SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. __ |_|
Post-Effective Amendment No. 31 |X|
--
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 33 |X|
--
SELIGMAN MUNICIPAL SERIES TRUST
(Exact name of registrant as specified in charter)
100 PARK AVENUE, NEW YORK, NEW YORK 10017
(Address of principal executive offices)
Registrant's Telephone Number: 212-850-1864 or
Toll-Free 800-221-2450
THOMAS G. ROSE, Treasurer
100 Park Avenue
New York, New York 10017
(Name and address of agent for service)
It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b) |_| on (date) pursuant to
paragraph (a)(1)
|X| on January 31, 2000 pursuant to paragraph (b) |_| 75 days after filing
pursuant to paragraph (a)(2)
|_| 60 days after filing pursuant to paragraph (a)(1) |_| 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>
S E L I G M A N
---------------
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 in
this Prospectus, 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 2/2000
[GRAPHIC]
PROSPECTUS
FEBRUARY 1, 2000
------------
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 42
Shareholder Information
Deciding Which Class of Shares
to Buy 43
Pricing of Fund Shares 45
Opening Your Account 45
How to Buy Additional Shares 46
How to Exchange Shares Among
the Seligman Mutual Funds 46
How to Sell Shares 47
Important Policies That May Affect
Your Account 48
Dividends and Capital Gain
Distributions 49
Taxes 49
Financial Highlights 50
How to Contact Us 60
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
Seligman Municipal Series Trust offers the following four series:
<TABLE>
<S> <C>
California High-Yield Fund Florida Fund
California Quality Fund North Carolina Fund
</TABLE>
Seligman New Jersey Municipal Fund, Inc. (New Jersey Fund)
Seligman Pennsylvania Municipal Fund Series (Pennsylvania Fund)
INVESTMENT OBJECTIVES
Each Fund has its own investment objective(s). 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
objective(s).
PRINCIPAL INVESTMENT STRATEGIES
Each Fund also has its own investment strategies and risks.
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.
Alternative
Minimum Municipal securities are issued by state and local
Tax (AMT): governments, their agencies and authorities, as well as
A tax imposed on territories and possessions of the United States, and
certain types of the District of Columbia. Municipal bonds are issued to
income to ensure obtain funds to finance various public or private
that all projects, to meet general expenses, and to refinance
taxpayers pay at outstanding debt.
least a minimum
amount of taxes.
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 strategies
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.
1
<PAGE>
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.
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.
A 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 that Fund from achieving its objective(s).
PRINCIPAL RISKS
Below is a description of investment risks that apply to the Funds. More
specific risks that apply to individual Funds are included in the individual
Fund descriptions in the pages that follow.
The value of your investment in a Fund will fluctuate with fluctuations in the
value of the Fund's investment portfolio. You may experience a decline in the
value of your investment and you could lose money if you sell your shares at a
price lower than you paid for them.
The principal factors that may affect the value of a Fund's portfolio are
changes in interest rates and the credit worthiness of a Fund's portfolio
holdings, as described below:
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 that
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. Further, revenue bonds held by a Fund may be downgraded
or may default on payment if revenues from their underlying facilities
decline.
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 each Fund's 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 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.
2
<PAGE>
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.
Further, if certain securities or market sectors represented in a Fund's
portfolio do not perform as expected, that Fund's net asset value may
decline.
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.
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 that Fund
by showing how the performance of Class A shares has varied year to year, as
well as how the performance of each Class compares to the Lehman Brothers
Municipal Bond Index, a widely-used measure of municipal bond performance.
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 among each Fund's
Classes of shares due to their different fees and expenses.
FEES AND EXPENSES
The fees and expenses 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 your account. 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
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.
PRINCIPAL INVESTMENT STRATEGIES
The National Fund uses the following investment strategies to pursue its
investment objective:
The National Fund invests at least 80% of its net assets in municipal
securities of states, territories, and possessions of the United States, 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.
SPECIFIC RISKS
In respect of the National Fund's risks, please refer to the "Principal Risks"
section on page 2 of this Prospectus.
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 lower. 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.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.76% 5.47% 5.50% -- --
Class C n/a n/a n/a -7.61% --
Class D -6.90 5.56 n/a -- 2.46%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
Class A Annual Total Returns
Calendar Years
[GRAPH]
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%
99 -5.26%
Best calendar quarter return: 8.25% - quarter ended 3/31/95.
Worst calendar quarter return: -8.20% - quarter ended 3/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .23% .23% .23%
----- ----- -----
Total Annual Fund Operating Expenses.............. .83% 1.73% 1.73%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $556 $727 $ 914 $1,452
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $556 $727 $ 914 $1,452
Class C 274 639 1,029 2,121
Class D 176 545 939 2,041
</TABLE>
5
<PAGE>
California High-Yield Fund
INVESTMENT OBJECTIVE
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.
PRINCIPAL INVESTMENT STRATEGIES
The California High-Yield Fund uses the following investment strategies to
pursue its investment 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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
California High-Yield Fund is subject to the following risks:
. 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, economic factors,
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 lower. 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
[GRAPH]
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
99 -5.26
Best calendar quarter return: 6.48% - quarter ended 3/31/95.
Worst calendar quarter return: -2.34% - quarter ended 12/31/99.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.70% 4.73% 5.60% -- --
Class C n/a n/a n/a -8.28% --
Class D -7.15 4.74 n/a -- 3.18%
Lehman Brothers
Municipal Bond
Index 2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .23% .24% .24%
----- ----- -----
Total Annual Fund Operating Expenses.............. .83% 1.74% 1.74%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $557 $730 $ 919 $1,463
Class C 375 643 1,034 2,131
Class D 277 548 944 2,052
If you did not sell your shares at the end of each period, your expenses would
be:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $557 $730 $ 919 $1,463
Class C 275 643 1,034 2,131
Class D 177 548 944 2,052
</TABLE>
7
<PAGE>
California Quality Fund
INVESTMENT OBJECTIVE
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.
PRINCIPAL INVESTMENT STRATEGIES
The California Quality Fund uses the following investment strategies to pursue
its investment 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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
California Quality Fund is subject to the following risk:
. 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, economic factors,
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 lower. 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
[GRAPH]
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
99 -6.10
Best calendar quarter return: 8.97% - quarter ended 3/31/95.
Worst calendar quarter return: -6.63% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
------ ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -10.62% 5.19% 5.51% -- --
Class C n/a n/a n/a -8.26% --
Class D -7.87 5.21 n/a -- 2.49%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load) ...................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .22% .22% .22%
----- ----- -----
Total Annual Fund Operating Expenses.............. .82% 1.72% 1.72%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $555 $724 $ 908 $1,440
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $555 $724 $ 908 $1,440
Class C 273 636 1,024 2,110
Class D 175 542 933 2,030
</TABLE>
9
<PAGE>
Colorado Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Colorado Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Colorado Fund is subject to the following risks:
. 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, economic factors,
natural disasters, and the possibility of credit problems.
. The State is sensitive to national and international business cycles.
Changing demographics, resulting in possible labor shortages and an increase
in the cost of living and doing business in Colorado, could negatively
affect its economy. Turmoil in the world economy, especially in recent years
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 lower. 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
[GRAPH]
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
99 -5.26
Best calendar quarter return: 6.34% - quarter ended 3/31/95.
Worst calendar quarter return: -4.87% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.79% 3.89% 4.66% -- --
Class C n/a n/a n/a -8.14% --
Class D -6.89 3.92 n/a -- 2.01%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating Expenses for Fiscal 1999
----------------------------------------------
<S> <C> <C> <C>
(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.................................... .27% .27% .27%
----- ----- -----
Total Annual Fund Operating Expenses.............. .87% 1.77% 1.77%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
Class C 278 652 1,050 2,163
Class D 180 557 959 2,084
</TABLE>
11
<PAGE>
Florida Fund
INVESTMENT OBJECTIVE
The Florida Fund seeks high income exempt from regular federal income taxes
consistent with preservation of capital and with consideration given to capital
gain.
PRINCIPAL INVESTMENT STRATEGIES
The Florida Fund uses the following investment strategies to pursue its
investment 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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Florida Fund is subject to the following risks:
. 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 factors,
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 the 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 lower. 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
[GRAPH]
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
99 -4.89
Best calendar quarter return: 7.00% - quarter ended 3/31/95.
Worst calendar quarter return: -5.99% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.35% 4.67% 5.64% -- --
Class C n/a n/a n/a -7.51% --
Class D -6.38 4.90 n/a -- 2.81%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating Expenses for Fiscal 1999
----------------------------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Management Fees................................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees............................. .25% 1.00% 1.00%
Other Expenses.................................... .28% .28% .28%
----- ----- -----
Total Annual Fund Operating Expenses.............. 1.03% 1.78% 1.78%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $575 $787 $1,017 $1,675
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $575 $787 $1,017 $1,675
Class C 279 655 1,055 2,174
Class D 181 560 964 2,095
</TABLE>
13
<PAGE>
Georgia Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Georgia Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Georgia Fund is subject to the following risks:
. 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, economic factors, 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 lower. 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
[GRAPH]
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
99 -5.04
Best calendar quarter return: 7.71% - quarter ended 3/31/95.
Worst calendar quarter return: -6.83% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.53% 5.26% 5.66% -- --
Class C n/a n/a n/a -7.80% --
Class D -6.76 5.36 n/a -- 2.81%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating Expenses for Fiscal 1999
----------------------------------------------
<S> <C> <C> <C>
(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.................................... .27% .27% .27%
----- ----- -----
Total Annual Fund Operating Expenses.............. .87% 1.77% 1.77%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
Class C 278 652 1,050 2,163
Class D 180 557 959 2,084
</TABLE>
15
<PAGE>
Louisiana Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Louisiana Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Louisiana Fund is subject to the following risks:
. 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, economic factors,
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 lower. 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
[GRAPH]
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
99 -4.62
Best calendar quarter return: 6.57% - quarter ended 3/31/95.
