SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. __ |_|
Post-Effective Amendment No. 30 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 32 |X|
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SELIGMAN MUNICIPAL SERIES TRUST
(Exact name of registrant as specified in charter)
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100 PARK AVENUE, NEW YORK, NEW YORK 10017
(Address of principal executive offices)
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Registrant's Telephone Number: 212-850-1864 or
Toll-Free 800-221-2450
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THOMAS G. ROSE, Treasurer
100 Park Avenue
New York, New York 10017
(Name and address of agent for service)
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It is proposed that this filing will become effective (check the
appropriate box).
|_| immediately upon filing pursuant to paragraph (b) of rule 485
|X| on May 28, 1999 pursuant to paragraph (b) of rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of rule 485
|_| on (date) pursuant to paragraph (a)(1) of rule 485
|_| 75 days after filing pursuant to paragraph (a)(2) of rule 485
|_| on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
SELIGMAN
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MUNICIPAL FUNDS
SELIGMAN MUNICIPAL FUND
SERIES, INC.
SELIGMAN MUNICIPAL
SERIES TRUST
SELIGMAN NEW JERSEY
MUNICIPAL FUND, INC.
SELIGMAN PENNSYLVANIA
MUNICIPAL FUND SERIES
The Securities and Exchange Commission has neither approved nor disapproved
these Funds, and it has not determined the prospectus to be accurate or
adequate. Any representation to the contrary is a criminal offense.
An investment in these Funds or any other fund cannot provide a complete
investment program. The suitability of an investment in a Fund should be
evaluated based on the investment objective, strategies and risks described
herein, considered in light of all of the other investments in your portfolio,
as well as your risk tolerance, financial goals, and time horizons. We recommend
that you consult your financial advisor to determine if one or more of these
Funds is suitable for you.
MUNI-1 6/99
[GRAPHIC OMITTED]
PROSPECTUS
JUNE 1, 1999
Seeking
Income
Exempt From
Regular
Income Tax
managed by
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
<PAGE>
Table of Contents
The Funds
A discussion of the investment strategies, risks, performance and expenses of
the Funds.
Overview of the Funds 1
National Fund 4
California High-Yield Fund 6
California Quality Fund 8
Colorado Fund 10
Florida Fund 12
Georgia Fund 14
Louisiana Fund 16
Maryland Fund 18
Massachusetts Fund 20
Michigan Fund 22
Minnesota Fund 24
Missouri Fund 26
New Jersey Fund 28
New York Fund 30
North Carolina Fund 32
Ohio Fund 34
Oregon Fund 36
Pennsylvania Fund 38
South Carolina Fund 40
Management of the Funds 42
Year 2000 43
Shareholder Information
Deciding Which Class of Shares
to Buy 44
Pricing of Fund Shares 46
Opening Your Account 46
How to Buy Additional Shares 47
How to Exchange Shares Among
the Seligman Mutual Funds 47
How to Sell Shares 48
Important Policies That May Affect
Your Account 49
Dividends and Capital Gain
Distributions 50
Taxes 50
Financial Highlights 51
How to Contact Us inside back cover
For More Information back cover
TIMES CHANGE ... VALUES ENDURE
<PAGE>
The Funds
OVERVIEW OF THE FUNDS
This Prospectus contains information about four separate funds, which together
offer 19 investment options:
Seligman Municipal Fund Series offers the following 13 series:
National Fund Massachusetts Fund New York Fund
Colorado Fund Michigan Fund Ohio Fund
Georgia Fund Minnesota Fund Oregon Fund
Louisiana Fund Missouri Fund South Carolina Fund
Maryland Fund
Seligman Municipal Series Trust offers the following four series:
California High-Yield Fund Florida Fund
California Quality Fund North Carolina Fund
Seligman New Jersey Municipal Fund, Inc. (New Jersey Fund)
Seligman Pennsylvania Municipal Fund Series (Pennsylvania Fund)
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
Each Fund has its own objectives, strategies and risks. You should read the
discussion of a particular Fund, in addition to the information below, before
making an investment decision about that Fund.
The Seligman Municipal Funds seek to provide income exempt from regular federal
income taxes and, as applicable, regular state and local personal income taxes.
The Funds are managed for total return, which means, in addition to income
considerations, the Funds (except the Pennsylvania Fund) look to enhance
portfolio returns by pursuing opportunities for capital appreciation. The
Pennsylvania Fund does not pursue capital appreciation as one of its objectives.
At all times, safety of principal is a primary concern of all of the Funds.
However, there is no assurance that the Funds will meet their objectives.
Each Fund normally invests at least 80% of its net assets in municipal
securities that pay interest that is exempt from regular federal income taxes
and (except the National Fund) regular personal income taxes in its respective
state. Income may be subject to the federal alternative minimum tax and, where
applicable, state alternative minimum tax.
Municipal securities are issued by state and local governments, their agencies
and authorities, as well as territories and possessions of the United States,
and the District of Columbia. Municipal bonds are issued to obtain funds to
finance various public or private projects, to meet general expenses, and to
refinance outstanding debt.
The Funds use a top-down method of selecting securities to purchase. This means
the investment manager analyzes the current interest rate environment and trends
in the municipal market to formulate investment strategy before selecting
individual securities for each Fund. The investment manager determines the
appropriate cash positions, quality parameters, market sectors, and bond
duration and then uses in-depth credit analysis to evaluate individual
securities considered for purchase.
Portfolio holdings are continually monitored to identify securities which should
be sold as a result of a deterioration in credit quality. A Fund may also sell a
security when there is a better investment opportunity available in the market.
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Alternative Minimum Tax (AMT):
A tax imposed on certain types of income to ensure that all taxpayers pay at
least a minimum amount of taxes.
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The Funds (except the California High-Yield Fund) will purchase only investment
grade municipal securities, defined as those issues rated in the four highest
rating categories by independent rating agencies at the time of purchase. The
Funds may also purchase non-rated securities if, based on credit analysis, the
investment manager believes that they are of comparable quality to investment
grade securities.
1
<PAGE>
Under normal market conditions, the Funds will invest in longer maturity bonds
(typically, bonds with maturities in excess of ten years). However, a Fund may
shorten or lengthen maturities to achieve its objective.
The Fund may, from time to time, take temporary defensive positions that are
inconsistent with its principal strategies in seeking to minimize extreme
volatility caused by adverse market, economic, or other conditions. This could
prevent the Fund from achieving its objective.
PRINCIPAL RISKS
The value of your investment in a Fund will fluctuate with fluctuations in the
value of the Fund's investment portfolio. The principal factors that may affect
the value of a Fund's portfolio are changes in interest rates and the credit
worthiness of the Fund's portfolio holdings.
Interest rate risk. Changes in market interest rates will affect the value of a
Fund's investment portfolio. In general, the market value of a municipal bond
moves in the opposite direction of interest rates: the market value decreases
when interest rates rise and increases when interest rates decline. A Fund's net
asset value per share moves in the same direction as the market value of the
municipal securities held in its portfolio. Therefore, if interest rates rise,
you should expect a Fund's net asset value per share to fall, and if interest
rates decline, the Fund's net asset value per share should rise.
Additionally, longer maturity bonds (like those held by the Funds) are generally
more sensitive to changes in interest rates. Each Fund's strategy of investing
in longer maturity bonds could subject its portfolio holdings to a greater
degree of market price volatility.
Declining interest rates increase the risk that portfolio holdings which contain
call features could be redeemed by the issuer. Proceeds of called bonds may be
reinvested at lower yields, which could affect the level of income a Fund
generates.
Credit risk. A municipal bond issue could deteriorate in quality to the extent
that its rating is downgraded or its market value declines relative to
comparable municipal securities. Credit risk also includes the risk that an
issuer of a municipal bond would be unable to make interest and principal
payments.
The investment manager seeks to minimize the credit risk inherent in municipal
securities by performing its own in-depth credit analysis on every municipal
security before purchase and by continuing to monitor all securities while they
remain in the portfolio. Each Fund may purchase municipal bonds that are insured
as to the payment of principal and interest. However, the Funds view insurance
as an enhancement of quality, not as a substitute for it. A Fund and will not
purchase a bond unless the investment manager approves the underlying credit.
The Funds are also subject to the following risks:
Concentration risk. Each Fund (except the National Fund) invests in municipal
securities issued by a single state and its municipalities. Specific events or
factors affecting a particular state may have an impact on the municipal
securities of that state without affecting the municipal market in general. The
Funds seek to minimize this risk by diversifying investments within the state.
In addition, each Fund is subject to certain investment restrictions limiting
the amount of its assets that can be invested in the securities of a single
issuer.
Market risk. At times, market conditions could result in a lack of liquidity.
The municipal market is an over-the-counter market, which means that the Funds
purchase and sell portfolio holdings through municipal bond dealers. A Fund's
ability to sell securities held in its portfolio is dependent on the willingness
and ability of market participants to provide bids that reflect current market
levels. Adverse market conditions could result in a lack of liquidity by
reducing the number of ready buyers. Lower-rated securities may be less liquid
than higher-rated securities.
An investment in any of the Funds is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
2
<PAGE>
PAST PERFORMANCE
Each Fund offers three Classes of shares. The performance information presented
for each Fund provides some indication of the risks of investing in the Fund by
showing how the performance of Class A shares has varied year to year, as well
as how the performance of each Class (except Class C) compares to the Lehman
Brothers Municipal Bond Index, a widely-used measure of municipal bond
performance. Class Cis a new class of shares, effective June 1, 1999, so no
performance information is available. Although each Fund's fiscal year ends on
September 30, the performance information is provided on a calendar year basis
to assist you in comparing the returns of the Funds with the returns of other
mutual funds. How a Fund has performed in the past, however, is not necessarily
an indication of how the Fund will perform in the future. Total returns will
vary between each Fund's Class A and Class D shares due to their different fees
and expenses.
FEES AND EXPENSES
The fee and expense table provided for each Fund summarizes the fees and
expenses that you may pay as a shareholder of a Fund. Each Class of shares has
its own sales charge schedule and is subject to different ongoing fees.
Shareholder fees are charged directly to you. Annual fund operating expenses are
deducted from a Fund's assets and are therefore paid indirectly by you and other
Fund shareholders.
Accompanying each Fund's fee and expense table is an example intended to help
you compare the expenses of investing in that Fund with the expenses of
investing in other mutual funds.
Discussions of each Fund begin on page 4.
3
<PAGE>
NATIONAL FUND
INVESTMENT OBJECTIVE/PRINCIPAL STRATEGIES
The National Fund seeks to maximize income exempt from regular federal income
taxes to the extent consistent with preservation of capital and with
consideration given to opportunities for capital gain.
The National Fund uses the following strategies to pursue its objective:
The National Fund invests at least 80% of its net assets in municipal securities
of states, territories, and possessions of the United States, and the District
of Columbia, and their political subdivisions, agencies, and instrumentalities
that are rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The National Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
4
<PAGE>
NATIONAL FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.82
90 5.82
91 11.47
92 7.88
93 14.10
94 -9.95
95 20.10
96 3.33
97 10.38
98 5.67
Best calendar quarter return: 8.25% - quarter ended 3/31/95
Worst calendar return: -8.20% - quarter ended 3/31/94
Class A annual total return for the quater ended 3/31/99: 0.55%
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.61% 4.41% 7.07% --
Class D 3.60 n/a n/a 4.27%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
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FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) . 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less) .. none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- ------------------------
(as a percentage of average net assets)
Management Fees ........................ .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................. .09% 1.00% 1.00%
Other Expenses ......................... .21% .21% .21%
---- ---- ----
Total Annual Fund Operating Expenses ... .80% 1.71% 1.71%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 553 $ 718 $ 898 $1,418
Class C 372 633 1,019 2,099
Class D 274 539 928 2,019
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------ ------ --------
Class A $ 553 $ 718 $ 898 $1,418
Class C 272 633 1,019 2,099
Class D 174 539 928 2,019
5
<PAGE>
CALIFORNIA HIGH-YIELD FUND
INVESTMENT OBJECTIVE/PRINCIPAL STRATEGIES
The California High-Yield Fund seeks the maximum income exempt from regular
federal income taxes and from the personal income taxes of California consistent
with preservation of capital and with consideration given to capital gain.
The California High-Yield Fund uses the following strategies to pursue its
objective:
The California High-Yield Fund invests at least 80% of its net assets in
California municipal securities that are within any rating category, including
securities rated below investment grade or securities that are not rated.
In selecting securities to purchase, the investment manager may consider the
current market conditions, the availability of lower-rated securities, and
whether lower-rated securities offer yields high enough relative to yields on
investment grade securities to justify their higher risk.
The Fund generally invests in long-term municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The California High-Yield Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o Lower-rated municipal bonds are subject to a greater degree of credit risk
than higher-rated bonds. They generally involve greater price volatility
and risk of loss of principal and income than higher-rated bonds.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of California
issuers, its performance may be affected by local, state, and regional
factors. These may include state or local legislation or policy changes,
economics, natural disasters, and the possibility of credit problems, such
as the 1994 bankruptcy of Orange County.
6
<PAGE>
CALIFORNIA HIGH-YIELD FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.28
90 6.00
91 10.48
92 9.53
93 9.91
94 -2.79
95 14.55
96 5.52
97 8.72
98 6.18
Best calendar quarter return: 6.48% - quarter ended 3/31/95
Worst calendar quarter return: -2.30% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.71%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.16% 5.26% 7.13% --
Class D 4.21 n/a n/a 5.22%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price).... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .23% .23% .23%
----- ----- -----
Total Annual Fund Operating Expenses ..... .82% 1.73% 1.73%
===== ===== =====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 555 $ 724 $ 908 $1,440
Class C 374 639 1,029 2,121
Class D 276 545 939 2,041
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 555 $ 724 $ 908 $1,440
Class C 274 639 1,029 2,121
Class D 176 545 939 2,041
7
<PAGE>
CALIFORNIA QUALITY FUND
INVESTMENT OBJECTIVE/PRINCIPAL STRATEGIES
The California Quality Fund seeks high income exempt from regular federal income
taxes and from the personal income taxes of California consistent with
preservation of capital and with consideration given to capital gain.
The California Quality Fund uses the following strategies to pursue its
objective:
The California Quality Fund invests at least 80% of its net assets in California
municipal securities that are within the three highest ratings of Moody's (Aaa,
Aa, or A) or S&P (AAA, AA, or A) on the date of purchase.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The California Quality Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of California
issuers, its performance may be affected by local, state, and regional
factors. These may include state or local legislation or policy changes,
economics, natural disasters, and the possibility of credit problems, such
as the 1994 bankruptcy of Orange County.
8
<PAGE>
CALIFORNIA QUALITY FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.77
90 6.57
91 11.22
92 8.49
93 12.61
94 -8.30
95 19.79
96 3.91
97 8.80
98 6.26
Best calendar quarter return: 8.97% - quarter ended 3/31/95
Worst calendar quarter return: -6.63% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.52%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.23% 4.69% 7.16% --
Class D 4.33 n/a n/a 4.54%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .18% .18% .18%
---- ---- ----
Total Annual Fund Operating Expenses ..... .77% 1.68% 1.68%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 550 $ 709 $ 883 $1,384
Class C 369 624 1,003 2,067
Class D 271 530 913 1,987
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 550 $ 709 $ 883 $1,384
Class C 269 624 1,003 2,067
Class D 171 530 913 1,987
9
<PAGE>
COLORADO FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Colorado Fund seeks to maximize income exempt from regular federal income
taxes and from Colorado personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The Colorado Fund uses the following strategies to pursue its objective:
The Colorado Fund invests at least 80% of its net assets in Colorado municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Colorado Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Colorado issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. Colorado's
largest trading partner is Japan, and the State is sensitive to national
and international business cycles. Turmoil in the world economy,
especially in Asia, has the potential to dramatically affect Colorado's
economy.
10
<PAGE>
COLORADO FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.04
90 5.05
91 9.40
92 7.67
93 11.11
94 -5.13
95 13.96
96 3.39
97 7.52
98 5.80
Best calendar quarter return: 6.34% - quarter ended 3/31/95
Worst calendar quarter return: -4.87% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.31%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.83% 3.91% 6.24% --
Class D 3.83 n/a n/a 3.71%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .10% 1.00% 1.00%
Other Expenses ........................... .30% .30% .30%
---- ---- ----
Total Annual Fund Operating Expenses..... .90% 1.80% 1.80%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 748 $ 950 $1,530
Class C 381 661 1,065 2,195
Class D 283 566 975 2,116
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 748 $ 950 $1,530
Class C 281 661 1,065 2,195
Class D 183 566 975 2,116
11
<PAGE>
FLORIDA FUND
INVESTMENT OBJECTIVE/PRINCIPAL STRATEGIES
The Florida Fund seeks high income exempt from regular federal income taxes
consistent with preservation of capital and with consideration given to capital
gain.
The Florida Fund uses the following strategies to pursue its objective:
The Florida Fund invests at least 80% of its net assets in Florida municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Florida Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Florida issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. The lack of an
income tax in Florida exposes total tax collections to more volatility
than would otherwise be the case and, in the event of an economic
downturn, could affect the State's ability to pay principal and interest
in a timely manner. Florida's economy may be affected by foreign trade,
crop failures, and severe weather conditions and is sensitive to trends in
the tourism and construction industries.
12
<PAGE>
FLORIDA FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 11.35
90 6.46
91 10.62
92 9.07
93 13.52
94 -5.52
95 16.67
96 2.76
97 9.33
98 5.67
Best calendar quarter return: 7.49% - quarter ended 6/30/89
Worst calendar quarter return: -5.99% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.81%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.69% 4.51% 7.31% --
Class D 3.85 n/a n/a 4.59%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .23% 1.00% 1.00%
Other Expenses ........................... .27% .27% .27%
---- ---- ----
Total Annual Fund Operating Expenses ..... 1.00% 1.77% 1.77%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 572 $ 778 $1,001 $1,641
Class C 378 652 1,050 2,163
Class D 280 557 959 2,084
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 572 $ 778 $1,001 $1,641
Class C 278 652 1,050 2,163
Class D 180 557 959 2,084
13
<PAGE>
GEORGIA FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Georgia Fund seeks to maximize income exempt from regular federal income
taxes and from Georgia personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The Georgia Fund uses the following strategies to pursue its objective:
The Georgia Fund invests at least 80% of its net assets in Georgia municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Georgia Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Georgia issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local policy changes, economics, natural
disasters, and the possibility of credit problems. Georgia's economy will
be affected by trends in the services, wholesale and retail trade,
manufacturing, and transportation industries, as these industries, along
with government, comprise the largest sources of employment within the
State.
14
<PAGE>
GEORGIA FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.87
90 7.01
91 10.97
92 9.00
93 12.21
94 -7.64
95 19.16
96 3.86
97 9.02
98 5.94
Best calendar quarter return: 7.71% - quarter ended 3/31/95
Worst calendar quarter return: -6.83% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.61%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.90% 4.70% 7.21% --
Class D 3.99 n/a n/a 4.67%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .30% .30% .30%
---- ---- ----
Total Annual Fund Operating Expenses ..... .89% 1.80% 1.80%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 745 $ 945 $1,519
Class C 381 661 1,065 2,195
Class D 283 566 975 2,116
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 745 $ 945 $1,519
Class C 281 661 1,065 2,195
Class D 183 566 975 2,116
15
<PAGE>
LOUISIANA FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Louisiana Fund seeks to maximize income exempt from regular federal income
taxes and from Louisiana personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The Louisiana Fund uses the following strategies to pursue its objective:
The Louisiana Fund invests at least 80% of its net assets in Louisiana municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Louisiana Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Louisiana issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. Louisiana's
economy is affected by trends in the oil and gas, tourism, and gaming
industries within the State.
16
<PAGE>
LOUISIANA FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.14
90 6.86
91 11.38
92 7.83
93 11.45
94 -5.89
95 17.10
96 3.49
97 8.45
98 5.93
Best calendar quarter return: 6.57% - quarter ended 3/31/95
Worst calendar quarter return: -5.38% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.43%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.87% 4.54% 6.99% --
Class D 3.86 n/a n/a 4.43%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .10% 1.00% 1.00%
Other Expenses ........................... .28% .28% .28%
---- ---- ----
Total Annual Fund Operating Expenses ..... .88% 1.78% 1.78%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 561 $ 742 $ 939 $1,508
Class C 379 655 1,055 2,174
Class D 281 560 964 2,095
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 561 $ 742 $ 939 $1,508
Class C 279 655 1,055 2,174
Class D 181 560 964 2,095
17
<PAGE>
MARYLAND FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Maryland Fund seeks to maximize income exempt from regular federal income
taxes and from Maryland personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The Maryland Fund uses the following strategies to pursue its objective:
The Maryland Fund invests at least 80% of its net assets in Maryland municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Maryland Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Maryland issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. Because the
Fund favors investing in revenue bonds, its performance may also be
affected by economic developments impacting a specific facility or type of
facility. The performance of general obligation bonds of the State of
Maryland may be affected by efforts to limit or reduce state or local
taxes.
18
<PAGE>
MARYLAND FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.49
90 6.15
91 10.47
92 8.24
93 11.93
94 -5.48
95 16.84
96 3.66
97 8.09
98 5.85
Best calendar quarter return: 6.96% - quarter ended 3/31/95
Worst calendar quarter return: -5.29% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 6.79%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.80% 4.52% 6.95% --
Class D 3.89 n/a n/a 4.42%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .30% .30% .30%
---- ---- ----
Total Annual Fund Operating Expenses ..... .89% 1.80% 1.80%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 745 $ 945 $1,519
Class C 381 661 1,065 2,195
Class D 283 566 975 2,116
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 745 $ 945 $1,519
Class C 281 661 1,065 2,195
Class D 183 566 975 2,116
19
<PAGE>
MASSACHUSETTS FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Massachusetts Fund seeks to maximize income exempt from regular federal
income taxes and from Massachusetts personal income taxes to the extent
consistent with preservation of capital and with consideration given to
opportunities for capital gain.
The Massachusetts Fund uses the following strategies to pursue its objective:
The Massachusetts Fund invests at least 80% of its net assets in Massachusetts
municipal securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Massachusetts Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Massachusetts
issuers, its performance may be affected by local, state, and regional
factors. These may include state or local legislation or policy changes,
economics, natural disasters, and the possibility of credit problems.
Massachusetts and certain of its cities, towns, counties, and other
political subdivisions have at certain times in the past experienced
serious financial difficulties which have adversely affected their credit
standing. The recurrence of these financial difficulties could adversely
affect the market value and marketability of, or result in default
payments on, outstanding obligations issued by Massachusetts or its public
authorities or municipalities.
20
<PAGE>
MASSACHUSETTS FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 8.67
90 5.42
91 12.97
92 9.08
93 11.52
94 -4.43
95 15.20
96 4.14
97 8.68
98 6.55
Best calendar quarter return: 6.16% - quarter ended 3/31/95
Worst calendar quarter return: -4.69% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.61%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.49% 4.81% 7.13% --
Class D 4.59 n/a n/a 4.69%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .21% .21% .21%
---- ---- ----
Total Annual Fund Operating Expenses ..... .80% 1.71% 1.71%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 553 $ 718 $ 898 $1,418
Class C 372 633 1,019 2,099
Class D 274 539 928 2,019
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 553 $ 718 $ 898 $1,418
Class C 272 633 1,019 2,099
Class D 174 539 928 2,019
21
<PAGE>
MICHIGAN FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Michigan Fund seeks to maximize income exempt from regular federal income
taxes and from Michigan personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The Michigan Fund uses the following strategies to pursue its objective:
The Michigan Fund invests at least 80% of its net assets in Michigan municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Michigan Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Michigan issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. The principal
sectors of Michigan's economy are manufacturing of durable goods
(including automobiles and components and office equipment), tourism, and
agriculture. The cyclical nature of these industries can adversely affect
the revenue stream of the State and its political subdivisions because it
may adversely impact tax sources, particularly sales taxes, income taxes
and single business taxes.
22
<PAGE>
MICHIGAN FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.71
90 5.85
91 12.01
92 9.31
93 11.48
94 -4.84
95 15.78
96 3.74
97 8.73
98 6.12
Best calendar quarter return: 6.57% - quarter ended 3/31/95
Worst calendar quarter return: -4.63% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.68%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.09% 4.66% 7.23% --
Class D 4.06 n/a n/a 4.51%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .20% .20% .20%
---- ---- ----
Total Annual Fund Operating Expenses ..... .79% 1.70% 1.70%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 552 $ 715 $ 893 $1,406
Class C 371 630 1,014 2,089
Class D 273 536 923 2,009
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 552 $ 715 $ 893 $1,406
Class C 271 630 1,014 2,089
Class D 173 536 923 2,009
23
<PAGE>
MINNESOTA FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Minnesota Fund seeks to maximize income exempt from regular federal income
taxes and from regular Minnesota personal income taxes to the extent consistent
with preservation of capital and with consideration given to opportunities for
capital gain.
The Minnesota Fund uses the following strategies to pursue its objective:
The Minnesota Fund invests at least 80% of its net assets in Minnesota municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Minnesota Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Minnesota issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. Pursuant to
Minnesota legislation enacted in 1995, dividends that would otherwise be
exempt from Minnesota personal income tax in the case of individuals,
estates, and trusts, could become subject to the Minnesota personal income
tax if it were judicially determined that exempting such dividends would
discriminate against interstate commerce.
24
<PAGE>
MINNESOTA FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.89
90 6.52
91 7.53
92 7.67
93 13.49
94 -2.54
95 11.41
96 3.39
97 7.02
98 6.43
Best calendar quarter return: 6.01% - quarter ended 6/30/89
Worst calendar quarter return: -3.23% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.63%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.18% 3.97% 6.45% --
Class D 4.26 n/a n/a 3.89%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .22% .22% .22%
---- ---- ----
Total Annual Fund Operating Expenses ..... .81% 1.72% 1.72%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 554 $ 721 $ 903 $1,429
Class C 373 636 1,024 2,110
Class D 275 542 933 2,030
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 554 $ 721 $ 903 $1,429
Class C 273 636 1,024 2,110
Class D 175 542 933 2,030
25
<PAGE>
MISSOURI FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Missouri Fund seeks to maximize income exempt from regular federal income
taxes and from Missouri personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The Missouri Fund uses the following strategies to pursue its objective:
The Missouri Fund invests at least 80% of its net assets in Missouri municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Missouri Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Missouri issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. The national
economic recession of the early 1980s had a disproportionately adverse
impact on Missouri's economy, and its unemployment levels. A return to a
pattern of high unemployment could adversely affect the Missouri debt
obligations acquired by the Fund. Defense related business plays an
important role in Missouri's economy. Negative trends in this industry or
relocations of major employers could have a negative impact on the economy
of the State and particularly on the economy of the St. Louis metropolitan
area.
26
<PAGE>
MISSOURI FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.44
90 6.93
91 11.37
92 7.25
93 11.40
94 -6.32
95 16.95
96 3.71
97 8.08
98 5.77
Best calendar quarter return: 7.31% - quarter ended 3/31/95
Worst calendar quarter return: -6.11% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.44%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.76% 4.34% 6.78% --
Class D 3.83 n/a n/a 4.20%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .10% 1.00% 1.00%
Other Expenses ........................... .29% .29% .29%
---- ---- ----
Total Annual Fund Operating Expenses ..... .89% 1.79% 1.79%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 745 $ 945 $1,519
Class C 380 658 1,060 2,184
Class D 282 563 970 2,105
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 562 $ 745 $ 945 $1,519
Class C 280 658 1,060 2,184
Class D 182 563 970 2,105
27
<PAGE>
NEW JERSEY FUND
INVESTMENT OBJECTIVE/PRINCIPAL STRATEGIES
The New Jersey Fund seeks to maximize income exempt from regular federal income
tax and New Jersey gross income tax consistent with preservation of capital and
with consideration given to opportunities for capital gain.
The New Jersey Fund uses the following strategies to pursue its objective:
The New Jersey Fund invests at least 80% of its net assets in New Jersey
municipal securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The New Jersey Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of New Jersey
issuers, its performance may be affected by local, state, and regional
factors. These may include state or local legislation or policy changes,
economics, natural disasters, and the possibility of credit problems. New
Jersey's economic base is diversified, consisting of a variety of
manufacturing, construction, and service industries, supplemented by rural
areas with selective commercial agriculture. New Jersey's economy will be
affected by trends in these sectors.
28
<PAGE>
NEW JERSEY FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.56
90 6.78
91 11.04
92 8.99
93 12.37
94 -6.15
95 15.57
96 3.40
97 8.93
98 6.00
Best calendar quarter return: 6.78% - quarter ended 3/31/95
Worst calendar quarter return: -5.63% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.67%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.96% 4.29% 7.07% --
Class D 4.03 n/a n/a 4.52%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .22% 1.00% 1.00%
Other Expenses ........................... .30% .30% .30%
---- ---- ----
Total Annual Fund Operating Expenses ..... 1.02% 1.80% 1.80%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 574 $ 784 $1,011 $1,664
Class C 381 661 1,065 2,195
Class D 283 566 975 2,116
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 574 $ 784 $1,011 $1,664
Class C 281 661 1,065 2,195
Class D 183 566 975 2,116
29
<PAGE>
NEW YORK FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The New York Fund seeks to maximize income exempt from regular federal income
taxes and from New York personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The New York Fund uses the following strategies to pursue its objective:
The New York Fund invests at least 80% of its net assets in New York municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The New York Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of New York issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. New York City
and certain localities outside New York City have experienced financial
problems. These problems may affect the fiscal health of the State.
30
<PAGE>
NEW YORK FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.39
90 4.18
91 13.53
92 9.31
93 13.26
94 -7.93
95 19.31
96 3.83
97 10.04
98 6.86
Best calendar quarter return: 8.13% - quarter ended 3/31/95
Worst calendar quarter return: -6.61% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.50%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.73% 5.03% 7.42% --
Class D 4.90 n/a n/a 4.93%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .22% .22% .22%
---- ---- ----
Total Annual Fund Operating Expenses ..... .81% 1.72% 1.72%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 554 $ 721 $ 903 $1,429
Class C 373 636 1,024 2,110
Class D 275 542 933 2,030
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 554 $ 721 $ 903 $1,429
Class C 273 636 1,024 2,110
Class D 175 542 933 2,030
31
<PAGE>
NORTH CAROLINA FUND
INVESTMENT OBJECTIVE/PRINCIPAL STRATEGIES
The North Carolina Fund seeks high income exempt from regular federal income
taxes and North Carolina personal income taxes consistent with preservation of
capital and with consideration given to capital gain.
The North Carolina Fund uses the following strategies to pursue its objective:
The North Carolina Fund invests at least 80% of its net assets in North Carolina
municipal securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The North Carolina Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of North Carolina
issuers, its performance may be affected by local, state, and regional
factors. These may include state or local legislation or policy changes,
economics, natural disasters, and the possibility of credit problems.
North Carolina's total expenditures for each fiscal period covered by the
budget must not exceed total receipts during the period and the surplus in
the State Treasury at the beginning of the period. During the State's
1990-1991 fiscal year, it began facing a substantial budget shortfall
resulting from the failure of revenues received by the State to meet
projected levels. While the State was successful in dealing with the
problem, pressure on state revenues may be an ongoing problem.
32
<PAGE>
NORTH CAROLINA FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
90* 2.80
91 10.63
92 8.15
93 12.98
94 -7.35
95 19.56
96 2.71
97 8.75
98 5.81
* For the period 8/27/90 to 12/31/90
Best calendar quarter return: 8.72% - quarter ended 3/31/95
Worst calendar quarter return: -6.73% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.57%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.85% 4.53% 6.80% --
Class D 4.14 n/a -- 4.57%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.24(1) 6.09(2)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 8/31/90.
(2) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .23% 1.00% 1.00%
Other Expenses ........................... .32% .32% .32%
---- ---- ----
Total Annual Fund Operating Expenses ..... 1.05% 1.82% 1.82%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 577 $ 793 $1,027 $1,697
Class C 383 667 1,075 2,216
Class D 285 573 985 2,137
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 577 $ 793 $1,027 $1,697
Class C 283 667 1,075 2,216
Class D 185 573 985 2,137
33
<PAGE>
OHIO FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Ohio Fund seeks to maximize income exempt from regular federal income taxes
and from Ohio personal income taxes to the extent consistent with preservation
of capital and with consideration given to opportunities for capital gain.
The Ohio Fund uses the following strategies to pursue its objective:
The Ohio Fund invests at least 80% of its net assets in Ohio municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Ohio Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Ohio issuers, its
performance may be affected by local, state, and regional factors. These
may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. Ohio's economy
relies in part on durable goods manufacturing largely concentrated in
motor vehicles and equipment, steel, rubber products and household
appliances. As a result, general economic activity, as in many other
industrially developed states, tends to be more cyclical than in other
states and in the nation as a whole.
34
<PAGE>
OHIO FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 9.94
90 6.58
91 11.31
92 8.43
93 11.64
94 -4.91
95 15.23
96 3.77
97 8.39
98 5.89
Best calendar quarter return: 6.47% - quarter ended 3/31/95
Worst calendar quarter return: -4.89% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.68%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.85% 4.44% 6.97% --
Class D 3.94 n/a n/a 4.41%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .19% .19% .19%
---- ---- ----
Total Annual Fund Operating Expenses ..... .78% 1.69% 1.69%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 551 $ 712 $ 888 $1,395
Class C 370 627 1,009 2,078
Class D 272 533 918 1,998
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 551 $ 712 $ 888 $1,395
Class C 270 627 1,009 2,078
Class D 172 533 918 1,998
35
<PAGE>
OREGON FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The Oregon Fund seeks to maximize income exempt from regular federal income
taxes and from Oregon personal income taxes to the extent consistent with
preservation of capital and with consideration given to opportunities for
capital gain.
The Oregon Fund uses the following strategies to pursue its objective:
The Oregon Fund invests at least 80% of its net assets in Oregon municipal
securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Oregon Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Oregon issuers,
its performance may be affected by local, state, and regional factors.
These may include state or local legislation or policy changes, economics,
natural disasters, and the possibility of credit problems. Oregon's
economy has been affected by the high technology manufacturing, forest
products, and agriculture industries, which have all been slowed by
declining exports to Asia.
36
<PAGE>
OREGON FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.44
90 6.50
91 10.82
92 7.78
93 10.90
94 -4.56
95 14.55
96 3.81
97 9.05
98 6.09
Best calendar quarter return: 6.49% - quarter ended 6/30/89
Worst calendar quarter return: -4.48% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.83%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.09% 4.57% 6.89% --
Class D 4.13 n/a n/a 4.53%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price).... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .29% .29% .29%
---- ---- ----
Total Annual Fund Operating Expenses ..... .88% 1.79% 1.79%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 561 $ 742 $ 939 $1,508
Class C 380 658 1,060 2,184
Class D 282 563 970 2,105
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 561 $ 742 $ 939 $1,508
Class C 280 658 1,060 2,184
Class D 182 563 970 2,105
37
<PAGE>
PENNSYLVANIA FUND
INVESTMENT OBJECTIVE/PRINCIPAL STRATEGIES
The Pennsylvania Fund seeks high income exempt from regular federal income tax
and Pennsylvania income taxes consistent with preservation of capital.
The Pennsylvania Fund uses the following strategies to pursue its objective:
The Pennsylvania Fund invests at least 80% of its net assets in Pennsylvania
municipal securities rated investment grade when purchased. The Fund will
ordinarily hold securities with maturities in excess of one year.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The Pennsylvania Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of Pennsylvania
issuers, its performance may be affected by local, state, and regional
factors. These may include state or local legislation or policy changes,
economics, natural disasters, and the possibility of credit problems. From
time to time, Pennsylvania and various of its political subdivisions
(including particularly the City of Philadelphia and the City of Scranton)
have encountered financial difficulty due to slowdowns in the pace of
economic activity and to other factors.
38
<PAGE>
PENNSYLVANIA FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.24
90 5.35
91 11.29
92 9.32
93 12.91
94 -7.03
95 18.01
96 3.44
97 8.70
98 6.14
Best calendar quarter return: 7.59% - quarter ended 3/31/95
Worst calendar quarter return: -6.40% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.65%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 1.10% 4.53% 7.12% --
Class D 4.32 n/a n/a 4.49%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price).... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .22% 1.00% 1.00%
Other Expenses ........................... .47% .47% .47%
---- ---- ----
Total Annual Fund Operating Expenses ..... 1.19% 1.97% 1.97%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 591 $ 835 $1,098 $1,850
Class C 398 712 1,152 2,373
Class D 300 618 1,062 2,296
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 591 $ 835 $1,098 $1,850
Class C 298 712 1,152 2,373
Class D 200 618 1,062 2,296
39
<PAGE>
SOUTH CAROLINA FUND
INVESTMENT OBJECTIVES/PRINCIPAL STRATEGIES
The South Carolina Fund seeks to maximize income exempt from regular federal
income taxes and from South Carolina personal income taxes to the extent
consistent with preservation of capital and with consideration given to
opportunities for capital gain.
The South Carolina Fund uses the following strategies to pursue its objective:
The South Carolina Fund invests at least 80% of its net assets in South Carolina
municipal securities rated investment grade when purchased.
The Fund generally invests in long-term quality municipal bonds. The Fund favors
investing in revenue bonds, which pay interest and principal from revenues
derived from a particular facility or class of facilities. Revenue bonds
generally offer a higher yield than general obligation bonds, the payment on
which is secured by the general taxing power of the issuer.
In abnormal market conditions, the Fund may temporarily invest more than 20% of
its assets in taxable investment-grade fixed-income securities. Under these
circumstances, the Fund may not achieve its investment objective.
PRINCIPAL RISKS
The South Carolina Fund is subject to the following principal risks:
o The Fund is subject to interest rate risk. When interest rates rise,
municipal bond prices fall. Movements in interest rates may affect the
Fund's yield, net asset value, and total return.
o Generally, the longer the maturity (duration) of a bond, the more
sensitive it is to movements in interest rates. Therefore, long-term
bonds, while generally providing higher current income, may be subject to
greater price volatility than bonds with shorter maturities.
o The Fund is subject to credit risk. If the Fund holds securities that are
downgraded or whose issuers become unable to pay interest or principal,
the Fund's net asset value may decline. Revenue bonds held by the Fund may
be downgraded or may default on payment if revenues from their underlying
facilities decline.
o If certain securities or market sectors represented in the Fund's
portfolio do not perform as expected, the Fund's net asset value may
decline.
o Because the Fund invests primarily in the securities of South Carolina
issuers, its performance may be affected by local, state, and regional
factors. These may include state or local legislation or policy changes,
economics, natural disasters, and the possibility of credit problems.
While South Carolina has not defaulted on its bonded debt since 1879, the
State did experience certain budgeting difficulties over several recent
years through June 30, 1993. Such difficulties have not to date impacted
the State's ability to pay its indebtedness but did result in S&P lowering
its rating on South Carolina general obligation bonds in 1993. The rating
was restored to AAA in 1996.
40
<PAGE>
SOUTH CAROLINA FUND
PAST PERFORMANCE
The Class A annual total returns presented in the bar chart do not reflect the
effect of any sales charges. If these charges were included, the returns would
be less. The average annual total returns presented in the table do reflect the
effect of the applicable sales charges. Both the bar chart and table assume that
all dividends and capital gain distributions were reinvested. Past performance
does not indicate future results.
Class A Annual Total Returns
Calendar Years
[The following points were depicted as a bar chart in the printed material.]
89 10.61
90 6.01
91 11.52
92 8.39
93 11.71
94 -6.70
95 17.65
96 3.93
97 8.72
98 5.73
Best calendar quarter return: 7.23% - quarter ended 3/31/95
Worst calendar quarter return: -6.18% - quarter ended 3/31/94
Class A annual total return for the quarter ended 3/31/99: 0.51%.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Periods Ended 12/31/98
CLASS D
SINCE
ONE FIVE TEN INCEPTION
YEAR YEARS YEARS 2/1/94
---- ----- ----- ---------
Class A 0.70% 4.54% 7.06% --
Class D 3.78 n/a n/a 4.46%
Lehman Brothers
Municipal Bond Index 6.48 6.23 8.22 6.09(1)
The Lehman Brothers Municipal Bond Index is an unmanaged index that does not
reflect any fees or sales charges, and does not reflect state-specific bond
market performance.
(1) From 1/31/94.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
Shareholder Fees Class A Class C Class D
- ---------------- ------- ------- -------
Maximum Sales Charge (Load) on
Purchases (as a % of offering price) ... 4.75%(1) 1% none
Maximum Deferred Sales
Charge (Load) (CDSC) on
Redemptions (as a % of original
purchase price or current
net asset value, whichever is less)..... none(1) 1% 1%
Annual Fund Operating
Expenses for Fiscal 1998
- -----------------------
(as a percentage of average net assets)
Management Fees .......................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees ................... .09% 1.00% 1.00%
Other Expenses ........................... .21% .21% .21%
---- ---- ----
Total Annual Fund Operating Expenses ..... .80% 1.71% 1.71%
==== ==== ====
(1) If you buy Class A shares for $1,000,000 or more you will not pay an
initial sales charge, but your shares will be subject to a 1% CDSC if sold
within 18 months.
Example
This example assumes (1) you invest $10,000 in the Fund for each period and then
sell all of your shares at the end of that period, (2) your investment has a 5%
return each year, and (3) the Fund's operating expenses remain the same.
Although your actual expenses may be higher or lower, based on these assumptions
your expenses would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 553 $ 718 $ 898 $1,418
Class C 372 633 1,019 2,099
Class D 274 539 928 2,019
If you did not sell your shares at the end of each period, your expenses would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $ 553 $ 718 $ 898 $1,418
Class C 272 633 1,019 2,099
Class D 174 539 928 2,019
41
<PAGE>
MANAGEMENT OF THE FUNDS
A Board of Directors or Board of Trustees (as applicable) provides broad
supervision over the affairs of each Fund.
J. & W. Seligman & Co. Incorporated (Seligman), 100 Park Avenue, New York, New
York 10017, is the manager of each Fund. Seligman manages the investment of each
Fund's assets, including making purchases and sales of portfolio securities
consistent with each Fund's investment objective and strategies, and administers
each Fund's business and other affairs.
Established in 1864, Seligman currently serves as manager to 18 US registered
investment companies, which offer more than 50 investment portfolios with
approximately $21.5 billion in assets as of April 30, 1999. Seligman also
provides investment management or advice to institutional or other accounts
having an aggregate value at April 30, 1999, of approximately $10.2 billion.
Each Fund pays Seligman a fee for its management services. The fee for each Fund
is equal to an annual rate of .50% of the Fund's average daily net assets.
- --------------------------------------------------------------------------------
Affiliates of Seligman:
Seligman Advisors, Inc.:
Each Fund's general distributor; responsible for accepting orders for purchases
and sales of Fund shares.
Seligman Services, Inc.:
A limited purpose broker/dealer; acts as the broker/dealer of record for
shareholder accounts that do not have a designated financial advisor.
Seligman Data Corp. (SDC):
Each Fund's shareholder service agent; provides shareholder account services to
the Fund at cost.
- --------------------------------------------------------------------------------
Portfolio Management
The Funds are managed by the Seligman Municipals Team, headed by Mr. Thomas G.
Moles. Mr. Moles, a Managing Director of Seligman, has been Vice President and
Portfolio Manager of each Fund since its inception. Mr. Moles is also President
and Portfolio Manager of Seligman Quality Municipal Fund, Inc. and Seligman
Select Municipal Fund, Inc., two closed-end investment companies.
42
<PAGE>
YEAR 2000
As the millennium approaches, mutual funds, financial and business
organizations, and individuals could be adversely affected if their computer
systems do not properly process and calculate date-related information and data
on and after January 1, 2000. Like other mutual funds, the Funds rely upon
service providers and their computer systems for its day-to-day operations. Many
of the Funds' service providers in turn depend upon computer systems of their
vendors. Seligman and SDC, have established a year 2000 project team. The team's
purpose is to assess the state of readiness of Seligman and SDC and the Funds'
other service providers and vendors. The team is comprised of several
information technology and business professionals, as well as outside
consultants. The Project Manager of the team reports directly to the
Administrative Committee of Seligman. The Project Manager and other members of
the team also report to each Fund's Board and its Audit Committee.
The team has identified the service providers and vendors who furnish critical
services or software systems to the Funds, including securities firms that
execute portfolio transactions for the Funds and firms responsible for
shareholder account recordkeeping. The team is working with these critical
service providers and vendors to evaluate the impact year 2000 issues may have
on their ability to provide uninterrupted services to the Funds. The team will
assess the feasibility of their year 2000 plans. The team has made progress on
its year 2000 contingency plans -- recovery efforts the team will employ in the
event that year 2000 issues adversely affect the Funds. The team anticipates
finalizing these plans in the near future.
The Funds anticipate the team will have implemented all significant components
of the team's year 2000 plans by mid-1999, including appropriate testing of
critical systems and receipt of satisfactory assurances from critical service
providers and vendors regarding their year 2000 compliance. The Funds believe
that the critical systems on which they rely will function properly on and after
the year 2000, but this is not guaranteed. If these systems do not function
properly, or the Funds' critical service providers are not successful in
implementing their year 2000 plans, the Funds' operations may be adversely
affected, including pricing, securities trading and settlement, and the
provision of shareholder services.
In addition, the Funds hold securities issued by governmental or
quasi-governmental issuers, which, like other organizations, may be susceptible
to year 2000 concerns. Year 2000 issues may affect an issuer's operations,
creditworthiness, and ability to make timely payment on any indebtedness and
could have an adverse impact on the value of its securities. If a Fund holds
these securities, its performance could be negatively affected. Seligman seeks
to identify an issuer's state of year 2000 readiness as part of the research it
employs. However, the perception of an issuer's year 2000 preparedness is only
one of the many factors considered in determining whether to buy, sell, or
continue to hold a security. Information provided by issuers concerning their
state of readiness may or may not be accurate or readily available. Further, the
Funds may be adversely affected if the domestic or foreign exchanges, markets,
depositories, clearing agencies, or governments or third parties responsible for
infrastructure needs do not address their year 2000 issues in a satisfactory
manner.
SDC has informed the Funds that it does not expect the cost of its services to
increase materially as a result of the modifications to its computer systems
necessary to prepare for the year 2000. The Funds will not pay to remediate the
systems of Seligman or bear directly the costs to remediate the systems of any
other service providers or vendors, other than SDC.
43
<PAGE>
Shareholder Information
DECIDING WHICH CLASS OF SHARES TO BUY
Each Fund's Classes represent an interest in the same portfolio of investments.
However, each Class has its own sales charge schedule, and its ongoing 12b-1
fees may differ from other classes. When deciding which Class of shares to buy,
you should consider, among other things:
o The amount you plan to invest.
o How long you intend to remain invested in the Fund, or another Seligman
mutual fund.
o If you would prefer to pay an initial sales charge and lower ongoing 12b-1
fees, or be subject to a CDSC and pay higher ongoing 12b-1 fees.
o Whether you may be eligible for reduced or no sales charges when you buy
or sell shares.
Your financial advisor will be able to help you decide which Class of
shares best meets your needs.
- --------------------------------------------------------------------------------
Class A
o Initial sales charge on Fund purchases, as set forth below:
<TABLE>
<CAPTION>
Sales Charge Regular Dealer
Sales Charge as a % Discount
as a % of Net as a % of
Amount of your Investment of Offering Price(1) Amount Invested Offering Price
-------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.25%
$50,000 - $ 99,999 4.00 4.17 3.50
$100,000 - $249,999 3.50 3.63 3.00
$250,000 - $499,999 2.50 2.56 2.25
$500,000 - $999,999 2.00 2.04 1.75
$1,000,000 and over(2) 0.00 0.00 0.00
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund
shares; it includes the initial sales charge.
(2) You will not pay a sales charge on purchases of $1 million or
more, but you will be subject to a 1% CDSC if you sell your
shares within 18 months.
o Annual 12b-1 fee (for shareholder services) of up to 0.25%.
o No sales charge on reinvested dividends or capital gain
distributions.
o Certain employer-sponsored defined contribution-type plans can
purchase shares with no initial sales charge.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C
o Initial sales charge on Fund purchases, as set forth below:
<TABLE>
<CAPTION>
Regular Dealer
Sales Charge Sales Charge Discount
as a % as a % of Net as a % of
Amount of your Investment of Offering Price(1) Amount Invested Offering Price
-------------------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
Less than $100,000 1.00% 1.01% 1.00%
$100,000 - $249,999 0.50 0.50 0.50
$250,000 - $1,000,000(2) 0.00 0.00 0.00
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund
shares; it includes the initial sales charge.
(2) Your purchase of Class C shares must be for less than
$1,000,000 because if you invest $1,000,000 or more you will
pay less in fees and charges if you buy Class A shares.
o A 1% CDSC on shares sold within eighteen months of purchase.
o Annual 12b-1 fee (for distribution and shareholder services) of
1.00%.
o No automatic conversion to Class Ashares, so you will be subject to
higher ongoing 12b-1 fees indefinitely.
o No CDSC when you sell shares purchased with reinvested dividends
or capital gain distributions.
- --------------------------------------------------------------------------------
44
<PAGE>
- --------------------------------------------------------------------------------
Class D*
o No initial sales charge on purchases.
o A 1% CDSC on shares sold within one year of purchase.
o Annual 12b-1 fee (for distribution and shareholder services) of
1.00%.
o No CDSC when you sell shares purchased with reinvested dividends
or capital gain distributions.
*Class D shares are not available to all investors. Beginning June 1,
1999, you may purchase Class D shares only if (1) you already own Class D
shares of the Fund or another Seligman mutual fund, (2) if your financial
advisor of record maintains an omnibus account at SDC, or (3) pursuant
to a 401(k) or other retirement plan program for which Class D shares are
already available or for which the sponsor requests Class D shares because
the sales charge structure of Class D shares is comparable to the sales
charge structure of the other funds offered under the program.
- --------------------------------------------------------------------------------
Each Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940. The plan allows each Class to pay distribution and/or service fees for the
sale and distribution of its shares and/or for providing services to
shareholders.
Because 12b-1 fees are paid out of each Class's assets on an ongoing basis, over
time these fees will increase your investment expenses and may cost you more
than other types of sales charges.
The Board of Directors or Trustees, as applicable, believes that no conflict of
interest currently exists between a Fund's Class A, Class C and Class D shares.
On an ongoing basis, the Directors or Trustees, in the exercise of their
fiduciary duties under the Investment Company Act of 1940 and applicable state
law, will seek to ensure that no such conflict arises.
How CDSCs Are Calculated
To minimize the amount of the CDSC you may pay when you sell your shares, each
Fund assumes that shares acquired through reinvested dividends and capital gain
distributions (which are not subject to a CDSC) are sold first. Shares that have
been in your account long enough so they are not subject to a CDSC are sold
next. After these shares are exhausted, shares will be sold in the order they
were purchased (oldest to youngest). The amount of any CDSC that you pay will be
based on the shares' original purchase price or current net asset value,
whichever is less.
You will not pay a CDSC when you exchange shares of any Fund to buy shares of
the same class of any other Seligman mutual fund. For the purpose of calculating
the CDSC when you sell shares that you acquired by exchanging shares of a Fund,
it will be assumed that you held the shares since the date you purchased the
shares of that Fund.
45
<PAGE>
PRICING OF FUND SHARES
When you buy or sell shares, you do so at the Class's net asset value (NAV) next
calculated after Seligman Advisors accepts your request. Any applicable sales
charge will be included in the purchase price for Class A shares. Purchase or
sale orders received by an authorized dealer or financial advisor by the close
of regular trading on the New York Stock Exchange (NYSE) (normally 4:00 p.m.
Eastern time) and accepted by Seligman Advisors before the close of business
(5:00 p.m. Eastern time) on the same day will be executed at the Class's NAV
calculated as of the close of regular trading on the NYSE on that day. Your
broker/dealer or financial advisor is responsible for forwarding your order to
Seligman Advisors before the close of business.
If your buy or sell order is received by your broker/dealer or financial advisor
after the close of regular trading on the NYSE, or is accepted by Seligman
Advisors after the close of business, the order will be executed at the Class's
NAV calculated as of the close of regular trading on the next NYSE trading day.
When you sell shares, you receive the Class's per share NAV, less any applicable
CDSC.
- --------------------------------------------------------------------------------
NAV:
Computed separately for each Class of a Fund by dividing that Class's share of
the value of the net assets of the Fund (i.e., its assets less liabilities) by
the total number of outstanding shares of the Class.
- --------------------------------------------------------------------------------
The NAV of a Fund's shares is determined each day, Monday through Friday, on
days that the NYSE is open for trading. Because of their higher 12b-1 fees, the
NAV of Class C shares and Class D shares will generally be lower than the NAV of
Class A shares of a Fund.
Securities owned by a Fund are valued at current market prices. If reliable
market prices are unavailable,securities are valued in accordance with
procedures approved by the Board of Directors or Trustees, as applicable.
OPENING YOUR ACCOUNT
The Funds' shares are sold through authorized broker/dealers or financial
advisors who have sales agreements with Seligman Advisors. There are several
programs under which you may be eligible for reduced sales charges or lower
minimum investments. Ask your financial advisor if any of these programs apply
to you. Class D shares are not available to all investors. For more information,
see "Deciding Which Class of Shares to Buy-Class D."
To make your initial investment in a Fund, contact your financial advisor or
complete an account application and send it with your check directly to SDC at
the address provided on the account application. If you do not choose a Class,
your investment will automatically be made in Class A shares.
The required minimum initial investments are:
o Regular (non-retirement) accounts: $1,000
o For accounts opened concurrently with Invest-A-Check(R):
$100 to open if you will be making monthly investments
$250 to open if you will be making quarterly investments
If you buy shares by check and subsequently sell the shares, SDC will not send
your proceeds until your check clears, which could take up to 15 calendar days
from the date of your purchase.
You will be sent a statement confirming your purchase, and any subsequent
transactions in your account. You will also be sent quarterly and annual
statements detailing your transactions in the Fund and the other Seligman funds
you own under the same account number. Duplicate account statements will be sent
to you free of charge for the current year and most recent prior year. Copies of
year-end statements for prior years are available for a fee of $10 per year, per
account, with a maximum charge of $150 per account request. Send your request
and a check for the fee to SDC.
IF YOU WANT TO BE ABLE TO BUY, SELL, OR EXCHANGE SHARES BY TELEPHONE, YOU SHOULD
COMPLETE AN APPLICATION WHEN YOU OPEN YOUR ACCOUNT. THIS WILL PREVENT YOU FROM
HAVING TO COMPLETE A SUPPLEMENTAL ELECTION FORM (WHICH MAY REQUIRE A SIGNATURE
GUARANTEE) AT A LATER DATE.
46
<PAGE>
HOW TO BUY ADDITIONAL SHARES
After you have made your initial investment, there are many options available to
make additional purchases of Fund shares. Subsequent purchases must be for $100
or more.
Shares may be purchased through your authorized broker/ dealer or financial
advisor, or you may send a check directly to SDC. Please provide either an
investment slip or a note that provides your name(s), Fund name, and account
number. Your investment will be made in the Class you already own.
Send investment checks to:
Seligman Data Corp.
P.O. Box 9766
Providence, RI 02940-9766
Your check must be in US dollars and be drawn on a US bank. You may not use
third party or credit card convenience checks for investment.
You may also use the following account services to make additional investments:
Invest-a-Check(R). You may buy Fund shares electronically from a savings or
checking account of an Automated Clearing House (ACH) member bank. If your bank
is not a member of ACH, the Fund will debit your checking account by
preauthorized checks. You may buy Fund shares at regular monthly intervals in
fixed amounts of $100 or more, or regular quarterly intervals in fixed amounts
of $250 or more. If you use Invest-A-Check(R), you must continue to make
automatic investments until the Fund's minimum initial investment of $1,000 is
met or your account may be closed.
Automatic Dollar-Cost-Averaging. If you have at least $5,000 in Seligman Cash
Management Fund, you may exchange uncertificated shares of that fund to buy
shares of the same class of any Seligman mutual fund at regular monthly
intervals in fixed amounts of $100 or more or regular quarterly intervals in
fixed amounts of $250 or more. If you exchange Class A shares, or Class C
shares, you may pay an initial sales charge to buy shares.
Automatic CD Transfer. You may instruct your bank to invest the proceeds of a
maturing bank certificate of deposit (CD) in shares of the Fund. If you wish to
use this service, contact SDC or your financial advisor to obtain the necessary
forms. Because your bank may charge you a penalty, it is not normally advisable
to withdraw CD assets before maturity.
Dividends From Other Investments. You may have your dividends from other
companies paid to the Fund. (Dividend checks must include your name, account
number, Fund name and Class of shares.)
Direct Deposit. You may buy Fund shares electronically with funds from your
employer, the IRS or any other institution that provides direct deposit. Call
SDC for more information.
Seligman Time Horizon MatrixSM. (Requires an initial total investment of
$10,000.) This is a needs-based investment process, designed to help you and
your financial advisor plan to seek your long-term financial goals. It considers
your financial needs, and helps frame a personalized asset allocation strategy
around the cost of your future commitments and the time you have to meet them.
Contact your financial advisor for more information.
Seligman Harvester. If you are a retiree or nearing retirement, this program is
designed to help you establish an investment strategy that seeks to meet your
income needs throughout your retirement. The strategy is customized to your
personal financial situation by allocating your assets to seek to address your
income requirements, and prioritizing your expenses and establishing a prudent
withdrawal schedule.
HOW TO EXCHANGE SHARES AMONG THE SELIGMAN MUTUAL FUNDS
You may sell Fund shares to buy shares of the same Class of another Seligman
mutual fund, or you may sell shares of another Seligman mutual fund to buy Fund
shares. Exchanges will be made at each fund's respective NAV. You will not pay
an initial sales charge when you exchange, unless you exchange Class A shares or
Class C shares of Seligman Cash Management Fund to buy shares of the same class
of a Fund or another Seligman mutual fund.
Only your dividend and capital gain distribution options and telephone services
will be automatically carried over to any new fund account. If you wish to carry
over any other account options (for example, Invest-A-Check(R) or Systematic
Withdrawals) to the new fund, you must specifically request so at the time of
your exchange.
If you exchange into a new fund, you must exchange enough to meet the new fund's
required minimum initial investment.
Before making an exchange, contact your financial advisor or SDC to obtain the
applicable fund prospectus(es). You should read and understand a fund's
prospectus before investing. Some funds may not offer all classes of shares.
47
<PAGE>
HOW TO SELL SHARES
The easiest way to sell Fund shares is by phone. If you have telephone services,
you may be able use this service to sell Fund shares. Restrictions apply to
certain types of accounts. Please see "Important Policies That May Affect Your
Account."
When you sell Fund shares by phone, a check for the proceeds is sent to your
address of record. If you have current ACH bank information on file, you may
have the proceeds of the sale of your Fund shares directly deposited into your
bank account (typically, 3-4 business days after your shares are sold).
You may sell shares to the Fund through a broker/dealer or your financial
advisor. The Fund does not charge any fees or expenses, other than any
applicable CDSC, for this transaction; however, the dealer or financial advisor
may charge a service fee. Contact your financial advisor for more information.
You may always send a written request to sell shares of any Fund. It may take
longer to get your money if you send your request by mail.
As an additional measure to protect you and the Fund, SDCmay confirm written
redemption requests that are (1) for $25,000 or more, or (2) directed to be paid
to an alternate payee or sent to an address other than the address of record,
with you or your financial advisor by telephone before sending your money. This
will not effect the date on which your redemption request is actually processed.
You will need to guarantee your signature(s) if the proceeds are:
(1) $50,000 or more;
(2) to be paid to someone other than all account owners, or
(3) mailed to other than your address of record.
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE:
PROTECTS YOU AND THE FUNDS FROM FRAUD. IT GUARANTEES THAT A SIGNATURE IS
GENUINE. A GUARANTEE MUST BE OBTAINED FROM AN ELIGIBLE FINANCIAL INSTITUTION.
NOTARIZATION BY A NOTARY PUBLIC IS NOT AN ACCEPTABLE GUARANTEE.
- --------------------------------------------------------------------------------
You may need to provide additional documents to sell shares if you are:
o a corporation;
o an executor or administrator;
o a trustee or custodian; or
o in a retirement plan.
If your Fund shares are represented by certificates, you will need to surrender
the certificates to SDC before you sell your shares.
Contact your financial advisor or SDC's Shareholder Services Department for
information on selling your shares under any of the above circumstances.
You may also use the following account services to sell shares:
Systematic Withdrawal Plan. If you have at least $5,000 in a Fund, you may
withdraw (sell) a fixed dollar amount (minimum of $50) of uncertificated shares
at regular intervals. A check will be sent to you at your address of record or,
if you have current ACH bank information on file, you may have your payments
directly deposited to your predesignated bank account in 3-4 business days after
your shares are sold. If you bought $1,000,000 or more of Class A shares without
an initial sales charge, your withdrawals may be subject to a 1% CDSC if they
occur within 18 months of purchase. If you own Class C shares and Class D shares
and reinvest your dividends and capital gain distri butions, you may annually
withdraw 10%, respectively, of the value of your Fund account (at the time of
election) without a CDSC.
Check Redemption Service. If you have at least $25,000 in a Fund, you ask SDCto
provide checks which may be drawn against your account in amounts of $500 or
more. You may elect this service on your initial application or contact SDC for
the appropriate forms to establish this service. If you own Class A shares that
were bought at NAV because of the size of your purchase, or if you own Class B
shares, check redemptions may be subject to a CDSC. If you own Class D or Class
C shares, you may use this service only with respect to shares that you have
held for at least one year or eighteen months, respectively.
48
<PAGE>
IMPORTANT POLICIES THAT MAY AFFECT YOUR ACCOUNT
To protect you and other shareholders, each Fund reserves the right to:
o Refuse an exchange request if:
1. you have exchanged twice from the same fund in any three-month
period;
2. the amount you wish to exchange equals the lesser of
$1,000,000 or 1% of a Fund's net assets; or
3. you or your financial advisor have been advised that previous
patterns of purchases and sales or exchanges have been
considered excessive.
o Refuse any request to buy Fund shares;
o Reject any request received by telephone;
o Suspend or terminate telephone services;
o Reject a signature guarantee that SDC believes may be fraudulent;
o Close your fund account if its value falls below $500;
o Close your account if it does not have a certified taxpayer
identification number.
Telephone Services
You and your broker/dealer or financial representative or advisor will be able
to place the following requests by telephone, unless you indicate on your
account application that you do not want telephone services:
o Sell uncertificated shares (up to $50,000 per day, payable to
account owner(s) and mailed to address of record);
o Exchange shares between funds;
o Change dividend and/or capital gain distribution options;
o Change your address;
o Establish systematic withdrawals to address of record.
If you do not complete an account application when you open your account,
telephone services must be elected on a supplemental election form (which may
require a signature guarantee).
Restrictions apply to certain types of accounts:
o Trust accounts on which the current trustee is not listed may not
sell Fund shares by phone.
o Corporations may not sell Fund shares by phone.
o IRAs may only exchange Fund shares or request address changes by
phone.
o Group retirement plans may not sell Fund shares by phone; plans that
allow participants to exchange by phone must provide a letter of
authorization signed by the plan custodian or trustee and provide a
supple mental election form signed by all plan participants.
Unless you have current ACH bank information on file, you will not be able to
sell Fund shares by phone within thirty days following an address change.
Your request must be communicated to an SDC representative. You may not request
any phone transactions via the automated access line.
You may cancel telephone services at any time by sending a written request to
SDC. Each account owner, by accepting or adding telephone services, authorizes
each of the other owners to make requests by phone. Your broker/dealer or
financial advisor representative or financial advisor may not establish
telephone services without your written authorization. SDC will send written
confirmation to the address of record when telephone services are added or
terminated.
During times of heavy call volume, you may not be able to get through to SDC by
phone to request a sale or exchange of shares. In this case, you may need to
write, and it may take longer for your request to be processed. A Fund's NAV may
fluctuate during this time.
The Funds and SDC will not be liable for processing requests received by phone
as long as it was reasonable to believe that the request was genuine.
Reinstatement Privilege
If you sell Fund shares, you may, within 120 calendar days, use part or all of
the proceeds to buy shares of the same Fund or any other Seligman mutual fund
(reinstate your investment) without paying an initial sales charge or, if you
paid a CDSC when you sold your shares, receiving a credit for the applicable
CDSC paid. This privilege is available only once each calendar year. Contact
your financial advisor for more information. You should consult your tax advisor
concerning possible tax consequences of exercising this privilege.
49
<PAGE>
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each Fund generally declares any dividends from net investment income daily and
pays dividends on the 17th of each month. If the 17th day of a month falls on a
weekend or on a NYSE holiday, the dividend will be distributed on the previous
business day. The Funds distribute net capital gains realized on investments
annually. It is expected that the Funds' distri butions will be primarily income
dividends.
You may elect to:
(1) reinvest both dividends and capital gain distributions;
(2) receive dividends in cash and reinvest capital gain distributions; or
(3) receive both dividends and capital gain distributions in cash.
Your dividends and capital gain distributions will be reinvested if you do not
instruct otherwise.
If you want to change your election, you may write SDC at the address listed on
the back cover of this prospectus, or, if you have telephone services, you or
your financial advisor may call SDC. Your request must be received by SDC before
the record date to be effective for that dividend or capital gain distribution.
- --------------------------------------------------------------------------------
Dividend:
A payment by a mutual fund, usually derived from the fund's net investment
income (dividends and interest earned on portfolio securities less expenses).
Capital Gain Distribution:
A payment to mutual fund shareholders which represents profits realized on the
sale of securities in a Fund's portfolio.
Ex-dividend Date:
The day on which any declared distributions (dividends or capital gains) are
deducted from the Fund's assets before it calculates its NAV.
- --------------------------------------------------------------------------------
Cash dividends or capital gain distributions will be sent by check to your
address of record or, if you have current ACH bank information on file, directly
deposited into your pre designated bank account within 3-4 business days from
the payable date.
Dividends and capital gain distributions are reinvested to buy additional shares
on the payable date using the NAV of the payable date.
Dividends on Class C shares and Class D shares will be lower than the dividends
on Class A shares as a result of their higher 12b-1 fees. Capital gain
distributions, if any, will be paid in the same amount for each Class.
TAXES
The Funds intend to pay dividends that are exempt from regular income tax. A
Fund may invest a portion of its assets in securities that generate income that
is not exempt from federal or state income tax. Income exempt from federal tax
may be subject to state and local tax. If you wish more specific information on
the possible tax consequences of investing in a particular Fund, you should read
that Fund's Statement of Additional Information.
Dividends paid by the Funds are taxable to you as ordinary income. Any capital
gains distributed by a Fund may be taxable, whether you take them in cash or
reinvest them to buy additional Fund shares. Capital gains may be taxed at
different rates depending on the length of time the Fund holds its assets.
When you sell Fund shares, any gain or loss you realize will generally be
treated as a long-term capital gain or loss if you held your shares for more
than one year, or as a short-term capital gain or loss if you held your shares
for one year or less. However, if you sell Fund shares on which a long-term
capital gain distribution has been received and you held the shares for six
months or less, any loss you realize will be treated as a long-term capital loss
to the extent that it offsets the long-term capital gain distribution.
An exchange of Fund shares is a sale and may result in a gain or loss for
federal income tax purposes.
Each January, you will be sent information on the tax status of any
distributions made during the previous calendar year. Because each shareholder's
situation is unique, you should always consult your tax advisor concerning the
effect income taxes may have on your individual investment.
50
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the financial performance
of each Fund's Classes for the past five and one-half years or, if less than
five and one-half years, the period of the Class's operations. Class C is a new
Class, effective June 1, 1999, so financial highlights are not available.
Certain information reflects financial results for a single share of a Class
that was held throughout the periods shown. "Total return" shows the rate that
you would have earned (or lost) on an investment in the Fund, assuming you
reinvested all your dividends and capital gain distributions. Total returns do
not reflect any sales charges. Deloitte & Touche LLP, independent auditors, have
audited this information for each Fund. Their reports, along with the financial
statements, are included in each Fund's Annual and Mid-Year Reports, which are
available upon request.
<TABLE>
<CAPTION>
NATIONAL FUND
CLASS A
-------------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.32 $ 8.01 $ 7.70 $ 7.58 $ 7.18 $ 8.72
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.19 0.39 0.39 0.40 0.40 0.41
Net gains or losses on securities
(both realized and unrealized) . (0.15) 0.31 0.31 0.12 0.40 (1.04)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.04 0.70 0.70 0.52 0.80 (0.63)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.19) (0.39) (0.39) (0.40) (0.40) (0.41)
Distributions (from capital gains).. -- -- -- -- -- (0.50)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.19) (0.39) (0.39) (0.40) (0.40) (0.91)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.17 $ 8.32 $ 8.01 $ 7.70 $ 7.58 $ 7.18
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.51% 9.00% 9.40% 6.97% 11.48% (7.83)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 100,557 $ 101,909 $ 97,481 $ 98,767 $ 104,184 $ 111,374
Ratio of expenses to average
net assets ....................... 0.83%(3) 0.80% 0.84% 0.80% 0.86% 0.85%
Ratio of net income to
average net assets ............... 4.71%(3) 4.82% 5.05% 5.19% 5.46% 5.30%
Portfolio turnover rate ............ 2.76% 18.00% 20.63% 33.99% 24.91% 24.86%
<CAPTION>
NATIONAL FUND
CLASS D
---------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- --------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.31 $ 8.02 $ 7.70 $ 7.57 $ 7.18 $ 8.20
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.16 0.32 0.32 0.33 0.32 0.22
Net gains or losses on securities
(both realized and unrealized) . (0.15) 0.29 0.32 0.13 0.39 (1.02)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.01 0.61 0.64 0.46 0.71 (0.80)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.16) (0.32) (0.32) (0.33) (0.32) (0.22)
Distributions (from capital gains).. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.16) (0.32) (0.32) (0.33) (0.32) (0.22)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.16 $ 8.31 $ 8.02 $ 7.70 $ 7.57 $ 7.18
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.08% 7.76% 8.56% 6.13% 10.17% (9.96)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 7,968 $ 7,392 $ 2,279 $ 4,826 $ 1,215 $ 446
Ratio of expenses to average
net assets ....................... 1.73%(3) 1.71% 1.75% 1.67% 1.95% 1.76%(3)
Ratio of net income to
average net assets ............... 3.81%(3) 3.91% 4.15% 4.27% 4.40% 4.37%(3)
Portfolio turnover rate ............ 2.76% 18.00% 20.63% 33.99% 24.91% 24.86%(4)
</TABLE>
- ----------
See footnotes on page 60.
51
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD FUND
CLASS A
-----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ----------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 6.80 $ 6.61 $ 6.50 $ 6.47 $ 6.30 $ 6.73
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.16 0.32 0.34 0.36 0.37 0.37
Net gains or losses on securities
(both realized and unrealized) . (0.10) 0.22 0.20 0.05 0.17 (0.34)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.54 0.54 0.41 0.54 0.03
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.16) (0.32) (0.34) (0.36) (0.37) (0.37)
Distributions (from capital gains).. (0.02) (0.03) (0.09) (0.02) -- (0.09)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.18) (0.35) (0.43) (0.38) (0.37) (0.46)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 6.68 $ 6.80 $ 6.61 $ 6.50 $ 6.47 $ 6.30
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.89% 8.45% 8.74% 6.49% 8.85% 0.41%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 58,337 $ 58,374 $ 52,883 $ 50,264 $ 51,504 $ 48,007
Ratio of expenses to average
net assets ....................... 0.86%(3) 0.82% 0.87% 0.84% 0.90% 0.85%
Ratio of net income to
average net assets ............... 4.64%(3) 4.81% 5.26% 5.49% 5.84% 5.74%
Portfolio turnover rate ............ 1.86% 10.75% 22.42% 34.75% 17.64% 8.36%
<CAPTION>
CALIFORNIA QUALITY FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.21 $ 6.99 $ 6.75 $ 6.65 $ 6.39 $ 7.28
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.16 0.33 0.34 0.35 0.34 0.35
Net gains or losses on securities
(both realized and unrealized) . (0.10) 0.25 0.24 0.11 0.32 (0.73)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.58 0.58 0.46 0.66 (0.38)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.16) (0.33) (0.34) (0.35) (0.34) (0.35)
Distributions (from capital gains).. (0.23) (0.03) -- (0.01) (0.06) (0.16)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.39) (0.36) (0.34) (0.36) (0.40) (0.51)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 6.88 $ 7.21 $ 6.99 $ 6.75 $ 6.65 $ 6.39
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.81% 8.67% 8.87% 7.00% 10.85% (5.46)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 83,857 $ 87,522 $ 86,992 $ 95,560 $ 94,947 $ 99,020
Ratio of expenses to average
net assets ....................... 0.81%(3) 0.77% 0.82% 0.79% 0.89% 0.81%
Ratio of net income to
average net assets ............... 4.49%(3) 4.75% 4.99% 5.11% 5.34% 5.20%
Portfolio turnover rate ............ 13.30% 30.82% 12.16% 12.84% 11.24% 22.16%
<CAPTION>
CALIFORNIA HIGH-YIELD FUND
CLASS D
---------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 6.80 $ 6.61 $ 6.51 $ 6.48 $ 6.31 $ 6.67
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.13 0.26 0.28 0.30 0.31 0.21
Net gains or losses on securities
(both realized and unrealized) . (0.09) 0.22 0.19 0.05 0.17 (0.36)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.04 0.48 0.47 0.35 0.48 (0.15)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.13) (0.26) (0.28) (0.30) (0.31) (0.21)
Distributions (from capital gains).. (0.02) (0.03) (0.09) (0.02) -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.15) (0.29) (0.37) (0.32) (0.31) (0.21)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 6.69 $ 6.80 $ 6.61 $ 6.51 $ 6.48 $ 6.31
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.59% 7.47% 7.60% 5.53% 7.78% (2.47)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 8,286 $ 6,393 $ 3,320 $ 1,919 $ 1,277 $ 650
Ratio of expenses to average
net assets ....................... 1.76%(3) 1.73% 1.77% 1.74% 1.91% 1.74%(3)
Ratio of net income to
average net assets ............... 3.74%(3) 3.90% 4.36% 4.59% 4.84% 4.73%(3)
Portfolio turnover rate ............ 1.86% 10.75% 22.42% 34.75% 17.64% 8.36%(4)
<CAPTION>
CALIFORNIA QUALITY FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.19 $ 6.97 $ 6.74 $ 6.63 $ 6.38 $ 7.13
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.12 0.27 0.28 0.28 0.28 0.19
Net gains or losses on securities
(both realized and unrealized) . (0.10) 0.25 0.23 0.12 0.31 (0.75)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.02 0.52 0.51 0.40 0.59 (0.56)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.12) (0.27) (0.28) (0.28) (0.28) (0.19)
Distributions (from capital gains).. (0.23) (0.03) -- (0.01) (0.06) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.35) (0.30) (0.28) (0.29) (0.34) (0.19)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 6.86 $ 7.19 $ 6.97 $ 6.74 $ 6.63 $ 6.38
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.36% 7.71% 7.75% 6.20% 9.61% (8.01)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 5,604 $ 2,302 $ 1,677 $ 1,645 $ 863 $ 812
Ratio of expenses to average
net assets ....................... 1.71%(3) 1.68% 1.72% 1.69% 1.88% 1.77%(3)
Ratio of net income to
average net assets ............... 3.59%(3) 3.84% 4.09% 4.21% 4.36% 4.39%(3)
Portfolio turnover rate ............ 13.30% 30.82% 12.16% 12.84% 11.24% 22.16%(4)
</TABLE>
- ----------
See footnotes on page 60.
52
<PAGE>
<TABLE>
<CAPTION>
COLORADO FUND
CLASS A
-----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.64 $ 7.42 $ 7.27 $ 7.30 $ 7.09 $ 7.76
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.17 0.36 0.37 0.37 0.38 0.37
Net gains or losses on securities
(both realized and unrealized) . (0.12) 0.22 0.15 (0.03) 0.21 (0.59)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.05 0.58 0.52 0.34 0.59 (0.22)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.17) (0.36) (0.37) (0.37) (0.38) (0.37)
Distributions (from capital gains).. -- -- -- -- -- (0.08)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.17) (0.36) (0.37) (0.37) (0.38) (0.45)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.52 $ 7.64 $ 7.42 $ 7.27 $ 7.30 $ 7.09
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.65% 8.03% 7.30% 4.76% 8.56% (2.92)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 46,896 $ 45,583 $ 49,780 $ 52,295 $ 54,858 $ 58,197
Ratio of expenses to average
net assets ....................... 0.90%(3) 0.90% 0.90% 0.85% 0.93% 0.86%
Ratio of net income to
average net assets ............... 4.52%(3) 4.80% 5.01% 5.07% 5.31% 5.06%
Portfolio turnover rate ............ 2.55% 28.66% 3.99% 12.39% 14.70% 10.07%
<CAPTION>
FLORIDA FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.07 $ 7.80 $ 7.67 $ 7.71 $ 7.34 $ 8.20
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.17 0.35 0.36 0.38 0.40 0.42
Net gains or losses on securities
(both realized and unrealized) . (0.11) 0.34 0.23 0.04 0.37 (0.74)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.69 0.59 0.42 0.77 (0.32)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.17) (0.35) (0.36) (0.38) (0.40) (0.42)
Distributions (from capital gains).. (0.05) (0.07) (0.10) (0.08) -- (0.12)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.22) (0.42) (0.46) (0.46) (0.40) (0.54)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.91 $ 8.07 $ 7.80 $ 7.67 $ 7.71 $ 7.34
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.75% 9.16% 8.01% 5.54% 10.87% (3.99)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 43,231 $ 42,464 $ 42,024 $ 45,200 $ 49,030 $ 49,897
Ratio of expenses to average
net assets** ..................... 1.02%(3) 1.00% 1.04% 0.97% 0.72% 0.42%
Ratio of net income to
average net assets** ............. 4.27%(3) 4.45% 4.70% 4.90% 5.38% 5.49%
Portfolio turnover rate ............ 2.93% 6.73% 33.68% 18.53% 11.82% 6.17%
<CAPTION>
COLORADO FUND
CLASS D
--------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- --------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.63 $ 7.42 $ 7.27 $ 7.29 $ 7.09 $ 7.72
----------- ----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income ............ 0.14 0.29 0.30 0.31 0.30 0.20
Net gains or losses on securities
(both realized and unrealized) . (0.11) 0.21 0.15 (0.02) 0.20 (0.63)
----------- ----------- ----------- ----------- ----------- ----------
Total from investment operations ... 0.03 0.50 0.45 0.29 0.50 (0.43)
----------- ----------- ----------- ----------- ----------- ----------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.29) (0.30) (0.31) (0.30) (0.20)
Distributions (from capital gains).. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------
Total distributions ................ (0.14) (0.29) (0.30) (0.31) (0.30) (0.20)
----------- ----------- ----------- ----------- ----------- ----------
Net asset value, end of period ..... $ 7.52 $ 7.63 $ 7.42 $ 7.27 $ 7.29 $ 7.09
=========== =========== =========== =========== =========== ==========
Total Return: ...................... 0.33% 6.90% 6.34% 3.95% 7.26% (5.73)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 884 $ 344 $ 238 $ 255 $ 193 $ 96
Ratio of expenses to average
net assets ....................... 1.80%(3) 1.80% 1.81% 1.75% 2.02% 1.78%(3)
Ratio of net income to
average net assets ............... 3.62%(3) 3.90% 4.10% 4.17% 4.23% 4.05%(3)
Portfolio turnover rate ............ 2.55% 28.66% 3.99% 12.39% 14.70% 10.07%(4)
<CAPTION>
FLORIDA FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.08 $ 7.81 $ 7.68 $ 7.72 $ 7.34 $ 8.10
----------- ----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income** .......... 0.14 0.29 0.30 0.32 0.34 0.24
Net gains or losses on securities
(both realized and unrealized) . (0.10) 0.34 0.23 0.04 0.38 (0.76)
----------- ----------- ----------- ----------- ----------- ----------
Total from investment operations ... 0.04 0.63 0.53 0.36 0.72 (0.52)
----------- ----------- ----------- ----------- ----------- ----------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.29) (0.30) (0.32) (0.34) (0.24)
Distributions (from capital gains).. (0.05) (0.07) (0.10) (0.08) -- --
----------- ----------- ----------- ----------- ----------- ----------
Total distributions ................ (0.19) (0.36) (0.40) (0.40) (0.34) (0.24)
----------- ----------- ----------- ----------- ----------- ----------
Net asset value, end of period ..... $ 7.93 $ 8.08 $ 7.81 $ 7.68 $ 7.72 $ 7.34
=========== =========== =========== =========== =========== ==========
Total Return: ...................... 0.50% 8.32% 7.18% 4.74% 10.07% (6.64)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 2,244 $ 1,940 $ 1,678 $ 1,277 $ 603 $ 244
Ratio of expenses to average
net assets** ..................... 1.77%(3) 1.77% 1.81% 1.73% 1.66% 1.29%(3)
Ratio of net income to
average net assets** ............. 3.52%(3) 3.68% 3.93% 4.14% 4.53% 4.61%(3)
Portfolio turnover rate ............ 2.93% 6.73% 33.68% 18.53% 11.82% 6.17%(4)
</TABLE>
- ----------
See footnotes on page 60.
