University Law Center Foundation; and Vice Chairman, Detroit Medical Center and Detroit Economic Growth Corp. ----------------------------------------------------------------------------------------------------------------------------------- ALISON TAUNTON-RIGBY (64)3,4,5,6 Chief Executive Officer and Director, RiboNovix, Inc. since 2003 (biotechnology); Director, o Trustee: From Idera Pharmaceutical, Inc. (biotechnology); Healthways, Inc. (health management programs). November 7, 2008 Formerly, President, Forester Biotech. ----------------------------------------------------------------------------------------------------------------------------------- Interested Trustee* ----------------------------------------------------------------------------------------------------------------------------------- WILLIAM F. TRUSCOTT (48)*6 President - US Asset Management and Chief Investment Officer, Ameriprise Financial, Inc. o Trustee and Vice and President, Chairman of the Board, and Chief Investment Officer, RiverSource President: Investments, LLC; Director, President and Chief Executive Officer, Ameriprise Certificate From November 7, 2008 Company; and Chairman of the Board, Chief Executive Officer, and President, RiverSource Distributors, Inc. Formerly, Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc.; and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005. -----------------------------------------------------------------------------------------------------------------------------------
---------- * Mr. Truscott is considered an "interested person" of the Fund, as defined in the Investment Company Act of 1940, as amended, by virtue of his position with Ameriprise Financial, Inc. and its affiliates. Member: 1 Board Governance Committee 2 Compliance Committee 3 Contracts Committee 4 Distribution Committee 5 Executive Committee 6 Investment Review Committee 7 Joint Audit Committee 38 Trustees and Officers Fund Officers The Board appoints officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is a Trustee and Vice President of the Fund, the Fund's other officers are:
NAME, (AGE), POSITION(S) HELD WITH FUND, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ----------------------------------------------------------------------------------------------------------------------------------- PATRICK T. BANNIGAN (43) Director and Senior Vice President -- Asset Management, Products and Marketing, o President: From RiverSource Investments, LLC; Director and Vice President -- Asset Management, Products November 7, 2008 and Marketing, RiverSource Distributors, Inc. Formerly, Managing Director and Global Head o 172 Ameriprise Financial of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Center Investments, 2002-2004. Minneapolis, MN 55474 ----------------------------------------------------------------------------------------------------------------------------------- MICHELLE M. KEELEY (44) Executive Vice President -- Equity and Fixed Income, Ameriprise Financial, Inc. and o Vice President: From RiverSource Investments, LLC; Vice President -- Investments, Ameriprise Certificate November 7, 2008 Company. Formerly, Senior Vice President -- Fixed Income, Ameriprise Financial, Inc., o 172 Ameriprise Financial 2002-2006 and RiverSource Investments, LLC, 2004-2006. Center Minneapolis, MN 55474 ----------------------------------------------------------------------------------------------------------------------------------- AMY K. JOHNSON (43) Vice President -- Asset Management and Trust Company Services, RiverSource o Vice President: From Investments, LLC. Formerly, Vice President -- Operations and Compliance, RiverSource November 7, 2008 Investments, LLC, 2004-2006; Director of Product Development -- Mutual Funds, Ameriprise o 5228 Ameriprise Financial, Inc., 2001-2004. Financial Center Minneapolis, MN 55474 ----------------------------------------------------------------------------------------------------------------------------------- SCOTT R. PLUMMER (49) Vice President and Chief Counsel -- Asset Management, Ameriprise Financial, Inc.; Chief o Vice President, General Counsel, RiverSource Distributors, Inc. and Chief Legal Officer and Assistant Secretary, Counsel and Secretary: RiverSource Investments, LLC; Vice President, General Counsel, and Secretary, Ameriprise From November 7, 2008 Certificate Company. Formerly, Vice President -- Asset Management Compliance, o 5228 Ameriprise Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, Financial Center USBancorp Asset Management, 2002-2004. Minneapolis, MN 55474 ----------------------------------------------------------------------------------------------------------------------------------- LAWRENCE P. VOGEL (52) Treasurer of each of the investment companies of the Seligman Group of Funds since 2000; o Treasurer: 2000 to Date and Treasurer, Seligman Data Corp. since 2000. Formerly, Senior Vice President, J. & W. o 100 Park Avenue Seligman & Co. Incorporated and Vice President of each of the investment companies of the New York, NY 10017 Seligman Group of Funds, 1992-2008. -----------------------------------------------------------------------------------------------------------------------------------
39 Trustees and Officers Fund Officers (continued)
NAME, (AGE), POSITION(S) HELD WITH FUND, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ----------------------------------------------------------------------------------------------------------------------------------- ELEANOR T.M. HOAGLAND (56) Chief Compliance Officer, RiverSource Investments, LLC (J. & W. Seligman & Co. o Chief Compliance Incorporated prior to November 7, 2008), of each of the investment companies of the Officer: 2004 to Date Seligman Group of Funds since 2004; Money Laundering Prevention Officer and Identity o Money Laundering Theft Prevention Officer, RiverSource Investments, LLC for each of the investment Prevention Officer companies of the Seligman Group of Funds since November 7, 2008. Formerly, Managing and Identity Theft Director, J. & W. Seligman & Co. Incorporated and Vice President of each of the investment Prevention Officer: From companies of the Seligman Group of Funds, 2004-2008. November 7, 2008 o 100 Park Avenue New York, NY 10017 -----------------------------------------------------------------------------------------------------------------------------------