Worst calendar quarter return: -5.38% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.20% 4.81% 5.46% -- --
Class C n/a n/a n/a -7.18% --
Class D -6.27 4.89 n/a -- 2.70%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .24% .24% .24%
----- ----- -----
Total Annual Fund Operating Expenses.............. .84% 1.74% 1.74%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $557 $730 $ 919 $1,463
Class C 375 643 1,034 2,131
Class D 277 548 944 2,052
If you did not sell your shares at the end of each period, your expenses would
be:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $557 $730 $ 919 $1,463
Class C 275 643 1,034 2,131
Class D 177 548 944 2,052
</TABLE>
17
<PAGE>
Maryland Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Maryland Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Maryland Fund is subject to the following risks:
. 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, economic factors,
natural disasters, and the possibility of credit problems.
. Because the Fund favors investing in revenue bonds, including revenue bonds
issued on behalf of health-care providers, 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 lower. 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
[GRAPH]
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
99 -3.34
Best calendar quarter return: 6.96% - quarter ended 3/31/95.
Worst calendar quarter return: -5.29% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -7.97% 4.99% 5.53% -- --
Class C n/a n/a n/a -6.26% --
Class D -4.79 5.11 n/a -- 2.97%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)..................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................. .27% .27% .27%
----- ----- -----
Total Annual Fund Operating Expenses............ .87% 1.77% 1.77%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
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:
<CAPTION>
1 Year 3 Year 5 Year 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
Class C 278 652 1,050 2,163
Class D 180 557 959 2,084
</TABLE>
19
<PAGE>
Massachusetts Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Massachusetts Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Massachusetts Fund is subject to the following risks:
. 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,
economic factors, 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 lower. 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
[GRAPH]
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
99 -6.73
Best calendar quarter return: 6.16% - quarter ended 3/31/95.
Worst calendar quarter return: -4.69% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
------ ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -11.11% 4.30% 5.50% -- --
Class C n/a n/a n/a -9.02% --
Class D -8.47 4.35 n/a -- 2.51%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .23% .23% .23%
----- ----- -----
Total Annual Fund Operating Expenses.............. .83% 1.73% 1.73%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $556 $727 $ 914 $1,452
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $556 $727 $ 914 $1,452
Class C 274 639 1,029 2,121
Class D 176 545 939 2,041
</TABLE>
21
<PAGE>
Michigan Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Michigan Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Michigan Fund is subject to the following risks:
. 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, economic factors,
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 may 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 lower. 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
[GRAPH]
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
99 -3.80
Best calendar quarter return: 6.57% - quarter ended 3/31/95.
Worst calendar quarter return: -4.63% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -8.38% 4.89% 5.73% -- --
Class C n/a n/a n/a -6.50% --
Class D -5.59 4.91 n/a -- 2.90%
Lehman Brothers
Municipal Bond
Index -2.06 6.42 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load) ...................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .22% .22% .22%
----- ----- -----
Total Annual Fund Operating Expenses.............. .82% 1.72% 1.72%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $555 $724 $ 908 $1,440
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $555 $724 $ 908 $1,440
Class C 273 636 1,024 2,110
Class D 175 542 933 2,030
</TABLE>
23
<PAGE>
Minnesota Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Minnesota Fund uses the following investment strategies to pursue its
investment objectives:
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, subject to
applicable requirements. Under these circumstances, the Fund may not achieve
its investment objective.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Minnesota Fund is subject to the following risks:
. 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, economic factors,
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 lower. 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
[GRAPH]
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
99 -4.15
Best calendar quarter return: 5.00% - quarter ended 3/31/95.
Worst calendar quarter return: -3.23% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -8.69% 3.64% 5.02% -- --
Class C n/a n/a n/a -7.01% --
Class D -5.92 3.70 n/a -- 2.33%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .24% .24% .24%
----- ----- -----
Total Annual Fund Operating Expenses.............. .84% 1.74% 1.74%
===== ===== =====
</TABLE>
(/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
ithin 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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $557 $730 $ 919 $1,463
Class C 375 643 1,034 2,131
Class D 277 548 944 2,052
If you did not sell your shares at the end of each period, your expenses would
be:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $557 $730 $ 919 $1,463
Class C 275 643 1,034 2,131
Class D 177 548 944 2,052
</TABLE>
25
<PAGE>
Missouri Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Missouri Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Missouri Fund is subject to the following risks:
. 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, economic factors,
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, 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 lower. 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
[GRAPH]
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%
99 -5.59%
Best calendar quarter return: 7.31% - quarter ended 3/31/95.
Worst calendar quarter return: -6.11% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
------ ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -10.08% 4.50% 5.21% -- --
Class C n/a n/a n/a -8.10% --
Class D -7.35 4.55 n/a -- 2.32%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating Expenses for Fiscal 1999
----------------------------------------------
<S> <C> <C> <C>
(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.................................... .27% .27% .27%
----- ----- -----
Total Annual Fund Operating Expenses.............. .87% 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.
</TABLE>
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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $560 $739 $ 934 $1,497
Class C 278 652 1,050 2,163
Class D 180 557 959 2,084
</TABLE>
27
<PAGE>
New Jersey Fund
INVESTMENT OBJECTIVE
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.
PRINCIPAL INVESTMENT STRATEGIES
The New Jersey Fund uses the following investment strategies to pursue its
investment 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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the New
Jersey Fund is subject to the following risks:
. 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, economic factors,
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 lower. 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
[GRAPH]
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%
99 -5.58%
Best calendar quarter return: 6.78% - quarter ended 3/31/95.
Worst calendar quarter return: -5.63% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
------ ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -10.07% 4.42% 5.40% -- --
Class C n/a n/a n/a -8.19% --
Class D -7.08 4.64 n/a -- 2.62%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating Expenses for Fiscal 1999
----------------------------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Management Fees................................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees............................. .25% 1.00% 1.00%
Other Expenses.................................... .32% .32% .32%
----- ----- -----
Total Annual Fund Operating Expenses.............. 1.07% 1.82% 1.82%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $579 $799 $1,037 $1,719
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $579 $799 $1,037 $1,719
Class C 283 667 1,075 2,216
Class D 185 573 985 2,137
</TABLE>
29
<PAGE>
New York Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The New York Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the New
York Fund is subject to the following risks:
. 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, economic factors,
natural disasters, and the possibility of credit problems.
. New York City and certain localities outside New York City have experienced
financial problems in the past. Recurrence of 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 lower. 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
[GRAPH]
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%
99 -5.64%
Best calendar quarter return: 8.13% - quarter ended 3/31/95.
Worst calendar quarter return: -6.61% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
------ ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -10.08% 5.54% 5.84% -- --
Class C n/a n/a n/a -8.10% --
Class D -7.50 5.57 n/a -- 2.88%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(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.................................... .21% .21% .21%
----- ----- -----
Total Annual Fund Operating Expenses.............. .81% 1.71% 1.71%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $554 $721 $ 903 $1,429
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $554 $721 $ 903 $1,429
Class C 272 633 1,019 2,099
Class D 174 539 928 2,019
</TABLE>
31
<PAGE>
North Carolina Fund
INVESTMENT OBJECTIVE
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.
PRINCIPAL INVESTMENT STRATEGIES
The North Carolina Fund uses the following investment strategies to pursue its
investment 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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
North Carolina Fund is subject to the following risks:
. 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,
economic factors, 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 this matter, pressure on
state revenues may be ongoing.
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 lower. 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
[GRAPH]
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%
99 -5.02%
Best calendar quarter return: 8.72% - quarter ended 3/31/95.
Worst calendar quarter return: -6.73% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
SINCE SINCE SINCE
ONE FIVE INCEPTION INCEPTION INCEPTION
YEAR YEARS 8/27/90 5/27/99 2/1/94
----- ----- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.48% 5.05% 5.47% -- --
Class C n/a n/a n/a -7.41% --
Class D -6.62 5.29 n/a -- 2.75%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 7.09(1) -2.59(2) 4.67(3)
</TABLE>
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 5/31/99.
(3) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Management Fees................................... .50% .50% .50%
Distribution and/or
Service (12b-1) Fees............................. .25% 1.00% 1.00%
Other Expenses.................................... .31% .31% .31%
----- ----- -----
Total Annual Fund Operating Expenses.............. 1.06% 1.81% 1.81%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $578 $796 $1,032 $1,708
Class C 382 664 1,070 2,205
Class D 284 569 980 2,127
If you did not sell your shares at the end of each period, your expenses would
be:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $578 $796 $1,032 $1,708
Class C 282 664 1,070 2,205
Class D 184 569 980 2,127
</TABLE>
33
<PAGE>
Ohio Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Ohio Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Ohio Fund is subject to the following risks:
. 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, economic factors,
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 lower. 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
[GRAPH]
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%
99 -4.65%
Best calendar quarter return: 6.47% - quarter ended 3/31/95.
Worst class quarter return; -4.89% - quarter ended. 3/31/94
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.22% 4.50% 5.47% -- --
Class C n/a n/a n/a -7.38% --
Class D -6.37 4.60 n/a -- 2.67%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating Expenses for Fiscal 1999
----------------------------------------------
<S> <C> <C> <C>
(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.................................... .21% .21% .21%
----- ----- -----
Total Annual Fund Operating Expenses.............. .81% 1.71% 1.71%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $554 $721 $ 903 $1,429
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $554 $721 $ 903 $1,429
Class C 272 633 1,019 2,099
Class D 174 539 928 2,019
</TABLE>
35
<PAGE>
Oregon Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The Oregon Fund uses the following strategies to pursue its objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Oregon Fund is subject to the following risks:
. 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, economic factors,
natural disasters, and the possibility of credit problems.
. Oregon's economy continues to be affected by the technology manufacturing,
forest products, and agricultural industries, which have all declined in
recent years due to 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 lower. 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
[GRAPH]
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%
99 -3.95%
Best calendar quarter return: 6.15% - quarter ended 3/31/95.