53
<PAGE>
<TABLE>
<CAPTION>
GEORGIA FUND
CLASS A
-----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.38 $ 8.12 $ 7.87 $ 7.81 $ 7.48 $ 8.43
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.18 0.38 0.38 0.39 0.39 0.41
Net gains or losses on securities
(both realized and unrealized) . (0.10) 0.29 0.28 0.11 0.43 (0.86)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.08 0.67 0.66 0.50 0.82 (0.45)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.18) (0.38) (0.38) (0.39) (0.39) (0.41)
Distributions (from capital gains).. (0.05) (0.03) (0.03) (0.05) (0.10) (0.09)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.23) (0.41) (0.41) (0.44) (0.49) (0.50)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.23 $ 8.38 $ 8.12 $ 7.87 $ 7.81 $ 7.48
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.94% 8.44% 8.65% 6.56% 11.66% (5.52)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 47,043 $ 48,424 $ 50,614 $ 50,995 $ 57,678 $ 61,466
Ratio of expenses to average
net assets** ..................... 0.89%(3) 0.89% 0.89% 0.83% 0.91% 0.73%
Ratio of net income to
average net assets** ............. 4.45%(3) 4.57% 4.82% 4.94% 5.26% 5.21%
Portfolio turnover rate ............ -- 2.92% 12.28% 16.24% 3.36% 19.34%
<CAPTION>
LOUISIANA FUND
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.51 $ 8.28 $ 8.16 $ 8.14 $ 7.94 $ 8.79
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.19 0.41 0.41 0.42 0.43 0.44
Net gains or losses on securities
(both realized and unrealized) . (0.12) 0.24 0.23 0.08 0.34 (0.77)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.07 0.65 0.64 0.50 0.77 (0.33)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.19) (0.41) (0.41) (0.42) (0.43) (0.44)
Distributions (from capital gains).. (0.11) (0.01) (0.11) (0.06) (0.14) (0.08)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.30) (0.42) (0.52) (0.48) (0.57) (0.52)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.28 $ 8.51 $ 8.28 $ 8.16 $ 8.14 $ 7.94
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.91% 8.08% 8.17% 6.32% 10.30% (3.83)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 54,587 $ 56,308 $ 56,199 $ 57,264 $ 61,988 $ 61,441
Ratio of expenses to average
net assets ....................... 0.87%(3) 0.88% 0.86% 0.82% 0.89% 0.87%
Ratio of net income to
average net assets ............... 4.67%(3) 4.86% 5.08% 5.15% 5.44% 5.31%
Portfolio turnover rate ............ 5.31% 15.72% 16.08% 10.08% 4.82% 17.16%
<CAPTION>
GEORGIA FUND
CLASS D
---------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.40 $ 8.13 $ 7.88 $ 7.82 $ 7.49 $ 8.33
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.15 0.30 0.31 0.32 0.32 0.22
Net gains or losses on securities
(both realized and unrealized) . (0.10) 0.30 0.28 0.11 0.43 (0.84)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.05 0.60 0.59 0.43 0.75 (0.62)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.15) (0.30) (0.31) (0.32) (0.32) (0.22)
Distributions (from capital gains).. (0.05) (0.03) (0.03) (0.05) (0.10) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.20) (0.33) (0.34) (0.37) (0.42) (0.22)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.25 $ 8.40 $ 8.13 $ 7.88 $ 7.82 $ 7.49
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.50% 7.59% 7.67% 5.60% 10.58% (7.57)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 2,678 $ 2,809 $ 2,640 $ 2,327 $ 2,079 $ 849
Ratio of expenses to average
net assets** ..................... 1.79%(3) 1.80 1.79% 1.73% 1.90% 1.76%(3)
Ratio of net income to
average net assets** ............. 3.55%(3) 3.66 3.92% 4.03% 4.28% 4.28%(3)
Portfolio turnover rate ............ -- 2.92% 12.28% 16.24% 3.36% 19.34%(4)
<CAPTION>
LOUISIANA FUND
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.50 $ 8.27 $ 8.16 $ 8.14 $ 7.94 $ 8.73
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.16 0.33 0.34 0.35 0.35 0.24
Net gains or losses on securities
(both realized and unrealized) . (0.11) 0.24 0.22 0.08 0.34 (0.79)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.05 0.57 0.56 0.43 0.69 (0.55)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.16) (0.33) (0.34) (0.35) (0.35) (0.24)
Distributions (from capital gains).. (0.11) (0.01) (0.11) (0.06) (0.14) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.27) (0.34) (0.45) (0.41) (0.49) (0.24)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.28 $ 8.50 $ 8.27 $ 8.16 $ 8.14 $ 7.94
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.58% 7.11% 7.07% 5.37% 9.17% (6.45)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 762 $ 837 $ 509 $ 389 $ 465 $ 704
Ratio of expenses to average
net assets ....................... 1.78%(3) 1.78% 1.76% 1.72% 1.91% 1.78%(3)
Ratio of net income to
average net assets ............... 3.76%(3) 3.96% 4.18% 4.25% 4.41% 4.33%(3)
Portfolio turnover rate ............ 5.31% 15.72% 16.08% 10.08% 4.82% 17.16%(4)
</TABLE>
- ----------
See footnotes on page 60.
54
<PAGE>
<TABLE>
<CAPTION>
MARYLAND FUND
CLASS A
-----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.32 $ 8.14 $ 7.99 $ 7.96 $ 7.71 $ 8.64
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.19 0.40 0.40 0.40 0.41 0.42
Net gains or losses on securities
(both realized and unrealized) . (0.08) 0.23 0.19 0.06 0.38 (0.76)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.11 0.63 0.59 0.46 0.79 (0.34)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.19) (0.40) (0.40) (0.40) (0.41) (0.42)
Distributions (from capital gains).. (0.03) (0.05) (0.04) (0.03) (0.13) (0.17)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.22) (0.45) (0.44) (0.43) (0.54) (0.59)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.21 $ 8.32 $ 8.14 $ 7.99 $ 7.96 $ 7.71
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 1.31% 7.89% 7.64% 6.00% 10.90% (4.08)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 53,490 $ 54,891 $ 52,549 $ 54,041 $ 56,290 $ 57,263
Ratio of expenses to average
net assets ....................... 0.89%(3) 0.89% 0.90% 0.84% 0.96% 0.92%
Ratio of net income to
average net assets ............... 4.64%(3) 4.82% 4.99% 5.05% 5.31% 5.17%
Portfolio turnover rate ............ 0.06% 7.59% 14.79% 5.56% 3.63% 17.68%
<CAPTION>
MASSACHUSETTS FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.27 $ 7.99 $ 7.85 $ 7.91 $ 7.66 $ 8.54
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.18 0.38 0.40 0.41 0.42 0.44
Net gains or losses on securities
(both realized and unrealized) . (0.14) 0.37 0.22 0.05 0.28 (0.67)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.04 0.75 0.62 0.46 0.70 (0.23)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.18) (0.38) (0.40) (0.41) (0.42) (0.44)
Distributions (from capital gains).. (0.05) (0.09) (0.08) (0.11) (0.03) (0.21)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.23) (0.47) (0.48) (0.52) (0.45) (0.65)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.08 $ 8.27 $ 7.99 $ 7.85 $ 7.91 $ 7.66
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.51% 9.80% 8.11% 5.97% 9.58% (2.94)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 103,400 $ 109,328 $ 110,011 $ 109,872 $ 115,711 $ 120,149
Ratio of expenses to average
net assets ....................... 0.83%(3) 0.80% 0.84% 0.80% 0.86% 0.85%
Ratio of net income to
average net assets ............... 4.47%(3) 4.72% 5.06% 5.24% 5.51% 5.46%
Portfolio turnover rate ............ 4.45% 13.41% 29.26% 26.30% 16.68% 12.44%
<CAPTION>
MARYLAND FUND
CLASS D
---------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.33 $ 8.15 $ 7.99 $ 7.97 $ 7.72 $ 8.46
----------- ----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income ............ 0.15 0.32 0.33 0.33 0.33 0.23
Net gains or losses on securities
(both realized and unrealized) . (0.08) 0.23 0.20 0.05 0.38 (0.74)
----------- ----------- ----------- ----------- ----------- ----------
Total from investment operations ... 0.07 0.55 0.53 0.38 0.71 (0.51)
----------- ----------- ----------- ----------- ----------- ----------
Less distributions:
Dividends (from net
investment income) ............. (0.15) (0.32) (0.33) (0.33) (0.33) (0.23)
Distributions (from capital gains). (0.03) (0.05) (0.04) (0.03) (0.13) --
----------- ----------- ----------- ----------- ----------- ----------
Total distributions ................ (0.18) (0.37) (0.37) (0.36) (0.46) (0.23)
----------- ----------- ----------- ----------- ----------- ----------
Net asset value, end of period ..... $ 8.22 $ 8.33 $ 8.15 $ 7.99 $ 7.97 $ 7.72
=========== =========== =========== =========== =========== ==========
Total Return: ...................... 0.86% 6.91% 6.80% 4.91% 9.75% (6.21)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 3,052 $ 3,128 $ 2,063 $ 2,047 $ 630 $ 424
Ratio of expenses to average
net assets ....................... 1.79%(3) 1.80% 1.81% 1.72% 2.02% 1.80%(3)
Ratio of net income to
average net assets ............... 3.74%(3) 3.91% 4.08% 4.14% 4.27% 4.26%(3)
Portfolio turnover rate ............ 0.06% 7.59% 14.79% 5.56% 3.63% 17.68%(4)
<CAPTION>
MASSACHUSETTS FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.26 $ 7.99 $ 7.84 $ 7.90 $ 7.66 $ 8.33
----------- ----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income ............ 0.14 0.31 0.33 0.34 0.34 0.24
Net gains or losses on securities
(both realized and unrealized) . (0.13) 0.36 0.23 0.05 0.27 (0.67)
----------- ----------- ----------- ----------- ----------- ----------
Total from investment operations ... 0.01 0.67 0.56 0.39 0.61 (0.43)
----------- ----------- ----------- ----------- ----------- ----------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.31) (0.33) (0.34) (0.34) (0.24)
Distributions (from capital gains). (0.05) (0.09) (0.08) (0.11) (0.03) --
----------- ----------- ----------- ----------- ----------- ----------
Total distributions ................ (0.19) (0.40) (0.41) (0.45) (0.37) (0.24)
----------- ----------- ----------- ----------- ----------- ----------
Net asset value, end of period ..... $ 8.08 $ 8.26 $ 7.99 $ 7.84 $ 7.90 $ 7.66
=========== =========== =========== =========== =========== ==========
Total Return: ...................... 0.18% 8.68% 7.29% 5.01% 8.33% (5.34)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 2,374 $ 1,468 $ 1,245 $ 1,405 $ 809 $ 1,099
Ratio of expenses to average
net assets ....................... 1.73%(3) 1.71% 1.74% 1.70% 1.95% 1.78%(3)
Ratio of net income to
average net assets ............... 3.57%(3) 3.81% 4.16% 4.32% 4.47% 4.52%(3)
Portfolio turnover rate ............ 4.45% 13.41% 29.26% 26.30% 16.68% 12.44%(4)
</TABLE>
- ----------
See footnotes on page 60.
55
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN FUND
CLASS A
-------------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.83 $ 8.60 $ 8.46 $ 8.54 $ 8.28 $ 9.08
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.20 0.41 0.43 0.45 0.46 0.46
Net gains or losses on securities
(both realized and unrealized) . (0.12) 0.30 0.23 0.06 0.30 (0.71)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.08 0.71 0.66 0.51 0.76 (0.25)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.20) (0.41) (0.43) (0.45) (0.46) (0.46)
Distributions (from capital gains).. (0.16) (0.07) (0.09) (0.14) (0.04) (0.09)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.36) (0.48) (0.52) (0.59) (0.50) (0.55)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.55 $ 8.83 $ 8.60 $ 8.46 $ 8.54 $ 8.28
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.90% 8.63% 8.16% 6.16% 9.56% (2.90)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 138,558 $ 144,161 $ 143,370 $ 148,178 $ 151,589 $ 151,095
Ratio of expenses to average
net assets ....................... 0.81%(3) 0.79% 0.81% 0.78% 0.87% 0.84%
Ratio of net income to
average net assets ............... 4.65%(3) 4.78% 5.13% 5.29% 5.50% 5.32%
Portfolio turnover rate ............ 3.62% 23.60% 10.98% 19.62% 20.48% 10.06%
MINNESOTA FUND
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.98 $ 7.79 $ 7.68 $ 7.82 $ 7.72 $ 8.28
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.18 0.38 0.40 0.42 0.45 0.45
Net gains or losses on securities
(both realized and unrealized) . (0.08) 0.20 0.11 (0.12) 0.11 (0.44)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.10 0.58 0.51 0.30 0.56 0.01
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.18) (0.38) (0.40) (0.42) (0.45) (0.45)
Distributions (from capital gains).. (0.10) (0.01) -- (0.02) (0.01) (0.12)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.28) (0.39) (0.40) (0.44) (0.46) (0.57)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.80 $ 7.98 $ 7.79 $ 7.68 $ 7.82 $ 7.72
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 1.27% 7.68% 6.85% 3.99% 7.61% 0.12%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 118,743 $ 121,374 $ 121,674 $ 126,173 $ 132,716 $ 134,990
Ratio of expenses to average
net assets ....................... 0.84%(3) 0.81% 0.85% 0.81% 0.87% 0.85%
Ratio of net income to
average net assets ............... 4.64%(3) 4.87% 5.21% 5.47% 5.89% 5.70%
Portfolio turnover rate ............ 4.65% 21.86% 6.88% 26.89% 5.57% 3.30%
<CAPTION>
MICHIGAN FUND
CLASS D
-----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ----------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.82 $ 8.59 $ 8.45 $ 8.54 $ 8.28 $ 9.01
----------- ----------- ----------- ----------- ----------- ---------
Income from investment operations:
Net investment income ............ 0.16 0.33 0.36 0.37 0.37 0.25
Net gains or losses on securities
(both realized and unrealized) . (0.12) 0.30 0.23 0.05 0.30 (0.73)
----------- ----------- ----------- ----------- ----------- ---------
Total from investment operations ... 0.04 0.63 0.59 0.42 0.67 (0.48)
----------- ----------- ----------- ----------- ----------- ---------
Less distributions:
Dividends (from net
investment income) ............. (0.16) (0.33) (0.36) (0.37) (0.37) (0.25)
Distributions (from capital gains). (0.16) (0.07) (0.09) (0.14) (0.04) --
----------- ----------- ----------- ----------- ----------- ---------
Total distributions ................ (0.32) (0.40) (0.45) (0.51) (0.41) (0.25)
----------- ----------- ----------- ----------- ----------- ---------
Net asset value, end of period ..... $ 8.54 $ 8.82 $ 8.59 $ 8.45 $ 8.54 $ 8.28
=========== =========== =========== =========== =========== =========
Total Return: ...................... 0.45% 7.66% 7.19% 5.09% 8.36% (5.47)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 2,642 $ 1,841 $ 1,845 $ 1,486 $ 1,172 $ 671
Ratio of expenses to average
net assets ....................... 1.71%(3) 1.70% 1.71% 1.68% 2.01% 1.75%(3)
Ratio of net income to
average net assets ............... 3.75%(3) 3.87% 4.23% 4.39% 4.40% 4.40%(3)
Portfolio turnover rate ............ 3.62% 23.60% 10.98% 19.62% 20.48% 10.06%(4)
MINNESOTA FUND
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.98 $ 7.79 $ 7.68 $ 7.82 $ 7.73 $ 8.22
----------- ----------- ----------- ----------- ----------- ---------
Income from investment operations:
Net investment income ............ 0.15 0.31 0.33 0.35 0.38 0.25
Net gains or losses on securities
(both realized and unrealized) . (0.08) 0.20 0.11 (0.12) 0.10 (0.49)
----------- ----------- ----------- ----------- ----------- ---------
Total from investment operations ... 0.07 0.51 0.44 0.23 0.48 (0.24)
----------- ----------- ----------- ----------- ----------- ---------
Less distributions:
Dividends (from net
investment income) ............. (0.15) (0.31) (0.33) (0.35) (0.38) (0.25)
Distributions (from capital gains). (0.10) (0.01) -- (0.02) (0.01) --
----------- ----------- ----------- ----------- ----------- ---------
Total distributions ................ (0.25) (0.32) (0.33) (0.37) (0.39) (0.25)
----------- ----------- ----------- ----------- ----------- ---------
Net asset value, end of period ..... $ 7.80 $ 7.98 $ 7.79 $ 7.68 $ 7.82 $ 7.73
=========== =========== =========== =========== =========== =========
Total Return: ...................... 0.82% 6.71% 5.89% 3.06% 6.45% (3.08)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 2,113 $ 2,103 $ 1,799 $ 2,036 $ 2,237 $ 1,649
Ratio of expenses to average
net assets ....................... 1.74%(3) 1.72% 1.75% 1.71% 1.85% 1.74%(3)
Ratio of net income to
average net assets ............... 3.74%(3) 3.96% 4.31% 4.57% 4.92% 4.68%(3)
Portfolio turnover rate ............ 4.65% 21.86% 6.88% 26.89% 5.57% 3.30%(4)
</TABLE>
- ----------
See footnotes on page 60.
56
<PAGE>
<TABLE>
<CAPTION>
MISSOURI FUND
CLASS A
------------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.03 $ 7.82 $ 7.71 $ 7.70 $ 7.41 $ 8.31
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.17 0.36 0.38 0.39 0.40 0.40
Net gains or losses on securities
(both realized and unrealized) . (0.14) 0.28 0.19 0.08 0.36 (0.79)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.03 0.64 0.57 0.47 0.76 (0.39)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.17) (0.36) (0.38) (0.39) (0.40) (0.40)
Distributions (from capital gains).. (0.12) (0.07) (0.08) (0.07) (0.07) (0.11)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.29) (0.43) (0.46) (0.46) (0.47) (0.51)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.77 $ 8.03 $ 7.82 $ 7.71 $ 7.70 $ 7.41
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.38% 8.41% 7.70% 6.27% 10.67% (4.85)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 48,944 $ 49,949 $ 52,766 $ 49,941 $ 51,169 $ 52,621
Ratio of expenses to average
net assets** ..................... 0.90%(3) 0.89% 0.89% 0.86% 0.88% 0.74%
Ratio of net income to
average net assets** ............. 4.39%(3) 4.59% 4.93% 5.03% 5.31% 5.18%
Portfolio turnover rate ............ 1.49% 21.26% 6.47% 8.04% 3.88% 14.33%
<CAPTION>
NEW JERSEY FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.78 $ 7.56 $ 7.60 $ 7.59 $ 7.40 $ 8.24
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.16 0.35 0.36 0.39 0.39 0.41
Net gains or losses on securities
(both realized and unrealized) . (0.10) 0.30 0.21 0.01 0.29 (0.74)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.65 0.57 0.40 0.68 (0.33)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.16) (0.35) (0.36) (0.39) (0.39) (0.41)
Distributions (from capital gains).. (0.10) (0.08) (0.25) -- (0.10) (0.10)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.26) (0.43) (0.61) (0.39) (0.49) (0.51)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.58 $ 7.78 $ 7.56 $ 7.60 $ 7.59 $ 7.40
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.77% 8.87% 7.96% 5.37% 9.77% (4.25)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 57,861 $ 61,739 $ 62,597 $ 66,293 $ 73,561 $ 73,942
Ratio of expenses to average
net assets** ..................... 1.07%(3) 1.02% 1.06% 1.02% 1.01% 0.90%
Ratio of net income to
average net assets** ............. 4.27%(3) 4.54% 4.90% 5.06% 5.29% 5.24%
Portfolio turnover rate ............ -- 23.37% 20.22% 25.65% 4.66% 12.13%
<CAPTION>
MISSOURI FUND
CLASS D
----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ----------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.03 $ 7.82 $ 7.72 $ 7.70 $ 7.41 $ 8.20
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.14 0.29 0.31 0.32 0.32 0.22
Net gains or losses on securities
(both realized and unrealized) . (0.14) 0.28 0.18 0.09 0.36 (0.79)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... -- 0.57 0.49 0.41 0.68 (0.57)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.29) (0.31) (0.32) (0.32) (0.22)
Distributions (from capital gains).. (0.12) (0.07) (0.08) (0.07) (0.07) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.26) (0.36) (0.39) (0.39) (0.39) (0.22)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.77 $ 8.03 $ 7.82 $ 7.72 $ 7.70 $ 7.41
=========== =========== =========== =========== =========== ===========
Total Return: ...................... (0.07)% 7.45% 6.60% 5.46% 9.49% (7.16)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 626 $ 418 $ 474 $ 565 $ 515 $ 350
Ratio of expenses to average
net assets** ..................... 1.80%(3) 1.79% 1.80% 1.76% 1.98% 1.70%(3)
Ratio of net income to
average net assets** ............. 3.49%(3) 3.69% 4.02% 4.13% 4.23% 4.27%(3)
Portfolio turnover rate ............ 1.49% 21.26% 6.47% 8.04% 3.88% 14.33%(4)
<CAPTION>
NEW JERSEY FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 7.86 $ 7.64 $ 7.68 $ 7.67 $ 7.48 $ 8.14
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.14 0.29 0.31 0.33 0.33 0.23
Net gains or losses on securities
(both realized and unrealized) . (0.09) 0.30 0.21 0.01 0.29 (0.66)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.05 0.59 0.52 0.34 0.62 (0.43)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.29) (0.31) (0.33) (0.33) (0.23)
Distributions (from capital gains).. (0.10) (0.08) (0.25) -- (0.10) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.24) (0.37) (0.56) (0.33) (0.43) (0.23)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.67 $ 7.86 $ 7.64 $ 7.68 $ 7.67 $ 7.48
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.54% 7.97% 7.10% 4.56% 8.79% (5.47)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 1,795 $ 1,582 $ 1,282 $ 1,152 $ 1,190 $ 986
Ratio of expenses to average
net assets** ..................... 1.82%(3) 1.80% 1.83% 1.79% 1.89% 1.75%(3)
Ratio of net income to
average net assets** ............. 3.52%(3) 3.76% 4.13% 4.29% 4.45% 4.37%(3)
Portfolio turnover rate ............ -- 23.37% 20.22% 25.65% 4.66% 12.13%(4)
</TABLE>
- ----------
See footnotes on page 60.
57
<PAGE>
<TABLE>
<CAPTION>
NEW YORK FUND
CLASS A
------------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- --------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.60 $ 8.28 $ 7.98 $ 7.86 $ 7.67 $ 8.75
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.19 0.40 0.41 0.42 0.42 0.43
Net gains or losses on securities
(both realized and unrealized) . (0.15) 0.40 0.32 0.12 0.36 (0.88)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.04 0.80 0.73 0.54 0.78 (0.45)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.19) (0.40) (0.41) (0.42) (0.42) (0.43)
Distributions (from capital gains).. (0.21) (0.08) (0.02) -- (0.17) (0.20)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.40) (0.48) (0.43) (0.42) (0.59) (0.63)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.24 $ 8.60 $ 8.28 $ 7.98 $ 7.86 $ 7.67
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.42% 10.02% 9.45% 6.97% 10.93% (5.37)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 84,971 $ 84,822 $ 83,528 $ 82,719 $ 83,980 $ 90,914
Ratio of expenses to average
net assets ....................... 0.82%(3) 0.81% 0.82% 0.77% 0.88% 0.87%
Ratio of net income to
average net assets ............... 4.51%(3) 4.74% 5.09% 5.24% 5.52% 5.31%
Portfolio turnover rate ............ 4.57% 39.85% 23.83% 25.88% 34.05% 28.19%
<CAPTION>
NORTH CAROLINA FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.30 $ 8.05 $ 7.84 $ 7.74 $ 7.30 $ 8.22
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.17 0.36 0.37 0.37 0.39 0.41
Net gains or losses on securities
(both realized and unrealized) . (0.11) 0.31 0.24 0.11 0.45 (0.87)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.67 0.61 0.48 0.84 (0.46)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.17) (0.36) (0.37) (0.37) (0.39) (0.41)
Distributions (from capital gains).. (0.12) (0.06) (0.03) (0.01) (0.01) (0.05)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.29) (0.42) (0.40) (0.38) (0.40) (0.46)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.07 $ 8.30 $ 8.05 $ 7.84 $ 7.74 $ 7.30
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.74% 8.60% 8.01% 6.39% 11.92% (5.80)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 30,819 $ 32,358 $ 32,684 $ 35,934 $ 37,446 $ 38,920
Ratio of expenses to average
net assets** ..................... 1.08%(3) 1.05% 1.09% 1.05% 0.82% 0.44%
Ratio of net income to
average net assets** ............. 4.28%(3) 4.41% 4.66% 4.75% 5.21% 5.29%
Portfolio turnover rate ............ -- 20.37% 13.04% 15.12% 4.38% 15.61%
<CAPTION>
CLASS D
-----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- -----------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.60 $ 8.29 $ 7.98 $ 7.87 $ 7.67 $ 8.55
----------- ----------- ----------- ----------- ----------- ---------
Income from investment operations:
Net investment income ............ 0.15 0.32 0.34 0.34 0.34 0.23
Net gains or losses on securities
(both realized and unrealized) . (0.14) 0.39 0.33 0.11 0.37 (0.88)
----------- ----------- ----------- ----------- ----------- ---------
Total from investment operations ... 0.01 0.71 0.67 0.45 0.71 (0.65)
----------- ----------- ----------- ----------- ----------- ---------
Less distributions:
Dividends (from net
investment income) ............. (0.15) (0.32) (0.34) (0.34) (0.34) (0.23)
Distributions (from capital gains).. (0.21) (0.08) (0.02) -- (0.17) --
----------- ----------- ----------- ----------- ----------- ---------
Total distributions ................ (0.36) (0.40) (0.36) (0.34) (0.51) (0.23)
----------- ----------- ----------- ----------- ----------- ---------
Net asset value, end of period ..... $ 8.25 $ 8.60 $ 8.29 $ 7.98 $ 7.87 $ 7.67
=========== =========== =========== =========== =========== =========
Total Return: ...................... 0.09% 8.88% 8.60% 5.86% 9.87% (7.73)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 3.297 $ 2,182 $ 1,572 $ 1,152 $ 885 $ 476
Ratio of expenses to average
net assets ....................... 1.72%(3) 1.72% 1.73% 1.68% 1.96% 1.81%(3)
Ratio of net income to
average net assets ............... 3.61%(3) 3.83% 4.18% 4.33% 4.42% 4.39%(3)
Portfolio turnover rate ............ 4.57% 39.85% 23.83% 25.88% 34.05% 28.19%(4)
<CAPTION>
NORTH CAROLINA FUND
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.30 $ 8.05 $ 7.83 $ 7.74 $ 7.29 $ 8.17
----------- ----------- ----------- ----------- ----------- ---------
Income from investment operations:
Net investment income** .......... 0.14 0.30 0.31 0.31 0.33 0.23
Net gains or losses on securities
(both realized and unrealized) . (0.12) 0.31 0.25 0.10 0.46 (0.88)
----------- ----------- ----------- ----------- ----------- ---------
Total from investment operations ... 0.02 0.61 0.56 0.41 0.79 (0.65)
----------- ----------- ----------- ----------- ----------- ---------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.30) (0.31) (0.31) (0.33) (0.23)
Distributions (from capital gains).. (0.12) (0.06) (0.03) (0.01) (0.01) --
----------- ----------- ----------- ----------- ----------- ---------
Total distributions ................ (0.26) (0.36) (0.34) (0.32) (0.34) (0.23)
----------- ----------- ----------- ----------- ----------- ---------
Net asset value, end of period ..... $ 8.06 $ 8.30 $ 8.05 $ 7.83 $ 7.74 $ 7.29
=========== =========== =========== =========== =========== =========
Total Return: ...................... 0.24% 7.77% 7.33% 5.45% 11.19% (8.15)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 1,529 $ 1,456 $ 1,217 $ 1,232 $ 1,257 $ 1,282
Ratio of expenses to average
net assets** ..................... 1.83%(3) 1.82% 1.85% 1.81% 1.64% 1.27%(3)
Ratio of net income to
average net assets** ............. 3.53%(3) 3.64% 3.90% 3.99% 4.42% 4.49%(3)
Portfolio turnover rate ............ -- 20.37% 13.04% 15.12% 4.38% 15.61%(4)
</TABLE>
- ----------
See footnotes on page 60.
58
<PAGE>
<TABLE>
<CAPTION>
OHIO FUND
CLASS A
------------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.37 $ 8.19 $ 8.09 $ 8.11 $ 7.90 $ 8.77
----------- ----------- ----------- ----------- ----------- ---------
Income from investment operations:
Net investment income ............ 0.19 0.40 0.42 0.43 0.44 0.44
Net gains or losses on securities
(both realized and unrealized) . (0.13) 0.29 0.17 0.02 0.28 (0.70)
----------- ----------- ----------- ----------- ----------- ---------
Total from investment operations ... 0.06 0.69 0.59 0.45 0.72 (0.26)
----------- ----------- ----------- ----------- ----------- ---------
Less distributions:
Dividends (from net
investment income) ............. (0.19) (0.40) (0.42) (0.43) (0.44) (0.44)
Distributions (from capital gains).. (0.13) (0.11) (0.07) (0.04) (0.07) (0.17)
----------- ----------- ----------- ----------- ----------- ---------
Total distributions ................ (0.32) (0.51) (0.49) (0.47) (0.51) (0.61)
----------- ----------- ----------- ----------- ----------- ---------
Net asset value, end of period ..... $ 8.11 $ 8.37 $ 8.19 $ 8.09 $ 8.11 $ 7.90
=========== =========== =========== =========== =========== =========
Total Return: ...................... 0.80% 8.77% 7.54% 5.68% 9.59% (3.08)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 149,197 $ 153,126 $ 154,419 $ 162,243 $ 170,191 $ 171,469
Ratio of expenses to average
net assets ....................... 0.81%(3) 0.78% 0.81% 0.77% 0.84% 0.84%
Ratio of net income to
average net assets ............... 4.73%(3) 4.92% 5.19% 5.32% 5.56% 5.34%
Portfolio turnover rate ............ 0.68% 24.74% 11.76% 12.90% 2.96% 9.37%
OREGON FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.05 $ 7.87 $ 7.65 $ 7.66 $ 7.43 $ 8.08
----------- ----------- ----------- ----------- ----------- ---------
Income from investment operations:
Net investment income** .......... 0.17 0.36 0.38 0.40 0.40 0.40
Net gains or losses on securities
(both realized and unrealized) . (0.08) 0.28 0.26 -- 0.25 (0.59)
----------- ----------- ----------- ----------- ----------- ---------
Total from investment operations ... 0.09 0.64 0.64 0.40 0.65 (0.19)
----------- ----------- ----------- ----------- ----------- ---------
Less distributions:
Dividends (from net
investment income) ............. (0.17) (0.36) (0.38) (0.40) (0.40) (0.40)
Distributions (from capital gains).. (0.05) (0.10) (0.04) (0.01) (0.02) (0.06)
----------- ----------- ----------- ----------- ----------- ---------
Total distributions ................ (0.22) (0.46) (0.42) (0.41) (0.42) (0.46)
----------- ----------- ----------- ----------- ----------- ---------
Net asset value, end of period ..... $ 7.92 $ 8.05 $ 7.87 $ 7.65 $ 7.66 $ 7.43
=========== =========== =========== =========== =========== =========
Total Return: ...................... 1.18% 8.48% 8.60% 5.27% 9.05% (2.38)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 57,957 $ 57,601 $ 55,239 $ 57,345 $ 59,549 $ 59,884
Ratio of expenses to average
net assets** ..................... 0.88%(3) 0.88% 0.90% 0.86% 0.86% 0.78%
Ratio of net income to
average net assets** ............. 4.41%(3) 4.60% 4.88% 5.18% 5.40% 5.20%
Portfolio turnover rate ............ 6.76% 12.62% 19.46% 28.65% 2.47% 9.43%
<CAPTION>
OHIO FUND
CLASS D
---------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ---------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.41 $ 8.23 $ 8.13 $ 8.15 $ 7.92 $ 8.61
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.16 0.33 0.35 0.36 0.36 0.24
Net gains or losses on securities
(both realized and unrealized) . (0.13) 0.29 0.17 0.02 0.30 (0.69)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.03 0.62 0.52 0.38 0.66 (0.45)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.16) (0.33) (0.35) (0.36) (0.36) (0.24)
Distributions (from capital gains).. (0.13) (0.11) (0.07) (0.04) (0.07) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.29) (0.44) (0.42) (0.40) (0.43) (0.24)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.15 $ 8.41 $ 8.23 $ 8.13 $ 8.15 $ 7.92
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.36% 7.78% 6.57% 4.74% 8.67% (5.36)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 1,649 $ 1,103 $ 1,160 $ 1,011 $ 660 $ 324
Ratio of expenses to average
net assets ....................... 1.71%(3) 1.69% 1.71% 1.67% 1.93% 1.78%(3)
Ratio of net income to
average net assets ............... 3.83%(3) 4.01% 4.29% 4.42% 4.48% 4.41%(3)
Portfolio turnover rate ............ 0.68% 24.74% 11.76% 12.90% 2.96% 9.37%(4)
<CAPTION>
OREGON FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.04 $ 7.87 $ 7.64 $ 7.65 $ 7.43 $ 8.02
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income** .......... 0.14 0.29 0.31 0.33 0.33 0.22
Net gains or losses on securities
(both realized and unrealized) . (0.08) 0.27 0.27 -- 0.24 (0.59)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.56 0.58 0.33 0.57 (0.37)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.29) (0.31) (0.33) (0.33) (0.22)
Distributions (from capital gains).. (0.05) (0.10) (0.04) (0.01) (0.02) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.19) (0.39) (0.35) (0.34) (0.35) (0.22)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.91 $ 8.04 $ 7.87 $ 7.64 $ 7.65 $ 7.43
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.73% 7.37% 7.77% 4.33% 7.86% (4.76)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 2,778 $ 2,650 $ 1,678 $ 1,540 $ 1,495 $ 843
Ratio of expenses to average
net assets** ..................... 1.78%(3) 1.79% 1.80% 1.76% 1.83% 1.72%(3)
Ratio of net income to
average net assets** ............. 3.51%(3) 3.69% 3.98% 4.28% 4.41% 4.32%(3)
Portfolio turnover rate ............ 6.76% 12.62% 19.46% 28.65% 2.47% 9.43%(4)
</TABLE>
- ----------
See footnotes on page 60.
59
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA FUND
CLASS A
------------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- --------------------------------------------------------------------------
ended
-----
March 31,
---------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.24 $ 7.96 $ 7.82 $ 7.79 $ 7.55 $ 8.61
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.17 0.35 0.36 0.38 0.38 0.39
Net gains or losses on securities
(both realized and unrealized) . (0.11) 0.36 0.24 0.12 0.37 (0.80)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.71 0.60 0.50 0.75 (0.41)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.17) (0.35) (0.36) (0.38) (0.38) (0.39)
Distributions (from capital gains).. (0.15) (0.08) (0.10) (0.09) (0.13) (0.26)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.32) (0.43) (0.46) (0.47) (0.51) (0.65)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 7.98 $ 8.24 $ 7.96 $ 7.82 $ 7.79 $ 7.55
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.68% 9.20% 7.89% 6.57% 10.55% (5.00)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 28,151 $ 29,582 $ 30,092 $ 31,139 $ 33,251 $ 34,943
Ratio of expenses to average
net assets ....................... 1.23%(3) 1.19% 1.19% 1.11% 1.21% 1.16%
Ratio of net income to
average net assets ............... 4.14%(3) 4.34% 4.60% 4.82% 5.05% 4.91%
Portfolio turnover rate ............ 3.19% 13.05% 32.99% 4.56% 11.78% 7.71%
<CAPTION>
SOUTH CAROLINA FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ $ 8.38 $ 8.16 $ 8.07 $ 7.97 $ 7.61 $ 8.52
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.19 0.39 0.40 0.41 0.41 0.41
Net gains or losses on securities
(both realized and unrealized) . (0.13) 0.29 0.22 0.12 0.37 (0.79)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.06 0.68 0.62 0.53 0.78 (0.38)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.19) (0.39) (0.40) (0.41) (0.41) (0.41)
Distributions (from capital gains).. (0.07) (0.07) (0.13) (0.02) (0.01) (0.12)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.26) (0.46) (0.53) (0.43) (0.42) (0.53)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... $ 8.18 $ 8.38 $ 8.16 $ 8.07 $ 7.97 $ 7.61
=========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.63% 8.66% 7.99% 6.82% 10.69% (4.61)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 104,543 $ 106,328 $ 101,018 $ 108,163 $ 112,421 $ 115,133
Ratio of expenses to average
net assets ....................... 0.83%(3) 0.80% 0.84% 0.80% 0.88% 0.83%
Ratio of net income to
average net assets ............... 4.53%(3) 4.74% 5.04% 5.15% 5.38% 5.12%
Portfolio turnover rate ............ 1.50% 16.63% -- 20.66% 4.13% 1.81%
<CAPTION>
PENNSYLVANIA FUND
CLASS D
----------------------------------------------------------------------------------------
Six Months Year ended September 30,
---------- ----------------------------------------------------------------------------
ended
-----
March 31,
--------- 2/1/94(1)
1999 1998 1997 1996 1995 to 9/30/94
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ 8.23 $ 7.95 $ 7.81 $ 7.78 $ 7.54 $ 8.37
---------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.14 0.29 0.30 0.32 0.31 0.22
Net gains or losses on securities
(both realized and unrealized) . (0.11) 0.36 0.24 0.12 0.37 (0.83)
---------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.03 0.65 0.54 0.44 0.68 (0.61)
---------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.14) (0.29) (0.30) (0.32) (0.31) (0.22)
Distributions (from capital gains).. (0.15) (0.08) (0.10) (0.09) (0.13) --
---------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.29) (0.37) (0.40) (0.41) (0.44) (0.22)
---------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... 7.97 $ 8.23 $ 7.95 $ 7.81 $ 7.78 $ 7.54
========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.30% 8.36% 7.07% 5.76% 9.53% (7.50)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... 937 $ 607 $ 816 $ 876 $ 426 $ 43
Ratio of expenses to average
net assets ....................... 1.98%(3) 1.97% 1.96% 1.88% 2.23% 2.00%(3)
Ratio of net income to
average net assets ............... 3.39%(3) 3.56% 3.83% 4.05% 4.10% 4.20%(3)
Portfolio turnover rate ............ 3.19% 13.05% 32.99% 4.56% 11.78% 7.71%(4)
<CAPTION>
SOUTH CAROLINA FUND
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning
of period ........................ 8.38 $ 8.16 $ 8.06 $ 7.97 $ 7.61 $ 8.42
---------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............ 0.15 0.31 0.33 0.34 0.34 0.22
Net gains or losses on securities
(both realized and unrealized) . (0.13) 0.29 0.23 0.11 0.37 (0.81)
---------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.02 0.60 0.56 0.45 0.71 (0.59)
---------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends (from net
investment income) ............. (0.15) (0.31) (0.33) (0.34) (0.34) (0.22)
Distributions (from capital gains).. (0.07) (0.07) (0.13) (0.02) (0.01) --
---------- ----------- ----------- ----------- ----------- -----------
Total distributions ................ (0.22) (0.38) (0.46) (0.36) (0.35) (0.22)
---------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..... 8.18 $ 8.38 $ 8.16 $ 8.06 $ 7.97 $ 7.61
========== =========== =========== =========== =========== ===========
Total Return: ...................... 0.18% 7.68% 7.15% 5.73% 9.63% (7.14)%(2)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... 6,481 $ 5,594 $ 3,663 $ 2,714 $ 1,704 $ 1,478
Ratio of expenses to average
net assets ....................... 1.73%(3) 1.71% 1.75% 1.70% 1.85% 1.74%(3)
Ratio of net income to
average net assets ............... 3.63%(3) 3.83% 4.13% 4.25% 4.40% 4.29%(3)
Portfolio turnover rate ............ 1.50% 16.63% -- 20.66% 4.13% 1.81%(4)
</TABLE>
- ----------
* Per share amounts are based on average shares outstanding.
** For periods prior to 1996 (1997 for the Florida Fund and the North
Carolina Fund), Seligman voluntarily waived a portion of its management
fee. These amounts reflect the effect of the waivers.
(1) Commencement of offering of Class D shares.
(2) Not annualized.
(3) Annualized.
(4) For the year ended September 30, 1994.
60
<PAGE>
How to Contact Us
The Fund Write: Corporate Communications/
Investor Relations Department
J. & W. Seligman & Co. Incorporated
100 Park Avenue, New York, NY 10017
Phone: Toll-Free (800) 221-7844 in the US or
(212) 850-1864 outside the US
Website: http://www.seligman.com
Your Regular
(Non-Retirement)
Account Write: Shareholder Services Department
Seligman Data Corp.
100 Park Avenue, New York, NY 10017
Phone: Toll-Free (800) 221-2450 in the US or
(212) 682-7600 outside the US
Website: http://www.seligman.com
- --------------------------------------------------------------------------------
24-hour telephone access is available by dialing (800) 622-4597 on a touchtone
telephone. You will have instant access to price, yield, account balance, most
recent transaction, and other information.
- --------------------------------------------------------------------------------
<PAGE>
For More Information
- --------------------------------------------------------------------------------
The following information is available without charge upon request: Call
toll-free (800) 221-2450 in the US or (212) 682-7600 outside the US.
Statement of Additional Information (SAI) contains additional information about
the Fund. It is on file with the Securities and Exchange Commission (SEC) and is
incorporated by reference into (is legally part of) this prospectus.
Annual/Semi-Annual Reports contain additional information about the Fund's
investments. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
- --------------------------------------------------------------------------------
SELIGMAN ADVISORS, INC.
an affiliate of
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
Information about the Fund, including the SAI, can be viewed and copied at the
SEC's Public Reference Room in Washington, DC. For information about the
operation of the Public Reference Room, call (800) SEC-0330. The SAI,
Annual/Semi-Annual reports and other information about the Fund are also
available on the SEC's Internet site: http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing: Public Reference Section of the SEC, Washington, DC 20549-6009.
SEC FILE NUMBERS: Seligman Municipal Fund Series, Inc.: 811-3828
Seligman Municipal Series Trust: 811-4250
Seligman New Jersey Municipal Fund, Inc.: 811-5126
Seligman Pennsylvania Municipal Fund Series: 811-4666
<PAGE>
SELIGMAN MUNICIPAL SERIES TRUST
Seligman California Municipal High-Yield Series
Seligman California Municipal Quality Series
Statement of Additional Information
June 1, 1999
100 Park Avenue
New York, New York 10017
(212) 850-1864
Toll Free Telephone: (800) 221-2450
This Statement of Additional Information (SAI) expands upon and supplements the
information contained in the current Prospectus of Seligman Municipal Funds,
dated June 1, 1999. This SAI, although not in itself a prospectus, is
incorporated by reference into the Prospectus in its entirety. It should be read
in conjunction with the Prospectus, which may be obtained by writing or calling
the Funds at the above address or telephone numbers.
The financial statements and notes included in the Funds' Annual Report and
Mid-Year Report, and the Independent Auditors' Reports thereon, are incorporated
herein by reference. The Annual Report and Mid-Year Report will be furnished to
you without charge if you request a copy of this SAI.
Table of Contents
Fund History .............................................................. 2
Description of the Funds and Their Investments and Risks .................. 2
Management of the Funds ................................................... 8
Control Persons and Principal Holders of Securities ....................... 13
Investment Advisory and Other Services .................................... 13
Brokerage Allocation and Other Practices .................................. 19
Shares of Beneficial Interest and Other Securities ........................ 20
Purchase, Redemption, and Pricing of Shares ............................... 20
Taxation of the Funds ..................................................... 25
Underwriters .............................................................. 27
Calculation of Performance Data ........................................... 29
Financial Statements ...................................................... 31
General Information ....................................................... 31
Appendix A ................................................................ 34
Appendix B ................................................................ 37
Appendix C ................................................................ 47
<PAGE>
Fund History
Seligman Municipal Series Trust was organized as an unincorporated business
trust under the laws of the Commonwealth of Massachusetts by a Declaration of
Trust dated July 27, 1984.
Description of the Funds and Their Investments and Risks
Classification
Seligman Municipal Series Trust is a non-diversified, open-end management
investment company, or mutual fund. It consists of four separate series, two of
which are discussed in this SAI:
Seligman California Municipal High-Yield Series (High-Yield Fund)
Seligman California Municipal Quality Series (Quality Fund)
Seligman Florida Municipal Series
Seligman North Carolina Municipal Series
Investment Strategies and Risks
The following information regarding the Funds' investments and risks supplements
the information contained in the Prospectus.
The Funds seek to provide income exempt from regular federal income taxes and
the personal income taxes of California consistent with the preservation of
capital and with consideration given to opportunities for capital gain.
The High-Yield Fund is expected to invest principally, without percentage
limitations, in municipal securities which on the date of purchase are rated
within any rating category of Moody's Investors Service (Moody's) or Standard &
Poor's Corporation (S&P), including securities rated below investment grade or
securities that are not rated. The securities in which the High-Yield Fund
invests generally involve greater volatility of price and risk of loss of
principal and income than securities in higher rated categories.
Although securities rated in the fourth rating category are commonly referred to
as investment grade, investment in such securities could involve risks not
usually associated with bonds rated in the first three categories. Bonds rated
BBB by S&P are more likely as a result of adverse economic conditions or
changing circumstance to exhibit a weakened capacity to pay interest and re-pay
principal than bonds in higher rating categories and bonds rated Baa by Moody's
lack outstanding investment characteristics and in fact have speculative
characteristics according to Moody's. Municipal securities in the fourth rating
category of S&P or Moody's will generally provide a higher yield than do higher
rated municipal securities of similar maturities; however, they are subject to a
greater degree of fluctuation in value as a result of changing interest rates
and economic conditions. The market value of the municipal securities will also
be affected by the degree of interest of dealers to bid for them, and in certain
markets dealers may be more unwilling to trade municipal securities rated in the
fourth rating categories than in the higher rating categories.
The Quality Fund is expected to invest, without limitations, in municipal
securities which on the date of purchase are rated within the three highest
rating categories of Moody's or S&P.
Each Fund may invest in municipal securities that are not rated, or which do not
fall into the credit ratings noted above if, based upon credit analysis, it is
believed that such securities are of comparable quality. In determining
suitability of investment in a lower rated or unrated security, a Fund will take
into consideration asset and debt service coverage, the purpose of the
financing, history of the issuer, existence of other rated securities of the
issuer and other considerations as may be relevant, including comparability to
other issuers.
A description of the credit rating categories is contained in Appendix A to this
SAI.
2
<PAGE>
California Municipal Securities. California Municipal Securities notes, bonds,
and commercial paper issued by or on behalf of the State of California, its
political subdivisions, agencies, and instrumentalities, the interest on which
is exempt from regular federal income taxes and California state personal income
taxes. Municipal securities are traded primarily in an over-the-counter market.
Each may invest, without percentage limitations, in certain private activity
bonds, the interest on which is treated as a preference item for purposes of the
alternative minimum tax.
Under the Investment Company Act of 1940, as amended (1940 Act), the
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision is regarded
as the sole issuer. Similarly, in the case of an industrial development revenue
bond or pollution control revenue bond, if only the assets and revenues of the
non-governmental user back the bond, the non-governmental user is regarded as
the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the security is treated as an issue of such guarantor
to the extent of the value of the guarantee.
The Funds invest principally in long-term municipal bonds. Municipal bonds are
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets, water and sewer
works, and gas and electric utilities. Municipal bonds also may be issued in
connection with the refunding of outstanding obligations, obtaining funds to
lend to other public institutions, and for general operating expenses.
Industrial development bonds are issued by or on behalf of public authorities to
obtain funds to provide various privately-operated facilities for business and
manufacturing, housing, sports, pollution control, and for airport, mass
transit, port and parking facilities.
The two principal classifications of municipal bonds are "general obligation"
and "revenue." General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source. Although industrial
development bonds (IDBs) are issued by municipal authorities, they are generally
secured by the revenues derived from payments of the industrial user. The
payment of principal and interest on IDBs is dependent solely on the ability of
the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Each Fund, with respect to 75% of its assets, will not purchase any revenue
bonds if as a result of such purchase more than 5% of such Fund's assets would
be invested in the revenue bonds of a single issuer.
The Funds may also invest in municipal notes. Municipal notes generally are used
to provide for short-term capital needs and generally have maturities of five
years or less. Municipal Notes include:
1. Tax Anticipation Notes and Revenue Anticipation Notes. Tax anticipation
notes and revenue anticipation notes are issued to finance short-term working
capital needs of political subdivisions. Generally, tax anticipation notes are
issued in anticipation of various tax revenues, such as income, sales and real
property taxes, and are payable from these specific future taxes. Revenue
anticipation notes are issued in expectation of receipt of other kinds of
revenue, such as grant or project revenues. Usually political subdivisions issue
notes combining the qualities of both tax and revenue anticipation notes.
2. Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the notes.
Issues of municipal Commercial Paper typically represent short-term, unsecured,
negotiable promissory notes. In most cases, municipal commercial paper is backed
by letters of credit, lending agreements, note repurchase agreements or other
credit facility agreements offered by banks or other institutions.
3
<PAGE>
Variable and Floating Rate Securities. A Fund may purchase floating or variable
rate securities, including participation interests therein. Investments in
floating or variable rate securities provide that the rate of interest is either
pegged to money market rates or set as a specific percentage of a designated
base rate, such as rates on Treasury Bonds or Treasury Bills or the prime rate
of a major commercial bank. A floating rate or variable rate security generally
provides that a Fund can demand payment of the obligation on short notice (daily
or weekly, depending on the terms of the obligation) at an amount equal to par
(face value) plus accrued interest. In unusual circumstances, the amount
received may be more or less than the amount the Fund paid for the securities.
Variable rate securities provide for a specified periodic adjustment in the
interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
Frequently such securities are secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying creditor
or of the bank or issuer, as the case may be, must be equivalent to the
standards set forth with respect to taxable investments below.
The maturity of variable or floating rate obligations (including participation
interests therein) is deemed to be the longer of (1) the notice period required
before a Fund is entitled to receive payment of the obligation upon demand, or
(2) the period remaining until the obligation's next interest rate adjustment.
If the Fund does not redeem the obligation through the demand feature, the
obligation will mature on a specific date, which may range up to thirty years
from the date of its issuance.
Participation Interests. From time to time, a Fund may purchase from banks,
participation interests in all or part of specific holdings of municipal
securities. A participation interest gives the Fund an undivided interest in the
municipal security in the proportion that the Fund's participation interest
bears to the total principal amount of the municipal security and provides the
demand repurchase feature described above. Participations are frequently backed
by an irrevocable letter of credit or guarantee of a bank that the Fund has
determined meets its prescribed quality standards. A Fund has the right to sell
the instrument back to the bank and draw on the letter of credit on demand, on
short notice, for all or any part of the Fund's participation interest in the
municipal security, plus accrued interest. Each Fund intends to exercise the
demand under the letter of credit only (1) upon a default under the terms of the
documents of the municipal security, (2) as needed to provide liquidity in order
to meet redemptions, or (3) to maintain a high quality investment portfolio.
Banks will retain a service and letter of credit fee and a fee for issuing
repurchase commitments in an amount equal to the excess of the interest paid on
the municipal securities over the negotiated yield at which the instruments are
purchased by a Fund. Participation interests will be purchased only if, in the
opinion of counsel, interest income on such interests will be tax-exempt when
distributed as dividends to shareholders of the Fund. The Funds currently do not
purchase participation interests and have no current intention of doing so.
When-Issued Securities. Each Fund may purchase municipal securities on a
"when-issued" basis, which means that delivery of and payment for securities
normally take place in less than 45 days after the date of the buyer's purchase
commitment. The payment obligation and the interest rate on when-issued
securities are each fixed at the time the purchase commitment is made, although
no interest accrues to a purchaser prior to the settlement of the purchase of
the securities. As a result, the yields obtained and the market value of such
securities may be higher or lower on the date the securities are actually
delivered to the buyer. A Fund will generally purchase a municipal security sold
on a when-issued basis with the intention of actually acquiring the securities
on the settlement date.
A separate account consisting of cash or high-grade liquid debt securities equal
to the amount of outstanding purchase commitments is established with the Fund's
custodian in connection with any purchase of when-issued securities. The account
is marked to market daily, with additional cash or liquid high-grade debt
securities added when necessary. A Fund meets in respective obligation to
purchase when-issued securities from outstanding cash balances, sale of other
securities or, although it would not normally expect to do so, form the sale of
the when-issued securities themselves (which may have a market value greater or
lesser than the Fund's payment obligations).
Municipal securities purchased on a when-issued basis and the other securities
held in each Fund are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer
4
<PAGE>
and changes, real or anticipated, in the level of interest rates (which will
generally result in similar changes in value, i.e., both experiencing
appreciation when interest rates decline and depreciation when interest rates
rise). Therefore, to the extent a Fund remains substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a greater possibility that the market value of the Fund's assets will
vary. Purchasing a municipal security on a when-issued basis can involve a risk
that the yields available in the market when the delivery takes place may be
higher than those obtained on the security purchased on a when-issued basis.
Standby Commitments. The Funds are authorized to acquire standby commitments
issued by banks with respect to securities they hold, although the Funds have no
present intention of investing any assets in standby commitments. These
commitments would obligate the seller of the standby commitment to repurchase,
at a Fund's option, specified securities at a specified price.
The price which a Fund would pay for municipal securities with standby
commitments generally would be higher than the price which otherwise would be
paid for the municipal securities alone, and the Fund would use standby
commitments solely to facilitate portfolio liquidity. The standby commitment
generally is for a shorter term than the maturity of the security and does not
restrict in any way the Fund's right to dispose of or retain the security. There
is a risk that the seller of a standby commitment may not be able to repurchase
the security upon the exercise of the right to resell by the Fund. To minimize
such risks, each Fund is presently authorized to acquire standby commitments
solely from banks deemed creditworthy. The Board of Trustees may, in the future,
consider whether the Funds should be permitted to acquire standby commitments
from dealers. Prior to investing in standby commitments of dealers, a Fund, if
it deems necessary based upon the advice of counsel, will apply to the
Securities and Exchange Commission for an exemptive order relating to such
commitments and the valuation thereof. There can be no assurance that the
Securities and Exchange Commission will issue such an order.
Standby commitments with respect to portfolio securities of a Fund with
maturities of less than 60 days which are separate from the underlying portfolio
securities are not assigned a value. The cost of any such standby commitments is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. Standby commitments with respect to portfolio securities of a Fund with
maturities of 60 days or more which are separate from the underlying portfolio
securities are valued at fair value as determined in accordance with procedures
established by the Board of Trustees. The Board of Trustees would, in connection
with the determination of value of such a standby commitment, consider, among
other factors, the creditworthiness of the writer of the standby commitment, the
duration of the standby commitment, the dates on which or the periods during
which the standby commitment may be exercised and the applicable rules and
regulations of the Securities and Exchange Commission.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities, including restricted securities (i.e., securities not readily
marketable without registration under the Securities Act of 1933 (1933 Act)) and
other securities that are not readily marketable. The Fund may purchase
restricted securities that can be offered and sold to "qualified institutional
buyers" under Rule 144A of the 1933 Act, and the Fund's Board of Trustees, may
determine, when appropriate, that specific Rule 144A securities are liquid and
not subject to the 15% limitation on illiquid securities. Should the Board of
Trustees make this determination, it will carefully monitor the security
(focusing on such factors, among others, as trading activity and availability of
information) to determine that the Rule 144A security continues to be liquid. It
is not possible to predict with assurance exactly how the market for Rule 144A
securities will further evolve. This investment practice could have the effect
of increasing the level of illiquidity in the Fund, if and to the extent that
qualified institutional buyers become for a time uninterested in purchasing Rule
144A securities.
Borrowing. Each Fund may borrow money only from banks and only for temporary or
emergency purposes (but not for the purchase of portfolio securities) in an
amount not in excess of 10% of the value of its total assets at the time the
borrowing is made (not including the amount borrowed). Permitted borrowings may
be secured or unsecured. The Fund will not purchase additional portfolio
securities if the Fund has outstanding borrowings in excess of 5% of the value
of its total assets.
5
<PAGE>
Taxable Investments. Under normal market conditions, each Fund will attempt to
invest 100% and as a matter of fundamental policy will invest at least 80% of
the value of its net assets in securities the interest on which is exempt from
regular federal income tax and California personal income tax. Such interest,
however, may be subject to the federal alternative minimum tax.
Under normal market conditions, temporary investments in taxable securities will
be limited as a matter of fundamental policy to 20% of the value of a Fund's net
assets.
Except as otherwise specifically noted above, the Funds' investment strategies
are not fundamental and a Fund, with the approval of the Board of Trustees, may
change such strategies without the vote of shareholders.
Fund Policies
Each Fund is subject to fundamental policies that place restrictions on certain
types of investments. These policies cannot be changed except by vote of a
majority of the outstanding voting securities of a Fund. Under these policies, a
Fund may not:
- - Borrow money, except from banks for temporary purposes (such as meeting
redemption requests or for extraordinary or emergency purposes but not for
the purchase of portfolio securities) in an amount not to exceed 10% of the
value of its total assets at the time the borrowing is made (not including
the amount borrowed). A Fund will not purchase additional portfolio
securities if such Fund has outstanding borrowings in excess of 5% of the
value of its total assets;
- - Mortgage or pledge any of its assets, except to secure permitted borrowings
noted above;
- - Invest more than 25% of total assets at market value in any one industry;
except that municipal securities and securities of the US Government, its
agencies and instrumentality's are not considered an industry for purposes
of this limitation;
- - As to 50% of the value of its total assets, purchase securities of any
issuer if immediately thereafter more than 5% of total assets at market
value would be invested in the securities of any issuer (except that this
limitation does not apply to obligations issued or guaranteed as to
principal and interest by the US Government or its agencies or
instrumentality's);
- - Invest in securities issued by other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization or
for the purpose of hedging the Fund's obligations under the Deferred
Compensation Plan for Directors;
- - Purchase or hold any real estate, except that the Fund may invest in
securities secured by real estate or interests therein or issued by persons
(other than real estate investment trusts) which deal in real estate or
interests therein;
- - Purchase or hold the securities of any issuer, if to its knowledge,
trustees or officers of the Fund individually owning beneficially more than
0.5% of the securities of that issuer own in the aggregate more than 5% of
such securities;
- - Write or purchase put, call, straddle or spread options; purchase
securities on margin or sell "short"; or underwrite the securities of other
issuers, except that the Fund may be deemed an underwriter in connection
with the purchase and sale of portfolio securities;
- - Purchase or sell commodities or commodity contracts including futures
contracts; or
- - Make loans, except to the extent that the purchase of notes, bonds or other
evidences of indebtedness or deposits with banks may be considered loans.
A Fund also may not change its investment objective without shareholder
approval.
6
<PAGE>
Under the 1940 Act, a "vote of a majority of the outstanding voting securities"
of a Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or (2) 67% or more of the shares of the Fund
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
Temporary Defensive Position
In abnormal market conditions, if, in the judgment of a Fund, municipal
securities satisfying a Fund's investment objectives may not be purchased, a
Fund may, for defensive purposes, temporarily invest in instruments the interest
on which is exempt from regular federal income taxes, but not state personal
income taxes. Such securities would include those described under "California
Municipal Securities" above that would otherwise meet the Fund's objectives.
Also, in abnormal market conditions, a Fund may invest on a temporary basis in
fixed-income securities, the interest on which is subject to federal, state, or
local income taxes, pending the investment or reinvestment in municipal
securities of the proceeds of sales of shares or sales of portfolio securities,
in order to avoid the necessity of liquidating portfolio investments to meet
redemptions of shares by investors or where market conditions due to rising
interest rates or other adverse factors warrant temporary investing for
defensive purposes. Investments in taxable securities will be substantially in
securities issued or guaranteed by the United States Government (such as
Treasury Bills, notes and bonds), its agencies, instrumentalities or
authorities; highly-rated corporate debt securities (rated Aa3 or better by
Moody's or AA- or better by S&P); prime commercial paper (rated P-1 by Moody's
or A-1+/A-1 by S&P); and certificates of deposit of the 100 largest domestic
banks in terms of assets which are subject to regulatory supervision by the US
Government or state governments and the 50 largest foreign banks in terms of
assets with branches or agencies in the United States. Investments in
certificates of deposit of foreign banks and foreign branches of US banks may
involve certain risks, including different regulation, use of different
accounting procedures, political or other economic developments, exchange
controls, or possible seizure or nationalization of foreign deposits.
Portfolio Turnover
Portfolio transactions will be undertaken principally to accomplish a Fund's
objective in relation to anticipated movements in the general level of interest
rates but a Fund may also engage in short-term trading consistent with its
objective. Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what the
investment manager believes to be a temporary disparity in the normal yield
relationship between the two securities.
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned during the year.
Securities whose maturity or expiration date at the time of acquisition were one
year or less are excluded from the calculation. The portfolio turnover rates for
the High-Yield Fund for the fiscal years ended September 30, 1998 and 1997 were
10.75% and 22.42%, respectively. The portfolio turnover rates for the Quality
Fund for the fiscal years ended September 30, 1998 and 1997 were 30.82% and
12.16%, respectively. The fluctuation in portfolio turnover rates of each Fund
resulted from conditions in the California municipal market. A Fund's portfolio
turnover rate will not be a limiting factor when the Fund deems it desirable to
sell or purchase securities.
7
<PAGE>
Management of the Funds
Board of Trustees
The Board of Trustees provides broad supervision over the affairs of the Funds.
Management Information
Trustees and officers of the Funds, together with information as to their
principal business occupations during the past five years, are shown below. Each
Trustee who is an "interested person" of the Funds, as defined in the 1940 Act,
is indicated by an asterisk. Unless otherwise indicated, their addresses are 100
Park Avenue, New York, NY 10017.
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
William C. Morris* Trustee, Chairman of the Chairman, J. & W. Seligman & Co. Incorporated,
(61) Board, Chief Executive Chairman and Chief Executive Officer, the Seligman
Officer and Chairman of the Group of investment companies; Chairman, Seligman
Executive Committee Advisors, Inc, Seligman Services, Inc., and Carbo
Ceramics Inc., ceramic proppants for oil and gas
industry; and Director, Seligman Data Corp.,
Kerr-McGee Corporation, diversified energy company.
Formerly, Director, Daniel Industries Inc.,
manufacturer of oil and gas metering equipment.
Brian T. Zino* Trustee, President and Member Director and President, J. & W. Seligman & Co.
(46) of the Executive Committee Incorporated; President (with the exception of
Seligman Quality Municipal Fund, Inc. and Seligman
Select Municipal Fund, Inc.) and Director or Trustee,
the Seligman Group of investment companies; Chairman,
Seligman Data Corp.; Member of the Board of Governors
of the Investment Company Institute and Director, ICI
Mutual Insurance Company, Seligman Advisors, Inc.,
and Seligman Services, Inc.
Richard R. Schmaltz* Trustee and Member of the Director and Managing Director, Director of
(58) Executive Committee Investments, J. & W. Seligman & Co. Incorporated;
Director or Trustee, the Seligman Group of investment
companies (except Seligman Cash Management Fund, Inc.);
Director, Seligman Henderson Co., and Trustee Emeritus
of Colby College. Formerly, Director, Investment
Research at Neuberger & Berman from May 1993 to
September 1996.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
John R. Galvin Trustee Dean, Fletcher School of Law and Diplomacy at Tufts
(69) University; Director or Trustee, the Seligman Group
Tufts University of investment companies; Chairman Emeritus, American
Packard Avenue, Council on Germany; Governor of the Center for
Medford, MA 02155 Creative Leadership; Director, Raytheon Co.,
electronics; National Defense University; and the
Institute for Defense Analysis. Formerly, Director,
USLIFE Corporation, life insurance; Ambassador, U.S.
State Department for negotiations in Bosnia;
Distinguished Policy Analyst at Ohio State University
and Olin Distinguished Professor of National Security
Studies at the United States Military Academy. From
June, 1987 to June, 1992, he was the Supreme Allied
Commander, Europe and the Commander-in-Chief, United
States European Command.
Alice S. Ilchman Trustee Retired President, Sarah Lawrence College; Director
(64) or Trustee, the Seligman Group of investment
18 Highland Circle companies; Trustee, the Committee for Economic
Bronxville, NY 10708 Development; and Chairman, The Rockefeller
Foundation, charitable foundation. Formerly, Trustee,
The Markle Foundation, philanthropic organization; and
Director, New York Telephone Company and International
Research and Exchange Board, intellectual exchanges.
Frank A. McPherson Trustee Retired Chairman and Chief Executive Officer of
(66) Kerr-McGee Corporation; Director or Trustee, the
2601 Northwest Expressway, Seligman Group of investment companies; Director,
Suite 805E Kimberly-Clark Corporation, consumer products; Bank
Oklahoma City, OK 73112 of Oklahoma Holding Company; Baptist Medical Center;
Oklahoma Chapter of the Nature Conservancy; Oklahoma
Medical Research Foundation; and National Boys and
Girls Clubs of America; and Member of the Business
Roundtable and National Petroleum Council. Formerly,
Chairman, Oklahoma City Public Schools Foundation;
and Director, Federal Reserve System's Kansas City
Reserve Bank and the Oklahoma City Chamber of
Commerce.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
John E. Merow Trustee Retired Chairman and Senior Partner, Sullivan &
(69) Cromwell, law firm; Director or Trustee, the Seligman
125 Broad Street, Group of investment companies; Director, Commonwealth
New York, NY 10004 Industries, Inc., manufacturers of aluminum sheet
products; the Foreign Policy Association; Municipal Art
Society of New York; the U.S. Council for International
Business; and New York Presbyterian Hospital; Chairman,
American Australian Association; and New York
Presbyterian Healthcare Network, Inc.; Vice-Chairman,
the U.S.-New Zealand Council; and Member of the
American Law Institute and Council on Foreign
Relations.
Betsy S. Michel Trustee Attorney; Director or Trustee, the Seligman Group of
(56) investment companies; Trustee, The Geraldine R. Dodge
P.O. Box 449 Foundation, charitable foundation; and Chairman of
Gladstone, NJ 07934 the Board of Trustees of St. George's School
(Newport, RI). Formerly, Director, the National
Association of Independent Schools (Washington, DC).
James C. Pitney Trustee Retired Partner, Pitney, Hardin, Kipp & Szuch, law
(72) firm; Director or Trustee, the Seligman Group of
Park Avenue at Morris County, investment companies. Formerly, Director, Public
P.O. Box 1945, Morristown, NJ Service Enterprise Group, public utility.
07962
James Q. Riordan Trustee Director or Trustee, the Seligman Group of investment
(71) companies; Director, The Houston Exploration Company;
675 Third Avenue, The Brooklyn Museum, KeySpan Energy Corporation; and
Suite 3004 Public Broadcasting Service; and Trustee, the
New York, NY 10017 Committee for Economic Development. Formerly,
Co-Chairman of the Policy Council of the Tax
Foundation; Director, Tesoro Petroleum Companies,
Inc. and Dow Jones & Company, Inc.; Director and
President, Bekaert Corporation; and Co-Chairman,
Mobil Corporation.
Robert L. Shafer Trustee Retired Vice President, Pfizer Inc.; Director or
(66) Trustee, the Seligman Group of investment companies.
96 Evergreen Avenue, Formerly, Director, USLIFE Corporation.
Rye, NY 10580
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
James N. Whitson Trustee Director and Consultant, Sammons Enterprises, Inc.;
(64) Director or Trustee, the Seligman Group of investment
6606 Forestshire Drive companies; Director, C-SPAN and CommScope, Inc.,
Dallas, TX 75230 manufacturer of coaxial cables. Formerly, Executive
Vice President, Chief Operating Officer, Sammons
Enterprises, Inc.; and Director, Red Man Pipe and
Supply Company, piping and other materials.
Thomas G. Moles Vice President and Senior Director and Managing Director, J. & W. Seligman &
(56) Portfolio Manager Co. Incorporated; Vice President and Senior Portfolio
Manager, three other open-end investment companies in
the Seligman Group of investment companies; President
and Senior Portfolio Manager, Seligman Quality
Municipal Fund, Inc. and Seligman Select Municipal
Fund, Inc., closed-end investment companies; and
Director, Seligman Advisors, Inc. and Seligman
Services, Inc.
Lawrence P. Vogel Vice President Senior Vice President, Finance, J. & W. Seligman &
(42) Co. Incorporated, Seligman Advisors, Inc., and
Seligman Data Corp.; Vice President, the Seligman Group
of investment companies and Seligman Services, Inc.;
and Vice President and Treasurer, Seligman
International, Inc.; and Treasurer, Seligman Henderson
Co.
Frank J. Nasta Secretary General Counsel, Senior Vice President, Law and
(34) Regulation and Corporate Secretary, J. & W. Seligman
& Co. Incorporated; Secretary, the Seligman Group of
investment companies, Seligman Advisors, Inc.,
Seligman Henderson Co., Seligman Services, Inc.,
Seligman International, Inc. and Seligman Data Corp.
Thomas G. Rose Treasurer Treasurer, the Seligman Group of investment companies
(41) and Seligman Data Corp.
</TABLE>
The Executive Committee of the Board acts on behalf of the Board between
meetings to determine the value of securities and assets owned by the Funds for
which no market valuation is available, and to elect or appoint officers of the
Funds to serve until the next meeting of the Board.
Trustees and officers of the Funds are also directors and officers of some or
all of the other investment companies in the Seligman Group.
11
<PAGE>
Compensation
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits from Funds and
Name and Compensation Accrued as Part of Fund Complex Paid
Position with Funds from Funds (1) Fund Expenses to Trustees (1)(2)
------------------- -------------- ------------- ------------------
<S> <C> <C> <C>
William C. Morris, Trustee and Chairman N/A N/A N/A
Brian T. Zino, Trustee and President N/A N/A N/A
Richard R. Schmaltz, Trustee N/A N/A N/A
John R. Galvin, Trustee $1,292 N/A $77,000
Alice S. Ilchman, Trustee 1,148 N/A 70,000
Frank A. McPherson, Trustee 1,249 N/A 75,000
John E. Merow, Trustee 1,230 N/A 74,000
Betsy S. Michel, Trustee 1,292 N/A 77,000
James C. Pitney, Trustee 1,189 N/A 72,000
James Q. Riordan, Trustee 1,189 N/A 72,000
Robert L. Shafer, Trustee 1,189 N/A 72,000
James N. Whitson, Trustee 1,292(d) N/A 77,000(d)
</TABLE>
(1) For the Funds' fiscal year ended September 30, 1998. Effective January 16,
1998, the per meeting fee for Trustees was increased by $1,000, which is
allocated among all funds in the Fund Complex.
(2) The Seligman Group of investment companies consists of eighteen investment
companies.
(d) Deferred.
Seligman Municipal Series Trust has a compensation arrangement under which
outside trustees may elect to defer receiving their fees. Seligman Municipal
Series Trust has adopted a Deferred Compensation Plan under which a trustee who
has elected deferral of his or her fees may choose a rate of return equal to
either (1) the interest rate on short-term Treasury Bills, or (2) the rate of
return on the shares of any of the investment companies advised by J. & W.
Seligman & Co. Incorporated, as designated by the trustee. The cost of such fees
and earnings is included in trustees' fees and expenses, and the accumulated
balance thereof is included in other liabilities in the Funds' financial
statements. The total amount of deferred compensation (including earnings)
payable in respect of the Funds to Mr. Whitson as of September 30, 1998 was
$10,127.
Messrs. Merow and Pitney no longer defer current compensation; however, they
have accrued deferred compensation in the amounts of $22,637 and $16,572,
respectively, as of September 30, 1998.
Each Fund may, but is not obligated to, purchase shares of the Seligman Group of
investment companies to hedge its obligations in connection with the Deferred
Compensation Plan.
Sales Charges
Class A shares of the Funds may be issued without a sales charge to present and
retired directors, trustees, officers, employees (and their family members) of
the Funds, the other investment companies in the Seligman Group, and J. & W.
Seligman & Co. Incorporated and its affiliates. Family members are defined to
include lineal descendents and lineal ancestors, siblings (and their spouses and
children) and any company or organization controlled by any of the foregoing.
Such sales also may be made to employee benefit plans for such persons and to
any investment advisory, custodial, trust or other fiduciary account managed or
advised by J. & W. Seligman & Co. Incorporated or any affiliate. These sales may
be made for investment purposes only, and shares may be resold only to the
Funds.
Class A shares may be sold at net asset value to these persons since such sales
require less sales effort and lower sales related expenses as compared with
sales to the general public.
12
<PAGE>
Control Persons and Principal Holders of Securities
Control Persons
As of May 14, 1999, there was no person or persons who controlled any of the
Funds, either through significant ownership of Fund shares or any other means of
control.
Principal Holders
As of May 14, 1999, MLPF&S for the Sole Benefit of Its Customers, Attn Fund
Administration, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32246
owned of record 8.13% of Quality Fund's Class A shares then outstanding and
52.84% of Quality Fund's Class D shares then outstanding. As of the same date,
the same entity owned of record 6.92% of the High-Yield Fund's Class A shares
then outstanding and 25.77% of the High-Yield Fund's Class D shares then
outstanding.
As of May 14, 1999, Roy M. Adams, TTEE JW Family Trust #4 Separate, FBO J.
Gigloiotti, 153 East 53rd Street, New York, New York 10022-4675 owned of record
7.51 % of the High-Yield Fund's Class A shares then outstanding and A&D
Christopher Ranch, 305 Bloomfield Avenue, Gilroy, CA 95020 owned of record
12.44% of the High-Yield Fund's Class D shares then outstanding. As of the same
date, the following entities owned of record over 5% of the Quality Fund's Class
D shares then outstanding
6.03% BT Alex Brown Incorporated, PO Box 1346, Baltimore, MD 21203
5.57% CIBC World Markets Corp., PO Box 3484 Church Street Station
New York, New York 10008-3484
12.48% Eric Paul Shaber, 3076 Washington Street, San Francisco, CA 94115.
Management Ownership
Trustees and officers of the Funds as a group owned less than 1% of the
outstanding Class A shares of beneficial interest of the High-Yield Fund as of
May 14, 1999. As of the same date, no Trustees or officers of the Funds owned
Class A shares of beneficial interest of the Quality Fund or Class D shares of
beneficial interest of either Fund.
Investment Advisory and Other Services
Investment Manager
J. & W. Seligman & Co. Incorporated (Seligman) manages the Funds. Seligman is a
successor firm to an investment banking business founded in 1864 which has
thereafter provided investment services to individuals, families, institutions,
and corporations. On December 29, 1988, a majority of the outstanding voting
securities of Seligman was purchased by Mr. William C. Morris and a simultaneous
recapitalization of Seligman occurred. See Appendix C for further history of
Seligman.
All of the officers of the Funds listed above are officers or employees of
Seligman. Their affiliations with the Funds and with Seligman are provided under
their principal business occupations.
The Funds pay Seligman a management fee for its services, calculated daily and
payable monthly. The management fee is equal to .50% per annum of each Fund's
average daily net assets. The following chart indicates the management fees paid
by each Fund as well as the percentage such fees represents of each Fund's
average daily net assets for the fiscal years ended September 30, 1998, 1997,
and 1996.
13
<PAGE>
Percentage of
Fiscal Year Management Average Daily
Fund Ended Fee Paid ($) Net Assets (%)
- ---- ----- ------------ --------------
High-Yield Fund 9/30/98 303,287 .50
9/30/97 266,730 .50
9/30/96 252,643 .50
Quality Fund 9/30/98 442,776 .50
9/30/97 461,278 .50
9/30/96 483,123 .50
The Funds pay all of their expenses other than those assumed by Seligman,
including brokerage commissions, if any, shareholder services and distribution
fees, fees and expenses of independent attorneys and auditors, taxes and
governmental fees, including fees and expenses of qualifying the Funds and their
shares under federal and state securities laws, cost of stock certificates and
expenses of repurchase or redemption of shares, expenses of printing and
distributing reports, notices and proxy materials to shareholders, expenses of
printing and filing reports and other documents with governmental agencies,
expenses of shareholders' meetings, expenses of corporate data processing and
related services, shareholder record keeping and shareholder account services,
fees and disbursements of transfer agents and custodians, expenses of disbursing
dividends and distributions, fees and expenses of the Trustees of the Funds not
employed by or serving as a director of Seligman or its affiliates, insurance
premiums and extraordinary expenses such as litigation expenses. These expenses
are allocated between the Funds in a manner determined by the Trustees to be
fair and equitable.
The Management Agreement also provides that Seligman will not be liable to the
Funds for any error of judgment or mistake of law, or for any loss arising out
of any investment, or for any act or omission in performing its duties under the
Management Agreement, except for willful misfeasance, bad faith, gross
negligence, or reckless disregard of its obligations and duties under the
Management Agreement.
Each Fund's Management Agreement was unanimously approved by the Trustees at a
Meeting held on October 11, 1988 and was approved by the shareholders of each
Fund at a meeting held on December 15, 1988. Each Management Agreement will
continue in effect until December 31 of each year if (1) such continuance is
approved in the manner required by the 1940 Act (i.e., by a vote of a majority
of the Trustees or of the outstanding voting securities of the Fund and by a
vote of a majority of the Trustees who are not parties to the Management
Agreement or interested persons of any such party) and (2) if Seligman shall not
have notified the Series at least 60 days prior to the anniversary date of the
previous continuance that it does not desire such continuance. A Management
Agreement may be terminated by a Fund, without penalty, on 60 days' written
notice to Seligman and will terminate automatically in the event of its
assignment. Each Fund has agreed to change its name upon termination of its
Management Agreement if continued use of the name would cause confusion in the
context of Seligman's business.
Officers, directors and employees of Seligman are permitted to engage in
personal securities transactions, subject to Seligman's Code of Ethics. The Code
of Ethics proscribes certain practices with regard to personal securities
transactions and personal dealings, provides a framework for the reporting and
monitoring of personal securities transactions by Seligman's Compliance Officer,
and sets forth a procedure of identifying, for disciplinary action, those
individuals who violate the Code of Ethics. The Code of Ethics prohibits each of
the officers, directors and employees (including all portfolio managers) of
Seligman from purchasing or selling any security that the officer, director, or
employee knows or believes (1) was recommended by Seligman for purchase or sale
by any client, including the Fund, within the preceding two weeks, (2) has been
reviewed by Seligman for possible purchase or sale within the preceding two
weeks, (3) is being purchased or sold by any client, (4) is being considered by
a research analyst, (5) is being acquired in a private placement, unless prior
approval has been obtained from Seligman's Compliance Officer, or (6) is being
acquired during an initial or secondary public offering. The Code of Ethics also
imposes a strict standard of confidentiality and requires portfolio managers to
14
<PAGE>
disclose any interest they may have in the securities or issuers that they
recommend for purchase by any client.
The Code of Ethics also prohibits (1) each portfolio manager or member of an
investment team from purchasing or selling any security within seven calendar
days of the purchase or sale of the security by a client's account (including
investment company accounts) for which the portfolio manager or investment team
manages; and (2) each employee from engaging in short-term trading (a purchase
and sale or vice-versa within 60 days). Any profit realized pursuant to either
of these prohibitions must be disgorged.
Officers, directors, and employees are required, except under very limited
circumstances, to engage in personal securities transactions through Seligman's
order desk. The order desk maintains a list of securities that may not be
purchased due to a possible conflict with clients. All officers, directors and
employees are also required to disclose all securities beneficially owned by
them on December 31 of each year.
Principal Underwriter
Seligman Advisors, Inc. (Seligman Advisors), an affiliate of Seligman, 100 Park
Avenue, New York, New York 10017, acts as general distributor of the shares of
the Funds and of the other mutual funds in the Seligman Group. Seligman Advisors
is an "affiliated person" (as defined in the 1940 Act) of Seligman, which is
itself an affiliated person of the Funds. Those individuals identified above
under "Management Information" as trustees or officers of both the Funds and
Seligman Advisors are affiliated persons of both entities.
Services Provided by the Investment Manager
Under the Management Agreements, each dated December 29, 1988, subject to the
control of the Board of Trustees, Seligman manages the investment of the assets
of each Fund, including making purchases and sales of portfolio securities
consistent with each Fund's investment objectives and policies, and administers
their business and other affairs. Seligman provides the Funds with such office
space, administrative and other services and executive and other personnel as
are necessary for Fund operations. Seligman pays all of the compensation of
trustees of the Funds who are employees or consultants of Seligman and of the
officers and employees of the Funds. Seligman also provides senior management
for Seligman Data Corp., the Funds' shareholder service agent.
Service Agreements
There are no other management-related service contracts under which services are
provided to either of the Funds.
Other Investment Advice
No person or persons, other than directors, officers, or employees of Seligman,
regularly advise either Fund with respect to its investments.
Dealer Reallowances
Dealers and financial advisors receive a percentage of the initial sales charge
on sales of Class A shares and Class C shares of each Fund, as set forth below:
15
<PAGE>
Class A shares:
<TABLE>
<CAPTION>
Regular Dealer
Sales Charge Sales Charge Reallowance
as a % of as a % of Net As a % of
Amount of Purchase Offering Price(1) Amount Invested Offering Price
- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.25%
$50,000 - $ 99,999 4.00 4.17 3.50
$100,000 - $249,999 3.50 3.63 3.00
$250,000 - $499,999 2.50 2.56 2.25
$500,000 - $999,999 2.00 2.04 1.75
$1,000,000 and over(2) 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
(2) You will not pay a sales charge on purchases of $1 million or more, but you
will be subject to a 1% CDSC if you sell your shares within 18 months.
Class C shares:
<TABLE>
<CAPTION>
Regular Dealer
Sales Charge Sales Charge Reallowance
as a % of as a % of Net As a % of
Amount of Purchase Offering Price(1) Amount Invested Offering Price
- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000 1.00% 1.01% 1.00%
$100,000 - $249,999 0.50 0.50 0.50
$250,000 - $1,000,000(2) 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
(2) Your purchase of Class C shares must be for less than $1,000,000 because if
you invest $1,000,000 or more, you will pay less in fees and charges if you
buy Class A shares.
Seligman Services, Inc. (Seligman Services), an affiliate of Seligman, is a
limited purpose broker/dealer. Seligman Services is eligible to receive
commissions from certain sales of Fund shares. For the Funds' fiscal years ended
September 30, 1998, 1997, and 1996, Seligman Services received commissions in
the following amounts:
Fund Commissions Paid to Seligman Services
- ---- -------------------------------------
1998 1997 1996
---- ---- ----
High-Yield Fund $1,887 $ 495 $ 28
Quality Fund 1,346 1,571 2,241
Rule 12b-1 Plan
Seligman Municipal Series Trust has adopted an Administration, Shareholder
Services and Distribution Plan (12b-1 Plan) in accordance with Section 12(b) of
the 1940 Act and Rule 12b-1 thereunder.
Under the 12b-1 Plan, each Fund may pay to Seligman Advisors an administration,
shareholder services and distribution fee in respect of the Fund's Class A,
Class C and Class D shares. Payments under the 12b-1 Plan may include, but are
not limited to: (1) compensation to securities dealers and other organizations
(Service Organizations) for providing distribution assistance with respect to
assets invested in the Fund; (2) compensation to Service Organizations for
providing administration, accounting and other shareholder services with respect
to Fund shareholders; and (3) otherwise promoting the sale of shares of the
Fund, including paying for the preparation of advertising and sales literature
and the printing and distribution of such promotional materials and prospectuses
to prospective investors and defraying Seligman Advisors' costs incurred in
connection with its marketing efforts with respect to shares of the
16
<PAGE>
Fund. Seligman, in its sole discretion, may also make similar payments to
Seligman Advisors from its own resources, which may include the management fee
that Seligman receives from each Fund. Payments made by each Fund under its Rule
12b-1 Plan are intended to be used to encourage sales of such Fund, as well as
to discourage redemptions.
Fees paid by each Fund under its 12b-1 Plan with respect to any class of shares
may not be used to pay expenses incurred solely in respect of any other class or
any other Seligman fund. Expenses attributable to more than one class of a Fund
are allocated between the classes in accordance with a methodology approved by
the Funds' Board of Directors. Each Fund may participate in joint distribution
activities with other Seligman funds, and the expenses of such activities will
be allocated among the applicable funds based on relative sales, in accordance
with a methodology approved by the Board.