The Fund's Statement of Additional Information (SAI) includes additional information about Fund trustees and is available, without charge, upon request. You may call toll-free (800) 221-2450 in the US or call collect (212) 682-7600 outside the US to request a copy of the SAI, to request other information about the Fund, or to make shareholder inquiries. 40 Required Federal Income Tax Information (UNAUDITED) Dividends paid for the year ended December 31, 2008, other than qualified dividend income, are subject to federal income tax as "ordinary income." In order to claim the dividends received deduction for these distributions, corporate shareholders must have held their shares for 46 days or more during the 90-day period beginning 45 days before each ex-dividend date. Under the Internal Revenue Code, the dividends paid to corporate shareholders that qualify for the dividends received deduction were as follows: DIVIDENDS RECEIVED DEDUCTION PERCENT ------------------------------------------------------------------------------- Class A 1.26% ------------------------------------------------------------------------------- Class B 1.44 ------------------------------------------------------------------------------- Class C 1.15 ------------------------------------------------------------------------------- Class D 1.90 ------------------------------------------------------------------------------- Class I 1.18 ------------------------------------------------------------------------------- Class R 1.23 ------------------------------------------------------------------------------- For the year ended December 31, 2008, the Fund designates the following as qualified dividends to individual shareholders: QUALIFIED DIVIDENDS PERCENT ------------------------------------------------------------------------------- Class A 0.97% ------------------------------------------------------------------------------- Class B 1.11 ------------------------------------------------------------------------------- Class C 0.89 ------------------------------------------------------------------------------- Class D 1.46 ------------------------------------------------------------------------------- Class I 0.91 ------------------------------------------------------------------------------- Class R 0.94 ------------------------------------------------------------------------------- In order for an individual to claim dividends received as qualified dividends, individual shareholders must have held their shares for more than 60 days during the 121-day period beginning 60 days before each ex-dividend date. 41 Additional Fund Information FUND SYMBOLS CLASS A: SHYBX CLASS B: SBBHX CLASS C: SHCCX CLASS R: SHYRX MANAGER FROM NOVEMBER 7, 2008 RiverSource Investments, LLC 200 Ameriprise Financial Center Minneapolis, MN 55474 UNTIL NOVEMBER 6, 2008 J. & W. Seligman & Co. Incorporated 100 Park Avenue New York, NY 10017 GENERAL DISTRIBUTOR RiverSource Fund Distributors, Inc. (formerly Seligman Advisors, Inc.) 100 Park Avenue New York, NY 10017 SHAREHOLDER SERVICE AGENT Seligman Data Corp. 100 Park Avenue New York, NY 10017 MAIL INQUIRIES TO: P.O. Box 9759 Providence, RI o2940-9759 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 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 ------------------------------------------------------------------------------- QUARTERLY SCHEDULE OF INVESTMENTS A complete schedule of portfolio holdings owned by the Fund will be filed with the SEC for the first and third quarter of each fiscal year on Form N-Q, and will be available to shareholders (i) without charge, upon request, by calling toll-free (800) 221-2450 in the US or collect (212) 682-7600 outside the US or (ii) on the SEC's website at WWW.SEC.GOV.(1) In addition, the Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. Certain of the information contained in the Fund's Form N-Q is also made available to shareholders on Seligman's website at WWW.SELIGMAN.COM.(1) PROXY VOTING A description of the policies and procedures used by the Fund to determine how to vote proxies relating to portfolio securities as well as information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30 of each year will be available (i) without charge, upon request, by calling toll-free (800) 221-2450 in the US or collect (212) 682-7600 outside the US and (ii) on the SEC's website at WWW.SEC.GOV.(1) Information for each new 12-month period ending June 30 will be available no later than August 31 of that year. ---------- (1) These website references are inactive textual references and information contained in or otherwise accessible through these websites does not form a part of this report or the Fund's prospectuses or statement of additional information. 42 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- [LOGO] GO PAPERLESS -- SIGN UP FOR E-DELIVERY AT WWW.SELIGMAN.COM -------------------------------------------------------------------------------- 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 Fund, which contains information about the investment objectives, risks, charges, and expenses of the Fund, each of which should be considered carefully before investing or sending money. -------------------------------------------------------------------------------- TXHY2 12/08