Worst calendar quarter return: -4.48% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -8.55% 4.71% 5.41% -- --
Class C n/a n/a n/a -6.97% --
Class D -5.86 4.74 n/a -- 2.87%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)....................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating Expenses for Fiscal 1999
----------------------------------------------
<S> <C> <C> <C>
(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.................................... .26% .26% .26%
----- ----- -----
Total Annual Fund Operating Expenses.............. .86% 1.76% 1.76%
===== ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $559 $736 $ 929 $1,485
Class C 377 649 1,045 2,152
Class D 279 554 954 2,073
If you did not sell your shares at the end of each period, your expenses would
be:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $559 $736 $ 929 $1,485
Class C 277 649 1,045 2,152
Class D 179 554 954 2,073
</TABLE>
37
<PAGE>
Pennsylvania Fund
INVESTMENT OBJECTIVE
The Pennsylvania Fund seeks high income exempt from regular federal income tax
and Pennsylvania income taxes consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Pennsylvania Fund uses the following investment strategies to pursue its
investment 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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
Pennsylvania Fund is subject to the following risks:
. 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, economic factors,
natural disasters, and the possibility of credit problems.
. Pennsylvania and various of its political subdivisions, including the City of
Philadelphia and the City of Scranton, have in the past, encountered
financial difficulties due to slowdowns in the pace of economic activity and
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 lower. 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
[GRAPH]
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%
99 -5.19%
Best calendar quarter return: 7.59% - quarter ended 3/31/95.
Worst calendar quarter return: -6.40% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -9.70% 4.92% 5.52% -- --
Class C n/a n/a n/a -7.77% --
Class D -6.82 5.11 n/a -- 2.65%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
---------------- --------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load).................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Management Fees................................ .50% .50% .50%
Distribution and/or
Service (12b-1) Fees.......................... .25% 1.00% 1.00%
Other Expenses................................. .46% .46% .46%
--------- ----- -----
Total Annual Fund Operating Expenses........... 1.21% 1.96% 1.96%
========= ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $592 $841 $1,108 $1,871
Class C 397 709 1,147 2,362
Class D 299 615 1,057 2,285
If you did not sell your shares at the end of each period, your expenses would
be:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $592 $841 $1,108 $1,871
Class C 297 709 1,147 2,362
Class D 199 615 1,057 2,285
</TABLE>
39
<PAGE>
South Carolina Fund
INVESTMENT OBJECTIVES
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.
PRINCIPAL INVESTMENT STRATEGIES
The South Carolina Fund uses the following investment strategies to pursue its
investment objectives:
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.
SPECIFIC RISKS
In addition to the principal risks stated on page 2 of this Prospectus, the
South Carolina Fund is subject to the following risks:
. 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,
economic factors, 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 in recent years through
June 30, 1993. These 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 lower. 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
[GRAPH]
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%
99 -5.59%
Best calendar quarter return: 7.23% - quarter ended 3/31/95.
Worst calendar quarter return: -6.18% - quarter ended 3/31/94.
Average Annual Total Returns
Periods Ended 12/31/99
<TABLE>
<CAPTION>
CLASS C CLASS D
SINCE SINCE
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS 5/27/99 2/1/94
------ ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Class A -10.07% 4.79% 5.37% -- --
Class C n/a n/a n/a -8.06% --
Class D -7.22 4.89 n/a -- 2.55%
Lehman Brothers
Municipal Bond
Index -2.06 6.92 6.89 -2.59(1) 4.67(2)
</TABLE>
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 5/31/99.
(2) From 1/31/94.
FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder Fees Class A Class C Class D
- ---------------- --------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge (Load)..................... 4.75% 2% 1%
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%
<CAPTION>
Annual Fund Operating
Expenses for Fiscal 1999
- ------------------------
<S> <C> <C> <C>
(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.................................. .23% .23% .23%
--------- ----- -----
Total Annual Fund Operating Expenses............ .83% 1.73% 1.73%
========= ===== =====
</TABLE>
(/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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $556 $727 $ 914 $1,452
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:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $556 $727 $ 914 $1,452
Class C 274 639 1,029 2,121
Class D 176 545 939 2,041
</TABLE>
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 20 US registered
investment companies, which offer more than 50 investment portfolios with
approximately $27.4 billion in assets as of December 31, 1999. Seligman also
provides investment management or advice to institutional or other accounts
having an aggregate value at December 31, 1999, of approximately $11.3 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
Year 2000
January 1, 2000 has come and gone. Participants in the financial services
industry, including Seligman and SDC, have substantially completed programs
designed to ensure that their computer systems properly process
and calculate date-related information in the Year 2000 and beyond. To
date, the Funds have not experienced any Year 2000-related problems, and
the Funds believe that the systems on which they rely will continue to
function properly, but this is not guaranteed. The Funds, like
other investment companies, financial and business organizations and
individuals around the world, could be adversely affected if the computer
systems on which they rely (including the systems of their third-party
service providers) fail to interpret data properly because of Year 2000
issues, including any impact on the issuers of securities in which the
Funds invest. A Year 2000 problem yet to be identified or anticipated by
those issuers, or identified but not adequately addressed, could adversely
impact a Fund's performance.
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 the Funds since their inception. He 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>
Shareholder Information
Deciding Which Class of Shares to Buy
Each of the Fund's Classes represents 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:
. The amount you plan to invest.
. How long you intend to remain invested in the Fund, or another Seligman
mutual fund.
. 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.
. 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
. Initial sales charge on Fund purchases, as set forth below:
<TABLE>
<CAPTION>
Sales Charge Regular Dealer
Sales Charge as a % Discount
Amount as a % of Net as a % of
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.
. Annual 12b-1 fee (for shareholder services) of up to 0.25%.
. No sales charge on reinvested dividends or capital gain distributions.
. Certain employer-sponsored defined contribution-type plans can purchase
shares with no initial sales charge.
Class C
. 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 $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.
. A 1% CDSC on shares sold within eighteen months of purchase.
. Annual 12b-1 fee (for distribution and shareholder services) of 1.00%.
. No automatic conversion to Class A shares, so you will be subject to
higher ongoing 12b-1 fees indefinitely.
. No sales charge on reinvested dividends or capital gain distributions.
. No CDSC when you sell shares purchased with reinvested dividends or
capital gain distributions.
43
<PAGE>
Class D*
. No initial sales charge on purchases.
. A 1% CDSC on shares sold within one year of purchase.
. Annual 12b-1 fee (for distribution and shareholder services) of 1.00%.
. No CDSC when you sell shares purchased with reinvested dividends or
capital gain distributions.
* Class D shares are not available to all investors. 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.
44
<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
NAV: broker/dealer or financial advisor after the close of
Computed regular trading on the NYSE, or is accepted by Seligman
separately for Advisors after the close of business, the order will be
each Class of a executed at the Class's NAV calculated as of the close
Fund by dividing of regular trading on the next NYSE trading day. When
that Class's you sell shares, you receive the Class's per share NAV,
share of the less any applicable CDSC.
value of the net
assets of the The NAV of a Fund's shares is determined each day,
Fund (i.e., its Monday through Friday, on days that the NYSE is open
assets less for trading. Because of their higher 12b-1 fees, the
liabilities) by NAV of Class C shares and Class D shares will generally
the total number be lower than the NAV of Class A shares of a Fund.
of outstanding
shares of the
Class.
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:
.Regular (non-retirement) accounts: $1,000
.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.
45
<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 a 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 HarvesterSM. 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.
46
<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 Fund shares; however, it may
take longer to get your money.
As an additional measure to protect you and the Fund, SDC may 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 affect 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 the account owner; 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:
.a corporation;
.an executor or administrator;
.a trustee or custodian; or
.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 distributions,
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 may ask
SDC to 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.
47
<PAGE>
Important Policies That May Affect Your Account
To protect you and other shareholders, each Fund reserves the right to:
. 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.
. Refuse any request to buy Fund shares;
. Reject any request received by telephone;
. Suspend or terminate telephone services;
. Reject a signature guarantee that SDC believes may be fraudulent;
. Close your fund account if its value falls below $500;
. 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:
. Sell uncertificated shares (up to $50,000 per day, payable to account
owner(s) and mailed to address of record);
. Exchange shares between funds;
. Change dividend and/or capital gain distribution options;
. Change your address;
. 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:
. Trust accounts on which the current trustee is not listed may not sell
Fund shares by phone.
. Corporations may not sell Fund shares by phone.
. IRAs may only exchange Fund shares or request address changes by phone.
. 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 supplemental elec-
tion 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.
48
<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' distributions will be primarily income
dividends.
You may elect to:
(1) reinvest both dividends and capital gain
Dividend: distributions;
(2) receive dividends in cash and reinvest capital gain
A payment by a distributions; or
mutual fund,
usually derived
from the fund's
net investment
income
(dividends and
interest earned
on portfolio
securities less
expenses).
(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.
Capital Gain Cash dividends or capital gain distributions will be
Distribution: sent by check to your address of record or, if you have
A payment to current ACH bank information on file, directly
mutual fund deposited into your predesignated bank account within
shareholders 3-4 business days from the payable date.
which represents
profits realized
on the sale of
securities in a
Fund's
portfolio.
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.
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.
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 would like 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 a 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.
49
<PAGE>
Financial Highlights
The tables below are intended to help you understand the financial performance
of each Fund's Classes for the past five years or, if less than five years, the
period of the Class's operations. 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 a Fund, assuming you reinvested all of 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 Report, which is available upon request.