Class A
Under the 12b-1 Plan, each Fund, with respect to Class A shares, is permitted to
pay quarterly to Seligman Advisors a service fee at an annual rate of up to .25%
of the average daily net asset value of the Class A shares. These fees are used
by Seligman Advisors exclusively to make payments to Service Organizations which
have entered into agreements with Seligman Advisors. Such Service Organizations
currently receive from Seligman Advisors a continuing service fee of up to .10%
on an annual basis, payable quarterly, of the average daily net assets of Class
A shares attributable to the particular Service Organization for providing
personal service and/or maintenance of shareholder accounts. The fee payable to
Service Organizations from time to time shall, within such limits, be determined
by the Directors and may not be increased from .10% without approval of the
Directors. The Funds are not obligated to pay Seligman Advisors for any such
costs it incurs in excess of the fee described above. No expenses incurred in
one fiscal year by Seligman Advisors with respect to Class A shares of a Fund
may be paid from Class A 12b-1 fees received from that Fund in any other fiscal
year. If the 12b-1 Plan is terminated in respect of Class A shares of any Fund,
no amounts (other than amounts accrued but not yet paid) would be owed by that
Fund to Seligman Advisors with respect to Class A shares. The total amount paid
by each Fund to Seligman Advisors in respect of Class A shares for the fiscal
year ended September 30, 1998 was as follows:
Total % of Average
Fund Fees Paid Net Assets
---- --------- ----------
High-Yield Fund $50,741 .09%
Quality Fund 79,348 .09
Class C
Under the 12b-1 Plan, each Fund, with respect to Class C shares, pays monthly to
Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily
net asset value of the Class C shares. The fee is used by Seligman Advisors as
follows: During the first year following the sale of Class C shares, a
distribution fee of .75% of the average daily net assets attributable to Class C
shares is used, along with any CDSC proceeds during the first eighteen months,
to (1) reimburse Seligman Advisors for its payment at the time of sale of Class
C shares of a 1.25% sales commission to Service Organizations, and (2) pay for
other distribution expenses, including paying for the preparation of advertising
and sales literature and the printing and distribution of such promotional
materials and prospectuses to prospective investors and other marketing costs of
Seligman Advisors. In addition, during the first year following the sale of
Class C shares, a service fee of up to .25% of the average daily net assets
attributable to such Class C shares is used to reimburse Seligman Advisors for
its prepayment to Service Organizations at the time of sale of Class C shares of
a service fee of .25% of the net asset value of the Class C shares sold (for
shareholder services to be provided to Class C shareholders over the course of
the one year immediately following the sale). The payment of service fees to
Seligman Advisors is limited to amounts Seligman Advisors actually paid to
Service Organizations at the time of sale as service fees. After the initial
one-year period following a sale of Class C shares, the entire 12b-1 fee
attributable to such Class C shares is paid to Service Organizations for
providing continuing shareholder services and distribution assistance in respect
of the Funds. The Funds do not pay any 12b-1 fees in respect of Class C shares
for the fiscal year ended September 30, 1998 because no Class C shares were
issued or outstanding during such period.
17
<PAGE>
Class D
Under the 12b-1 Plan, each Fund, with respect to Class D shares, pays monthly to
Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily
net asset value of Class D shares. This fee is used by Seligman Advisors, as
follows: During the first year following the sale of Class D shares, a
distribution fee of .75% of the average daily net assets attributable to such
Class D shares is used, along with any CDSC proceeds, to (1) reimburse Seligman
Advisors for its payment at the time of sale of Class D shares of a .75% sales
commission to Service Organizations, and (2) pay for other distribution
expenses, including paying for the preparation of advertising and sales
literature and the printing and distribution of such promotional materials and
prospectuses to prospective investors and other marketing costs of Seligman
Advisors. In addition, during the first year following the sale of Class D
shares, a service fee of up to .25% of the average daily net assets attributable
to such Class D shares is used to reimburse Seligman Advisors for its prepayment
to Service Organizations at the time of sale of Class D shares of a service fee
of .25% of the net asset value of the Class D shares sold (for shareholder
services to be provided to Class D shareholders over the course of the one year
immediately following the sale). The payment of service fees to Seligman
Advisors is limited to amounts Seligman Advisors actually paid to Service
Organizations at the time of sale as service fees. After the initial one-year
period following a sale of Class D shares, the entire 12b-1 fee attributable to
such Class D shares is paid to Service Organizations for providing continuing
shareholder services and distribution assistance in respect of each Fund. The
total amount paid by each Fund in respect of Class D shares for the fiscal year
ended September 30, 1998 was equal to 1% per annum of the average daily net
assets of Class D shares, as follows:
Total
Fund Fees Paid
---- ---------
High-Yield Fund $50,584
Quality Fund 19,565
The amounts expended by Seligman Advisors in any one year with respect to Class
D shares of a Fund may exceed the 12b-1 fees paid by each Fund in that year. The
Fund's 12b-1 Plan permits expenses incurred by Seligman Advisers in respect of
Class D shares in one fiscal year to be paid from Class D 12b-1 Plan fees
received; however, in any fiscal year the Funds are not obligated to pay any
12b-1 fees in excess of the fees described above.
As of September 30, 1998 there were $18,087 and $8,119, respectively, of
unreimbursed expenses incurred in respect of the High-Yield Fund and the Quality
Fund under the 12b-1 Plan with respect to Class D shares which is equal to .28%
and .35%, respectively, of the net assets of Class D shares of the High-Yield
Fund and the Quality Fund at September 30, 1998.
If the 12b-1 Plan is terminated in respect of Class D shares of a Fund, no
amounts (other than amounts accrued but not yet paid) would be owed by that Fund
to Seligman Advisors with respect to Class D shares.
Payments made by the Funds under the 12b-1 Plan for fiscal year ended September
30, 1998, were spent on the following activities in the following amounts (no
Class C shares were outstanding during such fiscal year):
Compensation to Compensation to
Fund/Class Underwriters Broker/Dealers
---------- ------------ --------------
High-Yield Fund/A $50,741 ---
High-Yield Fund/D $21,095 $21,094
Quality/A $79,348 ---
Quality/D $5,397 $14,168
18
<PAGE>
The 12b-1 Plan was approved on July 16, 1992 by the Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Funds and who have no direct or indirect financial interest in
the operation of the 12b-1 Plan or in any agreement related to the 12b-1 Plan
(the "Qualified Trustees") and was approved by shareholders of the Funds on
November 23, 1992. The 12b-1 Plan became effective on January 1, 1993.
Amendments to the 12b-1 Plan were approved in respect of the Class D shares on
November 18, 1993 by the Trustees, including a majority of the Qualified
Trustees, and became effective with respect to the Class D shares on February 1,
1994. The 12b-1 Plan was approved in respect of Class C shares on May 20, 1999
by the Trustees, including a majority of the Qualified Trustees, and became
effective in respect of the Class C shares on June 1, 1999. The 12b-1 Plan will
continue in effect until December 31 of each year so long as such continuance is
approved annually by a majority vote of both the Trustees and the Qualified
Trustees, cast in person at a meeting called for the purpose of voting on such
approval. The 12b-1 Plan may not be amended to increase materially the amounts
payable under the terms of the 12b-1 Plan without the approval of a majority of
the outstanding voting securities of each Fund and no material amendment to the
12b-1 Plan may be made except with the approval of a majority of both the
Trustees and the Qualified Trustees in accordance with the applicable provisions
of the 1940 Act and the rules thereunder.
The 12b-1 Plan requires that the Treasurer of the Funds shall provide to the
Trustees, and the Trustees shall review at least quarterly, a written report of
the amounts expended (and purposes therefor) made under the 12b-1 Plan. Rule
12b-1 also requires that the selection and nomination of Trustees who are not
"interested persons" of the Funds be made by such disinterested Trustees.
Seligman Services acts as a broker/dealer of record for shareholder accounts
that do not have a designated financial advisor and receives compensation from
the Funds pursuant to the 12b-1 Plan for providing personal services and account
maintenance to such accounts and other distribution services. For the fiscal
years ended September 30, 1998, 1997, and 1996, Seligman Services received
distribution and service fees from the Funds pursuant to the 12b-1 Plan, as
follows:
Distribution and Service Fees Paid to
Seligman Services
-----------------
Fund 1998 1997 1996
---- ---- ---- ----
High-Yield Fund $1,597 $1,414 $1,592
Quality 2,602 2,688 2,753
Brokerage Allocation and Other Practices
Brokerage Transactions
For the fiscal years ended September 30, 1998, 1997, and 1996, no brokerage
commissions were paid by either of the Funds. When two or more of the investment
companies in the Seligman Group or other investment advisory clients of Seligman
desire to buy or sell the same security at the same time, the securities
purchased or sold are allocated by Seligman in a manner believed to be equitable
to each. There may be possible advantages or disadvantages of such transactions
with respect to price or the size of positions readily obtainable or saleable.
In over-the-counter markets, the Funds deal with responsible primary market
makers unless a more favorable execution or price is believed to be obtainable.
The Funds may buy securities from or sell securities to dealers acting as
principal, except dealers with which its directors and/or officers are
affiliated.
Commissions
For the fiscal years ended September 30, 1998, 1997, and 1996, the Funds did not
execute any portfolio transactions with, and therefore did not pay any
commissions to, any broker affiliated with either the Funds, Seligman, or
Seligman Advisors.
19
<PAGE>
Regular Broker-Dealers
During the Funds' fiscal year ended September 30, 1998, none of the Funds
acquired securities of its regular brokers or dealers (as defined in Rule 10b-1
under the 1940 Act) or of their parents.
Shares of Beneficial Interest and Other Securities
Shares of Beneficial Interest
Seligman Municipal Series Trust is authorized to issue an unlimited number of
full and fractional shares of beneficial interest, par value $.001, in separate
series. To date, four series have been authorized, the Funds being two of them.
Each Fund has three classes, designated Class A shares of beneficial interest,
Class C shares of beneficial interest, and Class D shares of beneficial
interest. Each share of a Fund's Class A, Class C, and Class D beneficial
interest is equal as to earnings, assets, and voting privileges, except that
each class bears its own separate distribution and, potentially, certain other
class expenses and has exclusive voting rights with respect to any matter to
which a separate vote of any class is required by the 1940 Act or Massachusetts
law. Seligman Municipal Series Trust has adopted a multiclass plan pursuant to
Rule 18f-3 under the 1940 Act permitting the issuance and sale of multiple
classes. In accordance with the Declaration of Trust, the Board of Trustees may
authorize the creation of additional classes of beneficial interest with such
characteristics as are permitted by the multiples plan and Rule 18f-3. The 1940
Act requires that where more than one class exists, each class must be preferred
over all other classes in respect of assets specifically allocated to such
class. All shares have noncumulative voting rights for the election of trustees.
Each outstanding share is fully paid and non-assessable, and each is freely
transferable. There are no liquidation, conversion, or preemptive rights.
Other Securities
Seligman Municipal Series Trust has no authorized securities other than its
shares of beneficial interest.
Purchase, Redemption, and Pricing of Shares
Purchase of Shares
Class A
Class A shares may be purchased at a price equal to the next determined net
asset value per share, plus an initial sales charge.
Purchases of Class A shares by a "single person" (as defined below under
"Persons Entitled to Reductions") may be eligible for the following reductions
in initial sales charges:
Volume Discounts are provided if the total amount being invested in Class A
shares of a Fund alone, or in any combination of shares of the other mutual
funds in the Seligman Group which are sold with an initial sales charge, reaches
levels indicated in the sales charge schedule set forth in the Prospectus.
The Right of Accumulation allows an investor to combine the amount being
invested in Class A shares of a Fund and shares of the other Seligman mutual
funds sold with an initial sales charge with the total net asset value of shares
of those mutual funds already owned that were sold with an initial sales charge
and the total net asset value of shares of Seligman Cash Management Fund which
were acquired through an exchange of shares of another Seligman mutual fund on
which there was an initial sales charge at the time of purchase to determine
reduced sales charges in accordance with the schedule in the prospectus. The
value of the shares owned, including the value of shares of Seligman Cash
Management Fund acquired in an exchange of shares of another Seligman mutual
fund on which there was an initial sales charge at the time of purchase will be
taken into account in orders placed through a dealer, however, only if Seligman
Advisors is notified by an investor or a dealer of the amount owned by the
investor at the time the purchase is made and is furnished sufficient
information to permit confirmation.
20
<PAGE>
A Letter of Intent allows an investor to purchase Class A shares over a 13-month
period at reduced initial sales charges in accordance with the schedule in the
Prospectus, based on the total amount of Class A shares of the Fund that the
letter states the investor intends to purchase plus the total net asset value of
shares that were sold with an initial sales charge of the other Seligman mutual
funds already owned and the total net asset value of shares of Seligman Cash
Management Fund which were acquired through an exchange of shares of another
Seligman mutual fund on which there was an initial sales charge at the time of
purchase. Reduced sales charges also may apply to purchases made within a
13-month period starting up to 90 days before the date of execution of a letter
of intent.
Persons Entitled To Reductions. Reductions in initial sales charges apply to
purchases of Class A shares by a "single person," including an individual;
members of a family unit comprising husband, wife and minor children; or a
trustee or other fiduciary purchasing for a single fiduciary account. Employee
benefit plans qualified under Section 401 of the Internal Revenue Code of 1986,
as amended, organizations tax exempt under Section 501(c)(3) or (13) of the
Internal Revenue Code, and non-qualified employee benefit plans that satisfy
uniform criteria are considered "single persons" for this purpose. The uniform
criteria are as follows:
1. Employees must authorize the employer, if requested by a Fund, to
receive in bulk and to distribute to each participant on a timely basis the Fund
Prospectus, reports, and other shareholder communications.
2. Employees participating in a plan will be expected to make regular
periodic investments (at least annually). A participant who fails to make such
investments may be dropped from the plan by the employer or the Fund 12 months
and 30 days after the last regular investment in his account. In such event, the
dropped participant would lose the discount on share purchases to which the plan
might then be entitled.
3. The employer must solicit its employees for participation in such an
employee benefit plan or authorize and assist an investment dealer in making
enrollment solicitations.
Eligible Employee Benefit Plans. The table of sales charges in the Prospectus
applies to sales to "eligible employee benefit plans," except that a Fund may
sell shares at net asset value to "eligible employee benefit plans" which have
at least (1) $500,000 invested in the Seligman Group of mutual funds or (2) 50
eligible employees to whom such plan is made available. Such sales must be made
in connection with a payroll deduction system of plan funding or other systems
acceptable to Seligman Data Corp., the Funds' shareholder service agent.
"Eligible employee benefit plan" means any plan or arrangement, whether or not
tax qualified, which provides for the purchase of Fund shares. Sales of shares
to such plans must be made in connection with a payroll deduction system of plan
funding or other system acceptable to Seligman Data Corp. Section 403(b) Plans
sponsored by public educational institutions are not eligible for net asset
value purchases based on the aggregate investment made by the plan or member of
eligible employees.
Such sales are believed to require limited sales effort and sales-related
expenses and therefore are made at net asset value. Contributions or account
information for plan participation also should be transmitted to Seligman Data
Corp. by methods which it accepts. Additional information about "eligible
employee benefit plans" is available from financial advisors or Seligman
Advisors.
Further Types of Reductions. Class A shares may also be issued without an
initial sales charge in the following instances:
(1) to any registered unit investment trust which is the issuer of periodic
payment plan certificates, the net proceeds of which are invested in Fund
shares;
(2) to separate accounts established and maintained by an insurance company
which are exempt from registration under Section 3(c)(11) of the 1940 Act;
(3) to registered representatives and employees (and their spouses and minor
children) of any dealer that has a sales agreement with Seligman Advisors;
21
<PAGE>
(4) to financial institution trust departments;
(5) to registered investment advisers exercising discretionary investment
authority with respect to the purchase of Fund shares;
(6) to accounts of financial institutions or broker/dealers that charge account
management fees, provided Seligman or one of its affiliates has entered
into an agreement with respect to such accounts;
(7) pursuant to sponsored arrangements with organizations which make
recommendations to, or permit group solicitations of, its employees,
members or participants in connection with the purchase of shares of the
Fund;
(8) to other investment companies in the Seligman Group in connection with a
deferred fee arrangement for outside directors;
(9) to certain "eligible employee benefit plans" as discussed above;
(10) to those partners and employees of outside counsel to the Fund or its
directors or trustees who regularly provide advice and services to the
Fund, to other funds managed by Seligman, or to their directors or
trustees; and
(11) in connection with sales pursuant to a 401(k) alliance program which has an
agreement with Seligman Advisors.
CDSC Applicable to Class A Shares. Class A shares purchased without an initial
sales charge in accordance with the sales charge schedule in the Funds'
Prospectus, or pursuant to a Volume Discount, Right of Accumulation, or Letter
of Intent are subject to a CDSC of 1% on redemptions of such shares within
eighteen months of purchase. Employee benefit plans eligible for net asset value
sales (as described below) may be subject to a CDSC of 1% for terminations at
the plan level only, on redemptions of shares purchased within eighteen months
prior to plan termination. The 1% CDSC will be waived on shares that were
purchased through Morgan Stanley Dean Witter & Co. by certain Chilean
institutional investors (i.e. pension plans, insurance companies, and mutual
funds). Upon redemption of such shares within an eighteen-month period, Morgan
Stanley Dean Witter will reimburse Seligman Advisors a pro rata portion of the
fee it received from Seligman Advisors at the time of sale of such shares.
See "CDSC Waivers" below for other waivers which may be applicable to Class A
shares.
Class C
Class C shares may be purchased at a price equal to the next determined net
asset value, without an initial sales charge. Purchases of Class C shares by a
"single person" may be eligible for the reductions in initial sales charges
described above for Class A shares. Class C shares are subject to a CDSC of 1%
if the shares are redeemed within eighteen months of purchase, charged as a
percentage of the current net asset value or the original purchase price,
whichever is less.
Class D
Class D shares may be purchased at a price equal to the next determined net
asset value, without an initial sales charge. However, Class D shares are
subject to a CDSC of 1% if the shares are redeemed within one year of purchase,
charged as a percentage of the current net asset value or the original purchase
price, whichever is less.
22
<PAGE>
Systematic Withdrawals. Class C and Class D shareholders who reinvest both their
dividends and capital gain distributions to purchase additional shares of a
Fund, may use the Systematic Withdrawal Plan to withdraw up to 10% and 10%,
respectively, of the value of their accounts per year without the imposition of
a CDSC. Account value is determined as of the date the systematic withdrawals
begin.
CDSC Waivers. The CDSC on Class C and Class D shares (and certain Class A
shares, as discussed above) will be waived or reduced in the following
instances:
(1) on redemptions following the death or disability (as defined in Section
72(m)(7) of the Internal Revenue Code) of a shareholder or beneficial
owner;
(2) in connection with (1) distributions from retirement plans qualified under
Section 401(a) of the Internal Revenue Code when such redemptions are
necessary to make distributions to plan participants (such payments
include, but are not limited to, death, disability, retirement, or
separation of service), (2) distributions from a custodial account under
Section 403(b)(7) of the Internal Revenue Code or an IRA due to death,
disability, minimum distribution requirements after attainment of age 70
1/2 or, for accounts established prior to January 1, 1998, attainment of
age 59 1/2, and (3) a tax-free return of an excess contribution to an IRA;
(3) in whole or in part, in connection with shares sold to current and retired
Directors of the Fund;
(4) in whole or in part, in connection with shares sold to any state, county,
or city or any instrumentality, department, authority, or agency thereof,
which is prohibited by applicable investment laws from paying a sales load
or commission in connection with the purchase of any registered investment
management company;
(5) in whole or in part, in connection with systematic withdrawals;
(6) in connection with participation in the Merrill Lynch Small Market 401(k)
Program.
If, with respect to a redemption of any Class A, Class C and Class D shares sold
by a dealer, the CDSC is waived because the redemption qualifies for a waiver as
set forth above, the dealer shall remit to Seligman Advisors promptly upon
notice, an amount equal to the payment or a portion of the payment made by
Seligman Advisors at the time of sale of such shares.
Fund Reorganizations
Class A and Class C shares may be issued without an initial sales charge in
connection with the acquisition of cash and securities owned by other investment
companies. Any CDSC will be waived in connection with the redemption of shares
of a Fund if the Fund is combined with another Seligman mutual fund, or in
connection with a similar reorganization transaction.
Payment in Securities. In addition to cash, the Funds may accept securities in
payment for Fund shares sold at the applicable public offering price (net asset
value and, if applicable, any sales charge), although the Funds do not presently
intend to accept securities in payment for Fund shares. Generally, a Fund will
only consider accepting securities (l) to increase its holdings in a portfolio
security, or (2) if Seligman determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for efficient
management. Although no minimum has been established, it is expected that a Fund
would not accept securities with a value of less than $100,000 per issue in
payment for shares. A Fund may reject in whole or in part offers to pay for Fund
shares with securities, may require partial payment in cash for applicable sales
charges, and may discontinue accepting securities as payment for Fund shares at
any time without notice. The Funds will not accept restricted securities in
payment for shares. The Funds will value accepted securities in the manner
provided for valuing portfolio securities.
23
<PAGE>
Offering Price
When you buy or sell Fund shares, you do so at the Class's net asset value (NAV)
next calculated after Seligman Advisors accepts your request. Any applicable
sales charge will be added to the purchase price for Class A shares and Class C
shares.
NAV per share of each class of a Fund is determined as of the close of regular
trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern time), on
each day that the NYSE is open for business. The NYSE is currently closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. A Fund
will also determine NAV for each class on each day in which there is a
sufficient degree of trading in the Fund's portfolio securities that the NAV of
Fund shares might be materially affected. NAV per share for a class is computed
by dividing such class's share of the value of the net assets of the Fund (i.e.,
the value of its assets less liabilities) by the total number of outstanding
shares of such class. All expenses of the Fund, including the management fee,
are accrued daily and taken into account for the purpose of determining NAV. The
NAV of Class C shares and Class D shares will generally be lower than the NAV of
Class A shares as a result of the higher 12b-1 fees with respect to such shares.
It is expected, however, that the net asset value per share of the two classes
will tend to converge immediately after the recording of dividends, which will
differ by approximately the amount of the distribution and other class expenses
accrual differential between the classes.
The securities in which the Funds invest are traded primarily in the
over-the-counter market. Municipal securities and other short-term holdings
maturing in more than 60 days are valued on the basis of quotations provided by
an independent pricing service, approved by the Trustees, which uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. In the absence of such quotations, fair value
will be determined in accordance with procedures approved by the Trustees.
Short-term holdings having remaining maturities of 60 days or less are generally
valued at amortized cost.
Generally, trading in certain securities such as municipal securities, corporate
bonds, US Government securities, and money market instruments is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in determining the net asset value of a Fund's shares
are computed as of such times.
Specimen Price Make-Up
Under the current distribution arrangements between the Funds and Seligman
Advisors, Class A shares and Class C shares are sold with a maximum initial
sales charge of 4.75% and 1.00%(1), respectively, and Class D shares are sold at
NAV(2). Using each Class's NAV at March 31, 1999, (except Class C shares, which
commences operations effective June 1, 1999) the maximum offering price of the
Funds' shares is as follows:
Class A
NAV Maximum Sales Charge Offering Price
Fund Per Share (4.75% of Offering Price) to Public
- ---- --------- ------------------------- ---------
High-Yield Fund $6.68 $.33 $7.01
Quality Fund 6.88 .34 7.22
24
<PAGE>
Class D
NAV and Offering
Fund Price Per Share(2)
---- ------------------
High-Yield Fund $6.69
Quality Fund 6.86
- ---------------
(1) In addition to the 1.00% front-end sales charge, Class C shares are subject
to a 1% CDSC if you redeem your shares within eighteen months of purchase.
(2) Class D shares are also subject to a 1% CDSC if you redeem your shares
within one year of purchase.
Redemption in Kind
The procedures for selling Fund shares under ordinary circumstances are set
forth in the Prospectus. In unusual circumstances, payment may be postponed, or
the right of redemption postponed for more than seven days, if the orderly
liquidation of portfolio securities is prevented by the closing of, or
restricted trading on, the NYSE during periods of emergency, or such other
periods as ordered by the Securities and Exchange Commission. Under these
circumstances, redemption proceeds may be made in securities. If payment is made
in securities, a shareholder may incur brokerage expenses in converting these
securities to cash.
Taxation of the Funds
Each of the Funds is treated as a separate corporation for federal income tax
purposes. As a result, determinations of net investment income, exempt-interest
dividends and net long-term and short-term capital gain and loss will be made
separately for each Fund.
Each of the Funds is qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. For each
year so qualified, a Fund will not be subject to federal income taxes on its net
investment income and capital gains, if any, realized during any taxable year,
which it distributes to its shareholders, provided that at least 90% of its net
investment income and net short-term capital gains are distributed to
shareholders each year.
Qualification as a regulated investment company under the Internal Revenue Code
requires among other things, that (1) at least 90% of the annual gross income of
a Fund be derived from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of stocks, securities or
currencies, or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stocks, securities or currencies; (2) and a Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, US Government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than US Government
securities).
Federal Income Taxes
If, at the end of each quarter of its taxable year, at least 50% of a Fund's
total assets is invested in obligations exempt from regular federal income tax,
the Fund will be eligible to pay dividends that are excludable by shareholders
from gross income for regular federal income tax purposes. The total amount of
such exempt interest dividends paid by a Fund cannot exceed the amount of
federally tax-exempt interest received by the Fund during the year less any
expenses allocable to the Fund.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over any net short-term losses) are taxable as long-term capital gain,
whether received in cash or invested in additional shares, regardless of how
long the shares have been held by a shareholder, except that the portion of net
capital gains representing accrued market discount on tax-exempt obligations
acquired after April 30, 1993 will be
25
<PAGE>
taxable as ordinary income. Individual shareholders will be subject to federal
tax on distributions of net capital gains at a maximum rate of 20% if designated
as derived from the Fund's capital gains from property held for more than one
year. Net Capital gain of a corporate shareholder is taxed at the same rate as
ordinary income. Distributions from a Fund's other investment income (other than
exempt interest dividends) or from net realized short-term gain will taxable to
shareholders as ordinary income, whether received in cash or invested in
additional shares. Distributions generally will not be eligible for the
dividends received deduction allowed to corporate shareholders. Shareholders
receiving distributions in the form of additional shares issued by a Fund will
be treated for federal income tax purposes as having received a distribution in
an amount equal to the fair market value on the date of distribution of the
shares received.
Interest on indebtedness incurred or continued to purchase or carry shares of
any Fund will not be deductible for federal income tax purposes to the extent
that the Fund's distributions are exempt from federal income tax.
Any gain or loss realized upon a sale or redemption of shares in a Fund by a
shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as a short-term capital gain or loss. Individual shareholders
will be subject to federal income tax on net capital gains at a maximum rate of
20% in respect of shares held for more than one year. Net capital gain of a
corporate shareholder is taxed at the same rate as ordinary income. However, if
shares on which a long-term capital gain distribution has been received are
subsequently sold or redeemed and such shares have been held for six months or
less, any loss realized will be treated as long-term capital loss to the extent
that it offsets the long-term capital gain distribution. In addition, no loss
will be allowed on the sale or other disposition of shares of a Fund if, within
a period beginning 30 days before the date of such sale or disposition and
ending 30 days after such date, the holder acquires (including shares acquired
through dividend reinvestment) securities that are substantially identical to
the shares of the Fund.
In determining gain or loss on shares of a Fund that are sold or exchanged
within 90 days after acquisition, a shareholder generally will not be permitted
to include in the tax basis attributable to such shares the sales charge
incurred in acquiring such shares to the extent of any subsequent reduction of
the sales charge by reason of the Exchange or Reinstatement Privilege offered by
the Fund. Any sales charge not taken into account in determining the tax basis
of shares sold or exchanged within 90 days after acquisition will be added to
the shareholder's tax basis in the shares acquired pursuant to the Exchange or
Reinstatement Privilege.
Shareholders are urged to consult their tax advisors concerning the effect of
federal income taxes in their individual circumstances. In particular, persons
who may be "substantial users" (or "related person" of substantial users) of
facilities financed by industrial development bonds or private activity bonds
should consult the tax advisors before purchasing shares of any Fund.
California Taxes
In the opinion of Sullivan & Cromwell, counsel to the Funds, provided that at
the end of each quarter of its taxable year at least 50% of the total assets of
the High-Yield Fund or Quality Fund consist of federally tax-exempt obligations
of the State of California and its political subdivisions ("California Municipal
Securities"), shareholders of each such Fund who are subject to California State
taxation on dividends will not be subject to California personal income taxes on
dividends from that Fund attributable to interest received by each such Fund on
California Municipal Securities as well as on certain other federally tax-exempt
obligations the interest on which is exempt from California personal income
taxes. To the extent that the distributions are derived from other income,
including long- or short-term capital gains, such distributions will not be
exempt from California personal income taxation, and, further to the extent that
they constitute long-term capital gain dividends they will be taxed as long-term
gain to a shareholder.
Interest on indebtedness incurred or continued to purchase or carry shares of
the High-Yield Fund or Quality Fund will not be deductible for California
personal income tax purposes to the extent such Fund distributions are exempt
from California personal income tax.
26
<PAGE>
Prospective investors should be aware that an investment in these Funds may not
be suitable for persons who are not residents of the State of California or who
do not receive income subject to income taxes of the State.
Unless a shareholder includes a certified taxpayer identification number (social
security number for individuals) on the account application and certifies that
the shareholder is not subject to backup withholding, the Funds are required to
withhold and remit to the US Treasury a portion of distributions and other
reportable payments to the shareholder. The rate of backup withholding is 31%.
Shareholders should be aware that, under regulations promulgated by the Internal
Revenue Service, a Fund may be fined $50 annually for each account for which a
certified taxpayer identification number is not provided. In the event that such
a fine is imposed, the Fund may charge a service fee of up to $50 that may be
deducted from the shareholder's account and offset against any undistributed
dividends and capital gain distributions. The Funds also reserve the right to
close any account which does not have a certified taxpayer identification
number.
Underwriters
Distribution of Securities
Seligman Municipal Fund Series and Seligman Advisors are parties to a
Distributing Agreement dated January 1, 1993 under which Seligman Advisors acts
as the exclusive agent for distribution of shares of the Funds. Seligman
Advisors accepts orders for the purchase of Fund shares, which are offered
continuously. As general distributor of the Funds' shares of beneficial
interest, Seligman Advisors allows reallowances to all dealers on sales of Class
A shares, as set forth above under "Dealer Reallowances." Seligman Advisors
retains the balance of sales charges and any CDSCs paid by investors.
Total initial sales charges paid by shareholders of Class A shares of the Funds
for the fiscal years ended September 30, 1998, 1997, and 1996 are shown below.
Also shown are the amounts of Class A sales charges that were retained by
Seligman Advisors. No Class C shares of each Fund were issued or outstanding
during such fiscal years:
1998
Total Sales Charges Paid Amount of Class A Sales
by Shareholders Charges Retained by
Fund On Class A Shares Seligman Advisors
- ---- ----------------- -----------------
High-Yield Fund $137,920 $17,349
Quality Fund 99,647 11,984
1997
Total Sales Charges Paid Amount of Class A Sales
by Shareholders Charges Retained by
Fund On Class A Shares Seligman Advisors
- ---- ----------------- -----------------
High-Yield Fund $146,934 $17,268
Quality Fund 55,181 6,928
1996
Total Sales Charges Paid Amount of Class A Sales
by Shareholders Charges Retained by
Fund On Class A Shares Seligman Advisors
- ---- ----------------- -----------------
High-Yield Fund $114,640 $14,028
Quality Fund 118,847 14,194
27
<PAGE>
Compensation
Seligman Advisors received the following commissions and other compensation from
the Funds during its fiscal year ended September 30, 1998:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and
Commissions Repurchases
(Class A Sales CDSC on Class A and Brokerage Other
Fund Charges Retained) Class D Retained) Commissions Compensation
- ---- ----------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
High-Yield Fund $17,349 $6,508 $0 $0
Quality Fund 11,984 939 0 0
</TABLE>
Other Payments
Seligman Advisors shall pay broker/dealers, from its own resources, a fee on
purchases of Class A shares of $1,000,000 or more (NAV sales), calculated as
follows: 1.00% of NAV sales up to but not including $2 million; .80% of NAV
sales from $2 million up to but not including $3 million; .50% of NAV sales from
$3 million up to but not including $5 million; and .25% of NAV sales from $5
million and above. The calculation of the fee will be based on assets held by a
"single person," including an individual, members of a family unit comprising
husband, wife and minor children purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust. Purchases made by a trustee or other fiduciary for a fiduciary account
may not be aggregated purchases made on behalf of any other fiduciary or
individual account.
Seligman Advisors shall also pay broker/dealers, from its own resources, a fee
on assets of certain investments in Class A shares of the Seligman mutual funds
participating in an "eligible employee benefit plan" that are attributable to
the particular broker/dealer. The shares eligible for the fee are those on which
an initial sales charge was not paid because either the participating eligible
employee benefit plan has at least (1) $500,000 invested in the Seligman mutual
funds or (2) 50 eligible employees to whom such plan is made available. Class A
shares representing only an initial purchase of Seligman Cash Management Fund
are not eligible for the fee. Such shares will become eligible for the fee once
they are exchanged for shares of another Seligman mutual fund. The payment is
based on cumulative sales for each Plan during a single calendar year, or
portion thereof. The payment schedule, for each calendar year, is as follows:
1.00% of sales up to but not including $2 million; .80% of sales from $2 million
up to but not including $3 million; .50% of sales from $3 million up to but not
including $5 million; and .25% of sales from $5 million and above.
Seligman Advisors may from time to time assist dealers by, among other things,
providing sales literature to, and holding informational programs for the
benefit of, dealers' registered representatives. Dealers may limit the
participation of registered representatives in such informational programs by
means of sales incentive programs which may require the sale of minimum dollar
amounts of shares of Seligman mutual funds. Seligman Advisors may from time to
time pay a bonus or other incentive to dealers that sell shares of the Seligman
mutual funds. In some instances, these bonuses or incentives may be offered only
to certain dealers which employ registered representatives who have sold or may
sell a significant amount of shares of the Fund and/or certain other mutual
funds managed by Seligman during a specified period of time. Such bonus or other
incentive may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and members of their families to places within or outside the United States. The
cost to Seligman Advisors of such promotional activities and payments shall be
consistent with the rules of the National Association of Securities Dealers,
Inc., as then in effect.
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<PAGE>
Calculation of Performance Data
Class A
The annualized yield for the 30-day period ended September 30, 1998 for the
Class A shares of the High-Yield Fund and the Quality Fund were 3.94% and 3.74%,
respectively. The annualized yield was computed by dividing a Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share (i.e., the net asset value plus the maximum sales load
of 4.75% of the net amount invested) on September 30, 1998, which was the last
day of this period. The average number of Class A shares of the High-Yield Fund
and the Quality Fund was 8,530,049 and 12,134,701, respectively, which was the
average daily number of shares outstanding during the 30-day period that were
eligible to receive dividends. Income was computed by totaling the interest
earned on all debt obligations during the 30-day period and subtracting from
that amount the total of all recurring expenses incurred during the period. The
30-day yield was then annualized on a bond-equivalent basis assuming semi-annual
reinvestment and compounding of net investment income.
The tax equivalent annualized yields for the Class A shares of the High-Yield
Fund and the Quality Fund for the 30-day period ended September 30, 1998 were
7.19% and 6.83%, respectively. The tax equivalent annualized yield was computed
by first computing the annualized yield as discussed above. Then the portion of
the yield attributable to securities the income of which was exempt for federal
and state income tax purposes was determined. This portion of the yield was then
divided by one minus 45.22% (which assumes the maximum combined federal and
state income tax rate for individual taxpayers that are subject to California's
personal income taxes). Then the small portion of the yield attributable to
securities the income of which was exempt only for federal income tax purposes
was determined. This portion of the yield was then divided by one minus 39.6%
(39.6% being the assumed maximum federal income tax rate for individual
taxpayers). These two calculations were then added to the portion of the Class A
shares' yield, if any, that was attributable to securities the income of which
was not tax-exempt.
The average annual total returns for the one-year period ended September 30,
1998 for the Class A shares of the High-Yield Fund and the Quality Fund were
3.30% and 3.49%, respectively. The average annual total returns for the
five-year period ended September 30, 1998 for the Class A shares of the
High-Yield Fund and the Quality Fund were 5.49% and 4.80%, respectively. The
average annual total returns for the ten-year period ended September 30, 1998
for the Class A shares of the High-Yield Fund and the Quality Fund were 7.46%
and 7.53%, respectively. These returns were computed by assuming a hypothetical
initial payment of $1,000 in Class A shares of each Fund. From this $1,000, the
maximum sales load of $47.50 (4.75% of public offering price) was deducted. It
was then assumed that all of the dividends and distributions by each Fund's
Class A shares over the relevant time period were reinvested. It was then
assumed that at the end of the one-year period, the five-year period, and the
ten-year period of each Fund, the entire amount was redeemed. The average annual
total return was then calculated by determining the annual rate required for the
initial payment to grow to the amount which would have been received upon
redemption (i.e., the average annual compound rate of return).
Class D
The annualized yields for the 30-day period ended September 30, 1998 of the
Class D shares of the High-Yield Fund and the Quality Fund were 3.25% and 3.06%,
respectively. The annualized yield was computed as for Class A shares by
dividing a Fund's net investment income per share earned during this 30-day
period by the maximum offering price per share (i.e., the net asset value) on
September 30, 1998 which was the last day of this period. The average number of
Class D shares of the High-Yield Fund and the Quality Fund was 939,129 and
313,646, respectively, which was the average daily number of shares outstanding
during the 30-day period that were eligible to receive dividends. Income was
computed by totaling the interest earned on all debt obligations during the
30-day period and subtracting from that amount the total of all recurring
expenses incurred during the period. The 30-day yield was then annualized on a
bond-equivalent basis assuming semi-annual reinvestment and compounding of net
investment income.
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<PAGE>
The tax equivalent annualized yields for the 30-day period ended September 30,
1998 for the Class D shares of the High-Yield Fund and the Quality Fund were
5.93% and 5.59%, respectively. The tax equivalent annualized yield was computed
as discussed above for Class A shares.
The average annual total returns for the Class D shares of the High-Yield Fund
and the Quality Fund for the one-year period ended September 30, 1998 were 6.47%
and 6.71%, respectively. The average annual total return for the period since
inception through September 30, 1998 for the High-Yield Fund and the Quality
Fund were 5.48% and 4.77%, respectively. These returns were computed by assuming
a hypothetical initial payment of $1,000 in Class D shares of each Fund and that
all of the dividends and distributions by each Fund's Class D shares over the
relevant time period were reinvested. It was then assumed that at the end of the
one-year period and the period since inception of each Fund, the entire amount
was redeemed, subtracting the 1% CDSC, if applicable.
Class C shares are a new class, effective June 1, 1999, so no performance data
is presented.
The tables below illustrate the total returns on a $1,000 investment in each of
the Fund's Class A and Class D shares for the ten years ended September 30, 1998
or from a Class's inception through September 30, 1998, assuming investment of
all dividends and capital gain distributions.
Class A
<TABLE>
<CAPTION>
Fund/ Value of Value of Total Value
Year Initial Capital Gain Value of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
High-Yield
9/30/89 $ 966 $ 9 $ 69 $1,044
9/30/90 939 26 138 1,103
9/30/91 988 28 225 1,241
9/30/92 1,010 31 311 1,352
9/30/93 1,023 73 401 1,497
9/30/94 958 86 459 1,503
9/30/95 983 89 564 1,636
9/30/96 988 95 659 1,742
9/30/97 1,004 123 767 1,894
9/30/98 1,033 136 886 2,055 105.42%
Quality
9/30/89 $ 980 $ 1 $ 66 $1,047
9/30/90 942 19 130 1,091
9/30/91 1,007 27 214 1,248
9/30/92 1,038 31 298 1,367
9/30/93 1,103 57 397 1,557
9/30/94 968 81 423 1,472
9/30/95 1,007 100 525 1,632
9/30/96 1,022 104 620 1,746
9/30/97 1,059 108 734 1,901
9/30/98 1,092 121 853 2,066 106.61%
</TABLE>
30
<PAGE>
Class D
<TABLE>
<CAPTION>
Fund/ Value of Value of Total Value
Year Initial Capital Gain Value of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
High-Yield
9/30/94 $ 946 $ --- $ 29 $ 975
9/30/95 971 --- 80 1,051
9/30/96 975 4 130 1,109
9/30/97 992 20 182 1,194
9/30/98 1,020 27 236 1,238 28.27%
Quality
9/30/94 $ 895 $ --- $ 25 $ 920
9/30/95 929 10 69 1,008
9/30/96 945 12 114 1,071
9/30/97 978 12 164 1,154
9/30/98 1,009 18 216 1,243 24.28%
</TABLE>
- ----------
1 For the ten-year period ended September 30, 1998 for Class A shares; and
from commencement of operations for Class D shares on February 1, 1994.
2 The "Value of Initial Investment" as of the date indicated reflects the
effect of the maximum sales charge and CDSC, if applicable, assumes that
all dividends and capital gain distributions were taken in cash, and
reflects changes in the net asset value of the shares purchased with the
hypothetical initial investment. "Total Value of Investment" reflects the
effect of the CDSC, if applicable, and assumes investment of all dividends
and capital gain distributions.
3 Total return for each Class of a Fund is calculated by assuming a
hypothetical initial investment of $1,000 at the beginning of the period
specified, subtracting the maximum sales load or CDSC, if applicable;
determining total value of all dividends and distributions that would have
been paid during the period on such shares assuming that each dividend or
distribution was invested in additional shares at net asset value;
calculating the total value of the investment at the end of the period; and
finally, by dividing the difference between the amount of the hypothetical
initial investment at the beginning of the period and its value at the end
of the period by the amount of the hypothetical initial investment.
Each Fund's total returns and average annual total returns for Class A shares
quoted above do not reflect the deduction of 12b-1 fees for periods prior to
January 1, 1993, because the 12b-1 Plan was implemented on that date. If these
fees were reflected, the performance results presented would have been lower.
Financial Statements
The Annual Report to Shareholders of Seligman Municipal Series Trust for the
fiscal year ended September 30, 1998 and the Mid-Year Report to Shareholders for
the fiscal six-month period ended March 31, 1999, contain a schedule of the
investments of the Funds as of September 30, 1998 and March 31, 1999,
respectively, as well as certain other financial information . The financial
statements and notes included in the Annual Report, the Mid-Year Report, and the
Independent Auditors' Reports thereon, are incorporated herein by reference. The
Annual Report and Mid-Year Report will be furnished, without charge, to
investors who request copies of this SAI.
General Information
The Trustees are authorized to classify or reclassify and issue any shares of
beneficial interest of the Trust into any number of other classes without
further action by shareholders. The 1940 Act requires that where more than one
class exists, each class must be preferred over all other classes in respect of
assets specifically allocated to such class.
As a general matter, the Trust will not hold annual or other meetings of the
shareholders. This is because the Declaration of Trust provides for shareholder
voting only (a) for the election or removal of one or more Trustees if a meeting
is called for that purpose, (b) with respect to any contract as to which
shareholder approval is required by the 1940 Act, (c) with respect to any
termination or reorganization of the Trust or any series, including the Fund, to
the extent and as provided in the Declaration of Trust, (d) with respect to any
amendment of the Declaration of Trust (other than amendments establishing and
31
<PAGE>
designating new series, abolishing series when there are no units thereof
outstanding, changing the name of the Trust or the name of any series, supplying
any omission, curing any ambiguity or curing, correcting or supplementing any
provision thereof which is internally inconsistent with any other provision
thereof or which is defective or inconsistent with the 1940 Act or with the
requirements of the Code, or applicable regulations for the Fund's obtaining the
most favorable treatment thereunder available to regulated investment
companies), which amendments require approval by a majority of the Shares
entitled to vote, (e) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding, or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the shareholders, and (f) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act, the
Declaration of Trust, the By-laws of the Trust, any registration of the Trust
with the Securities and Exchange Commission (the "Commission") or any state, or
as the Trustees may consider necessary or desirable. Each Trustee serves until
the next meeting of shareholders, if any, called for the purpose of considering
the election or reelection of such Trustee or of a successor to such Trustee,
and until the election and qualification of his successor, if any, elected at
such meeting, or until such Trustee sooner dies, resigns, retires or is removed
by the shareholders or two-thirds of the Trustees.
The shareholders of the Trust have the right, upon the declaration in writing or
vote of more than two-thirds of the Trust's outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of ten percent of
its shares. In addition, whenever ten or more shareholders of record who have
been such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least $25,000
or at least 1 per centum of the outstanding shares, whichever is less, shall
apply to the Trustees in writing, stating that they wish to communicate with
other shareholders with a view to obtaining signatures to a request for a
meeting for the purpose of voting upon the question of removal of any Trustee or
Trustees and accompanied by a form of communication and request which they wish
to transmit, the Trustee shall within five business days after receipt of such
application either: (1) afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of requests. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the Commission,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statement
so filed, the Commission may, and if demanded by the Trustees or by such
applicants shall, enter an order either sustaining one or more of such
objections or refusing to sustain any of them. If the Commission shall enter an
order refusing to sustain any of such objections, or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Trustees shall mail copies
of such material to all shareholders with reasonable promptness after the entry
of such order and the renewal of such tender.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
by the provisions of the 1940 Act or applicable state law, or otherwise, to the
holders of the outstanding voting securities of an investment company such as
the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each series
affected by such matter. Rule 18f-2 further provides that a series shall be
deemed to be affected by a matter unless it is clear that the interests of each
series in the matter are substantially identical or that the matter does not
significantly affect any interest of such series. However, the Rule exempts the
selection of independent public accountants, the approval of principal
distributing contracts and the election of trustees from the separate voting
requirements of the Rule.
32
<PAGE>
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust. The Declaration of Trust also
provides for indemnification and reimbursement of expenses out of a series'
assets for any shareholder held personally liable for obligations of such
series.
Custodian. Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, serves as custodian for the Funds. It also maintains, under the
general supervision of Seligman, the accounting records and determines the net
asset value for the Funds.
Auditors. Deloitte & Touche LLP, independent auditors, have been selected as
auditors of the Funds. Their address is Two World Financial Center, New York, NY
10281.
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<PAGE>
Appendix A
Moody's Investors Service, Inc. ("Moody's")
Municipal Bonds
Aaa: Municipal bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk. Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Municipal bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be characteristically lacking or may be
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact may have speculative characteristics as well.
Ba: Municipal bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Municipal bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Municipal bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Municipal bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues are often in default or have other
marked shortcomings.
C: Municipal bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers (1, 2 and 3) in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
Municipal Notes
Moody's ratings for Municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG 1 are of the best quality, enjoying strong protection by
established cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing. Loans bearing the designation
MIG 2 are of high quality, with margins of protection
34
<PAGE>
ample although not so large as in the preceding group. Loans bearing the
designation MIG 3 are of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market access
for refinancing in particular, is likely to be less well established. Notes
bearing the designation MIG 4 are judged to be of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
Commercial Paper
Moody's Commercial Paper Ratings are opinions of the ability of issuers to
repay punctually promissory senior debt obligations not having an original
maturity in excess of one year. Issuers rated "Prime-1" or "P-1" indicates the
highest quality repayment capacity of the rated issue.
The designation "Prime-2" or "P-2" indicates that the issuer has a strong
capacity for repayment of senior short-term promissory obligations. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
The designation "Prime-3" or "P-3" indicates that the issuer has an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issues rated "Not Prime" do not fall within any of the Prime rating
categories.
Standard & Poor's Corporation ("S&P")
Municipal Bonds
AAA: Municipal bonds rated AAA are highest grade obligations. Capacity to
pay interest and repay principal is extremely strong.
AA: Municipal bonds rated AA have a very high degree of safety and very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree.
A: Municipal bonds rated A are regarded as upper medium grade. They have a
strong degree of safety and capacity to pay interest and repay principal
although they are somewhat more susceptible in the long term to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB: Municipal bonds rated BBB are regarded as having a satisfactory degree
of safety and capacity to pay interest and re-pay principal. Whereas they
normally exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and re-pay principal for bonds in this category than for bonds in
higher rated categories.
BB, B, CCC, CC: Municipal bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and pre-pay principal in accordance with the terms of the bond. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
C: The rating C is reserved for income bonds on which no interest is being
paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of bond as a matter of policy.
35
<PAGE>
Municipal Notes
SP-1: Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
Commercial Paper
S&P Commercial Paper ratings are current assessments of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only a speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity of payment.
D: Debt rated "D" is in payment default.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of bond as a matter of policy.
The ratings assigned by S&P may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within its major rating categories.
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<PAGE>
Appendix B
RISK FACTORS REGARDING INVESTMENTS IN CALIFORNIA MUNICIPAL SECURITIES
The following information as to certain California considerations is provided to
investors in view of the Fund's policy of investing primarily in securities of
California issuers. Such information is derived from public official documents
relating to securities offerings of California issuers which are generally
available to investors. The Fund has no reason to believe that any of the
statements in such public official documents are untrue but has not
independently verified such statements. The following information constitutes
only a brief summary of the information in such public official documents and
does not purport to be a complete description of all considerations regarding
investment in California municipal securities.
California's economy, the largest among the 50 states and one of the largest in
the world, has major components in agriculture, manufacturing, high technology,
trade, entertainment, tourism, construction and services. Since 1994,
California's economy has been performing strongly after suffering a deep
recession between 1990 and 1994. The State's July 1, 1998 population of over
33.4 million represents over 12 percent of the total United States population
with total employment of approximately 15 million.
STATE INDEBTEDNESS
General
The State Treasurer is responsible for the sale of debt obligations of the State
and its various authorities and agencies. The State has always paid the
principal of and interest on its general obligation bonds, general obligation
commercial paper, lease-purchase debt and short-term obligations, including
revenue anticipation notes and revenue anticipation warrants, when due.
Capital Facilities Financing
General Obligation Bonds - The State Constitution prohibits the creation of
general obligation indebtedness of the State unless a bond law is approved by a
majority of the electorate voting at a general election or a direct primary.
General obligation bond acts provide that debt service on general obligation
bonds shall be appropriated annually from the General Fund and all debt service
on general obligation bonds is paid from the General Fund. Under the State
Constitution, debt service on general obligation bonds is the second charge to
the General Fund after the application of moneys in the General Fund to the
support of the public school system and public institutions of higher education.
Certain general obligation bond programs receive revenues from sources other
than the sale of bonds or the investment of bond proceeds.
As of February 1, 1999, the State had outstanding $19,184,961,000 aggregate
principal amount of long-term general obligation bonds, and unused voter
authorizations for the future issuance of $14,326,874,000 of long-term general
obligation bonds.
At the November 3, 1998 election, voters approved a bond measure ("Proposition
1A") totaling $9.2 billion for public school construction and renovation, and
for higher education facilities. Not more than half the total bond authorization
from Proposition 1A can be issued (including bonds in the form of commercial
paper) before June 30, 2000. Proposition 1A also encourages the Treasurer to
sell the bonds in a manner such that the ratio of State debt service to General
Fund revenue does not exceed 6 percent.
Commercial Paper Program - Pursuant to the terms of the bank credit agreement
presently in effect supporting the general obligation commercial paper program,
not more than $2.0 billion of general obligation commercial paper notes may be
outstanding at any time; this amount may be increased or decreased in the
future. Commercial paper notes are deemed issued upon authorization by the
respective Finance Committees, whether or not such notes are actually issued. As
of February 1, 1999, the Finance Committees had authorized the issuance of up to
$3,566,744,000 of commercial paper notes; as of that date $ 484,250,000
aggregate principal amount of general obligation commercial paper notes was
actually issued and outstanding.
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<PAGE>
Lease-Purchase Debt - In addition to general obligation bonds, the State builds
and acquires capital facilities through the use of lease-purchase borrowing.
Under these arrangements, the State Public Works Board, another State or local
agency or a joint powers authority issues bonds to pay for the construction of
facilities such as office buildings, university buildings or correctional
institutions. For purposes of this section, "lease-purchase debt" means
principally bonds or certificates of participation for capital facilities where
the rental payments providing the security are a direct or indirect charge
against the General Fund and also includes revenue bonds for a State energy
efficiency program secured by payments made by various State agencies under
energy service contracts. The State had $6,689,709,397 General Fund-supported
lease-purchase debt outstanding at February 1, 1999. The State Public Works
Board, which is authorized to sell lease revenue bonds, had $1,594,712,000
authorized and unissued as of February 1, 1999. Also, as of that date certain
joint powers authorities were authorized to issue approximately $69,500,000 of
revenue bonds to be secured by State leases.
Non-Recourse Debt - Revenue bonds represent obligations payable from State
revenue-producing enterprises and projects, which are not payable from the
General Fund, and conduit obligations payable only from revenues paid by private
users of facilities financed by the revenue bonds. The enterprises and projects
include transportation projects, various public works projects, public and
private educational facilities, housing, health facilities and pollution control
facilities. There are 17 agencies and authorities authorized to issue revenue
obligations (excluding lease-purchase debt). State agencies and authorities had
$25,463,613,639 aggregate principal amount of revenue bonds and notes which are
non-recourse to the General Fund outstanding as of December 31, 1998.
Cash Flow Borrowings
As part of its cash management program, the State has regularly issued
short-term obligations to meet cash flow needs. Between spring 1992 and summer
1994, the State had depended upon external borrowing, including borrowings
extending into the subsequent fiscal year, to meet its cash needs, including
repayments of maturing Notes and Warrants. The State has not had to resort to
such cross-year borrowing after the 1994-95 Fiscal Year.
The State issued $1.7 billion of revenue anticipation notes for the 1998-99
Fiscal Year to mature on June 30, 1999. The Governor's Proposed Budget
anticipates the issuance of 2.5 billion of revenue anticipation notes for
the 1999-00 Fiscal Year.
The State's fiscal year begins on July 1 and ends on June 30. The State
operates on a budget basis, using a modified accrual system of accounting,
with revenues credited in the period in which they are measurable and
available and expenditures debited in the period in which the corresponding
liabilities are incurred.
The General Fund
The moneys of the State are segregated into the General Fund and over 900
Special Funds, including bond, trust and pension funds. The General Fund
consists of revenues received by the State Treasury and not required by law
to be credited to any other fund, as well as earnings from the investment
of state moneys not allocable to another fund. The General Fund is the
principal operating fund for the majority of governmental activities and is
the depository of most of the major revenue sources of the State. The
General Fund may be expended as a consequence of appropriation measures
enacted by the Legislature and approved by the Governor, as well as
appropriations pursuant to various constitutional authorizations and
initiative statutes.
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The Special Fund for Economic Uncertainties
The Special Fund for Economic Uncertainties ("SFEU") is funded with General Fund
revenues and was established to protect the State from unforeseen revenue
reductions and/or unanticipated expenditure increases. Amounts in the SFEU may
be transferred by the State Controller as necessary to meet cash needs of the
General Fund. The State Controller is required to return moneys so transferred
without payment of interest as soon as there are sufficient moneys in the
General Fund. In the 1999-00 Governor's Budget, released January 8, 1999, the
Department of Finance projects the SFEU will have a balance of about $617
million at June 30, 1999 and $415 million at June 30, 2000.
Inter-Fund Borrowings
Inter-fund borrowing has been used for many years to meet temporary imbalances
of receipts and disbursements in the General Fund. As of June 30, 1998, the
General Fund had no outstanding loans from the SFEU, General Fund Special
Accounts or any other Special Funds.
State Appropriations Limit
The State is subject to an annual appropriations limit imposed by Article XIII B
of the State Constitution (the "Appropriations Limit"). The Appropriations Limit
does not restrict appropriations to pay debt service on voter-authorized bonds.
Article XIII B prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend "proceeds of
taxes," which consist of tax revenues, and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent that
such proceeds exceed "the cost reasonably borne by that entity in providing the
regulation, product or service," but "proceeds of taxes" exclude most state
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. No limit is imposed on appropriations of funds which are
not "proceeds of taxes," such as reasonable user charges or fees and certain
other non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt service
costs of bonds existing or authorized by January 1, 1979, or subsequently
authorized by the voters, appropriations required to comply with mandates of
courts or the federal government, appropriations for qualified capital outlay
projects, appropriations of revenues derived from any increase in gasoline taxes
and motor vehicles weight fees above January 1, 1990 levels, and appropriation
of certain special taxes imposed by initiative (e.g. cigarettes and tobacco
taxes). The Appropriations Limit may also be exceeded in cases of emergency.
The State's Appropriations Limit in each year is based on the limit for the
prior year, adjusted annually for changes in California per capital personal
income and changes in population, and adjusted, when applicable, for any
transfer of financial responsibility of providing services to or from another
unit of government. The Appropriations Limit is tested over consecutive two-year
periods. Any excess of the aggregate "proceeds of taxes" received over such
two-year period above the combined Appropriations Limits for those two years is
divided equally between transfers to local school and community college ("K-14")
districts and refunds to taxpayers.
The Legislature has enacted legislation to implement Article XIII B which
defines certain terms used in Article XIII B and sets forth the methods for
determining the Appropriations Limit. California Government Code Section 7912
requires an estimate of the Appropriations Limit to be included in the
Governor's Budget, and thereafter to be subject to the budget process and
established in the Budget Act.
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In the Budget Act for Fiscal Year 1999-00 proposed on January 8, 1999, the
Department of Finance projects the State's Appropriations Subject to Limitations
will be $7.1 billion under the State's Appropriations Limit in Fiscal Year
1999-00.
Proposition 98
On November 8, 1988, voters of the State approved Proposition 98, a combined
initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act." Proposition 98 (as modified
by Proposition 111, which was enacted on June 5, 1990), changed State funding of
public education below the university level, and the operation of the State
Appropriations Limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. Proposition 98 permits the Legislature, by two-thirds
vote of both houses and with the Governor's concurrence, to suspend the K-14
schools' minimum funding formula for a one-year period. Proposition 98 also
contains provisions transferring certain State tax revenues in excess of the
Article XIII B limit to K-14 schools.
Substantially increased General Fund revenues, above initial budget projections,
in the fiscal years 1994-95 through 1998-99 have resulted in retroactive
increases in Proposition 98 appropriations from subsequent fiscal years'
budgets. Because of the State's increasing revenues, per-pupil funding at the
K-12 level has increased by about 42 percent from the level in place from
1991-92 through 1993-94, and is estimated at about $5,944 per ADA in 1999-00. A
significant amount of the "extra" Proposition 98 monies in the last few years
have been allocated to special programs, most particularly an initiative to
allow each classroom from Grades K-3 to have no more than 20 pupils by the end
of the 1997-98 school year. Although General Fund revenue growth is expected to
slow in 1999-00, there are also new initiatives proposed to improve pupil
reading skills, to enhance teacher quality, and to increase school
accountability.
Fiscal Years Prior to 1995-96
Pressures on the State's budget in the late 1980's and early 1990's were caused
by a combination of external economic conditions and growth of the largest
General Fund Programs--K-14 education, health, welfare and corrections--at rates
faster than the revenue base. During this period, expenditures exceeded revenues
in four out of six years up to 1992-93, and the State accumulated and sustained
a budget deficit approaching $2.8 billion at its peak at June 30, 1993. Between
1991-92 and 1994-95 Fiscal Years, each budget required multibillion dollar
actions to bring projected revenues and expenditures into balance, including
significant cuts in health and welfare program expenditures; transfers of
program responsibilities and funding from the State to local governments;
transfers of program responsibilities and funding from State to local
governments; transfers of about $3.6 billion in annual local property tax
revenues from other local governments to local school districts, thereby
reducing State funding for schools under Proposition 98; and revenue increases
(particularly in the 1991-92 Fiscal Year budget), most of which were for a short
duration.
Despite these budget actions, the effects of the recession led to large,
unanticipated budget deficits. By the 1993-94 Fiscal Year, the accumulated
deficit was so large that it was impractical to budget to retire it in one year,
so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, again using cross-fiscal year
revenue anticipation warrants to partly finance the deficit into the 1995-96
fiscal year.
Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish
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its cash reserves, the State Controller issued registered warrants to pay a
variety of obligations representing prior years' or continuing appropriations,
and mandates from court orders. Available funds were used to make
constitutionally-mandated payments, such as debt service on bonds and warrants.
Between July 1 and September 4, 1992, when the budget was adopted, the State
Controller issued a total of approximately $3.8 billion of registered warrants.
For several fiscal years during the recession, the State was forced to rely on
external debt markets to meet its cash needs, as a succession of notes and
revenue anticipation warrants were issued in the period from June 1992 to July
1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of the fiscal year. The last and largest of these
borrowings was $4.0 billion of revenue anticipation warrants issued in July,
1994 and matured on April 25, 1996.
1995-96 through 1997-98 Fiscal Years
The State's financial condition improved markedly during the 1995-96, 1996-97
and 1997-98 fiscal years, with a combination of better than expected revenues,
slowdown in growth of social welfare programs, and continued spending restraint
based on the actions taken in earlier years. The State's cash position also
improved and no external deficit borrowing has occurred over the end of these
last three fiscal years.
The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.4 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and
1996-97. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimates that the State's budget reserve
(the SFEU) totaled $639.8 million as of June 30, 1997 and $2.793 billion at June
30, 1998.
The following were major features of the 1997-98 Budget Act:
1. For the second year in a row, the Budget contained a large increase in
funding for K-14 education under Proposition 98, reflecting strong revenues
which exceeded initial budgeted amounts. Part of the nearly $1.75 billion
in increased spending was allocated to prior fiscal years. Funds were
provided to fully pay for the cost-of-living-increase component of
Proposition 98, and to extend the class size reduction and reading
initiatives.
2. The Budget Act reflected payment of $1.228 billion to satisfy a court
judgment in a lawsuit regarding payments to the State pension fund, and
brought funding of the State's pension contribution back to the quarterly
basis which existed prior to the deferral actions which were invalidated by
the courts.
3. Funding from the General Fund for the University of California and
California State University was increased by about 6 percent ($121 million
and $107 million, respectively), and there was no increase in student fees.
4. Because of the effect of the pension payment, most other State programs
were continued at 1996-97 levels, adjusted for caseload changes.
5. Health and welfare costs were contained, continuing generally the grant
levels from prior years, as part of the initial implementation of the new
CalWORKs program.
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6. Unlike prior years, this Budget Act did not depend on uncertain federal
budget actions. About $300 million in federal funds, already included in
the federal FY 1997 and 1998 budgets, was included in the Budget Act, to
offset incarceration costs for illegal aliens.
7. The Budget Act contained no tax increases, and no tax reductions. The
Renters Tax Credit was suspended for another year, saving approximately
$500 million.
Current State Budget
The discussion below of the 1998-99 Fiscal Year budget and the Proposed 1999-00
Fiscal Year budget are based on estimates and projections of revenues and
expenditures for the current and upcoming fiscal years and must not be construed
as statements of fact. These estimates and projections are based upon various
assumptions as updated in the 1999-00 Governor's Budget which may be affected by
numerous factors, including future economic conditions in the State and the
nation, and there can be no assurance that the estimates will be achieved.
1998-99 Fiscal Year Budget
When the Governor released his proposed 1998-99 Fiscal Year budget on January 9,
1998, the projected General Fund revenues for the 1998-99 Fiscal Year of $55.4
billion, and proposed expenditures in the same amount. By the time the Governor
released the May Revision to the 1998-99 Budget ("May Revision") on May 14,
1998, the Administration projected that revenues of the 1997-98 and 1998-99
Fiscal Years combined would be more than $4.2 billion higher than was projected
in January. The Governor proposed that most of this increased revenue be
dedicated to fund a 75 percent cut in the Vehicle License Fee ("VLF").
The Legislature passed on the 1998-99 Budget Bill on August 11, 1998, and the
Governor signed it on August 21, 1998. Some 33 companion bills necessary to
implement the budget were also signed. In signing the Budget Bill, the Governor
used his line-item veto power to reduce expenditures by $1.360 billion from the
General Fund, and $160 million from special funds. Of this total, the Governor
indicated that about $250 million of vetoed funds were "set aside" to fund
programs for education. Vetoed items included education funds, salary increases
and many individual resources and capital projects.
The 1998-99 Budget Act is based on projected General Fund revenues and transfers
of $57.0 billion (after giving effect to various tax reductions enacted in 1997
and 1998), a 4.2 percent increase from the revised 1997-98 figures. Special Fund
revenues were estimated at $14.3 billion. The revenue projections were based on
the May Revision. Economic problems overseas since that time may affect the May
Revision projections.
After giving effect to the Governor's vetoes, the Budget Act provides authority
for expenditures of $57.3 billion from the General Fund (a 7.3 percent increase
from 1997-98), $14.7 billion from special funds, and $3.4 billion from bond
funds. The Budget Act projects a balance in the SFEU at June 30, 1999 (but
without including the "set aside" veto amount) of $1.255 billion, a little more
than 2 percent of General Fund revenues. The Budget Act assumes the State will
carry out its normal intra-year cash flow borrowing in the amount of $1.7
billion of revenue anticipation notes, which were issued on October 1, 1998.
Revenues and expenditures for 1998-99 as updated in the 1999-00 Governor's
Budget are $56.3 billion and $58.3 billion, respectively. As a result, the
projected balance in the SFEU at June 30, 1999 has been reduced to $617 million.
The most significant feature of the 1998-99 budget was agreement on a total of
$1.4 billion of tax cuts. The central element is a bill which provides for a
phased-in reduction of the VLF. Since the VLF is currently transferred to cities
and counties, the bill provides for the General Fund to replace the lost
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revenues. Starting on January 1, 1999, the VLF will be reduced by 25 percent, at
a cost to the General Fund of approximately $500 million in the 1998-99 Fiscal
Year and about $1 billion annually thereafter.
In addition to the cut in VLF, the 1998-99 budget includes both temporary and
permanent increase in the personal income tax dependent credit ($612 million
General Fund cost in 1998-99, but less in future years), a nonrefundable renters
tax credit ($133 million), and various targeted business tax credits ($106
million).
Other significant elements of the revised 1998-99 Budget Act are as follows:
1. Proposition 98 funding for K-12 schools is increased by $2.2 billion in
General Fund moneys over the latest revised 1997-98 levels, over $1 billion
higher than the minimum Proposition 98 guaranty. Of the 1998-99 funds,
major new programs include money for instructional and library materials,
deferred maintenance, support for increasing the school year to 180 days
and reduction of class sizes in Grade 9. Overall, per-pupil spending for
K-12 schools under Proposition 98 increased to $5,752, which is $478 over
the 1997-98 level. The Budget also includes $250 million as repayment of
prior years' loans to schools, as part of the settlement of the CTA v.
Gould lawsuit.
2. Funding for higher education increased substantially above the actual
1997-98 level. General Fund support was increased by $339 million (15.6
percent) for the University of California and $271 million (14.5 percent)
for the California State University system. In addition, Community Colleges
increased by $183 million (9.0 percent).
3. The Budget includes increased funding for health, welfare and social
services programs. A 4.9 percent grant increase was included in the basic
welfare grants, the first increase in those grants in 9 years. Future
increases will depend on sufficient General Fund revenue to trigger the
phased cuts in VLF described above.
4. Funding for the judiciary and criminal justice programs increased by about
15 percent over 1997-98, primarily to reflect increased State support for
local trial courts and rising prison population.
5. Various other highlights of the Budget included new funding for resources
projects, dedication of $240 million of General Fund moneys for capital
outlay projects, funding of a state employee salary increase, funding of
2,000 new Department of Transportation positions to accelerate
transportation construction projects, and funding of the Infrastructure and
Economic Development Bank ($50 million).
6. The State of California received approximately $167 million of federal
reimbursements to offset costs related to the incarceration of undocumented
alien felons for federal fiscal year 1997. The State anticipates receiving
approximately $173 million in federal reimbursements for federal fiscal
year 1998.
The revised 1998-99 budget as reported in the 1999-00 Governor's Budget, also
reflects the latest estimated costs or savings as provided in various pieces of
legislation passed and signed after the 1998 Budget Act. Major budget items
include costs for the All-American Canal, state's share of purchase of
Headwaters Forest, and additional funds for state prisons and juvenile
facilities. The revised budget reflects a $433 million reduction in the State's
obligation to contribute to STRS in 1998-99.
Proposed 1999-00 Budget
On January 8, 1999, Governor Davis released his proposed budget for Fiscal Year
1999-2000 (the "Governor's Budget"). The Governor's Budget generally reported
that General Fund revenues for FY
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1998-99 and FY 1999-00 would be lower than earlier projections (primarily due to
the overseas economic downturn), while some caseloads would be higher than
earlier projections. The Governor's Budget was designed to meet ongoing
caseloads and basic inflation adjustments, and included certain new programs.
The Governor's Budget projects General Fund revenues and transfers in 1999-00 of
$60.3 billion. This includes anticipated initial payments from the tobacco
litigation settlement of about $560 million, and receipt of one-time revenue
from sale of assets. The Governor also assumes receipt of about $400 million of
federal aid for certain health and welfare programs and reimbursement of costs
of incarceration of undocumented felons, above the amount presently received by
California from the federal government. The Governor's Budget notes that more
accurate revenue estimates will be available in May and June before adoption of
the budget. Among other things, the amount of realized capital gains for 1998 is
still unknown, given the large fluctuations in the stock market last year. The
Governor has not proposed any tax cuts or increases.
The Governor's Budget proposes General Fund expenditures of $60.5 billion. The
Governor's Budget gives highest priority to education, with Proposition 98
funding increasing by almost 5 percent. The Governor proposed certain new
education initiatives focused on improving reading skills, teacher quality and
school accountability. The Governor proposed modest increase in funding for
higher education and an 8 percent increase in SSP payments (a State-funded
welfare program), while assuming decreases in Medi-Cal and CalWORKs grant costs
due to lowering caseloads. The Governor also proposes to reduce expenditures by
deferring certain previously budgeted expenditures totaling about $170 million.
Based on the proposed revenues and expenditures, the Governor's Budget projects
the June 30, 2000 balance in the SFEU would drop to about $415 million.
On February 16, 1999, the Legislative Analyst released a report on the 1999-00
Governor's Budget (the "LAO Report"). The LAO Report was based in part on actual
revenues received in December, 1998 and January, 1999, which had not been
available when the Governor's Budget was prepared. These revenues were higher
than had been predicted in the Governor's Budget, apparently reflecting stronger
than expected economic activity in the nation and the State. The LAO report
projected that General Fund revenues in 1998-99 could be as much as $750 million
higher than predicted in the Governor's Budget, and 1999-00 revenues could be
$550 million above the Governor's Budget.
The Governor's Budget includes a proposal to implement changes in law to make
"mid-course corrections" in the State's budget if ongoing revenues fall short of
projections during a fiscal year or expenditures increase significantly. The
proposals include two components: restoring authority for the Director of
Finance to reduce expenditures in certain circumstances, and an automatic
"trigger" mechanism which would produce spending cuts if certain conditions were
met. These proposals will require legislative action.
Information Technology
The State's reliance on information technology in every aspect of its operations
has made Year 2000-related ("Y2K") information technology ("IT") issues a high
priority for the State. The Department of Information Technology ("DOIT"), an
independent office reporting directly to the Governor, is responsible for
ensuring the State's information technology processes are fully functional
before the year 2000. The DOIT has created a Year 2000 Task Force and a
California 2000 Office to establish statewide policy requirements; to gather,
coordinate, and share information; and to monitor statewide progress. In
December 1996, the DOIT began requiring departments to report on Y2K activities
and currently requires departmental monthly reporting of Y2K status. The DOIT
has emphasized to departments that efforts should be focused on applications
that support mission-critical business practices.
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The risks posed by Y2K information technology related issues are not confined to
computer systems, but also include problems presented by embedded microchips
(products or systems that contain microchips to perform functions such as
traffic control, instruments used in hospitals or medical laboratories, and
California Aqueduct monitoring). To address these problems, the Governor issued
Executive Order W-163-97, broadening the responsibilities of the DOIT to resolve
these issues as well as legal questions associated with Y2K issues. The
executive order also required that mission critical systems be remediated by
December 31, 1998, that purchases of new systems, hardware, software and
equipment be Year 2000 compliant and further limited new computer projects to
those required by law until a department's Y2K problems are resolved. The DOIT
has also more recently required departments to address interfacing of State IT
systems with external IT systems, and to report on contingency planning status
for problems which might occur if IT systems are not fully remediated by the end
of 1999.
In its quarterly report for the period ending December 31, 1998 (the "January
Quarterly Report" available on the DOIT's site at www.doit.ca.gov), the DOIT
unveiled the new administration's strategy for addressing Y2K issues. The key
components of this strategy include centralization and coordination of the
State's Y2K efforts, delivery of essential services and emergency preparedness,
elimination of obstacles and barriers in an effort to streamline the current
funding request process, and broad-based collaboration across public and private
sectors through a comprehensive communication plan. Departments, programs and
systems will be categorized by tier according to the amount of assistance
required to become Y2K compliant. The first tier, which consists of departments
that are of no specific cause of concern, will be required o report their status
and may be subject to independent review. The second tier consists of
departments that require targeted assistance. The California 2000 Project Office
will deploy an Action team to provide the necessary assistance. The third tier
consists of seriously troubled departments where the California Year 2000
Project Office will assume Y2K management responsibility.
In addition to setting forth a new action plan, the January Quarterly Report
updated the survey of State departments and reported that of a total of about
564 mission critical IT systems, 372 had completed remediation. Of the remaining
192 systems, 54 systems are scheduled to be retired and 138 are in the process
of being remediated. The January Quarterly Report also updated the status of
embedded systems, noting that State entities have not yet reported on all
facilities nor have they completed the survey of all of their facilities. Of the
606 facilities that were reported, remediation has been completed in 52
facilities.
In the January Quarterly Report, the DOIT estimates total Y2K costs identified
by the departments under its supervision at about $342 million, of which more
than $200 million was projected to be expended in fiscal years 1998-1999 and
1999-2000. These costs are part of much larger overall IT costs incurred
annually by the State, including costs incurred by certain independent State
entities, such as the judiciary, the Legislature, the University of California
and California State University System. Furthermore, cost estimates for embedded
systems only apply to the subset of embedded systems positing the highest risk
to essential programs. For fiscal year 1998-99, the Legislature created a $20
million fund for unanticipated Y2K costs, which can be increased if necessary.
On February 18, 1999, the Bureau of State Audits (the "BSA") presented its
report concerning state agencies' progress in resolving Y2K problems (available
on the BSA's site at www.bsa.ca.gov). The report highlighted the following
issues: remediation efforts at 14 agencies that it identified as critical; the
status of Y2K compliance for other State programs; deficiencies in Y2K planning
at one of the primary data centers for the State; and coordination among public
and private entities to ensure uninterrupted service of essential utilities.
The BSA indicated that each of the 14 agencies identified as administering
programs critical to the State has appointed a Y2K project manager, developed an
overall Y2K plan and is actively working to complete planned tasks. However, the
report further noted that although state agencies are making progress toward
correcting critical computer systems, remediation efforts at 11 of these
agencies are not complete. The report defined completion as including three key
steps: completion of all planned testing, removal of
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threats from embedded technology, and resolution of potential problems caused by
data exchange partners. None of these 11 agencies have fully tested the systems
reviewed, which industry experts consider to be the most crucial and
time-consuming phase. Furthermore, seven agencies have not yet replaced or
corrected embedded microchips in equipment their systems rely upon.
As part of the audit, the BSA also surveyed all 140 agencies, which administer
462 separate budgetary programs, listed in the Governor's Budget. Although the
BSA does not consider all of these programs to be as critical as those
administered by the 14 agencies it reviewed, the BSA has similar concerns about
testing, embedded technology and coordination with data exchange partners. The
report also contained certain recommendations for one of the State's two primary
data centers to enhance their Y2K efforts. Finally, the BSA noted that no single
entity is charged with overseeing the Y2K preparedness of all utilities in
California and recommended that the Governor or Legislature should designate one
representative or agency to assess and disclose the Y2K readiness of critical
public utilities.
The State Treasurer's Office reports that as of December 31, 1998, its systems
for bond payments were fully Y2K compliant. The State Comptroller's Officer
reported that it had completed the necessary Y2K remediation projects for the
State fiscal and accounting system by December 31, 1998, consistent with the
Governor's Executive Order. The final steps of testing will be completed during
1999. Both offices are actively working with the outside entities with whom they
interface to ensure that they are also compliant.
In sum, although substantial progress has been made toward the goal of Y2K
compliance, the task is very large and will likely encounter unexpected
difficulties. The State cannot predict whether all mission critical systems will
be ready and tested by late 1999 or what the impact failure of any particular IT
system(s) or of outside interfaces with IT systems might have.
Litigation
Certain litigation is pending against California or its officers or employees
that, if decided adversely, could require the State to make significant future
expenditures or could impair future revenue sources. Among the more significant
of these cases are those that involve: (i) liability for damages stemming from
the 1986 Yuba River flood. Damages of $500,000 were awarded to a sample of
plaintiffs. The State's potential liability to the remaining plaintiffs ranges
from $800 million to $1.5 billion. An appeal has been filed; (ii) a class action
lawsuit regarding property damages from 1997 flooding in Northern California
with potential liability of $2 billion; (iii) law-suits seeking reimbursement
for alleged state-mandated costs for special education programs for handicapped
students with potential liability of over $1 billion; (iv) lawsuits related to
contamination at the Stringfellow toxic waste site seeking recovery for past
cost of clean-up estimated at $400 million to $600 million; (v) a challenge to
the authority of the State Controller to make payments from the State Treasury
in the absence of a state budget; (vi) challenges to the amendment of statutes
prescribing specific percentages of tobacco tax revenues to be placed in
accounts to be used for health education, research programs and medical
treatment programs involving appropriations of approximately $166 million; (vii)
a suit brought by various counties of California against the State regarding
whether property tax shifts from counties to school districts is a reimbursable
state mandated cost. The impact to the General Fund could be as high as $10.0
billion; (viii) a ruling that transfers of moneys from the State Highway Account
and the Motor Vehicle Account to the General Fund in excess of $160 million
violated the California Constitution; (ix) challenges to the validity of two
sections of the California tax laws relating to deductions from corporate taxes
with potential liability in excess of $200 million annually; (x) an action to
compel a change in early screening procedures for children with mental health
needs with potential liability of $500 million per year; (xi) University of
California and the special purposes authorities are contingently liable in
connection with claims and contracts arising in the normal course of their
activities. The outcome of such matters is not expected to have a material
effect on the financial statements or cannot be estimated at this time; (xii)
cases brought against the State seeking payments under the AFDC-Foster Care
program with potential liability in excess of $200 million.
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Appendix C
HISTORY OF J. & W. SELIGMAN & CO. INCORPORATED
Seligman's beginnings date back to 1837, when Joseph Seligman, the oldest
of eight brothers, arrived in the United States from Germany. He earned his
living as a pack peddler in Pennsylvania, and began sending for his brothers.
The Seligmans became successful merchants, establishing businesses in the South
and East.
Backed by nearly thirty years of business success - culminating in the sale
of government securities to help finance the Civil War - Joseph Seligman, with
his brothers, established the international banking and investment firm of J. &
W. Seligman & Co. In the years that followed, the Seligman Complex played a
major role in the geographical expansion and industrial development of the
United States.
The Seligman Complex:
...Prior to 1900
o Helps finance America's fledgling railroads through underwritings.
o Is admitted to the New York Stock Exchange in 1869. Seligman remained a
member of the NYSE until 1993, when the evolution of its business made it
unnecessary.
o Becomes a prominent underwriter of corporate securities, including New York
Mutual Gas Light Company, later part of Consolidated Edison.
o Provides financial assistance to Mary Todd Lincoln and urges the Senate to
award her a pension.
o Is appointed U.S. Navy fiscal agent by President Grant.
o Becomes a leader in raising capital for America's industrial and urban
development.
...1900-1910
o Helps Congress finance the building of the Panama Canal.
...1910s
o Participates in raising billions for Great Britain, France and Italy,
helping to finance World War I.
...1920s
o Participates in hundreds of successful underwritings including those for
some of the Country's largest companies: Briggs Manufacturing, Dodge
Brothers, General Motors, Minneapolis-Honeywell Regulatory Company, Maytag
Company, United Artists Theater Circuit and Victor Talking Machine Company.
o Forms Tri-Continental Corporation in 1929, today the nation's largest,
diversified closed-end equity investment company, with over $2 billion in
assets and one of its oldest.
...1930s
o Assumes management of Broad Street Investing Co. Inc., its first mutual
fund, today known as Seligman Common Stock Fund, Inc.
o Establishes Investment Advisory Service.
47
<PAGE>
...1940s
o Helps shape the Investment Company Act of 1940.
o Leads in the purchase and subsequent sale to the public of Newport News
Shipbuilding and Dry Dock Company, a prototype transaction for the
investment banking industry.
o Assumes management of National Investors Corporation, today Seligman Growth
Fund, Inc.
o Establishes Whitehall Fund, Inc., today Seligman Income Fund, Inc.
...1950-1989
o Develops new open-end investment companies. Today, manages more than 40
mutual fund portfolios.
o Helps pioneer state-specific, municipal bond funds, today managing a
national and 18 state-specific municipal funds.
o Establishes J. & W. Seligman Trust Company and J. & W. Seligman Valuations
Corporation.
o Establishes Seligman Portfolios, Inc., an investment vehicle offered
through variable annuity products.
...1990s
o Introduces Seligman Select Municipal Fund and Seligman Quality Municipal
Fund, two closed-end funds that invest in high quality municipal bonds.
o In 1991 establishes a joint venture with Henderson plc, of London, known as
Seligman Henderson Co., to offer global investment products.
o Introduces to the public Seligman Frontier Fund, Inc., a small
capitalization mutual fund.
o Launches Seligman Henderson Global Fund, Inc., which today offers five
separate series: Seligman Henderson International Fund, Seligman Henderson
Global Smaller Companies Fund, Seligman Henderson Global Technology Fund,
Seligman Henderson Global Growth Opportunities Fund and Seligman Henderson
Emerging Markets Growth Fund.
o Launches Seligman Value Fund Series, which currently offers two separate
series: Seligman Large-Cap Value Fund and Seligman Small-Cap Value Fund.
48
<PAGE>
SELIGMAN MUNICIPAL SERIES TRUST
Seligman North Carolina Municipal Series
Statement of Additional Information
June 1, 1999
100 Park Avenue
New York, New York 10017
(212) 850-1864
Toll Free Telephone: (800) 221-2450
This Statement of Additional Information (SAI) expands upon and supplements the
information contained in the current Prospectus of Seligman Municipal Funds,
dated June 1, 1999. This SAI, although not in itself a prospectus, is
incorporated by reference into the Prospectus in its entirety. It should be read
in conjunction with the Prospectus, which may be obtained by writing or calling
the Funds at the above address or telephone numbers.
The financial statements and notes included in the Fund's Annual Report and
Mid-Year Report, and the Independent Auditors' Reports thereon, are incorporated
herein by reference. The Annual Report and Mid-Year Report will be furnished to
you without charge if you request a copy of this SAI.
Table of Contents
Fund History .............................................................. 2
Description of the Fund and Its Investments and Risks ..................... 2
Management of the Fund .................................................... 8
Control Persons and Principal Holders of Securities ....................... 13
Investment Advisory and Other Services .................................... 13
Brokerage Allocation and Other Practices .................................. 18
Shares of Beneficial Interest and Other Securities ........................ 19
Purchase, Redemption, and Pricing of Shares ............................... 19
Taxation of the Fund ...................................................... 24
Underwriters .............................................................. 26
Calculation of Performance Data ........................................... 27
Financial Statements ...................................................... 29
General Information ....................................................... 29
Appendix A ................................................................ 32
Appendix B ................................................................ 35
Appendix C ................................................................ 36
<PAGE>
Fund History
Seligman Municipal Series Trust was organized as an unincorporated business
trust under the laws of the Commonwealth of Massachusetts by a Declaration of
Trust dated July 27, 1984.
Description of the Fund and Its Investments and Risks
Classification
Seligman Municipal Series Trust is a non-diversified, open-end management
investment company, or mutual fund. It consists of four separate series, one of
which is discussed in this SAI:
Seligman California Municipal High-Yield Series
Seligman California Municipal Quality Series
Seligman Florida Municipal Series
Seligman North Carolina Municipal Series (North Carolina Fund)
Investment Strategies and Risks
The Fund seeks to provide high income exempt from regular federal income taxes
and the personal income taxes of North Carolina consistent with preservation of
capital. The Fund also invests with consideration given to capital gain.
The Fund is expected to invest principally, without percentage limitations, in
municipal securities which on the date of purchase are rated within the four
highest rating categories of Moody's Investors Service (Moody's) or Standard &
Poor's Corporation (S&P). Municipal Securities rated in these categories are
commonly referred to as investment grade. The Fund may invest in municipal
securities that are not rated, or which do not fall into the credit ratings
noted above if, based upon credit analysis, it is believed that such securities
are of comparable quality. In determining suitability of investment in a lower
rated or unrated security, the Fund will take into consideration asset and debt
service coverage, the purpose of the financing, history of the issuer, existence
of other rated securities of the issuer and other considerations as may be
relevant, including comparability to other issuers.
Although securities rated in the fourth rating category are commonly referred to
as investment grade, investment in such securities could involve risks not
usually associated with bonds rated in the first three categories. Bonds rated
BBB by S&P are more likely as a result of adverse economic conditions or
changing circumstance to exhibit a weakened capacity to pay interest and re-pay
principal than bonds in higher rating categories and bonds rated Baa by Moody's
lack outstanding investment characteristics and in fact have speculative
characteristics according to Moody's. Municipal securities in the fourth rating
category of S&P or Moody's will generally provide a higher yield than do higher
rated municipal securities of similar maturities; however, they are subject to a
greater degree of fluctuation in value as a result of changing interest rates
and economic conditions. The market value of the municipal securities will also
be affected by the degree of interest of dealers to bid for them, and in certain
markets dealers may be more unwilling to trade municipal securities rated in the
fourth rating categories than in the higher rating categories.
A description of the credit rating categories is contained in Appendix A to this
Statement.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities and for providing state and local governments
with federal credit assistance. Reevaluation of the Fund's investment objectives
and structure might be necessary in the future due to market conditions that may
result from future changes in the tax laws.
North Carolina Municipal Securities. North Carolina Municipal Securities include
notes, bonds and commercial paper issued by or on behalf of the State of North
Carolina, its political subdivisions, agencies, and instrumentalities, the
interest on which is exempt from regular federal income taxes and
2
<PAGE>
North Carolina state personal income taxes. Such securities are traded primarily
in an over-the-counter market. The Fund may invest, without percentage
limitations, in certain private activity bonds, the interest on which is treated
as a preference item for purposes of the alternative minimum tax.
Under the Investment Company Act of 1940, as amended (1940 Act), the
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision is regarded
as the sole issuer. Similarly, in the case of an industrial development revenue
bond or pollution control revenue bond, if only the assets and revenues of the
non-governmental user back the bond, the non-governmental user is regarded as
the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the security is treated as an issue of such guarantor
to the extent of the value of the guarantee.
The Fund invests principally in long-term municipal bonds. Municipal bonds are
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets, water and sewer
works, and gas and electric utilities. Municipal bonds also may be issued in
connection with the refunding of outstanding obligations, obtaining funds to
lend to other public institutions, and for general operating expenses.
Industrial development bonds are issued by or on behalf of public authorities to
obtain funds to provide various privately-operated facilities for business and
manufacturing, housing, sports, pollution control, and for airport, mass
transit, port and parking facilities.
The two principal classifications of municipal bonds are "general obligation"
and "revenue." General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source. Although industrial
development bonds (IDBs) are issued by municipal authorities, they are generally
secured by the revenues derived from payments of the industrial user. The
payment of principal and interest on IDBs is dependent solely on the ability of
the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
The Fund, with respect to 75% of its assets, will not purchase any revenue bonds
if as a result of such purchase more than 5% of the Fund's assets would be
invested in the revenue bonds of a single issuer.
The Fund may also invest in municipal notes. Municipal notes generally are used
to provide for short-term capital needs and generally have maturities of five
years or less. Municipal Notes include:
1. Tax Anticipation Notes and Revenue Anticipation Notes. Tax anticipation
notes and revenue anticipation notes are issued to finance short-term working
capital needs of political subdivisions. Generally, tax anticipation notes are
issued in anticipation of various tax revenues, such as income, sales and real
property taxes, and are payable from these specific future taxes. Revenue
anticipation notes are issued in expectation of receipt of other kinds of
revenue, such as grant or project revenues. Usually political subdivisions issue
notes combining the qualities of both tax and revenue anticipation notes.
2. Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the notes.
Issues of municipal Commercial Paper typically represent short-term, unsecured,
negotiable promissory notes. In most cases, municipal commercial paper is backed
by letters of credit, lending agreements, note repurchase agreements or other
credit facility agreements offered by banks or other institutions.
Variable and Floating Rate Securities. The Fund may purchase floating or
variable rate securities, including participation interests therein. Investments
in floating or variable rate provide that the rate of interest is either pegged
to money market rates or set as a specific percentage of a designated base rate,
3
<PAGE>
such as rates on Treasury Bonds or Treasury Bills or the prime rate of a major
commercial bank. A floating rate or variable rate security generally provides
that the Fund can demand payment of the obligation on short notice (daily or
weekly, depending on the terms of the obligation) at an amount equal to par
(face value) plus accrued interest. In unusual circumstances, the amount
received may be more or less than the amount the Fund paid for the securities.
Variable rate securities provide for a specified periodic adjustment in the
interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
Frequently such securities are secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying creditor
or of the bank or issuer, as the case may be, must be equivalent to the
standards set forth with respect to taxable investments below.
The maturity of variable or floating rate obligations (including participation
interests therein) is deemed to be the longer of (1) the notice period required
before the Fund is entitled to receive payment of the obligation upon demand, or
(2) the period remaining until the obligation's next interest rate adjustment.
If the Fund does not redeem the obligation through the demand feature, the
obligation will mature on a specific date, which may range up to thirty years
from the date of its issuance.
Participation Interests. From time to time, the Fund may purchase from banks,
participation interests in all or part of specific holdings of municipal
securities. A participation interest gives the Fund an undivided interest in the
municipal security in the proportion that the Fund's participation interest
bears to the total principal amount of the municipal security and provides the
demand repurchase feature described above. Participations are frequently backed
by an irrevocable letter of credit or guarantee of a bank that the Fund has
determined meets its prescribed quality standards. The Fund has the right to
sell the instrument back to the bank and draw on the letter of credit on demand,
on short notice, for all or any part of the Fund's participation interest in the
municipal security, plus accrued interest. The Fund intends to exercise the
demand under the letter of credit only (1) upon a default under the terms of the
documents of the municipal security, (2) as needed to provide liquidity in order
to meet redemptions, or (3) to maintain a high quality investment portfolio.
Banks will retain a service and letter of credit fee and a fee for issuing
repurchase commitments in an amount equal to the excess of the interest paid on
the municipal securities over the negotiated yield at which the instruments are
purchased by the Fund. Participation interests will be purchased only if, in the
opinion of counsel, interest income on such interests will be tax-exempt when
distributed as dividends to shareholders of the Fund. The Fund currently does
not purchase participation interests and has no current intention of doing so.
When-Issued Securities. The Fund may purchase municipal securities on a
"when-issued" basis, which means that delivery of and payment for securities
normally take place in less than 45 days after the date of the buyer's purchase
commitment. The payment obligation and the interest rate on when-issued
securities are each fixed at the time the purchase commitment is made, although
no interest accrues to a purchaser prior to the settlement of the purchase of
the securities. As a result, the yields obtained and the market value of such
securities may be higher or lower on the date the securities are actually
delivered to the buyer. The Fund will generally purchase a municipal security
sold on a when-issued basis with the intention of actually acquiring the
securities on the settlement date.
A separate account consisting of cash or high-grade liquid debt securities equal
to the amount of outstanding purchase commitments is established with the Fund's
custodian in connection with any purchase of when-issued securities. The account
is marked to market daily, with additional cash or liquid high-grade debt
securities added when necessary. The Fund meets its respective obligation to
purchase when-issued securities from outstanding cash balances, sale of other
securities or, although it would not normally expect to do so, from the sale of
the when-issued securities themselves (which may have a market value greater or
lesser than the Fund's payment obligations).
Municipal securities purchased on a when-issued basis and the other securities
held in the Fund are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates (which will generally result in
similar changes in value, i.e., both experiencing appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent the Fund remains substantially fully invested at the same
4
<PAGE>
time that it has purchased securities on a when-issued basis, there will be a
greater possibility that the market value of the Fund's assets will vary.
Purchasing a municipal security on a when-issued basis can involve a risk that
the yields available in the market when the delivery takes place may be higher
than those obtained on the security purchased on a when-issued basis.
Standby Commitments. The Fund is authorized to acquire standby commitments
issued by banks with respect to securities they hold, although the Fund has no
present intention of investing any assets in standby commitments. These
commitments would obligate the seller of the standby commitment to repurchase,
at the Fund's option, specified securities at a specified price.
The price which the Fund would pay for municipal securities with standby
commitments generally would be higher than the price which otherwise would be
paid for the municipal securities alone, and the Fund would use standby
commitments solely to facilitate portfolio liquidity. The standby commitment
generally is for a shorter term than the maturity of the security and does not
restrict in any way the Fund's right to dispose of or retain the security. There
is a risk that the seller of a standby commitment may not be able to repurchase
the security upon the exercise of the right to resell by the Fund. To minimize
such risks, the Fund is presently authorized to acquire standby commitments
solely from banks deemed creditworthy. The Board of Trustees may, in the future,
consider whether the Fund should be permitted to acquire standby commitments
from dealers. Prior to investing in standby commitments of dealers, the Fund, if
it deems necessary based upon the advice of counsel, will apply to the
Securities and Exchange Commission for an exemptive order relating to such
commitments and the valuation thereof. There can be no assurance that the
Securities and Exchange Commission will issue such an order.
Standby commitments with respect to portfolio securities of the Fund with
maturities of less than 60 days which are separate from the underlying portfolio
securities are not assigned a value. The cost of any such standby commitments is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. Standby commitments with respect to portfolio securities of the Fund
with maturities of 60 days or more which are separate from the underlying
portfolio securities are valued at fair value as determined in accordance with
procedures established by the Board of Trustees. The Board of Trustees would, in
connection with the determination of value of such a standby commitment,
consider, among other factors, the creditworthiness of the writer of the standby
commitment, the duration of the standby commitment, the dates on which or the
periods during which the standby commitment may be exercised and the applicable
rules and regulations of the Securities and Exchange Commission.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities, including restricted securities (i.e., securities not readily
marketable without registration under the Securities Act of 1933 (1933 Act)) and
other securities that are not readily marketable. The Fund may purchase
restricted securities that can be offered and sold to "qualified institutional
buyers" under Rule 144A of the 1933 Act, and the Fund's Board of Trustees, may
determine, when appropriate, that specific Rule 144A securities are liquid and
not subject to the 15% limitation on illiquid securities. Should the Board of
Trustees make this determination, it will carefully monitor the security
(focusing on such factors, among others, as trading activity and availability of
information) to determine that the Rule 144A security continues to be liquid. It
is not possible to predict with assurance exactly how the market for Rule 144A
securities will further evolve. This investment practice could have the effect
of increasing the level of illiquidity in the Fund, if and to the extent that
qualified institutional buyers become for a time uninterested in purchasing Rule
144A securities.
Borrowing. The Fund may borrow money only from banks and only for temporary or
emergency purposes (but not for the purchase of portfolio securities) in an
amount not in excess of 10% of the value of its total assets at the time the
borrowing is made (not including the amount borrowed). Permitted borrowings may
be secured or unsecured. The Fund will not purchase additional portfolio
securities if the Fund has outstanding borrowings in excess of 5% of the value
of its total assets.
Taxable Investments. Under normal market conditions, the Fund will attempt to
invest 100% and as a matter of fundamental policy will invest at least 80% of
the value of its net assets in securities the interest on which is exempt from
regular federal income tax and California personal income tax. Such interest,
however, may be subject to the federal alternative minimum tax.
5
<PAGE>
Under normal market conditions, temporary investments in taxable securities will
be limited as a matter of fundamental policy to 20% of the value of the Fund's
net assets.
Except as otherwise specifically noted above, the Fund's investment strategies
are not fundamental and a Fund, with the approval of the Board of Trustees, may
change such strategies without the vote of shareholders.
Fund Policies
The Fund is subject to fundamental policies that place restrictions on certain
types of investments. These policies cannot be changed except by vote of a
majority of the outstanding voting securities of a Fund. Under these policies,
the Fund may not:
- - Borrow money, except from banks for temporary purposes (such as meeting
redemption requests or for extraordinary or emergency purposes but not for
the purchase of portfolio securities) in an amount not to exceed 10% of the
value of its total assets at the time the borrowing is made (not including
the amount borrowed). The Fund will not purchase additional portfolio
securities if the Fund has outstanding borrowings in excess of 5% of the
value of its total assets;
- - Mortgage or pledge any of its assets, except to secure permitted borrowings
noted above;
- - Invest more than 25% of total assets at market value in any one industry;
except that municipal securities and securities of the US Government, its
agencies and instrumentalities are not considered an industry for purposes
of this limitation.
- - As to 50% of the value of its total assets, purchase securities of any
issuer if immediately thereafter more than 5% of total assets at market
value would be invested in the securities of any issuer (except that this
limitation does not apply to obligations issued or guaranteed as to
principal and interest by the US Government or its agencies or
instrumentalities);
- - Invest in securities issued by other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization or
for the purpose of hedging the Fund's obligations under the Deferred
Compensation Plan for Directors;
- - Purchase or hold any real estate, except that the Fund may invest in
securities secured by real estate or interests therein or issued by persons
(other than real estate investment trusts) which deal in real estate or
interests therein;
- - Purchase or hold the securities of any issuer, if to its knowledge,
trustees or officers of the Fund individually owning beneficially more than
0.5% of the securities of that issuer own in the aggregate more than 5% of
such securities;
- - Write or purchase put, call, straddle or spread options; purchase
securities on margin or sell "short"; or underwrite the securities of other
issuers, except that the Fund may be deemed an underwriter in connection
with the purchase and sale of portfolio securities;
- - Purchase or sell commodities or commodity contracts including futures
contracts; or
- - Make loans, except to the extent that the purchase of notes, bonds or other
evidences of indebtedness or deposits with banks may be considered loans.
The Fund also may not change its investment objective without shareholder
approval.
6
<PAGE>
Under the 1940 Act, a "vote of a majority of the outstanding voting securities"
of a Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or (2) 67% or more of the shares of the Fund
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
Temporary Defensive Position
In abnormal market conditions, if, in the judgment of the Fund, municipal
securities satisfying the Fund's investment objectives may not be purchased, the
Fund may, for defensive purposes, temporarily invest in instruments the interest
on which is exempt from regular federal income taxes, but not state personal
income taxes. Such securities would include those described under "California
Municipal Securities" above that would otherwise meet the Fund's objectives.
Also, in abnormal market conditions, the Fund may invest on a temporary basis in
fixed-income securities, the interest on which is subject to federal, state, or
local income taxes, pending the investment or reinvestment in municipal
securities of the proceeds of sales of shares or sales of portfolio securities,
in order to avoid the necessity of liquidating portfolio investments to meet
redemptions of shares by investors or where market conditions due to rising
interest rates or other adverse factors warrant temporary investing for
defensive purposes. Investments in taxable securities will be substantially in
securities issued or guaranteed by the United States Government (such as bills,
notes and bonds), its agencies, instrumentalities or authorities; highly-rated
corporate debt securities (rated Aa3 or better by Moody's or AA- or better by
S&P); prime commercial paper (rated P-1 by Moody's or A-1+/A-1 by S&P); and
certificates of deposit of the 100 largest domestic banks in terms of assets
which are subject to regulatory supervision by the US Government or state
governments and the 50 largest foreign banks in terms of assets with branches or
agencies in the United States. Investments in certificates of deposit of foreign
banks and foreign branches of US banks may involve certain risks, including
different regulation, use of different accounting procedures, political or other
economic developments, exchange controls, or possible seizure or nationalization
of foreign deposits.
Portfolio Turnover
Portfolio transactions will be undertaken principally to accomplish the Fund's
objective in relation to anticipated movements in the general level of interest
rates but the Fund may also engage in short-term trading consistent with its
objective. Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what the
investment manager believes to be a temporary disparity in the normal yield
relationship between the two securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned during the year.
Securities whose maturity or expiration date at the time of acquisition were one
year or less are excluded from the calculation. The Fund's portfolio turnover
rates for the fiscal years ended September 30, 1998 and 1997, were 20.37% and
13.04 %, respectively. The fluctuation in portfolio turnover rates of the Fund
resulted from conditions in the North Carolina municipal market. The Fund's
portfolio turnover rate will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities.
7
<PAGE>
Management of the Fund
Board of Trustees
The Board of Trustees of Seligman Municipal Series Trust provides broad
supervision over the affairs of the Fund.
Management Information
Trustees and officers of the Fund, together with information as to their
principal business occupations during the past five years, are shown below. Each
Trustee who is an "interested person" of the Fund, as defined in the 1940 Act,
is indicated by an asterisk. Unless otherwise indicated, their addresses are 100
Park Avenue, New York, NY 10017.
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
William C. Morris* Trustee, Chairman of the Board, Chief Chairman, J. & W. Seligman & Co. Incorporated, Chairman
(61) Executive Officer and Chairman of the and Chief Committee Executive Officer, the Seligman
Executive Group of investment companies; Chairman, Seligman
Advisors, Inc, Seligman Services, Inc., and Carbo
Ceramics Inc., ceramic proppants for oil and gas
industry; and Director, Seligman Data Corp., Kerr-McGee
Corporation, diversified energy company. Formerly,
Director, Daniel Industries Inc., manufacturer of oil
and gas metering equipment.
Brian T. Zino* Trustee, President and Member of the Director and President, J. & W. Seligman & Co.
(46) Executive Committee Incorporated; President (with the exception of Seligman
Quality Municipal Fund, Inc. and Seligman Select
Municipal Fund, Inc.) and Director or Trustee, the
Seligman Group of investment companies; Chairman,
Seligman Data Corp.; Member of the Board of Governors
of the Investment Company Institute and Director, ICI
Mutual Insurance Company, Seligman Advisors, Inc., and
Seligman Services, Inc.
Richard R. Schmaltz* Trustee and Member of the Executive Director and Managing Director, Director of
(58) Committee Investments, J. & W. Seligman & Co. Incorporated;
Director or Trustee, the Seligman Group of investment
companies (except Seligman Cash Management Fund, Inc.);
Director, Seligman Henderson Co., and Trustee Emeritus
of Colby College. Formerly, Director, Investment
Research at Neuberger & Berman from May 1993 to
September 1996.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
John R. Galvin Trustee Dean, Fletcher School of Law and Diplomacy at Tufts
(69) University; Director or Trustee, the Seligman Group of
Tufts University investment companies; Chairman Emeritus, American
Packard Avenue, Council on Germany; Governor of the Center for Creative
Medford, MA 02155 Leadership; Director; Raytheon Co., electronics;
National Defense University; and the Institute for
Defense Analysis. Formerly, Director, USLIFE
Corporation, life insurance; Ambassador, U.S. State
Department for negotiations in Bosnia; Distinguished
Policy Analyst at Ohio State University and Olin
Distinguished Professor of National Security Studies at
the United States Military Academy. From June 1987 to
June 1992, he was the Supreme Allied Commander, Europe
and the Commander-in-Chief, United States European
Command.
Alice S. Ilchman Trustee Retired President, Sarah Lawrence College; Director or
(64) Trustee, the Seligman Group of investment companies;
18 Highland Circle Trustee, the Committee for Economic Development; and
Bronxville, NY 10708 Chairman, The Rockefeller Foundation, charitable
foundation. Formerly, Trustee, The Markle Foundation,
philanthropic organization; and Director, New York
Telephone Company and International Research and
Exchange Board, intellectual exchanges.
Frank A. McPherson Trustee Retired Chairman and Chief Executive Officer of
(66) Kerr-McGee Corporation; Director or Trustee, the
2601 Northwest Expressway, Seligman Group of investment companies; Director,
Suite 805E Kimberly-Clark Corporation, consumer products; Bank of
Oklahoma City, OK 73112 Oklahoma Holding Company; Baptist Medical Center;
Oklahoma Chapter of the Nature Conservancy; Oklahoma
Medical Research Foundation; and National Boys and
Girls Clubs of America; and Member of the Business
Roundtable and National Petroleum Council. Formerly,
Chairman, Oklahoma City Public Schools Foundation; and
Director, Federal Reserve System's Kansas City Reserve
Bank and the Oklahoma City Chamber of Commerce.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
John E. Merow Trustee Retired Chairman and Senior Partner, Sullivan &
(69) Cromwell, law firm; Director or Trustee, the Seligman
125 Broad Street, Group of investment companies; Director, Commonwealth
New York, NY 10004 Industries, Inc., manufacturers of aluminum sheet
products; the Foreign Policy Association; Municipal Art
Society of New York; the U.S. Council for International
Business; and New York Presbyterian Hospital; Chairman,
American Australian Association; and New York
Presbyterian Healthcare Network, Inc.; Vice-Chairman,
the U.S.-New Zealand Council; and Member of the
American Law Institute and Council on Foreign
Relations.
Betsy S. Michel Trustee Attorney; Director or Trustee, the Seligman Group of
(56) investment companies; Trustee, The Geraldine R. Dodge
P.O. Box 449 Foundation, charitable foundation; and Chairman of the
Gladstone, NJ 07934 Board of Trustees of St. George's School (Newport, RI).
Formerly, Director, the National Association of
Independent Schools (Washington, DC).
James C. Pitney Trustee Retired Partner, Pitney, Hardin, Kipp & Szuch, law
(72) firm; Director or Trustee, the Seligman Group of
Park Avenue at Morris County, investment companies. Formerly, Director, Public
P.O. Box 945, Service Enterprise Group, public utility.
Morristown, NJ 07962
James Q. Riordan Trustee Director or Trustee, the Seligman Group of investment
(71) companies; Director, The Houston Exploration Company;
675 Third Avenue, The Brooklyn Museum, KeySpan Energy Corporation; and
Suite 3004 Public Broadcasting Service; and Trustee, the Committee
New York, NY 10017 for Economic Development. Formerly, Co-Chairman of the
Policy Council of the Tax Foundation; Director, Tesoro
Petroleum Companies, Inc. and Dow Jones & Company,
Inc.; Director and President, Bekaert Corporation; and
Co-Chairman, Mobil Corporation.
Robert L. Shafer Trustee Retired Vice President, Pfizer Inc.; Director or
(66) Trustee, the Seligman Group of investment companies.
96 Evergreen Avenue, Formerly, Director, USLIFE Corporation.
Rye, NY 10580
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
James N. Whitson Trustee Director and Consultant, Sammons Enterprises, Inc.;
(64) Director or Trustee, the Seligman Group of investment
6606 Forestshire Drive companies; Director, C-SPAN and CommScope, Inc.,
Dallas, TX 75230 manufacturer of coaxial cables. Formerly, Executive
Vice President, Chief Operating Officer, Sammons
Enterprises, Inc.; and Director, Red Man Pipe and
Supply Company, piping and other materials.
Thomas G. Moles Vice President and Senior Director and Managing Director, J. & W. Seligman & Co.
(56) Portfolio Manager Incorporated; Vice President and Senior Portfolio
Manager, three other open-end investment companies in
the Seligman Group of investment companies; President
and Senior Portfolio Manager, Seligman Quality
Municipal Fund, Inc. and Seligman Select Municipal
Fund, Inc., closed-end investment companies; and
Director, Seligman Advisors, Inc. and Seligman
Services, Inc.
Lawrence P. Vogel Vice President Senior Vice President, Finance, J. & W. Seligman & Co.
(42) Incorporated, Seligman Advisors, Inc., and Seligman
Data Corp.; Vice President, the Seligman Group of
investment companies and Seligman Services, Inc.; and
Vice President and Treasurer, Seligman International,
Inc., and Treasurer, Seligman Henderson Co.
Frank J. Nasta Secretary General Counsel, Senior Vice President, Law and
(34) Regulation and Corporate Secretary, J. & W. Seligman &
Co. Incorporated; Secretary, the Seligman Group of
investment companies, Seligman Advisors, Inc., Seligman
Henderson Co., Seligman Services, Inc., Seligman
International, Inc. and Seligman Data Corp.
Thomas G. Rose Treasurer Treasurer, the Seligman Group of investment companies
(41) and Seligman Data Corp.
</TABLE>
The Executive Committee of the Board acts on behalf of the Board between
meetings to determine the value of securities and assets owned by the Funds for
which no market valuation is available, and to elect or appoint officers of the
Funds to serve until the next meeting of the Board.
Trustees and officers of the Fund are also directors and officers of some or all
of the other investment companies in the Seligman Group.
11
<PAGE>
<TABLE>
<CAPTION>
Compensation
Pension or Total Compensation
Aggregate Retirement Benefits from Funds and
Name and Compensation Accrued as Part of Fund Complex Paid
Position with Fund from Fund (1) Fund Expenses to Trustees (1)(2)
------------------ ------------- ------------------- -------------------
<S> <C> <C> <C>
William C. Morris, Trustee and Chairman N/A N/A N/A
Brian T. Zino, Trustee and President N/A N/A N/A
Richard R. Schmaltz, Trustee N/A N/A N/A
John R. Galvin, Trustee $582 N/A $77,000
Alice S. Ilchman, Trustee 509 N/A 70,000
Frank A. McPherson, Trustee 560 N/A 75,000
John E. Merow, Trustee 550 N/A 74,000
Betsy S. Michel, Trustee 582 N/A 77,000
James C. Pitney, Trustee 530 N/A 72,000
James Q. Riordan, Trustee 530 N/A 72,000
Robert L. Shafer, Trustee 530 N/A 72,000
James N. Whitson, Trustee 581(d) N/A 77,000(d)
</TABLE>
- ----------
(1) For the Fund's fiscal year ended September 30, 1998. Effective January 16,
1998, the per meeting fee for Trustees was increased by $1,000, which is
allocated among all funds in the Fund Complex.
(2) The Seligman Group of investment companies consists of eighteen investment
companies.
(d) Deferred.
Seligman Municipal Series Trust has a compensation arrangement under which
outside trustees may elect to defer receiving their fees. Seligman Municipal
Series Trust has adopted a Deferred Compensation Plan under which a trustee who
has elected deferral of his or her fees may choose a rate of return equal to
either (1) the interest rate on short-term Treasury bills, or (2) the rate of
return on the shares of any of the investment companies advised by J. & W.
Seligman & Co. Incorporated, as designated by the trustee. The cost of such fees
and earnings is included in trustees' fees and expenses, and the accumulated
balance thereof is included in other liabilities in the Fund's financial
statements. The total amount of deferred compensation (including earnings)
payable in respect of the Fund to Mr. Whitson as of September 30, 1998 was
$2,027.
Messrs. Merow and Pitney no longer defer current compensation; however, they
have accrued deferred compensation in the amounts of $4,150 and $3,039,
respectively, as of September 30, 1998.
The Fund may, but is not obligated to, purchase shares of the Seligman Group of
investment companies to hedge its obligations in connection with the Deferred
Compensation Plan.
Sales Charges
Class A shares of the Fund may be issued without a sales charge to present and
retired directors, trustees, officers, employees (and their family members) of
the Fund, the other investment companies in the Seligman Group, and J. & W.
Seligman & Co. Incorporated and its affiliates. Family members are defined to
include lineal descendents and lineal ancestors, siblings (and their spouses and
children) and any company or organization controlled by any of the foregoing.
Such sales also may be made to employee benefit plans for such persons and to
any investment advisory, custodial, trust or other fiduciary account managed or
advised by J. & W. Seligman & Co. Incorporated or any affiliate. These sales may
be made for investment purposes only, and shares may be resold only to the Fund.
Class A shares may be sold at net asset value to these persons since such sales
require less sales effort and lower sales related expenses as compared with
sales to the general public.
12
<PAGE>
Control Persons and Principal Holders of Securities
Control Persons
As of May 14, 1999, there was no person or persons who controlled the Fund,
either through significant ownership of Fund shares or any other means of
control.
Principal Holders
As of May 14, 1999, MLPF&S for the Sole Benefit of Its Customers, Attn Fund
Administration, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32246
owned of record 12.82% of the outstanding Class D shares of beneficial interest
of the Fund; Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303 owned of record 5.05% of the Fund's outstanding Class D
shares of beneficial interest; Edward D. Jones & Co F/A/O Don Davis, PO Box
2500, Maryland Heights, MO 63043 owned of record 11.24% of the Fund's
outstanding Class D shares of beneficial interest; Bailey Sellars Barnett, 1038
Bolling Road, Charlotte, NC 28207 owned of record 7.29% of the Fund's
outstanding Class D shares of beneficial interest, and, Carol M. Calderwood,
8351 Vintage Club Ctr, Wilmington, NC 28411 owned of record 5.11% of the Fund's
oustanding Class D shares of beneficial interest.
Management Ownership
As of May 14, 1999, no Trustees or officers of the Fund owned any shares of any
class of the Fund.
Investment Advisory and Other Services
Investment Manager
J. & W. Seligman & Co. Incorporated (Seligman) manages the Fund. Seligman is a
successor firm to an investment banking business founded in 1864 which has
thereafter provided investment services to individuals, families, institutions,
and corporations. On December 29, 1988, a majority of the outstanding voting
securities of Seligman was purchased by Mr. William C. Morris and a simultaneous
recapitalization of Seligman occurred. See Appendix C for further history of
Seligman.
All of the officers of the Fund listed above are officers or employees of
Seligman. Their affiliations with the Fund and with Seligman are provided under
their principal business occupations.
The Fund pays Seligman a management fee for its services, calculated daily and
payable monthly. The management fee is equal to .50% per annum of the Fund's
average daily net assets. For the fiscal years ended September 30, 1998, 1997,
and 1996, the Fund paid Seligman management fees in the amount of $168,365,
$176,659, and $187,874,respectively. Seligman, in its discretion, waived a
portion of its fee from the Fund in 1996, which resulted in an annual fee rate
of .49% of the Fund's average daily net assets.
The Fund pays all of its expenses other than those assumed by Seligman,
including brokerage commissions, if any, shareholder services and distribution
fees, fees and expenses of independent attorneys and auditors, taxes and
governmental fees, including fees and expenses of qualifying the Funds and their
shares under federal and state securities laws, cost of stock certificates and
expenses of repurchase or redemption of shares, expenses of printing and
distributing reports, notices and proxy materials to shareholders, expenses of
printing and filing reports and other documents with governmental agencies,
expenses of shareholders' meetings, expenses of corporate data processing and
related services, shareholder record keeping and shareholder account services,
fees and disbursements of transfer agents and custodians, expenses of disbursing
dividends and distributions, fees and expenses of the Trustees of the Fund not
employed by or serving as a director of Seligman or its affiliates, insurance
premiums and extraordinary expenses such as litigation expenses. These expenses
are allocated between the Funds in a manner determined by the Trustees to be
fair and equitable.
The Management Agreement also provides that Seligman will not be liable to the
Fund for any error of judgment or mistake of law, or for any loss arising out of
any investment, or for any act or omission in performing its duties under the
Management Agreement, except for willful misfeasance, bad faith, gross
negligence, or reckless disregard of its obligations and duties under the
Management Agreement.
13
<PAGE>
The Fund's Management Agreement was approved by the Trustees at a meeting held
on June 12, 1990, and was unanimously approved by the shareholders at a meeting
held on April 11, 1991. The Agreement will continue in effect until December 29
of each year if (1) such continuance is approved in the manner required by the
1940 Act (i.e., by a vote of a majority of the Trustees or of the outstanding
voting securities of the Fund and by a vote of a majority of the Trustees who
are not parties to the Management Agreement or interested persons of any such
party) and (2) Seligman shall not have notified the Fund at least 60 days prior
to December 29 of any year that it does not desire such continuance. The
Agreement may be terminated by the Fund, without penalty, on 60 days' written
notice to Seligman and will terminate automatically in the event of its
assignment. The Fund has agreed to change its name upon termination of its
Management Agreement if continued use of the name would cause confusion in the
context of Seligman's business.
Officers, directors and employees of Seligman are permitted to engage in
personal securities transactions, subject to Seligman's Code of Ethics. The Code
of Ethics proscribes certain practices with regard to personal securities
transactions and personal dealings, provides a framework for the reporting and
monitoring of personal securities transactions by Seligman's Compliance Officer,
and sets forth a procedure of identifying, for disciplinary action, those
individuals who violate the Code of Ethics. The Code of Ethics prohibits each of
the officers, directors and employees (including all portfolio managers) of
Seligman from purchasing or selling any security that the officer, director, or
employee knows or believes (1) was recommended by Seligman for purchase or sale
by any client, including the Fund, within the preceding two weeks, (2) has been
reviewed by Seligman for possible purchase or sale within the preceding two
weeks, (3) is being purchased or sold by any client, (4) is being considered by
a research analyst, (5) is being acquired in a private placement, unless prior
approval has been obtained from Seligman's Compliance Officer, or (6) is being
acquired during an initial or secondary public offering. The Code of Ethics also
imposes a strict standard of confidentiality and requires portfolio managers to
disclose any interest they may have in the securities or issuers that they
recommend for purchase by any client.
The Code of Ethics also prohibits (1) each portfolio manager or member of an
investment team from purchasing or selling any security within seven calendar
days of the purchase or sale of the security by a client's account (including
investment company accounts) for which the portfolio manager or investment team
manages; and (2) each employee from engaging in short-term trading (a purchase
and sale or vice-versa within 60 days). Any profit realized pursuant to either
of these prohibitions must be disgorged.
Officers, directors, and employees are required, except under very limited
circumstances, to engage in personal securities transactions through Seligman's
order desk. The order desk maintains a list of securities that may not be
purchased due to a possible conflict with clients. All officers, directors and
employees are also required to disclose all securities beneficially owned by
them on December 31 of each year.
Principal Underwriter
Seligman Advisors, Inc. (Seligman Advisors), an affiliate of Seligman, 100 Park
Avenue, New York, New York 10017, acts as general distributor of the shares of
the Fund and of the other mutual funds in the Seligman Group. Seligman Advisors
is an "affiliated person" (as defined in the 1940 Act) of Seligman, which is
itself an affiliated person of the Fund. Those individuals identified above
under "Management Information" as trustees or officers of both the Fund and
Seligman Advisors are affiliated persons of both entities.
Services Provided by the Investment Manager
Under the Management Agreement, dated June 21, 1990, subject to the control of
the Board of Trustees, Seligman manages the investment of the assets of the
Fund, including making purchases and sales of portfolio securities consistent
with the Fund's investment objectives and policies, and administers their
business and other affairs. Seligman provides the Fund with such office space,
administrative and other services and executive and other personnel as are
necessary for Fund operations. Seligman pays all of
14
<PAGE>
the compensation of trustees of the Fund who are employees or consultants of
Seligman and of the officers and employees of the Fund. Seligman also provides
senior management for Seligman Data Corp., the Fund's shareholder service agent.
Service Agreements
There are no other management-related service contracts under which services are
provided to the Fund.
Other Investment Advice
No person or persons, other than directors, officers, or employees of Seligman,
regularly advise the Fund with respect to its investments.
Dealer Reallowances
Dealers and financial advisors receive a percentage of the initial sales charge
on sales of Class A shares and Class C shares of the Fund, as set forth below:
<TABLE>
<CAPTION>
Class A shares:
Regular Dealer
Sales Charge Sales Charge Reallowance
as a % of as a % of Net As a % of
Amount of Purchase Offering Price(1) Amount Invested Offering Price
- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.25%
$50,000 - $ 99,999 4.00 4.17 3.50
$100,000 - $249,999 3.50 3.63 3.00
$250,000 - $499,999 2.50 2.56 2.25
$500,000 - $999,999 2.00 2.04 1.75
$1,000,000 and over(2) 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
(2) You will not pay a sales charge on purchases of $1 million or more, but you
will be subject to a 1% CDSC if you sell your shares within 18 months.
<TABLE>
<CAPTION>
Class C shares:
Regular Dealer
Sales Charge Sales Charge Reallowance
as a % of as a % of Net As a % of
Amount of Purchase Offering Price(1) Amount Invested Offering Price
- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000 1.00% 1.01% 1.00%
$100,000 - $249,999 0.50 0.50 0.50
$250,000 - $1,000,000(2) 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
(2) Your purchase of Class C shares must be for less than $1,000,000 because if
you invest $1,000,000 or more, you will pay less in fees and charges if you
buy Class A shares.
Seligman Services, Inc. (Seligman Services), an affiliate of Seligman, is a
limited purpose broker/dealer. Seligman Services is eligible to receive
commissions from certain sales of Fund shares. For fiscal years ended September
30, 1998, 1997, and 1996, Seligman Services received commissions in the amounts
of $975, $0, and $5, respectively.
15
<PAGE>
Rule 12b-1 Plan
Seligman Municipal Series Trust has adopted an Administration, Shareholder
Services and Distribution Plan (12b-1 Plan) in accordance with Section 12(b) of
the 1940 Act and Rule 12b-1 thereunder.
Under the 12b-1 Plan, the Fund may pay to Seligman Advisors an administration,
shareholder services and distribution fee in respect of the Fund's Class A,
Class C, and Class D shares. Payments under the 12b-1 Plan may include, but are
not limited to: (1) compensation to securities dealers and other organizations
(Service Organizations) for providing distribution assistance with respect to
assets invested in the Fund; (2) compensation to Service Organizations for
providing administration, accounting and other shareholder services with respect
to Fund shareholders; and (3) otherwise promoting the sale of shares of the
Fund, including paying for the preparation of advertising and sales literature
and the printing and distribution of such promotional materials and prospectuses
to prospective investors and defraying Seligman Advisors' costs incurred in
connection with its marketing efforts with respect to shares of the Fund.
Seligman, in its sole discretion, may also make similar payments to Seligman
Advisors from its own resources, which may include the management fee that
Seligman receives from the Fund. Payments made by the Fund under the 12b-1 Plan
are intended to be used to encourage sales of the Fund, as well as to discourage
redemptions.
Fees paid by the Fund under the 12b-1 Plan with respect to any class of shares
may not be used to pay expenses incurred solely in respect of any other class or
any other Seligman fund. Expenses attributable to more than one class of the
Fund are allocated between the classes in accordance with a methodology approved
by the Fund's Board of Trustees. The Fund may participate in joint distribution
activities with other Seligman funds, and the expenses of such activities will
be allocated among the applicable funds based on relative sales, in accordance
with a methodology approved by the Board.
Class A
Under the 12b-1 Plan, the Fund, with respect to Class A shares, pays quarterly
to Seligman Advisors a service fee at an annual rate of up to .25% of the
average daily net asset value of the Class A shares. These fees are used by
Seligman Advisors exclusively to make payments to Service Organizations which
have entered into agreements with Seligman Advisors. Such Service Organizations
receive from Seligman Advisors a continuing fee of up to .25% on an annual
basis, payable quarterly, of the average daily net assets of Class A shares
attributable to the particular Service Organization for providing personal
service and/or maintenance of shareholder accounts. The fee payable to Service
Organizations from time to time shall, within such limits, be determined by the
Trustees of the Fund. The Fund is not obligated to pay Seligman Advisors for any
such costs it incurs in excess of the fee described above. No expense incurred
in one fiscal year by Seligman Advisors with respect to Class A shares of the
Fund may be paid from Class A 12b-1 fees received from the Fund in any other
fiscal year. If the Fund's 12b-1 Plan is terminated in respect of Class A
shares, no amounts (other than amounts accrued but not yet paid) would be owed
by the Fund to Seligman Advisors with respect to Class A shares. The total
amount paid by the Fund to Seligman Advisors in respect of Class A shares for
the fiscal year ended September 30, 1998 was $75,601, equivalent to .23% of the
Class A shares' average daily net assets.
Class C
Under the 12b-1 Plan, the Fund, with respect to Class C shares, pays monthly to
Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily
net asset value of the Class C shares. The fee is used by Seligman Advisors as
follows: During the first year following the sale of Class C shares, a
distribution fee of .75% of the average daily net assets attributable to Class C
shares is used, along with any CDSC proceeds during the first eighteen months,
to (1) reimburse Seligman Advisors for its payment at the time of sale of Class
C shares of a 1.25% sales commission to Service Organizations, and (2) pay for
other distribution expenses, including paying for the preparation of advertising
and sales literature and the printing and distribution of such promotional
materials and prospectuses to prospective investors and other marketing costs of
Seligman Advisors. In addition, during the first year following the sale of
Class C shares, a service fee of up to .25% of the average daily net assets
attributable to such Class C
16
<PAGE>
shares is used to reimburse Seligman Advisors for its prepayment to Service
Organizations at the time of sale of Class C shares of a service fee of .25% of
the net asset value of the Class C shares sold (for shareholder services to be
provided to Class C shareholders over the course of the one year immediately
following the sale). The payment of service fees to Seligman Advisors is limited
to amounts Seligman Advisors actually paid to Service Organizations at the time
of sale as service fees. After the initial one-year period following a sale of
Class C shares, the entire 12b-1 fee attributable to such Class C shares is paid
to Service Organizations for providing continuing shareholder services and
distribution assistance in respect of the Fund. The Fund does not pay any 12b-1
fees in respect of Class C shares for the fiscal year ended September 30, 1998
because no Class C shares were issued or outstanding during such period.
Class D
Under the 12b-1 Plan, the Fund, with respect to Class D shares, pays monthly to
Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily
net asset value of the Class D shares. The Fee is used by Seligman Advisors as
follows: During the first year following the sale of Class D shares, a
distribution fee of .75% of the average daily net assets attributable to such
Class D shares is used, along with any CDSC proceeds, to (1) reimburse Seligman
Advisors for its payment at the time of sale of Class D shares of a .75% sales
commission to Service Organizations, and (2) pay for other distribution
expenses, including paying for the preparation of advertising and sales
literature and the printing and distribution of such promotional materials and
prospectuses to prospective investors and other marketing costs of Seligman
Advisors. In addition, during the first year following the sale of Class D
shares, a service fee of up to .25% of the average daily net assets attributable
to such Class D shares is used to reimburse Seligman Advisors for its prepayment
to Service Organizations at the time of sale of Class D shares of a service fee
of .25% of the net asset value of the Class D shares sold (for shareholder
services to be provided to Class D shareholders over the course of the one year
immediately following the sale). The payment of service fees to Seligman
Advisors is limited to amounts Seligman Advisors actually paid to Service
Organizations at the time of sale as service fees. After the initial one-year
period following a sale of Class D shares, the entire 12b-1 fee attributable to
such Class D shares is paid to Service Organizations for providing continuing
shareholder services and distribution assistance in respect of the Fund. The
total amount paid by the Fund in respect of Class D shares for the fiscal year
ended September 30, 1998 was $12,658 equivalent to 1% per annum of the average
daily net assets of Class D shares.
The amounts expended by Seligman Advisors in any one year with respect to Class
D shares of the Fund may exceed the 12b-1 fees paid by the Fund in that year.
The Fund's 12b-1 Plan permits expenses incurred by Seligman Advisors in respect
of Class D shares in one fiscal year to be paid from Class D 12b-1 fees received
from the Fund in any other fiscal year; however, in any fiscal year the Fund is
not obligated to pay any 12b-1 fees in excess of the fees described above.
As of September 30, 1998 Seligman Advisors has incurred $10,926 unreimbursed
expenses in respect of the Fund's Class D shares. This amount is equal to .75%
of the net assets of Class D at September 30, 1998.
If the 12b-1 Plan is terminated in respect of Class D shares of the Fund, no
amounts (other than amounts accrued but not yet paid) would be owed by the Fund
to Seligman Advisors with respect to Class D shares.
Payments made by the Fund under the 12b-1 Plan for its fiscal year ended
September 30, 1998, were spent on the following activities in the following
amounts (no Class C shares were outstanding during such fiscal year):
Class A Class D
Compensation to underwriters -- $ 1,609
Compensation to broker/dealers $75,601 $11,049
17
<PAGE>
The 12b-1 Plan was approved on June 21, 1990 by the Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Fund and who have no direct or indirect financial interest in
the operation of the 12b-1 Plan or in any agreement related to the 12b-1 Plan
(the "Qualified Trustees") and was approved by shareholders of the Fund on April
11, 1991. Amendments to the Plan were approved in respect of the Class D shares
on November 18, 1993 by the Trustees, including a majority of the Qualified
Trustees, and became effective with respect to the Class D shares on February 1,
1994. The 12b-1 Plan was approved in respect of Class C shares on May 20, 1999
by the Trustees, including a majority of the Qualified Trustees, and became
effective in respect of the Class C shares on June 1, 1999. The 12b-1 Plan will
continue in effect until December 31 of each year so long as such continuance is
approved annually by a majority vote of both the Trustees and the Qualified
Trustees, cast in person at a meeting called for the purpose of voting on such
approval. The 12b-1 Plan may not be amended to increase materially the amounts
payable under the terms of the 12b-1 Plan without the approval of a majority of
the outstanding voting securities of the Fund and no material amendment to the
12b-1 Plan may be made except with the approval of a majority of both the
Trustees and the Qualified Trustees in accordance with the applicable provisions
of the 1940 Act and the rules thereunder.
The 12b-1 Plan requires that the Treasurer of the Fund shall provide to the
Trustees, and the Trustees shall review at least quarterly, a written report of
the amounts expended (and purposes therefor) made under the 12b-1 Plan. Rule
12b-1 also requires that the selection and nomination of Trustees who are not
"interested persons" of the Fund be made by such disinterested Trustees.
Seligman Services acts as a broker/dealer of record for shareholder accounts
that do not have a designated financial advisor and receives compensation from
the Fund pursuant to the 12b-1 Plan for providing personal services and account
maintenance to such accounts and other distribution services. For the fiscal
years ended September 30, 1998, 1997, and 1996, Seligman Services received
distribution and service fees of $2,401, $1,858, and $1,638, respectively,
pursuant to the 12b-1 Plan.
Brokerage Allocation and Other Practices
Brokerage Transactions
For the fiscal years ended September 30, 1998, 1997, and 1996, no brokerage
commissions were paid by the Fund. When two or more of the investment companies
in the Seligman Group or other investment advisory clients of Seligman desire to
buy or sell the same security at the same time, the securities purchased or sold
are allocated by Seligman in a manner believed to be equitable to each. There
may be possible advantages or disadvantages of such transactions with respect to
price or the size of positions readily obtainable or saleable.
In over-the-counter markets, the Fund deals with responsible primary market
makers unless a more favorable execution or price is believed to be obtainable.
The Fund may buy securities from or sell securities to dealers acting as
principal, except dealers with which its directors and/or officers are
affiliated.
Commissions
For the fiscal years ended September 30, 1998, 1997, and 1996, the Fund did not
execute any portfolio transactions with, and therefore did not pay any
commissions to, any broker affiliated with either the Fund, Seligman, or
Seligman Advisors.
Regular Broker-Dealers
During the Fund's fiscal year ended September 30, 1998, the Fund did not acquire
securities of its regular brokers or dealers (as defined in Rule 10b-1 under the
1940 Act) or of their parents.
18
<PAGE>
Shares of Beneficial Interest and Other Securities
Shares of Beneficial Interest
Seligman Municipal Series Trust is authorized to issue an unlimited number of
full and fractional shares of beneficial interest, par value $.001, in separate
series. To date, four series have been authorized, the Fund being one of them.
The Fund has three classes, designated Class A shares of beneficial interest,
Class C shares of beneficial interest, and Class D shares of beneficial
interest. Each share of the Fund's Class A, Class C, and Class D beneficial
interest is equal as to earnings, assets, and voting privileges, except that
each class bears its own separate distribution and, potentially, certain other
class expenses and has exclusive voting rights with respect to any matter to
which a separate vote of any class is required by the 1940 Act or Massachusetts
law. Seligman Municipal Series Trust has adopted a multiclass plan pursuant to
Rule 18f-3 under the 1940 Act permitting the issuance and sale of multiple
classes. In accordance with the Declaration of Trust, the Board of Trustees may
authorize the creation of additional classes of beneficial interest with such
characteristics as are permitted by the multiples plan and Rule 18f-3. The 1940
Act requires that where more than one class exists, each class must be preferred
over all other classes in respect of assets specifically allocated to such
class. All shares have noncumulative voting rights for the election of trustees.
Each outstanding share is fully paid and non-assessable, and each is freely
transferable. There are no liquidation, conversion, or preemptive rights.
Other Securities
Seligman Municipal Series Trust has no authorized securities other than its
shares of beneficial interest.
Purchase, Redemption, and Pricing of Shares
Purchase of Shares
Class A
Class A shares may be purchased at a price equal to the next determined net
asset value per share, plus an initial sales charge.
Purchases of Class A shares by a "single person" (as defined below under
"Persons Entitled to Reductions") may be eligible for the following reductions
in initial sales charges:
Volume Discounts are provided if the total amount being invested in Class A
shares of the Fund alone, or in any combination of shares of the other mutual
funds in the Seligman Group which are sold with an initial sales charge, reaches
levels indicated in the sales charge schedule set forth in the Prospectus.
The Right of Accumulation allows an investor to combine the amount being
invested in Class A shares of the Fund and shares of the other Seligman mutual
funds sold with an initial sales charge with the total net asset value of shares
of those mutual funds already owned that were sold with an initial sales charge
and the total net asset value of shares of Seligman Cash Management Fund which
were acquired through an exchange of shares of another Seligman mutual fund on
which there was an initial sales charge at the time of purchase to determine
reduced sales charges in accordance with the schedule in the prospectus. The
value of the shares owned, including the value of shares of Seligman Cash
Management Fund acquired in an exchange of shares of another Seligman mutual
fund on which there was an initial sales charge at the time of purchase will be
taken into account in orders placed through a dealer, however, only if Seligman
Advisors is notified by an investor or a dealer of the amount owned by the
investor at the time the purchase is made and is furnished sufficient
information to permit confirmation.
A Letter of Intent allows an investor to purchase Class A shares over a 13-month
period at reduced initial sales charges in accordance with the schedule in the
Prospectus, based on the total amount of Class A shares of the Fund that the
letter states the investor intends to purchase plus the total net asset value of
shares that were sold with an initial sales charge of the other Seligman mutual
funds already owned and
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<PAGE>
the total net asset value of shares of Seligman Cash Management Fund which were
acquired through an exchange of shares of another Seligman mutual fund on which
there was an initial sales charge at the time of purchase. Reduced sales charges
also may apply to purchases made within a 13-month period starting up to 90 days
before the date of execution of a letter of intent.
Persons Entitled To Reductions. Reductions in initial sales charges apply to
purchases of Class A shares by a "single person," including an individual;
members of a family unit comprising husband, wife and minor children; or a
trustee or other fiduciary purchasing for a single fiduciary account. Employee
benefit plans qualified under Section 401 of the Internal Revenue Code of 1986,
as amended, organizations tax exempt under Section 501(c)(3) or (13) of the
Internal Revenue Code, and non-qualified employee benefit plans that satisfy
uniform criteria are considered "single persons" for this purpose. The uniform
criteria are as follows:
1. Employees must authorize the employer, if requested by a Fund, to
receive in bulk and to distribute to each participant on a timely basis the Fund
prospectus, reports, and other shareholder communications.
2. Employees participating in a plan will be expected to make regular
periodic investments (at least annually). A participant who fails to make such
investments may be dropped from the plan by the employer or the Fund 12 months
and 30 days after the last regular investment in his account. In such event, the
dropped participant would lose the discount on share purchases to which the plan
might then be entitled.
3. The employer must solicit its employees for participation in such an
employee benefit plan or authorize and assist an investment dealer in making
enrollment solicitations.
Eligible Employee Benefit Plans. The table of sales charges in the Prospectus
applies to sales to "eligible employee benefit plans," except that the Fund may
sell shares at net asset value to "eligible employee benefit plans" which have
at least (1) $500,000 invested in the Seligman Group of mutual funds or (2) 50
eligible employees to whom such plan is made available. Such sales must be made
in connection with a payroll deduction system of plan funding or other systems
acceptable to Seligman Data Corp., the Fund's shareholder service agent.
"Eligible employee benefit plan" means any plan or arrangement, whether or not
tax qualified, which provides for the purchase of Fund shares. Sales of shares
to such plans must be made in connection with a payroll deduction system of plan
funding or other system acceptable to Seligman Data Corp. Section 403(b) Plans
sponsored by public educational institutions are not eligible for net asset
value purchases based on the aggregate investment made by the plan or member of
eligible employees.
Such sales are believed to require limited sales effort and sales-related
expenses and therefore are made at net asset value. Contributions or account
information for plan participation also should be transmitted to Seligman Data
Corp. by methods which it accepts. Additional information about "eligible
employee benefit plans" is available from financial advisors or Seligman
Advisors.
Further Types of Reductions. Class A shares may also be issued without an
initial sales charge in the following instances:
(1) to any registered unit investment trust which is the issuer of periodic
payment plan certificates, the net proceeds of which are invested in Fund
shares;
(2) to separate accounts established and maintained by an insurance company
which are exempt from registration under Section 3(c)(11) of the 1940 Act;
(3) to registered representatives and employees (and their spouses and minor
children) of any dealer that has a sales agreement with Seligman Advisors;
(4) to financial institution trust departments;
20
<PAGE>
(5) to registered investment advisers exercising discretionary investment
authority with respect to the purchase of Fund shares;
(6) to accounts of financial institutions or broker/dealers that charge account
management fees, provided Seligman or one of its affiliates has entered
into an agreement with respect to such accounts;
(7) pursuant to sponsored arrangements with organizations which make
recommendations to, or permit group solicitations of, its employees,
members or participants in connection with the purchase of shares of the
Fund;
(8) to other investment companies in the Seligman Group in connection with a
deferred fee arrangement for outside directors;
(9) to certain "eligible employee benefit plans" as discussed above;
(10) to those partners and employees of outside counsel to the Fund or its
directors or trustees who regularly provide advice and services to the
Fund, to other funds managed by Seligman, or to their directors or
trustees; and
(11) in connection with sales pursuant to a 401(k) alliance program which has an
agreement with Seligman Advisors.
CDSC Applicable to Class A Shares. Class A shares purchased without an initial
sales charge in accordance with the sales charge schedule in the Fund's
Prospectus, or pursuant to a Volume Discount, Right of Accumulation, or Letter
of Intent are subject to a CDSC of 1% on redemptions of such shares within
eighteen months of purchase. Employee benefit plans eligible for net asset value
sales (as described below) may be subject to a CDSC of 1% for terminations at
the plan level only, on redemptions of shares purchased within eighteen months
prior to plan termination. The 1% CDSC will be waived on shares that were
purchased through Morgan Stanley Dean Witter & Co. by certain Chilean
institutional investors (i.e. pension plans, insurance companies, and mutual
funds). Upon redemption of such shares within an eighteen-month period, Morgan
Stanley Dean Witter will reimburse Seligman Advisors a pro rata portion of the
fee it received from Seligman Advisors at the time of sale of such shares.
See "CDSC Waivers" below for other waivers which may be applicable to Class A
shares.
Class C
Class C shares may be purchased at a price equal to the next determined net
asset value, without an initial sales charge. Purchases of Class C shares by a
"single person" may be eligible for the reductions in initial sales charges
described above for Class A shares. Class C shares are subject to a CDSC of 1%
if the shares are redeemed within eighteen months of purchase, charged as a
percentage of the current net asset value or the original purchase price,
whichever is less.
Class D
Class D shares may be purchased at a price equal to the next determined net
asset value, without an initial sales charge. However, Class D shares are
subject to a CDSC of 1% if the shares are redeemed within one year of purchase,
charged as a percentage of the current net asset value or the original purchase
price, whichever is less.
Systematic Withdrawals. Class C and Class D shareholders who reinvest both their
dividends and capital gain distributions to purchase additional shares of the
Fund, may use the Fund's Systematic Withdrawal Plan to withdraw up to 10% and
10%, respectively, of the value of their accounts per year without the
imposition of a CDSC. Account value is determined as of the date the systematic
withdrawals begin.
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<PAGE>
CDSC Waivers. The CDSC on Class C shares and Class D shares (and certain Class A
shares, as discussed above) will be waived or reduced in the following
instances:
(1) on redemptions following the death or disability (as defined in Section
72(m)(7) of the Internal Revenue Code) of a shareholder or beneficial
owner;
(2) in connection with (1) distributions from retirement plans qualified under
Section 401(a) of the Internal Revenue Code when such redemptions are
necessary to make distributions to plan participants (such payments
include, but are not limited to, death, disability, retirement, or
separation of service), (2) distributions from a custodial account under
Section 403(b)(7) of the Internal Revenue Code or an IRA due to death,
disability, minimum distribution requirements after attainment of age 70
1/2 or, for accounts established prior to January 1, 1998, attainment of
age 59 1/2, and (3) a tax-free return of an excess contribution to an IRA;
(3) in whole or in part, in connection with shares sold to current and retired
Trustees of the Fund;
(4) in whole or in part, in connection with shares sold to any state, county,
or city or any instrumentality, department, authority, or agency thereof,
which is prohibited by applicable investment laws from paying a sales load
or commission in connection with the purchase of any registered investment
management company;
(5) in whole or in part, in connection with systematic withdrawals;
(6) in connection with participation in the Merrill Lynch Small Market 401(k)
Program.
If, with respect to a redemption of any Class A, Class C or Class D shares sold
by a dealer, the CDSC is waived because the redemption qualifies for a waiver as
set forth above, the dealer shall remit to Seligman Advisors promptly upon
notice, an amount equal to the payment or a portion of the payment made by
Seligman Advisors at the time of sale of such shares.
Fund Reorganizations
Class A shares and Class C shares may be issued without an initial sales charge
in connection with the acquisition of cash and securities owned by other
investment companies. Any CDSC will be waived in connection with the redemption
of shares of a Fund if the Fund is combined with another Seligman mutual fund,
or in connection with a similar reorganization transaction.
Payment in Securities. In addition to cash, the Funds may accept securities in
payment for Fund shares sold at the applicable public offering price (net asset
value and, if applicable, any sales charge), although the Funds do not presently
intend to accept securities in payment for Fund shares. Generally, a Fund will
only consider accepting securities (l) to increase its holdings in a portfolio
security, or (2) if Seligman determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for efficient
management. Although no minimum has been established, it is expected that a Fund
would not accept securities with a value of less than $100,000 per issue in
payment for shares. A Fund may reject in whole or in part offers to pay for Fund
shares with securities, may require partial payment in cash for applicable sales
charges, and may discontinue accepting securities as payment for Fund shares at
any time without notice. The Funds will not accept restricted securities in
payment for shares. The Funds will value accepted securities in the manner
provided for valuing portfolio securities.
Offering Price
When you buy or sell Fund shares, you do so at the Class's net asset value (NAV)
next calculated after Seligman Advisors accepts your request. Any applicable
sales charge will be added to the purchase price for Class A shares and Class C
shares.
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<PAGE>
Fund's portfolio securities that the NAV of Fund shares might be materially
affected. NAV per share for a class is computed by dividing such class's share
of the value of the net assets of the Fund (i.e., the value of its assets less
liabilities) by the total number of outstanding shares of such class. All
expenses of the Fund, including the management fee, are accrued daily and taken
into account for the purpose of determining NAV. The NAV of Class C shares and
Class D shares will generally be lower than the NAV of Class A shares as a
result of the higher 12b-1 fees with respect to such shares. It is expected,
however, that the net asset value per share of the two classes will tend to
converge immediately after the recording of dividends, which will differ by
approximately the amount of the distribution and other class expenses accrual
differential between the classes.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Municipal securities and other short-term holdings
maturing in more than 60 days are valued on the basis of quotations provided by
an independent pricing service, approved by the Trustees, which uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. In the absence of such quotations, fair value
will be determined in accordance with procedures approved by the Trustees.
Short-term holdings having remaining maturities of 60 days or less are generally
valued at amortized cost.
Generally, trading in certain securities such as municipal securities, corporate
bonds, US Government securities, and money market instruments is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in determining the net asset value of a Fund's shares
are computed as of such times.
Specimen Price Make-Up
Under the current distribution arrangements between the Fund and Seligman
Advisors, Class A shares and Class C shares are sold with a maximum initial
sales charge of 4.75% and 1.00%(1), respectively, and Class D shares are sold at
NAV(2). Using each Class's NAV at March 31, 1999, (except Class C shares, which
commences operations effective June 1, 1999) the maximum offering price of the
Fund's shares is as follows:
Class A
Net asset value per share......................................... $8.07
-----
Maximum sales charge (4.75% of offering price).................... .40
-----
Offering price to public.......................................... $8.47
=====
Class D
Net asset value and offering price per share(2) ................. $8.06
=====
- --------------
(1) In addition to the 1.00% front-end sales charge, Class C shares are subject
to a 1% CDSC if you redeem your shares within eighteen months of purchase.
(2) Class D shares are subject to a 1% CDSC if you redeem your shares within
one year of purchase.
Redemption in Kind
The procedures for selling Fund shares under ordinary circumstances are set
forth in the Prospectus. In unusual circumstances, payment may be postponed, or
the right of redemption postponed for more than seven days, if the orderly
liquidation of portfolio securities is prevented by the closing of, or
restricted trading on, the NYSE during periods of emergency, or such other
periods as ordered by the Securities and Exchange Commission. Under these
circumstances, redemption proceeds may be made in securities. If payment is made
in securities, a shareholder may incur brokerage expenses in converting these
securities to cash.
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<PAGE>
Taxation of the Fund
The Fund is treated as a separate corporation for federal income tax purposes.
As a result, determinations of net investment income, exempt-interest dividends
and net long-term and short-term capital gain and loss will be made separately
for the Fund.
The Fund is qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. For each
year so qualified, the Fund will not be subject to federal income taxes on its
net investment income and capital gains, if any, realized during any taxable
year, which it distributes to its shareholders, provided that at least 90% of
its net investment income and net short-term capital gains are distributed to
shareholders each year.
Qualification as a regulated investment company under the Internal Revenue Code
requires among other things, that (1) at least 90% of the annual gross income of
the Fund be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks,
securities or currencies, or other income (including but not limited to gains
from options, futures, or forward contracts) derived with respect to its
business of investing in such stocks, securities or currencies; (2) and the Fund
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by
cash, US Government securities and other securities limited in respect of any
one issuer to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
US Government securities).
Federal Income Taxes
If, at the end of each quarter of its taxable year, at least 50% of the Fund's
total assets is invested in obligations exempt from regular federal income tax,
the Fund will be eligible to pay dividends that are excludable by shareholders
from gross income for regular federal income tax purposes. The total amount of
such exempt interest dividends paid by the Fund cannot exceed the amount of
federally tax-exempt interest received by the Fund during the year less any
expenses allocable to the Fund.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over any net short-term losses) are taxable as long-term capital gain,
whether received in cash or invested in additional shares, regardless of how
long the shares have been held by a shareholder, except that the portion of net
capital gains representing accrued market discount on tax-exempt obligations
acquired after April 30, 1993 will be taxable as ordinary income. Individual
shareholders will be subject to federal tax on distributions of net capital
gains at a maximum rate of 20% if designated as derived from the Fund's capital
gains from property held for more than one year. Net Capital gain of a corporate
shareholder is taxed at the same rate as ordinary income. Distributions from the
Fund's other investment income (other than exempt interest dividends) or from
net realized short-term gain will taxable to shareholders as ordinary income,
whether received in cash or invested in additional shares. Distributions
generally will not be eligible for the dividends received deduction allowed to
corporate shareholders. Shareholders receiving distributions in the form of
additional shares issued by the Fund will be treated for federal income tax
purposes as having received a distribution in an amount equal to the fair market
value on the date of distribution of the shares received.
Interest on indebtedness incurred or continued to purchase or carry shares of
the Fund will not be deductible for federal income tax purposes to the extent
that the Fund's distributions are exempt from federal income tax.
Any gain or loss realized upon a sale or redemption of shares in the Fund by a
shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as a short-term capital gain or loss. Individual shareholders
will be subject to federal income tax on net capital gains at a maximum rate of
20% in respect of shares held for more than one year. Net capital gain of a
corporate shareholder is taxed at the same rate as ordinary income. However, if
shares on which a long-term capital gain distribution has been received are
24
<PAGE>
subsequently sold or redeemed and such shares have been held for six months or
less, any loss realized will be treated as long-term capital loss to the extent
that it offsets the long-term capital gain distribution. In addition, no loss
will be allowed on the sale or other disposition of shares of the Fund if,
within a period beginning 30 days before the date of such sale or disposition
and ending 30 days after such date, the holder acquires (including shares
acquired through dividend reinvestment) securities that are substantially
identical to the shares of the Fund.
In determining gain or loss on shares of the Fund that are sold or exchanged
within 90 days after acquisition, a shareholder generally will not be permitted
to include in the tax basis attributable to such shares the sales charge
incurred in acquiring such shares to the extent of any subsequent reduction of
the sales charge by reason of the Exchange or Reinstatement Privilege offered by
the Fund. Any sales charge not taken into account in determining the tax basis
of shares sold or exchanged within 90 days after acquisition will be added to
the shareholder's tax basis in the shares acquired pursuant to the Exchange or
Reinstatement Privilege.
Shareholders are urged to consult their tax advisors concerning the effect of
federal income taxes in their individual circumstances. In particular, persons
who may be "substantial users" (or "related person" of substantial users) of
facilities financed by industrial development bonds or private activity bonds
should consult the tax advisors before purchasing shares of the Fund.
North Carolina Taxes
In the opinion of Horack, Talley, Pharr & Lowndes, P.A., tax counsel to the
North Carolina Fund, distributions from the North Carolina Fund to shareholders
subject to North Carolina income taxes will not be taxable for North Carolina
income tax purposes to the extent the distributions either (i) qualify as
exempt-interest dividends of a regulated investment company under the Internal
Revenue Code and are attributable to interest on obligations issued by the State
of North Carolina and its political subdivisions or (ii) are dividends
attributable to interest on direct obligations of the US Government and agencies
and possessions of the United States, so long as in both cases the North
Carolina Fund provides a supporting statement to the shareholders designating
the portion of the dividends of the North Carolina Fund attributable to interest
on obligations issued by the State of North Carolina and its political
subdivisions or direct obligations of the US Government and agencies and
possessions of the United States. In the absence of such a statement, the total
amount of the dividends will be taxable for North Carolina income tax purposes.
Distributions attributable to other sources, including exempt-interest dividends
attributable to interest on obligations of states other than North Carolina and
the political subdivisions of such other states as well as capital gains, will
be taxable for North Carolina income tax purposes.
The North Carolina Fund will notify its shareholders within 60 days after the
close of its taxable year as to the amount of dividends and distributions to the
shareholders of the North Carolina Fund which are exempt from North Carolina
income taxes and the dollar amount, if any, which is subject to North Carolina
income taxes.
Unless a shareholder includes a certified taxpayer identification number (social
security number for individuals) on the account application and certifies that
the shareholder is not subject to backup withholding, the Fund is required to
withhold and remit to the US Treasury a portion of distributions and other
reportable payments to the shareholder. The rate of backup withholding is 31%.
Shareholders should be aware that, under regulations promulgated by the Internal
Revenue Service, the Fund may be fined $50 annually for each account for which a
certified taxpayer identification number is not provided. In the event that such
a fine is imposed, the Fund may charge a service fee of up to $50 that may be
deducted from the shareholder's account and offset against any undistributed
dividends and capital gain distributions. The Fund also reserves the right to
close any account which does not have a certified taxpayer identification
number.
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<PAGE>
Underwriters
Distribution of Securities
Seligman Municipal Series Trust and Seligman Advisors are parties to a
Distributing Agreement dated January 1, 1993 under which Seligman Advisors acts
as the exclusive agent for distribution of shares of the Fund. Seligman Advisors
accepts orders for the purchase of Fund shares, which are offered continuously.
As general distributor of the Fund's shares of beneficial interest, Seligman
Advisors allows reallowances to all dealers on sales of Class A shares, as set
forth above under "Dealer Reallowances." Seligman Advisors retains the balance
of sales charges and any CDSCs paid by investors.
Total initial sales charges paid by shareholders of Class A shares of the Fund
for the fiscal years ended September 30, 1998, 1997, and 1996 are shown below.
Also shown are the amounts of the sales charges that were retained by Seligman
Advisors. No Class C shares of each Fund were issued or outstanding during such
fiscal years:
Total Sales Charges Paid by Amount of Class A Sales
Shareholders Charges Retained by Seligman
Fiscal Year on Class A Shares Advisors
1998 $ 50,052 $ 6,114
1997 51,778 6,321
1996 104,210 12,563
Compensation
Seligman Advisors, which is an affiliated person of Seligman, which is an
affiliated person of the Fund, received the following commissions and other
compensation from the Fund during its fiscal year ended September 30, 1998:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and
Commissions Repurchases
(Class A Sales Charge (CDSC on Class A Brokerage Other
Retained) and Class D Retained) Commissions Compensation
--------------------- --------------------- ----------- ------------
<S> <C> <C> <C> <C>
$6,114 $79 $0 $0
</TABLE>
Other Payments
Seligman Advisors shall pay broker/dealers, from its own resources, a fee on
purchases of Class A shares of $1,000,000 or more (NAV sales), calculated as
follows: 1.00% of NAV sales up to but not including $2 million; .80% of NAV
sales from $2 million up to but not including $3 million; .50% of NAV sales from
$3 million up to but not including $5 million; and .25% of NAV sales from $5
million and above. The calculation of the fee will be based on assets held by a
"single person," including an individual, members of a family unit comprising
husband, wife and minor children purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust. Purchases made by a trustee or other fiduciary for a fiduciary account
may not be aggregated purchases made on behalf of any other fiduciary or
individual account.
Seligman Advisors shall also pay broker/dealers, from its own resources, a fee
on assets of certain investments in Class A shares of the Seligman mutual funds
participating in an "eligible employee benefit plan" that are attributable to
the particular broker/dealer. The shares eligible for the fee are those on which
an initial sales charge was not paid because either the participating eligible
employee benefit plan has at least (1) $500,000 invested in the Seligman mutual
funds or (2) 50 eligible employees to whom such plan is made available. Class A
shares representing only an initial purchase of Seligman Cash Management Fund
are not eligible for the fee. Such shares will become eligible for the fee once
they are
26
<PAGE>
exchanged for shares of another Seligman mutual fund. The payment is based on
cumulative sales for each Plan during a single calendar year, or portion
thereof. The payment schedule, for each calendar year, is as follows: 1.00% of
sales up to but not including $2 million; .80% of sales from $2 million up to
but not including $3 million; .50% of sales from $3 million up to but not
including $5 million; and .25% of sales from $5 million and above.
Seligman Advisors may from time to time assist dealers by, among other things,
providing sales literature to, and holding informational programs for the
benefit of, dealers' registered representatives. Dealers may limit the
participation of registered representatives in such informational programs by
means of sales incentive programs which may require the sale of minimum dollar
amounts of shares of Seligman mutual funds. Seligman Advisors may from time to
time pay a bonus or other incentive to dealers that sell shares of the Seligman
mutual funds. In some instances, these bonuses or incentives may be offered only
to certain dealers which employ registered representatives who have sold or may
sell a significant amount of shares of the Fund and/or certain other mutual
funds managed by Seligman during a specified period of time. Such bonus or other
incentive may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and members of their families to places within or outside the United States. The
cost to Seligman Advisors of such promotional activities and payments shall be
consistent with the rules of the National Association of Securities Dealers,
Inc., as then in effect.
Calculation of Performance Data
Class A
The annualized yield for the 30-day period ended September 30, 1998 for the
Fund's Class A shares was 3.54%. The annualized yield was computed by dividing
the Fund's net investment income per share earned during this 30-day period by
the maximum offering price per share (i.e., the net asset value plus the maximum
sales load of 4.75% of the net amount invested) on September 30, 1998, which was
the last day of this period. The average number of Class A shares of the Fund
was 3,900,791, which was the average daily number of shares outstanding during
the 30-day period that were eligible to receive dividends. Income was computed
by totaling the interest earned on all debt obligations during the 30-day period
and subtracting from that amount the total of all recurring expenses incurred
during the period. The 30-day yield was then annualized on a bond-equivalent
basis assuming semi-annual reinvestment and compounding of net investment
income.
The tax equivalent annualized yield for the 30-day period ended September 30,
1998 for the Fund's Class A shares was 6.35%. The tax equivalent annualized
yield was computed by first computing the annualized yield as discussed above.
Then the portion of the yield attributable to securities the income of which was
exempt for federal and state income tax purposes was determined. This portion of
the yield was then divided by one minus 44.28% (which assumes the maximum
combined federal and state income tax rate for individual taxpayers that are
subject to North Carolina's personal income taxes). Then the small portion of
the yield attributable to securities the income of which was exempt for federal
income tax purposes was determined. This portion of the yield was then divided
by one minus 39.6% (39.6% being the assumed maximum federal income tax rate for
individual taxpayers). These two calculations were then added to the portion of
the Class A shares' yield, if any, that was attributable to securities the
income of which was not tax-exempt.
The average annual total return for the Fund's Class A shares for the one-year
period ended September 30, 1998 was 3.46%. The average annual total return for
the Fund's Class A shares for the five-year period ended September 30, 1998 was
4.62%. The average annual total return for the Fund's Class A shares for the
period August 27, 1990 (inception) through September 30, 1998 was 6.99%. These
returns were computed by assuming a hypothetical initial payment of $1,000 in
Class A shares of the Fund. From this $1,000, the maximum sales load of $47.50
(4.75% of public offering price) was deducted. It was then assumed that all of
the dividends and distributions by the Fund's Class A shares over the relevant
time period were reinvested. It was then assumed that at the end of the one-year
period, the five-year period, and the ten-year period of the Fund, the entire
amount was redeemed. The average annual total return was then calculated by
determining the annual rate required for the initial payment to grow to the
amount which would have been received upon redemption (i.e., the average annual
compound rate of return).
27
<PAGE>
Class D
The annualized yield for the 30-day period ended September 30, 1998 for the
Fund's Class D shares was 2.97%. The annualized yield was computed as for Class
A shares by dividing the Fund's net investment income per share earned during
this 30-day period by the maximum offering price per share (i.e., the net asset
value) on September 30, 1998 which was the last day of this period. The average
number of Class D shares of the Fund was 172,902, which was the average daily
number of shares outstanding during the 30-day period that were eligible to
receive dividends. Income was computed by totaling the interest earned on all
debt obligations during the 30-day period and subtracting from that amount the
total of all recurring expenses incurred during the period. The 30-day yield was
then annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.
The tax equivalent annualized yield for the 30-day period ended September 30,
1998 for the Fund's Class D shares was 5.33%. The tax equivalent annualized
yield was computed as discussed above for Class A shares.
The average annual total return for the Fund's Class D shares for the one-year
period ended September 30, 1998 was 6.77%. The average annual total return for
the Fund's Class D shares for the period February 1, 1994 (inception) through
September 30, 1998 was 4.83%. These returns were computed by assuming a
hypothetical initial payment of $1,000 in Class D shares of the Fund and that
all of the dividends and distributions by the Fund's Class D shares over the
relevant time period were reinvested. It was then assumed that at the end of the
one-year period and the period since inception of the Fund, the entire amount
was redeemed, subtracting the 1% CDSC, if applicable
Class C shares are a new class, effective June 1, 1999, so no performance data
is presented.
The tables below illustrate the total returns on a $1,000 investment in the
Fund's Class A and Class D shares for the ten years ended September 30, 1998 or
from the Class's inception through September 30, 1998, assuming investment of
all dividends and capital gain distributions.
Class A
<TABLE>
<CAPTION>
Value of Value of Total Value
Year Initial Capital Gain Value of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
9/30/90 $ 939 $ -- $ -- $ 939
9/30/91 985 -- 66 1,051
9/30/92 1,015 -- 133 1,148
9/30/93 1,097 3 214 1,314
9/30/94 974 10 254 1,238
9/30/95 1,031 14 340 1,385
9/30/96 1,046 16 412 1,474
9/30/97 1,073 23 496 1,592
9/30/98 1,107 37 585 1,729 72.87%
</TABLE>
28
<PAGE>
Class D
<TABLE>
<CAPTION>
Value of Value of Total Value
Year Initial Capital Gain Value of of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------ ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
9/30/94 $ 893 $ -- $ 26 $ 919
9/30/95 947 2 72 1,021
9/30/96 958 4 115 1,077
9/30/97 986 8 162 1,156
9/30/98 1,016 18 212 1,246 24.58%
</TABLE>
- ----------
(1) From commencement of operations of Class A shares on August 27, 1990; and
from commencement of operations for Class D shares on February 1, 1994.
(2) The "Value of Initial Investment" as of the date indicated reflects the
effect of maximum sales charge and CDSC, if applicable, assumes that all
dividends and capital gain distributions were taken in cash, and reflects
changes in the net asset value of the shares purchased with the
hypothetical initial investment. "Total Value of Investment" reflects the
effect of the CDSC, if applicable, and assumes investment of all dividends
and capital gain distributions.
(3) Total return for each Class of the Fund is calculated by assuming a
hypothetical initial investment of $1,000 at the beginning of the period
specified, subtracting the maximum sales load or CDSC, if applicable;
determining total value of all dividends and distributions that would have
been paid during the period on such shares assuming that each dividend or
distribution was invested in additional shares at net asset value;
calculating the total value of the investment at the end of the period; and
finally, by dividing the difference between the amount of the hypothetical
initial investment at the beginning of the period and its value at the end
of the period by the amount of the hypothetical initial investment.
Seligman waived its fees and reimbursed certain expenses during some of the
periods above, which positively affected the performance results presented.
The Fund's total returns and average annual total returns quoted from time to
time for periods through December 27, 1990 do not reflect the deduction of 12b-1
fees, because the 12b-1 Plan was implemented on that date. If these fees were
reflected, the performance results presented would have been lower.
Financial Statements
The Annual Report to Shareholders of Seligman Municipal Series Trust for the
fiscal year ended September 30, 1998 and the Mid-Year Report to Shareholders for
the fiscal six-month period ended March 31, 1999, contain a schedule of the
investments of the Fund as of September 30, 1998 and March 31, 1999,
respectively, as well as certain other financial information . The financial
statements and notes included in the Annual Report, the Mid-Year Report, and the
Independent Auditors' Reports thereon, are incorporated herein by reference. The
Annual Report and Mid-Year Report will be furnished, without charge, to
investors who request copies of this SAI.
General Information
The Trustees are authorized to classify or reclassify and issue any shares of
beneficial interest of the Trust into any number of other classes without
further action by shareholders. The 1940 Act requires that where more than one
class exists, each class must be preferred over all other classes in respect of
assets specifically allocated to such class.
As a general matter, the Trust will not hold annual or other meetings of the
shareholders. This is because the Declaration of Trust provides for shareholder
voting only (a) for the election or removal of one or more Trustees if a meeting
is called for that purpose, (b) with respect to any contract as to which
shareholder approval is required by the 1940 Act, (c) with respect to any
termination or reorganization of the Trust or any series, including the Fund, to
the extent and as provided in the Declaration of Trust, (d) with respect to any
amendment of the Declaration of Trust (other than amendments establishing and
designating new series, abolishing series when there are no units thereof
outstanding, changing the name of the Trust or the name of any series, supplying
any omission, curing any ambiguity or curing, correcting or supplementing any
provision thereof which is internally inconsistent with any other provision
thereof or which is defective or inconsistent with the 1940 Act or with the
requirements of the Code, or applicable regulations for the Fund's
29
<PAGE>
obtaining the most favorable treatment thereunder available to regulated
investment companies), which amendments require approval by a majority of the
Shares entitled to vote, (e) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding, or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the shareholders, and (f) with
respect to such additional matters relating to the Trust as may be required by
the 1940 Act, the Declaration of Trust, the By-laws of the Trust, any
registration of the Trust with the Securities and Exchange Commission (the
"Commission") or any state, or as the Trustees may consider necessary or
desirable. Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of considering the election or reelection of such Trustee
or of a successor to such Trustee, and until the election and qualification of
his successor, if any, elected at such meeting, or until such Trustee sooner
dies, resigns, retires or is removed by the shareholders or two-thirds of the
Trustees.
The shareholders of the Trust have the right, upon the declaration in writing or
vote of more than two-thirds of the Trust's outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of ten percent of
its shares. In addition, whenever ten or more shareholders of record who have
been such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least $25,000
or at least 1 per centum of the outstanding shares, whichever is less, shall
apply to the Trustees in writing, stating that they wish to communicate with
other shareholders with a view to obtaining signatures to a request for a
meeting for the purpose of voting upon the question of removal of any Trustee or
Trustees and accompanied by a form of communication and request which they wish
to transmit, the Trustee shall within five business days after receipt of such
application either: (1) afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of requests. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the Commission,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statement
so filed, the Commission may, and if demanded by the Trustees or by such
applicants shall, enter an order either sustaining one or more of such
objections or refusing to sustain any of them. If the Commission shall enter an
order refusing to sustain any of such objections, or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Trustees shall mail copies
of such material to all shareholders with reasonable promptness after the entry
of such order and the renewal of such tender.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
by the provisions of the 1940 Act or applicable state law, or otherwise, to the
holders of the outstanding voting securities of an investment company such as
the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each series
affected by such matter. Rule 18f-2 further provides that a series shall be
deemed to be affected by a matter unless it is clear that the interests of each
series in the matter are substantially identical or that the matter does not
significantly affect any interest of such series. However, the Rule exempts the
selection of independent public accountants, the approval of principal
distributing contracts and the election of trustees from the separate voting
requirements of the Rule.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust. The Declaration of Trust also
provides for indemnification and reimbursement of expenses out of a series'
assets for any shareholder held personally liable for obligations of such
series.
Custodian. Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, serves as custodian for the Fund. It also maintains, under the
general supervision of Seligman, the accounting records and determines the net
asset value for the Fund.
30
<PAGE>
Auditors. Deloitte & Touche LLP, independent auditors, have been selected as
auditors of the Fund. Their address is Two World Financial Center, New York, NY
10281.
31
<PAGE>
Appendix A
Moody's Investors Service, Inc. ("Moody's")
Municipal Bonds
Aaa: Municipal bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk. Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Municipal bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be characteristically lacking or may be
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact may have speculative characteristics as well.
Ba: Municipal bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Municipal bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Municipal bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Municipal bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues are often in default or have other
marked shortcomings.
C: Municipal bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers (1, 2 and 3) in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
Municipal Notes
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG 1 are of the best quality, enjoying strong protection by
established cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing. Loans bearing the designation
MIG 2 are of high quality, with margins of protection
32
<PAGE>
ample although not so large as in the preceding group. Loans bearing the
designation MIG 3 are of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market access
for refinancing in particular, is likely to be less well established. Notes
bearing the designation MIG 4 are judged to be of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
Commercial Paper
Moody's Commercial Paper Ratings are opinions of the ability of issuers to
repay punctually promissory senior debt obligations not having an original
maturity in excess of one year. Issuers rated "Prime-1" or "P-1" indicates the
highest quality repayment capacity of the rated issue.
The designation "Prime-2" or "P-2" indicates that the issuer has a strong
capacity for repayment of senior short-term promissory obligations. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
The designation "Prime-3" or "P-3" indicates that the issuer has an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issues rated "Not Prime" do not fall within any of the Prime rating
categories.
Standard & Poor's Corporation ("S&P")
Municipal Bonds
AAA: Municipal bonds rated AAA are highest grade obligations. Capacity to
pay interest and repay principal is extremely strong.
AA: Municipal bonds rated AA have a very high degree of safety and very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree.