NATIONAL FUND
<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------------------------- -----------
Year ended September 30, 5/27/99(**)
------------------------------------------------- to
1999 1998 1997 1996 1995 9/30/99
------- -------- ------- ------- -------- -----------
<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 $8.08
------- -------- ------- ------- -------- ------
Income from investment
operations:
Net investment income... 0.39 0.39 0.39 0.40 0.40 0.11
Net gains or losses on
securities (both
realized and
unrealized)............ (0.64) 0.31 0.31 0.12 0.40 (0.40)
------- -------- ------- ------- -------- ------
Total from investment
operations............. (0.25) 0.70 0.70 0.52 0.80 (0.29)
------- -------- ------- ------- -------- ------
Less distributions:
Dividends from net
investment income...... (0.39) (0.39) (0.39) (0.40) (0.40) (0.11)
Distributions from
capital gains.......... -- -- -- -- -- --
------- -------- ------- ------- -------- ------
Total distributions..... (0.39) (0.39) (0.39) (0.40) (0.40) (0.11)
------- -------- ------- ------- -------- ------
Net asset value, end of
period................. $7.68 $8.32 $8.01 $7.70 $7.58 $7.68
======= ======== ======= ======= ======== ======
Total Return: (3.11)% 9.00 % 9.40 % 6.97 % 11.48 % (3.38)%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)......... $90,296 $101,909 $97,481 $98,767 $104,184 $115
Ratio of expenses to
average
net assets............. 0.83% 0.80% 0.84% 0.80% 0.86% 1.74%+
Ratio of net income to
average
net assets............. 4.83% 4.82% 5.05% 5.19% 5.46% 4.10%+
Portfolio turnover
rate................... 13.37% 18.00% 20.63% 33.99% 24.91% 13.37%++
<CAPTION>
CLASS D
--------------------------------------------
Year ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value,
beginning
of period.............. $8.31 $8.02 $7.70 $7.57 $7.18
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income... 0.32 0.32 0.32 0.33 0.32
Net gains or losses on
securities (both
realized and
unrealized)............ (0.63) 0.29 0.32 0.13 0.39
-------- -------- -------- -------- --------
Total from investment
operations............. (0.31) 0.61 0.64 0.46 0.71
-------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income...... (0.32) (0.32) (0.32) (0.33) (0.32)
Distributions from
capital gains.......... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions..... (0.32) (0.32) (0.32) (0.33) (0.32)
-------- -------- -------- -------- --------
Net asset value, end of
period................. $7.68 $8.31 $8.02 $7.70 $7.57
======== ======== ======== ======== ========
Total Return: (3.85)% 7.76 % 8.56 % 6.13 % 10.17 %
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)......... $8,079 $7,392 $2,279 $4,826 $1,215
Ratio of expenses to
average
net assets............. 1.73% 1.71% 1.75% 1.67% 1.95%
Ratio of net income to
average
net assets............. 3.93% 3.91% 4.15% 4.27% 4.40%
Portfolio turnover
rate................... 13.37% 18.00% 20.63% 33.99% 24.91%
</TABLE>
- -------------
See footnotes on page 59.
50
<PAGE>
CALIFORNIA HIGH-YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
-------------------------------------------- ----------- ---------------------------------------
Year ended September 30, 5/27/99(**) Year ended September 30,
-------------------------------------------- to ---------------------------------------
1999 1998 1997 1996 1995 9/30/99 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <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 $6.62 $6.80 $6.61 $6.51 $6.48 $6.31
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income... 0.31 0.32 0.34 0.36 0.37 0.09 0.25 0.26 0.28 0.30 0.31
Net gains or losses on
securities (both
realized and
unrealized)............ (0.50) 0.22 0.20 0.05 0.17 (0.33) (0.49) 0.22 0.19 0.05 0.17
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.19) 0.54 0.54 0.41 0.54 (0.24) (0.24) 0.48 0.47 0.35 0.48
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.31) (0.32) (0.34) (0.36) (0.37) (0.09) (0.25) (0.26) (0.28) (0.30) (0.31)
Distributions from
capital gains.......... (0.02) (0.03) (0.09) (0.02) -- -- (0.02) (0.03) (0.09) (0.02) --
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.33) (0.35) (0.43) (0.38) (0.37) (0.09) (0.27) (0.29) (0.37) (0.32) (0.31)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $6.28 $6.80 $6.61 $6.50 $6.47 $6.29 $6.29 $6.80 $6.61 $6.51 $6.48
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (2.82)% 8.45% 8.74% 6.49% 8.85% (3.79)% (3.54)% 7.47% 7.60% 5.53% 7.78%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)......... $57,807 $ 58,374 $52,883 $50,264 $51,504 $1,041 $7,658 $6,393 $3,320 $1,919 $1,277
Ratio of expenses to
average
net assets............. 0.84% 0.82% 0.87% 0.84% 0.90% 1.72%+ 1.74% 1.73% 1.77% 1.74% 1.91%
Ratio of net income to
average
net assets............. 4.71% 4.81% 5.26% 5.49% 5.84% 3.95%+ 3.81% 3.90% 4.36% 4.59% 4.84%
Portfolio turnover
rate................... 27.61% 10.75% 22.42% 34.75% 17.64% 27.61%++ 27.61% 10.75% 22.42% 34.75% 17.64%
CALIFORNIA QUALITY FUND
Per Share Data:*
Net asset value,
beginning
of period.............. $7.21 $6.99 $6.75 $6.65 $6.39 $6.75 $7.19 $6.97 $6.74 $6.63 $6.38
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income... 0.31 0.33 0.34 0.35 0.34 0.09 0.25 0.27 0.28 0.28 0.28
Net gains or losses on
securities (both
realized and
unrealized)............ (0.56) 0.25 0.24 0.11 0.32 (0.35) (0.56) 0.25 0.23 0.12 0.31
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.25) 0.58 0.58 0.46 0.66 (0.26) (0.31) 0.52 0.51 0.40 0.59
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.31) (0.33) (0.34) (0.35) (0.34) (0.09) (0.25) (0.27) (0.28) (0.28) (0.28)
Distributions from
capital gains.......... (0.23) (0.03) -- (0.01) (0.06) -- (0.23) (0.03) -- (0.01) (0.06)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.54) (0.36) (0.34) (0.36) (0.40) (0.09) (0.48) (0.30) (0.28) (0.29) (0.34)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $6.42 $7.21 $6.99 $6.75 $6.65 $6.40 $6.40 $7.19 $6.97 $6.74 $6.63
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (3.68)% 8.67% 8.87% 7.00% 10.85% (4.04)% (4.58)% 7.71% 7.75% 6.20% 9.61%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)......... $74,793 $87,522 $86,992 $95,560 $94,947 $ 10 $4,286 $2,302 $1,677 $1,645 $ 863
Ratio of expenses to
average
net assets............. 0.82% 0.77% 0.82% 0.79% 0.89% 1.72%+ 1.72% 1.68% 1.72% 1.69% 1.88%
Ratio of net income to
average
net assets............. 4.56% 4.75% 4.99% 5.11% 5.34% 3.80%+ 3.66% 3.84% 4.09% 4.21% 4.36%
Portfolio turnover
rate................... 20.24% 30.82% 12.16% 12.84% 11.24% 20.24%++ 20.24% 30.82% 12.16% 12.84% 11.24%
</TABLE>
- -------------
See footnotes on page 59.
51
<PAGE>
COLORADO FUND
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
-------------------------------------------- ----------- ---------------------------------------
Year ended September 30, 5/27/99(**) Year ended September 30,
-------------------------------------------- to ---------------------------------------
1999 1998 1997 1996 1995 9/30/99 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <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 $7.47 $7.63 $7.42 $7.27 $7.29 $7.09
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income... 0.34 0.36 0.37 0.37 0.38 0.10 0.28 0.29 0.30 0.31 0.30
Net gains or losses on
securities
(both realized and
unrealized)............ (0.54) 0.22 0.15 (0.03) 0.21 (0.38) (0.54) 0.21 0.15 (0.02) 0.20
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.20) 0.58 0.52 0.34 0.59 (0.28) (0.26) 0.50 0.45 0.29 0.50
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.34) (0.36) (0.37) (0.37) (0.38) (0.10) (0.28) (0.29) (0.30) (0.31) (0.30)
Distributions from
capital gains.......... -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.34) (0.34) (0.37) (0.37) (0.38) (0.10) (0.28) (0.29) (0.30) (0.31) (0.30)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.10 $7.64 $7.42 $7.27 $7.30 $7.09 $7.09 $7.63 $7.42 $7.27 $7.29
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (2.67)% 8.03% 7.30% 4.76% 8.56% (3.93)% (3.57)% 6.90% 6.34% 3.95% 7.26%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $44,649 $45,583 $49,780 $52,295 $54,858 $60 $917 $344 $238 $255 $193
Ratio of expenses to
average net assets..... 0.87% 0.90% 0.90% 0.85% 0.93% 1.73%+ 1.77% 1.80% 1.81% 1.75% 2.02%
Ratio of net income to
average net assets..... 4.60% 4.80% 5.01% 5.07% 5.31% 3.85%+ 3.70% 3.90% 4.10% 4.17% 4.23%
Portfolio turnover
rate................... 7.91% 28.66% 3.99% 12.39% 14.70% 7.91%++ 7.91% 28.66% 3.99% 12.39% 14.70%
FLORIDA FUND
Per Share Data:*
Net asset value,
beginning of period.... $8.07 $7.80 $7.67 $7.71 $7.34 $ 7.83 $8.08 $7.81 $7.68 $7.72 $7.34
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income***.............. 0.34 0.35 0.36 0.38 0.40 0.10 0.28 0.29 0.30 0.32 0.34
Net gains or losses on
securities
(both realized and
unrealized)............ (0.61) 0.34 0.23 0.04 0.37 (0.40) (0.60) 0.34 0.23 0.04 0.38
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.27) 0.69 0.59 0.42 0.77 (0.30) (0.32) 0.63 0.53 0.36 0.72
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.34) (0.35) (0.36) (0.38) (0.40) (0.10) (0.28) (0.29) (0.30) (0.32) (0.34)
Distributions from
capital gains.......... (0.05) (0.07) (0.10) (0.08) -- -- (0.05) (0.07) (0.10) (0.08) --
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.39) (0.42) (0.46) (0.46) (0.40) (0.10) (0.33) (0.36) (0.40) (0.40) (0.34)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.41 $8.07 $7.80 $7.67 $7.71 $7.43 $7.43 $8.08 $7.81 $7.68 $7.72
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (3.42)% 9.16% 8.01% 5.54% 10.87% (3.96)% (4.01)% 8.32% 7.18% 4.74% 10.07%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $37,606 $42,464 $42,024 $45,200 $49,030 $254 $1,843 $1,940 $1,678 $1,277 $603
Ratio of expenses to
average net assets***.. 1.03% 1.00% 1.04% 0.97% 0.72% 1.78%+ 1.78% 1.77% 1.81% 1.73% 1.66%
Ratio of net income to
average net assets***.. 4.38% 4.45% 4.70% 4.90% 5.38% 3.82%+ 3.63% 3.68% 3.93% 4.14% 4.53%
Portfolio turnover
rate................... 18.31% 6.73% 33.68% 18.53% 11.82% 18.31%++ 18.31% 6.73% 33.68% 18.53% 11.82%
</TABLE>
- -------------
See footnotes on page 59.