A: Municipal bonds rated A are regarded as upper medium grade. They have a
strong degree of safety and capacity to pay interest and repay principal
although they are somewhat more susceptible in the long term to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB: Municipal bonds rated BBB are regarded as having a satisfactory degree
of safety and capacity to pay interest and re-pay principal. Whereas they
normally exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and re-pay principal for bonds in this category than for bonds in
higher rated categories.
BB, B, CCC, CC: Municipal bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and pre-pay principal in accordance with the terms of the bond. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
C: The rating C is reserved for income bonds on which no interest is being
paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of bond as a matter of policy.
33
<PAGE>
Municipal Notes
SP-1: Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
Commercial Paper
S&P Commercial Paper ratings are current assessments of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only a speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity of payment.
D: Debt rated "D" is in payment default.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of bond as a matter of policy.
The ratings assigned by S&P may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within its major rating categories.
34
<PAGE>
Appendix B
RISK FACTORS REGARDING INVESTMENTS IN NORTH CAROLINA MUNICIPAL SECURITIES
While North Carolina has been moving from an agricultural to a service and
goods producing economy in recent years, agriculture remains a basic element in
the economy of North Carolina, with tobacco production being a significant
source of agricultural income. The tobacco industry in North Carolina is
currently in decline with tobacco growers' quotas over the last two years having
been cut 35% because of declining cigarette sales. Tobacco production is
expected to suffer still further because cigarette sales are projected to drop
as manufacturers raise prices to cover the costs of the United States tobacco
settlement. North Carolina is also the number two hog producing state and hog
prices are currently in a steep decline, resulting in significant losses by hog
producers. These developments will likely adversely impact the agricultural
sector of the North Carolina economy. A strong agribusiness sector also supports
farmers with farm inputs (fertilizer, insecticide, pesticide and farm machinery)
and processing of commodities produced by farmers (vegetable canning and
cigarette manufacturing). Manufacturing, tourism and mining are also important
to the State's economy. North Carolina's manufacturing employment is among the
largest in the Southeast, with textiles being the largest single source of
manufacturing employment in North Carolina. However, certain portions of the
North Carolina manufacturing sector, particularly the textile industry, have
been hurt by foreign competition. Tourist spending has become a larger factor in
the North Carolina economy in recent years. While most sectors of the North
Carolina economy, excluding textiles, have experienced growth in the last few
years, the rate of future growth is expected to be slowed by a limited increase
in available new labor. In fact, while continued economic growth for North
Carolina is projected for 1999, the rate of that growth is forecast to slow
statewide and in most regions of the State. Major reasons for the expected
slower growth are a reduction in retail sales growth together with slower
residential construction.
The North Carolina State Constitution requires that the total expenditures
of the State for each fiscal period covered by the budget must not exceed the
total receipts during the fiscal period and the surplus in the State Treasury at
the beginning of the period. During the State's 1990-1991 fiscal year, North
Carolina began facing a substantial budget shortfall resulting from the failure
of revenues received by the State to meet projected levels. While the State was
successful in dealing with the problem, pressure on State revenues will be an
ongoing problem. Because of taxpayer litigation concerning the now repealed
intangibles tax, North Carolina is in the process of completing the payment of a
multi-million dollar tax refund of the intangibles tax for certain years. The
State had set aside certain funds in anticipation of having to pay these
refunds.
General obligations of the State are currently rated "AAA" and "Aaa" by S&P
and Moody's, respectively. There can be no assurance that the economic
conditions on which these ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic, political or
other conditions, including the State's response to any future budget problem.
When the budget shortfall problem first developed, the State was cautioned by
S&P and Moody's that a failure to respond adequately to the budget shortfall
could result in a reevaluation of the ratings given to the State's general
obligations and the State's response to any future budget problems will be
important to the maintenance of its current ratings. Moreover, such ratings
apply only to obligations of the State and not to those of its political
subdivisions, and the economic information provided above may not be relevant to
obligations issued by such political subdivisions.
35
<PAGE>
Appendix C
HISTORY OF J. & W. SELIGMAN & CO. INCORPORATED
Seligman's beginnings date back to 1837, when Joseph Seligman, the oldest
of eight brothers, arrived in the United States from Germany. He earned his
living as a pack peddler in Pennsylvania, and began sending for his brothers.
The Seligmans became successful merchants, establishing businesses in the South
and East.
Backed by nearly thirty years of business success - culminating in the sale
of government securities to help finance the Civil War - Joseph Seligman, with
his brothers, established the international banking and investment firm of J. &
W. Seligman & Co. In the years that followed, the Seligman Complex played a
major role in the geographical expansion and industrial development of the
United States.
The Seligman Complex:
...Prior to 1900
o Helps finance America's fledgling railroads through underwritings.
o Is admitted to the New York Stock Exchange in 1869. Seligman remained a
member of the NYSE until 1993, when the evolution of its business made it
unnecessary.
o Becomes a prominent underwriter of corporate securities, including New York
Mutual Gas Light Company, later part of Consolidated Edison. o Provides
financial assistance to Mary Todd Lincoln and urges the Senate to award her
a pension.
o Is appointed U.S. Navy fiscal agent by President Grant.
o Becomes a leader in raising capital for America's industrial and urban
development.
...1900-1910
o Helps Congress finance the building of the Panama Canal.
...1910s
o Participates in raising billions for Great Britain, France and Italy,
helping to finance World War I.
...1920s
o Participates in hundreds of successful underwritings including those for
some of the Country's largest companies: Briggs Manufacturing, Dodge
Brothers, General Motors, Minneapolis-Honeywell Regulatory Company, Maytag
Company, United Artists Theater Circuit and Victor Talking Machine Company.
o Forms Tri-Continental Corporation in 1929, today the nation's largest,
diversified closed-end equity investment company, with over $2 billion in
assets and one of its oldest.
...1930s
o Assumes management of Broad Street Investing Co. Inc., its first mutual
fund, today known as Seligman Common Stock Fund, Inc.
o Establishes Investment Advisory Service.
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<PAGE>
...1940s
o Helps shape the Investment Company Act of 1940.
o Leads in the purchase and subsequent sale to the public of Newport News
Shipbuilding and Dry Dock Company, a prototype transaction for the
investment banking industry.
o Assumes management of National Investors Corporation, today Seligman Growth
Fund, Inc.
o Establishes Whitehall Fund, Inc., today Seligman Income Fund, Inc.
...1950-1989
o Develops new open-end investment companies. Today, manages more than 40
mutual fund portfolios.
o Helps pioneer state-specific, municipal bond funds, today managing a
national and 18 state-specific municipal funds.
o Establishes J. & W. Seligman Trust Company and J. & W. Seligman Valuations
Corporation.
o Establishes Seligman Portfolios, Inc., an investment vehicle offered
through variable annuity products.
...1990s
o Introduces Seligman Select Municipal Fund, Inc. and Seligman Quality
Municipal Fund, Inc., two closed-end funds that invest in high quality
municipal bonds.
o In 1991 establishes a joint venture with Henderson plc, of London, known as
Seligman Henderson Co., to offer global investment products.
o Introduces to the public Seligman Frontier Fund, Inc., a small
capitalization mutual fund.
o Launches Seligman Henderson Global Fund Series, Inc., which today offers
five separate series: Seligman Henderson International Fund, Seligman
Henderson Global Smaller Companies Fund, Seligman Henderson Global
Technology Fund, Seligman Henderson Global Growth Opportunities Fund and
Seligman Henderson Emerging Markets Growth Fund.
o Launches Seligman Value Fund Series, which currently offers two separate
series: Seligman Large-Cap Value Fund and Seligman Small-Cap Value Fund.
<PAGE>
SELIGMAN MUNICIPAL SERIES TRUST
Seligman Florida Municipal Series
Statement of Additional Information
June 1, 1999
100 Park Avenue
New York, New York 10017
(212) 850-1864
Toll Free Telephone: (800) 221-2450
This Statement of Additional Information (SAI) expands upon and supplements the
information contained in the current Prospectus of Seligman Municipal Funds,
dated June 1, 1999. This SAI, although not in itself a prospectus, is
incorporated by reference into the Prospectus in its entirety. It should be read
in conjunction with the Prospectus, which may be obtained by writing or calling
the Fund at the above address or telephone numbers.
The financial statements and notes included in the Fund's Annual Report and
Mid-Year Report, and the Independent Auditors' Reports thereon, are incorporated
herein by reference. The Annual Report and Mid-Year Report will be furnished to
you without charge if you request a copy of this SAI.
Table of Contents
Fund History ..................................................... 2
Description of the Fund and Its Investments and Risks ............ 2
Management of the Fund ........................................... 8
Control Persons and Principal Holders of Securities............... 13
Investment Advisory and Other Services ........................... 13
Brokerage Allocation and Other Practices ......................... 18
Shares of Beneficial Interest and Other Securities ............... 19
Purchase, Redemption, and Pricing of Shares ...................... 19
Taxation of the Fund ............................................. 24
Underwriters...................................................... 26
Calculation of Performance Data .................................. 27
Financial Statements.............................................. 29
General Information............................................... 29
Appendix A ....................................................... 32
Appendix B ....................................................... 35
Appendix C ....................................................... 37
<PAGE>
Fund History
Seligman Municipal Series Trust was organized as an unincorporated business
trust under the laws of the Commonwealth of Massachusetts by a Declaration of
Trust dated July 27, 1984.
Description of the Fund and Its Investments and Risks
Classification
Seligman Municipal Series Trust is a non-diversified, open-end management
investment company, or mutual fund. It consists of four separate series, one of
which is discussed in this SAI:
Seligman California Municipal High-Yield Series
Seligman California Municipal Quality Series
Seligman Florida Municipal Series (Florida Fund)
Seligman North Carolina Municipal Series
Investment Strategies and Risks
The following information regarding the Fund's investments and risks supplements
the information contained in the Prospectus.
The Fund seeks to provide high income exempt from regular federal income taxes
consistent with preservation of capital. The Fund also invests with
consideration given to capital gain.
The Fund is expected to invest principally, without percentage limitations, in
municipal securities which on the date of purchase are rated within the four
highest rating categories of Moody's Investors Service (Moody's) or Standard &
Poor's Corporation (S&P). Municipal Securities rated in these categories are
commonly referred to as investment grade. The Fund may invest in municipal
securities that are not rated, or which do not fall into the credit ratings
noted above if, based upon credit analysis, it is believed that such securities
are of comparable quality. In determining suitability of investment in a lower
rated or unrated security, the Fund will take into consideration asset and debt
service coverage, the purpose of the financing, history of the issuer, existence
of other rated securities of the issuer and other considerations as may be
relevant, including comparability to other issuers.
Although securities rated in the fourth rating category are commonly referred to
as investment grade, investment in such securities could involve risks not
usually associated with bonds rated in the first three categories. Bonds rated
BBB by S&P are more likely as a result of adverse economic conditions or
changing circumstance to exhibit a weakened capacity to pay interest and re-pay
principal than bonds in higher rating categories and bonds rated Baa by Moody's
lack outstanding investment characteristics and in fact have speculative
characteristics according to Moody's. Municipal securities in the fourth rating
category of S&P or Moody's will generally provide a higher yield than do higher
rated municipal securities of similar maturities; however, they are subject to a
greater degree of fluctuation in value as a result of changing interest rates
and economic conditions. The market value of the municipal securities will also
be affected by the degree of interest of dealers to bid for them, and in certain
markets dealers may be more unwilling to trade municipal securities rated in the
fourth rating categories than in the higher rating categories.
A description of the credit rating categories is contained in Appendix A to this
SAI.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities and for providing state and local governments
with federal credit assistance. Reevaluation of the Fund's investment objectives
and structure might be necessary in the future due to market conditions that may
result from future changes in the tax laws.
2
<PAGE>
Florida Municipal Securities. Florida Municipal Securities include notes, bonds
and commercial paper issued by or on behalf of the State of Florida, its
political subdivisions, agencies, and instrumentalities, the interest on which
is exempt from regular federal income taxes. Such securities are traded
primarily in an over-the-counter market. The Fund may invest, without percentage
limitations, in certain private activity bonds, the interest on which is treated
as a preference item for purposes of the alternative minimum tax.
Under the Investment Company Act of 1940, as amended (1940 Act), the
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision is regarded
as the sole issuer. Similarly, in the case of an industrial development revenue
bond or pollution control revenue bond, if only the assets and revenues of the
non-governmental user back the bond, the non-governmental user is regarded as
the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the security is treated as an issue of such guarantor
to the extent of the value of the guarantee.
The Fund invests principally in long-term municipal bonds. Municipal bonds are
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets, water and sewer
works, and gas and electric utilities. Municipal bonds also may be issued in
connection with the refunding of outstanding obligations, obtaining funds to
lend to other public institutions, and for general operating expenses.
Industrial development bonds are issued by or on behalf of public authorities to
obtain funds to provide various privately operated facilities for business and
manufacturing, housing, sports, pollution control, and for airport, mass
transit, port and parking facilities.
The two principal classifications of municipal bonds are "general obligation"
and "revenue." General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source. Although industrial
development bonds (IDBs) are issued by municipal authorities, they are generally
secured by the revenues derived from payments of the industrial user. The
payment of principal and interest on IDBs is dependent solely on the ability of
the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
The Fund, with respect to 75% of its assets, will not purchase any revenue bonds
if as a result of such purchase more than 5% of the Fund's assets would be
invested in the revenue bonds of a single issuer.
The Fund may also invest in municipal notes. Municipal notes generally are used
to provide for short-term capital needs and generally have maturities of five
years or less. Municipal Notes include:
1. Tax Anticipation Notes and Revenue Anticipation Notes. Tax anticipation
notes and revenue anticipation notes are issued to finance short-term working
capital needs of political subdivisions. Generally, tax anticipation notes are
issued in anticipation of various tax revenues, such as income, sales and real
property taxes, and are payable from these specific future taxes. Revenue
anticipation notes are issued in expectation of receipt of other kinds of
revenue, such as grant or project revenues. Usually political subdivisions issue
notes combining the qualities of both tax and revenue anticipation notes.
2. Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the notes.
Issues of municipal Commercial Paper typically represent short-term, unsecured,
negotiable promissory notes. In most cases, municipal commercial paper is backed
by letters of credit, lending agreements, note repurchase agreements or other
credit facility agreements offered by banks or other institutions.
3
<PAGE>
Variable and Floating Rate Securities. The Fund may purchase floating or
variable rate securities, including participation interests therein. Investments
in floating or variable rate securities provide that the rate of interest is
either pegged to money market rates or set as a specific percentage of a
designated base rate, such as rates on Treasury Bonds or Treasury Bills or the
prime rate of a major commercial bank. A floating rate or variable rate security
generally provides that the Fund can demand payment of the obligation on short
notice (daily or weekly, depending on the terms of the obligation) at an amount
equal to par (face value) plus accrued interest. In Unusual circumstances, the
amount received may be more or less than the amount the Fund paid for the
securities.
Variable rate securities provide for a specified periodic adjustment in the
interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
Frequently such securities are secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying creditor
or of the bank or issuer, as the case may be, must be equivalent to the
standards set forth with respect to taxable investments below.
The maturity of variable or floating rate obligations (including participation
interests therein) is deemed to be the longer of (1) the notice period required
before the Fund is entitled to receive payment of the obligation upon demand, or
(2) the period remaining until the obligation's next interest rate adjustment.
If the Fund does not redeem the obligation through the demand feature, the
obligation will mature on a specific date, which may range up to thirty years
from the date of its issuance.
Participation Interests. From time to time, the Fund may purchase from banks,
participation interests in all or part of specific holdings of municipal
securities. A participation interest gives the Fund an undivided interest in the
municipal security in the proportion that the Fund's participation interest
bears to the total principal amount of the municipal security and provides the
demand repurchase feature described above. Participations are frequently backed
by an irrevocable letter of credit or guarantee of a bank that the Fund has
determined meets its prescribed quality standards. The Fund has the right to
sell the instrument back to the bank and draw on the letter of credit on demand,
on short notice, for all or any part of the Fund's participation interest in the
municipal security, plus accrued interest. The Fund intends to exercise the
demand under the letter of credit only (1) upon a default under the terms of the
documents of the municipal security, (2) as needed to provide liquidity in order
to meet redemptions, or (3) to maintain a high quality investment portfolio.
Banks will retain a service and letter of credit fee and a fee for issuing
repurchase commitments in an amount equal to the excess of the interest paid on
the municipal securities over the negotiated yield at which the instruments are
purchased by the Fund. Participation interests will be purchased only if, in the
opinion of counsel, interest income on such interests will be tax-exempt when
distributed as dividends to shareholders of the Fund. The Fund currently does
not purchase participation interests and has no current intention of doing so.
When-Issued Securities. The Fund may purchase municipal securities on a
"when-issued" basis, which means that delivery of and payment for securities
normally take place in less than 45 days after the date of the buyer's purchase
commitment. The payment obligation and the interest rate on when-issued
securities are each fixed at the time the purchase commitment is made, although
no interest accrues to a purchaser prior to the settlement of the purchase of
the securities. As a result, the yields obtained and the market value of such
securities may be higher or lower on the date the securities are actually
delivered to the buyer. The Fund will generally purchase a municipal security
sold on a when-issued basis with the intention of actually acquiring the
securities on the settlement date.
A separate account consisting of cash or high-grade liquid debt securities equal
to the amount of outstanding purchase commitments is established with the Fund's
custodian in connection with any purchase of when-issued securities. The account
is marked to market daily, with additional cash or liquid high-grade debt
securities added when necessary. The Fund meets its respective obligation to
purchase when-issued securities from outstanding cash balances, sale of other
securities or, although it would not normally expect to do so, from the sale of
the when-issued securities themselves (which may have a market value greater or
lesser than the Fund's payment obligations).
4
<PAGE>
Municipal securities purchased on a when-issued basis and the other securities
held in the Fund are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates (which will generally result in
similar changes in value, i.e., both experiencing appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent the Fund remains substantially fully invested at the same time that it
has purchased securities on a when-issued basis, there will be a greater
possibility that the market value of the Fund's assets will vary. Purchasing a
municipal security on a when-issued basis can involve a risk that the yields
available in the market when the delivery takes place may be higher than those
obtained on the security purchased on a when-issued basis.
Standby Commitments. The Fund is authorized to acquire standby commitments
issued by banks with respect to securities they hold, although the Fund has no
present intention of investing any assets in standby commitments. These
commitments would obligate the seller of the standby commitment to repurchase,
at the Fund's option, specified securities at a specified price.
The price which the Fund would pay for municipal securities with standby
commitments generally would be higher than the price which otherwise would be
paid for the municipal securities alone, and the Fund would use standby
commitments solely to facilitate portfolio liquidity. The standby commitment
generally is for a shorter term than the maturity of the security and does not
restrict in any way the Fund's right to dispose of or retain the security. There
is a risk that the seller of a standby commitment may not be able to repurchase
the security upon the exercise of the right to resell by the Fund. To minimize
such risks, the Fund is presently authorized to acquire standby commitments
solely from banks deemed creditworthy. The Board of Trustees may, in the future,
consider whether the Funds should be permitted to acquire standby commitments
from dealers. Prior to investing in standby commitments of dealers, the Fund, if
it deems necessary based upon the advice of counsel, will apply to the
Securities and Exchange Commission for an exemptive order relating to such
commitments and the valuation thereof. There can be no assurance that the
Securities and Exchange Commission will issue such an order.
Standby commitments with respect to portfolio securities of the Fund with
maturities of less than 60 days which are separate from the underlying portfolio
securities are not assigned a value. The cost of any such standby commitments is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. Standby commitments with respect to portfolio securities of the Fund
with maturities of 60 days or more which are separate from the underlying
portfolio securities are valued at fair value as determined in accordance with
procedures established by the Board of Trustees. The Board of Trustees would, in
connection with the determination of value of such a standby commitment,
consider, among other factors, the creditworthiness of the writer of the standby
commitment, the duration of the standby commitment, the dates on which or the
periods during which the standby commitment may be exercised and the applicable
rules and regulations of the Securities and Exchange Commission.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities, including restricted securities (i.e., securities not readily
marketable without registration under the Securities Act of 1933 (1933 Act)) and
other securities that are not readily marketable. The Fund may purchase
restricted securities that can be offered and sold to "qualified institutional
buyers" under Rule 144A of the 1933 Act, and the Fund's Board of Trustees, may
determine, when appropriate, that specific Rule 144A securities are liquid and
not subject to the 15% limitation on illiquid securities. Should the Board of
Directors make this determination, it will carefully monitor the security
(focusing on such factors, among others, as trading activity and availability of
information) to determine that the Rule 144A security continues to be liquid. It
is not possible to predict with assurance exactly how the market for Rule 144A
securities will further evolve. This investment practice could have the effect
of increasing the level of illiquidity in the Fund, if and to the extent that
qualified institutional buyers become for a time uninterested in purchasing Rule
144A securities.
Borrowing. The Fund may borrow money only from banks and only for temporary or
emergency purposes (but not for the purchase of portfolio securities) in an
amount not in excess of 10% of the value of its total assets at the time the
borrowing is made (not including the amount borrowed). Permitted
5
<PAGE>
borrowings may be secured or unsecured. The Fund will not purchase additional
portfolio securities if the Fund has outstanding borrowings in excess of 5% of
the value of its total assets.
Taxable Investments. Under normal market conditions, the Fund will attempt to
invest 100% and as a matter of fundamental policy will invest at least 80% of
the value of its net assets in securities the interest on which is exempt from
regular federal income tax and California personal income tax. Such interest,
however, may be subject to the federal alternative minimum tax.
Under normal market conditions, temporary investments in taxable securities will
be limited as a matter of fundamental policy to 20% of the value of the Fund's
net assets.
Except as otherwise specifically noted above, the Fund's investment strategies
are not fundamental and a Fund, with the approval of the Board of Trustees, may
change such strategies without the vote of shareholders.
Fund Policies
The Fund is subject to fundamental policies that place restrictions on certain
types of investments. These policies cannot be changed except by vote of a
majority of the outstanding voting securities of the Fund. Under these policies,
the Fund may not:
- - Borrow money, except from banks for temporary purposes (such as meeting
redemption requests or for extraordinary or emergency purposes but not for
the purchase of portfolio securities) in an amount not to exceed 10% of the
value of its total assets at the time the borrowing is made (not including
the amount borrowed). The Fund will not purchase additional portfolio
securities if the Fund has outstanding borrowings in excess of 5% of the
value of its total assets;
- - Mortgage or pledge any of its assets, except to secure permitted borrowings
noted above;
- - Invest more than 25% of total assets at market value in any one industry;
except that municipal securities and securities of the US Government, its
agencies and instrumentalities are not considered an industry for purposes
of this limitation;
- - As to 50% of the value of its total assets, purchase securities of any
issuer if immediately thereafter more than 5% of total assets at market
value would be invested in the securities of any issuer (except that this
limitation does not apply to obligations issued or guaranteed as to
principal and interest by the US Government or its agencies or
instrumentalities);
- - Invest in securities issued by other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization or
for the purpose of hedging the Fund's obligations under the Deferred
Compensation Plan for Directors;
- - Purchase or hold any real estate, except that the Fund may invest in
securities secured by real estate or interests therein or issued by persons
(other than real estate investment trusts) which deal in real estate or
interests therein;
- - Purchase or hold the securities of any issuer, if to its knowledge,
trustees or officers of the Fund individually owning beneficially more than
0.5% of the securities of that issuer own in the aggregate more than 5% of
such securities;
- - Write or purchase put, call, straddle or spread options; purchase
securities on margin or sell "short"; underwrite the securities of other
issuers, except that the Fund may be deemed an underwriter in connection
with the purchase and sale of portfolio securities;
- - Purchase or sell commodities or commodity contracts including futures
contracts; or
6
<PAGE>
- - Make loans, except to the extent that the purchase of notes, bonds or other
evidences of indebtedness or deposits with banks may be considered loans.
The Fund also may not change its investment objective without shareholder
approval.
Under the 1940 Act, a "vote of a majority of the outstanding voting securities"
of the Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or (2) 67% or more of the shares of the Fund
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
Temporary Defensive Position
In abnormal market conditions, if, in the judgment of the Fund, municipal
securities satisfying the Fund's investment objectives may not be purchased, the
Fund may, for defensive purposes, temporarily invest in instruments the interest
on which is exempt from regular federal income taxes, but not state personal
income taxes. Such securities would include those described under "Florida
Municipal Securities" above that would otherwise meet the Fund's objectives.
Also, in abnormal market conditions, the Fund may invest on a temporary basis in
fixed-income securities, the interest on which is subject to federal, state, or
local income taxes, pending the investment or reinvestment in municipal
securities of the proceeds of sales of shares or sales of portfolio securities,
in order to avoid the necessity of liquidating portfolio investments to meet
redemptions of shares by investors or where market conditions due to rising
interest rates or other adverse factors warrant temporary investing for
defensive purposes. Investments in taxable securities will be substantially in
securities issued or guaranteed by the United States Government (such as bills,
notes and bonds), its agencies, instrumentalities or authorities; highly-rated
corporate debt securities (rated Aa3 or better by Moody's or AA- or better by
S&P); prime commercial paper (rated P-1 by Moody's or A-1+/A-1 by S&P); and
certificates of deposit of the 100 largest domestic banks in terms of assets
which are subject to regulatory supervision by the US Government or state
governments and the 50 largest foreign banks in terms of assets with branches or
agencies in the United States. Investments in certificates of deposit of foreign
banks and foreign branches of US banks may involve certain risks, including
different regulation, use of different accounting procedures, political or other
economic developments, exchange controls, or possible seizure or nationalization
of foreign deposits.
Portfolio Turnover
Portfolio transactions will be undertaken principally to accomplish the Fund's
objective in relation to anticipated movements in the general level of interest
rates but the Fund may also engage in short-term trading consistent with its
objective. Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what the
investment manager believes to be a temporary disparity in the normal yield
relationship between the two securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned during the year.
Securities whose maturity or expiration date at the time of acquisition were one
year or less are excluded from the calculation. The Fund's portfolio turnover
rates for the fiscal years ended September 30, 1998 and 1997, were 6.73% and
33.68%, respectively. The fluctuation in portfolio turnover rates of the Fund
resulted from conditions in the Florida municipal market. The Fund's portfolio
turnover rate will not be a limiting factor when the Fund deems it desirable to
sell or purchase securities.
7
<PAGE>
Management of the Fund
Board of Trustees
The Board of Trustees provides broad supervision over the affairs of the Fund.
Management Information
Trustees and officers of the Fund, together with information as to their
principal business occupations during the past five years, are shown below. Each
Trustee who is an "interested person" of the Fund, as defined in the 1940 Act,
is indicated by an asterisk. Unless otherwise indicated, their addresses are 100
Park Avenue, New York, NY 10017.
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
William C. Morris* Trustee, Chairman of the Chairman, J. & W. Seligman & Co. Incorporated,
(61) Board, Chief Executive Chairman and Chief Executive Officer, the Seligman
Officer and Chairman of the Group of investment companies; Chairman, Seligman
Executive Committee Advisors, Inc, Seligman Services, Inc., and Carbo
Ceramics Inc., ceramic proppants for oil and gas
industry; and Director, Seligman Data Corp.,
Kerr-McGee Corporation, diversified energy company.
Formerly, Director, Daniel Industries Inc.,
manufacturer of oil and gas metering equipment.
Brian T. Zino* Trustee, President and Member Director and President, J. & W. Seligman & Co.
(46) of the Executive Committee Incorporated; President (with the exception of
Seligman Quality Municipal Fund, Inc. and Seligman
Select Municipal Fund, Inc.) and Director or Trustee,
the Seligman Group of investment companies; Member of
the Board of Governors of the Investment Company
Institute and Director, ICI Mutual Insurance Company;
Chairman, Seligman Data Corp., and Director, Seligman
Advisors, Inc. and Seligman Services, Inc.
Richard R. Schmaltz* Trustee and Member of the Director and Managing Director, Director of
(58) Executive Committee Investments, J. & W. Seligman & Co. Incorporated;
Director or Trustee, the Seligman Group of
investment companies (except Seligman Cash
Management Fund, Inc.; Director, Seligman Henderson
Co., and Trustee Emeritus of Colby College.
Formerly, Director, Investment Research at Neuberger
& Berman from May 1993 to September 1996.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
John R. Galvin Trustee Dean, Fletcher School of Law and Diplomacy at Tufts
(69) University; Director or Trustee, the Seligman Group
Tufts University of investment companies; Chairman Emeritus, American
Packard Avenue, Council on Germany; Governor of the Center for
Medford, MA 02155 Creative Leadership; Director, Raytheon Co.,
electronics; National Defense University; and the
Institute for Defense Analysis. Formerly, Director,
USLIFE Corporation, life insurance; Ambassador, U.S.
State Department for negotiations in Bosnia;
Distinguished Policy Analyst at Ohio State University
and Olin Distinguished Professor of National Security
Studies at the United States Military Academy. From
June, 1987 to June, 1992, he was the Supreme Allied
Commander, Europe and the Commander-in-Chief, United
States European Command.
Alice S. Ilchman Trustee Retired President, Sarah Lawrence College; Director
(64) or Trustee, the Seligman Group of investment
18 Highland Circle companies; Trustee, the Committee for Economic
Bronxville, NY 10708 Development; and Chairman, The Rockefeller
Foundation, charitable foundation. Formerly,
Trustee, The Markle Foundation, philanthropic
organization; and Director, New York Telephone
Company and International Research and Exchange
Board, intellectual exchanges.
Frank A. McPherson Trustee Retired Chairman and Chief Executive Officer,
(66) Kerr-McGee Corporation; Director or Trustee, the
2601 Northwest Expressway, Seligman Group of investment companies; Director,
Suite 805E Kimberly-Clark Corporation, consumer products; Bank
Oklahoma City, OK 73112 of Oklahoma Holding Company; Baptist Medical Center;
Oklahoma Chapter of the Nature Conservancy; Oklahoma
Medical Research Foundation; and National Boys and
Girls Clubs of America; and Member of the Business
Roundtable and National Petroleum Council. Formerly,
Chairman, Oklahoma City Public Schools Foundation;
and Director, Federal Reserve System's Kansas City
Reserve Bank and the Oklahoma City Chamber of
Commerce.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
John E. Merow Trustee Retired Chairman and Senior Partner, Sullivan &
(69) Cromwell, law firm; Director or Trustee, the
Seligman 125 Broad Street, Group of investment
companies; Director, Commonwealth New York, NY 10004
Industries, Inc., manufacturers of aluminum sheet
products; the Foreign Policy Association; Municipal
Art Society of New York; the U.S. Council for
International Business; and New York Presbyterian
Hospital; Chairman, American Australian Association;
and New York Presbyterian Healthcare Network, Inc.;
Vice-Chairman, the U.S.-New Zealand Council; and
Member of the American Law Institute and Council on
Foreign Relations.
Betsy S. Michel Trustee Attorney; Director or Trustee, the Seligman Group of
(56) investment companies; Trustee, The Geraldine R. Dodge
P.O. Box 449 Foundation, charitable foundation; and Chairman of
Gladstone, NJ 07934 the Board of Trustees of St. George's School
(Newport, RI). Formerly, Director, the National
Association of Independent Schools (Washington, DC).
James C. Pitney Trustee Retired Partner, Pitney, Hardin, Kipp & Szuch, law
(72) firm; Director or Trustee, the Seligman Group of
Park Avenue at Morris County, investment companies. Formerly, Director, Public
P.O. Box 1945, Morristown, NJ Service Enterprise Group, public utility.
07962
James Q. Riordan Trustee Director or Trustee, the Seligman Group of investment
(71) companies; Director, The Houston Exploration Company;
675 Third Avenue, The Brooklyn Museum, KeySpan Energy Corporation; and
Suite 3004 Public Broadcasting Service; and Trustee, the
New York, NY 10017 Committee for Economic Development. Formerly,
Co-Chairman of the Policy Council of the Tax
Foundation; Director, Tesoro Petroleum Companies,
Inc. and Dow Jones & Company, Inc.; Director and
President, Bekaert Corporation; and Co-Chairman,
Mobil Corporation.
Robert L. Shafer Trustee Retired Vice President, Pfizer Inc.; Director or
(66) Trustee, the Seligman Group of investment companies.
96 Evergreen Avenue, Formerly, Director, USLIFE Corporation.
Rye, NY 10580
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
James N. Whitson Trustee Director and Consultant, Sammons Enterprises, Inc.;
(64) Director or Trustee, the Seligman Group of investment
6606 Forestshire Drive companies; Director, C-SPAN and CommScope, Inc.,
Dallas, TX 75230 manufacturer of coaxial cables. Formerly, Executive
Vice President, Chief Operating Officer, Sammons
Enterprises, Inc.; and Director, Red Man Pipe and
Supply Company, piping and other materials.
Thomas G. Moles Vice President and Senior Director and Managing Director, J. & W. Seligman &
(56) Portfolio Manager Co. Incorporated; Vice President and Senior Portfolio
Manager, three other open-end investment companies in
the Seligman Group of investment companies; President
and Senior Portfolio Manager, Seligman Quality
Municipal Fund, Inc. and Seligman Select Municipal
Fund, Inc., closed-end investment companies; and
Director, Seligman Advisors, Inc. and Seligman
Services, Inc.
Lawrence P. Vogel Vice President Senior Vice President, Finance, J. & W. Seligman &
(42) Co. Incorporated, Seligman Advisors, Inc., and
Seligman Data Corp.; Vice President, the Seligman
Group of investment companies and Seligman Services,
Inc.; and Vice President and Treasurer, Seligman
International, Inc.; and Treasurer, Seligman
Henderson Co.
Frank J. Nasta Secretary General Counsel, Senior Vice President, Law and
(34) Regulation and Corporate Secretary, J. & W. Seligman
& Co. Incorporated; Secretary, the Seligman Group of
investment companies, Seligman Advisors, Inc.,
Seligman Henderson Co., Seligman Services, Inc.,
Seligman International, Inc. and Seligman Data Corp.
Thomas G. Rose Treasurer Treasurer, the Seligman Group of investment companies
(41) and Seligman Data Corp.
</TABLE>
The Executive Committee of the Board acts on behalf of the Board between
meetings to determine the value of securities and assets owned by the Fund for
which no market valuation is available, and to elect or appoint officers of the
Fund to serve until the next meeting of the Board.
Trustees and officers of the Fund are also directors and officers of some or all
of the other investment companies in the Seligman Group.
11
<PAGE>
Compensation
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits from Fund and
Name and Compensation Accrued as Part of Fund Complex Paid
Position with Fund from Fund (1) Fund Expenses to Trustees (1)(2)
------------------ ------------- ------------- ------------------
<S> <C> <C> <C>
William C. Morris, Trustee and Chairman N/A N/A N/A
Brian T. Zino, Trustee and President N/A N/A N/A
Richard R. Schmaltz, Trustee N/A N/A N/A
John R. Galvin, Trustee $599 N/A $77,000
Alice S. Ilchman, Trustee 527 N/A 70,000
Frank A. McPherson, Trustee 577 N/A 75,000
John E. Merow, Trustee 567 N/A 74,000
Betsy S. Michel, Trustee 599 N/A 77,000
James C. Pitney, Trustee 547 N/A 72,000
James Q. Riordan, Trustee 547 N/A 72,000
Robert L. Shafer, Trustee 547 N/A 72,000
James N. Whitson, Trustee 598(d) N/A 77,000(d)
</TABLE>
- ----------
(1) For the Fund's fiscal year ended September 30, 1998. Effective January 16,
1998, the per meeting fee for Trustees was increased by $1,000, which is
allocated among all funds in the Fund Complex.
(2) The Seligman Group of investment companies consists of eighteen investment
companies.
(d) Deferred.
Seligman Municipal Series Trust has a compensation arrangement under which
outside trustees may elect to defer receiving their fees. Seligman Municipal
Series Trust has adopted a Deferred Compensation Plan under which a trustee who
has elected deferral of his or her fees may choose a rate of return equal to
either (1) the interest rate on short-term Treasury Bills, or (2) the rate of
return on the shares of any of the investment companies advised by J. & W.
Seligman & Co. Incorporated, as designated by the trustee. The cost of such fees
and earnings is included in trustees' fees and expenses, and the accumulated
balance thereof is included in other liabilities in the Fund's financial
statements. The total amount of deferred compensation (including earnings)
payable in respect of the Fund to Mr. Whitson as of September 30, 1998 was
$2,667.
Messrs. Merow and Pitney no longer defer current compensation; however, they
have accrued deferred compensation in the amounts of $5,659 and $4,142,
respectively, as of September 30, 1998.
The Fund may, but is not obligated to, purchase shares of the Seligman Group of
investment companies to hedge its obligations in connection with the Deferred
Compensation Plan.
Sales Charges
Class A shares of the Fund may be issued without a sales charge to present and
retired directors, trustees, officers, employees (and their family members) of
the Fund, the other investment companies in the Seligman Group, and J. & W.
Seligman & Co. Incorporated and its affiliates. Family members are defined to
include lineal descendents and lineal ancestors, siblings (and their spouses and
children) and any company or organization controlled by any of the foregoing.
Such sales also may be made to employee benefit plans for such persons and to
any investment advisory, custodial, trust or other fiduciary account managed or
advised by J. & W. Seligman & Co. Incorporated or any affiliate. These sales may
be made for investment purposes only, and shares may be resold only to the Fund.
Class A shares may be sold at net asset value to these persons since such sales
require less sales effort and lower sales related expenses as compared with
sales to the general public.
12
<PAGE>
Control Persons and Principal Holders of Securities
Control Persons
As of May 14, 1999, there was no person or persons who controlled the Fund,
either through significant ownership of Fund shares or any other means of
control.
Principal Holders
As of May 14, 1999, MLPF&S for the Sole Benefit of Its Customers, Attn Fund
Administration, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32246
owned of record 19.48% of the outstanding Class A shares of beneficial interest
of the Fund and 63.97% of the outstanding Class D shares of beneficial interest
of the Fund. As of the smae date, Dwight C. Byers TR UA 3/17/92 FBO Dwight C.
Byers Trust, 2701 60th Way N., Saint Petersburg, FL 32246 owned of record 7.05%
of the Fund's outstanding Class D shares of beneficial interest.
Management Ownership
Trustees and officers of the Fund as a group owned less than 1% of the
outstanding Class A shares of beneficial interest of the Fund as of May 14,
1999. As of the same date, no Trustees or officers of the Fund owned any Class D
shares of beneficial interest of the Fund.
Investment Advisory and Other Services
Investment Manager
J. & W. Seligman & Co. Incorporated (Seligman) manages the Fund. Seligman is a
successor firm to an investment banking business founded in 1864 which has
thereafter provided investment services to individuals, families, institutions,
and corporations. On December 29, 1988, a majority of the outstanding voting
securities of Seligman was purchased by Mr. William C. Morris and a simultaneous
recapitalization of Seligman occurred. See Appendix C for further history of
Seligman.
All of the officers of the Fund listed above are officers or employees of
Seligman. Their affiliations with the Fund and with Seligman are provided under
their principal business occupations.
The Fund pays Seligman a management fee for its services, calculated daily and
payable monthly. The management fee is equal to .50% per annum of the Fund's
average daily net assets. For the fiscal years ended September 30, 1998, 1997,
and 1996, the Fund paid Seligman management fees in the amount of $220,971,
$228,202, and $243,865,respectively. Seligman, in its discretion, waived a small
portion of its fee from the Fund in 1996 which resulted in an annual fee rate of
.50% of the Fund's average daily net assets.
The Fund pays all of its expenses other than those assumed by Seligman,
including brokerage commissions, if any, shareholder services and distribution
fees, fees and expenses of independent attorneys and auditors, taxes and
governmental fees, including fees and expenses of qualifying the Funds and their
shares under federal and state securities laws, cost of stock certificates and
expenses of repurchase or redemption of shares, expenses of printing and
distributing reports, notices and proxy materials to shareholders, expenses of
printing and filing reports and other documents with governmental agencies,
expenses of shareholders' meetings, expenses of corporate data processing and
related services, shareholder record keeping and shareholder account services,
fees and disbursements of transfer agents and custodians, expenses of disbursing
dividends and distributions, fees and expenses of the Trustees of the Fund not
employed by or serving as a director of Seligman or its affiliates, insurance
premiums and extraordinary expenses such as litigation expenses. These expenses
are allocated between the Funds in a manner determined by the Trustees to be
fair and equitable.
The Management Agreement also provides that Seligman will not be liable to the
Fund for any error of judgment or mistake of law, or for any loss arising out of
any investment, or for any act or omission in performing its duties under the
Management Agreement, except for willful misfeasance, bad faith, gross
negligence, or reckless disregard of its obligations and duties under the
Management Agreement.
13
<PAGE>
The Fund's Management Agreement was approved by the Trustees at a meeting held
on June 21, 1990 and was approved by the Florida shareholders at a Special
Meeting of the Fund held on December 7, 1990. The Agreement will continue in
effect until December 31 of each year if (1) such continuance is approved in the
manner required by the 1940 Act (i.e., by a vote of a majority of the Trustees
or of the outstanding voting securities of the Fund and by a vote of a majority
of the Trustees who are not parties to the Management Agreement or interested
persons of any such party) and (2) Seligman shall not have notified the Fund at
least 60 days prior to December 31 of any year that it does not desire such
continuance. The Agreement may be terminated by the Fund, without penalty, on 60
days' written notice to Seligman and will terminate automatically in the event
of its assignment. The Fund has agreed to change its name upon termination of
its Management Agreement if continued use of the name would cause confusion in
the context of Seligman's business.
Officers, directors and employees of Seligman are permitted to engage in
personal securities transactions, subject to Seligman's Code of Ethics. The Code
of Ethics proscribes certain practices with regard to personal securities
transactions and personal dealings, provides a framework for the reporting and
monitoring of personal securities transactions by Seligman's Compliance Officer,
and sets forth a procedure of identifying, for disciplinary action, those
individuals who violate the Code of Ethics. The Code of Ethics prohibits each of
the officers, directors and employees (including all portfolio managers) of
Seligman from purchasing or selling any security that the officer, director, or
employee knows or believes (1) was recommended by Seligman for purchase or sale
by any client, including the Fund, within the preceding two weeks, (2) has been
reviewed by Seligman for possible purchase or sale within the preceding two
weeks, (3) is being purchased or sold by any client, (4) is being considered by
a research analyst, (5) is being acquired in a private placement, unless prior
approval has been obtained from Seligman's Compliance Officer, or (6) is being
acquired during an initial or secondary public offering. The Code of Ethics also
imposes a strict standard of confidentiality and requires portfolio managers to
disclose any interest they may have in the securities or issuers that they
recommend for purchase by any client.
The Code of Ethics also prohibits (1) each portfolio manager or member of an
investment team from purchasing or selling any security within seven calendar
days of the purchase or sale of the security by a client's account (including
investment company accounts) for which the portfolio manager or investment team
manages; and (2) each employee from engaging in short-term trading (a purchase
and sale or vice-versa within 60 days). Any profit realized pursuant to either
of these prohibitions must be disgorged.
Officers, directors, and employees are required, except under very limited
circumstances, to engage in personal securities transactions through Seligman's
order desk. The order desk maintains a list of securities that may not be
purchased due to a possible conflict with clients. All officers, directors and
employees are also required to disclose all securities beneficially owned by
them on December 31 of each year.
Principal Underwriter
Seligman Advisors, Inc. (Seligman Advisors), an affiliate of Seligman, 100 Park
Avenue, New York, New York 10017, acts as general distributor of the shares of
the Fund and of the other mutual funds in the Seligman Group. Seligman Advisors
is an "affiliated person" (as defined in the 1940 Act) of Seligman, which is
itself an affiliated person of the Fund. Those individuals identified above
under "Management Information" as trustees or officers of both the Fund and
Seligman Advisors are affiliated persons of both entities.
Services Provided by the Investment Manager
Under the Management Agreement dated December 29, 1988, subject to the control
of the Board of Trustees, Seligman manages the investment of the assets of the
Fund, including making purchases and sales of portfolio securities consistent
with the Fund's investment objectives and policies, and administers their
business and other affairs. Seligman provides the Fund with such office space,
administrative and
14
<PAGE>
other services and executive and other personnel as are necessary for Fund
operations. Seligman pays all of the compensation of trustees of the Fund who
are employees or consultants of Seligman and of the officers and employees of
the Fund. Seligman also provides senior management for Seligman Data Corp., the
Fund's shareholder service agent.
Service Agreements
There are no other management-related service contracts under which services are
provided to the Fund.
Other Investment Advice
No person or persons, other than directors, officers, or employees of Seligman,
regularly advise the Fund with respect to its investments.
Dealer Reallowances
Dealers and financial advisors receive a percentage of the initial sales charge
on sales of Class A shares and Class C shares of the Fund, as set forth below:
Class A shares:
<TABLE>
<CAPTION>
Regular Dealer
Sales Charge Sales Charge Reallowance
as a % of as a % of Net As a % of
Amount of Purchase Offering Price(1) Amount Invested Offering Price
- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.25%
$50,000 - $ 99,999 4.00 4.17 3.50
$100,000 - $249,999 3.50 3.63 3.00
$250,000 - $499,999 2.50 2.56 2.25
$500,000 - $999,999 2.00 2.04 1.75
$1,000,000 and over(2) 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
(2) You will not pay a sales charge on purchases of $1 million or more, but you
will be subject to a 1% CDSC if you sell your shares within 18 months.
Class C shares:
<TABLE>
<CAPTION>
Regular Dealer
Sales Charge Sales Charge Reallowance
as a % of as a % of Net As a % of
Amount of Purchase Offering Price(1) Amount Invested Offering Price
- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000 1.00% 1.01% 1.00%
$100,000 - $249,000 0.50 0.50 0.50
$250,000 - $1,000,000(2) 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
(2) Your purchase of Class C shares must be
for less than $1,000,000 because if you invest $1,000,000 or more,
you will pay less in fees and charges if you buy Class A shares.
Seligman Services, Inc. (Seligman Services), an affiliate of Seligman, is a
limited purpose broker/dealer. Seligman Services is eligible to receive
commissions from certain sales of Fund shares. For fiscal years ended September
30, 1998, 1997, and 1996, Seligman Services received commissions of $2,125,
$1,118, and $1,101.
15
<PAGE>
Rule 12b-1 Plan
Seligman Municipal Series Trust has adopted an Administration, Shareholder
Services and Distribution Plan (12b-1 Plan) in accordance with Section 12(b) of
the 1940 Act and Rule 12b-1 thereunder.
Under the 12b-1 Plan, the Fund may pay to Seligman Advisors an administration,
shareholder services and distribution fee in respect of Class A, Class C, and
Class D shares. Payments under the 12b-1 Plan may include, but are not limited
to: (1) compensation to securities dealers and other organizations (Service
Organizations) for providing distribution assistance with respect to assets
invested in the Fund; (2) compensation to Service Organizations for providing
administration, accounting and other shareholder services with respect to Fund
shareholders; and (3) otherwise promoting the sale of shares of the Fund,
including paying for the preparation of advertising and sales literature and the
printing and distribution of such promotional materials and prospectuses to
prospective investors and defraying Seligman Advisors' costs incurred in
connection with its marketing efforts with respect to shares of the Fund.
Seligman, in its sole discretion, may also make similar payments to Seligman
Advisors from its own resources, which may include the management fee that
Seligman receives from the Fund. Payments made by the Fund under the 12b-1 Plan
are intended to be used to encourage sales of the Fund, as well as to discourage
redemptions.
Fees paid by the Fund under the 12b-1 Plan with respect to any class of shares
may not be used to pay expenses incurred solely in respect of any other class or
any other Seligman fund. Expenses attributable to more than one class of the
Fund are allocated between the classes in accordance with a methodology approved
by the Fund's Board of Directors. The Fund may participate in joint distribution
activities with other Seligman funds, and the expenses of such activities will
be allocated among the applicable funds based on relative sales, in accordance
with a methodology approved by the Board.
Class A
Under the 12b-1 Plan, the Fund, with respect to Class A shares, pays quarterly
to Seligman Advisors a service fee at an annual rate of up to .25% of the
average daily net asset value of the Class A shares. These fees are used by
Seligman Advisors exclusively to make payments to Service Organizations which
have entered into agreements with Seligman Advisors. Such Service Organizations
receive from Seligman Advisors a continuing fee of up to .25% on an annual
basis, payable quarterly, of the average daily net assets of Class A shares
attributable to the particular Service Organization for providing personal
service and/or maintenance of shareholder accounts. The fee payable to Service
Organizations from time to time shall, within such limits, be determined by the
Directors of the Fund. The Fund is not obligated to pay Seligman Advisors for
any such costs it incurs in excess of the fee described above. No expense
incurred in one fiscal year by Seligman Advisors with respect to Class A shares
of the Fund may be paid from Class A 12b-1 fees received from the Fund in any
other fiscal year. If the Fund's 12b-1 Plan is terminated in respect of Class A
shares, no amounts (other than amounts accrued but not yet paid) would be owed
by the Fund to Seligman Advisors with respect to Class A shares. The total
amount paid by the Fund to Seligman Advisors in respect of Class A shares for
the fiscal year ended September 30, 1998 was $99,371, equivalent to .23% of the
Class A shares' average daily net assets.
Class C
Under the 12b-1 Plan, the Fund, with respect to Class C shares, pays monthly to
Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily
net asset value of the Class C shares. The fee is used by Seligman Advisors as
follows: During the first year following the sale of Class C shares, a
distribution fee of .75% of the average daily net assets attributable to Class C
shares is used, along with any CDSC proceeds during the first eighteen months,
to (1) reimburse Seligman Advisors for its payment at the time of sale of Class
C shares of a 1.25% sales commission to Service Organizations, and (2) pay for
other distribution expenses, including paying for the preparation of advertising
and sales literature and the printing and distribution of such promotional
materials and prospectuses to prospective investors and other marketing costs of
Seligman Advisors. In addition, during the first year following the sale of
Class C shares, a service fee of up to .25% of the average daily net assets
attributable to such Class C
16
<PAGE>
shares is used to reimburse Seligman Advisors for its prepayment to Service
Organizations at the time of sale of Class C shares of a service fee of .25% of
the net asset value of the Class C shares sold (for shareholder services to be
provided to Class C shareholders over the course of the one year immediately
following the sale). The payment of service fees to Seligman Advisors is limited
to amounts Seligman Advisors actually paid to Service Organizations at the time
of sale as service fees. After the initial one-year period following a sale of
Class C shares, the entire 12b-1 fee attributable to such Class C shares is paid
to Service Organizations for providing continuing shareholder services and
distribution assistance in respect of the Fund. The Fund does not pay any 12b-1
fees in respect of Class C shares for the fiscal year ended September 30, 1998
because no Class C shares were issued or outstanding during such period.
Class D
Under the 12b-1 Plan, the Fund, with respect to Class D shares, pays monthly to
Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily
net asset value of the Class D shares. The Fee is used by Seligman Advisors as
follows: During the first year following the sale of Class D shares, a
distribution fee of .75% of the average daily net assets attributable to such
Class D shares is used, along with any CDSC proceeds, to (1) reimburse Seligman
Advisors for its payment at the time of sale of Class D shares of a .75% sales
commission to Service Organizations, and (2) pay for other distribution
expenses, including paying for the preparation of advertising and sales
literature and the printing and distribution of such promotional materials and
prospectuses to prospective investors and other marketing costs of Seligman
Advisors. In addition, during the first year following the sale of Class D
shares, a service fee of up to .25% of the average daily net assets attributable
to such Class D shares is used to reimburse Seligman Advisors for its prepayment
to Service Organizations at the time of sale of Class D shares of a service fee
of .25% of the net asset value of the Class D shares sold (for shareholder
services to be provided to Class D shareholders over the course of the one year
immediately following the sale). The payment of service fees to Seligman
Advisors is limited to amounts Seligman Advisors actually paid to Service
Organizations at the time of sale as service fees. After the initial one-year
period following a sale of Class D shares, the entire 12b-1 fee attributable to
such Class D shares is paid to Service Organizations for providing continuing
shareholder services and distribution assistance in respect of the Fund. The
total amount paid by the Fund in respect of Class D shares for the fiscal year
ended September 30, 1998 was $18,293, equivalent to 1% per annum of the average
daily net assets of Class D shares.
The amounts expended by Seligman Advisors in any one year with respect to Class
D shares of the Fund may exceed the 12b-1 fees paid by the Fund in that year.
The Fund's 12b-1 Plan permits expenses incurred by Seligman Advisors in respect
of Class D shares in one fiscal year to be paid from Class D 12b-1 fees received
from the Fund in any other fiscal year; however, in any fiscal year the Fund is
not obligated to pay any 12b-1 fees in excess of the fees described above.
If the 12b-1 Plan is terminated in respect of Class D shares of the Fund, no
amounts (other than amounts accrued but not yet paid) would be owed by the Fund
to Seligman Advisors with respect to Class D shares.
As of September 30, 1998 Seligman Advisors has incurred $5,076 of unreimbursed
expenses in respect of the Fund's Class D shares. This amount is equal to .26%
of the net assets of Class D at September 30, 1998.
Payments made by the Fund under the 12b-1 Plan for its fiscal year ended
September 30, 1998, were spent on the following activities in the following
amounts (no Class C shares were outstanding during such fiscal year):
17
<PAGE>
Class A Class D
------- -------
Compensation to underwriters $3,556
Compensation to broker/dealers $99,371 $14,737
The 12b-1 Plan was approved on June 21, 1990 by the Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Fund and who have no direct or indirect financial interest in
the operation of the 12b-1 Plan or in any agreement related to the 12b-1 Plan
(the "Qualified Trustees") and was approved by shareholders of the Fund on
December 7, 1990. Amendments to the Plan were approved in respect of the Class D
shares on November 18, 1993 by the Trustees, including a majority of the
Qualified Trustees, and became effective with respect to the Class D shares on
February 1, 1994. The 12b-1 Plan was approved in respect of Class C shares on
May 20, 1999 by the Trustees, including a majority of the Qualified Trustees,
and became effective in respect of the Class C shares on June 1, 1999. The 12b-1
Plan will continue in effect until December 31 of each year so long as such
continuance is approved annually by a majority vote of both the Trustees and the
Qualified Trustees, cast in person at a meeting called for the purpose of voting
on such approval. The 12b-1 Plan may not be amended to increase materially the
amounts payable under the terms of the 12b-1 Plan without the approval of a
majority of the outstanding voting securities of the Fund and no material
amendment to the 12b-1 Plan may be made except with the approval of a majority
of both the Trustees and the Qualified Trustees in accordance with the
applicable provisions of the 1940 Act and the rules thereunder.
The 12b-1 Plan requires that the Treasurer of the Fund shall provide to the
Trustees, and the Trustees shall review at least quarterly, a written report of
the amounts expended (and purposes therefor) made under the 12b-1 Plan. Rule
12b-1 also requires that the selection and nomination of Trustees who are not
"interested persons" of the Fund be made by such disinterested Trustees.
Seligman Services acts as a broker/dealer of record for shareholder accounts
that do not have a designated financial advisor and receives compensation from
the Fund pursuant to the 12b-1 Plan for providing personal services and account
maintenance to such accounts and other distribution services. For the fiscal
years ended September 30, 1998, 1997, and 1996, Seligman Services received
distribution and service fees of $4,566, $5,302, and $5,070, respectively,
pursuant to the 12b-1 Plan.
Brokerage Allocation and Other Practices
Brokerage Transactions
For the fiscal years ended September 30, 1998, 1997, and 1996, no brokerage
commissions were paid by the Fund. When two or more of the investment companies
in the Seligman Group or other investment advisory clients of Seligman desire to
buy or sell the same security at the same time, the securities purchased or sold
are allocated by Seligman in a manner believed to be equitable to each. There
may be possible advantages or disadvantages of such transactions with respect to
price or the size of positions readily obtainable or saleable.
In over-the-counter markets, the Fund deals with responsible primary market
makers unless a more favorable execution or price is believed to be obtainable.
The Fund may buy securities from or sell securities to dealers acting as
principal, except dealers with which its directors and/or officers are
affiliated.
Commissions
For the fiscal years ended September 30, 1998, 1997, and 1996, the Fund did not
execute any portfolio transactions with, and therefore did not pay any
commissions to, any broker affiliated with either the Fund, Seligman, or
Seligman Advisors.
18
<PAGE>
Regular Broker-Dealers
During the Fund's fiscal year ended September 30, 1998, the Fund did not acquire
securities of its regular brokers or dealers (as defined in Rule 10b-1 under the
1940 Act) or of their parents.
Shares of Beneficial Interest and Other Securities
Shares of Beneficial Interest
Seligman Municipal Series Trust is authorized to issue an unlimited number of
full and fractional shares of beneficial interest, par value $.001, in separate
series. To date, four series have been authorized, the Fund being one of them.
The Fund has three classes, designated Class A shares of beneficial interest,
Class C shares of beneficial interest, and Class D shares of beneficial
interest. Each share of the Fund's Class A, Class C, and Class D beneficial
interest is equal as to earnings, assets, and voting privileges, except that
each class bears its own separate distribution and, potentially, certain other
class expenses and has exclusive voting rights with respect to any matter to
which a separate vote of any class is required by the 1940 Act or Massachusetts
law. Seligman Municipal Series Trust has adopted a multiclass plan pursuant to
Rule 18f-3 under the 1940 Act permitting the issuance and sale of multiple
classes. In accordance with the Declaration of Trust, the Board of Trustees may
authorize the creation of additional classes of beneficial interest with such
characteristics as are permitted by the multiples plan and Rule 18f-3. The 1940
Act requires that where more than one class exists, each class must be preferred
over all other classes in respect of assets specifically allocated to such
class. All shares have noncumulative voting rights for the election of trustees.
Each outstanding share is fully paid and non-assessable, and each is freely
transferable. There are no liquidation, conversion, or preemptive rights.
Other Securities
Seligman Municipal Series Trust has no authorized securities other than its
shares of beneficial interest.
Purchase, Redemption, and Pricing of Shares
Purchase of Shares
Class A
Class A shares may be purchased at a price equal to the next determined net
asset value per share, plus an initial sales charge.
Purchases of Class A shares by a "single person" (as defined below under
"Persons Entitled to Reductions") may be eligible for the following reductions
in initial sales charges:
Volume Discounts are provided if the total amount being invested in Class A
shares of the Fund alone, or in any combination of shares of the other mutual
funds in the Seligman Group which are sold with an initial sales charge, reaches
levels indicated in the sales charge schedule set forth in the Prospectus.
The Right of Accumulation allows an investor to combine the amount being
invested in Class A shares of the Fund and shares of the other Seligman mutual
funds sold with an initial sales charge with the total net asset value of shares
of those mutual funds already owned that were sold with an initial sales charge
and the total net asset value of shares of Seligman Cash Management Fund which
were acquired through an exchange of shares of another Seligman mutual fund on
which there was an initial sales charge at the time of purchase to determine
reduced sales charges in accordance with the schedule in the prospectus. The
value of the shares owned, including the value of shares of Seligman Cash
Management Fund acquired in an exchange of shares of another Seligman mutual
fund on which there was an initial sales charge at the time of purchase will be
taken into account in orders placed through a dealer, however,
19
<PAGE>
only if Seligman Advisors is notified by an investor or a dealer of the amount
owned by the investor at the time the purchase is made and is furnished
sufficient information to permit confirmation.
A Letter of Intent allows an investor to purchase Class A shares over a 13-month
period at reduced initial sales charges in accordance with the schedule in the
Prospectus, based on the total amount of Class A shares of the Fund that the
letter states the investor intends to purchase plus the total net asset value of
shares that were sold with an initial sales charge of the other Seligman mutual
funds already owned and the total net asset value of shares of Seligman Cash
Management Fund which were acquired through an exchange of shares of another
Seligman mutual fund on which there was an initial sales charge at the time of
purchase. Reduced sales charges also may apply to purchases made within a
13-month period starting up to 90 days before the date of execution of a letter
of intent.
Persons Entitled To Reductions. Reductions in initial sales charges apply to
purchases of Class A shares by a "single person," including an individual;
members of a family unit comprising husband, wife and minor children; or a
trustee or other fiduciary purchasing for a single fiduciary account. Employee
benefit plans qualified under Section 401 of the Internal Revenue Code of 1986,
as amended, organizations tax exempt under Section 501(c)(3) or (13) of the
Internal Revenue Code, and non-qualified employee benefit plans that satisfy
uniform criteria are considered "single persons" for this purpose. The uniform
criteria are as follows:
1. Employees must authorize the employer, if requested by a Fund, to
receive in bulk and to distribute to each participant on a timely basis the Fund
prospectus, reports, and other shareholder communications.
2. Employees participating in a plan will be expected to make regular
periodic investments (at least annually). A participant who fails to make such
investments may be dropped from the plan by the employer or the Fund 12 months
and 30 days after the last regular investment in his account. In such event, the
dropped participant would lose the discount on share purchases to which the plan
might then be entitled.
3. The employer must solicit its employees for participation in such an
employee benefit plan or authorize and assist an investment dealer in making
enrollment solicitations.
Eligible Employee Benefit Plans. The table of sales charges in the Prospectus
applies to sales to "eligible employee benefit plans," except that the Fund may
sell shares at net asset value to "eligible employee benefit plans" which have
at least (1) $500,000 invested in the Seligman Group of mutual funds or (2) 50
eligible employees to whom such plan is made available. Such sales must be made
in connection with a payroll deduction system of plan funding or other systems
acceptable to Seligman Data Corp., the Fund's shareholder service agent.
"Eligible employee benefit plan" means any plan or arrangement, whether or not
tax qualified, which provides for the purchase of Fund shares. Sales of shares
to such plans must be made in connection with a payroll deduction system of plan
funding or other system acceptable to Seligman Data Corp. Section 403(b) Plans
sponsored by public educational institutions are not eligible for net asset
value purchases based on the aggregate investment made by the plan or member of
eligible employees.
Such sales are believed to require limited sales effort and sales-related
expenses and therefore are made at net asset value. Contributions or account
information for plan participation also should be transmitted to Seligman Data
Corp. by methods which it accepts. Additional information about "eligible
employee benefit plans" is available from financial advisors or Seligman
Advisors.
Further Types of Reductions. Class A shares may also be issued without an
initial sales charge in the following instances:
(1) to any registered unit investment trust which is the issuer of periodic
payment plan certificates, the net proceeds of which are invested in Fund
shares;
20
<PAGE>
(2) to separate accounts established and maintained by an insurance company
which are exempt from registration under Section 3(c)(11) of the 1940 Act;
(3) to registered representatives and employees (and their spouses and minor
children) of any dealer that has a sales agreement with Seligman Advisors;
(4) to financial institution trust departments;
(5) to registered investment advisers exercising discretionary investment
authority with respect to the purchase of Fund shares;
(6) to accounts of financial institutions or broker/dealers that charge account
management fees, provided Seligman or one of its affiliates has entered
into an agreement with respect to such accounts;
(7) pursuant to sponsored arrangements with organizations which make
recommendations to, or permit group solicitations of, its employees,
members or participants in connection with the purchase of shares of the
Fund;
(8) to other investment companies in the Seligman Group in connection with a
deferred fee arrangement for outside directors;
(9) to certain "eligible employee benefit plans" as discussed above;
(10) to those partners and employees of outside counsel to the Fund or its
directors or trustees who regularly provide advice and services to the
Fund, to other funds managed by Seligman, or to their directors or
trustees; and
(11) in connection with sales pursuant to a 401(k) alliance program which has an
agreement with Seligman Advisors.
CDSC Applicable to Class A Shares. Class A shares purchased without an initial
sales charge in accordance with the sales charge schedule in the Fund's
Prospectus, or pursuant to a Volume Discount, Right of Accumulation, or Letter
of Intent are subject to a CDSC of 1% on redemptions of such shares within
eighteen months of purchase. Employee benefit plans eligible for net asset value
sales (as described below) may be subject to a CDSC of 1% for terminations at
the plan level only, on redemptions of shares purchased within eighteen months
prior to plan termination. The 1% CDSC will be waived on shares that were
purchased through Morgan Stanley Dean Witter & Co. by certain Chilean
institutional investors (i.e. pension plans, insurance companies, and mutual
funds). Upon redemption of such shares within an eighteen-month period, Morgan
Stanley Dean Witter will reimburse Seligman Advisors a pro rata portion of the
fee it received from Seligman Advisors at the time of sale of such shares.
See "CDSC Waivers" below for other waivers which may be applicable to Class A
shares.
Class C
Class C shares may be purchased at a price equal to the next determined net
asset value, without an initial sales charge. Purchases of Class C shares by a
"single person" may be eligible for the reductions in initial sales charges
described above for Class A shares. Class C shares are subject to a CDSC of 1%
if the shares are redeemed within eighteen months of purchase, charged as a
percentage of the current net asset value or the original purchase price,
whichever is less.
Class D
Class D shares may be purchased at a price equal to the next determined net
asset value, without an initial sales charge. However, Class D shares are
subject to a CDSC of 1% if the shares are redeemed
21
<PAGE>
within one year of purchase, charged as a percentage of the current net asset
value or the original purchase price, whichever is less.
Systematic Withdrawals. Class C and Class D shareholders who reinvest both their
dividends and capital gain distributions to purchase additional shares of the
Fund, may use the Fund's Systematic Withdrawal Plan to withdraw up to 10% and
10%, respectively, of the value of their accounts per year without the
imposition of a CDSC. Account value is determined as of the date the systematic
withdrawals begin.
CDSC Waivers. The CDSC on Class C shares and Class D shares (and certain Class A
shares, as discussed above) will be waived or reduced in the following
instances:
(1) on redemptions following the death or disability (as defined in Section
72(m)(7) of the Internal Revenue Code) of a shareholder or beneficial
owner;
(2) in connection with (1) distributions from retirement plans qualified under
Section 401(a) of the Internal Revenue Code when such redemptions are
necessary to make distributions to plan participants (such payments
include, but are not limited to, death, disability, retirement, or
separation of service), (2) distributions from a custodial account under
Section 403(b)(7) of the Internal Revenue Code or an IRA due to death,
disability, minimum distribution requirements after attainment of age 70
1/2 or, for accounts established prior to January 1, 1998, attainment of
age 59 1/2, and (3) a tax-free return of an excess contribution to an IRA;
(3) in whole or in part, in connection with shares sold to current and retired
Directors of the Fund;
(4) in whole or in part, in connection with shares sold to any state, county,
or city or any instrumentality, department, authority, or agency thereof,
which is prohibited by applicable investment laws from paying a sales load
or commission in connection with the purchase of any registered investment
management company;
(5) in whole or in part, in connection with systematic withdrawals;
(6) in connection with participation in the Merrill Lynch Small Market 401(k)
Program.
If, with respect to a redemption of any Class A, Class C or Class D shares sold
by a dealer, the CDSC is waived because the redemption qualifies for a waiver as
set forth above, the dealer shall remit to Seligman Advisors promptly upon
notice, an amount equal to the payment or a portion of the payment made by
Seligman Advisors at the time of sale of such shares.
Fund Reorganizations
Class A and Class C shares may be issued without an initial sales charge in
connection with the acquisition of cash and securities owned by other investment
companies. Any CDSC will be waived in connection with the redemption of shares
of a Fund if the Fund is combined with another Seligman mutual fund, or in
connection with a similar reorganization transaction.
Payment in Securities. In addition to cash, the Funds may accept securities in
payment for Fund shares sold at the applicable public offering price (net asset
value and, if applicable, any sales charge), although the Fund do not presently
intend to accept securities in payment for Fund shares. Generally, a Fund will
only consider accepting securities (l) to increase its holdings in a portfolio
security, or (2) if Seligman determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for efficient
management. Although no minimum has been established, it is expected that a Fund
would not accept securities with a value of less than $100,000 per issue in
payment for shares. A Fund may reject in whole or in part offers to pay for Fund
shares with securities, may require partial payment in cash for applicable sales
charges, and may discontinue accepting securities as payment for Fund shares at
22
<PAGE>
any time without notice. The Funds will not accept restricted securities in
payment for shares. The Funds will value accepted securities in the manner
provided for valuing portfolio securities.
Offering Price
When you buy or sell Fund shares, you do so at the Class's net asset value (NAV)
next calculated after Seligman Advisors accepts your request. Any applicable
sales charge will be added to the purchase price for Class A shares and Class C
shares.
NAV per share of each class of the Fund is determined as of the close of regular
trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern time), on
each day that the NYSE is open for business. The NYSE is currently closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Fund
will also determine NAV for each class on each day in which there is a
sufficient degree of trading in the Fund's portfolio securities that the NAV of
Fund shares might be materially affected. NAV per share for a class is computed
by dividing such class's share of the value of the net assets of the Fund (i.e.,
the value of its assets less liabilities) by the total number of outstanding
shares of such class. All expenses of the Fund, including the management fee,
are accrued daily and taken into account for the purpose of determining NAV. The
NAV of Class C shares and Class D shares will generally be lower than the NAV of
Class A shares as a result of the higher 12b-1 fees with respect to such shares.
It is expected, however, that the net asset value per share of the two classes
will tend to converge immediately after the recording of dividends, which will
differ by approximately the amount of the distribution and other class expenses
accrual differential between the classes.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Municipal securities and other short-term holdings
maturing in more than 60 days are valued on the basis of quotations provided by
an independent pricing service, approved by the Trustees, which uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. In the absence of such quotations, fair value
will be determined in accordance with procedures approved by the Trustees.
Short-term holdings having remaining maturities of 60 days or less are generally
valued at amortized cost.
Generally, trading in certain securities such as municipal securities, corporate
bonds, US Government securities, and money market instruments is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in determining the net asset value of a Fund's shares
are computed as of such times.
Specimen Price Make-Up
Under the current distribution arrangements between the Fund and Seligman
Advisors, Class A shares and Class C shares are sold with a maximum initial
sales charge of 4.75% and 1.00%(1), respectively, and Class D shares are sold at
NAV(2). Using each Class's NAV at March 31, 1999, (except Class C shares, which
commences operations effective June 1, 1999) the maximum offering price of the
Fund's shares is as follows:
Class A
Net asset value per share................................... $7.91
----
Maximum sales charge (4.75% of offering price).............. .39
---
Offering price to public.................................... $8.30
=====
Class D
23
<PAGE>
Net asset value and offering price per share(2) ............ $7.93
=====
- ----------
(1) Class D shares are also subject to a 1% CDSC if you redeem your shares
within one year of purchase.
(2) In addition to the front-end sales charge of 1.00%, Class C shares are
subject to a 1% CDSC if you redeem your shares within eighteen months of
purchase.
(3) Class D shares are also subject to a 1% CDSC if you redeem your shares
within one year of purchase.
Redemption in Kind
The procedures for selling Fund shares under ordinary circumstances are set
forth in the Prospectus. In unusual circumstances, payment may be postponed, or
the right of redemption postponed for more than seven days, if the orderly
liquidation of portfolio securities is prevented by the closing of, or
restricted trading on, the NYSE during periods of emergency, or such other
periods as ordered by the Securities and Exchange Commission. Under these
circumstances, redemption proceeds may be made in securities. If payment is made
in securities, a shareholder may incur brokerage expenses in converting these
securities to cash.
Taxation of the Fund
The Fund is treated as a separate corporation for federal income tax purposes.
As a result, determinations of net investment income, exempt-interest dividends
and net long-term and short-term capital gain and loss will be made separately
for the Fund.
The Fund is qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. For each
year so qualified, the Fund will not be subject to federal income taxes on its
net investment income and capital gains, if any, realized during any taxable
year, which it distributes to its shareholders, provided that at least 90% of
its net investment income and net short-term capital gains are distributed to
shareholders each year.
Qualification as a regulated investment company under the Internal Revenue Code
requires among other things, that (1) at least 90% of the annual gross income of
the Fund be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks,
securities or currencies, or other income (including but not limited to gains
from options, futures, or forward contracts) derived with respect to its
business of investing in such stocks, securities or currencies; (2) and the Fund
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by
cash, US Government securities and other securities limited in respect of any
one issuer to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
US Government securities).
Federal Income Taxes
If, at the end of each quarter of its taxable year, at least 50% of the Fund's
total assets is invested in obligations exempt from regular federal income tax,
the Fund will be eligible to pay dividends that are excludable by shareholders
from gross income for regular federal income tax purposes. The total amount of
such exempt interest dividends paid by the Fund cannot exceed the amount of
federally tax-exempt interest received by the Fund during the year less any
expenses allocable to the Fund.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over any net short-term losses) are taxable as long-term capital gain,
whether received in cash or invested in additional shares, regardless of how
long the shares have been held by a shareholder, except that the portion of net
capital gains representing accrued market discount on tax-exempt obligations
acquired after April 30, 1993 will be taxable as ordinary income. Individual
shareholders will be subject to federal tax on distributions of net capital
gains at a maximum rate of 20% if designated as derived from the Fund's capital
gains from property held for more than one year. Net Capital gain of a corporate
shareholder is taxed at the same rate as ordinary income. Distributions from the
Fund's other investment income (other than exempt interest dividends) or from
net realized short-term gain will taxable to shareholders as ordinary income,
24
<PAGE>
whether received in cash or invested in additional shares. Distributions
generally will not be eligible for the dividends received deduction allowed to
corporate shareholders. Shareholders receiving distributions in the form of
additional shares issued by the Fund will be treated for federal income tax
purposes as having received a distribution in an amount equal to the fair market
value on the date of distribution of the shares received.
Interest on indebtedness incurred or continued to purchase or carry shares of
the Fund will not be deductible for federal income tax purposes to the extent
that the Fund's distributions are exempt from federal income tax.
Any gain or loss realized upon a sale or redemption of shares in the Fund by a
shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as a short-term capital gain or loss. Individual shareholders
will be subject to federal income tax on net capital gains at a maximum rate of
20% in respect of shares held for more than one year. Net capital gain of a
corporate shareholder is taxed at the same rate as ordinary income. However, if
shares on which a long-term capital gain distribution has been received are
subsequently sold or redeemed and such shares have been held for six months or
less, any loss realized will be treated as long-term capital loss to the extent
that it offsets the long-term capital gain distribution. In addition, no loss
will be allowed on the sale or other disposition of shares of the Fund if,
within a period beginning 30 days before the date of such sale or disposition
and ending 30 days after such date, the holder acquires (including shares
acquired through dividend reinvestment) securities that are substantially
identical to the shares of the Fund.
In determining gain or loss on shares of the Fund that are sold or exchanged
within 90 days after acquisition, a shareholder generally will not be permitted
to include in the tax basis attributable to such shares the sales charge
incurred in acquiring such shares to the extent of any subsequent reduction of
the sales charge by reason of the Exchange or Reinstatement Privilege offered by
the Fund. Any sales charge not taken into account in determining the tax basis
of shares sold or exchanged within 90 days after acquisition will be added to
the shareholder's tax basis in the shares acquired pursuant to the Exchange or
Reinstatement Privilege.
Shareholders are urged to consult their tax advisors concerning the effect of
federal income taxes in their individual circumstances. In particular, persons
who may be "substantial users" (or "related person" of substantial users) of
facilities financed by industrial development bonds or private activity bonds
should consult the tax advisors before purchasing shares of the Fund.
Florida Taxes
Florida does not presently impose an income tax on individuals and thus
individual shareholders of the Florida Fund will not be subject to any Florida
state income tax on distributions received from the Florida Fund. However,
Florida imposes an intangible personal property tax on shares of the Florida
Fund owned by a Florida resident on January 1 of each year unless such shares
qualify for an exemption from that tax. The Municipal Series Trust has received
a Technical Assistance Advisement from the State of Florida, Department of
Revenue, to the effect that shares of the Florida Fund owned by a Florida
resident will be exempt from the Florida Intangible Personal Property Tax so
long as the Florida Fund portfolio includes on January 1 of each year only
assets, such as Florida tax-exempt securities and United States Government
securities, that are exempt from the Florida Intangible Personal Property Tax.
Corporate shareholders may be subject to Florida income taxes depending on the
portion of the income related to the Florida Fund that is allocable to Florida
under applicable Florida law.
Unless a shareholder includes a certified taxpayer identification number (social
security number for individuals) on the account application and certifies that
the shareholder is not subject to backup withholding, the Fund is required to
withhold and remit to the US Treasury a portion of distributions and other
reportable payments to the shareholder. The rate of backup withholding is 31%.
Shareholders should be aware that, under regulations promulgated by the Internal
Revenue Service, the Fund may be fined $50 annually for each account for which a
certified taxpayer identification number is not provided.
25
<PAGE>
In the event that such a fine is imposed, the Fund may charge a service fee of
up to $50 that may be deducted from the shareholder's account and offset against
any undistributed dividends and capital gain distributions. The Fund also
reserves the right to close any account which does not have a certified taxpayer
identification number.
Underwriters
Distribution of Securities
Seligman Municipal Series Trust and Seligman Advisors are parties to a
Distributing Agreement dated January 1, 1993 under which Seligman Advisors acts
as the exclusive agent for distribution of shares of the Fund. Seligman Advisors
accepts orders for the purchase of Fund shares, which are offered continuously.
As general distributor of the Fund's shares of beneficial interest, Seligman
Advisors allows reallowances to all dealers on sales of Class A shares, as set
forth above under "Dealer Reallowances." Seligman Advisors retains the balance
of sales charges and any CDSCs paid by investors.
Total initial sales charges paid by shareholders of Class A shares of the Fund
for the fiscal years ended September 30, 1998, 1997, and 1996 are shown below.
Also shown are the amounts of Class A sales charges that were retained by
Seligman Advisors. No Class C shares of the Fund were issued or outstanding
during such fiscal years:
Total Sales Charges Paid Amount of Class A Sales
by Shareholders Charges Retained by
Fiscal Year on Class A Shares Seligman Advisors
- ----------- ----------------- -----------------
1998 $69,408 $8,741
1997 76,147 9,343
1996 82,207 9,355
For the fiscal years ended September 30, 1998, 1997, and 1996, Seligman Advisors
retained CDSC charges on Class D shares amounting to $277, $0, and $138,
respectively.
Compensation
Seligman Advisors received the following commissions and other compensation from
the Fund during its fiscal year ended September 30, 1998:
<TABLE>
<CAPTION>
Compensation on
Net Underwriting Redemptions and
Discounts and Repurchases
Commissions (CDSC on Class A
(Class A Sales and Class D Brokerage Other
Charge Retained) Retained) Commissions Compensation
---------------- --------- ----------- -------------
<S> <C> <C> <C>
$8,741 $277 $0 $0
</TABLE>
Other Payments
Seligman Advisors shall pay broker/dealers, from its own resources, a fee on
purchases of Class A shares of $1,000,000 or more (NAV sales), calculated as
follows: 1.00% of NAV sales up to but not including $2 million; .80% of NAV
sales from $2 million up to but not including $3 million; .50% of NAV sales from
$3 million up to but not including $5 million; and .25% of NAV sales from $5
million and above. The calculation of the fee will be based on assets held by a
"single person," including an individual, members of a family unit comprising
husband, wife and minor children purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust. Purchases made by a trustee or other fiduciary for a fiduciary account
may not be aggregated purchases made on behalf of any other fiduciary or
individual account.
26
<PAGE>
Seligman Advisors shall also pay broker/dealers, from its own resources, a fee
on assets of certain investments in Class A shares of the Seligman mutual funds
participating in an "eligible employee benefit plan" that are attributable to
the particular broker/dealer. The shares eligible for the fee are those on which
an initial sales charge was not paid because either the participating eligible
employee benefit plan has at least (1) $500,000 invested in the Seligman mutual
funds or (2) 50 eligible employees to whom such plan is made available. Class A
shares representing only an initial purchase of Seligman Cash Management Fund
are not eligible for the fee. Such shares will become eligible for the fee once
they are exchanged for shares of another Seligman mutual fund. The payment is
based on cumulative sales for each Plan during a single calendar year, or
portion thereof. The payment schedule, for each calendar year, is as follows:
1.00% of sales up to but not including $2 million; .80% of sales from $2 million
up to but not including $3 million; .50% of sales from $3 million up to but not
including $5 million; and .25% of sales from $5 million and above.
Seligman Advisors may from time to time assist dealers by, among other things,
providing sales literature to, and holding informational programs for the
benefit of, dealers' registered representatives. Dealers may limit the
participation of registered representatives in such informational programs by
means of sales incentive programs which may require the sale of minimum dollar
amounts of shares of Seligman mutual funds. Seligman Advisors may from time to
time pay a bonus or other incentive to dealers that sell shares of the Seligman
mutual funds. In some instances, these bonuses or incentives may be offered only
to certain dealers which employ registered representatives who have sold or may
sell a significant amount of shares of the Fund and/or certain other mutual
funds managed by Seligman during a specified period of time. Such bonus or other
incentive may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and members of their families to places within or outside the United States. The
cost to Seligman Advisors of such promotional activities and payments shall be
consistent with the rules of the National Association of Securities Dealers,
Inc., as then in effect.
27
<PAGE>
Calculation of Performance Data
Class A
The annualized yield for the 30-day period ended September 30, 1998 for the
Fund's Class A shares was 3.74%. The annualized yield was computed by dividing
the Fund's net investment income per share earned during this 30-day period by
the maximum offering price per share (i.e., the net asset value plus the maximum
sales load of 4.75% of the net amount invested) on September 30, 1998, which was
the last day of this period. The average number of Class A shares of the Fund
was 5,276,466, which was the average daily number of shares outstanding during
the 30-day period that were eligible to receive dividends. Income was computed
by totaling the interest earned on all debt obligations during the 30-day period
and subtracting from that amount the total of all recurring expenses incurred
during the period. The 30-day yield was then annualized on a bond-equivalent
basis assuming semi-annual reinvestment and compounding of net investment
income.
The tax equivalent annualized yield for the 30-day period ended September 30,
1998 for the Fund's Class A shares was 6.19%. The tax equivalent annualized
yield was computed by first computing the annualized yield as discussed above.
Then the portion of the yield attributable to securities the income of which was
exempt for federal income tax purposes was determined. This portion of the yield
was then divided by one minus 39.6% (39.6% being the assumed maximum federal
income tax rate for individual taxpayers).
The average annual total return for the Fund's Class A shares for the one-year
period ended September 30, 1998 was 3.97%. The average annual total return for
the Fund's Class A shares for the five-year period ended September 30, 1998 was
4.76%. The average annual total return for the Fund's Class A shares for the
ten-year period ended September 30, 1998 was 7.75%. These returns were computed
by assuming a hypothetical initial payment of $1,000 in Class A shares of the
Fund. From this $1,000, the maximum sales load of $47.50 (4.75% of public
offering price) was deducted. It was then assumed that all of the dividends and
distributions by the Fund's Class A shares over the relevant time period were
reinvested. It was then assumed that at the end of the one-year period, the
five-year period, and the ten-year period of the Fund, the entire amount was
redeemed. The average annual total return was then calculated by determining the
annual rate required for the initial payment to grow to the amount which would
have been received upon redemption (i.e., the average annual compound rate of
return).
Class D
The annualized yield for the 30-day period ended September 30, 1998 for the
Fund's Class D shares was 3.15%. The annualized yield was computed as for Class
A shares by dividing the Fund's net investment income per share earned during
this 30-day period by the maximum offering price per share (i.e., the net asset
value) on September 30, 1998 which was the last day of this period. The average
number of Class D shares of the Fund was 240,473, which was the average daily
number of shares outstanding during the 30-day period that were eligible to
receive dividends. Income was computed by totaling the interest earned on all
debt obligations during the 30-day period and subtracting from that amount the
total of all recurring expenses incurred during the period. The 30-day yield was
then annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.
The tax equivalent annualized yield for the 30-day period ended September 30,
1998 for the Fund's Class D shares was 5.22%. The tax equivalent annualized
yield was computed as discussed above for Class A shares.
The average annual total return for the Fund's Class D shares for the one-year
period ended September 30, 1998 was 7.32%. The average annual total return for
the Fund's Class D shares for the period since inception through September 30,
1998 was 4.90%. These returns were computed by assuming a hypothetical initial
payment of $1,000 in Class D shares of the Fund and that all of the dividends
and distributions by the Fund's Class D shares over the relevant time period
were reinvested. It was then
28
<PAGE>
assumed that at the end of the one-year period and the period since inception of
the Fund, the entire amount was redeemed, subtracting the 1% CDSC, if
applicable.
Class C shares are a new class, effective June 1, 1999, so no performance data
is presented.
The tables below illustrate the total returns on a $1,000 investment in the
Fund's Class A and Class D shares for the ten years ended September 30, 1998 or
from the Class's inception through September 30, 1998, assuming investment of
all dividends and capital gain distributions.
Class A
<TABLE>
<CAPTION>
Value of Value of Total Value
Year Initial Capital Gain Value of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
9/30/89 $ 993 $ -- $ 68 $1,061
9/30/90 980 -- 136 1,116
9/30/91 1,047 -- 219 1,266
9/30/92 1,074 -- 309 1,383
9/30/93 1,165 2 426 1,593
9/30/94 1,043 24 462 1,529
9/30/95 1,096 26 574 1,696
9/30/96 1,090 43 657 1,790
9/30/97 1,108 69 756 1,933
9/30/98 1,146 90 874 2,110 111.02%
</TABLE>
Class D
<TABLE>
<CAPTION>
Value of Value of Total Value
Year Initial Capital Gain Value of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
9/30/94 $906 $ -- $ 28 $ 934
9/30/95 954 -- 74 1,028
9/30/96 948 11 118 1,077
9/30/97 964 26 164 1,154
9/30/98 997 38 215 1,250 24.96%
</TABLE>
- ----------
(1) For the ten-year period ended September 30, 1998 for Class A shares; and
from commencement of operations for Class D shares on February 1, 1994.
(2) The "Value of Initial Investment" as of the date indicated reflects the
effect of the maximum sales charge and CDSC, if applicable, assumes that
all dividends and capital gain distributions were taken in cash, and
reflects changes in the net asset value of the shares purchased with the
hypothetical initial investment. "Total Value of Investment" reflects the
effect of the CDSC, if applicable, and assumes investment of all dividends
and capital gain distributions.
(3) Total return for each Class of the Fund is calculated by assuming a
hypothetical initial investment of $1,000 at the beginning of the period
specified, subtracting the maximum sales load or CDSC, if applicable;
determining total value of all dividends and distributions that would have
been paid during the period on such shares assuming that each dividend or
distribution was invested in additional shares at net asset value;
calculating the total value of the investment at the end of the period; and
finally, by dividing the difference between the amount of the hypothetical
initial investment at the beginning of the period and its value at the end
of the period by the amount of the hypothetical initial investment.
Seligman waived its fees and reimbursed certain expenses during some of the
periods above, which positively affected the performance results presented.
The Fund's total returns and average annual total returns quoted above do not
reflect the deduction of 12b-1 fees for periods through December 27, 1990,
because the 12b-1 Plan was implemented on that date. If these fees were
reflected, the performance results presented would have been lower.
29
<PAGE>
Financial Statements
The Annual Report to Shareholders of Seligman Municipal Series Trust for the
fiscal year ended September 30, 1998 and the Mid-Year Report to Shareholders for
the fiscal six-month period ended March 31, 1999, contain a schedule of the
investments of the Fund as of September 30, 1998 and March 31, 1999,
respectively, as well as certain other financial information . The financial
statements and notes included in the Annual Report, the Mid-Year Report, and the
Independent Auditors' Reports thereon, are incorporated herein by reference. The
Annual Report and Mid-Year Report will be furnished, without charge, to
investors who request copies of this SAI.
General Information
The Trustees are authorized to classify or reclassify and issue any shares of
beneficial interest of the Trust into any number of other classes without
further action by shareholders. The 1940 Act requires that where more than one
class exists, each class must be preferred over all other classes in respect of
assets specifically allocated to such class.
As a general matter, the Trust will not hold annual or other meetings of the
shareholders. This is because the Declaration of Trust provides for shareholder
voting only (a) for the election or removal of one or more Trustees if a meeting
is called for that purpose, (b) with respect to any contract as to which
shareholder approval is required by the 1940 Act, (c) with respect to any
termination or reorganization of the Trust or any series, including the Fund, to
the extent and as provided in the Declaration of Trust, (d) with respect to any
amendment of the Declaration of Trust (other than amendments establishing and
designating new series, abolishing series when there are no units thereof
outstanding, changing the name of the Trust or the name of any series, supplying
any omission, curing any ambiguity or curing, correcting or supplementing any
provision thereof which is internally inconsistent with any other provision
thereof or which is defective or inconsistent with the 1940 Act or with the
requirements of the Code, or applicable regulations for the Fund's obtaining the
most favorable treatment thereunder available to regulated investment
companies), which amendments require approval by a majority of the Shares
entitled to vote, (e) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding, or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the shareholders, and (f) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act, the
Declaration of Trust, the By-laws of the Trust, any registration of the Trust
with the Securities and Exchange Commission (the "Commission") or any state, or
as the Trustees may consider necessary or desirable. Each Trustee serves until
the next meeting of shareholders, if any, called for the purpose of considering
the election or reelection of such Trustee or of a successor to such Trustee,
and until the election and qualification of his successor, if any, elected at
such meeting, or until such Trustee sooner dies, resigns, retires or is removed
by the shareholders or two-thirds of the Trustees.
The shareholders of the Trust have the right, upon the declaration in writing or
vote of more than two-thirds of the Trust's outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of ten percent of
its shares. In addition, whenever ten or more shareholders of record who have
been such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least $25,000
or at least 1 per centum of the outstanding shares, whichever is less, shall
apply to the Trustees in writing, stating that they wish to communicate with
other shareholders with a view to obtaining signatures to a request for a
meeting for the purpose of voting upon the question of removal of any Trustee or
Trustees and accompanied by a form of communication and request which they wish
to transmit, the Trustee shall within five business days after receipt of such
application either: (1) afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of requests. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
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with reasonable promptness, mail such material to all shareholders of record at
their addresses as recorded on the books, unless within five business days after
such tender the Trustees shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. After opportunity for hearing upon the objections specified in
the written statement so filed, the Commission may, and if demanded by the
Trustees or by such applicants shall, enter an order either sustaining one or
more of such objections or refusing to sustain any of them. If the Commission
shall enter an order refusing to sustain any of such objections, or if, after
the entry of an order sustaining one or more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all objections so
sustained have been met, and shall enter an order so declaring, the Trustees
shall mail copies of such material to all shareholders with reasonable
promptness after the entry of such order and the renewal of such tender.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
by the provisions of the 1940 Act or applicable state law, or otherwise, to the
holders of the outstanding voting securities of an investment company such as
the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each series
affected by such matter. Rule 18f-2 further provides that a series shall be
deemed to be affected by a matter unless it is clear that the interests of each
series in the matter are substantially identical or that the matter does not
significantly affect any interest of such series. However, the Rule exempts the
selection of independent public accountants, the approval of principal
distributing contracts and the election of trustees from the separate voting
requirements of the Rule.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust. The Declaration of Trust also
provides for indemnification and reimbursement of expenses out of a series'
assets for any shareholder held personally liable for obligations of such
series.
Custodian. Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, serves as custodian for the Fund. It also maintains, under the
general supervision of Seligman, the accounting records and determines the net
asset value for the Fund.
Auditors. Deloitte & Touche LLP, independent auditors, have been selected as
auditors of the Fund. Their address is Two World Financial Center, New York, NY
10281.
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Appendix A
Moody's Investors Service, Inc. ("Moody's")
Municipal Bonds
Aaa: Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Municipal bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be characteristically lacking or may be
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact may have speculative characteristics as well.
Ba: Municipal bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Municipal bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Municipal bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Municipal bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues are often in default or have other
marked shortcomings.
C: Municipal bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers (1, 2 and 3) in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
Municipal Notes
Moody's ratings for municipal notes and other short-term loans are designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term and long-term credit risk. Loans bearing the
designation MIG 1 are of the best quality, enjoying strong protection by
established cash flows of funds for their servicing or by established and
broad-based access to the market
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for refinancing. Loans bearing the designation MIG 2 are of high quality, with
margins of protection ample although not so large as in the preceding group.
Loans bearing the designation MIG 3 are of favorable quality, with all security
elements accounted for but lacking the undeniable strength of the preceding
grades. Market access for refinancing in particular, is likely to be less well
established. Notes bearing the designation MIG 4 are judged to be of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
Commercial Paper
Moody's Commercial Paper Ratings are opinions of the ability of issuers to repay
punctually promissory senior debt obligations not having an original maturity in
excess of one year. Issuers rated "Prime-1" or "P-1" indicates the highest
quality repayment capacity of the rated issue.
The designation "Prime-2" or "P-2" indicates that the issuer has a strong
capacity for repayment of senior short-term promissory obligations. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
The designation "Prime-3" or "P-3" indicates that the issuer has an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issues rated "Not Prime" do not fall within any of the Prime rating categories.
Standard & Poor's Corporation ("S&P")
Municipal Bonds
AAA: Municipal bonds rated AAA are highest grade obligations. Capacity to pay
interest and repay principal is extremely strong.
AA: Municipal bonds rated AA have a very strong degree of safety and very strong
capacity to pay interest and repay principal and differs from the highest rated
issues only in small degree.
A: Municipal bonds rated A are regarded as upper medium grade. They have a
strong degree of safety and capacity to pay interest and repay principal
although they are somewhat more susceptible in the long term to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB: Municipal bonds rated BBB are regarded as having a satisfactory degree of
safety and capacity to pay interest and re-pay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
re-pay principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC: Municipal bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and pre-pay principal in accordance with the terms of the bond. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
C: The rating C is reserved for income bonds on which no interest is being paid.
D: Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
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NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of bond as a matter of policy.
Municipal Notes
SP-1: Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
Commercial Paper
S&P Commercial Paper ratings are current assessments of the likelihood of timely
payment of debts having an original maturity of no more than 365 days.
A-1: The A-1 designation indicates that the degree of safety regarding timely
payment is very strong.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only a speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity of payment.
D: Debt rated "D" is in payment default.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of bond as a matter of policy.
The ratings assigned by S&P may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within its major rating categories.
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Appendix B
RISK FACTORS REGARDING INVESTMENTS IN FLORIDA MUNICIPAL SECURITIES
The following information as to certain Florida considerations is given to
investors in view of the Fund's policy of concentrating its investments in
Florida issues. This information is derived from sources that are generally
available to investors and is believed to be accurate. This information
constitutes only a brief summary, does not purport to be a complete description
and has not been independently verified.
Florida's financial operations are considerably different than most other states
because, under the State's constitution, there is no state income tax on
individuals. Florida's constitution prohibits the levy, under the authority of
the State, of an individual income tax upon the income of natural persons who
are residents or citizens of Florida in excess of amounts which may be credited
against or deducted from any similar tax levied by the United States or any
other state. Accordingly, a constitutional amendment would be necessary to
impose a state individual income tax in excess of the foregoing constitutional
limitations. The lack of an income tax exposes total State tax collections to
more volatility than would otherwise be the case and, in the event of an
economic downswing, could affect the State's ability to pay principal and
interest in a timely manner. Florida has a proportionally greater number of
persons of retirement age; a factor that makes Florida's property and transfer
payment taxes a relatively more important source of State funding. Because
transfer payments are typically less sensitive to the business cycle than
employment income, they may act as a stabilizing force in weak economic periods.
Florida imposes an income tax on corporate income allocable to the State, as
well as an ad valorem tax on intangible personal property, sales and use taxes
and other miscellaneous taxes. These taxes are a major source of funds to meet
state expenses, including repayment of, and interest on, obligations of the
State. Financial operations of the State of Florida covering all receipts and
expenditures are maintained through the use of four funds (the General Revenue
Fund, Trust Funds, the Working Capital Fund and The Budget Stabilization Fund).
The General Revenue Fund receives the majority of State tax revenues. The Trust
Funds consist of monies received by the State which under law or trust agreement
are segregated for a purpose authorized by law. Revenues in the General Revenue
Fund which are in excess of the amount needed to meet appropriations may be
transferred to the Working Capital Fund. The Florida Constitution and Statutes
mandate that the State budget be kept in balance from currently available
revenues each State fiscal year (July 1 - June 30). The following data is
provided by the Florida Consensus Estimating Conference, which adjusted and
updated actual revenue and forecasts on March 8, 1999, in order to support the
State's budgeting and planning process. For fiscal year 1998 - 99, the estimated
General Revenue Fund and Working Capital Fund is $18.80 billion. The projected
year end balance of the combined General Revenue Fund and Working Capital Fund
is $573.8 million. Including the $789.6 million balance currently in the Budget
Stabilization Fund, total reserves are projected to stand at $1.36 billion, 7.5%
of current year appropriations. For fiscal year 1999 - 2000, the estimated
General Revenue Fund and Working Capital Fund is $19.35 billion, a 2.9% increase
over fiscal year 1998-99. The fiscal year 1999-2000 budget includes a 4.3%
increase in Net General Revenues over fiscal year 1998 - 99. For fiscal year
1998 - 1999, the estimated Florida and United States unemployment rates are 5.0%
and 5.1%, respectively. For fiscal year 1999 - 2000, the estimated Florida and
United States unemployment rates are both 5.5%
In 1993, Florida's constitution was amended to limit the annual growth in the
assessed valuation of residential property, and which, over time, could
constrain growth in property taxes, a major source of revenue for local
governments. While no immediate ratings implications are expected, the amendment
could have a negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds. In 1994, the Florida constitution was amended to limit
state revenue collections in any fiscal year to, subject to exception, that
which was allowed in the prior fiscal year plus a growth factor, to be
determined by reference to the average annual growth rate in Florida personal
income over the previous five years.
Florida has historically experienced substantial population growth as a result
of migration to Florida from other areas of the United States and from foreign
countries.As of April 1, 1999, Florida's population was
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estimated to be over 15 million people. In 1997, population grew by 287,553,
slightly lower than 1996's growth of 301,359. Florida's population has increased
by nearly 2.1 million since the 1990 census, for 15.9% growth. The total state
population is projected to be over 15.5 million on April 1, 2000. However, after
rising from 1.4% in 1992 - 93 to 1.9% in 1993-94, population growth has leveled
off, averaging 1.9% in each of the last three years. The general population is
expected to grow at a rate of 1.8% in 1998-99 and 1.7% in 1999-2000. As a result
of population growth, the State may experience a need for additional revenues to
meet increased burdens on the various public and social services provided by the
State. Florida's ability to obtain increased revenues to meet these burdens will
be dependent in part upon the State's ability to foster business and economic
growth. The State's business and economic growth could be restricted by the
natural limitations of environmental resources and the State's ability to
finance adequate public facilities such as roads and schools.
Florida remains heavily dependent on tourism. Florida is recovering from the
negative impact of publicity regarding crime against tourists in the state,
which affected the industry in recent years. For fiscal year 1997-98, the number
of tourists visiting Florida was 48.7 million, a 10.0% increase over fiscal year
1996-97. For fiscal year 1998-99, expected tourist arrivals are projected at
49.9 million, a 2.4% increase over fiscal year 1997-98. For fiscal year
1999-2000, expected tourist arrivals are projected at 51.5 million, a 3.2%
increase over fiscal year 1998-99.
Housing starts in the State of Florida from 1991 through 1996 averaged 111,980
units annually. In fiscal year 1997-98, housing starts increased to a level of
140,200 units. In fiscal year 1998-99, builders began 146,000 units. Total
starts are expected to increase in fiscal year 1999-2000 to a level of 148,050
units. However, in fiscal year 2000-01, there is a projected decrease in housing
starts to a level of 141,800 units.. Housing starts are, however, reliant upon
interest rates and disposable income, which can significantly impact demand in
the event of an economic impact. There has been a decline in Florida's
dependence on highly cyclical construction and constructionrelated manufacturing
sectors. For example, in 1985, construction employment, as a share of total
non-farm employment, was 7.5%. From 1990 through 1995, the share edged downward
to an average of 5.1%. While the share for 1999 is expected to slightly increase
to 5.5%, the trend is expected to resume a downward slope and drop below the 5%
level by 2002, as Florida's economy continues to diversify.
The ability of the State and its local units of government to satisfy its debt
obligations may be affected by numerous factors which impact on the economic
vitality of the State in general and the particular region of the State in which
the issuer of the debt obligations in located. South Florida is particularly
susceptible to international trade and currency imbalances and to economic
dislocations in Central and South America, due to its geographical location and
its involvement with foreign trade, tourism and investment capital. North and
central Florida are impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term adverse
economic conditions may be created in these areas, and in the State as a whole,
due to crop failures, severe weather conditions or other agriculture-related
problems. The State economy also has historically been dependent on the tourism
and construction industries and is, therefore, sensitive to trends in those
sectors.
The Fund's investment values are expected to vary in accordance with the Fund's
investment ratings, the issuer's ability to satisfy interest and/or principal
payment obligations, the relative interest rates payable on similar investments,
and the legal environment relating to creditors' rights. In addition to the
foregoing risk factors, the Fund's policy of concentrating its investments in
Florida municipal securities may make it more susceptible to risks of adverse
economic, political or regulatory developments than would be the case if the
Fund were more diversified as to geographic region and/or source of revenue.
36
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Appendix C
HISTORY OF J. & W. SELIGMAN & CO. INCORPORATED
Seligman's beginnings date back to 1837, when Joseph Seligman, the oldest
of eight brothers, arrived in the United States from Germany. He earned his
living as a pack peddler in Pennsylvania, and began sending for his brothers.
The Seligmans became successful merchants, establishing businesses in the South
and East.
Backed by nearly thirty years of business success - culminating in the sale
of government securities to help finance the Civil War - Joseph Seligman, with
his brothers, established the international banking and investment firm of J. &
W. Seligman & Co. In the years that followed, the Seligman Complex played a
major role in the geographical expansion and industrial development of the
United States.
The Seligman Complex:
...Prior to 1900
o Helps finance America's fledgling railroads through underwritings.
o Is admitted to the New York Stock Exchange in 1869. Seligman remained a
member of the NYSE until 1993, when the evolution of its business made it
unnecessary.
o Becomes a prominent underwriter of corporate securities, including New York
Mutual Gas Light Company, later part of Consolidated Edison.
o Provides financial assistance to Mary Todd Lincoln and urges the Senate to
award her a pension.
o Is appointed U.S. Navy fiscal agent by President Grant.
o Becomes a leader in raising capital for America's industrial and urban
development.
...1900-1910
o Helps Congress finance the building of the Panama Canal.
...1910s
o Participates in raising billions for Great Britain, France and Italy,
helping to finance World War I.
...1920s
o Participates in hundreds of successful underwritings including those for
some of the Country's largest companies: Briggs Manufacturing, Dodge
Brothers, General Motors, Minneapolis-Honeywell Regulatory Company, Maytag
Company United Artists Theater Circuit and Victor Talking Machine Company.
o Forms Tri-Continental Corporation in 1929, today the nation's largest,
diversified closed-end equity investment company, with over $2 billion in
assets and one of its oldest.
...1930s
o Assumes management of Broad Street Investing Co. Inc., its first mutual
fund, today known as Seligman Common Stock Fund, Inc.
o Establishes Investment Advisory Service.
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...1940s
o Helps shape the Investment Company Act of 1940.
o Leads in the purchase and subsequent sale to the public of Newport News
Shipbuilding and Dry Dock Company, a prototype transaction for the
investment banking industry.
o Assumes management of National Investors Corporation, today Seligman Growth
Fund, Inc.
o Establishes Whitehall Fund, Inc., today Seligman Income Fund, Inc.
...1950-1989
o Develops new open-end investment companies. Today, manages more than 40
mutual fund portfolios. o Helps pioneer state-specific, municipal bond
funds, today managing a national and 18 state-specific municipal funds.
o Establishes J. & W. Seligman Trust Company and J. & W. Seligman Valuations
Corporation.
o Establishes Seligman Portfolios, Inc., an investment vehicle offered
through variable annuity products.
...1990s
o Introduces Seligman Select Municipal Fund, Inc. and Seligman Quality
Municipal Fund, Inc., two closed-end funds that invest in high quality
municipal bonds.
o In 1991 establishes a joint venture with Henderson plc, of London, known as
Seligman Henderson Co., to offer global investment products.
o Introduces to the public Seligman Frontier Fund, Inc., a small
capitalization mutual fund.
o Launches Seligman Henderson Global Fund Series, Inc., which today offers
five separate series: Seligman Henderson International Fund, Seligman
Henderson Global Smaller Companies Fund, Seligman Henderson Global
Technology Fund, Seligman Henderson Global Growth Opportunities Fund and
Seligman Henderson Emerging Markets Growth Fund.
o Launches Seligman Value Fund Series, which currently offers two separate
series: Seligman Large-Cap Value Fund and Seligman Small-Cap Value Fund.
38
<PAGE>
SELIGMAN
MUNICIPAL
SERIES TRUST
Mid-Year Report
March 31, 1999
Providing Income
Exempt From Regular
Income Tax
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
<PAGE>
Seligman -- Times Change...Values Endure
J. & W. Seligman & Co. Incorporated is a firm with a long tradition of
investment expertise, offering a broad array of investment choices to help
today's investors seek their long-term financial goals.
Times Change...
Established in 1864, Seligman has a history of providing financial services
marked not by fanfare, but rather by a quiet and firm adherence to financial
prudence. While the world has changed dramatically in the 135 years since
Seligman first opened its doors, the firm has continued to offer its clients
high-quality investment solutions through changing times.
In the late 19th century, as the country grew, Seligman helped finance the
westward expansion of the railroads, the construction of the Panama Canal, and
the launching of urban transit systems. In the first part of the 20th century,
as America became an industrial power, the firm helped fund the growing capital
needs of the nascent automobile and steel industries.
With the formation of Tri-Continental Corporation in 1929 -- today, the nation's
largest diversified publicly-traded closed-end investment company -- Seligman
began shifting its emphasis from investment banking to investment management.
Despite the stock market crash and ensuing depression, Seligman was convinced of
the importance that investment companies could have in building wealth for
individual investors and launched its first mutual fund in 1930.
In the decades that followed, Seligman has continued to offer forward-looking
investment solutions, including equity funds that specialize in small companies,
technology, or international securities, and bond funds that focus on high-yield
issuers, US government bonds, or municipal securities.
...Values Endure
Seligman is proud of its distinctive past and of the traditional values that
continue to shape the firm's business decisions and investment judgment. While
much has changed over the years, the firm's commitment to providing prudent
investment management that seeks to build wealth for clients over time is an
enduring value that will guide Seligman into the new millennium.
Table of Contents
To the Shareholders................................. 1
Interview With Your Portfolio Manager............... 2
Performance Overview and
Portfolio Summary................................ 4
Portfolios of Investments........................... 8
Statements of Assets and Liabilities................ 14
Statements of Operations............................ 15
Statements of Changes in Net Assets................. 16
Notes to Financial Statements....................... 18
Financial Highlights................................. 21
Report of Independent Auditors...................... 26
Trustees............................................. 27
Executive Officers and For More Information.......... 28
Glossary of Financial Terms......................... 29
[PHOTO}
James, Jesse, and Joseph Seligman, 1870
<PAGE>
To the Shareholders
During Seligman Municipal Series Trust's six-month reporting period ended March
31, 1999, the US economy remained strong. In fact, the economy grew faster than
almost anyone had predicted.
At the Trust's fiscal year-end in September 1998, the consensus was that the US
economy would slow, possibly to recessionary levels, in the face of worldwide
financial disorder brought on by the Asian economic crisis. However, US consumer
strength was widely underestimated, and consumer confidence and the strong
consumer demand that accompanied it remained a powerful economic force. Not only
did the economy continue to surprise on the upside, it did so without signs of
rising inflation, a common side effect of prolonged and robust growth.
Despite evidence that inflation remained under control, the unexpected
acceleration in economic activity earlier this year caused bond-market
participants to worry that inflation posed a possible threat. This concern
pushed Treasury yields significantly higher. During these six months, Treasury
bond yields fluctuated within a wide range of 98 basis points. In contrast, the
municipal market remained relatively stable, with yields fluctuating within a
much narrower range of 32 basis points.
At the Trust's fiscal year-end in September 1998, the yield spread between
municipal bonds and Treasuries was unprecedentedly narrow. Recently, however, a
slowdown in the supply of new municipal bond issues and rising Treasury yields
caused the yield spread between municipal bonds and Treasury bonds to widen to a
more historically normal range. We believe that this trend will continue and, as
it does, the performance of the municipal market should improve relative to the
Treasury market.
The ongoing economic expansion in the US continued to benefit the municipal bond
market. Municipal bond issuers have been able to improve their financial
situations and, for the fourth year in a row, there were more credit-rating
upgrades than downgrades. We expect that this positive trend will continue.
The Trust's manager, J. & W. Seligman & Co. Incorporated, continues to work to
ensure that all of its operations are prepared for the challenges posed by the
Year 2000 (Y2K) computer issue. We are confident that there will be no
disruption in the investment and shareholder services provided by the Trust as a
result of Y2K. In addition, your portfolio management team considers the
potential ramifications of Y2K when making decisions on which securities should
be held by the Trust.
We appreciate your confidence in Seligman Municipal Series Trust and look
forward to serving your investment needs for many years to come. A discussion
with your Portfolio Manager and the Trust's portfolios of investments follow
this letter.
By order of the Trustees,
/s/ William C. Morris
William C. Morris
Chairman
/s/ Brian T. Zino
Brian T. Zino
President
April 30, 1999
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Interview With Your Portfolio Manager,
Thomas G. Moles
Q: What economic and market factors influenced Seligman Municipal Series
Trust in the last six months?
A: During the past six months, the outlook for the US and global economies
has improved dramatically. At fiscal year-end in September 1998,
economies around the world were struggling with financial crises that
threatened to drag the US into recession. In response, the Federal
Reserve Board took immediate defensive action by lowering the
federal-funds rate three times last fall.
However, the outlook for the US economy brightened as economies around the
world began to show signs of recovery and as strong US consumer demand
continued to drive economic growth.
While ending on a positive note, the last six months were nonetheless
volatile for equity markets, and thus for the US Treasury market as
investors rushed to buy Treasury bonds during periods of market
uncertainty. This "flight to quality" was the primary cause of the sharp
swings in Treasury yields that were experienced during the period. The
yield on the 30-year US Treasury bond fluctuated by more than 98 basis
points during this time. In contrast to the volatility of the Treasury
market, the municipal market remained relatively stable throughout the
period. Long-term municipal interest rates fluctuated within a much
narrower trading range of approximately 32 basis points.
The historically low interest-rate environment led to a surge in municipal
new issue volume during 1998. The increase in municipal supply caused the
yield spread between municipal bonds and Treasury bonds to narrow, making
municipals particularly attractive. For a brief period in October,
long-term municipal yields actually exceeded long-term Treasury yields, an
unusual occurrence given the tax advantages of municipal ownership.
This situation has now begun to reverse itself. Year-to-date, new issue
volume has slowed from its robust pace, causing the yield spread between
municipal bonds and Treasury bonds to widen to a historically normal range.
The continued strength of the US economy, which is now in its ninth year of
economic expansion, has allowed the financial condition of the nation's
states, cities, and municipalities to steadily improve. For the fourth year
in a row, credit-rating upgrades exceeded downgrades. We expect that this
positive trend will continue with the possible exception of healthcare
bonds, whose issuers have been experiencing increased financial and
operating pressures.
Q: What was your investment strategy?
A: The relative lack of volatility in the municipal market limited our
opportunities to enhance total
A TEAM APPROACH
Seligman Municipal Series Trust is managed by the Seligman Municipals Team,
headed by Thomas G. Moles. Mr. Moles is assisted in the management of the Trust
by a group of seasoned professionals who are responsible for research and
trading consistent with the Trust's investment objective.
Seligman Municipals Team: (standing from left) Audrey Kuchtyak,
Theresa Barion, Debra McGuinness, (seated) Eileen Comerford,
Thomas G. Moles (Portfolio Manager)
2
<PAGE>
Interview With Your Portfolio Manager,
Thomas G. Moles
return through trading activity. Therefore, we focused on improving the
relative value of Seligman Municipal Series Trust's portfolios. Through
in-depth credit analysis and market research, we have been able to
identify municipal credits that we believe have been undervalued by the
market, and we have used this information in our security selection
process.
During the period, our investment strategy was consistent with
our positive outlook for the economy and long-term interest rates. We
reduced portfolio holdings with short durations, replacing them with
longer-term bonds because they offer the greatest opportunity for price
appreciation during periods of declining interest rates. (Conversely,
during periods of rising interest rates, long-term bonds will depreciate
more than shorter-term bonds.) Long-term bonds have also provided the
highest yields historically. During the past six months, long-term
municipal yields rose slightly, resulting in declines in Seligman Municipal
Series Trust's net asset values.
We have concentrated new purchases in triple "A" rated insured bonds
because of the prevailing narrow yield spread between high-quality
and lower-quality bonds. At this time, lower-quality bonds do not offer
enough additional yield to compensate for the increased credit risk.
For the six-month period, high-quality insured bonds outperformed
lower-quality bonds.
Q: What is your outlook?
A: Recent economic reports have suggested that the economy may be
strengthening further, raising concerns about an acceleration in the rate
of inflation. In response, long-term municipal yields have increased
modestly. However, we believe that any increase in long-term yields will
be temporary and our outlook for interest rates remains positive. We will
continually monitor market conditions and will adjust our investment
strategy accordingly.
There are currently a number of factors that bode well for the municipal
market going forward. First, new issue supply has slowed, widening the
yield spread between municipals and Treasuries to a historically normal
range. If this trend continues, and we believe that it will, the
performance of the municipal market should improve relative to the
Treasury market. In addition, the municipal bond market has been the
beneficiary of a healthy economy and a stable rate of inflation, and we
anticipate that these favorable market conditions will continue for the
balance of the year.
3
<PAGE>
Performance Overview and Portfolio Summary
California High-Yield Series
Investment Results per Share
TOTAL RETURNS
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS D
SINCE
SIX* ONE FIVE 10 INCEPTION
MONTHS* YEAR YEARS YEARS 2/1/94
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (3.92)% 0.54% 5.90% 7.09% n/a
Without Sales Charge 0.89 5.52 6.93 7.61 n/a
Class D**
With 1% CDSC (0.40) 3.57 n/a n/a n/a
Without CDSC 0.59 4.57 5.98 n/a 5.06%
Lehman Brothers Municipal Bond Index*** 1.49 6.20 7.62 8.24 5.97++
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
3/31/99 9/30/98 3/31/98
-------- -------- --------
<S> <C> <C> <C>
Class A $6.68 $6.80 $6.66
Class D 6.69 6.80 6.67
</TABLE>
DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
CAPITAL SEC
DIVIDENDS++ GAIN++ YIELD+++
------------- --------- ----------
<S> <C> <C> <C>
Class A $0.156 $0.024 3.76%
Class D 0.125 0.024 3.05
</TABLE>
<TABLE>
<S> <C> <C>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 85% Aaa/AAA 13%
General Obligation Bonds 15 Aa/AA 10
A/A 53
Baa/BBB 23
Non-Rated 1
WEIGHTED AVERAGE MATURITY 21.7 years
</TABLE>
- ---------------------------
See footnotes on page 7.
4
<PAGE>
Performance Overview and Portfolio Summary
California Quality Series
Investment Results per Share
TOTAL RETURNS
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS D
SINCE
SIX* ONE FIVE 10 INCEPTION
MONTHS* YEAR YEARS YEARS 2/1/94
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (3.98)% 0.85% 6.22% 7.14% n/a
Without Sales Charge 0.81 5.87 7.28 7.67 n/a
Class D**
With 1% CDSC (0.60) 3.94 n/a n/a n/a
Without CDSC 0.36 4.92 6.23% n/a 4.37%
Lehman Brothers Municipal Bond Index*** 1.49 6.20 7.62 8.24 5.97++
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
3/31/99 9/30/98 3/31/98
-------- -------- --------
<S> <C> <C> <C>
Class A $6.88 $7.21 $7.03
Class D 6.86 7.19 7.01
</TABLE>
DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
CAPITAL SEC
DIVIDENDS++ GAIN++ YIELD+++
------------- --------- ----------
<S> <C> <C> <C>
Class A $0.156 $0.230 3.68%
Class D 0.124 0.230 2.97
</TABLE>
<TABLE>
<S> <C> <C>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 79% Aaa/AAA 75%
General Obligation Bonds 21 Aa/AA 12
A/A 13
WEIGHTED AVERAGE MATURITY 21.7 years
</TABLE>
- -------------------------------
See footnotes on page 7.
5
<PAGE>
Performance Overview and Portfolio Summary
Florida Series
Investment Results per Share
TOTAL RETURNS
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS D
SINCE
SIX* ONE FIVE 10 INCEPTION
MONTHS* YEAR YEARS YEARS 2/1/94
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (4.00)% 0.53% 5.98% 7.32% n/a
Without Sales Charge 0.75 5.50 7.01 7.85 n/a
Class D**
With 1% CDSC (0.48) 3.82 n/a n/a n/a
Without CDSC 0.50 4.82 6.22 n/a 4.51%
Lehman Brothers Municipal Bond Index*** 1.49 6.20 7.62 8.24 5.97++
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
3/31/99 9/30/98 3/31/98
-------- -------- --------
<S> <C> <C> <C>
Class A $7.91 $8.07 $7.88
Class D 7.93 8.08 7.89
</TABLE>
DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
CAPITAL SEC
DIVIDENDS++ GAIN++ YIELD+++
------------- --------- ----------
<S> <C> <C> <C>
Class A $0.169 $0.051 3.78%
Class D 0.140 0.051 3.21
</TABLE>
<TABLE>
<S> <C> <C>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 87% Aaa/AAA 66%
General Obligation Bonds 13 Aa/AA 29
A/A 5
WEIGHTED AVERAGE MATURITY 23.5 years
</TABLE>
- --------------------------
See footnotes on page 7.
6
<PAGE>
Performance Overview and Portfolio Summary
North Carolina Series
Investment Results per Share
TOTAL RETURNS
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS A CLASS D
SINCE SINCE
SIX* ONE FIVE INCEPTION INCEPTION
MONTHS* YEAR YEARS 8/27/9000 2/1/94
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (4.00)% 0.55% 6.11% 6.67% n/a
Without Sales Charge 0.74 5.52 7.14 7.28 n/a
Class D**
With 1% CDSC (0.73) 3.60 n/a n/a n/a
Without CDSC 0.24 4.60 6.29% n/a 4.40%
Lehman Brothers Municipal Bond Index*** 1.49 6.20 7.62 8.10+ 5.97++
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
3/31/99 9/30/98 3/31/98
-------- -------- --------
<S> <C> <C> <C>
Class A $8.07 $8.30 $8.10
Class D 8.06 8.30 8.10
</TABLE>
DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended March 31, 1999
<TABLE>
<CAPTION>
CAPITAL SEC
DIVIDENDS++ GAIN++ YIELD+++
------------- --------- ----------
<S> <C> <C> <C>
Class A $0.174 $0.117 3.57%
Class D 0.143 0.117 3.01
</TABLE>
<TABLE>
<S> <C> <C>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 73% Aaa/AAA 46%
General Obligation Bonds 27 Aa/AA 36
A/A 18
WEIGHTED AVERAGE MATURITY 18.7 years
<FN>
- --------------------------------------------
* Returns for periods of less than one year are not annualized.
** Return figures reflect any change in price and assume all distributions
within the period are invested in additional shares. Returns for Class A
shares are calculated with and without the effect of the initial 4.75%
maximum sales charge. Returns for Class D shares are calculated with and
without the effect of the 1% contingent deferred sales charge ("CDSC"),
charged on redemptions made within one year of the date of purchase. No
adjustment was made to the performance of Class A shares for periods prior
to commencement dates December 27, 1990, in the case of the Florida Series,
and January 1, 1993, in the case of the California High-Yield and
California Quality Series, for the annual Administration, Shareholder
Services and Distribution Plan fee of up to 0.25% of average daily net
assets for each Series. 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. A portion of each Series' income may
be subject to applicable state and local taxes, and any amount may be
subject to the federal alternative minimum tax. Past performance is not
indicative of future investment results.
*** The Lehman Brothers Municipal Bond Index is an unmanaged index that does
not include any fees or sales charges. It is composed of approximately 60%
revenue bonds and 40% state government obligations. Investors cannot invest
directly in an index.
0 Percentages based on market values of long-term holdings at March 31, 1999.
00 At its discretion, the Manager waived all or a portion of its fees and, in
some cases reimbursed certain expenses for the North Carolina Series. This
has the effect of increasing the Series' average annual total returns for
the since-inception period.
++ From 1/31/94.
+ From 8/31/90.
++ Represents per share amount paid or declared for the six months ended March
31, 1999.
+++ Current yield, representing the annualized yield for the 30-day period
ended March 31, 1999, has been computed in accordance with SEC
regulations and will vary.
</FN>
</TABLE>
7
<PAGE>
Portfolios of Investments
March 31, 1999
California High-Yield Series
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$2,500,000 Alameda, CA Certificates of Participation (City Hall Seismic
Upgrade Project), 6.20% due 5/1/2025...................................... NR/A $ 2,652,225
1,000,000 California Department of Veterans Affairs Rev. (Home Purchase),
5 1/2% due 12/1/2018*..................................................... Aa3/AA- 1,026,720
2,000,000 California Department of Veterans Affairs Rev. (Home Purchase),
5.20% due 12/1/2028....................................................... Aa3/AA- 1,993,840
2,190,000 California Department of Water Resources Water System Rev.
(Central Valley Project), 6% due 12/1/2020................................ Aa2/AA 2,317,042
500,000 California Educational Facilities Authority Rev. (Los Angeles College
of Chiropractic Medicine), 5.60% due 11/1/2017........................... Baa2/NR 516,095
2,500,000 California Educational Facilities Authority Rev. (Loyola Marymount
University), 5 3/4% due 10/1/2024......................................... A1/NR 2,645,875
3,000,000 California Educational Facilities Authority Rev. (Pepperdine University),
5% due 11/1/2029.......................................................... A1/NR 2,926,440
2,500,000 California Health Facilities Financing Authority Rev. (Cedars-Sinai
Medical Center), 5 1/4% due 8/1/2027...................................... Aaa/AAA 2,541,700
2,500,000 California Health Facilities Financing Authority Rev. (Kaiser Permanente),
5.40% due 5/1/2028....................................................... A3/A 2,514,375
1,500,000 California Housing Finance Agency Home Mortgage Rev.,
6 3/8% due 8/1/2027*...................................................... Aa2/AA- 1,601,445
2,500,000 California Housing Finance Agency (Single Family Mortgage),
5.40% due 8/1/2028*....................................................... Aaa/AAA 2,516,100
2,500,000 California Pollution Control Financing Authority Rev. (San Diego
Gas & Electric Co.), 5.85% due 6/1/2021*.................................. A1/AA- 2,560,100
1,750,000 California Pollution Control Financing Authority Rev. (Pacific Gas &
Electric Co.), 5 7/8% due 6/1/2023*....................................... A1/AA- 1,821,785
1,000,000 California Pollution Control Financing Authority Rev. (Pacific Gas &
Electric Co.), 5.85% due 12/1/2023*....................................... A1/AA- 1,049,340
2,000,000 California State GOs, 5 1/4% due 10/1/2019.................................. Aa3/A+ 2,027,360
2,500,000 Cupertino, CA Certificates of Participation (Capital Improvement Projects),
5 3/4% due 1/1/2016....................................................... A1/A+ 2,611,525
3,000,000 Foothill/Eastern Transportation Corridor Agency, CA Toll Road Rev.,
6% due 1/1/2034........................................................... Baa3/BBB- 3,224,430
1,300,000 Los Angeles, CA Wastewater System Rev., 7.10% due 6/1/2018.................. A1/A+ 1,334,580
1,275,000 Modesto, CA Irrigation District Certificates of Participation,
5.30% due 7/1/2022........................................................ A2/A+ 1,275,166
1,000,000 Oxnard Union High School District, CA Certificates of Participation
(Union High School), 7.70% due 11/1/2019.................................. NR/NR 1,046,630
<FN>
- --------------------------
+ Ratings have not been audited by Deloitte & Touche llp.
* Interest income earned from this security is subject to the federal alternative minimum tax.
See Notes to Financial Statements.
</FN>
</TABLE>
8
<PAGE>
Portfolios of Investments
March 31, 1999
California High-Yield Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$ 645,000 Petaluma, CA Community Development Commission Tax Allocation Bonds
(Central Business District), 9.30% due 5/15/2010.......................... Baa1/NR $ 647,986
2,020,000 Pleasanton, CA Joint Powers Financing Authority Reassessment Rev.,
6.15% due 9/2/2012........................................................ Baa1/NR 2,164,289
4,000,000 Puerto Rico Highway & Transportation Authority Rev., 5 1/2% due 7/1/2036.... Baa1/A 4,238,560
3,000,000 San Bernardino, CA Joint Powers Financing Authority (California Dept. of
Transportation Lease), 5 1/2% due 12/1/2020............................... A/A 3,091,470
2,500,000 San Joaquin Hills, CA Transportation Corridor Agency Rev. (Orange County
Toll Road), 5 1/2% due 1/15/2028.......................................... Baa3/BBB- 2,547,150
3,000,000 San Joaquin Hills, CA Transportation Corridor Agency Rev. (Orange County
Senior Lien Toll Road), 6 3/4% due 1/1/2032............................... Aaa/AAA 3,383,250
2,500,000 Santa Barbara, CA Certificates of Participation, 5.70% due 3/1/2011......... A1/A+ 2,650,000
1,000,000 Southern California Public Power Authority Power Project Rev.
(Multiple Projects), 6% due 7/1/2018..................................... A/A 1,018,070
645,000 Stanislaus, CA Waste-to-Energy Financing Agency Solid Waste Facility Rev.
(Ogden Martin System of Stanislaus, Inc. Project), 7 1/2% due 1/1/2005.... NR/BBB+ 668,833
1,160,000 Stanislaus, CA Waste-to-Energy Financing Agency Solid Waste Facility Rev.
(Ogden Martin System of Stanislaus, Inc. Project), 7 5/8% due 1/1/2010.... NR/BBB+ 1,204,938
2,500,000 Washington Township, CA Hospital District Hospital Healthcare System Rev.,
5 1/2% due 7/1/2018....................................................... A2/NR 2,534,050
2,230,000 West Covina, CA Certificates of Participation (Queen of the Valley Hospital),
6 1/2% due 8/15/2024...................................................... A2/NR 2,563,474
-----------
TOTAL MUNICIPAL BONDS (Cost $63,034,416) -- 100.4%......................................................... 66,914,843
VARIABLE RATE DEMAND NOTES (Cost $2,600,000) -- 3.9%....................................................... 2,600,000
OTHER ASSETS LESS LIABILITIES -- (4.3)%.................................................................... (2,891,826)
-----------
NET ASSETS -- 100.0%....................................................................................... $66,623,017
===========
</TABLE>
California Quality Series
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$3,000,000 California Department of Water Resources Water System Rev.
(Central Valley Project), 6.10% due 12/1/2029............................. Aaa/AA $ 3,427,710
3,440,000 California Educational Facilities Authority Rev. (Pomona College),
6% due 2/15/2017.......................................................... Aaa/AAA 3,686,132
<FN>
- -------------------------
+ Ratings have not been audited by Deloitte & Touche llp.
See Notes to Financial Statements.
</FN>
</TABLE>
9
<PAGE>
Portfolios of Investments
March 31, 1999
California Quality Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$4,000,000 California Educational Facilities Authority Rev. (California Institute
of Technology), 6% due 1/1/2021........................................... Aaa/AAA $ 4,167,280
2,000,000 California Educational Facilities Authority Rev. (Stanford University),
5.35% due 6/1/2027........................................................ Aaa/AAA 2,060,720
4,000,000 California Educational Facilities Authority Rev. (University of San Diego),
5% due 10/1/2028.......................................................... Aaa/NR 3,945,320
4,000,000 California Educational Facilities Authority Rev. (University of Southern
California), 5% due 10/1/2028............................................. Aa2/AA 3,933,320
3,000,000 California Health Facilities Financing Authority Rev. (Kaiser Permanente),
6 1/2% due 12/1/2020...................................................... A3/A 3,218,370
2,000,000 California Health Facilities Financing Authority Rev. (Stanford Health Care),
5% due 11/15/2028......................................................... Aaa/AAA 1,969,500
360,000 California Housing Finance Agency (Housing Revenue Insured Bonds),
8 5/8% due 8/1/2015....................................................... Aaa/AAA 373,479
2,765,000 California Housing Finance Agency Home Mortgage Rev.,
6 3/4% due 2/1/2025*...................................................... Aa2/AA- 2,946,826
4,000,000 California Pollution Control Financing Authority Rev. (Mobil Oil Corporation
Project), 5 1/2% due 12/1/2029*........................................... Aa2/AA 4,096,080
890,000 California Public Capital Improvements Financing Authority
(Pooled Projects), 8.10% due 3/1/2018.................................... Aaa/AAA 906,937
2,000,000 California Public Works Board Lease Rev. (Correctional Facilities
Improvements), 5 3/4% due 9/1/2021........................................ A1/A 2,107,760
4,000,000 California State GOs, 5% due 10/1/2023...................................... Aa3/A+ 3,955,440
2,500,000 California Statewide Communities Development Authority Certificates of
Participation (Citrus Valley Health Partners, Inc.), 5 1/8% due 4/1/2023.. Aaa/AAA 2,513,575
3,000,000 California Statewide Communities Development Authority Certificates of
Participation (The Trustees of the J. Paul Getty Trust), 5% due 10/1/2023. Aaa/AAA 2,960,790
4,500,000 Contra Costa, CA Water District Rev., 5% due 10/1/2024...................... Aaa/AAA 4,436,190
3,500,000 East Bay, CA Municipal Utility District Water System Rev., 5% due 6/1/2026.. Aaa/AAA 3,453,660
2,500,000 Eastern Municipal Water District Riverside County, CA Water and Sewer Rev.,
6 3/4% due 7/1/2012....................................................... Aaa/AAA 3,045,375
3,000,000 Fresno, CA Sewer System Rev., 5 1/4% due 9/1/2019........................... Aaa/AAA 3,122,550
2,000,000 Marin, CA Municipal Water District Water Rev., 5.65% due 7/1/2023........... A1/AA 2,095,100
2,000,000 Metropolitan Water District of Southern California Waterworks GOs,
4 3/4% due 3/1/2037....................................................... Aaa/AAA 1,889,380
4,500,000 Orange County, CA Local Transportation Authority (Measure M Sales
Tax Rev.), 6% due 2/15/2009............................................... Aaa/AAA 5,121,540
<FN>
- ---------------------
+ Ratings have not been audited by Deloitte & Touche llp.
* Interest income earned from this security is subject to the federal alternative minimum tax.
See Notes to Financial Statements.
</FN>
</TABLE>
10
<PAGE>
Portfolios of Investments
March 31, 1999
California Quality Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$2,500,000 Rancho, CA Water District Financing Authority Rev., 5.90% due 11/1/2015..... Aaa/AAA $ 2,726,025
4,000,000 Regents of the University of California Rev. (Multiple Purpose Projects),
5 3/8% due 9/1/2024....................................................... Aaa/AAA 4,143,480
4,300,000 San Diego, CA Public Facilities Financing Authority Sewer Rev.,
5% due 5/15/2029.......................................................... Aaa/AAA 4,240,445
4,250,000 San Francisco Bay Area Rapid Transit District, CA (Sales Tax Rev.),
5% due 7/1/2028........................................................... Aaa/AAA 4,191,775
3,000,000 San Francisco, CA City and County Airports Commission Rev.
(International Airport), 6.60% due 5/1/2024*.............................. Aaa/AAA 3,323,910
-----------
TOTAL MUNICIPAL BONDS (Cost $83,342,144) -- 98.4%........................................................ 88,058,669
VARIABLE RATE DEMAND NOTES (Cost $300,000) -- 0.3%....................................................... 300,000
OTHER ASSETS LESS LIABILITIES -- 1.3%.................................................................... 1,102,002
-----------
NET ASSETS-- 100.0%...................................................................................... $89,460,671
===========
</TABLE>
Florida Series
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$2,000,000 Broward County, FL Airport System Rev., 5% due 10/1/2023.................... Aaa/AAA $ 1,955,780
1,000,000 Broward County, FL Water & Sewer Utility Rev., 5% due 10/1/2018............. Aaa/AAA 995,070
2,000,000 Collier County, FL Water & Sewer Rev., 5 1/4% due 7/1/2021.................. Aaa/AAA 2,026,400
1,000,000 Dade County, FL Aviation Rev., 6 1/8% due 10/1/2020*........................ Aaa/AAA 1,080,310
2,000,000 Dade County, FL Public Improvement GOs, 5 3/4% due 10/1/2016................ Aaa/AAA 2,140,340
2,000,000 Dade County, FL Water & Sewer System Rev., 5 3/4% due 10/1/2022............. Aaa/AAA 2,127,040
945,000 Florida Housing Finance Agency Rev. (General Mortgage),
6.35% due 6/1/2014........................................................ NR/AAA 1,004,374
705,000 Florida Housing Finance Agency Rev. (Single Family Mortgage),
6.55% due 7/1/2014*....................................................... Aaa/AAA 754,562
1,910,000 Florida Housing Finance Agency Rev. (Homeowner Mortgage),
6.20% due 7/1/2027*....................................................... Aa3/AA 2,017,972
2,500,000 Florida Ports Financing Commission Rev. (State Transportation Trust Fund),
5 3/8% due 6/1/2027*...................................................... Aaa/AAA 2,547,875
2,000,000 Florida State Department of Transportation GOs (Right of Way),
5.80% due 7/1/2021........................................................ Aa2/AA+ 2,210,480
2,500,000 Florida State Turnpike Authority Rev., 5 5/8% due 7/1/2025.................. Aaa/AAA 2,618,600
2,000,000 Greater Orlando Aviation Authority, FL Airport Facilities Rev.,
5 1/4% due 10/1/2023*..................................................... Aaa/AAA 2,017,680
2,500,000 Hillsborough County, FL Aviation Authority Rev. (Tampa International
Airport), 5 3/8% due 10/1/2023*........................................... Aaa/AAA 2,533,500
<FN>
- ----------------
+ Ratings have not been audited by Deloitte & Touche llp.
* Interest income earned from this security is subject to the federal alternative minimum tax.
See Notes to Financial Statements.
</FN>
</TABLE>
11
<PAGE>
Portfolios of Investments
March 31, 1999
Florida Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$ 1,500,000 Jacksonville Electric Authority, FL Rev. (St. John's River Power Park System),
5 3/8% due 10/1/2016...................................................... Aa2/AA $ 1,548,690
1,000,000 Jacksonville Electric Authority, FL Rev. (Electric System),
5.10% due 10/1/2032....................................................... Aa2/AA 985,780
2,000,000 Jacksonville Electric Authority, FL Rev. (Water & Sewer System),
5 5/8% due 10/1/2037...................................................... Aa3/AA- 2,069,340
2,000,000 Jacksonville, FL Sewage & Solid Waste Disposal Facilities Rev.
(Anheuser-Busch Project), 5 7/8% due 2/1/2036*............................ A1/A+ 2,117,720
2,000,000 Jacksonville Health Facilities Authority, FL Hospital Rev. (Charity Obligated
Group--Baptist/St. Vincent's Health System Inc.), 5 1/4% due 8/15/2027.... Aa2/AA+ 1,996,940
1,000,000 Kissimmee Utility Authority, FL Electric System Improvement Rev.,
5 1/4% due 10/1/2018...................................................... Aaa/AAA 1,014,840
1,000,000 Lee County, FL Transportation Facilities Rev., 6% due 10/1/2015............. Aaa/AAA 1,093,950
1,000,000 Osceola County, FL Transportation Rev. (Osceola Parkway Project),
6.10% due 4/1/2017........................................................ Aaa/AAA 1,075,100
1,200,000 Palm Beach County, FL Criminal Justice Facilities Rev., 7 1/4% due 6/1/2011. Aaa/AAA 1,278,072
2,000,000 Polk County, FL Industrial Development Authority Solid Waste Disposal
Facilities Rev. (Tampa Electric Company Project), 5.85% due 12/1/2030*.... Aa2/AA 2,127,320
2,000,000 Reedy Creek Improvement District, FL Utilities Rev., 5 1/8% due 10/1/2019... Aaa/AAA 2,013,000
1,250,000 Volusia County, FL Educational Facilities Authority Rev. (Embry-Riddle
Aeronautical University Project), 6 5/8% due 10/15/2022................... NR/AAA 1,370,275
-----------
TOTAL MUNICIPAL BONDS (COST $42,110,520) -- 98.3%........................................................ 44,721,010
OTHER ASSETS LESS LIABILITIES -- 1.7%.................................................................... 754,193
-----------
NET ASSETS -- 100.0%..................................................................................... $45,475,203
===========
</TABLE>
North Carolina Series
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$1,250,000 Appalachian State University, NC Housing & Student Center System Rev.,
5 5/8% due 7/15/2015...................................................... Aaa/AAA $ 1,308,075
1,250,000 Asheville, NC Water System Rev., 5.70% due 8/1/2025......................... Aaa/AAA 1,330,063
2,000,000 Charlotte-Mecklenberg Hospital Authority, NC Health Care System Rev.,
5 3/4% due 1/15/2021...................................................... Aa3/AA 2,120,060
1,000,000 Charlotte, NC Certificates of Participation (Charlotte-Mecklenburg Law
Enforcement Center Project), 5 3/8% due 6/1/2013.......................... Aa1/AA 1,043,860
2,000,000 Charlotte, NC Water & Sewer GOs, 5.90% due 2/1/2017......................... Aaa/AAA 2,207,720
1,000,000 Concord, NC Utilities System Rev., 5% due 12/1/2022......................... Aaa/AAA 988,990
<FN>
- --------------
+ Ratings have not been audited by Deloitte & Touche llp.
* Interest income earned from this security is subject to the federal alternative minimum tax.
See Notes to Financial Statements.
</FN>
</TABLE>
12
<PAGE>
Portfolios of Investments
March 31, 1999
North Carolina Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ---------------- --------------
<S> <C> <C> <C>
$ 1,500,000 Fayetteville, NC Public Works Commission Rev., 5 1/8% due 3/1/2024.......... Aaa/AAA $ 1,502,820
2,500,000 Martin County Industrial Facilities and Pollution Control Financing
Authority, NC Solid Waste Disposal Rev. (Weyerhaeuser Company
Project), 6% due 11/1/2025*............................................... A2/A 2,601,825
600,000 North Carolina Housing Finance Agency Rev. (Multi-Family),
5.80% due 7/1/2014........................................................ Aa2/AA 620,652
1,455,000 North Carolina Housing Finance Agency Rev. (Single Family),
6 1/2% due 3/1/2018....................................................... Aa2/AA 1,555,395
1,000,000 North Carolina Medical Care Commission Hospital Rev. (Memorial
Mission Hospital Project), 6% due 10/1/2022............................... Aaa/AAA 1,092,800
2,000,000 North Carolina Medical Care Commission Hospital Rev. (Presbyterian
Health Services Corp. Project), 6% due 10/1/2024.......................... Aa3/AA 2,178,680
1,500,000 North Carolina Medical Care Commission Hospital Rev. (FirstHealth
of the Carolinas Project), 5% due 10/1/2028............................... Aa3/AA- 1,444,050
1,500,000 North Carolina Medical Care Commission Hospital Rev. (Gaston Health
Care), 5% due 2/15/2029................................................... A1/A+ 1,424,190
1,500,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev.,
5 3/4% due 1/1/2015....................................................... Aaa/AAA 1,575,000
3,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev.,
5% due 1/1/2020........................................................... Aaa/AAA 3,022,980
1,000,000 Orange, NC Water & Sewer Authority Rev., 5.20% due 7/1/2016................. Aa2/AA 1,012,150
1,500,000 University of North Carolina Charlotte Rev. (Student Activity Center),
5 1/2% due 6/1/2021....................................................... Aaa/AAA 1,550,685
500,000 University of North Carolina Hospitals at Chapel Hill Rev.,
6 3/8% due 2/15/2017..................................................... Aa3/AA 539,680
1,000,000 University of North Carolina Hospitals at Chapel Hill Rev.,
5 1/4% due 2/15/2026...................................................... Aa3/AA 1,001,340
1,550,000 Wake County Industrial Facilities & Pollution Control Financing Authority,
NC (Carolina Power & Light), 6.90% due 4/1/2009........................... A2/A 1,627,515
-----------
TOTAL MUNICIPAL BONDS (COST $29,816,220) -- 98.1%......................................................... 31,748,530
VARIABLE RATE DEMAND NOTES (COST $100,000) -- 0.3%........................................................ 100,000
OTHER ASSETS LESS LIABILITIES -- 1.6%..................................................................... 499,613
-----------
NET ASSETS -- 100.0%...................................................................................... $32,348,143
===========
<FN>
- ----------------------------
+ Ratings have not been audited by Deloitte & Touche llp.
* Interest income earned from this security is subject to the federal alternative minimum tax.
See Notes to Financial Statements.
</FN>
</TABLE>
13
<PAGE>
Statements of Assets and Liabilities
March 31, 1999
<TABLE>
<CAPTION>
CALIFORNIA CALIFORNIA NORTH
HIGH-YIELD QUALITY FLORIDA CAROLINA
SERIES SERIES SERIES SERIES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(see Portfolios of Investments):
Long-term holdings...................... $ 66,914,843 $88,058,669 $44,721,010 $31,748,530
Short-term holdings..................... 2,600,000 300,000 -- 100,000
--------------- --------------- ---------------- ---------------
69,514,843 88,358,669 44,721,010 31,848,530
Cash ...................................... 79,963 62,988 112,138 104,019
Interest receivable........................ 999,148 1,294,754 913,250 490,032
Receivable for Shares of Beneficial
Interest sold........................... 214,767 59,611 -- 30,206
Receivable for securities sold............. 30,000 -- -- --
Expenses prepaid to shareholder
service agent........................... 8,077 10,385 5,385 4,615
Other...................................... 647 922 1,988 352
--------------- --------------- ---------------- ---------------
Total Assets............................... 70,847,445 89,787,329 45,753,771 32,477,754
=============== =============== ================ ===============
LIABILITIES:
Payable for securities purchased........... 3,976,796 -- -- --
Dividends payable.......................... 112,362 149,904 75,596 54,099
Payable for Shares of Beneficial Interest
repurchased............................. 35,217 56,094 123,581 13,322
Accrued expenses and other................. 100,053 120,660 79,391 62,190
--------------- --------------- ---------------- ---------------
Total Liabilities ......................... 4,224,428 326,658 278,568 129,611
--------------- --------------- ---------------- ---------------
Net Assets................................. $66,623,017 $89,460,671 $45,475,203 $32,348,143
=============== =============== ================ ===============
COMPOSITION OF NET ASSETS:
Shares of Beneficial Interest, at par:
Class A................................. $ 8,727 $ 12,191 $ 5,464 $ 3,820
Class D................................. 1,238 817 283 190
Additional paid-in capital................. 62,771,573 84,506,129 42,848,789 30,371,396
Undistributed (distribution in excess of)
net realized gain....................... (38,948) 225,009 10,177 40,427
Net unrealized appreciation
of investments.......................... 3,880,427 4,716,525 2,610,490 1,932,310
--------------- --------------- ---------------- ---------------
Net Assets................................. $66,623,017 $89,460,671 $45,475,203 $32,348,143
=============== =============== ================ ===============
NET ASSETS:
Class A................................. $58,337,321 $ 83,857,189 $43,231,132 $30,819,338
Class D................................. $ 8,285,696 $ 5,603,482 $ 2,244,071 $ 1,528,805
SHARES OF BENEFICIAL INTEREST
OUTSTANDING (UNLIMITED SHARES AUTHORIZED;
$.001 PAR VALUE):
Class A................................. 8,727,099 12,190,821 5,464,493 3,820,483
Class D ............................... 1,238,180 816,697 283,115 189,616
NET ASSET VALUE PER SHARE:
Class A.................................... $6.68 $6.88 $7.91 $8.07
Class D.................................... $6.69 $6.86 $7.93 $8.06
</TABLE>
- --------------------
See Notes to Financial Statements.
14
<PAGE>
Statements of Operations
For the Six Months Ended March 31, 1999
<TABLE>
<CAPTION>
CALIFORNIA CALIFORNIA NORTH
HIGH-YIELD QUALITY FLORIDA CAROLINA
SERIES SERIES SERIES SERIES
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest ..................................... $1,780,551 $ 2,352,820 $1,204,885 $ 885,720
------------- -------------- -------------- ------------
EXPENSES:
Management fees............................... 161,937 221,638 113,813 82,504
Distribution and service fees................. 65,505 63,826 64,914 47,497
Shareholder account services.................. 42,911 55,019 30,810 24,225
Auditing and legal fees....................... 15,141 17,623 14,152 12,869
Custody and related services.................. 6,814 4,156 4,964 3,998
Trustees' fees and expenses................... 6,362 6,519 4,617 4,009
Shareholder reports and communications........ 5,252 4,436 2,693 3,985
Registration.................................. 4,827 5,376 4,367 4,527
Miscellaneous................................. 1,576 1,642 1,316 1,178
------------- -------------- -------------- ------------
Total Expenses................................ 310,325 380,235 241,646 184,792
------------- -------------- -------------- ------------
Net Investment Income......................... 1,470,226 1,972,585 963,239 700,928
------------- -------------- -------------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments.............. 30,925 608,430 15,273 47,055
Net change in unrealized appreciation
of investments.............................. (864,094) (1,865,042) (599,892) (517,833)
------------- -------------- -------------- ------------
Net Loss on Investments ...................... (833,169) (1,256,612) (584,619) (470,778)
------------- -------------- -------------- ------------
Increase in Net Assets from Operations........ $ 637,057 $ 715,973 $ 378,620 $ 230,150
============= ============== ============== ============
</TABLE>
- ------------------
See Notes to Financial Statements.
15
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD SERIES CALIFORNIA QUALITY SERIES
---------------------------------------- ----------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
3/31/99 9/30/98 3/31/99 9/30/98
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ................... $ 1,470,226 $ 2,869,233 $ 1,972,585 $ 4,188,124
Net realized gain on investments......... 30,925 315,617 608,430 2,703,169
Net change in unrealized appreciation
of investments........................ (864,094) 1,697,381 (1,865,042) 429,796
----------- ----------- ----------- -----------
Increase in Net Assets from Operations... 637,057 4,882,231 715,973 7,321,089
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A............................... (1,337,739) (2,672,172) (1,902,107) (4,112,546)
Class D............................... (132,487) (197,061) (70,478) (75,578)
Net realized gain on investments:
Class A............................... (207,681) (255,159) (2,762,949) (410,719)
Class D............................... (23,942) (16,987) (100,451) (9,630)
----------- ----------- ----------- -----------
Decrease in Net Assets
from Distributions.................... (1,701,849) (3,141,379) (4,835,985) (4,608,473)
----------- ----------- ----------- -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sale of shares:
Class A............................... 5,607,928 8,495,720 1,496,406 2,910,248
Class D............................... 2,242,629 3,342,099 3,020,174 510,845
Shares issued in payment of dividends:
Class A............................... 724,872 1,407,211 950,104 2,074,707
Class D............................... 102,158 148,218 38,391 39,918
Exchanged from associated Funds:
Class A............................... 2,421,711 2,763,236 878,494 9,378,739
Class D............................... 447,933 549,807 1,100,485 2,156,556
Shares issued in payment of
gain distributions:
Class A............................... 142,616 174,948 1,679,573 249,515
Class D............................... 20,123 13,631 71,464 5,556
----------- ----------- ----------- -----------
Total.................................... 11,709,970 16,894,870 9,235,091 17,326,084
----------- ----------- ----------- -----------
Cost of shares repurchased:
Class A............................... (5,355,745) (8,007,292) (3,273,829) (9,140,974)
Class D............................... (300,735) (528,543) (604,138) (568,085)
Exchanged into associated Funds:
Class A............................... (2,626,130) (937,063) (1,434,856) (7,593,529)
Class D............................... (506,786) (598,369) (165,527) (1,581,236)
----------- ----------- ----------- -----------
Total.................................... (8,789,396) (10,071,267) (5,478,350) (18,883,824)
----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets
from Transactions in Shares
of Beneficial Interest................ 2,920,574 6,823,603 3,756,741 (1,557,740)
----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets........ 1,855,782 8,564,455 (363,271) 1,154,876
NET ASSETS:
Beginning of period...................... 64,767,235 56,202,780 89,823,942 88,669,066
----------- ----------- ----------- -----------
End of Period............................ $66,623,017 $64,767,235 $89,460,671 $89,823,942
=========== =========== =========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
16
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FLORIDA SERIES NORTH CAROLINA SERIES
-----------------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
3/31/99 9/30/98 3/31/99 9/30/98
----------------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ................... $ 963,239 $ 1,954,649 $ 700,928 $ 1,474,812
Net realized gain on investments......... 15,273 283,504 47,055 471,836
Net change in unrealized appreciation
of investments........................ (599,892) 1,624,389 (517,833) 828,922
----------- ----------- ----------- -----------
Increase in Net Assets from Operations... 378,620 3,862,542 230,150 2,775,570
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A............................... (922,022) (1,887,251) (674,845) (1,428,764)
Class D............................... (41,217) (67,398) (26,083) (46,048)
Net realized gain on investments:
Class A............................... (272,671) (385,124) (451,811) (259,010)
Class D............................... (14,496) (16,296) (20,721) (9,526)
----------- ----------- ----------- -----------
Decrease in Net Assets
from Distributions.................... (1,250,406) (2,356,069) (1,173,460) (1,743,348)
----------- ----------- ----------- -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sale of shares:
Class A............................... 2,855,583 1,820,657 457,701 1,639,241
Class D............................... 104,405 549,732 113,187 321,482
Shares issued in payment of dividends:
Class A............................... 343,219 735,335 354,569 749,183
Class D............................... 23,540 43,291 20,286 32,807
Exchanged from associated Funds:
Class A............................... 1,140,557 1,868,336 165,328 551,292
Class D............................... 735,692 247,755 -- 100,077
Shares issued in payment of
gain distributions:
Class A............................... 153,195 224,788 331,130 192,301
Class D............................... 10,367 12,044 20,065 8,729
----------- ----------- ----------- -----------
Total ................................... 5,366,558 5,501,938 1,462,266 3,595,112
----------- ----------- ----------- -----------
Cost of shares repurchased:
Class A............................... (2,208,611) (3,801,719) (1,584,831) (3,903,375)
Class D............................... (485,757) (441,648) (39,021) (260,357)
Exchanged into associated Funds:
Class A............................... (688,299) (1,850,538) (361,101) (545,626)
Class D............................... (40,566) (213,070) -- (4,500)
----------- ----------- ----------- -----------
Total ................................... (3,423,233) (6,306,975) (1,984,953) (4,713,858)
----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets
from Transactions in Shares
of Beneficial Interest................. 1,943,325 (805,037) (522,687) (1,118,746)
----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets........ 1,071,539 701,436 (1,465,997) (86,524)
NET ASSETS:
Beginning of period...................... 44,403,664 43,702,228 33,814,140 33,900,664
----------- ----------- ----------- -----------
End of Period............................ $45,475,203 $44,403,664 $32,348,143 $33,814,140
=========== =========== =========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
17
<PAGE>
Notes to Financial Statements
1. Multiple Classes of Shares -- Seligman Municipal Series Trust (the "Trust")
consists of four separate series: the "California High-Yield Series," the
"California Quality Series," the "Florida Series," and the "North Carolina
Series." Each Series of the Trust offers two classes of shares. Class A shares
are sold with an initial sales charge of up to 4.75% and a continuing service
fee of up to 0.25% on an annual basis. Class A shares purchased in an amount of
$1,000,000 or more are sold without an initial sales charge but are subject to a
contingent deferred sales charge ("CDSC") of 1% on redemptions within 18
months of purchase. Class D shares are sold without an initial sales charge but
are subject to a distribution fee of up to 0.75% and a service fee of up to
0.25% on an annual basis, and a CDSC of 1% imposed on redemptions made within
one year of purchase. The two classes of shares for each Series represent
interests in the same portfolio of investments, have the same rights and are
generally identical in all respects except that each class bears its separate
distribution and certain other class expenses, and has exclusive voting rights
with respect to any matter on which a separate vote of any class is required.
2. Significant Accounting Policies -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Trust:
a. Security Valuation -- All municipal securities and other short-term
holdings maturing in more than 60 days are valued based upon quotations
provided by an independent pricing service or, in their absence, at fair
value determined in accordance with procedures approved by the Trustees.
Short-term holdings maturing in 60 days or less are generally valued at
amortized cost.
b. Federal Taxes -- There is no provision for federal income tax. Each Series
has elected to be taxed as a regulated investment company and intends to
distribute substantially all taxable net income and net gain realized.
c. Security Transactions and Related Investment Income -- Investment
transactions are recorded on trade dates. Identified cost of investments
sold is used for both financial statement and federal income tax purposes.
Interest income is recorded on the accrual basis. The Trust amortizes
original issue discounts and premiums paid on purchases of portfolio
securities. Discounts other than original issue discounts are not amortized.
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 the
shares of each class. Class-specific expenses, which include distribution
and service fees and any other items that are specifically attributable to
a particular class, are charged directly to such class. For the six months
ended March 31, 1999, distribution and service fees were the only
class-specific expenses.
e. Distributions to Shareholders -- Dividends are declared daily and paid
monthly. Other distributions paid by the Trust are recorded on the
ex-dividend date. The treatment for financial statement purposes of
distributions made to shareholders during the year from net investment
income or net realized gains may differ from their ultimate treatment for
federal income tax purposes. These differences are caused primarily by
differences in the timing of the recognition of certain components of
income, expense, or realized capital gain for federal income tax purposes.
Where such differences are permanent in nature, they are reclassified in
the components of net assets based on their ultimate characterization for
federal income tax purposes. Any such reclassifications will have no effect
on net assets, results of operations, or net asset value per share of any
series of the Trust.
3. Purchases and Sales of Securities -- Purchases and sales of portfolio
securities, excluding short-term investments, for the six months ended March 31,
1999, were as follows:
SERIES PURCHASES SALES
- ---------- ----------- ------------
California High-Yield $6,212,040 $1,175,300
California Quality 13,190,650 11,605,460
Florida 3,276,579 1,290,457
North Carolina -- 800,538
At March 31, 1999, each Series' cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes, and the tax basis gross unrealized appreciation and depreciation of
portfolio securities were as follows:
TOTAL TOTAL
UNREALIZED UNREALIZED
SERIES APPRECIATION DEPRECIATION
- ---------- ------------ ------------
California High-Yield $3,898,527 $ 18,100
California Quality 4,858,321 141,796
Florida 2,648,890 38,400
North Carolina 1,949,260 16,950
4. Management Fee, Distribution Services, and Other Transactions -- J. & W.
Seligman & Co. Incorporated (the "Manager") manages the affairs of the Trust and
provides the necessary personnel and facilities. Compensation of all officers of
the Trust, all trustees of the Trust who are employees or consultants of the
Manager, and all personnel of the Trust and the Manager is paid by the Manager.
The Manager's fee is calculated daily and payable monthly, equal to 0.50% per
annum of each Series' average daily net assets.
18
<PAGE>
Notes to Financial Statements
Seligman Advisors, Inc. (the "Distributor"), agent for the distribution of
each Series' shares and an affiliate of the Manager, received the following
concessions after commissions were paid to dealers for sales of Class A shares:
DISTRIBUTOR DEALER
SERIES CONCESSIONS COMMISSIONS
- ---------- ----------- ------------
California High-Yield $6,967 $51,598
California Quality 5,218 38,320
Florida 4,175 32,194
North Carolina 2,199 16,010
The Trust 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 continuing fees of up to 0.25% on an annual basis,
payable quarterly, of the average daily net assets of the Class A shares
attributable to the particular service organizations for providing personal
services and/or the maintenance of shareholder accounts. The Distributor charges
such fees to the Trust pursuant to the Plan. For the six months ended March 31,
1999, for the California High-Yield, California Quality, Florida, and North
Carolina Series, fees incurred under the Plan aggregated $30,118, $44,250,
$53,197 and $40,117, respectively, or 0.10%, 0.10%, 0.25%, and 0.25%,
respectively, per annum of average daily net assets.
Under the Plan, with respect to Class D shares, service organizations can
enter into agreements with the Distributor and receive continuing fees 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 D
shares for which the organizations are responsible, and fees for providing other
distribution assistance of up to 0.75% on an annual basis of such average daily
net assets. Such fees are paid monthly by the Trust to the Distributor pursuant
to the Plan. For the six months ended March 31, 1999, fees incurred under the
Plan amounted to $35,387, $19,576, $11,717, and $7,380, respectively, or 1% per
annum of the average daily net assets of Class D shares of the California
High-Yield, California Quality, Florida, and North Carolina Series,
respectively.
The Distributor is entitled to retain any CDSC imposed on redemptions of
Class D shares occurring within one year of purchase and on certain redemptions
of Class A shares occurring within 18 months of purchase. For the six months
ended March 31, 1999, such charges amounted to $10,243 for the California
High-Yield Series, $2 for the California Quality Series, and $594 for the
Florida Series.
Seligman Services, Inc., an affiliate of the Manager, is
eligible to receive commissions from certain sales of Trust shares, as well as
distribution and service fees pursuant to the Plan. For the six months ended
March 31, 1999, Seligman Services, Inc. received commissions from the sale of
shares of each Series, and distribution and service fees, pursuant to the Plan,
as follows:
DISTRIBUTION AND
SERIES COMMISSIONS SERVICE FEES
- ---------- ------------ ------------
California High-Yield $4,600 $1,066
California Quality 441 1,213
Florida 300 2,581
North Carolina 600 1,272
Seligman Data Corp., which is owned by certain associated investment
companies, charged at cost for shareholder account services the following
amounts:
SERIES
- ----------
California High-Yield $42,911
California Quality 55,019
Florida 30,810
North Carolina 24,225
Certain officers and trustees of the Trust are officers or directors of the
Manager, the Distributor, Seligman Services, Inc., and/or Seligman Data Corp.
The Trust has a compensation agreement 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
Trust or other funds in the Seligman Group of Investment Companies. Deferred
fees and related accrued earnings are not deductible for federal income tax
purposes until such amounts are paid. The cost of such fees and earnings accrued
thereon is included in trustees' fees and expenses, and the accumulated balances
thereof at March 31, 1999, are included in other liabilities as follows:
SERIES
- ----------
California High-Yield $26,136
California Quality 26,246
Florida 13,409
North Carolina 10,000
5. Committed Line of Credit -- Effective July 1, 1998, the Trust entered into a
joint $800 million committed line of credit that is shared by substantially all
funds in the Seligman Group of Investment Companies. Each Series' borrowings are
limited to 10% of its net assets. Borrowings pursuant to the credit facility are
subject to interest at a rate equal to the overnight federal funds rate plus
0.50%. Each Series incurs a commitment fee of 0.08% per annum on its share of
the unused portion of the credit facility. The credit facility may be drawn upon
only for temporary purposes and is subject to certain other customary
restrictions. The credit facility commitment expires one year from the date of
the agreement but is renewable with the consent of the participating banks. To
date, the Trust has not borrowed from the credit facility.
19
<PAGE>
Notes to Financial Statements
6. Transactions in Shares of Beneficial Interest -- Transactions in Shares of
Beneficial Interest were as follows:
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD CALIFORNIA QUALITY
SERIES SERIES
--------------------------- --------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
3/31/99 9/30/98 3/31/99 9/30/98
------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Sales of shares:
Class A................................... 834,010 1,277,052 215,179 412,540
Class D................................... 333,954 499,452 436,505 72,661
Shares issued in payment of dividends:
Class A................................... 107,782 211,143 136,295 294,684
Class D................................... 15,170 22,196 5,538 5,681
Exchanged from associated Funds:
Class A................................... 361,120 413,298 124,448 1,335,307
Class D................................... 66,325 82,354 155,181 307,189
Shares issued in payment of gain distributions:
Class A................................... 21,223 26,588 242,713 35,850
Class D................................... 2,990 2,068 10,357 799
---------- ---------- --------- ----------
Total........................................ 1,742,574 2,534,151 1,326,216 2,464,711
---------- ---------- --------- ----------
Shares repurchased:
Class A................................... (795,483) (1,201,761) (469,869) (1,299,234)
Class D................................... (44,797) (79,088) (87,022) (80,796)
Exchanged into associated Funds:
Class A................................... (391,782) (140,692) (200,303) (1,081,747)
Class D................................... (75,267) (89,085) (23,894) (225,899)
---------- ---------- --------- ----------
Total........................................ (1,307,329) (1,510,626) (781,088) (2,687,676)
---------- ---------- --------- ----------
Increase (decrease) in shares................ 435,245 1,023,525 545,128 (222,965)
========== ========== ========= ==========
</TABLE>
<TABLE>
NORTH CAROLINA
FLORIDA SERIES SERIES
-------------------------------- ------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
3/31/99 9/30/98 3/31/99 9/30/98
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Sales of shares:
Class A.................................... 359,008 231,028 56,116 202,159
Class D.................................... 12,981 69,634 13,940 39,497
Shares issued in payment of dividends:
Class A.................................... 43,161 93,274 43,527 92,259
Class D.................................... 2,954 5,481 2,493 4,042
Exchanged from associated Funds:
Class A.................................... 143,605 237,657 20,296 67,414
Class D.................................... 92,164 31,343 -- 12,161
Shares issued in payment of gain distributions:
Class A.................................... 19,319 29,005 40,880 24,008
Class D.................................... 1,306 1,550 2,477 1,091
-------- -------- -------- --------
Total......................................... 674,498 698,972 179,729 442,631
-------- -------- -------- --------
Shares repurchased:
Class A.................................... (278,745) (482,133) (194,547) (480,689)
Class D.................................... (61,161) (55,774) (4,822) (31,930)
Exchanged into associated Funds:
Class A.................................... (86,705) (234,463) (44,226) (67,042)
Class D.................................... (5,109) (27,097) -- (560)
-------- -------- -------- --------
Total......................................... (431,720) (799,467) (243,595) (580,221)
-------- -------- -------- --------
Increase (decrease) in shares................. 242,778 (100,495) (63,866) (137,590)
======== ======== ======== ========
</TABLE>
20
<PAGE>
Financial Highlights
The tables below are intended to help you understand the financial
performance of each Class of each Series for the past five and one-half years or
from its inception if less than five and one-half years. Certain information
reflects financial results for a single share of a Class that was held
throughout the periods shown. Per share amounts are calculated using average
shares outstanding. "Total return" shows the rate that you would have earned (or
lost) on an investment in each Class, assuming you reinvested all your dividend
and capital gain distributions. Total returns do not reflect any sales charges,
and are not annualized for periods of less than one year.
California High-Yield Series
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------
SIX
MONTHS YEAR ENDED SEPTEMBER 30,
ENDED --------------------------------------------------------------
3/31/99 1998 1997 1996 1995 1994
------------ ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period.............. $6.80 $6.61 $6.50 $6.47 $6.30 $6.73
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.16 0.32 0.34 0.36 0.37 0.37
Net realized and unrealized gain (loss)
on investments................................. (0.10) 0.22 0.20 0.05 0.17 (0.34)
----- ----- ----- ----- ----- -----
Total from Investment Operations.................. 0.06 0.54 0.54 0.41 0.54 0.03
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.16) (0.32) (0.34) (0.36) (0.37) (0.37)
Distributions from net realized capital gain...... (0.02) (0.03) (0.09) (0.02) -- (0.09)
----- ----- ----- ----- ----- -----
Total Distributions............................... (0.18) (0.35) (0.43) (0.38) (0.37) (0.46)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.................... $6.68 $6.80 $6.61 $6.50 $6.47 $6.30
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.89% 8.45% 8.74% 6.49% 8.85% 0.41%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted).......... $58,337 $58,374 $52,883 $50,264 $51,504 $48,007
Ratio of expenses to average net assets........... 0.86%+ 0.82% 0.87% 0.84% 0.90% 0.85%
Ratio of net income to average net assets......... 4.64%+ 4.81% 5.26% 5.49% 5.84% 5.74%
Portfolio turnover rate........................... 1.86% 10.75% 22.42% 34.75% 17.64% 8.36%
</TABLE>
<TABLE>
<CAPTION>
CLASS D
------------------------------------------------------------------------------
SIX
MONTHS YEAR ENDED SEPTEMBER 30, 2/1/94*
ENDED ------------------------------------------- TO
3/31/99 1998 1997 1996 1995 9/30/94
------------- ------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period............. $6.80 $6.61 $6.51 $6.48 $6.31 $6.67
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................ 0.13 0.26 0.28 0.30 0.31 0.21
Net realized and unrealized gain (loss)
on investments................................ (0.09) 0.22 0.19 0.05 0.17 (0.36)
----- ----- ----- ----- ----- -----
Total from Investment Operations................. 0.04 0.48 0.47 0.35 0.48 (0.15)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income............. (0.13) (0.26) (0.28) (0.30) (0.31) (0.21)
Distributions from net realized capital gain..... (0.02) (0.03) (0.09) (0.02) -- --
----- ----- ----- ----- ----- -----
Total Distributions.............................. (0.15) (0.29) (0.37) (0.32) (0.31) (0.21)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period................... $6.69 $6.80 $6.61 $6.51 $6.48 $6.31
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.59% 7.47% 7.60% 5.53% 7.78% (2.47)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted)......... $8,286 $6,393 $3,320 $1,919 $1,277 $650
Ratio of expenses to average net assets.......... 1.76%+ 1.73% 1.77% 1.74% 1.91% 1.74%+
Ratio of net income to average net assets........ 3.74%+ 3.90% 4.36% 4.59% 4.84% 4.73%+
Portfolio turnover rate.......................... 1.86% 10.75% 22.42% 34.75% 17.64% 8.36%++
</TABLE>
- ---------------
See footnotes on page 25.