52
<PAGE>
GEORGIA FUND
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
-------------------------------------------- ----------- ---------------------------------------
Year ended September 30, 5/27/99(**) Year ended September 30,
-------------------------------------------- to ---------------------------------------
1999 1998 1997 1996 1995 9/30/99 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <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 $8.17 $8.40 $8.13 $7.88 $7.82 $7.49
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income***.............. 0.37 0.38 0.38 0.39 0.39 0.11 0.30 0.30 0.31 0.32 0.32
Net gains or losses on
securities
(both realized and
unrealized)............ (0.58) 0.29 0.28 0.11 0.43 (0.41) (0.59) 0.30 0.28 0.11 0.43
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.21) 0.67 0.66 0.50 0.82 (0.30) (0.29) 0.60 0.59 0.43 0.75
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.37) (0.38) (0.38) (0.39) (0.39) (0.11) (0.30) (0.30) (0.31) (0.32) (0.32)
Distributions from
capital gains.......... (0.05) (0.03) (0.03) (0.05) (0.10) -- (0.05) (0.03) (0.03) (0.05) (0.10)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.42) (0.41) (0.41) (0.44) (0.49) (0.11) (0.35) (0.33) (0.34) (0.37) (0.42)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.75 $8.38 $8.12 $7.87 $7.81 $7.76 $7.76 $8.40 $8.13 $7.88 $7.82
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (2.63)% 8.44% 8.65% 6.56% 11.66% (3.84)% (3.61)% 7.59% 7.67% 5.60% 10.58%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $42,692 $48,424 $50,614 $50,995 $57,678 $176 $2,318 $2,809 $2,640 $2,327 $2,079
Ratio of expenses to
average net assets***.. 0.87% 0.89% 0.89% 0.83% 0.91% 1.74%+ 1.77% 1.80% 1.79% 1.73% 1.90%
Ratio of net income to
average net assets***.. 4.59% 4.57% 4.82% 4.94% 5.26% 3.89%+ 3.69% 3.66% 3.92% 4.03% 4.28%
Portfolio turnover
rate................... 23.93% 2.92% 12.28% 16.24% 3.36% 23.93%++ 23.93% 2.92% 12.28% 16.24% 3.36%
LOUISIANA FUND
Per Share Data:*
Net asset value,
beginning of period.... $8.51 $8.28 $8.16 $8.14 $7.94 $8.19 $8.50 8.27 $8.16 $8.14 $7.94
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income... 0.39 0.41 0.41 0.42 0.43 0.11 0.32 0.33 0.34 0.35 0.35
Net gains or losses on
securities
(both realized and
unrealized)............ (0.59) 0.24 0.23 0.08 0.34 (0.39) (0.59) 0.24 0.22 0.08 0.34
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.20) 0.65 0.64 0.50 0.77 (0.28) (0.27) 0.57 0.56 0.43 0.69
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.39) (0.41) (0.41) (0.42) (0.43) (0.11) (0.32) (0.33) (0.34) (0.35) (0.35)
Distributions from
capital gains.......... (0.11) (0.01) (0.11) (0.06) (0.14) -- (0.11) (0.01) (0.11) (0.06) (0.14)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.50) (0.42) (0.52) (0.48) (0.57) (0.11) (0.43) (0.34) (0.45) (0.41) (0.49)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.81 $8.51 $8.28 $8.16 $8.14 $7.80 $7.80 $8.50 $8.27 $8.16 $8.14
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (2.44)% 8.08% 8.17% 6.32% 10.30% (3.55)% (3.33)% 7.11% 7.07% 5.37% 9.17%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $51,543 $56,308 $56,199 $57,264 $61,988 $ -- $908 $837 $509 $389 $465
Ratio of expenses to
average net assets..... 0.84% 0.88% 0.86% 0.82% 0.89% 1.71%+ 1.74% 1.78% 1.76% 1.72% 1.91%
Ratio of net income to
average net assets..... 4.76% 4.86% 5.08% 5.15% 5.44% 4.00%+ 3.86% 3.96% 4.18% 4.25% 4.41%
Portfolio turnover
rate................... 8.67% 15.72% 16.08% 10.08% 4.82% 8.67%++ 8.67% 15.72% 16.08% 10.08% 4.82%
</TABLE>
- -------------
See footnotes on page 59.
53
<PAGE>
MARYLAND FUND
<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------------------------ -----------
Year ended September 30, 5/27/99(**)
------------------------------------------------ to
1999 1998 1997 1996 1995 9/30/99
------- -------- -------- -------- -------- -----------
<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 $8.13
------- -------- -------- -------- -------- ------
Income from investment
operations:
Net investment income... 0.39 0.40 0.40 0.40 0.41 0.11
Net gains or losses on
securities
(both realized and
unrealized)............ (0.50) 0.23 0.19 0.06 0.38 (0.33)
------- -------- -------- -------- -------- ------
Total from investment
operations............. (0.11) 0.63 0.59 0.46 0.79 (0.22)
------- -------- -------- -------- -------- ------
Less distributions:
Dividends from net
investment income...... (0.39) (0.40) (0.40) (0.40) (0.41) (0.11)
Distributions from
capital gains.......... (0.03) (0.05) (0.04) (0.03) (0.13) --
------- -------- -------- -------- -------- ------
Total distributions..... (0.42) (0.45) (0.44) (0.43) (0.54) (0.11)
------- -------- -------- -------- -------- ------
Net asset value, end of
period................. $7.79 $8.32 $8.14 $7.99 $7.96 $7.80
======= ======== ======== ======== ======== ======
Total Return: (1.45)% 7.89% 7.64% 6.00% 10.90% (2.83)%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $49,523 $54,891 $52,549 $54,041 $56,290 $75
Ratio of expenses to
average net assets..... 0.87% 0.89% 0.90% 0.84% 0.96% 1.75%+
Ratio of net income to
average net assets..... 4.77% 4.82% 4.99% 5.05% 5.31% 4.04%+
Portfolio turnover
rate................... 1.80% 7.59% 14.79% 5.56% 3.63% 1.80%++
<CAPTION>
CLASS D
----------------------------------------
Year ended September 30,
----------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning of period.. $8.33 $8.15 $7.99 $7.97 $7.72
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment income... 0.31 0.32 0.33 0.33 0.33
Net gains or losses on
securities
(both realized and
unrealized)............ (0.50) 0.23 0.20 0.05 0.38
-------- ------- ------- ------- -------
Total from investment
operations............. (0.19) 0.55 0.53 0.38 0.71
-------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income...... (0.31) (0.32) (0.33) (0.33) (0.33)
Distributions from
capital gains.......... (0.03) (0.05) (0.04) (0.03) (0.13)
-------- ------- ------- ------- -------
Total distributions..... (0.34) (0.37) (0.37) (0.36) (0.46)
-------- ------- ------- ------- -------
Net asset value, end of
period................. $7.80 $8.33 $8.15 $7.99 $7.97
======== ======= ======= ======= =======
Total Return: (2.00)% 6.91% 6.80% 4.91% 9.75%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $2,775 $3,128 $2,063 $2,047 $630
Ratio of expenses to
average net assets..... 1.77% 1.80% 1.81% 1.72% 2.02%
Ratio of net income to
average net assets..... 3.87% 3.91% 4.08% 4.14% 4.27%
Portfolio turnover
rate................... 1.80% 7.59% 14.79% 5.56% 3.63%
MASSACHUSETTS FUND
Per Share Data:*
Net asset value,
beginning of period.... $8.27 $7.99 $7.85 $7.91 $7.66 $7.96
------- -------- -------- -------- -------- ------
Income from investment
operations:
Net investment income... 0.36 0.38 0.40 0.41 0.42 0.10
Net gains or losses on
securities
(both realized and
unrealized)............ (0.75) 0.37 0.22 0.05 0.28 (0.49)
------- -------- -------- -------- -------- ------
Total from investment
operations............. (0.39) 0.75 0.62 0.46 0.70 (0.39)
------- -------- -------- -------- -------- ------
Less distributions:
Dividends from net
investment income...... (0.36) (0.38) (0.40) (0.41) (0.42) (0.10)
Distributions from
capital gains.......... (0.05) (0.09) (0.08) (0.11) (0.03) --
------- -------- -------- -------- -------- ------
Total distributions..... (0.41) (0.47) (0.48) (0.52) (0.45) (0.10)
------- -------- -------- -------- -------- ------
Net asset value, end of
period................. $7.47 $8.27 $7.99 $7.85 $7.91 $7.47
======= ======== ======== ======== ======== ======
Total Return: (4.85)% 9.80% 8.11% 5.97% 9.58% (5.02)%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $92,929 $109,328 $110,011 $109,872 $115,711 $228
Ratio of expenses to
average net assets..... 0.83% 0.80% 0.84% 0.80% 0.86% 1.73%+
Ratio of net income to
average net assets..... 4.56% 4.72% 5.06% 5.24% 5.51% 3.80%+
Portfolio turnover
rate................... 23.88% 13.41% 29.26% 26.30% 16.68% 23.88%++
Per Share Data:*
Net asset value,
beginning of period.... $8.26 $7.99 $7.84 $7.90 $7.66
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment income... 0.29 0.31 0.33 0.34 0.34
Net gains or losses on
securities
(both realized and
unrealized)............ (0.74) 0.36 0.23 0.05 0.27
-------- ------- ------- ------- -------
Total from investment
operations............. (0.45) 0.67 0.56 0.39 0.61
-------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income...... (0.29) (0.31) (0.33) (0.34) (0.34)
Distributions from
capital gains.......... (0.05) (0.09) (0.08) (0.11) (0.03)
-------- ------- ------- ------- -------
Total distributions..... (0.34) (0.40) (0.41) (0.45) (0.37)
-------- ------- ------- ------- -------
Net asset value, end of
period................. $7.47 $8.26 $7.99 $7.84 $7.90
======== ======= ======= ======= =======
Total Return: (5.61)% 8.68% 7.29% 5.01% 8.33%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $2,934 $1,468 $1,245 $1,405 $809
Ratio of expenses to
average net assets..... 1.73% 1.71% 1.74% 1.70% 1.95%
Ratio of net income to
average net assets..... 3.66% 3.81% 4.16% 4.32% 4.47%
Portfolio turnover
rate................... 23.88% 13.41% 29.26% 26.30% 16.68%
</TABLE>
- -------------
See footnotes on page 59.