21
<PAGE>
Financial Highlights
California Quality Series
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------
SIX
MONTHS YEAR ENDED SEPTEMBER 30,
ENDED --------------------------------------------------------------
3/31/99 1998 1997 1996 1995 1994
------------ ------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period............ $7.21 $6.99 $6.75 $6.65 $6.39 $7.28
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income........................... 0.16 0.33 0.34 0.35 0.34 0.35
Net realized and unrealized gain (loss)
on investments............................... (0.10) 0.25 0.24 0.11 0.32 (0.73)
----- ----- ----- ----- ----- -----
Total from Investment Operations................ 0.06 0.58 0.58 0.46 0.66 (0.38)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income............ (0.16) (0.33) (0.34) (0.35) (0.34) (0.35)
Distributions from net realized capital gain.... (0.23) (0.03) -- (0.01) (0.06) (0.16)
----- ----- ----- ----- ----- -----
Total Distributions............................. (0.39) (0.36) (0.34) (0.36) (0.40) (0.51)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.................. $6.88 $7.21 $6.99 $6.75 $6.65 $6.39
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.81% 8.67% 8.87% 7.00% 10.85% (5.46)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted)........ $83,857 $87,522 $86,992 $95,560 $94,947 $99,020
Ratio of expenses to average net assets......... 0.81%+ 0.77% 0.82% 0.79% 0.89% 0.81%
Ratio of net income to average net assets....... 4.49%+ 4.75% 4.99% 5.11% 5.34% 5.20%
Portfolio turnover rate......................... 13.30% 30.82% 12.16% 12.84% 11.24% 22.16%
</TABLE>
<TABLE>
CLASS D
--------------------------------------------------------------------------
SIX
MONTHS YEAR ENDED SEPTEMBER 30, 2/1/94*
ENDED ------------------------------------------- TO
3/31/99 1998 1997 1996 1995 9/30/94
-------------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period............. $7.19 $6.97 $6.74 $6.63 $6.38 $7.13
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................ 0.12 0.27 0.28 0.28 0.28 0.19
Net realized and unrealized gain (loss)
on investments................................ (0.10) 0.25 0.23 0.12 0.31 (0.75)
----- ----- ----- ----- ----- -----
Total from Investment Operations................. 0.02 0.52 0.51 0.40 0.59 (0.56)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income............. (0.12) (0.27) (0.28) (0.28) (0.28) (0.19)
Distributions from net realized capital gain..... (0.23) (0.03) -- (0.01) (0.06) --
----- ----- ----- ----- ----- -----
Total Distributions.............................. (0.35) (0.30) (0.28) (0.29) (0.34) (0.19)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period................... $6.86 $7.19 $6.97 $6.74 $6.63 $6.38
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.36% 7.71% 7.75% 6.20% 9.61% (8.01)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted)......... $5,604 $2,302 $1,677 $1,645 $ 863 $ 812
Ratio of expenses to average net assets.......... 1.71%+ 1.68% 1.72% 1.69% 1.88% 1.77%+
Ratio of net income to average net assets........ 3.59%+ 3.84% 4.09% 4.21% 4.36% 4.39%+
Portfolio turnover rate.......................... 13.30% 30.82% 12.16% 12.84% 11.24% 22.16%++
</TABLE>
- -------------
See footnotes on page 25.
22
<PAGE>
Financial Highlights
Florida Series
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
SIX
MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
-------------- -------------------------------------------------------
3/31/99 1998 1997 1996 1995 1994
---------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period.............. $8.07 $7.80 $7.67 $7.71 $7.34 $8.20
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.17 0.35 0.36 0.38 0.40 0.42
Net realized and unrealized gain (loss)
on investments................................. (0.11) 0.34 0.23 0.04 0.37 (0.74)
----- ----- ----- ----- ----- -----
Total from Investment Operations.................. 0.06 0.69 0.59 0.42 0.77 (0.32)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.17) (0.35) (0.36) (0.38) (0.40) (0.42)
Distributions from net realized capital gain...... (0.05) (0.07) (0.10) (0.08) -- (0.12)
----- ----- ----- ----- ----- -----
Total Distributions............................... (0.22) (0.42) (0.46) (0.46) (0.40) (0.54)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.................... $7.91 $8.07 $7.80 $7.67 $7.71 $7.34
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.75% 9.16% 8.01% 5.54% 10.87% (3.99)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted).......... $43,231 $42,464 $42,024 $45,200 $49,030 $49,897
Ratio of expenses to average net assets........... 1.02%+ 1.00% 1.04% 0.97% 0.72% 0.42%
Ratio of net income to average net assets......... 4.27%+ 4.45% 4.70% 4.90% 5.38% 5.49%
Portfolio turnover rate........................... 2.93% 6.73% 33.68% 18.53% 11.82% 6.17%
Without expense reimbursement and/or
management fee waiver:**
Ratio of expenses to average net assets........... 0.97% 1.03% 1.00%
Ratio of net income to average net assets......... 4.90% 5.07% 4.91%
</TABLE>
<TABLE>
<CAPTION>
CLASS D
----------------------------------------------------------------------
SIX
MONTHS YEAR ENDED SEPTEMBER 30, 2/1/94*
ENDED ------------------------------------------- TO
3/31/99 1998 1997 1996 1995 9/30/94
---------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period........... $8.08 $7.81 $7.68 $7.72 $7.34 $8.10
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income.......................... 0.14 0.29 0.30 0.32 0.34 0.24
Net realized and unrealized gain (loss)
on investments.............................. (0.10) 0.34 0.23 0.04 0.38 (0.76)
----- ----- ----- ----- ----- -----
Total from Investment Operations............... 0.04 0.63 0.53 0.36 0.72 (0.52)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income........... (0.14) (0.29) (0.30) (0.32) (0.34) (0.24)
Distributions from net realized capital gain... (0.05) (0.07) (0.10) (0.08) -- --
----- ----- ----- ----- ----- -----
Total Distributions............................ (0.19) (0.36) (0.40) (0.40) (0.34) (0.24)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period................. $7.93 $8.08 $7.81 $7.68 $7.72 $7.34
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.50% 8.32% 7.18% 4.74% 10.07% (6.64)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted)....... $2,244 $1,940 $1,678 $1,277 $603 $244
Ratio of expenses to average net assets........ 1.77%+ 1.77% 1.81% 1.73% 1.66% 1.29%+
Ratio of net income to average net assets...... 3.52%+ 3.68% 3.93% 4.14% 4.53% 4.61%+
Portfolio turnover rate........................ 2.93% 6.73% 33.68% 18.53% 11.82% 6.17%++
Without expense reimbursement and/or
management fee waiver:**
Ratio of expenses to average net assets........ 1.73% 1.97% 1.84%+
Ratio of net income to average net assets...... 4.14% 4.22% 4.06%+
</TABLE>
- --------------
See footnotes on page 25.
23
<PAGE>
Financial Highlights
North Carolina Series
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
SIX
MONTHS YEAR ENDED SEPTEMBER 30,
ENDED -------------------------------------------------------
3/31/99 1998 1997 1996 1995 1994
---------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period............ $8.30 $8.05 $7.84 $7.74 $7.30 $8.22
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income........................... 0.17 0.36 0.37 0.37 0.39 0.41
Net realized and unrealized gain (loss)
on investments............................... (0.11) 0.31 0.24 0.11 0.45 (0.87)
----- ----- ----- ----- ----- -----
Total from Investment Operations................ 0.06 0.67 0.61 0.48 0.84 (0.46)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income............ (0.17) (0.36) (0.37) (0.37) (0.39) (0.41)
Distributions from net realized capital gain.... (0.12) (0.06) (0.03) (0.01) (0.01) (0.05)
----- ----- ----- ----- ----- -----
Total Distributions............................. (0.29) (0.42) (0.40) (0.38) (0.40) (0.46)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.................. $8.07 $8.30 $8.05 $7.84 $7.74 $7.30
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.74% 8.60% 8.01% 6.39% 11.92% (5.80)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted)........ $30,819 $32,358 $32,684 $35,934 $37,446 $38,920
Ratio of expenses to average net assets......... 1.08%+ 1.05% 1.09% 1.05% 0.82% 0.44%
Ratio of net income to average net assets....... 4.28%+ 4.41% 4.66% 4.75% 5.21% 5.29%
Portfolio turnover rate......................... -- 20.37% 13.04% 15.12% 4.38% 15.61%
Without expense reimbursement and/or
management fee waiver:**
Ratio of expenses to average net assets......... 1.06% 1.18% 1.13%
Ratio of net income to average net assets....... 4.74% 4.85% 4.60%
</TABLE>
- -----------
See footnotes on page 25.
24
<PAGE>
Financial Highlights
North Carolina Series (continued)
<TABLE>
<CAPTION>
CLASS D
----------------------------------------------------------------------
SIX
MONTHS YEAR ENDED SEPTEMBER 30, 2/1/94*
ENDED -------------------------------------------- TO
3/31/99 1998 1997 1996 1995 9/30/94
-------- ------ ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period............. $8.30 $8.05 $7.83 $7.74 $7.29 $8.17
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................ 0.14 0.30 0.31 0.31 0.33 0.23
Net realized and unrealized gain (loss)
on investments................................ (0.12) 0.31 0.25 0.10 0.46 (0.88)
----- ----- ----- ----- ----- -----
Total from Investment Operations................. 0.02 0.61 0.56 0.41 0.79 (0.65)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income............. (0.14) (0.30) (0.31) (0.31) (0.33) (0.23)
Distributions from net realized capital gain..... (0.12) (0.06) (0.03) (0.01) (0.01) --
----- ----- ----- ----- ----- -----
Total Distributions.............................. (0.26) (0.36) (0.34) (0.32) (0.34) (0.23)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period................... $8.06 $8.30 $8.05 $7.83 $7.74 $7.29
===== ===== ===== ===== ===== =====
TOTAL RETURN: 0.24% 7.77% 7.33% 5.45% 11.19% (8.15)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted)......... $1,529 $1,456 $1,217 $1,232 $1,257 $1,282
Ratio of expenses to average net assets.......... 1.83%+ 1.82% 1.85% 1.81% 1.64% 1.27%+
Ratio of net income to average net assets........ 3.53%+ 3.64% 3.90% 3.99% 4.42% 4.49%+
Portfolio turnover rate.......................... -- 20.37% 13.04% 15.12% 4.38% 15.61%++
Without expense reimbursement and/or
management fee waiver:**
Ratio of expenses to average net assets.......... 1.82% 2.00% 1.95%+
Ratio of net income to average net assets........ 3.98% 4.06% 3.82%+
<FN>
- -----------
*Commencement of operations.
**During the periods stated, the Manager, at its discretion, waived all or a portion of its fees and, in some
cases, reimbursed certain expenses for the Florida and North Carolina Series.
+Annualized.
++For the year ended September 30, 1994.
See Notes to Financial Statements.
</FN>
</TABLE>
25
<PAGE>
Report of Independent Auditors
The Trustees and Shareholders,
Seligman Municipal Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Seligman Municipal Series Trust (comprising,
respectively, the California High-Yield, California Quality, Florida, and North
Carolina Series), as of March 31, 1999, the related statements of operations for
the six months then ended and of changes in net assets for the six months then
ended and for the year ended September 30, 1998, and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1999 by correspondence with the Trust's custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
California High-Yield, California Quality, Florida, and North Carolina Series of
Seligman Municipal Series Trust as of March 31, 1999, the results of their
operations, the changes in their net assets, and their financial highlights for
the respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
April 30, 1999
26
<PAGE>
TRUSTEES
John R. Galvin 2, 4
Dean, Fletcher School of Law and Diplomacy
at Tufts University
Director, Raytheon Company
Alice S. Ilchman 3, 4
Trustee, Committee for Economic Development
Chairman, The Rockefeller Foundation
Frank A. McPherson 2, 4
Director, Kimberly-Clark Corporation
Director, Baptist Medical Center
John E. Merow 2, 4
Retired Chairman and Senior Partner,
Sullivan & Cromwell, Law Firm
Director, Commonwealth Industries, Inc
Director, New York Presbyterian Hospital
Betsy S. Michel 2, 4
Trustee, The Geraldine R. Dodge Foundation
Chairman of the Board of Trustees, St. George's School
William C. Morris 1
Chairman
Chairman of the Board,
J. & W. Seligman & Co. Incorporated
Chairman, Carbo Ceramics Inc.
Director, Kerr-McGee Corporation
James C. Pitney 3, 4
Retired Partner, Pitney, Hardin, Kipp & Szuch,
Law Firm
James Q. Riordan 3, 4
Director, KeySpan Energy Corporation
Trustee, Committee for Economic Development
Director, Public Broadcasting Service
Richard R. Schmaltz 1
Managing Director, Director of Investments,
J. & W. Seligman & Co. Incorporated
Trustee Emeritus, Colby College
Robert L. Shafer 3, 4
Retired Vice President, Pfizer, Inc.
James N. Whitson 2, 4
Director and Consultant, Sammons Enterprises, Inc.
Director, CommScope, Inc.
Director, C-SPAN
Brian T. Zino 1
President
President, J. & W. Seligman & Co. Incorporated
Chairman, Seligman Data Corp.
Director, ICI Mutual Insurance Company
Trustee Emeritus
Fred E. Brown
Director and Consultant,
J. & W. Seligman & Co. Incorporated
- ----------------
Member: 1 Executive Committee
2 Audit Committee
3 Trustee Nominating Committee
4 Board Operations Committee
27
<PAGE>
Executive Officers
William C. Morris
Chairman
Brian T. Zino
President
Thomas G. Moles
Vice President
Lawrence P. Vogel
Vice President
Thomas G. Rose
Treasurer
Frank J. Nasta
Secretary
FOR MORE INFORMATION
Manager
J. & W. Seligman & Co.
Incorporated
100 Park Avenue
New York, NY 10017
General Counsel
Sullivan & Cromwell
Independent Auditors
Deloitte & Touche LLP
General Distributor
Seligman Advisors, Inc.
100 Park Avenue
New York, NY 10017
Shareholder Service Agent
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
Important Telephone Numbers
(800) 221-2450 Shareholder
Services
(212) 682-7600 Outside the
United States
(800) 622-4597 24-Hour
Automated
Telephone
Access Service
28
<PAGE>
Glossary of Financial Terms
Capital Gain Distribution -- A payment to mutual fund shareholders of profits
realized on the sale of securities in a fund's portfolio.
Capital Appreciation/Depreciation -- An increase or decrease in the market value
of a mutual fund's portfolio securities, which is reflected in the net asset
value of the fund's shares. Capital appreciation/depreciation of an individual
security is in relation to the original purchase price.
Compounding -- The change in the value of an investment as shareholders receive
earnings on their investment's earnings. For example, if $1,000 is invested at a
fixed rate of 7% a year, the initial investment is worth $1,070 after one year.
If the return is compounded, second year earnings will not be based on the
original $1,000, but on the $1,070, which includes the first year's earnings.
Contingent Deferred Sales Charge (CDSC) -- Depending on the class of shares
owned, a fee charged by a mutual fund when shares are sold back to the fund (the
CDSC expires after a fixed time period).
Dividend -- A payment by a mutual fund, usually derived from the fund's net
investment income (dividends and interest less expenses).
Dividend Yield -- A measurement of a fund's dividend as a percentage of the
maximum offering price or net asset value.
Expense Ratio -- The cost of doing business for a mutual fund, expressed as a
percent of the fund's net assets.
Investment Objective -- The shared investment goal of a fund and its
shareholders.
Management Fee -- The amount paid by a mutual fund to its investment advisor(s).
Multiple Classes of Shares -- Although an individual mutual fund invests in only
one portfolio of securities, it may offer investors several purchase options
which are "classes" of shares. Multiple classes permit shareholders to choose
the fee structure that best meets their needs and goals. Generally, each class
will differ in terms of how and when sales charges and certain fees are
assessed.
National Association of Securities Dealers, Inc. (NASD) -- A self-regulatory
body with authority over firms that distribute mutual funds.
Net Asset Value (NAV) Per Share -- The market worth of one fund share, obtained
by adding a mutual fund's total assets (securities, cash, and any accrued
earnings), subtracting liabilities, and dividing the resulting net assets by the
number of shares outstanding.
Offering Price -- The price at which a mutual fund's share can be purchased. The
offering price per share is the current net asset value plus any sales charge.
Portfolio Turnover -- A measure of the trading activity in a mutual fund's
investment portfolio that reflects how often securities are bought and sold.
Prospectus -- The legal document describing a mutual fund to all prospective
shareholders. It contains information required by the Securities and Exchange
Commission (SEC), such as a fund's investment objective and policies, services,
investment restrictions, how shares are bought and sold, fund fees and other
charges, and the fund's financial highlights.
SEC Yield -- SEC Yield refers to the net income earned by a fund during a recent
30-day period. This income is annualized and then divided by the maximum
offering price per share on the last day of the 30-day period. The SEC Yield
formula reflects semiannual compounding.
Securities and Exchange Commission -- The primary US federal agency that
regulates the registration and distribution of mutual fund shares.
Statement of Additional Information -- A document that contains more detailed
information about an investment company and that supplements the prospectus. It
is available at no charge upon request.
Total Return -- A measure of a fund's performance encompassing all elements of
return. Reflects the change in share price over a given period and assumes all
distributions are taken in additional fund shares. The Average Annual Total
Return represents the average annual compounded rate of return for the periods
presented.
Yield on Securities -- For bonds, the current yield is the coupon rate of
interest, divided by the purchase price. For stocks, the yield is measured by
dividing dividends paid by the market price of the stock.
- ------------
Adapted from the Investment Company Institute's 1998 Mutual Fund Fact Book.
29
<PAGE>
This report is intended only for the information of shareholders or those who
have received the offering prospectus covering shares of Beneficial Interest of
Seligman Municipal Series Trust, which contains information about the sales
charges, management fee, and other costs. Please read the prospectus carefully
before investing or sending money.
SELIGMAN ADVISORS, INC.
an affiliate of
J. & W. Seligman & Co.
INCORPORATED
ESTABLISHED 1861
100 Park Avenue, New York, NY 10017
Printed on Recycled Paper
TEB3 3/99
<PAGE>
SELIGMAN
---------------
MUNICIPAL
SERIES TRUST
ANNUAL REPORT
SEPTEMBER 30, 1998
---------
Providing Income
Exempt From Regular
Income Tax
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
<PAGE>
Seligman -- Times Change...Values Endure
J. & W. Seligman & Co. Incorporated is a firm with a long tradition of
investment expertise, offering a broad array of investment choices to help
today's investors seek their long-term financial goals.
Times Change...
Established in 1864, Seligman's history of providing financial services has been
marked not by fanfare, but rather by a quiet and firm adherence to financial
prudence. While the world has changed dramatically in the 134 years since
Seligman first opened its doors, the firm has continued to offer its clients
high-quality investment solutions through changing times.
In the late 19th century, as the country grew, Seligman helped finance the
westward expansion of the railroads, the construction of the Panama Canal, and
the launching of urban transit systems. In the first part of the 20th century,
as America became an industrial power, the firm helped fund the growing capital
needs of the nascent automobile and steel industries.
With the formation of Tri-Continental Corporation in 1929 -- today, the nation's
largest diversified publicly-traded closed-end investment company -- Seligman
began shifting its emphasis from investment banking to investment management.
Despite the stock market crash and ensuing depression, Seligman was convinced of
the importance that investment companies could have in building wealth for
individual investors and launched its first mutual fund in 1930.
In the decades that followed, Seligman has continued to offer forward-looking
investment solutions, including funds that focus on technology stocks, municipal
bonds, and international securities.
...Values Endure
Seligman is proud of its distinctive past and of the traditional values that
continue to shape the firm's business decisions and investment judgment. While
much has changed over the years, the firm's commitment to providing prudent
investment management that seeks to build wealth for clients over time is an
enduring value that will guide Seligman into the new millennium.
Table of Contents
To the Shareholders.....................................1
Interview With Your Portfolio Manager...................2
Performance Overview and
Portfolio Summary....................................4
Portfolios of Investments...............................8
Statements of Assets and Liabilities...................14
Statements of Operations...............................15
Statements of Changes in Net Assets....................16
Notes to Financial Statements..........................18
Financial Highlights...................................21
Report of Independent Auditors.........................25
Trustees...............................................26
Executive Officers and For More Information............27
Glossary of Financial Terms............................28
<PAGE>
To The Shareholders
Seligman Municipal Series Trust posted strong results for its fiscal year ended
September 30, 1998. Although the growth of the US economy slowed from its record
pace, the expansion continued. Inflation and interest rates reached their lowest
levels in a quarter century, and unemployment was at its lowest level since
1970.
Despite ongoing strength in the US, economic turmoil spread throughout the rest
of the world. The Asian financial crisis worsened, Japan failed to resolve its
banking problems, Russia's economy became chaotic, and economic crises loomed
throughout much of Latin America, particularly in Brazil. Fears of risk in
nearly all types of financial assets drove investors out of the equity markets
and into the relative safety and quality of investments such as US Treasury
bonds, often a haven from a turbulent stock market. This "flight to quality"
helped create an attractive environment for municipal bonds.
Major factors influencing the market for municipal bonds over the year were the
prolonged US Treasury bond rally and heavy issuance of municipal securities.
Municipal bond holders fared well as interest rates generally declined over this
time period. Nonetheless, the performance of the municipal market lagged that of
the Treasury bond market, as investors focused on quality because of concerns
about financial instability. Treasury bond prices rose sharply over the 12-month
period, sending yields significantly lower. At one point in the period, selected
municipal obligations traded at the same yield as Treasuries, even though
municipals offered more favorable tax treatment. Currently, long-term municipal
bonds have not been this attractive, relative to long-term Treasuries, since
1986, when proposed legislation threatened the tax-exempt status of municipal
securities.
Looking ahead, we see the favorable climate for municipal bonds continuing. Low
inflation and a growing economy should serve to protect the value of municipal
investments. Fewer new issues may be entering the market, which could tighten
the supply/demand balance. This could improve overall total rate-of-return
prospects. Also, although the US economy continues to grow, this growth is
slowing, and the global situation is forcing the Federal Reserve into a more
benign strategy on interest rates. The Fed has already cut short-term rates
twice, and we expect more cuts until a semblance of international stability
emerges. Finally, the municipal market's record of safety and stability offers
further appeal to investors in these more troubled times, especially as equity
market volatility continues.
All in all, we feel the investment attractiveness of municipals remains
compelling. In this period of global economic uncertainty and low interest
rates, municipals are an appropriate alternative for those investors with
suitable investment requirements.
As you may know, companies are modifying their computer systems to recognize
dates of January 1, 2000, and beyond. This is often referred to as the "Y2K"
problem. Unless systems are updated, many applications may interpret the last
two digits of the year to mean 1900 instead of 2000. J. & W. Seligman & Co.
Incorporated, the Seligman Investment Companies, and Seligman Data Corp., your
shareholder service agent, have jointly established a team to ensure that your
investment and shareholder services are not disrupted. This team is supported by
consulting firms specializing in Y2K solutions. Substantial work has been
performed to date, and we are confident that when our plans are finalized and
all systems are tested, there will be no disruption in the services provided by
your Trust.
Thank you for your continued support of Seligman Municipal Series Trust. We look
forward to serving your investment needs in the many years to come. A discussion
with your Portfolio Manager, performance overviews, portfolio holdings, and
finanical statements follow this letter. By order of the Trustees,
/s/ William C. Morris
- ---------------------
William C. Morris
Chairman
/s/ Brian T. Zino
------------------
Brian T. Zino
President
October 30, 1998
1
<PAGE>
Interview With Your Portfolio Manager,
Thomas G. Moles
Q. What economic factors influenced Seligman Municipal Series Trust in the
last 12 months?
A. The continuing combination of low inflation, low unemployment, and steady
economic growth throughout the past 12 months sustained what became one of
the nation's longest peacetime economic expansions. This contributed to the
overall improvement of the financial condition of America's states, cities,
and municipalities. Over the past year, credit rating upgrades
significantly outnumbered rating downgrades. These upgrades enhanced the
overall creditworthiness of the municipal marketplace. But, by the end of
your Trust's fiscal year, there was widespread expectation that the US may
be unable to avoid the economic slowdown that has already gripped much of
the world. While many economists were calling a recession unlikely, the
fact that they were including its potential in their forecasts implied that
the ongoing domestic economic expansion would not continue. In the final
months of the fiscal year, turmoil in world markets began to contribute to
a modest slowdown in the pace of US economic growth, and prevented an
acceleration in the rate of inflation. In September, the Federal Reserve
Board lowered the federal funds rate by one-quarter of one percent. With a
warning that growing fear among investors and lenders was threatening the
nation's economic expansion, the Fed unexpectedly cut interest rates again
in October, the first time in four and a half years that the central bank
had changed interest-rate policy outside one of its normally scheduled
meetings. This unusual timing suggested that the Fed believed that the
domestic economy is beginning to deteriorate as the worldwide financial
crisis gains momentum, and that a credit shortage may be developing that
could further curb growth. Fed officials have hinted that more
interest-rate reductions will ensue if the global financial turmoil
escalates. Declining US equity markets reflected these fears, as investors
sold stocks in favor of the relative safety and quality of US Treasury
bonds, which are often considered a haven from a volatile stock market.
Q. What market factors influenced Seligman Municipal Series Trust in the last
12 months?
A. Overall, Seligman Municipal Series Trust ended its fiscal year on a
positive note. During the period, long-term municipal yields fluctuated
within a narrow range, decreasing by almost one-half of a point. The
declining interest-rate environment led to rising prices for the majority
of holdings and competitive performance results for each Series' net asset
value.
However, the municipal market underperformed the US Treasury market during
the 12-month period. The ongoing strength in the economy over the year
caused the supply of Treasury bonds to shrink, as the federal government
needed to borrow less after running its first budget surplus in 29 years.
But, the solid economy and low interest rates caused the supply of
A TEAM APPROACH
Seligman Municipal Series Trust is managed by the Seligman Municipals Team,
headed by Thomas G. Moles. Mr. Moles is assisted in the management of the Trust
by a group of seasoned professionals who are responsible for research and
trading consistent with the Trust's investment objective.
[Photo]
Seligman Municipals Team: (from left) Audrey Kuchtyak, Theresa Barion, Debra
McGuinness, (seated) Eileen Comerford, Thomas G. Moles
(Portfolio Manager)
2
<PAGE>
Interview With Your Portfolio Manager,
Thomas G. Moles
municipal bonds to grow. The net reduction in Treasury financing and the
increasing municipal bond issuance was compounded by the increased investor
demand for Treasuries. These factors caused the decline in Treasury yields
to significantly outpace the drop in municipal yields. Because of these
factors, long-term municipal bonds have not been as attractive, relative to
long-term Treasuries, since 1986, when proposed tax legislation threatened
the tax-exempt status of municipal securities.
Q. What was your investment strategy?
A. Throughout the 12-month period, the long-term interest-rate outlook was
positive, and Seligman Municipal Series Trust was positioned to benefit
from the declining interest-rate environment. The Seligman Municipals Team
engaged in duration-extension trades, selling shorter-term holdings and
replacing them with long-term, current-coupon bonds. Current-coupon bonds
have coupon rates that are at or near current market rates. Generally, when
long-term bond yields decline, the prices appreciate more than those of
shorter-term bonds.
During the past 12 months, we also improved the call protection of the
portfolios. As our bonds mature, older holdings approach their optional
call dates (a callable bond can be redeemed by the issuer, prior to
maturity, on specified dates and at predetermined prices). Declining
interest rates increase the risk that these bonds will be called by the
issuer. The lower interest-rate environment over the 12-month period
prompted many municipal issuers to retire outstanding, higher-coupon debt.
Additionally, as a direct result of the significant increase in refunding
volume, many of the portfolio's holdings were advance-refunded, which had a
positive impact on performance. In general, when a municipal bond is
refunded, total return performance is improved, and the bond's rating is
often upgraded.
Q. What is your outlook?
A. Long-term municipal yields have fallen to levels not seen in many years.
Municipal securities continue to offer a significant yield advantage
compared to the after-tax returns of other fixed-income investments.
Further, as the yield spread between municipal and Treasury bonds
normalizes, municipal market performance should improve, relative to the
Treasury market. Finally, the municipal market's record of safety and
stability may become more appealing as volatility persists in the US equity
markets. Consequently, we remain optimistic about the long-term prospects
for the municipal bond market, and for Seligman Municipal Series Trust.
3
<PAGE>
Performance Overview And Portfolo Summary
The following charts compare a $10,000 hypothetical investment made in each
Series of Seligman Municipal Series Trust Class A shares, with and without the
initial 4.75% maximum sales charge, for the 10-year or since-inception (where
applicable) periods ended September 30, 1998, to a $10,000 hypothetical
investment made in the Lehman Brothers Municipal Bond Index (Lehman Index) for
the same periods. The performance of each Series of Seligman Municipal Series
Trust Class D shares is not shown in the charts but is included in the table
below each chart. It is important to keep in mind that the Lehman Index does not
include any fees or sales charges and does not reflect state-specific bond
market performance. The table below each chart also includes relevant portfolio
characteristics for each Series.
SELIGMAN CALIFORNIA MUNICIPAL HIGH-YIELD SERIES
With Sales Charge Without Sales Charge Lehman Index
9/30/88 9,529 10,000 10,000
12/31/88 9,847 10,334 10,185
3/31/89 9,952 10,444 10,252
6/30/89 10,414 10,929 10,859
9/30/89 10,444 10,961 10,867
12/31/89 10,760 11,292 11,284
3/31/90 10,856 11,393 11,335
6/30/90 11,090 11,638 11,600
9/30/90 11,026 11,571 11,607
12/31/90 11,406 11,970 12,107
3/31/91 11,668 12,245 12,381
6/30/91 11,920 12,510 12,645
9/30/91 12,407 13,021 13,136
12/31/91 12,602 13,225 13,578
3/31/92 12,782 13,414 13,619
6/30/92 13,241 13,895 14,136
9/30/92 13,524 14,192 14,511
12/31/92 13,803 14,486 14,775
3/31/93 14,204 14,906 15,323
6/30/93 14,614 15,337 15,824
9/30/93 14,966 15,706 16,359
12/31/93 15,171 15,921 16,588
3/31/94 14,821 15,554 15,677
6/30/94 14,905 15,642 15,851
9/30/94 15,027 15,770 15,959
12/31/94 14,747 15,477 15,729
3/31/95 15,703 16,479 16,841
6/30/95 16,004 16,795 17,247
9/30/95 16,357 17,166 17,744
12/31/95 16,894 17,729 18,475
3/31/96 16,739 17,566 18,251
6/30/96 16,971 17,811 18,392
9/30/96 17,418 18,279 18,815
12/31/96 17,827 18,708 19,295
3/31/97 17,755 18,633 19,250
6/30/97 18,361 19,269 19,914
9/30/97 18,941 19,878 20,516
12/31/97 19381 20340 21072
3/31/98 19641 20612 21314
6/30/98 19970 20957 21638
9/30/98 20542 21558 22302
The performance of Class D shares will be greater than or less than the
performance shown for Class A shares, based on the differences in sales charges
and fees paid by shareholders.
Investment Results per Share
TOTAL RETURNS
For Periods Ended September 30, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS D
SINCE
SIX ONE FIVE 10 INCEPTION
MONTHS* YEAR YEARS YEARS 2/1/94
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (0.35)% 3.30% 5.49% 7.46% n/a
Without Sales Charge 4.59 8.45 6.54 7.98 n/a
Class D**
With 1% CDSC 2.96 6.47 n/a n/a n/a
Without CDSC 3.96 7.47 n/a n/a 5.48%
Lehman Index*** 4.64 8.71 6.40 8.35 6.29++
</TABLE>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended September 30, 1998
<TABLE>
<CAPTION>
9/30/98 3/31/98 9/30/97 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
------- -------- ------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $6.80 $6.66 $6.61 Class A $0.320 $0.032 3.94%
Class D 6.80 6.67 6.61 Class D 0.260 0.032 3.25
<CAPTION>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
<S> <C> <C> <C> <C> <C>
Revenue Bonds 85% Aaa/AAA 14% Baa/BBB 25%
General Obligation Bonds 15 Aa/AA 6 Non-Rated 3
A/A 52
WEIGHTED AVERAGE MATURITY 22.0 years
</TABLE>
- ------------
See footnotes on page 7.
4
<PAGE>
PERFORMANCE OVERVIEW AND PORTFOLIO SUMMARY
SELIGMAN CALIFORNIA MUNICIPAL QUALITY SERIES
With Sales Charge Without Sales Charge Lehman Index
9/30/88 9,530 10,000 10,000
12/31/88 9,880 10,367 10,185
3/31/89 9,948 10,438 10,252
6/30/89 10,557 11,077 10,859
9/30/89 10,470 10,986 10,867
12/31/89 10,845 11,379 11,284
3/31/90 10,832 11,366 11,335
6/30/90 11,106 11,653 11,600
9/30/90 10,912 11,450 11,607
12/31/90 11,557 12,126 12,107
3/31/91 11,751 12,330 12,381
6/30/91 11,974 12,564 12,645
9/30/91 12,478 13,093 13,136
12/31/91 12,853 13,487 13,578
3/31/92 12,833 13,465 13,619
6/30/92 13,398 14,058 14,136
9/30/92 13,670 14,344 14,511
12/31/92 13,944 14,632 14,775
3/31/93 14,608 15,328 15,323
6/30/93 15,055 15,797 15,824
9/30/93 15,573 16,341 16,359
12/31/93 15,702 16,476 16,588
3/31/94 14,662 15,384 15,677
6/30/94 14,685 15,409 15,851
9/30/94 14,723 15,449 15,959
12/31/94 14,399 15,109 15,729
3/31/95 15,691 16,464 16,841
6/30/95 15,896 16,679 17,247
9/30/95 16,320 17,124 17,744
12/31/95 17,249 18,099 18,475
3/31/96 16,886 17,718 18,251
6/30/96 17,058 17,899 18,392
9/30/96 17,463 18,323 18,815
12/31/96 17,924 18,807 19,295
3/31/97 17,802 18,670 19,250
6/30/97 18,406 19,313 19,914
9/30/97 19,013 19,950 20,516
12/31/97 19501 20462 21072
3/31/98 19675 20645 21314
6/30/98 19997 20982 21638
9/30/98 20661 21679 22302
The performance of Class D shares will be greater than or less than the
performance shown for Class A shares, based on the differences in sales charges
and fees paid by shareholders.
Investment Results per Share
TOTAL RETURNS
For Periods Ended September 30, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS D
SINCE
SIX ONE FIVE 10 INCEPTION
MONTHS* YEAR YEARS YEARS 2/1/94
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge 0.03% 3.49% 4.80% 7.53% n/a
Without Sales Charge 5.01 8.67 5.82 8.04 n/a
Class D**
With 1% CDSC 3.54 6.71 n/a n/a n/a
Without CDSC 4.54 7.71 n/a n/a 4.77%
Lehman Index*** 4.64 8.71 6.40 8.35 6.29++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended September 30, 1998
9/30/98 3/31/98 9/30/97 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
------- -------- ------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $7.21 $7.03 $6.99 Class A $0.334 $0.033 3.74%
Class D 7.19 7.01 6.97 Class D 0.270 0.033 3.06
<CAPTION>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
<S> <C> <C> <C>
Revenue Bonds 86% Aaa/AAA 71%
General Obligation Bonds 14 Aa/AA 16
A/A 13
WEIGHTED AVERAGE MATURITY 21.6 years
</TABLE>
- ----------
See footnotes on page 7.
5
<PAGE>
PERFORMANCE OVERVIEW AND PORTFOLIO SUMMARY
SELIGMAN FLORIDA MUNICIPAL SERIES
With Sales Charge Without Sales Charge Lehman Index
9/30/88 9,531 10,000 10,000
12/31/88 9,926 10,414 10,185
3/31/89 9,987 10,478 10,252
6/30/89 10,735 11,263 10,859
9/30/89 10,606 11,128 10,867
12/31/89 11,053 11,597 11,284
3/31/90 11,029 11,571 11,335
6/30/90 11,317 11,874 11,600
9/30/90 11,161 11,710 11,607
12/31/90 11,766 12,345 12,107
3/31/91 11,990 12,579 12,381
6/30/91 12,236 12,838 12,645
9/30/91 12,657 13,279 13,136
12/31/91 13,015 13,655 13,578
3/31/92 13,047 13,689 13,619
6/30/92 13,562 14,229 14,136
9/30/92 13,827 14,507 14,511
12/31/92 14,196 14,895 14,775
3/31/93 14,725 15,449 15,323
6/30/93 15,363 16,118 15,824
9/30/93 15,930 16,713 16,359
12/31/93 16,116 16,908 16,588
3/31/94 15,151 15,896 15,677
6/30/94 15,269 16,020 15,851
9/30/94 15,295 16,047 15,959
12/31/94 15,226 15,975 15,729
3/31/95 16,292 17,093 16,841
6/30/95 16,550 17,363 17,247
9/30/95 16,957 17,791 17,744
12/31/95 17,765 18,639 18,475
3/31/96 17,364 18,218 18,251
6/30/96 17,493 18,354 18,392
9/30/96 17,898 18,778 18,815
12/31/96 18,256 19,154 19,295
3/31/97 18,011 18,897 19,250
6/30/97 18,719 19,640 19,914
9/30/97 19,331 20,282 20,516
12/31/97 19960 20941 21072
3/31/98 20153 21144 21314
6/30/98 20458 21465 21638
9/30/98 21102 22140 22302
The performance of Class D shares will be greater than or less than the
performance shown for Class A shares, based on the differences in sales charges
and fees paid by shareholders.
Investment Results per Share
TOTAL RETURNS
For Periods Ended September 30, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS D
SINCE
SIX ONE FIVE 10 INCEPTION
MONTHS* YEAR YEARS YEARS 2/1/94
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (0.22)% 3.97% 4.76% 7.75% n/a
Without Sales Charge 4.71 9.16 5.79 8.27 n/a
Class D**
With 1% CDSC 3.29 7.32 n/a n/a n/a
Without CDSC 4.29 8.32 n/a n/a 4.90%
Lehman Index*** 4.64 8.71 6.40 8.35 6.29++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended September 30, 1998
9/30/98 3/31/98 9/30/97 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
------- -------- ------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $8.07 $7.88 $7.80 Class A $0.351 $0.072 3.74%
Class D 8.08 7.89 7.81 Class D 0.291 0.072 3.15
<CAPTION>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
<S> <C> <C> <C>
Revenue Bonds 87% Aaa/AAA 65%
General Obligation Bonds 13 Aa/AA 28
A/A 5
Baa/BBB 2
WEIGHTED AVERAGE MATURITY 24.6 years
</TABLE>
- -----------
See footnotes on page 7.
6
<PAGE>
PERFORMANCE OVERVIEW AND PORTFOLIO SUMMARY
SELIGMAN NORTH CAROLINA MUNICIPAL SERIES
With Sales Charge Without Sales Charge Lehman Index
8/27/90 9,520 10,000 10,000
9/30/90 9,387 9,860 10,006
12/31/90 9784 10277 10437
3/31/91 9982 10485 10673
6/30/91 10083 10591 10900
9/30/91 10510 11040 11325
12/31/91 10824 11370 11705
3/31/92 10779 11323 11740
6/30/92 11212 11777 12186
9/30/92 11479 12058 12509
12/31/92 11706 12297 12737
3/31/93 12197 12812 13209
6/30/93 12631 13268 13641
9/30/93 13139 13801 14102
12/31/93 13226 13893 14300
3/31/94 12335 12957 13515
6/30/94 12372 12996 13665
9/30/94 12377 13001 13768
12/31/94 12254 12872 13560
3/31/95 13323 13994 14518
6/30/95 13563 14247 14868
9/30/95 13852 14551 15296
12/31/95 14651 15390 15927
3/31/96 14255 14973 15734
6/30/96 14394 15120 15855
9/30/96 14738 15481 16220
12/31/96 15049 15807 16633
3/31/97 14993 15749 16595
6/30/97 15483 16264 17168
9/30/97 15918 16720 17686
12/31/97 16365 17190 18165
3/31/98 16504 17336 18374
6/30/98 16792 17638 18653
9/30/98 17287 18158 19226
The performance of Class D shares will be greater than or less than the
performance shown for Class A shares, based on the differences in sales charges
and fees paid by shareholders.
Investment Results per Share
TOTAL RETURNS
For Periods Ended September 30, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------------------------------------
CLASS A CLASS D
SINCE SINCE
SIX ONE FIVE INCEPTION INCEPTION
MONTHS* YEAR YEARS 8/27/90 00 2/1/94
--------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Class A**
With Sales Charge (0.19)% 3.46% 4.62% 6.99% n/a
Without Sales Charge 4.74 8.60 5.64 7.64 n/a
Class D**
With 1% CDSC 3.34 6.77 n/a n/a n/a
Without CDSC 4.34 7.77 n/a n/a 4.83%
Lehman Index*** 4.64 8.71 6.40 8.42+ 6.29++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended September 30, 1998
9/30/98 3/31/98 9/30/97 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
--------- -------- ------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $8.30 $8.10 $8.05 Class A $0.358 $0.064 3.54%
Class D 8.30 8.10 8.05 Class D 0.295 0.064 2.97
<CAPTION>
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
<S> <C> <C> <C>
Revenue Bonds 77% Aaa/AAA 45%
General Obligation Bonds 23 Aa/AA 38
A/A 17
WEIGHTED AVERAGE MATURITY 20.0 years
</TABLE>
- -----------
* Returns for periods of less than one year are not annualized.
** Return figures reflect any change in price and assume all distributions
within the period are invested in additional shares. Returns for Class A
shares are calculated with and without the effect of the initial 4.75%
maximum sales charge. Returns for Class D shares are calculated with and
without the effect of the 1% contingent deferred sales charge ("CDSC"),
charged on redemptions made within one year of the date of purchase. No
adjustment was made to the performance of Class A shares for periods prior
to commencement dates December 27, 1990, in the case of the Florida Series,
and January 1, 1993, in the case of the California High-Yield and
California Quality Series, for the annual Administration, Shareholder
Services and Distribution Plan fee of up to 0.25% of average daily net
assets for each Series. 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. A portion of each Series' income may
be subject to applicable state and local taxes, and any amount may be
subject to the federal alternative minimum tax. Past performance is not
indicative of future investment results.
*** The Lehman Index is an unmanaged index that does not include any fees or
sales charges and does not reflect state-specific bond market performance.
Investors cannot invest directly in an index.
0 Percentages based on market values of long-term holdings at September 30,
1998.
00 At its discretion, the Manager waived all or a portion of its fees and, in
some cases, reimbursed certain expenses for the North Carolina Series. This
has the effect of increasing the Series' average annual total returns for
the since-inception period.
++ From 1/31/94.
+ From 8/31/90.
++ Represents per share amount paid or declared for the year ended September
30, 1998.
+++ Current yield, representing the annualized yield for the 30-day period
ended September 30, 1998, has been computed in accordance with SEC
regulations and will vary.
7
<PAGE>
Portfolio of Investments
September 30, 1998
CALIFORNIA HIGH-YIELD SERIES
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$2,500,000 Alameda, CA Certificates of Participation (City Hall Seismic
Upgrade Project), 6.20% due 5/1/2025................................... NR/A $ 2,689,075
1,000,000 California Department of Veterans' Affairs Rev. (Home Purchase),
5 1/2% due 12/1/2018*.................................................. Aa3/A+ 1,036,250
2,190,000 California Department of Water Resources Water System Rev.
Central Valley Project), 6% due 12/1/2020.............................. Aa2/AA 2,334,606
500,000 California Educational Facilities Authority Rev. (Los Angeles College
of Chiropractic Medicine), 5.60% due 11/1/2017........................ Baa2/NR 525,270
2,500,000 California Educational Facilities Authority Rev. (Loyola Marymount
University), 5 3/4% due 10/1/2024...................................... A1/NR 2,667,225
2,500,000 California Health Facilities Financing Authority Rev. (Cedars-Sinai
Medical Center), 5 1/4% due 8/1/2027................................... Aaa/AAA 2,560,025
2,500,000 California Health Facilities Financing Authority Rev. (Kaiser Permanente),
5.40% due 5/1/2028.................................................... A3/A 2,580,350
1,500,000 California Housing Finance Agency Home Mortgage Rev.,
6 3/8% due 8/1/2027*................................................... Aa2/AA- 1,617,465
2,500,000 California Housing Finance Agency (Single Family Mortgage),
5.40% due 8/1/2028*.................................................... Aaa/AAA 2,537,950
2,500,000 California Pollution Control Financing Authority Rev. (San Diego
Gas & Electric Co.), 5.85% due 6/1/2021*............................... A1/A+ 2,603,250
1,750,000 California Pollution Control Financing Authority Rev. (Pacific Gas &
Electric Co.), 5 7/8% due 6/1/2023*.................................... A1/AA- 1,851,045
1,000,000 California Pollution Control Financing Authority Rev. (Pacific Gas &
Electric Co.), 5.85% due 12/1/2023*.................................... A1/AA- 1,056,770
2,000,000 California State GOs, 5 1/4% due 10/1/2019................................. A1/A+ 2,049,000
2,500,000 Cupertino, CA Certificates of Participation (Capital Improvement Projects),
5 3/4% due 1/1/2016.................................................... A1/A+ 2,632,300
3,000,000 Foothill/Eastern Transportation Corridor Agency, CA Toll Road Rev.,
6% due 1/1/2034........................................................ Baa/BBB- 3,238,500
1,300,000 Los Angeles, CA Wastewater System Rev., 7.10% due 6/1/2018................. A1/A+ 1,353,794
1,000,000 Oxnard Union High School District, CA Certificates of Participation
(Union High School), 7.70% due 11/1/2019............................... NR/NR 1,066,160
675,000 Petaluma, CA Community Development Commission Tax Allocation Bonds
(Central Business District), 9.30% due 5/15/2010....................... Baa1/NR 678,213
2,030,000 Pleasanton, CA Joint Powers Financing Authority Reassessment Rev.,
6.15% due 9/2/2012..................................................... Baa1/NR 2,198,632
4,000,000 Puerto Rico Highway & Transportation Authority Rev., 5 1/2% due 7/1/2036... Baa1/A 4,361,840
</TABLE>
8
<PAGE>
Portfolio of Investments
September 30, 1998
CALIFORNIA HIGH-YIELD SERIES (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$3,000,000 San Bernardino, CAJoint Powers Financing Authority (California Dept. of
Transportation Lease), 5 1/2% due 12/1/2020............................. A/A $3,129,210
2,500,000 San Joaquin Hills, CA Transportation Corridor Agency Rev. (Orange County
Toll Road), 5 1/2% due 1/15/2028........................................ Baa3/BBB- 2,591,250
3,000,000 San Joaquin Hills, CA Transportation Corridor Agency Rev. (Orange County
Senior Lien Toll Road), 6 3/4% due 1/1/2032............................. Aaa/AAA 3,423,450
2,500,000 Santa Barbara, CA Certificates of Participation, 5.70% due 3/1/2011......... A1/A+ 2,700,000
1,000,000 Santa Clara, CA Improvement Bonds Project No. 186 (Santa Clara
Convention Center Complex), 7.10% due 9/2/2011.......................... NR/NR 1,036,590
1,000,000 Southern California Public Power Authority Power Project Rev.
(Multiple Projects), 6% due 7/1/2018................................... A/A 1,025,950
730,000 Stanislaus, CA Waste-to-Energy Financing Agency Solid Waste Facility Rev.
(Ogden Martin System of Stanislaus, Inc. Project), 7 1/2% due 1/1/2005.. NR/BBB+ 767,851
1,180,000 Stanislaus, CA Waste-to-Energy Financing Agency Solid Waste Facility Rev.
(Ogden Martin System of Stanislaus, Inc. Project), 7 5/8% due 1/1/2010.. NR/BBB+ 1,244,699
2,500,000 Washington Township, CA Hospital District Hospital Healthcare System Rev.,
5 1/2% due 7/1/2018..................................................... A2/NR 2,570,675
2,230,000 West Covina, CA Certificates of Participation (Queen of the Valley Hospital),
6 1/2% due 8/15/2024.................................................... A2/NR 2,592,843
-----------
TOTAL MUNICIPAL BONDS (Cost $57,975,717)-- 96.8%.......................................... 62,720,238
VARIABLE RATE DEMAND NOTES (Cost $1,300,000)-- 2.0%....................................... 1,300,000
OTHER ASSETS LESS LIABILITIES-- 1.2%...................................................... 746,997
-----------
NET ASSETS-- 100.0%....................................................................... $64,767,235
===========
</TABLE>
CALIFORNIA QUALITY SERIES
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$3,000,000 California Department of Water Resources Water System Rev.
(Central Valley Project), 6.10% due 12/1/2029........................... Aaa/AA $3,479,790
2,000,000 California Educational Facilities Authority Rev. (Stanford University),
6 3/4% due 1/1/2013..................................................... Aaa/AAA 2,056,420
1,650,000 California Educational Facilities Authority Rev. (University of Southern
California Project), 5.80% due 10/1/2015................................ Aa3/AA 1,770,780
3,440,000 California Educational Facilities Authority Rev. (Pomona College),
6% due 2/15/2017........................................................ Aaa/AA+ 3,712,930
</TABLE>
9
<PAGE>
Portfolios Of Investments
September 30, 1998
California Quality Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$4,500,000 California Educational Facilities Authority Rev. (California Institute
of Technology), 6% due 1/1/2021........................................ Aaa/AAA $4,685,175
2,000,000 California Educational Facilities Authority Rev. (Stanford University),
5.35% due 6/1/2027..................................................... Aaa/AAA 2,081,020
1,550,000 California Educational Facilities Authority Rev. (University of Southern
California Project), 5 1/8% due 10/1/2028.............................. Aa3/AA 1,566,244
3,000,000 California Health Facilities Financing Authority Rev. (Kaiser Permanente),
6 1/2% due 12/1/2020................................................... A3/A 3,205,770
2,000,000 California Health Facilities Financing Authority Rev. (Stanford Health Care),
5% due 11/15/2028...................................................... Aaa/AAA 2,001,680
5,000 California Housing Finance Agency (Housing Revenue Insured Bonds),
8 3/4% due 8/1/2010.................................................... Aaa/AAA 5,193
425,000 California Housing Finance Agency (Housing Revenue Insured Bonds),
8 5/8% due 8/1/2015.................................................... Aaa/AAA 447,461
2,775,000 California Housing Finance Agency Home Mortgage Rev.,
6 3/4% due 2/1/2025*................................................... Aa2/AA- 2,982,015
4,000,000 California Pollution Control Financing Authority Rev. (Mobil Oil Corporation
Project), 5 1/2% due 12/1/2029*........................................ Aa2/AA 4,164,080
910,000 California Public Capital Improvements Financing Authority
(Pooled Projects), 8.10% due 3/1/2018................................. Aaa/AAA 931,640
3,000,000 California Public Works Board Lease Rev. (Correctional Facilities
Improvements), 5 3/4% due 9/1/2021..................................... A/A 3,192,810
3,000,000 California State GOs, 5% due 10/1/2023..................................... A1/A+ 3,010,080
2,500,000 California Statewide Communities Development Authority Certificates of
Participation (Citrus Valley Health Partners, Inc.), 5 1/8% due 4/1/2023 Aaa/AAA 2,538,025
3,000,000 California Statewide Communities Development Authority Certificates of
Participation (The Trustees of the J. Paul Getty Trust), 5% due 10/1/2023 Aaa/AAA 3,009,810
4,500,000 Contra Costa, CA Water District Rev., 5% due 10/1/2024..................... Aaa/AAA 4,523,580
3,500,000 East Bay, CA Municipal Utility District Water System Rev., 5% due 6/1/2026 Aaa/AAA 3,521,105
2,500,000 Eastern Municipal Water District Riverside County, CA Water and Sewer Rev.,
6 3/4% due 7/1/2012.................................................... Aaa/AAA 3,127,750
3,000,000 Fresno, CA Sewer System Rev., 5 1/4% due 9/1/2019.......................... Aaa/AAA 3,222,270
2,000,000 Marin, CA Municipal Water District Water Rev., 5.65% due 7/1/2023.......... A1/AA 2,103,960
1,000,000 Metropolitan Water District of Southern California Waterworks GOs,
5 3/4% due 3/1/2014.................................................... Aaa/AAA 1,020,710
2,000,000 Metropolitan Water District of Southern California Waterworks GOs,
4 3/4% due 3/1/2037.................................................... Aaa/AAA 1,948,240
</TABLE>
10
<PAGE>
Portfolios Of Investments
September 30, 1998
California Quality Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$3,500,000 Northern California Power Agency Public Power Rev. (Combustion
Turbine Project A-1), 6% due 8/15/2010................................. Aaa/AAA $3,575,425
4,500,000 Orange County, CA Local Transportation Authority (Measure M Sales
Tax Rev.), 6% due 2/15/2009............................................ Aaa/AAA 5,208,165
2,500,000 Rancho, CA Water District Financing Authority Rev., 5.90% due 11/1/2015.... Aaa/AAA 2,782,250
4,000,000 Regents of the University of California Rev. (Multiple Purpose Projects),
5 3/8% due 9/1/2024.................................................... Aaa/AAA 4,203,240
4,250,000 San Francisco Bay Area Rapid Transit District, CA (Sales Tax Rev.),
5% due 7/1/2028........................................................ Aaa/AAA 4,279,750
3,000,000 San Francisco, CA City and County Airports Commission Rev.
(International Airport), 6.60% due 5/1/2024*........................... Aaa/AAA 3,375,420
-----------
TOTAL MUNICIPAL BONDS (Cost $81,151,221)-- 97.7%......................................... 87,732,788
VARIABLE RATE DEMAND NOTES (Cost $1,000,000)-- 1.1%...................................... 1,000,000
OTHER ASSETS LESS LIABILITIES-- 1.2%..................................................... 1,091,154
-----------
NET ASSETS--100.0%....................................................................... $89,823,942
===========
</TABLE>
FLORIDA SERIES
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$1,000,000 Broward County, FL Water & Sewer Utility Rev., 5% due 10/1/2018............. Aaa/AAA $ 1,003,510
1,000,000 Cape Canaveral, FL Hospital District Rev., 5 1/4% due 1/1/2028.............. NR/BBB 998,430
2,000,000 Collier County, FL Water & Sewer Rev., 5 1/4% due 7/1/2021.................. Aaa/AAA 2,044,280
1,000,000 Dade County, FL Aviation Rev., 6 1/8% due 10/1/2020*........................ Aaa/AAA 1,101,630
2,000,000 Dade County, FL Public Improvement GOs, 5 3/4% due 10/1/2016................ Aaa/AAA 2,184,680
2,000,000 Dade County, FL Water & Sewer System Rev., 5 3/4% due 10/1/2022............. Aaa/AAA 2,182,080
945,000 Florida Housing Finance Agency Rev. (General Mortgage),
6.35% due 6/1/2014...................................................... NR/AAA 1,012,180
705,000 Florida Housing Finance Agency Rev. (Single Family Mortgage),
6.55% due 7/1/2014*..................................................... Aaa/AAA 760,300
1,925,000 Florida Housing Finance Agency Rev. (Homeowner Mortgage),
6.20% due 7/1/2027*..................................................... Aa3/AA 2,053,128
2,500,000 Florida Ports Financing Commission Rev. (State Transportation Trust Fund),
5 3/4% due 6/1/2027*.................................................... Aaa/AAA 2,584,975
2,000,000 Florida State Department of Transportation GOs (Right of Way),
5.80% due 7/1/2021...................................................... Aa2/AA+ 2,165,820
2,500,000 Florida State Turnpike Authority Rev., 5 5/8% due 7/1/2025.................. Aaa/AAA 2,661,975
2,000,000 Greater Orlando Aviation Authority, FL Airport Facilities Rev.,
5 3/4% due 10/1/2023*................................................... Aaa/AAA 2,041,920
</TABLE>
- -----------------
+ Ratings have not been audited by Deloitte & Touche LLP.
* Interest income earned from this security is subject to the federal
alternative minimum tax.
See Notes to Financial Statements.
11
<PAGE>
Portfolios Of Investments
September 30, 1998
Florida Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$2,500,000 Hillsborough County, FL Aviation Authority Rev. (Tampa International
Airport), 5 3/8% due 10/1/2023*........................................... Aaa/AAA $ 2,556,300
1,500,000 Jacksonville Electric Authority, FL Rev. (St. John's River Power Park System),
5 3/8% due 10/1/2016...................................................... Aa2/AA 1,578,885
2,000,000 Jacksonville Electric Authority, FL Rev. (Water & Sewer System),
5 5/8% due 10/1/2037...................................................... Aa3/AA- 2,093,820
2,000,000 Jacksonville, FL Sewage & Solid Waste Disposal Facilities Rev.
(Anheuser-Busch Project), 5 7/8% due 2/1/2036*............................ A1/A+ 2,161,040
2,000,000 Jacksonville Health Facilities Authority, FL Hospital Rev. (Charity Obligated
Group--Baptist/St. Vincent's Health System Inc.), 5 1/4% due 8/15/2027.... Aa2/AA+ 2,041,440
1,000,000 Kissimmee Utility Authority, FL Electric System Improvement Rev.,
5 1/4% due 10/1/2018...................................................... Aaa/AAA 1,022,910
1,000,000 Lee County, FL Transportation Facilities Rev., 6% due 10/1/2015............... Aaa/AAA 1,110,280
1,000,000 Osceola County, FL Transportation Rev. (Osceola Parkway Project),
6.10% due 4/1/2017........................................................ Aaa/AAA 1,085,070
1,200,000 Palm Beach County, FL Criminal Justice Facilities Rev., 7 1/4% due 6/1/2011... Aaa/AAA 1,293,840
2,000,000 Polk County, FL Industrial Development Authority Solid Waste Disposal
Facilities Rev. (Tampa Electric Company Project), 5.85% due 12/1/2030*.... Aa2/AA 2,173,220
2,000,000 Reedy Creek Improvement District, FL Utilities Rev., 5 1/8% due 10/1/2019..... Aaa/AAA 2,027,340
1,250,000 Volusia County, FL Educational Facilities Authority Rev. (Embry-Riddle
Aeronautical University Project), 6 5/8% due 10/15/2022................... NR/AAA 1,382,213
-----------
TOTAL MUNICIPAL BONDS (Cost $40,110,884)-- 97.6%............................................ 43,321,266
VARIABLE RATE DEMAND NOTES (Cost $200,000)-- 0.5%........................................... 200,000
OTHER ASSETS LESS LIABILITIES-- 1.9%........................................................ 882,398
-----------
NET ASSETS-- 100.0%......................................................................... $44,403,664
-----------
</TABLE>
NORTH CAROLINA SERIES
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$1,250,000 Appalachian State University, NC Housing & Student 1/2er System Rev.,
5 5/8% due 7/15/2015..................................................... Aaa/AAA $1,329,563
1,250,000 Asheville, NC Water System Rev., 5.70% due 8/1/2025.......................... Aaa/AAA 1,364,987
2,000,000 Charlotte-Mecklenberg Hospital Authority, NC Health Care System Rev.,
5 3/4% due 1/15/2021..................................................... Aa3/AA 2,164,480
1,000,000 Charlotte, NC Certificates of Participation (Charlotte-Mecklenburg Law
Enforcement 1/2er Project), 5 3/8% due 6/1/2013.......................... Aa1/AA 1,048,690
2,000,000 Charlotte, NC Water & Sewer GOs, 5.90% due 2/1/2017.......................... Aaa/AAA 2,228,580
1,000,000 Concord, NC Utilities System Rev., 5% due 12/1/2022.......................... Aaa/AAA 1,003,550
</TABLE>
- -----------------
+ Ratings have not been audited by Deloitte & Touche LLP.
* Interest income earned from this security is subject to the federal
alternative minimum tax.
See Notes to Financial Statements.
12
<PAGE>
Portfolios Of Investments
September 30, 1998
North Carolina Series (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ------------------------------
<S> <C> <C> <C>
$1,500,000 Fayetteville, NC Public Works Commission Rev., 5 1/8% due 3/1/2024.......... Aaa/AAA $ 1,518,675
2,500,000 Martin County Industrial Facilities and Pollution Control Financing
Authority, NC Solid Waste Disposal Rev. (Weyerhaeuser Company
Project), 6% due 11/1/2025*............................................. A2/A 2,665,600
500,000 North Carolina Educational Facilities Financing Authority Rev. (Duke
University Project), 6 3/4% due 10/1/2021............................... Aa1/AA+ 547,270
600,000 North Carolina Housing Finance Agency Rev. (Multi-Family),
5.80% due 7/1/2014...................................................... Aa2/AA 625,452
1,455,000 North Carolina Housing Finance Agency Rev. (Single Family),
6 1/2% due 3/1/2018..................................................... Aa2/AA 1,568,883
250,000 North Carolina Housing Finance Agency Rev. (Multi-Family),
5.90% due 7/1/2026...................................................... Aa2/AA 260,163
1,000,000 North Carolina Medical Care Commission Hospital Rev. (Memorial
Mission Hospital Project), 6% due 10/1/2022............................. Aaa/AAA 1,086,100
2,000,000 North Carolina Medical Care Commission Hospital Rev. (Presbyterian
Health Services Corp. Project), 6% due 10/1/2024........................ Aa3/AA 2,199,120
1,500,000 North Carolina Medical Care Commission Hospital Rev. (First Health
of the Carolinas Project), 5% due 10/1/2028............................. Aa3/AA- 1,486,185
1,500,000 North Carolina Medical Care Commission Hospital Rev. (Gaston Health
Care), 5% due 2/15/2029................................................. A1/A+ 1,467,795
1,500,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev.,
5 3/4% due 1/1/2015..................................................... Aaa/AAA 1,566,420
3,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev.,
5% due 1/1/2020......................................................... Aaa/AAA 3,062,250
1,000,000 Orange, NC Water & Sewer Authority Rev., 5.20% due 7/1/2016................. Aa2/AA 1,025,080
1,500,000 University of North Carolina Charlotte Rev. (Student Activity Center),
5 1/2% due 6/1/2021..................................................... Aaa/AAA 1,590,015
500,000 University of North Carolina Hospitals at Chapel Hill Rev.,
6 3/8% due 2/15/2017.................................................... Aa3/AA 547,365
1,000,000 University of North Carolina Hospitals at Chapel Hill Rev.,
5 1/4% due 2/15/2026.................................................... Aa3/AA 1,021,470
1,550,000 Wake County Industrial Facilities & Pollution Control Financing Authority,
NC (Carolina Power & Light), 6.90% due 4/1/2009......................... A2/A 1,641,558
-----------
TOTAL MUNICIPAL BONDS (Cost $30,569,108)-- 97.6%.......................................... 33,019,251
VARIABLE RATE DEMAND NOTES (Cost $200,000)-- 0.6%......................................... 200,000
OTHER ASSETS LESS LIABILITIES-- 1.8%...................................................... 594,889
-----------
NET ASSETS--100.0%........................................................................ $33,814,140
===========
</TABLE>
- -----------------
+ Ratings have not been audited by Deloitte & Touche LLP.
* Interest income earned from this security is subject to the federal
alternative minimum tax.
See Notes to Financial Statements.
13
<PAGE>
Statements of Assets and Liabilities
September 30, 1998
<TABLE>
<CAPTION>
CALIFORNIA CALIFORNIA NORTH
HIGH-YIELD QUALITY FLORIDA CAROLINA
SERIES SERIES SERIES SERIES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (see Portfolios of Investments):
Long-term holdings....................... $ 62,720,238 $87,732,788 $43,321,266 $33,019,251
Short-term holdings...................... 1,300,000 1,000,000 200,000 200,000
-------------- ------------- --------------- --------------
64,020,238 88,732,788 43,521,266 33,219,251
Cash........................................ 78,933 147,638 108,980 124,263
Interest receivable......................... 948,192 1,385,934 880,740 527,791
Receivable for Shares of Beneficial
Interest sold........................... 14,911 8,000 -- 57,677
Expenses prepaid to shareholder
service agent........................... 7,859 10,610 5,502 4,716
Receivable for securities sold............. -- -- 56,164 --
Other...................................... 854 1,195 600 455
-------------- ------------- --------------- --------------
Total Assets............................... 65,070,987 90,286,165 44,573,252 33,934,153
-------------- ------------- --------------- --------------
LIABILITIES:
Dividends payable.......................... 106,692 145,863 67,338 50,927
Payable for Shares of Beneficial Interest
repurchased............................. 95,451 201,668 20,751 3,929
Accrued expenses, taxes, and other......... 101,609 114,692 81,499 65,157
-------------- ------------- --------------- --------------
Total Liabilities.......................... 303,752 462,223 169,588 120,013
-------------- ------------- --------------- --------------
Net Assets................................. $64,767,235 $89,823,942 $44,403,664 $33,814,140
============== ============= =============== ==============
COMPOSITION OF NET ASSETS:
Shares of Beneficial Interest, at par:
Class A................................. $8,590 $12,142 $5,265 $3,898
Class D................................. 940 320 240 176
Additional paid-in capital................. 59,851,434 80,749,934 40,905,706 30,894,019
Undistributed net realized gain............ 161,750 2,479,979 282,071 465,904
Net unrealized appreciation
of investments.......................... 4,744,521 6,581,567 3,210,382 2,450,143
--------------- --------------- --------------- --------------
Net Assets................................. $64,767,235 $89,823,942 $44,403,664 $33,814,140
============== ============== =============== ==============
NET ASSETS:
Class A................................. $58,373,945 $87,522,215 $42,464,187 $32,357,996
Class D................................. $6,393,290 $2,301,727 $1,939,477 $1,456,144
SHARES OF BENEFICIAL INTEREST OUTSTANDING
(Unlimited shares
authorized;
$.001 par value):
Class A................................. 8,590,229 12,142,358 5,264,850 3,898,437
Class D................................. 939,805 320,032 239,980 175,528
NET ASSET VALUE PER SHARE:
Class A.................................... $6.80 $7.21 $8.07 $8.30
Class D.................................... $6.80 $7.19 $8.08 $8.30
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Statements of Operations
For the Year Ended September 30, 1998
<TABLE>
<CAPTION>
CALIFORNIA CALIFORNIA NORTH
HIGH-YIELD QUALITY FLORIDA CAROLINA
SERIES SERIES SERIES SERIES
------------- ------------- ------------- -------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest ..................................... $3,410,721 $4,889,687 $2,413,006 $1,840,082
------------- ------------- ------------- -------------
EXPENSES:
Management fees............................... 303,287 442,776 220,971 168,365
Distribution and service fees................. 101,325 98,913 117,664 88,259
Shareholder account services.................. 73,376 99,589 55,717 45,469
Auditing and legal fees....................... 23,133 23,133 26,192 26,546
Shareholder reports and communications........ 12,357 14,417 10,062 11,568
Custody and related services.................. 11,580 7,074 10,386 7,084
Registration.................................. 8,335 6,038 9,700 10,550
Trustees' fees and expenses................... 3,695 4,267 4,591 4,711
Miscellaneous................................. 4,400 5,356 3,074 2,718
------------ ------------- ------------- -------------
Total Expenses................................ 541,488 701,563 458,357 365,270
------------ ------------- ------------- -------------
Net Investment Income......................... 2,869,233 4,188,124 1,954,649 1,474,812
------------ ------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments.............. 315,617 2,703,169 283,504 471,836
Net change in unrealized appreciation
of investments.............................. 1,697,381 429,796 1,624,389 828,922
------------ ------------- ------------- -------------
Net Gain on Investments ...................... 2,012,998 3,132,965 1,907,893 1,300,758
------------ ------------- ------------- -------------
Increase in Net Assets from Operations........ $4,882,231 $7,321,089 $3,862,542 $2,775,570
============ ============= ============= =============
</TABLE>
- ------------------
See Notes to Financial Statements.
15
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD SERIES CALIFORNIA QUALITY SERIES
------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income................. $ 2,869,233 $ 2,784,733 $ 4,188,124 $ 4,596,455
Net realized gain on investments...... 315,617 211,592 2,703,169 427,389
Net change in unrealized appreciation
of investments..................... 1,697,381 1,476,067 429,796 2,834,368
------------- -------------- -------------- --------------
Increase in Net Assets from Operations 4,882,231 4,472,392 7,321,089 7,858,212
------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A............................ (2,672,172) (2,682,769) (4,112,546) (4,533,073)
Class D............................ (197,061) (101,964) (75,578) (63,382)
Net realized gain on investments:
Class A............................ (255,159) (722,261) (410,719) (27,957)
Class D............................ (16,987) (27,209) (9,630) (454)
-------------- -------------- -------------- --------------
Decrease in Net Assets
from Distributions................. (3,141,379) (3,534,203) (4,608,473) (4,624,866)
-------------- -------------- -------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sale of shares:
Class A............................ 8,495,720 7,351,517 2,910,248 1,481,687
Class D............................ 3,342,099 1,513,626 510,845 575,550
Shares issued in payment of dividends:
Class A............................ 1,407,211 1,412,142 2,074,707 2,257,452
Class D............................ 148,218 70,066 39,918 33,256
Exchanged from associated Funds:
Class A............................ 2,763,236 1,772,009 9,378,739 19,333,888
Class D............................ 549,807 502,224 2,156,556 5,312,748
Shares issued in payment of gain distributions:
Class A............................ 174,948 483,204 249,515 16,799
Class D............................ 13,631 22,161 5,556 228
------------- -------------- -------------- --------------
Total................................. 16,894,870 13,126,949 17,326,084 29,011,608
------------- -------------- -------------- --------------
Cost of shares repurchased:
Class A............................ (8,007,292) (7,355,541) (9,140,974) (13,851,584)
Class D............................ (528,543) (640,001) (568,085) (280,678)
Exchanged into associated Funds:
Class A............................ (937,063) (1,923,514) (7,593,529) (20,972,562)
Class D............................ (598,369) (126,577) (1,581,236) (5,676,629)
-------------- -------------- -------------- --------------
Total................................. (10,071,267) (10,045,633) (18,883,824) (40,781,453)
-------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets
from Transactions in Shares
of Beneficial Interest............. 6,823,603 3,081,316 (1,557,740) (11,769,845)
------------ -------------- -------------- --------------
Increase (Decrease) in Net Assets..... 8,564,455 4,019,505 1,154,876 (8,536,499)
NET ASSETS:
Beginning of year..................... 56,202,780 52,183,275 88,669,066 97,205,565
------------- -------------- -------------- --------------
End of Year........................... $64,767,235 $56,202,780 $89,823,942 $88,669,066
============= ============== ============== ==============
</TABLE>
- ------------------
See Notes to Financial Statements.
16
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FLORIDA SERIES NORTH CAROLINA SERIES
--------------------------------------- --------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
--------------------------------------- --------------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income....................... $ 1,954,649 $ 2,131,967 $ 1,474,812 $ 1,638,605
Net realized gain on investments............ 283,504 402,363 471,836 264,968
Net change in unrealized appreciation
of investments............................ 1,624,389 899,645 828,922 797,213
------------- -------------- -------------- --------------
Increase in Net Assets from Operations...... 3,862,542 3,433,975 2,775,570 2,700,786
------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A.................................. (1,887,251) (2,069,071) (1,428,764) (1,591,157)
Class D.................................. (67,398) (62,896) (46,048) (47,448)
Net realized gain on investments:
Class A.................................. (385,124) (611,829) (259,010) (145,565)
Class D.................................. (16,296) (20,485) (9,526) (4,714)
------------- -------------- -------------- --------------
Decrease in Net Assets
from Distributions....................... (2,356,069) (2,764,281) (1,743,348) (1,788,884)
------------- -------------- -------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sale of shares:
Class A.................................. 1,820,657 2,176,497 1,639,241 1,480,472
Class D.................................. 549,732 211,049 321,482 124,216
Shares issued in payment of dividends:
Class A.................................. 735,335 808,742 749,183 832,006
Class D.................................. 43,291 43,942 32,807 35,063
Exchanged from associated Funds:
Class A.................................. 1,868,336 1,901,127 551,292 622,587
Class D.................................. 247,755 437,446 100,077 --
Shares issued in payment of gain distributions:
Class A.................................. 224,788 344,983 192,301 106,938
Class D.................................. 12,044 15,286 8,729 4,313
------------- -------------- -------------- --------------
Total....................................... 5,501,938 5,939,072 3,595,112 3,205,595
------------- -------------- -------------- --------------
Cost of shares repurchased:
Class A.................................. (3,801,719) (7,587,878) (3,903,375) (6,362,439)
Class D.................................. (441,648) (295,456) (260,357) (208,812)
Exchanged into associated Funds:
Class A.................................. (1,850,538) (1,470,687) (545,626) (808,253)
Class D.................................. (213,070) (29,736) (4,500) (3,500)
------------- -------------- -------------- --------------
Total....................................... (6,306,975) (9,383,757) (4,713,858) (7,383,004)
------------- -------------- -------------- --------------
Decrease in Net Assets
from Transactions in Shares
of Beneficial Interest.................... (805,037) (3,444,685) (1,118,746) (4,177,409)
------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets........... 701,436 (2,774,991) (86,524) (3,265,507)
NET ASSETS:
Beginning of year........................... 43,702,228 46,477,219 33,900,664 37,166,171
------------- -------------- -------------- --------------
End of Year................................. $44,403,664 $43,702,228 $33,814,140 $33,900,664
============= ============== ============== ==============
</TABLE>
- ------------------
See Notes to Financial Statements.
17
<PAGE>
Notes to Financial Statements
1. Multiple Classes of Shares -- Seligman Municipal Series Trust (the "Trust")
consists of four separate series: the "California High-Yield Series," the
"California Quality Series," the "Florida Series," and the "North Carolina
Series." Each Series of the Trust offers two classes of shares. Class A shares
are sold with an initial sales charge of up to 4.75% and a continuing service
fee of up to 0.25% on an annual basis. Class A shares purchased in an amount of
$1,000,000 or more are sold without an initial sales charge but are subject to a
con tin gent deferred sales charge ("CDSC") of 1% on redemp tions within 18
months of purchase. Class D shares are sold without an initial sales charge but
are subject to a distribution fee of up to 0.75% and a service fee of up to
0.25% on an annual basis, and a CDSC of 1% imposed on redemptions made within
one year of purchase. The two classes of shares for each Series represent
interests in the same portfolio of investments, have the same rights and are
generally identical in all respects except that each class bears its separate
distribution and certain other class expenses, and has exclusive voting rights
with respect to any matter on which a separate vote of any class is required.
2. Significant Accounting Policies -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Trust:
a. Security Valuation -- All municipal securities and other short-term holdings
maturing in more than 60 days are valued based upon quotations provided by
an independent pricing service or, in their absence, at fair value
determined in accordance with procedures approved by the Trustees.
Short-term holdings maturing in 60 days or less are generally valued at
amortized cost.
b. Federal Taxes -- There is no provision for federal income tax. Each Series
has elected to be taxed as a regulated investment company and intends to
distribute substantially all taxable net income and net gain realized.
c. Security Transactions and Related Investment Income -- Investment
transactions are recorded on trade dates. Identified cost of investments
sold is used for both financial statement and federal income tax purposes.
Interest income is recorded on the accrual basis. The Trust amortizes
original issue discounts and premiums paid on purchases of portfolio
securities. Discounts other than original issue discounts are not amortized.
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 the
shares of each class. Class-specific expenses, which include distribution
and service fees and any other items that are specifically attributable to
a particular class, are charged directly to such class. For the year ended
September 30, 1998, distribution and service fees were the only
class-specific expenses.
e. Distributions to Shareholders -- Dividends are declared daily and paid
monthly. Other distributions paid by the Trust are recorded on the
ex-dividend date. The treatment for financial statement purposes of
distributions made to shareholders during the year from net investment
income or net realized gains may differ from their ultimate treatment for
federal income tax purposes. These differences are caused primarily by
differences in the timing of the recognition of certain components of
income, expense, or realized capital gain for federal income tax purposes.
Where such differences are permanent in nature, they are reclassified in
the components of net assets based on their ultimate characterization for
federal income tax purposes. Any such reclassifications will have no effect
on net assets, results of operations, or net asset value per share of any
series of the Trust.
3. Purchases and Sales of Securities -- Purchases and sales of portfolio
securities, excluding short-term investments, for the year ended September 30,
1998, were as follows:
SERIES PURCHASES SALES
- ---------- ------------ -----------
California High-Yield $13,851,880 $ 6,254,740
California Quality 26,703,196 29,319,797
Florida 2,913,810 4,572,460
North Carolina 6,793,035 8,043,512
At September 30, 1998, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes, and the
tax basis gross unrealized appreciation of portfolio securities was as follows:
TOTAL
UNREALIZED
SERIES APPRECIATION
- ---------- ------------
California High-Yield $4,744,521
California Quality 6,581,567
Florida 3,210,382
North Carolina 2,450,143
4. Management Fee, Distribution Services, and Other Transactions -- J. & W.
Seligman & Co. Incorporated (the "Manager") manages the affairs of the Trust and
provides the necessary personnel and facilities. Compensation of all officers of
the Trust, all trustees of the Trust who are employees or consultants of the
Manager, and all personnel of the Trust and the Manager is paid by the Manager.
The Manager's fee is calculated daily and payable monthly, equal to 0.50% per
annum of each Series' average daily net assets.
18
<PAGE>
Notes to Financial Statements
Seligman Advisors, Inc. (the "Distributor") (formerly Seligman Financial
Services, Inc.), agent for the distribution of each Series' shares and an
affiliate of the Manager, received the following concessions after commissions
were paid to dealers for sales of Class A shares:
DISTRIBUTOR DEALER
SERIES CONCESSIONS COMMISSIONS
--------- ------------ ------------
California High-Yield $17,349 $120,571
California Quality 11,984 87,663
Florida 8,741 60,667
North Carolina 6,114 43,938
The Trust 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 continuing fees of up to 0.25% on an annual basis,
payable quarterly, of the average daily net assets of the Class A shares
attributable to the particular service organizations for providing personal
services and/or the maintenance of shareholder accounts. The Distributor charges
such fees to the Trust pursuant to the Plan. For the year ended September 30,
1998, for the California High-Yield, California Quality, Florida, and North
Carolina Series, fees incurred under the Plan aggregated $50,741, $79,348,
$99,371, and $75,601, respectively, or 0.09%, 0.09%, 0.23%, and 0.23%,
respectively, per annum of average daily net assets.
Under the Plan, with respect to Class D shares, service organizations can
enter into agreements with the Distributor and receive continuing fees 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 D
shares for which the organizations are responsible, and fees for providing other
distribution assistance of up to 0.75% on an annual basis of such average daily
net assets. Such fees are paid monthly by the Trust to the Distributor pursuant
to the Plan. For the year ended September 30, 1998, fees incurred under the Plan
amounted to $50,584, $19,565, $18,293, and $12,658, respectively, or 1% per
annum of the average daily net assets of Class D shares of the California
High-Yield, California Quality, Florida, and North Carolina Series,
respectively.
The Distributor is entitled to retain any CDSC imposed on redemptions of
Class D shares occurring within one year of purchase and on certain redemptions
of Class A shares occurring within 18 months of purchase. For the year ended
September 30, 1998, such charges amounted to $6,508 for the California
High-Yield Series, $939 for the California Quality Series, $277 for the Florida
Series, and $79 for the North Carolina Series.
Seligman Services, Inc., an affiliate of the Manager, is eligible to receive
commissions from certain sales of Trust shares, as well as distribution and
service fees pursuant to the Plan. For the year ended September 30, 1998,
Seligman Services, Inc. received commissions from the sale of shares of each
Series, and distribution and service fees, pursuant to the Plan, as follows:
DISTRIBUTION AND
SERIES COMMISSIONS SERVICE FEES
---------- ------------ ------------
California High-Yield $1,887 $1,597
California Quality 1,346 2,602
Florida 2,125 4,566
North Carolina 975 2,401
Seligman Data Corp., which is owned by certain associated investment
companies, charged at cost for shareholder account services the following
amounts:
SERIES
---------
California High-Yield $73,376
California Quality 99,589
Florida 55,717
North Carolina 45,469
Certain officers and trustees of the Trust are officers or directors of the
Manager, the Distributor, Seligman Services, Inc., and/or Seligman Data Corp.
The Trust has a compensation agreement 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
Trust or other funds in the Seligman Group of Investment Companies. Deferred
fees and related accrued earnings are not deductible for federal income tax
purposes until such amounts are paid. The cost of such fees and earnings accrued
thereon is included in trustees' fees and expenses, and the accumulated balances
thereof at September 30, 1998, are included in other liabilities as follows:
SERIES
- ----------
California High-Yield $24,628
California Quality 24,708
Florida 12,468
North Carolina 9,216
5. Committed Line of Credit -- Effective July 1, 1998, the Trust entered into a
joint $800 million committed line of credit that is shared by substantially all
funds in the Seligman Group of Investment Companies. Each Series' borrowings are
limited to 10% of its net assets. Borrowings pursuant to the credit facility are
subject to interest at a rate equal to the overnight federal funds rate plus
0.50% on an overnight basis. Each Series incurs a commitment fee of 0.08% per
annum on its share of the unused portion of the credit facility. The credit
facility may be drawn upon only for temporary purposes and is subject to certain
other customary restrictions. The credit facility commitment expires one year
from the date of the agreement but is renewable with the consent of the
participating banks. To date, the Trust has not borrowed from the credit
facility.
19
<PAGE>
Notes to Financial Statements
6. Transactions in Shares of Beneficial Interest -- Transactions in Shares of
Beneficial Interest were as follows:
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD CALIFORNIA QUALITY
SERIES SERIES
-------------------------------- --------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Sales of shares:
Class A..................................... 1,277,052 1,136,556 412,540 217,315
Class D..................................... 499,452 232,749 72,661 83,522
Shares issued in payment of dividends:
Class A..................................... 211,143 217,868 294,684 329,886
Class D..................................... 22,196 10,791 5,681 4,867
Exchanged from associated Funds:
Class A..................................... 413,298 272,963 1,335,307 2,835,364
Class D..................................... 82,354 77,936 307,189 781,157
Shares issued in payment of gain distributions:
Class A..................................... 26,588 74,799 35,850 2,456
Class D..................................... 2,068 3,425 799 33
---------- ----------- ----------- ----------
Total.......................................... 2,534,151 2,027,087 2,464,711 4,254,600
---------- ----------- ----------- ----------
Shares repurchased:
Class A..................................... (1,201,761) (1,136,607) (1,299,234) (2,029,814)
Class D..................................... (79,088) (98,590) (80,796) (41,403)
Exchanged into associated Funds:
Class A..................................... (140,692) (296,127) (1,081,747) (3,068,740)
Class D..................................... (89,085) (19,383) (225,899) (832,015)
---------- ----------- ----------- ----------
Total.......................................... (1,510,626) (1,550,707) (2,687,676) (5,971,972)
---------- ----------- ----------- ----------
Increase (decrease) in shares.................. 1,023,525 476,380 (222,965) (1,717,372)
========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA
FLORIDA SERIES SERIES
-------------------------------- --------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Sales of shares:
Class A....................................... 231,028 284,403 202,159 187,120
Class D....................................... 69,634 27,585 39,497 15,728
Shares issued in payment of dividends:
Class A....................................... 93,274 105,889 92,259 105,249
Class D....................................... 5,481 5,743 4,042 4,436
Exchanged from associated Funds:
Class A....................................... 237,657 250,599 67,414 78,277
Class D....................................... 31,343 56,686 12,161 --
Shares issued in payment of gain distributions:
Class A....................................... 29,005 45,096 24,008 13,554
Class D....................................... 1,550 1,996 1,091 547
---------- ----------- ----------- -----------
Total............................................ 698,972 777,997 442,631 404,911
---------- ----------- ----------- -----------
Shares repurchased:
Class A....................................... (482,133) (995,384) (480,689) (805,592)
Class D....................................... (55,774) (39,429) (31,930) (26,320)
Exchanged into associated Funds:
Class A....................................... (234,463) (193,665) (67,042) (102,260)
Class D....................................... (27,097) (3,903) (560) (445)
---------- ----------- ----------- -----------
Total............................................ (799,467) (1,232,381) (580,221) (934,617)
---------- ----------- ----------- -----------
Decrease in shares............................... (100,495) (454,384) (137,590) (529,706)
========== =========== =========== ===========
</TABLE>
20
<PAGE>
Financial Highlights
The Trust's financial highlights are presented below. "Per share operating
performance" data is designed to allow investors to trace the operating per for
mance of each Class, on a per share basis, from the be gin ning net asset value
to the ending net asset value, so that investors can understand what effect the
individual items have on their investment, assuming it was held throughout the
period. Generally, per share amounts are derived by converting the actual dollar
amounts incurred for each item, as disclosed in the financial statements, to
their equivalent per share amounts, based on average shares outstanding.