54
<PAGE>
MICHIGAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
------------------------------------------------- ----------- ---------------------------------------
Year ended September 30, 5/27/99(**) Year ended September 30,
------------------------------------------------- to ---------------------------------------
1999 1998 1997 1996 1995 9/30/99 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <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 $8.43 $8.82 $8.59 $8.45 $8.54 $8.28
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income.. 0.40 0.41 0.43 0.45 0.46 0.11 0.32 0.33 0.36 0.37 0.37
Net gains or losses on
securities (both
realized and
unrealized)........... (0.63) 0.30 0.23 0.06 0.30 (0.40) (0.63) 0.30 0.23 0.05 0.30
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total from investment
operations............ (0.23) 0.71 0.66 0.51 0.76 (0.29) (0.31) 0.63 0.59 0.42 0.67
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income..... (0.40) (0.41) (0.43) (0.45) (0.46) (0.11) (0.32) (0.33) (0.36) (0.37) (0.37)
Distributions from
capital gains......... (0.16) (0.07) (0.09) (0.14) (0.04) -- (0.16) (0.07) (0.09) (0.14) (0.04)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total distributions.... (0.56) (0.48) (0.52) (0.59) (0.50) (0.11) (0.48) (0.40) (0.45) (0.51) (0.41)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................ $8.04 $8.83 $8.60 $8.46 $8.54 $8.03 $8.03 $8.82 $8.59 $8.45 $8.54
======== ======== ======== ======== ======== ====== ====== ====== ====== ====== ======
Total Return: (2.77)% 8.63% 8.16% 6.16% 9.56% (3.55)% (3.65)% 7.66% 7.19% 5.09% 8.36%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)........ $125,560 $144,161 $143,370 $148,178 $151,589 $114 $2,074 $1,841 $1,845 $1,486 $1,172
Ratio of expenses to
average net assets.... 0.82% 0.79% 0.81% 0.78% 0.87% 1.73%+ 1.72% 1.70% 1.71% 1.68% 2.01%
Ratio of net income to
average net assets.... 4.73% 4.78% 5.13% 5.29% 5.50% 3.96%+ 3.83% 3.87% 4.23% 4.39% 4.40%
Portfolio turnover
rate.................. 3.73% 23.60% 10.98% 19.62% 20.48% 3.73%++ 3.73% 23.60% 10.98% 19.62% 20.48%
MINNESOTA FUND
Per Share Data:*
Net asset value,
beginning of period... $7.98 $7.79 $7.68 $7.82 $7.72 $7.72 $7.98 $7.79 $7.68 $7.82 $7.73
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income.. 0.36 0.38 0.40 0.42 0.45 0.10 0.30 0.31 0.33 0.35 0.38
Net gains or losses on
securities (both
realized and
unrealized)........... (0.52) 0.20 0.11 (0.12) 0.11 (0.36) (0.52) 0.20 0.11 (0.12) 0.10
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total from investment
operations............ (0.16) 0.58 0.51 0.30 0.56 (0.26) (0.22) 0.51 0.44 0.23 0.48
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income..... (0.36) (0.38) (0.40) (0.42) (0.45) (0.10) (0.30) (0.31) (0.33) (0.35) (0.38)
Distributions from
capital gains......... (0.10) (0.01) -- (0.02) (0.01) -- (0.10) (0.01) -- (0.02) (0.01)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total distributions.... (0.46) (0.39) (0.40) (0.44) (0.46) (0.10) (0.40) (0.32) (0.33) (0.37) (0.39)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................ $7.36 $7.98 $7.79 $7.68 $7.82 $7.36 $7.36 $7.98 $7.79 $7.68 $7.82
======== ======== ======== ======== ======== ====== ====== ====== ====== ====== ======
Total Return: (2.09)% 7.68% 6.85% 3.99% 7.61% (3.47)% (2.96)% 6.71% 5.89% 3.06% 6.45%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)........ $109,165 $121,374 $121,674 $126,173 $132,716 $ -- $1,856 $2,103 $1,799 $2,036 $2,237
Ratio of expenses to
average net assets.... 0.84% 0.81% 0.85% 0.81% 0.87% 1.74%+ 1.74% 1.72% 1.75% 1.71% 1.85%
Ratio of net income to
average net assets.... 4.71% 4.87% 5.21% 5.47% 5.89% 3.94%+ 3.81% 3.96% 4.31% 4.57% 4.92%
Portfolio turnover
rate.................. 9.74% 21.86% 6.88% 26.89% 5.57% 9.74%++ 9.74% 21.86% 6.88% 26.89% 5.57%
</TABLE>
- -------------
See footnotes on page 59.
55
<PAGE>
MISSOURI FUND
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
-------------------------------------------- ----------- ---------------------------------------
Year ended September 30, 5/27/99(**) Year ended September 30,
-------------------------------------------- to ---------------------------------------
1999 1998 1997 1996 1995 9/30/99 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <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 $7.68 $8.03 $7.82 $7.72 $7.70 $7.41
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income***.............. 0.35 0.36 0.38 0.39 0.40 0.10 0.28 0.29 0.31 0.32 0.32
Net gains or losses on
securities
(both realized and
unrealized)............ (0.62) 0.28 0.19 0.08 0.36 (0.39) (0.62) 0.28 0.18 0.09 0.36
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.27) 0.64 0.57 0.47 0.76 (0.29) (0.34) 0.57 0.49 0.41 0.68
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.35) (0.36) (0.38) (0.39) (0.40) (0.10) (0.28) (0.29) (0.31) (0.32) (0.32)
Distributions from
capital gains.......... (0.12) (0.07) (0.08) (0.07) (0.07) -- (0.12) (0.07) (0.08) (0.07) (0.07)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.47) (0.43) (0.46) (0.46) (0.47) (0.10) (0.40) (0.36) (0.39) (0.39) (0.39)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.29 $8.03 $7.82 $7.71 $7.70 $7.29 $7.29 $8.03 $7.82 $7.72 $7.70
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (3.58)% 8.41% 7.70% 6.27% 10.67% (3.95)% (4.46)% 7.45% 6.60% 5.46% 9.49%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $43,437 $49,949 $52,766 $49,941 $51,169 $21 $617 $418 $474 $565 $515
Ratio of expenses to
average net assets***.. 0.87% 0.89% 0.89% 0.86% 0.88% 1.74%+ 1.77% 1.79% 1.80% 1.76% 1.98%
Ratio of net income to
average net assets***.. 4.50% 4.59% 4.93% 5.03% 5.31% 3.75%+ 3.60% 3.69% 4.02% 4.13% 4.23%
Portfolio turnover
rate................... 10.43% 21.26% 6.47% 8.04% 3.88% 10.43%++ 10.43% 21.26% 6.47% 8.04% 3.88%
NEW JERSEY FUND
Per Share Data:*
Net asset value,
beginning of period.... $7.78 $7.56 $7.60 $7.59 $7.40 $7.58 $7.86 $7.64 $7.68 $7.67 $7.48
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income***.............. 0.33 0.35 0.36 0.39 0.39 0.09 0.27 0.29 0.31 0.33 0.33
Net gains or losses on
securities
(both realized and
unrealized)............ (0.55) 0.30 0.21 0.01 0.29 (0.36) (0.54) 0.30 0.21 0.01 0.29
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.22) 0.65 0.57 0.40 0.68 (0.27) (0.27) 0.59 0.52 0.34 0.62
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.33) (0.35) (0.36) (0.39) (0.39) (0.09) (0.27) (0.29) (0.31) (0.33) (0.33)
Distributions from
capital gains.......... (0.10) (0.08) (0.25) -- (0.10) -- (0.10) (0.08) (0.25) -- (0.10)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.43) (0.43) (0.61) (0.39) (0.49) (0.09) (0.37) (0.37) (0.56) (0.33) (0.43)
------- ------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.13 $7.78 $7.56 $7.60 $7.59 $7.22 $7.22 $7.86 $7.64 $7.68 $7.67
======= ======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return: (3.05)% 8.87% 7.96% 5.37% 9.77% (3.33)% (3.57)% 7.97% 7.10% 4.56% 8.79%
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $52,992 $61,739 $62,597 $66,293 $73,561 $127 $1,550 $1,582 $1,282 $1,152 $1,190
Ratio of expenses to
average net assets***.. 1.07% 1.02% 1.06% 1.02% 1.01% 1.82%+ 1.82% 1.80% 1.83% 1.79% 1.89%
Ratio of net income to
average net assets***.. 4.35% 4.54% 4.90% 5.06% 5.29% 3.71%+ 3.60% 3.76% 4.13% 4.29% 4.45%
Portfolio turnover
rate................... 5.55% 23.37% 20.22% 25.65% 4.66% 5.55%++ 5.55% 23.37% 20.22% 25.65% 4.66%
</TABLE>
- -------------
See footnotes on page 59.
56
<PAGE>
NEW YORK FUND
<TABLE>
<CAPTION>
CLASS A CLASS C
-------------------------------------------- -----------
Year ended September 30,
-------------------------------------------- 5/27/99(**)
1999 1998 1997 1996 1995 to 9/30/99
------- ------- ------- ------- ------- -----------
<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 $8.14
------- ------- ------- ------- ------- ------
Income from investment
operations:
Net investment income........ 0.38 0.40 0.41 0.42 0.42 0.11
Net gains or losses on
securities
(both realized and unrealized).. (0.69) 0.40 0.32 0.12 0.36 (0.44)
------- ------- ------- ------- ------- ------
Total from investment
operations................... (0.31) 0.80 0.73 0.54 0.78 (0.33)
------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net
investment income........... (0.38) (0.40) (0.41) (0.42) (0.42) (0.11)
Distributions from capital
gains....................... (0.21) (0.08) (0.02) -- (0.17) --
------- ------- ------- ------- ------- ------
Total distributions........... (0.59) (0.48) (0.43) (0.42) (0.59) (0.11)
------- ------- ------- ------- ------- ------
Net asset value, end of
period....................... $7.70 $8.60 $8.28 $7.98 $7.86 $7.70
======= ======= ======= ======= ======= ======
Total Return: (3.86)% 10.02% 9.45% 6.97% 10.93% (4.22)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands)............... $76,833 $76,833 $83,528 $82,719 $83,980 $189
Ratio of expenses to average
net assets................... 0.81% 0.81% 0.82% 0.77% 0.88% 1.69%+
Ratio of net income to average
net assets................... 4.63% 4.74% 5.09% 5.24% 5.52% 3.96%+
Portfolio turnover rate....... 11.85% 39.85% 23.83% 25.88% 34.05% 11.85%++
<CAPTION>
CLASS D
----------------------------------------
Year ended September 30,
----------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:*
Net asset value, beginning of
period....................... $8.60 $8.29 $7.98 $7.87 $7.67
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment income........ 0.30 0.32 0.34 0.34 0.34
Net gains or losses on
securities
(both realized and unrealized).. (0.69) 0.39 0.33 0.11 0.37
-------- ------- ------- ------- -------
Total from investment
operations................... (0.39) 0.71 0.67 0.45 0.71
-------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income........... (0.30) (0.32) (0.34) (0.34) (0.34)
Distributions from capital
gains....................... (0.21) (0.08) (0.02) -- (0.17)
-------- ------- ------- ------- -------
Total distributions........... (0.51) (0.40) (0.36) (0.34) (0.51)
-------- ------- ------- ------- -------
Net asset value, end of
period....................... $7.70 $8.60 $8.29 $7.98 $7.87
======== ======= ======= ======= =======
Total Return: (4.73)% 8.88% 8.60% 5.86% 9.87%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands)............... $2,844 $2,182 $1,572 $1,152 $885
Ratio of expenses to average
net assets................... 1.71% 1.72% 1.73% 1.68% 1.96%
Ratio of net income to average
net assets................... 3.73% 3.83% 4.18% 4.33% 4.42%
Portfolio turnover rate....... 11.85% 39.85% 23.83% 25.88% 34.05%
NORTH CAROLINA FUND
Per Share Data:*
Net asset value, beginning of
period....................... $8.30 $8.05 $7.84 $7.74 $7.30 $7.97
------- ------- ------- ------- ------- ------
Income from investment
operations:
Net investment income***..... 0.35 0.36 0.37 0.37 0.39 0.10
Net gains or losses on
securities
(both realized and unrealized).. (0.59) 0.31 0.24 0.11 0.45 (0.38)
------- ------- ------- ------- ------- ------
Total from investment
operations................... (0.24) 0.67 0.61 0.48 0.84 (0.28)
------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net
investment income........... (0.35) (0.36) (0.37) (0.37) (0.39) (0.10)
Distributions from capital
gains....................... (0.12) (0.06) (0.03) (0.01) (0.01) --
------- ------- ------- ------- ------- ------
Total distributions........... (0.47) (0.42) (0.40) (0.38) (0.40) (0.10)
------- ------- ------- ------- ------- ------
Net asset value, end of
period....................... $7.59 $8.30 $8.05 $7.84 $7.74 $7.59
======= ======= ======= ======= ======= ======
Total Return: (3.07)% 8.60% 8.01% 6.39% 11.92% (3.62)%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands)............... $27,224 $32,358 $32,684 $35,934 $37,446 $10
Ratio of expenses to average
net assets***................ 1.06% 1.05% 1.09% 1.05% 0.82% 1.80%+
Ratio of net income to average
net assets***................ 4.38% 4.41% 4.66% 4.75% 5.21% 3.77%+
Portfolio turnover rate....... 1.52% 20.37% 13.04% 15.12% 4.38% 1.52%++
Per Share Data:*
Net asset value, beginning of
period....................... $8.30 $8.05 $7.83 $7.74 $7.29
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment income***..... 0.29 0.30 0.31 0.31 0.33
Net gains or losses on
securities
(both realized and unrealized).. (0.59) 0.31 0.25 0.10 0.46
-------- ------- ------- ------- -------
Total from investment
operations................... (0.30) 0.61 0.56 0.41 0.79
-------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income........... (0.29) (0.30) (0.31) (0.31) (0.33)
Distributions from capital
gains....................... (0.12) (0.06) (0.03) (0.01) (0.01)
-------- ------- ------- ------- -------
Total distributions........... (0.41) (0.36) (0.34) (0.32) (0.34)
-------- ------- ------- ------- -------
Net asset value, end of
period....................... $7.59 $8.30 $8.05 $7.83 $7.74
======== ======= ======= ======= =======
Total Return: (3.79)% 7.77% 7.33% 5.45% 11.19%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands)............... $1,682 $1,456 $1,217 $1,232 $1,257
Ratio of expenses to average
net assets***................ 1.81% 1.82% 1.85% 1.81% 1.64%
Ratio of net income to average
net assets***................ 3.63% 3.64% 3.90% 3.99% 4.42%
Portfolio turnover rate....... 1.52% 20.37% 13.04% 15.12% 4.38%
</TABLE>
- -------------
See footnotes on page 59.
57
<PAGE>
OHIO FUND
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
------------------------------------------------- ----------- ---------------------------------------
Year ended September 30, 5/27/99(**) Year ended September 30,
------------------------------------------------- to ---------------------------------------
1999 1998 1997 1996 1995 9/30/99 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <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 $8.06 $8.41 $8.23 $8.13 $8.15 $7.92
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income.. 0.38 0.40 0.42 0.43 0.44 0.11 0.31 0.33 0.35 0.36 0.36
Net gains or losses on
securities (both
realized and
unrealized)........... (0.60) 0.29 0.17 0.02 0.28 (0.38) (0.60) 0.29 0.17 0.02 0.30
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total from investment
operations............ (0.22) 0.69 0.59 0.45 0.72 (0.27) (0.29) 0.62 0.52 0.38 0.66
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income..... (0.38) (0.40) (0.42) (0.43) (0.44) (0.11) (0.31) (0.33) (0.35) (0.36) (0.36)
Distributions from
capital gains......... (0.13) (0.11) (0.07) (0.04) (0.07) -- (0.13) (0.11) (0.07) (0.04) (0.07)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total distributions.... (0.51) (0.51) (0.49) (0.47) (0.51) (0.11) (0.44) (0.44) (0.42) (0.40) (0.43)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................ $7.64 $8.37 $8.19 $8.09 $8.11 $7.68 $7.68 $8.41 $8.23 $8.13 $8.15
======== ======== ======== ======== ======== ====== ====== ====== ====== ====== ======
Total Return: (2.68)% 8.77% 7.54% 5.68% 9.59% (3.51)% (3.52)% 7.78% 6.57% 4.74% 8.67%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)........ $135,034 $153,126 $154,419 $162,243 $170,191 $18 $1,327 $1,103 $1,160 $1,011 $660
Ratio of expenses to
average
net assets............ 0.81% 0.78% 0.81% 0.77% 0.84% 1.71%+ 1.71% 1.69% 1.71% 1.67% 1.93%
Ratio of net income to
average
net assets............ 4.78% 4.92% 5.19% 5.32% 5.56% 3.99%+ 3.88% 4.01% 4.29% 4.42% 4.48%
Portfolio turnover
rate.................. 6.07% 24.74% 11.76% 12.90% 2.96% 6.07%++ 6.07% 24.74% 11.76% 12.90% 2.96%
OREGON FUND
Per Share Data:*
Net asset value,
beginning of period... $8.05 $7.87 $7.65 $7.66 $7.43 $7.83 $8.04 $7.87 $7.64 $7.65 $7.43
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income***............. 0.35 0.36 0.38 0.40 0.40 0.10 0.28 0.29 0.31 0.33 0.33
Net gains or losses on
securities (both
realized and
unrealized)........... (0.52) 0.28 0.26 -- 0.25 (0.35) (0.51) 0.27 0.27 -- 0.24
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total from investment
operations............ (0.17) 0.64 0.64 0.40 0.65 (0.25) (0.23) 0.56 0.58 0.33 0.57
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income..... (0.35) (0.36) (0.38) (0.40) (0.40) (0.10) (0.28) (0.29) (0.31) (0.33) (0.33)
Distributions from
capital gains......... (0.05) (0.10) (0.04) (0.01) (0.02) -- (0.05) (0.10) (0.04) (0.01) (0.02)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total distributions.... (0.40) (0.46) (0.42) (0.41) (0.42) (0.10) (0.33) (0.39) (0.35) (0.34) (0.35)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................ $7.48 $8.05 $7.87 $7.65 $7.66 $7.48 $7.48 $8.04 $7.87 $7.64 $7.65
======== ======== ======== ======== ======== ====== ====== ====== ====== ====== ======
Total Return: (2.16)% 8.48% 8.60% 5.27% 9.05% (3.32)% (2.92)% 7.37% 7.77% 4.33% 7.86%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands)........ $54,473 $57,601 $55,239 $57,345 $59,549 $ -- $2,231 $2,650 $1,678 $1,540 $1,495
Ratio of expenses to
average
net assets*** ........ 0.86% 0.88% 0.90% 0.86% 0.86% 1.73% + 1.76% 1.79% 1.80% 1.76% 1.83%
Ratio of net income to
average
net assets*** ........ 4.52% 4.60% 4.88% 5.18% 5.40% 3.77% + 3.62% 3.69% 3.98% 4.28% 4.41%
Portfolio turnover
rate.................. 12.28% 12.62% 19.46% 28.65% 2.47% 12.28%++ 12.28% 12.62% 19.46% 28.65% 2.47%
</TABLE>
- -------------
See footnotes on page 59.