"Total return based on net asset value" measures each Class's performance
assuming that investors pur chased shares at net asset value as of the beginning
of the period, invested dividends and capital gains paid at net asset value, and
then sold their shares at the net asset value on the last day of the period. The
total return computations do not reflect any sales charges investors may incur
in purchasing or selling shares of each Series. Total returns for periods of
less than one year are not annualized.
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD SERIES CLASS A
-------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Year................ $6.61 $6.50 $6.47 $6.30 $6.73
------- ------- ------- ------- -------
Net investment income............................. 0.32 0.34 0.36 0.37 0.37
Net realized and unrealized investment gain (loss) 0.22 0.20 0.05 0.17 (0.34)
------- ------- ------- ------- -------
Increase from Investment Operations............... 0.54 0.54 0.41 0.54 0.03
Dividends paid or declared........................ (0.32) (0.34) (0.36) (0.37) (0.37)
Distributions from net gain realized.............. (0.03) (0.09) (0.02) -- (0.09)
------- ------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value........ 0.19 0.11 0.03 0.17 (0.43)
------- ------- ------- ------- -------
Net Asset Value, End of Year...................... $6.80 $6.61 $6.50 $6.47 $6.30
======= ======= ======= ======= =======
TOTAL RETURN BASED ON NET ASSET VALUE: 8.45% 8.74% 6.49% 8.85% 0.41%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets.................... 0.82% 0.87% 0.84% 0.90% 0.85%
Net investment income to average net assets....... 4.81% 5.26% 5.49% 5.84% 5.74%
Portfolio turnover................................ 10.75% 22.42% 34.75% 17.64% 8.36%
Net Assets, End of Year (000s omitted)............ $58,374 $52,883 $50,264 $51,504 $48,007
</TABLE>
<TABLE>
<CAPTION>
CLASS D
--------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2/1/94*
---------------------------------------------------- TO
1998 1997 1996 1995 9/30/94
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period................ $6.61 $6.51 $6.48 $6.31 $6.67
------ ------- ------- ------- --------
Net investment income............................... 0.26 0.28 0.30 0.31 0.21
Net realized and unrealized investment gain (loss).. 0.22 0.19 0.05 0.17 (0.36)
------- ------- ------- ------- --------
Increase (Decrease) from Investment Operations...... 0.48 0.47 0.35 0.48 (0.15)
Dividends paid or declared.......................... (0.26) (0.28) (0.30) (0.31) (0.21)
Distributions from net gain realized................ (0.03) (0.09) (0.02) -- --
------- ------- ------- ------- --------
Net Increase (Decrease) in Net Asset Value.......... 0.19 0.10 0.03 0.17 (0.36)
------- ------- ------- ------- --------
Net Asset Value, End of Period...................... $6.80 $6.61 $6.51 $6.48 $6.31
======= ======= ======= ======= ========
TOTAL RETURN BASED ON NET ASSET VALUE: 7.47% 7.60% 5.53% 7.78% (2.47)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets...................... 1.73% 1.77% 1.74% 1.91% 1.74%+
Net investment income to average net assets......... 3.90% 4.36% 4.59% 4.84% 4.73%+
Portfolio turnover.................................. 10.75% 22.42% 34.75% 17.64% 8.36%++
Net Assets, End of Period (000s omitted)............ $6,393 $3,320 $1,919 $1,277 $650
</TABLE>
- ------------------------
See footnotes on page 24.
21
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
CALIFORNIA QUALITY SERIES CLASS A
-------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Year............... $6.99 $6.75 $6.65 $6.39 $7.28
------- ------- ------- ------- -------
Net investment income............................ 0.33 0.34 0.35 0.34 0.35
Net realized and unrealized investment gain (loss) 0.25 0.24 0.11 0.32 (0.73)
------- ------- ------- ------- -------
Increase (Decrease) from Investment Operations... 0.58 0.58 0.46 0.66 (0.38)
Dividends paid or declared....................... (0.33) (0.34) (0.35) (0.34) (0.35)
Distributions from net gain realized............. (0.03) -- (0.01) (0.06) (0.16)
------- ------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value....... 0.22 0.24 0.10 0.26 (0.89)
------- ------- ------- ------- -------
Net Asset Value, End of Year..................... $7.21 $6.99 $6.75 $6.65 $6.39
======= ======= ======= ======= =======
TOTAL RETURN BASED ON NET ASSET VALUE: 8.67% 8.87% 7.00% 10.85% (5.46)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets................... 0.77% 0.82% 0.79% 0.89% 0.81%
Net investment income to average net assets...... 4.75% 4.99% 5.11% 5.34% 5.20%
Portfolio turnover............................... 30.82% 12.16% 12.84% 11.24% 22.16%
Net Assets, End of Year (000s omitted)........... $87,522 $86,992 $95,560 $94,947 $99,020
</TABLE>
<TABLE>
<CAPTION>
CLASS D
---------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2/1/94*
------------------------------------------------------ TO
1998 1997 1996 1995 9/30/94
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period.............. $6.97 $6.74 $6.63 $6.38 $7.13
------- ------- ------- ------- --------
Net investment income............................. 0.27 0.28 0.28 0.28 0.19
Net realized and unrealized investment gain (loss) 0.25 0.23 0.12 0.31 (0.75)
------- ------- ------- ------- --------
Increase (Decrease) from Investment Operations.... 0.52 0.51 0.40 0.59 (0.56)
Dividends paid or declared........................ (0.27) (0.28) (0.28) (0.28) (0.19)
Distributions from net gain realized.............. (0.03) -- (0.01) (0.06) --
------- ------- ------- ------- --------
Net Increase (Decrease) in Net Asset Value........ 0.22 0.23 0.11 0.25 (0.75)
------- ------- ------- ------- --------
Net Asset Value, End of Period.................... $7.19 $6.97 $6.74 $6.63 $6.38
======= ======= ======= ======= ========
TOTAL RETURN BASED ON NET ASSET VALUE: 7.71% 7.75% 6.20% 9.61% (8.01)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets.................... 1.68% 1.72% 1.69% 1.88% 1.77%+
Net investment income to average net assets....... 3.84% 4.09% 4.21% 4.36% 4.39%+
Portfolio turnover................................ 30.82% 12.16% 12.84% 11.24% 22.16%++
Net Assets, End of Period (000s omitted).......... $2,302 $1,677 $1,645 $863 $812
</TABLE>
- -------------------
See footnotes on page 24.
22
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
FLORIDA SERIES CLASS A
-------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Year................. $7.80 $7.67 $7.71 $7.34 $8.20
------- ------- ------- ------- -------
Net investment income.............................. 0.35 0.36 0.38 0.40 0.42
Net realized and unrealized investment gain (loss). 0.34 0.23 0.04 0.37 (0.74)
------- ------- ------- ------- -------
Increase (Decrease) from Investment Operations..... 0.69 0.59 0.42 0.77 (0.32)
Dividends paid or declared......................... (0.35) (0.36) (0.38) (0.40) (0.42)
Distributions from net gain realized............... (0.07) (0.10) (0.08) -- (0.12)
------- ------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value......... 0.27 0.13 (0.04) 0.37 (0.86)
------- ------- ------- ------- -------
Net Asset Value, End of Year....................... $8.07 $7.80 $7.67 $7.71 $7.34
======= ======= ======= ======= =======
TOTAL RETURN BASED ON NET ASSET VALUE: 9.16% 8.01% 5.54% 10.87% (3.99)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets..................... 1.00% 1.04% 0.97% 0.72% 0.42%
Net investment income to average net assets........ 4.45% 4.70% 4.90% 5.38% 5.49%
Portfolio turnover................................. 6.73% 33.68% 18.53% 11.82% 6.17%
Net Assets, End of Year (000s omitted)............. $42,464 $42,024 $45,200 $49,030 $49,897
Without expense reimbursement and/or
management fee waiver:**
Net investment income per share................. $0.38 $0.37 $0.38
Ratios:
Expenses to average net assets.................. 0.97% 1.03% 1.00%
Net investment income to average net assets..... 4.90% 5.07% 4.91%
</TABLE>
<TABLE>
<CAPTION>
CLASS D
------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2/1/94*
-------------------------------------------------- TO
1998 1997 1996 1995 9/30/94
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period.............. $7.81 $7.68 $7.72 $7.34 $8.10
------- ------- ------- ------- --------
Net investment income............................. 0.29 0.30 0.32 0.34 0.24
Net realized and unrealized investment gain (loss) 0.34 0.23 0.04 0.38 (0.76)
------- ------- ------- ------- --------
Increase (Decrease) from Investment Operations.... 0.63 0.53 0.36 0.72 (0.52)
Dividends paid or declared........................ (0.29) (0.30) (0.32) (0.34) (0.24)
Distributions from net gain realized.............. (0.07) (0.10) (0.08) -- --
------- ------- ------- ------- --------
Net Increase (Decrease) in Net Asset Value........ 0.27 0.13 (0.04) 0.38 (0.76)
------- ------- ------- ------- --------
Net Asset Value, End of Period.................... $8.08 $7.81 $7.68 $7.72 $7.34
======= ======= ======= ======= ========
TOTAL RETURN BASED ON NET ASSET VALUE: 8.32% 7.18% 4.74% 10.07% (6.64)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets.................... 1.77% 1.81% 1.73% 1.66% 1.29%+
Net investment income to average net assets....... 3.68% 3.93% 4.14% 4.53% 4.61%+
Portfolio turnover................................ 6.73% 33.68% 18.53% 11.82% 6.17%++
Net Assets, End of Period (000s omitted).......... $1,940 $1,678 $1,277 $603 $244
Without expense reimbursement and/or
management fee waiver:**
Net investment income per share................ $0.32 $0.31 $0.21
Ratios:
Expenses to average net assets................. 1.73% 1.97% 1.84%+
Net investment income to average net assets.... 4.14% 4.22% 4.06%+
</TABLE>
- ---------------------
See footnotes on page 24.
23
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
NORTH CAROLINA SERIES CLASS A
--------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Year.................. $8.05 $7.84 $7.74 $7.30 $8.22
------- ------- ------- ------- -------
Net investment income............................... 0.36 0.37 0.37 0.39 0.41
Net realized and unrealized investment gain (loss).. 0.31 0.24 0.11 0.45 (0.87)
------- ------- ------- ------- -------
Increase (Decrease) from Investment Operations...... 0.67 0.61 0.48 0.84 (0.46)
Dividends paid or declared.......................... (0.36) (0.37) (0.37) (0.39) (0.41)
Distributions from net gain realized................ (0.06) (0.03) (0.01) (0.01) (0.05)
------- ------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value.......... 0.25 0.21 0.10 0.44 (0.92)
------- ------- ------- ------- -------
Net Asset Value, End of Year........................ $8.30 $8.05 $7.84 $7.74 $7.30
======= ======= ======= ======= =======
TOTAL RETURN BASED ON NET ASSET VALUE: 8.60% 8.01% 6.39% 11.92% (5.80)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets...................... 1.05% 1.09% 1.05% 0.82% 0.44%
Net investment income to average net assets......... 4.41% 4.66% 4.75% 5.21% 5.29%
Portfolio turnover.................................. 20.37% 13.04% 15.12% 4.38% 15.61%
Net Assets, End of Year (000s omitted).............. $32,358 $32,684 $35,934 $37,446 $38,920
Without expense reimbursement and/or
management fee waiver:**
Net investment income per share.................. $0.37 $0.36 $0.35
Ratios:
Expenses to average net assets................... 1.06% 1.18% 1.13%
Net investment income to average net assets...... 4.74% 4.85% 4.60%
</TABLE>
<TABLE>
<CAPTION>
CLASS D
-------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2/1/94*
---------------------------------------------------- TO
1998 1997 1996 1995 9/30/94
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period............. $8.05 $7.83 $7.74 $7.29 $8.17
------- ------- ------- ------- --------
Net investment income............................ 0.30 0.31 0.31 0.33 0.23
Net realized and unrealized investment gain (loss) 0.31 0.25 0.10 0.46 (0.88)
------- ------- ------- ------- --------
Increase (Decrease) from Investment Operations.... 0.61 0.56 0.41 0.79 (0.65)
Dividends paid or declared........................ (0.30) (0.31) (0.31) (0.33) (0.23)
Distributions from net gain realized.............. (0.06) (0.03) (0.01) (0.01) --
------- ------- ------- ------- --------
Net Increase (Decrease) in Net Asset Value........ 0.25 0.22 0.09 0.45 (0.88)
------- ------- ------- ------- --------
Net Asset Value, End of Period.................... $8.30 $8.05 $7.83 $7.74 $7.29
======= ======= ======= ======= ========
TOTAL RETURN BASED ON NET ASSET VALUE: 7.77% 7.33% 5.45% 11.19% (8.15)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets.................... 1.82% 1.85% 1.81% 1.64% 1.27%+
Net investment income to average net assets....... 3.64% 3.90% 3.99% 4.42% 4.49%+
Portfolio turnover................................ 20.37% 13.04% 15.12% 4.38% 15.61%++
Net Assets, End of Period (000s omitted).......... $1,456 $1,217 $1,232 $1,257 $1,282
Without expense reimbursement and/or
management fee waiver:**
Net investment income per share................ $0.31 $0.31 $0.20
Ratios:
Expenses to average net assets................. 1.82% 2.00% 1.95%+
Net investment income to average net assets.... 3.98% 4.06% 3.82%+
</TABLE>
- ----------------
*Commencement of operations.
**During the periods stated, the Manager, at its discretion, waived all or a
portion of its fees and, in some cases, reimbursed certain expenses for the
Florida and North Carolina Series.
+Annualized.
++For the year ended September 30, 1994.
See Notes to Financial Statements.
24
<PAGE>
The Trustees and Shareholders,
Seligman Municipal Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the California High-Yield, California Quality,
Florida, and North Carolina Series of Seligman Municipal Series Trust, as of
September 30, 1998, the related statements of operations for the year then ended
and of changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998 by correspondence with the Trust's custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the California
High-Yield, California Quality, Florida, and North Carolina Series of Seligman
Municipal Series Trust as of September 30, 1998, the results of their
operations, the changes in their net assets, and the financial highlights for
the respective stated periods, in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
- ------------------------
DELOITTE & TOUCHE LLP
New York, New York
October 30, 1998
25
<PAGE>
Trustees
John R. Galvin 2, 4
Dean, Fletcher School of Law and Diplomacy
at Tufts University
Director, Raytheon Company
Alice S. Ilchman 3, 4
Trustee, Committee for Economic Development
Chairman, The Rockefeller Foundation
Frank A. McPherson 2, 4
Director, Kimberly-Clark Corporation
Director, Baptist Medical Center
John E. Merow 2, 4
Retired Chairman and Senior Partner,
Sullivan & Cromwell, Law Firm
Director, Commonwealth Industries, Inc
Director, New York Presbyterian Hospital
Betsy S. Michel 2, 4
Trustee, The Geraldine R. Dodge Foundation
Chairman of the Board of Trustees, St. George's School
William C. Morris 1
Chairman
Chairman of the Board, J. & W. Seligman & Co.
Incorporated
Chairman, Carbo Ceramics Inc.
Director, Kerr-McGee Corporation
James C. Pitney 3, 4
Retired Partner, Pitney, Hardin, Kipp & Szuch, Law Firm
James Q. Riordan 3, 4
Director, KeySpan Energy Corporation
Trustee, Committee for Economic Development
Director, Public Broadcasting Service
Richard R. Schmaltz 1
Managing Director, Director of Investments,
J. & W. Seligman & Co. In cor po rat ed
Trustee Emeritus, Colby College
Robert L. Shafer 3, 4
Retired Vice President, Pfizer, Inc.
James N. Whitson 2, 4
Director and Consultant, Sammons Enterprises, Inc.
Director, CommScope, Inc.
Director, C-SPAN
Brian T. Zino 1
President
President, J. & W. Seligman & Co. Incorporated
Chairman, Seligman Data Corp.
Director, ICIMutual Insurance Company
Trustee Emeritus
Fred E. Brown
Director and Consultant, J. & W. Seligman & Co.
Incorporated
- ----------------
Member: 1 Executive Committee
2 Audit Committee
3 Trustee Nominating Committee
4 Board Operations Committee
26
<PAGE>
Executive Officers
William C. Morris
Chairman
Brian T. Zino
President
Thomas G. Moles
Vice President
Lawrence P. Vogel
Vice President
Thomas G. Rose
Treasurer
Frank J. Nasta
Secretary
FOR MORE INFORMATION
Manager
J. & W. Seligman & Co.
Incorporated
100 Park Avenue
New York, NY 10017
General Counsel
Sullivan & Cromwell
Independent Auditors
Deloitte & Touche LLP
General Distributor
Seligman Advisors, Inc.
100 Park Avenue
New York, NY 10017
Shareholder Service Agent
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
Important Telephone Numbers
(800) 221-2450 Shareholder
Services
(212) 682-7600 Outside the
United States
(800) 622-4597 24-Hour
Au to mat ed
Telephone
Access Service
27
<PAGE>
Glossary of Financial Terms
Capital Gain Distribution -- A payment to mutual fund shareholders of profits
realized on the sale of securities in a fund's portfolio. For tax purposes,
these profits may be taxed at different rates, primarily depending upon the
length of time the securities were owned by the fund.
Capital Appreciation/Depreciation -- An increase or decrease in the market value
of a mutual fund's portfolio securities, which is reflected in the net asset
value of the fund's shares. Capital appreciation/depreciation of an individual
security is in relation to the original purchase price.
Compounding -- The change in the value of an investment as shareholders receive
earnings on their investment's earnings. For example, if $1,000 is invested at a
fixed rate of 7% a year, the initial investment is worth $1,070 after one year.
If the return is compounded, second year earnings will not be based on the
original $1,000, but on the $1,070, which includes the first year's earnings.
Contingent Deferred Sales Charge (CDSC) -- Depending on the class of shares
owned, a fee charged by a mutual fund when shares are sold back to the fund (the
CDSC expires after a fixed time period).
Dividend -- A payment by a mutual fund, usually derived from the fund's net
investment income (dividends and interest less expenses).
Dividend Yield -- A measurement of a fund's dividend as a percentage of the
maximum offering price.
Expense Ratio -- The cost of doing business for a mutual fund, expressed as a
percent of the fund's net assets.
Investment Objective -- The shared investment goal of a fund and its
shareholders.
Management Fee -- The amount paid by a mutual fund to its investment advisor(s).
Multiple Classes of Shares -- Although an individual mutual fund invests in only
one portfolio of securities, it may offer investors several purchase options
which are "classes" of shares. Multiple classes permit shareholders to choose
the fee structure that best meets their needs and goals. Generally, each class
will differ in terms of how and when sales charges and certain fees are
assessed.
National Association of Securities Dealers, Inc. (NASD) -- A self-regulatory
body with authority over firms that distribute mutual funds.
Net Asset Value (NAV) Per Share -- The market worth of one fund share, obtained
by adding a mutual fund's total assets (securities, cash, and any accrued
earnings), subtracting liabilities, and dividing the resulting net assets by the
number of shares outstanding.
Offering Price (OP) -- The price at which a mutual fund's share can be
purchased. The offering price per share is the current net asset value plus any
sales charge.
Portfolio Turnover -- A measure of the trading activity in a mutual fund's
investment portfolio that reflects how often securities are bought and sold.
Prospectus -- The legal document describing a mutual fund to all prospective
shareholders. It contains information required by the Securities and Exchange
Commission (SEC), such as a fund's investment objective and policies, services,
investment restrictions, officers and directors, how shares are bought and
redeemed, fund fees and other charges, and the fund's financial statements.
SEC Yield -- SEC Yield refers to the net income earned by a fund during a recent
30-day period. This income is annualized and then divided by the maximum
offering price per share on the last day of the 30-day period. The SEC Yield
formula reflects semiannual compounding.
Securities and Exchange Commission -- The primary US federal agency that
regulates the registration and distribution of mutual fund shares.
Statement of Additional Information -- A document that contains updated or more
detailed information about an investment company and that supplements the
prospectus. It is available at no charge upon request.
Total Return -- A measure of a fund's performance encompassing all elements of
return. Reflects the change in share price over a given period and assumes all
distributions are taken in additional fund shares. The Average Annual Total
Return represents the average annual compounded rate of return for the periods
presented.
Yield on Securities -- For bonds, the current yield is the coupon rate of
interest, divided by the purchase price. For stocks, the yield is measured by
dividing dividends paid by the market price of the stock.
- -----------------
Adapted from the Investment Company Institute's 1998 Mutual Fund Fact Book.
28
<PAGE>
This report is intended only for the information of shareholders or those who
have received the offering prospectus covering shares of Beneficial Interest of
Seligman Municipal Series Trust, which contains information about the sales
charges, management fee, and other costs. Please read the prospectus carefully
before investing or sending money.
SELIGMAN ADVISORS, INC.
an affiliate of
JWS
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
TEB2 9/98
<PAGE>
File No. 2-92569
811-4250
PART C. OTHER INFORMATION
Item 23. Exhibits
All Exhibits have been previously filed and are incorporated herein by
reference, except Exhibits marked with an asterisk (*) which are filed herewith.
(a) *Instruments of Establishment and Designation dated May 24, 1999.
(a)(1) Form of Amended and Restated Declaration of Trust of Registrant.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
25 filed on January 29, 1997.)
(b) Amended and Restated By-Laws of Registrant. (Incorporated by reference to
Registrant's Post-Effective Amendment No. 25, filed on January 29 1997.)
(c) Copy of Specimen of Stock Certificates for Class D Shares of each Series.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
22 filed on January 29, 1994.)
(d) Management Agreeement between the Registrant on behalf of the California
High-Yield Municipal Series and J. & W. Seligman & Co. Incorporated.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
25 filed on January 29, 1997.)
(d)(1) Management Agreeement between the Registrant on behalf of the California
Quality Municipal Series and J. & W. Seligman & Co. Incorporated.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
25 filed on January 29, 1997.)
(d)(2) Management Agreeement between the Registrant on behalf of the Florida
Municipal Series and J. & W. Seligman & Co. Incorporated. (Incorporated
by reference to Registrant's Post-Effective Amendment No. 25 filed on
January 29, 1997.)
(d)(3) Management Agreeement between the Registrant on behalf of the North
Carolina Municipal Series and J. & W. Seligman & Co. Incorporated.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
25 filed on January 29, 1997.)
(e) *Addendum to Sales/Bank Agreement. (Incorporated by reference to
Post-Effective Amendment No. 57 to the Registration Statement of Seligman
Capital Fund, Inc. (File #811-1886) filed on May 28, 1999.)
(e)(1) *Form of Bank Agreement between Seligman Advisors, Inc. and Banks.
(Incorporated by reference to Post-Effective Amendment No. 57 to the
Registration Statement of Seligman Capital Fund, Inc. (File #811-1886)
filed on May 28, 1999.)
(e)(2) Form of Distributing Agreement between Registrant and Seligman Advisors,
Inc. (Incorporated by reference to Registrant's Post-Effective Amendment
No. 25 filed on January 29, 1997.)
(e)(3) Form of Amended Sales Agreement between Seligman Advisors, Inc. and
Dealers. (Incorporated by reference to Registrant's Post-Effective
Amendment No. 25 filed on January 29, 1997.)
(f) Matched Accumulation Plan of J. & W. Seligman & Co. Incorporated.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
25 filed on January 29, 1997.)
(f)(1) Deferred Compensation Plan for Directors of Seligman Municipal Series
Trust. (Incorporated by reference to Registrant's Post-Effective
Amendment No. 29 filed on January 29, 1999.
C-2
<PAGE>
File No. 2-92569
811-4250
PART C. OTHER INFORMATION (continued)
(g) Custodian Agreement between Registrant and Investors Fiduciary Trust
Company. (Incorporated by reference to Registrant's Post-Effective
Amendment No. 25 filed on January 29, 1997.)
(h) Not Applicable.
(i) *Opinion and Consent of Counsel with respect to Class C shares.
(i)(1) Opinions and Consent of Counsel. (Incorporated by reference to
Registrant's Post-Effective Amendment No. 25 filed on January 29, 1997.)
(j) *Consent of Independent Auditors.
(j)(1) *Opinion and Consent of California Counsel.
(j)(2) *Consent of North Carolina Counsel.
(k) Not Applicable.
(l) *Form of Purchase Agreement for Initial Capital for Class C shares.
(l)(1) Form of Purchase Agreement for Initial Capital for Class D Shares.
(Incorporated by reference to Registrant's Post-Effective Amendment No.
25 filed on January 29, 1997.)
(m) *Amended Administration, Shareholder Services and Distribution Plan for
each Series
(n) *Financial Data Schedules.
(o) *Plan of Multiple Classes of Shares (three Classes) pursuant to Rule
18f-3 under the Investment Company Act of 1940
Other Exhibits: Powers of Attorney. (Incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed on January 27, 1998.)
Item 24. Persons Controlled by or Under Common Control with Registrant - None.
Item 25. Indemnification - Reference is made to the provisions of Article VII
of Registrant's Amended and Restated Declaration of Trust filed as
Exhibit 24(b)(1) and Article VII of Registrant's Amended and Restated
By-Laws filed as Exhibit 24(b)(2) to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised by the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-3
<PAGE>
File No. 2-92569
811-4250
PART C. OTHER INFORMATION (continued)
Item 26. Business and Other Connections of Investment Adviser - J. & W.
Seligman & Co. Incorporated, a Delaware corporation ("Manager"), is the
Registrant's investment manager. The Manager also serves as investment
manager to eighteen associated investment companies. They are Seligman
Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common
Stock Fund, Inc., Seligman Communications and Information Fund, Inc.,
Seligman Frontier Fund, Inc., Seligman Growth Fund, Inc., Seligman
Henderson Global Fund Series, Inc., Seligman High Income Fund Series,
Seligman Income Fund, Inc., Seligman Municipal Fund Series, Inc.,
Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal
Fund Series, Seligman Portfolios, Inc., Seligman Quality Municipal Fund,
Inc., Seligman Select Municipal Fund, Inc., Seligman Value Fund Series,
Inc. and Tri-Continental Corporation.
The Manager has an investment advisory service division which provides
investment management or advice to private clients. The list required by
this Item 28 of officers and directors of the Manager, together with
information as to any other business, profession, vocation or employment
of a substantial nature engaged in by such officers and directors during
the past two years, is incorporated by reference to Schedules A and D or
Form ADV, filed by the Manager, pursuant to the Investment Advisers Act
of 1940 (SEC File No. 801-15798) on March 31, 1999.
Item 27. Principal Underwriters
(a) The names of each investment company (other than the Registrant) for
which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor or investment adviser
are:
Seligman Capital Fund, Inc.
Seligman Cash Management Fund, Inc.
Seligman Common Stock Fund, Inc.
Seligman Communications and Information Fund, Inc.
Seligman Frontier Fund, Inc.
Seligman Growth Fund, Inc.
Seligman Henderson Global Fund Series, Inc.
Seligman High Income Fund Series
Seligman Income Fund, Inc.
Seligman Municipal Fund Series, Inc.
Seligman New Jersey Municipal Fund, Inc.
Seligman Pennsylvania Municipal Fund Series
Seligman Portfolios, Inc.
Seligman Value Fund Series, Inc.
C-4
<PAGE>
File No. 2-92569
811-4250
PART C. OTHER INFORMATION (continued)
(b) Name of each director, officer or partner of Registrant's principal
underwriter named in response to Item 20:
<TABLE>
<CAPTION>
Seligman Advisors, Inc.
As of April 30, 1999
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C> <C>
William C. Morris* Director Chairman of the Board and Chief
Executive Officer
Brian T. Zino* Director President and Director
Ronald T. Schroeder* Director None
Fred E. Brown* Director Director Emeritus
William H. Hazen* Director None
Thomas G. Moles* Director None
David F. Stein* Director None
Stephen J. Hodgdon* President and Director None
Charles W. Kadlec* Chief Investment Strategist None
Lawrence P. Vogel* Senior Vice President, Finance Vice President
Edward F. Lynch* Senior Vice President, National None
Sales Director
James R. Besher Senior Vice President, Division None
14000 Margaux Lane Sales Director
Town & Country, MO 63017
Gerald I. Cetrulo, III Senior Vice President, Sales None
140 West Parkway
Pompton Plains, NJ 07444
Matthew A. Digan* Senior Vice President, None
Domestic Funds
Jonathan G. Evans Senior Vice President, Sales None
222 Fairmont Way
Ft. Lauderdale, FL 33326
Robert T. Hausler* Senior Vice President, International None
Funds
T. Wayne Knowles Senior Vice President, None
104 Morninghills Court Division Sales Director
Cary, NC 27511
Joseph Lam Senior Vice President, Regional None
Seligman International Inc. Director, Asia
Suite 1133, Central Building
One Pedder Street
Central Hong Kong
Bradley W. Larson Senior Vice President, Sales None
367 Bryan Drive
Alamo, CA 94526
Michelle L. McCann-Rappa* Senior Vice President, None
Retirement Plans
Scott H. Novak* Senior Vice President, Insurance None
Richard M. Potocki Senior Vice President, Regional None
Seligman International UK Limited Director, Europe and the Middle East
Berkeley Square House 2nd Floor
Berkeley Square
London, United Kingdom W1X 6EA
</TABLE>
C-6
<PAGE>
File No. 2-92569
811-4250
PART C. OTHER INFORMATION (continued)
<TABLE>
<CAPTION>
Seligman Advisors, Inc.
As of April 30, 1999
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C> <C>
Bruce M. Tuckey Senior Vice President, Sales None
41644 Chathman Drive
Novi, MI 48375
Andrew S. Veasey Senior Vice President, Sales None
14 Woodside Drive
Rumson, NJ 07760
Charles L. von Breitenbach, II* Senior Vice President, None
Managed Money
J. Brereton Young* Senior Vice President, Director None
of Sales Development
Jeffrey S. Dean* Vice President, Business Analysis None
Mason S. Flinn Vice President, Regional Retirement None
159 Varennes Plans Manager
San Francisco, CA 94133
Marsha E. Jacoby* Vice President, Offshore Business None
Manager
William W. Johnson* Vice President, Order Desk None
Joan M. O'Connell Vice President, Regional Retirement None
3707 Fifth Avenue #136 Plans Manager
San Diego, CA 92103
Ronald W. Pond* Vice President, Portfolio Advisor None
Jeffery C. Pleet* Vice President, Regional Retirement None
Plans Manager
Tracy A. Salomon* Vice President, Retirement Marketing None
Helen Simon* Vice President, Sales Administration None
Gary A. Terpening* Vice President, Director of Business None
Development
Charles E. Wenzel Vice President, Regional Retirement None
703 Greenwood Road Plans Manager
Wilmington, DE 19807
Jeff Botwinick Regional Vice President None
11508 Foster Road
Overland Park, KS 66210
Kevin Casey Regional Vice President None
19 Bayview Avenue
Babylon, NY 11702
Richard B. Callaghan Regional Vice President None
7821 Dakota Lane
Orland Park, IL 60462
</TABLE>
C-7
<PAGE>
File No. 2-92569
811-4250
PART C. OTHER INFORMATION (continued)
<TABLE>
<CAPTION>
Seligman Advisors, Inc.
As of April 30, 1999
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C> <C>
Bradford C. Davis Regional Vice President None
241 110th Avenue SE
Bellevue, WA 98004
Christopher J. Derry Regional Vice President None
2380 Mt. Lebanon Church Road
Alvaton, KY 42122
Kenneth Dougherty Regional Vice President None
8640 Finlarig Drive
Dublin, OH 43017
Kelli A. Wirth Dumser Regional Vice President None
7121 Jardiniere Court
Charlotte, NC 28226
Edward S. Finocchiaro Regional Vice President None
120 Screenhouse Lane
Duxbury, MA 02332
Michael C. Forgea Regional Vice President None
32 W. Anapamu Street # 186
Santa Barbara, CA 93101
Carla A. Goehring Regional Vice President None
11426 Long Pine
Houston, TX 77077
Cathy Des Jardins Regional Vice President None
PMB 152
1705 14th Street
Boulder, CO 80302
Michael K. Lewallen Regional Vice President None
908 Tulip Poplar Lane
Birmingham, AL 35244
Judith L. Lyon Regional Vice President None
7105 Harbour Landing
Alpharetta, GA 30005
Tim O'Connell Regional Vice President None
11908 Acacia Glen Court
San Diego, CA 92128
George M. Palmer, Jr. Regional Vice President None
1805 Richardson Place
Tampa, FL 33606
Thomas Parnell Regional Vice President None
1575 Edgecomb Road
St. Paul, MN 55116
Craig Prichard Regional Vice President None
300 Spyglass Drive
Fairlawn, OH 44333
</TABLE>
C-8
<PAGE>
File No. 2-92569
811-4250
PART C. OTHER INFORMATION (continued)
<TABLE>
<CAPTION>
Seligman Advisors, Inc.
As of April 30, 1999
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C> <C>
Nicholas Roberts Regional Vice President None
200 Broad Street, Apt. 2225
Stamford, CT 06901
Diane H. Snowden Regional Vice President None
11 Thackery Lane
Cherry Hill, NJ 08003
Eugene P. Sullivan Regional Vice President None
4858 Battery Lane Bethesda, MD 21814
James Taylor Regional Vice President None
1145 Kenilworth Circle
Naperville, IL 60540
Steve Wilson Regional Vice President None
83 Kaydeross Park Road
Saratoga Springs, NY 12866
Frank J. Nasta* Secretary Secretary
Aurelia Lacsamana* Treasurer None
Gail S. Cushing* Assistant Vice President, National None
Accounts Manager
Sandra G. Floris* Assistant Vice President, Order Desk None
Keith Landry* Assistant Vice President, Order Desk None
Albert A. Pisano* Assistant Vice President and None
Compliance Officer
Joyce Peress* Assistant Secretary Assistant Secretary
</TABLE>
* The principal business address of each of these directors and/or officers
is 100 Park Avenue, New York, NY 10017.
(c) Not Applicable
Item 28. Location of Accounts and Records
Custodian: Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105 and
Seligman Municipal Series Trust
100 Park Avenue
New York, New York 10017
Item 29. Management Services - Not Applicable.
Item 30. Undertakings -The Registrant undertakes: (1) if requested to do so by
the holders of at least ten percent of its outstanding shares, to call a
meeting of shareholders for the purpose of voting upon the removal of a
director or directors and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940; and (2) to furnish to each person to whom a prospectus is delivered,
a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
C-9
<PAGE>
File No. 2-92569
811-4250
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 30
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 30 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 28th day of May, 1999.
SELIGMAN MUNICIPAL SERIES TRUST
By: /s/ William C. Morris
----------------------------------
William C. Morris, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 30 has been signed below by the following persons
in the capacities indicated on May 28, 1999.
Signature Title
/s/ William C. Morris Chairman of the Trustees (Principal
- ------------------------------ executive officer) and Trustee
William C. Morris*
/s/ Brian T. Zino President and Trustee
- ------------------------------
Brian T. Zino
/s/ Thomas G. Rose Treasurer (Principal financial
- ------------------------------ and accounting officer)
Thomas G. Rose
John R. Galvin, Trustee )
Alice S. Ilchman, Trustee )
Frank A. McPherson, Trustee )
John E. Merow, Trustee ) /s/ Brian T. Zino
Betsy S. Michel, Trustee ) --------------------------------------
James C. Pitney, Trustee ) *By: Brian T. Zino, Attorney-in-fact
James Q. Riordan, Trustee )
Richard R. Schmaltz, Trustee )
Robert L. Shafer, Trustee )
James N. Whitson, Trustee )
C-10
<PAGE>
File No. 2-92569
811-4250
SELIGMAN MUNICIPAL SERIES TRUST
Post-Effective Amendment No. 30 to the
Registration Statement on Form N-1A
EXHIBIT INDEX
Form N1-A Item No. Description
- ------------------ -----------
Item 23(a) Instruments of Establishment and Designation
Item 23(i) Opinion and Consent of Counsel with respect to Class C
shares
Item 23(j) Consent of Independent Auditors
Item 23(j)(1) Consent of California Counsel
Item 23(j)(2) Consent of North Carolina Counsel
Item 23(l) Form of Purchase Agreement for Initial Capital
Item 23(m) Amended Administration, Shareholder Services
And Distribution Plan
Item 23(n) Financial Data Schedules
Item 23(o) Plan of Multiple Classes of Shares (three Classes)
C-11
SELIGMAN MUNICIPAL SERIES TRUST
INSTRUMENT OF ESTABLISHMENT
AND DESIGNATION
(Pursuant to Section 6.9(j) of the
Declaration of Trust)
May 24, 1999
The undersigned, being at least a majority of the Trustees of Seligman
Municipal Series Trust (the "Trust"), established pursuant to a Declaration of
Trust dated July 25, 1984 and amended thereafter from time to time (the
"Declaration") do hereby establish an additional class of Shares of Beneficial
Interest of each of the Seligman California Municipal High-Yield Series of
Shares of the Trust ("California High-Yield Series"), Seligman California
Municipal Quality Series of Shares of the Trust ("California Quality Series"),
Seligman Florida Municipal Series of Shares of the Trust ("Florida Series"), and
Seligman North Carolina Municipal Series of Shares of the Trust ("North Carolina
Series") as follows:
I. California High-Yield Class C Shares.
(a) The additional class of Shares of the California High-Yield Series is
to be designated "Class C Shares of the Seligman California Municipal
High-Yield Series of Shares" (for purposes of this instrument such
shares being referred to as the "California High-Yield Class C
Shares").
(b) The California High-Yield Class C Shares are to enjoy all of the
rights and preferences of a Class of Shares of the Trust as are
contemplated by the Declaration, and otherwise to be entitled to all
of the rights and privileges of Shares of the California High-Yield
Series.
(c) The authorized number of California High-Yield Class C Shares shall be
unlimited.
(d) All shares of the California High-Yield Series that are currently
issued and outstanding shall continue to be designated "Class A Shares
of the Seligman California Municipal High-Yield Series of Shares" (for
purposes of this instrument such Shares being referred to as the
"California High-Yield Class A Shares") or Class D Shares of the
Seligman California Municipal High-Yield Series of Shares" (for
purposes of this instrument such Shares being referred to as the
"California High-Yield Class D Shares").
(e) The assets belonging to each of the California High-Yield Class A
Shares, California High-Yield Class C Shares and California High-Yield
Class D Shares shall be charged with the liabilities of the California
High-Yield Series in respect of such Class, and all expenses, costs,
charges, and reserves attributable to a Class. Any general
liabilities, expenses, costs, charges or reserves of California
High-Yield Series that are not readily identifiable as belonging to
any Class in particular shall be allocated and charged by the Trustees
to the Classes in such manner and on such basis as the Trustees in
their sole discretion may deem fair and equitable.
<PAGE>
(f) Upon liquidation or termination of the California High-Yield Series,
Shareholders of a Class shall be entitled to a pro rata share of the
net assets of the California High-Yield Series attributable to such
Class.
(g) At such time as shall be permitted under the Investment Company Act,
any applicable rules and regulations thereunder and the provisions of
any exemptive order applicable to the California High-Yield Series, as
may be determined by the Trustees and disclosed in the then current
prospectus of California High-Yield Series, shares of a particular
Class may be automatically converted into shares of another Class;
provided, however, that such conversion shall be subject to the
continuing availability of an opinion of counsel to the effect that
such conversion does not constitute a taxable event under federal
income tax law. The Trustees, in their sole discretion, may suspend
any conversion rights if such opinion is no longer available.
(h) California High-Yield Class C Shares shall vote together with all
other Shares of the California High-Yield Series from time to time
outstanding, except that the Trustees may provide that any Class of
Shares shall vote separately as a Class, or together with one or more
other Class of Shares including any future Class as to any matter when
(i) required by law, rule or exemptive order, (ii) they determine that
such matter affects only the interest of Shares of such Class or
Classes or affects the interests of Shares of such Class or Classes in
a manner different from that of the other Class or Classes or (iii)
they otherwise determine that to do so is necessary or desirable and
in the best interests of the Shareholders of such Class or Classes
under the circumstances.
(i) The net asset value of each Class of Shares of the California
High-Yield Series shall be determined on such days and at such time or
times as the Trustees shall determine. The method of determination of
the net asset value of a Class shall be determined by the Trustees and
shall be as set forth in the Prospectus.
(j) The Trustees may from time to time distribute ratably among the
shareholders of a Class of Shares of the California High-Yield Series
such proportionate share of the net profits, surplus (including
paid-in surplus), capital or assets held by the Trustees and
attributable to such Class as they may deem proper.
II. California Quality Class C Shares.
(a) The additional class of Shares of the California Quality Series is to
be designated "Class C Shares of the Seligman California Municipal
Quality Series of Shares"
<PAGE>
(for purposes of this instrument such shares being referred to as the
"California Quality Class C Shares").
(b) The California Quality Class C Shares are to enjoy all of the rights
and preferences of a Class of Shares of the Trust as are contemplated
by the Declaration, and otherwise to be entitled to all of the rights
and privileges of Shares of the California Quality Series.
(c) The authorized number of California Quality Class C Shares shall be
unlimited.
(d) All shares of the California Quality Series that are currently issued
and outstanding shall continue to be designated "Class A Shares of the
Seligman California Municipal Quality Series of Shares" (for purposes
of this instrument such Shares being referred to as the "California
Quality Class A Shares") or "Class D Shares of the Seligman California
Municipal Quality Series of Shares" (for purposes of this instrument
such Shares being referred to as the "California Quality Class D
Shares").
(e) The assets belonging to each of the California Quality Class A Shares,
California Quality Class C Shares and California Quality Class D
Shares shall be charged with the liabilities of the California Quality
Series in respect of such Class, and all expenses, costs, charges, and
reserves attributable to a Class. Any general liabilities, expenses,
costs, charges or reserves of California Quality Series that are not
readily identifiable as belonging to any Class in particular shall be
allocated and charged by the Trustees to the Classes in such manner
and on such basis as the Trustees in their sole discretion may deem
fair and equitable.
(f) Upon liquidation or termination of the California Quality Series,
Shareholders of a Class shall be entitled to a pro rata share of the
net assets of the California Quality Series attributable to such
Class.
(g) At such time as shall be permitted under the Investment Company Act,
any applicable rules and regulations thereunder and the provisions of
any exemptive order applicable to the California Quality Series, as
may be determined by the Trustees and disclosed in the then current
prospectus of California Quality Series, shares of a particular Class
may be automatically converted into shares of another Class; provided,
however, that such conversion shall be subject to the continuing
availability of an opinion of counsel to the effect that such
conversion does not constitute a taxable event under federal income
tax law. The Trustees, in their sole discretion, may suspend any
conversion rights if such opinion is no longer available.
(h) California Quality Class C Shares shall vote together with all other
Shares of the California Quality Series from time to time outstanding,
except that the Trustees may provide that any Class of Shares shall
vote separately as a Class, or together with one or more other Class
of Shares including any future Class as to any matter
<PAGE>
when (i) required by law, rule or exemptive order, (ii) they determine
that such matter affects only the interest of Shares of such Class or
Classes or affects the interests of Shares of such Class or Classes in
a manner different from that of the other Class or Classes or (iii)
they otherwise determine that to do so is necessary or desirable and
in the best interests of the Shareholders of such Class or Classes
under the circumstances.
(i) The net asset value of each Class of Shares of the California Quality
Series shall be determined on such days and at such time or times as
the Trustees shall determine. The method of determination of the net
asset value of a Class shall be determined by the Trustees and shall
be as set forth in the Prospectus.
(j) The Trustees may from time to time distribute ratably among the
shareholders of a Class of Shares of the California Quality Series
such proportionate share of the net profits, surplus (including
paid-in surplus), capital or assets held by the Trustees and
attributable to such Class as they may deem proper.
III. Florida Class C Shares.
(a) The additional class of Shares of the Florida Series is to be
designated "Class C Shares of the Seligman Florida Municipal Series of
Shares" (for purposes of this instrument such shares being referred to
as the "Florida Class C Shares").
(b) The Florida Class C Shares are to enjoy all of the rights and
preferences of a Class of Shares of the Trust as are contemplated by
the Declaration, and otherwise to be entitled to all of the rights and
privileges of Shares of the Florida Series.
(c) The authorized number of Florida Class C Shares shall be unlimited.
(d) All shares of the Florida Series that are currently issued and
outstanding shall continue to be designated "Class A Shares of the
Seligman Florida Municipal Series of Shares" (for purposes of this
instrument such Shares being referred to as the "Florida Class A
Shares") or Class D Shares of the Seligman Florida Municipal Series of
Shares" (for purposes of this instrument such Shares being referred to
as the "Florida Class D Shares").
(e) The assets belonging to each of the Florida Class A Shares, Florida
Class C Shares and Florida Class D Shares shall be charged with the
liabilities of the Florida Series in respect of such Class, and all
expenses, costs, charges, and reserves attributable to a Class. Any
general liabilities, expenses, costs, charges or reserves of Florida
Series that are not readily identifiable as belonging to any Class in
particular shall be allocated and charged by the Trustees to the
Classes in such manner and on such basis as the Trustees in their sole
discretion may deem fair and equitable.
<PAGE>
(f) Upon liquidation or termination of the Florida Series, Shareholders of
a Class shall be entitled to a pro rata share of the net assets of the
Florida Series attributable to such Class.
(g) At such time as shall be permitted under the Investment Company Act,
any applicable rules and regulations thereunder and the provisions of
any exemptive order applicable to the Florida Series, as may be
determined by the Trustees and disclosed in the then current
prospectus of Florida Series, shares of a particular Class may be
automatically converted into shares of another Class; provided,
however, that such conversion shall be subject to the continuing
availability of an opinion of counsel to the effect that such
conversion does not constitute a taxable event under federal income
tax law. The Trustees, in their sole discretion, may suspend any
conversion rights if such opinion is no longer available.
(h) Florida Class C Shares shall vote together with all other Shares of
the Florida Series from time to time outstanding, except that the
Trustees may provide that any Class of Shares shall vote separately as
a Class, or together with one or more other Class of Shares including
any future Class as to any matter when (i) required by law, rule or
exemptive order, (ii) they determine that such matter affects only the
interest of Shares of such Class or Classes or affects the interests
of Shares of such Class or Classes in a manner different from that of
the other Class or Classes or (iii) they otherwise determine that to
do so is necessary or desirable and in the best interests of the
Shareholders of such Class or Classes under the circumstances.
(i) The net asset value of each Class of Shares of the Florida Series
shall be determined on such days and at such time or times as the
Trustees shall determine. The method of determination of the net asset
value of a Class shall be determined by the Trustees and shall be as
set forth in the Prospectus.
(j) The Trustees may from time to time distribute ratably among the
shareholders of a Class of Shares of the Florida Series such
proportionate share of the net profits, surplus (including paid-in
surplus), capital or assets held by the Trustees and attributable to
such Class as they may deem proper.
IV. North Carolina Class C Shares.
(a) The additional class of Shares of the North Carolina Series is to be
designated "Class C Shares of the Seligman North Carolina Municipal
Series of Shares" (for purposes of this instrument such shares being
referred to as the "North Carolina Class C Shares").
(b) The North Carolina Class C Shares are to enjoy all of the rights and
preferences of a Class of Shares of the Trust as are contemplated by
the Declaration, and
<PAGE>
otherwise to be entitled to all of the rights and privileges of Shares
of the North Carolina Series.
(c) The authorized number of North Carolina Class C Shares shall be
unlimited.
(d) All shares of the North Carolina Series that are currently issued and
outstanding shall continue to be designated "Class A Shares of the
Seligman North Carolina Municipal Series of Shares" (for purposes of
this instrument such Shares being referred to as the "North Carolina
Class A Shares") or Class D Shares of the Seligman North Carolina
Municipal Series of Shares" (for purposes of this instrument such
Shares being referred to as the "North Carolina Class D Shares").
(e) The assets belonging to each of the North Carolina Class A Shares,
North Carolina Class C Shares and North Carolina Class D Shares shall
be charged with the liabilities of the North Carolina Series in
respect of such Class, and all expenses, costs, charges, and reserves
attributable to a Class. Any general liabilities, expenses, costs,
charges or reserves of North Carolina Series that are not readily
identifiable as belonging to any Class in particular shall be
allocated and charged by the Trustees to the Classes in such manner
and on such basis as the Trustees in their sole discretion may deem
fair and equitable.
(f) Upon liquidation or termination of the North Carolina Series,
Shareholders of a Class shall be entitled to a pro rata share of the
net assets of the North Carolina Series attributable to such Class.
(g) At such time as shall be permitted under the Investment Company Act,
any applicable rules and regulations thereunder and the provisions of
any exemptive order applicable to the North Carolina Series, as may be
determined by the Trustees and disclosed in the then current
prospectus of North Carolina Series, shares of a particular Class may
be automatically converted into shares of another Class; provided,
however, that such conversion shall be subject to the continuing
availability of an opinion of counsel to the effect that such
conversion does not constitute a taxable event under federal income
tax law. The Trustees, in their sole discretion, may suspend any
conversion rights if such opinion is no longer available.
(h) North Carolina Class C Shares shall vote together with all other
Shares of the North Carolina Series from time to time outstanding,
except that the Trustees may provide that any Class of Shares shall
vote separately as a Class, or together with one or more other Class
of Shares including any future Class as to any matter when (i)
required by law, rule or exemptive order, (ii) they determine that
such matter affects only the interest of Shares of such Class or
Classes or affects the interests of Shares of such Class or Classes in
a manner different from that of the other Class or Classes or (iii)
they otherwise determine that to do so is necessary or desirable and
in the best interests of the Shareholders of such Class or Classes
under the circumstances.
<PAGE>
(i) The net asset value of each Class of Shares of the North Carolina
Series shall be determined on such days and at such time or times as
the Trustees shall determine. The method of determination of the net
asset value of a Class shall be determined by the Trustees and shall
be as set forth in the Prospectus.
(j) The Trustees may from time to time distribute ratably among the
shareholders of a Class of Shares of the North Carolina Series such
proportionate share of the net profits, surplus (including paid-in
surplus), capital or assets held by the Trustees and attributable to
such Class as they may deem proper.
This instrument shall be effective upon its execution by the majority of
Trustees referred to above and shall have the status of, and shall be, an
amendment to the Declaration.
Capitalized terms not defined herein shall have the meanings attributed to
them in the Declaration.
IN WITNESS WHEREOF, each of the undersigned Trustees has set his/her
signature as of the date first above written.
___________________________________ _____________________________________
___________________________________ _____________________________________
___________________________________ _____________________________________
___________________________________ _____________________________________
___________________________________ _____________________________________
___________________________________ _____________________________________
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 o fax 617-526-5000
May 27, 1999
Seligman Municipal Series Trust
One Bankers Trust Plaza
New York, New York 10006
Ladies and Gentlemen:
Seligman Municipal Series Trust (the "Trust"), is a Massachusetts business
trust created under a Declaration of Trust dated, executed and delivered in
Boston, Massachusetts on July 25, 1984, as amended from time to time (as so
amended, the "Declaration of Trust"). The beneficial interests thereunder are
represented by transferable shares of beneficial interest, $.001 par value.
The Trustees have the powers set forth in the Declaration of Trust, subject
to the terms, provisions and conditions therein provided. Pursuant to Article
VI, Section 6.1 of the Declaration of Trust, the number of shares of beneficial
interest authorized to be issued under the Declaration of Trust is unlimited and
the Trustees are authorized to divide the shares into one or more series of
shares and one or more classes thereof as they deem necessary or desirable.
Pursuant to Article VI, Section 6.4 of the Declaration of Trust, the Trustees
are empowered in their discretion to issue shares of any series for such amount
and type of consideration, including cash or property, and on such terms as the
Trustees may deem best, all without action or approval of the shareholders.
Pursuant to Article VI, Section 6.9 of the Declaration of Trust, the
Trustees have established four separate series of shares designated "Seligman
California Municipal High-Yield Series", "Seligman California Municipal Quality
Series", "Seligman Florida Municipal Series" and "Seligman North Carolina
Municipal Series" (collectively, the "Series"). As of the date of this opinion
the Trustees have divided the shares of each Series into four classes designated
Class A, Class C and Class D.
The Trustees have voted to authorize the officers of the Trust to determine
the appropriate number of shares to be registered, to register with the
Securities and Exchange Commission, and to issue and sell to the public, such
shares.
Washington, DC Boston, MA London, UK*
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
<PAGE>
We have examined the Declaration of Trust and By-Laws, each as amended from
time to time, of the Trust, resolutions of the Board of Trustees relating to the
authorization and issuance of shares of beneficial interest of the Trust, and
such other documents as we have deemed necessary or appropriate for the purposes
of this opinion, including, but not limited to, originals, or copies certified
or otherwise identified to our satisfaction, of such documents, Trust records
and other instruments. In our examination of the above documents, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as certified of photostatic copies.
For purposes of this opinion letter, we have not made an independent review
of the laws of any state or jurisdiction other than The Commonwealth of
Massachusetts and express no opinion with respect to the laws of any
jurisdiction other than the laws of The Commonwealth of Massachusetts. Further,
we express no opinion as to compliance with any state or federal securities
laws, including the securities laws of The Commonwealth of Massachusetts.
Our opinion below, as it relates to the non-assessability of the shares of
the Trust, is qualified to the extent that under Massachusetts law, shareholders
of a Massachusetts business trust may be held personally liable for the
obligations of the Trust. In this regard, however, please be advised that the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires notice of such disclaimer to be given in each contract or
instrument made or issued by the Trustees of the Trust. Also, the Declaration of
Trust provides for indemnification out of Trust property against all claims and
liabilities any shareholder held personally liable for the obligations of the
Trust.
We are of the opinion that all necessary Trust action precedent to the
issuance of the shares of beneficial interest of the Trust has been duly taken,
and that all such shares may legally and validly be issued for among other
things, cash, and when sold will be, fully paid and non-assessable by the Trust
upon receipt by the Trust or its agent of consideration therefor in accordance
with terms described in the Trust's Declaration of Trust, subject to compliance
with the Securities Act of 1933, as amended, the Investment Company Act of 1940,
as amended, and the applicable state laws regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an exhibit to any amendments to the Trust's registration
statement. Except as provided in this paragraph, this opinion may not be relied
upon by, or filed with, any other parties or for any other purpose.
Very truly yours,
/s/Hale and Dorr LLP
Hale and Dorr LLP
<PAGE>
SULLIVAN & CROMWELL
May 27, 1999
Seligman Municipal Series Trust,
100 Park Avenue,
New York, N.Y. 10017.
Dear Sirs:
In connection with Post-Effective Amendment No.30 to the Registration
Statement on Form N-1A (File No. 2-92569) of Seligman Municipal Series Trust, a
Massachusetts business trust (the "Fund"), which you expect to file under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to an
indefinite number of shares of beneficial interest, par value $0.001 per share,
of the class designated as Class C shares (the "Shares") of the series of the
Fund designated Seligman California Municipal High-Yield Series, Seligman
California Municipal Quality Series, Seligman Florida Municipal Series and
Seligman North Carolina Municipal Series (collectively, the "Series"), we, as
your counsel, have examined such trust records, certificates and other
documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion, the
Fund is authorized to issue an unlimited number of Shares of each Series and,
when the Post-Effective Amendment referred to above has become effective under
the Securities Act and the Shares have been issued (a) for at least the par
value thereof in accordance with the Registration Statement referred to above,
and (b) in accordance with the authorization of the Board of Trustees, the
Shares will be duly and validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the Commonwealth of Massachusetts, and we are expressing no
opinion as to the effect of the laws of any other jurisdiction. With respect to
all matters of Massachusetts law, we have relied upon the opinion, dated May 27,
1999 of Hale and Dorr LLP, and our opinion is subject to the same qualifications
and limitations with respect to such matters as are contained in such opinion of
Hale and Dorr LLP.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendment referred to above. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
SULLIVAN & CROMWELL
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CONSENT OF INDEPENDENT AUDITORS
Seligman Municipal Series Trust:
We consent to the use in Post-Effective Amendment No. 30 to Registration
Statement No. 2-92569 of our reports dated October 30, 1998, and April 30, 1999,
appearing in the Annual Report to Shareholders for the year ended September 30,
1998, and the Mid-Year Report to Shareholders for the six months ended March 31,
1999, respectively, incorporated by reference in the Statement of Additional
Information, and to the reference to us under the caption "Financial Highlights"
in the Prospectus, which is also part of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
May 26, 1999
[LETTERHEAD OF SULLIVAN & CROMWELL]
May 28, 1999
Seligman Municipal Series Trust,
100 Park Avenue, 8th Floor,
New York, New York 10017.
Ladies and Gentlemen:
We hereby consent to the reference to us in the Registration Statement for
Seligman Muncipal Series Trust. In giving such consent we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended.
Very truly yours,
/S/ SULLIVAN & CROMWELL
HORACK, TALLEY, PHARR & LOWNDES
Professional Association
2600 ONE FIRST UNION CENTER
301 SOUTH COLLEGE STREET
CHARLOTTE, NORTH CAROLINA 28202-6038
May 19, 1999
Seligman Municipal Series Trust
100 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
With respect to Post-Effective Amendment No. 30 to the Registration
Statement on Form N-1A under the Securities and Exchange Act of 1933, as
amended, of Seligman Municipal Series Trust, of which Seligman North Carolina
Municipal Series is a series, we have reviewed the material relative to North
Carolina Taxes in the Registration Statement. Subject to such review, our
opinion as delivered to you and as filed with the Securities and Exchange
Commission remains unchanged.
We consent to the filing of this consent as an exhibit to the Registration
Statement and to the reference to us under the heading "North Carolina Taxes."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
HORACK, TALLEY, PHARR & LOWNDES
/s/ Stephen L. Smith
Stephen L. Smith
INVESTMENT LETTER
SELIGMAN MUNICIPAL SERIES TRUST
Seligman Municipal Series Trust (the "Trust"), an open-end, non-diversified
management investment company, and the undersigned ("Purchaser"), intending to
be legally bound, hereby agree as follows:
1. The Trust hereby sells to Purchaser and Purchaser purchases 1 Class C share
of beneficial interest (par value $.001) of each of Seligman California
Municipal High-Yield Series, Seligman California Municipal Quality Series,
Seligman Florida Municipal Series and Seligman North Carolina Municipal
Series, each a series of the Trust, (the "Shares") each at a price
equivalent to the net asset value of one Class D share of the same Series
as of the close of business on May 27, 1999. The Trust hereby acknowledges
receipt from the Purchaser of funds in such amount in full payment for the
Shares.
2. Purchaser represents and warrants to the Trust that the Shares are being
acquired for investment and not with a view to distribution thereof, and
that Purchaser has no present intention to redeem or dispose of the Shares.
IN WITNESS WHEREOF, the parties have executed this agreement as of the 28th
day of May, 1999.
SELIGMAN MUNICIPAL SERIES TRUST
By:
--------------------------
Name: Lawrence P. Vogel
Title: Vice President
J. & W. SELIGMAN & CO. INCORPORATED
By:
--------------------------
Name: Brian T. Zino
Title: President
ADMINISTRATION, SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
As amended and restated through June 1, 1999
Section 1. Seligman Municipal Series Trust (the "Trust") will pay fees to
Seligman Advisors, Inc., the principal underwriter of its shares (the
"Distributor"), for administration, shareholder services and distribution
assistance for the Class A, Class C and Class D shares of the Trust. As a
result, the Trust is adopting this Administration, Shareholder Services and
Distribution Plan (the "Plan") pursuant to Section 12(b) of the Investment
Company Act of 1940, as amended (the "Act") and Rule 12b-1 thereunder.
Section 2. Pursuant to this Plan, each Series of the Trust may pay to the
Distributor a shareholder servicing fee of up to .25% on an annual basis of the
average daily net assets of the Series (payable quarterly with respect to Class
A and monthly with respect to Class C and Class D) and a distribution fee up to
.75% on an annual basis, payable monthly, of the average daily net assets of the
Series attributable to Class C and Class D shares. Such fees will be used in
their entirety by the Distributor to make payments for administration,
shareholder services and distribution assistance, including, but not limited to
(i) compensation to securities dealers and other organizations (each, a "Service
Organization" and collectively, the "Service Organizations"), for providing
distribution assistance with respect to assets invested in the Series, (ii)
compensation to Service Organizations for providing administration, accounting
and other shareholder services with respect to the Series' shareholders, and
(iii) otherwise promoting the sale of shares of the Series, including paying for
the preparation of advertising and sales literature and the printing and
distribution of such promotional materials and prospectuses to prospective
investors and defraying the Distributor's costs incurred in connection with its
marketing efforts with respect to shares of the Series. To the extent a Service
Organization provides administration, accounting and other shareholder services,
payment for which is not required to be made pursuant to a plan meeting the
requirements of Rule 12b-1, a portion of the fee paid by the Series shall be
deemed to include compensation for such services. The fees received from the
Series hereunder in respect of the Class A shares may not be used to pay any
interest expense, carrying charges or other financing costs, and fees received
hereunder may not be used to pay any allocation of overhead of the Distributor.
The fees of any particular class of and Series of the Trust may not be used to
subsidize the sale of shares of any other class. The fees payable to Service
Organizations from time to time shall, within such limits, be determined by the
Trustees of the Trust.
Section 3. J. & W. Seligman & Co. Incorporated, the Trust's investment
manager (the "Manager"), in its sole discretion, may make payments to the
Distributor for similar purposes. These payments will be made by the Manager
from its own resources, which may include the management fee that the Manager
receives from the Trust.
1
<PAGE>
Section 4. This Plan shall continue in effect through December 31 of each
year so long as such continuance is specifically approved at least annually by
vote of a majority of both (a) the Trustees of the Trust and (b) the Qualified
Trustees, cast in person at a meeting called for the purpose of voting on such
approval.
Section 5. The Distributor shall provide to the Trust's Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated by the Trust with respect to any
class at any time by vote of a majority of the Qualified Trustees, or by vote of
a majority of the outstanding voting securities of such class. If this Plan is
terminated in respect of a class, no amounts (other than amounts accrued but not
yet paid) would be owed by the Trust to the Distributor with respect to such
class.
Section 7. All agreements related to this Plan shall be in writing, and
shall be approved by vote of a majority of both (a) the Trustees of the Trust
and (b) the Qualified Trustees, cast in person at a meeting called for the
purpose of voting on such approval, provided, however, that the identity of a
particular Service Organization executing any such agreement may be ratified by
such a vote within 90 days of such execution. Any agreement related to this Plan
shall provide:
A. That such agreement may be terminated in respect of any class of any
Series of the Trust at any time, without payment of any penalty, by
vote of a majority of the Qualified Trustees or by vote of a majority
of the outstanding voting securities of the class, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 8. This Plan may not be amended to increase materially the amount
of fees permitted pursuant to Section 2 hereof without the approval of a
majority of the outstanding voting securities of the relevant class and no
material amendment to this Plan shall be approved other than by vote of a
majority of both (a) the Trustees of the Trust and (b) the Qualified Trustees,
cast in person at a meeting called for the purpose of voting on such approval.
Section 9. The Trust is not obligated to pay any administration,
shareholder services or distribution expense in excess of the fee described in
Section 2 hereof, and, in the case of Class A shares, any expenses of
administration, shareholder services and distribution of Class A shares of and
Series of the Trust accrued in one fiscal year of the Trust may not be paid from
administration, shareholder services and distribution fees received from the
Trust in respect of Class A shares in any other fiscal year.
2
<PAGE>
Section 10. As used in this Plan, (a) the terms "assignment", "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission and (b) the term "Qualified Trustees" shall mean the
Trustees of the Trust who are not "interested persons" of the Trust and have no
direct or indirect financial interest in the operation of this Plan or in any
agreement related to this Plan.
3
SELIGMAN GROUP OF MUTUAL FUNDS
Plan for Multiple Classes of Shares (three classes)
THIS PLAN, as it may be amended from time to time, sets forth the separate
arrangement and expense allocation of each class of shares (a "Class") of each
registered open-end management investment company, or series thereof, in the
Seligman Group of Mutual Funds that offers three classes of shares (each, a
"Fund"). The Plan has been adopted pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940, as amended (the "Act"), by a majority of the
Board of Directors or Trustees, as applicable ("Directors"), of each Fund listed
on Schedule I hereto, including a majority of the Directors who are not
interested persons of such Fund within the meaning of Section 2(a)(19) of the
Act ("Disinterested Directors"). Any material amendment to this Plan is subject
to the prior approval of the Board of Directors of each Fund to which it
relates, including a majority of the Disinterested Directors.
1. General
A. Any Fund may issue more than one Class of voting stock, provided
that each Class:
i. Shall have a different arrangement for shareholder services
or the distribution of securities or both, and shall pay
all of the expenses of that arrangement;
ii. May pay a different share of other expenses, not including
advisory or custodial fees or other expenses related to the
management of the Fund's assets, if these expenses are
actually incurred in a different amount by that Class, or
if the Class receives services of a different kind or to a
different degree than other Classes of the same Fund
("Class Level Expenses");
iii. May pay a different advisory fee to the extent that any
difference in amount paid is the result of the application
of the same performance fee provisions in the advisory
contract of the Fund to the different investment
performance of each Class;
iv. Shall have exclusive voting rights on any matter submitted
to shareholders that relates solely to its arrangement;
-1-
<PAGE>
v. Shall have separate voting rights on any matter submitted
to shareholders in which the interests of one Class differ
from the interests of any other Class; and
vi. Shall have in all other respects the same rights and
obligations as each other Class of the Fund.
B. i. Except as expressly contemplated by this paragraph B., no
types or categories of expenses shall be designated Class
Level Expenses.
ii. The Directors recognize that certain expenses arising in
certain sorts of unusual situations are properly
attributable solely to one Class and therefore should be
borne by that Class. These expenses ("Special Expenses")
may include, for example: (i) the costs of preparing a
proxy statement for, and holding, a special meeting of
shareholders to vote on a matter affecting only one Class;
(ii) the costs of holding a special meeting of Directors to
consider such a matter; (iii) the costs of preparing a
special report relating exclusively to shareholders of one
Class; and (iv) the costs of litigation affecting one Class
exclusively. J. & W. Seligman & Co. Incorporated (the
"Manager") shall be responsible for identifying expenses
that are potential Special Expenses.
iii. Subject to clause iv. below, any Special Expense identified
by the Manager shall be treated as a Class Level Expense.
iv. Any Special Expense identified by the Manager that is
material to the Class in respect of which it is incurred
shall be submitted by the Manager to the Directors of the
relevant Fund on a case by case basis with a recommendation
by the Manager as to whether it should be treated as a
Class Level Expense. If approved by the Directors, such
Special Expense shall be treated as a Class Level Expense
of the affected class.
C. i. Realized and unrealized capital gains and losses of a Fund
shall be allocated to each class of that Fund on the basis
of the aggregate net asset value of all outstanding shares
("Record Shares") of the Class in relation to the aggregate
net asset value of Record Shares of the Fund.
-2-
<PAGE>
ii. Income and expenses of a Fund not charged directly to a
particular Class shall be allocated to each Class of that
Fund on the following basis:
a. For periodic dividend funds, on the basis of the
aggregate net asset value of Record Shares of each
Class in relation to the aggregate net asset value
of Record Shares of the Fund.
b. For daily dividend funds, on the basis of the
aggregate net asset value of Settled Shares of each
Class in relation to the aggregate net asset value
of Settled Shares of the Fund. "Settled Shares"
means Record Shares minus the number of shares of
that Class or Fund that have been issued but for
which payment has not cleared and plus the number of
shares of that Class or Fund which have been
redeemed but for which payment has not yet been
issued.
D. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the Act and otherwise, will monitor each
Fund for the existence of any material conflicts among the
interests of its several Classes. The Directors, including a
majority of the Disinterested Directors, shall take such action as
is reasonably necessary to eliminate any such conflicts that may
develop. The Manager and Seligman Financial Services, Inc. (the
"Distributor") will be responsible for reporting any potential or
existing conflicts to the Directors. If a conflict arises, the
Manager and the Distributor will be responsible at their own
expense for remedying such conflict by appropriate steps up to and
including separating the classes in conflict by establishing a new
registered management company to operate one of the classes.
E. The plan of each Fund adopted pursuant to Rule 12b-1 under the Act
(the "Rule 12b-1 Plan") provides that the Directors will receive
quarterly and annual statements complying with paragraph
(b)(3)(ii) of Rule 12b-1, as it may be amended from time to time.
To the extent that the Rule 12b-1 Plan in respect of a specific
Class is a reimbursement plan, then only distribution expenditures
properly attributable to the sale of shares of that Class will be
used in the statements to support the Rule 12b-1 fee charged to
shareholders of such Class. In such cases expenditures not related
to the sale of a specific Class will not be presented to the
Directors to support Rule 12b-1 fees charged to shareholders of
such Class. The statements, including the allocations
-3-
<PAGE>
upon which they are based, will be subject to the review of the
Disinterested Directors.
F. Dividends paid by a Fund with respect to each Class, to the extent
any dividends are paid, will be calculated in the same manner, at
the same time and on the same day and will be in the same amount,
except that fee payments made under the Rule 12b-1 Plan relating
to the Classes will be borne exclusively by each Class and except
that any Class Level Expenses shall be borne by the applicable
Class.
G. The Directors of each Fund hereby instruct such Fund's independent
auditors to review expense allocations each year as part of their
regular audit process, to inform the Directors and the Manager of
any irregularities detected and, if specifically requested by the
Directors, to prepare a written report thereon. In addition, if
any Special Expense is incurred by a Fund and is classified as a
Class Level Expense in the manner contemplated by paragraph B.
above, the independent auditors for such Fund, in addition to
reviewing such allocation, are hereby instructed to report thereon
to the Audit Committee of the relevant Fund and to the Manager.
The Manager will be responsible for taking such steps as are
necessary to remedy any irregularities so detected, and will do so
at its own expense to the extent such irregularities should
reasonably have been detected and prevented by the Manager in the
performance of its services to the Fund.
2. Specific Arrangements for Each Class
The following arrangements regarding shareholder services, expense
allocation and other indicated matters shall be in effect with respect to the
Class A shares, Class C shares and Class D shares of each Fund. The following
descriptions are qualified by reference to the more detailed description of such
arrangements set forth in the prospectus statement of additional information
relating to each Fund, as the same may from time to time be amended or
supplemented (collectively for each Fund, the "Relevant Prospectus"), provided
that no Relevant Prospectus may modify the provisions of this Plan applicable to
Rule 12b-1 fees or Class Level Expenses.
(a) Class A Shares
i. Class A shares are subject to an initial sales load which
varies with the size of the purchase, to a maximum of 4.75%
of the public offering price. Reduced sales loads shall
apply in certain
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<PAGE>
circumstances. Class A shares of Seligman Cash Management
Fund, Inc. shall not be subject to an initial sales load.
ii. Class A shares shall be subject to a Rule 12b-1 service fee
of up to 0.25% of average daily net assets.
iii. Special Expenses attributable to the Class A shares, except
those determined by the Directors not to be Class Level
Expenses of the Class A shares in accordance with paragraph
1.B.iv., shall be Class Level Expenses and attributed
solely to the Class A shares. No other expenses shall be
treated as Class Level Expenses of the Class A shares.
iv. The Class A shares shall be entitled to the shareholder
services, including exchange privileges, described in the
Relevant Prospectus.
(b) Class C Shares
i. Class C shares are subject to an initial sales load which
varies with the size of the purchase, to a maximum of 1.00%
of the public offering price, and a CDSL of 1% of the
lesser of the current net asset value or the original
purchase price in certain cases if the shares are redeemed
within eighteen months of purchase. Reduced sales loads
shall apply in certain circumstances.
ii. Class C shares shall be subject to a Rule 12b-1 fee of up
to 1.00% of average daily net assets, consisting of an
asset-based distribution fee of up to 0.75% and a service
fee of up to 0.25%.
iii. Special Expenses attributable to the Class C shares, except
those determined by the Directors not to be Class Level
Expenses of the Class C shares in accordance with paragraph
1.B.iv., shall be Class Level Expenses and attributed
solely to the Class C shares. No other expenses shall be
treated as Class Level Expenses of the Class C shares.
iv. The Class C shares shall be entitled to the shareholder
services, including exchange privileges, described in the
Relevant Prospectus.
-5-
<PAGE>
(c) Class D Shares
i. Class D shares are sold without an initial sales load but
are subject to a CDSL of 1% of the lesser of the current
net asset value or the original purchase price in certain
cases if the shares are redeemed within one year.
ii. Class D shares shall be subject to a Rule 12b-1 fee of up
to 1.00% of average daily net assets, consisting of an
asset-based distribution fee of up to 0.75% and a service
fee of up to 0.25%.
iii. Special Expenses attributable to the Class D shares, except
those determined by the Directors not to be Class Level
Expenses of the Class D shares in accordance with paragraph
1.B.iv., shall be Class Level Expenses and attributed
solely to the Class D shares. No other expenses shall be
treated as Class Level Expenses of the Class D shares.
iv. The Class D shares shall be entitled to the shareholder
services, including exchange privileges, described in the
Relevant Prospectus.
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<PAGE>
Schedule I
Seligman National Municipal Fund
Seligman California Quality Municipal Fund
Seligman California High-Yield Municipal Fund
Seligman Colorado Municipal Fund
Seligman Florida Municipal Fund
Seligman Georgia Municipal Fund
Seligman Louisiana Municipal Fund
Seligman Maryland Municipal Fund
Seligman Massachusetts Municipal Fund
Seligman Michigan Municipal Fund
Seligman Minnesota Municipal Fund
Seligman Missouri Municipal Fund
Seligman New Jersey Municipal Fund, Inc.
Seligman New York Municipal Fund
Seligman North Carolina Municipal Fund
Seligman Ohio Municipal Fund
Seligman Oregon Municipal Fund
Seligman Pennsylvania Municipal Fund
Series Seligman South Carolina Municipal Fund
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>021
<NAME> SELIGMAN MUNICIPAL SERIES TRUST-CALIFORNIA HIGH-YIELD CL A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 65635
<INVESTMENTS-AT-VALUE> 69515
<RECEIVABLES> 1251
<ASSETS-OTHER> 80
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 70847
<PAYABLE-FOR-SECURITIES> 3977
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247
<TOTAL-LIABILITIES> 4224
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62782
<SHARES-COMMON-STOCK> 8727<F1>
<SHARES-COMMON-PRIOR> 8590<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3880
<NET-ASSETS> 58337<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1586<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (248)<F1>
<NET-INVESTMENT-INCOME> 1338<F1>
<REALIZED-GAINS-CURRENT> 31
<APPREC-INCREASE-CURRENT> (864)
<NET-CHANGE-FROM-OPS> 637
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1338)<F1>
<DISTRIBUTIONS-OF-GAINS> (208)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1195<F1>
<NUMBER-OF-SHARES-REDEEMED> (1187)<F1>
<SHARES-REINVESTED> 129<F1>
<NET-CHANGE-IN-ASSETS> 1856
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 162
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 144<F1>
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 248<F1>
<AVERAGE-NET-ASSETS> 57840<F1>
<PER-SHARE-NAV-BEGIN> 6.80<F1>
<PER-SHARE-NII> .16<F1>
<PER-SHARE-GAIN-APPREC> (.10)<F1>
<PER-SHARE-DIVIDEND> (.16)<F1>
<PER-SHARE-DISTRIBUTIONS> (.02)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.68<F1>
<EXPENSE-RATIO> .86<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Class A only. All other data are fund level.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>024
<NAME> SELIGMAN MUNICIPAL SERIES TRUST-CALIFORNIA HIGH-YIELD CL D
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 65635
<INVESTMENTS-AT-VALUE> 69515
<RECEIVABLES> 1251
<ASSETS-OTHER> 80
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 70847
<PAYABLE-FOR-SECURITIES> 3977
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247
<TOTAL-LIABILITIES> 4224
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62782
<SHARES-COMMON-STOCK> 1238<F1>
<SHARES-COMMON-PRIOR> 940<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3880
<NET-ASSETS> 8286<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 195<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (63)<F1>
<NET-INVESTMENT-INCOME> 132<F1>
<REALIZED-GAINS-CURRENT> 31
<APPREC-INCREASE-CURRENT> (864)
<NET-CHANGE-FROM-OPS> 637
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (132)<F1>
<DISTRIBUTIONS-OF-GAINS> (24)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 400<F1>
<NUMBER-OF-SHARES-REDEEMED> (120)<F1>
<SHARES-REINVESTED> 18<F1>
<NET-CHANGE-IN-ASSETS> 1856
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 162
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18<F1>
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63<F1>
<AVERAGE-NET-ASSETS> 7107<F1>
<PER-SHARE-NAV-BEGIN> 6.80<F1>
<PER-SHARE-NII> .13<F1>
<PER-SHARE-GAIN-APPREC> (.09)<F1>
<PER-SHARE-DIVIDEND> (.13)<F1>
<PER-SHARE-DISTRIBUTIONS> (.02)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.69<F1>
<EXPENSE-RATIO> 1.76<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Class D only. All other data are fund level.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>051
<NAME> SELIGMAN MUNICIPAL SERIES TRUST-FLORIDA CL A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 42111
<INVESTMENTS-AT-VALUE> 44721
<RECEIVABLES> 919
<ASSETS-OTHER> 112
<OTHER-ITEMS-ASSETS> 2
<TOTAL-ASSETS> 45754
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 279
<TOTAL-LIABILITIES> 279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42855
<SHARES-COMMON-STOCK> 5465<F1>
<SHARES-COMMON-PRIOR> 5265<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2610
<NET-ASSETS> 43231<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1143<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (221)<F1>
<NET-INVESTMENT-INCOME> 922<F1>
<REALIZED-GAINS-CURRENT> 15
<APPREC-INCREASE-CURRENT> (600)
<NET-CHANGE-FROM-OPS> 378
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (922)<F1>
<DISTRIBUTIONS-OF-GAINS> (273)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 503<F1>
<NUMBER-OF-SHARES-REDEEMED> (365)<F1>
<SHARES-REINVESTED> 62<F1>
<NET-CHANGE-IN-ASSETS> 1071
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 282
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 108<F1>
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 221<F1>
<AVERAGE-NET-ASSETS> 43296<F1>
<PER-SHARE-NAV-BEGIN> 8.07<F1>
<PER-SHARE-NII> .17<F1>
<PER-SHARE-GAIN-APPREC> (.11)<F1>
<PER-SHARE-DIVIDEND> (.17)<F1>
<PER-SHARE-DISTRIBUTIONS> (.05)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.91<F1>
<EXPENSE-RATIO> 1.02<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Class A only. All other data are fund level.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>054
<NAME> SELIGMAN MUNICIPAL SERIES TRUST-FLORIDA CL D
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 42111
<INVESTMENTS-AT-VALUE> 44721
<RECEIVABLES> 919
<ASSETS-OTHER> 112
<OTHER-ITEMS-ASSETS> 2
<TOTAL-ASSETS> 45754
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 279
<TOTAL-LIABILITIES> 279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42855
<SHARES-COMMON-STOCK> 283<F1>
<SHARES-COMMON-PRIOR> 240<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2610
<NET-ASSETS> 2244<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 62<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (21)<F1>
<NET-INVESTMENT-INCOME> 41<F1>
<REALIZED-GAINS-CURRENT> 15
<APPREC-INCREASE-CURRENT> (600)
<NET-CHANGE-FROM-OPS> 378
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (41)<F1>
<DISTRIBUTIONS-OF-GAINS> (14)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105<F1>
<NUMBER-OF-SHARES-REDEEMED> (66)<F1>
<SHARES-REINVESTED> 4<F1>
<NET-CHANGE-IN-ASSETS> 1071
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 282
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6<F1>
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21<F1>
<AVERAGE-NET-ASSETS> 2350<F1>
<PER-SHARE-NAV-BEGIN> 8.08<F1>
<PER-SHARE-NII> .14<F1>
<PER-SHARE-GAIN-APPREC> (.10)<F1>
<PER-SHARE-DIVIDEND> (.14)<F1>
<PER-SHARE-DISTRIBUTIONS> (.05)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.93<F1>
<EXPENSE-RATIO> 1.77<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Class D only. All other data are fund level.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>041
<NAME> SELIGMAN MUNICIPAL SERIES TRUST-NORTH CAROLINA CL A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 29917
<INVESTMENTS-AT-VALUE> 31849
<RECEIVABLES> 525
<ASSETS-OTHER> 104
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32478
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130
<TOTAL-LIABILITIES> 130
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30376
<SHARES-COMMON-STOCK> 3820<F1>
<SHARES-COMMON-PRIOR> 3898<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 40
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1932
<NET-ASSETS> 30819<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 846<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (171)<F1>
<NET-INVESTMENT-INCOME> 675<F1>
<REALIZED-GAINS-CURRENT> 47
<APPREC-INCREASE-CURRENT> (518)
<NET-CHANGE-FROM-OPS> 230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (675)<F1>
<DISTRIBUTIONS-OF-GAINS> (452)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 77<F1>
<NUMBER-OF-SHARES-REDEEMED> (239)<F1>
<SHARES-REINVESTED> 84<F1>
<NET-CHANGE-IN-ASSETS> (1466)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 466
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 79<F1>
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 171<F1>
<AVERAGE-NET-ASSETS> 31624<F1>
<PER-SHARE-NAV-BEGIN> 8.30<F1>
<PER-SHARE-NII> .17<F1>
<PER-SHARE-GAIN-APPREC> (.11)<F1>
<PER-SHARE-DIVIDEND> (.17)<F1>
<PER-SHARE-DISTRIBUTIONS> (.12)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.07<F1>
<EXPENSE-RATIO> 1.08<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Class A only. All other data are fund level.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>044
<NAME> SELIGMAN MUNICIPAL SERIES TRUST-NORTH CAROLINA CL D
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 29917
<INVESTMENTS-AT-VALUE> 31849
<RECEIVABLES> 525
<ASSETS-OTHER> 104
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32478
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130
<TOTAL-LIABILITIES> 130
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30376
<SHARES-COMMON-STOCK> 190<F1>
<SHARES-COMMON-PRIOR> 176<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 40
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1932
<NET-ASSETS> 1529<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 40<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (14)<F1>
<NET-INVESTMENT-INCOME> 26<F1>
<REALIZED-GAINS-CURRENT> 47
<APPREC-INCREASE-CURRENT> (518)
<NET-CHANGE-FROM-OPS> 230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26)<F1>
<DISTRIBUTIONS-OF-GAINS> (21)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14<F1>
<NUMBER-OF-SHARES-REDEEMED> (5)<F1>
<SHARES-REINVESTED> 5<F1>
<NET-CHANGE-IN-ASSETS> (1466)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 466
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4<F1>
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14<F1>
<AVERAGE-NET-ASSETS> 1480<F1>
<PER-SHARE-NAV-BEGIN> 8.30<F1>
<PER-SHARE-NII> .14<F1>
<PER-SHARE-GAIN-APPREC> (.12)<F1>
<PER-SHARE-DIVIDEND> (.14)<F1>
<PER-SHARE-DISTRIBUTIONS> (.12)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.06<F1>
<EXPENSE-RATIO> 1.83<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Class D only. All other data are fund level.
</FN>
</TABLE>