58
<PAGE>
PENNSYLVANIA FUND
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D
------------------------------------------------ ----------- ---------------------------------------
Year ended September 30, Year ended September 30,
------------------------------------------------ 5/27/99(**) ---------------------------------------
1999 1998 1997 1996 1995 to 9/30/99 1999 1998 1997 1996 1995
------- -------- -------- -------- -------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <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 $7.88 $8.23 $7.95 $7.81 $7.78 $7.54
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income.. 0.34 0.35 0.36 0.38 0.38 0.10 0.28 0.29 0.30 0.32 0.31
Net gains or losses on
securities (both
realized and
unrealized)........... (0.60) 0.36 0.24 0.12 0.37 (0.39) (0.59) 0.36 0.24 0.12 0.37
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.26) 0.71 0.60 0.50 0.75 (0.29) (0.31) 0.65 0.54 0.44 0.68
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income..... (0.34) (0.35) (0.36) (0.38) (0.38) (0.10) (0.28) (0.29) (0.30) (0.32) (0.31)
Distributions from
capital gains......... (0.15) (0.08) (0.10) (0.09) (0.13) -- (0.15) (0.08) (0.10) (0.09) (0.13)
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.49) (0.43) (0.46) (0.47) (0.51) (0.10) (0.43) (0.37) (0.40) (0.41) (0.44)
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.49 $8.24 $7.96 $7.82 $7.79 $7.49 $7.49 $8.23 $7.95 $7.81 $7.78
======= ======== ======== ======== ======== ====== ====== ====== ====== ====== ======
Total Return: (3.38)% 9.20% 7.89% 6.57% 10.55% (3.84)% (3.99)% 8.36% 7.07% 5.76% 9.53%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands) ........ $25,142 $29,582 $30,092 $31,139 $33,251 $143 $856 $607 $816 $876 $426
Ratio of expenses to
average
net assets............. 1.21% 1.19% 1.19% 1.11% 1.21% 1.93%+ 1.96% 1.97% 1.96% 1.88% 2.23%
Ratio of net income to
average
net assets............. 4.25% 4.34% 4.60% 4.82% 5.05% 3.69%+ 3.50% 3.56% 3.83% 4.05% 4.10%
Portfolio turnover
rate................... 7.80% 13.05% 32.99% 4.56% 11.78% 7.80%++ 7.80% 13.05% 32.99% 4.56% 11.78%
SOUTH CAROLINA FUND
Per Share Data:*
Net asset value,
beginning of period.... $8.38 $8.16 $8.07 $7.97 $7.61 $8.08 $8.38 $8.16 $8.06 $7.97 $7.61
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income.. 0.38 0.39 0.40 0.41 0.41 0.11 0.30 0.31 0.33 0.34 0.34
Net gains or losses on
securities (both
realized and
unrealized)........... (0.64) 0.29 0.22 0.12 0.37 (0.42) (0.65) 0.29 0.23 0.11 0.37
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total from investment
operations............. (0.26) 0.68 0.62 0.53 0.78 (0.31) (0.35) 0.60 0.56 0.45 0.71
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income..... (0.38) (0.39) (0.40) (0.41) (0.41) (0.11) (0.30) (0.31) (0.33) (0.34) (0.34)
Distributions from
capital gains......... (0.07) (0.07) (0.13) (0.02) (0.01) -- (0.07) (0.07) (0.13) (0.02) (0.01)
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Total distributions..... (0.45) (0.46) (0.53) (0.43) (0.42) (0.11) (0.37) (0.38) (0.46) (0.36) (0.35)
------- -------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $7.67 $8.38 $8.16 $8.07 $7.97 $7.66 $7.66 $8.38 $8.16 $8.06 $7.97
======= ======== ======== ======== ======== ====== ====== ====== ====== ====== ======
Total Return: (3.32)% 8.66% 7.99% 6.82% 10.69% (4.01)% (4.32)% 7.68% 7.15% 5.73% 9.63%
Ratios/Supplemental
Data:
Net assets, end of
period
(in thousands) ........ $92,793 $106,328 $101,018 $108,163 $112,421 $335 $5,936 $5,594 $3,663 $2,714 $1,704
Ratio of expenses to
average
net assets ............ 0.83% 0.80% 0.84% 0.80% 0.88% 1.72%+ 1.73% 1.71% 1.75% 1.70% 1.85%
Ratio of net income to
average
net assets............. 4.65% 4.74% 5.04% 5.15% 5.38% 3.96%+ 3.75% 3.83% 4.13% 4.25% 4.40%
Portfolio turnover
rate................... 18.06% 16.63% -- 20.66% 4.13% 18.06%++ 18.06% 16.63% -- 20.66% 4.13%
</TABLE>
- -------------
* Per share amounts are based on average shares outstanding.
** Commencement of offering of Class C shares.
*** For periods prior to 1996 (1997 for the Florida Fund and the North Carolina
Fund), Seligman voluntarily waived a portion of its management fees. These
amounts reflect the effect of the waivers.
+ Annualized.
++ For the year ended September 30, 1999.
59
<PAGE>
How to Contact Us
<TABLE>
<S> <C> <C>
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
</TABLE>
24-hour automated 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.
60
<PAGE>
For More Information
The following information is available without charge upon request: Call
toll-free (800) 221-2450 in the US or collect (212) 682-7600 outside the US. You
may also call these numbers to request other information about the Funds or to
make shareholder inquiries.
Statement of Additional Information (SAI) contains additional information about
the Fund. It is on file with the Securities and Exchange Commission, or 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 (202) 942-8090. The SAI,
Annual/Semi-Annual Reports and other information about the Fund are also
available on the EDGAR Database on the SEC's Internet site: http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by electronic request at the following E-mail address: [email protected], or by
writing: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-0102.
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
February 1, 2000
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 February 1, 2000. 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 the
Independent Auditors' Report thereon, are incorporated herein by reference. The
Annual 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 ................................ 7
Control Persons and Principal Holders of Securities .... 12
Investment Advisory and Other Services ................. 13
Brokerage Allocation and Other Practices ............... 19
Shares of Beneficial Interest and Other Securities ..... 19
Purchase, Redemption, and Pricing of Shares ............ 20
Taxation of the Funds .................................. 24
Underwriters ........................................... 26
Calculation of Performance Data ........................ 28
Financial Statements ................................... 31
General Information .................................... 31
Appendix A ............................................. 33
Appendix B ............................................. 36
Appendix C ............................................. 43
TEB1A
<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 with 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.
California Municipal Securities. California Municipal Securities includes 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
2
<PAGE>
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.
On September 16, 1999, the Board of Trustees eliminated the non-fundamental
policy that prohibited each Fund, with respect to 75% of the value of its
assets, from purchasing any revenue bonds if, as a result of such purchase, more
than 5% of each Fund's assets would be invested in the revenue bonds of a single
issuer. However, each Fund remains subject to a fundamental policy which
prohibits each Fund, with respect to 50% of the value of its total assets, from
purchasing the securities of any one issuer if, as a result of such purchase,
more than 5% of each Fund's total assets (at market value) would be invested in
the securities of a single issuer (except for obligations issued or 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.
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
3
<PAGE>
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 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.
4
<PAGE>
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 (SEC) for an exemptive order relating to such
commitments and the valuation thereof. There can be no assurance that the SEC
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 SEC.
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.
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
5
<PAGE>
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 its deferred
compensation plan for trustees;
- - 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.
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 that Fund's objectives.
6
<PAGE>
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, 1999 and 1998 were
27.61% and 10.75%, respectively. The portfolio turnover rates for the Quality
Fund for the fiscal years ended September 30, 1999 and 1998 were 20.24% and
30.82%, 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.
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.
7
<PAGE>
<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 Chairman, J. & W. Seligman & Co. Incorporated, Chairman and
(61) the Board, Chief Chief Executive Officer, the Seligman Group of investment
Executive Officer and companies; Chairman, Seligman Advisors, Inc, Seligman
Chairman of the Services, Inc., and Carbo Ceramics Inc., ceramic proppants
Executive Committee 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 Director and President, J. & W. Seligman & Co. Incorporated;
(47) Member of the President (with the exception of Seligman Quality Municipal
Executive Committee 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 Director and Managing Director, Director of Investments, J.
(59) the Executive & W. Seligman & Co. Incorporated; Director or Trustee, the
Committee 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.
John R. Galvin Trustee Dean, Fletcher School of Law and Diplomacy at Tufts
(70) University; Director or Trustee, the Seligman Group of
Tufts University investment companies; Chairman Emeritus, American Council on
Packard Avenue, Germany; Governor of the Center for Creative Leadership;
Medford, MA 02155 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.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
Frank A. McPherson Trustee Retired Chairman and Chief Executive Officer of Kerr-McGee
(66) Corporation; Director or Trustee, the Seligman Group of
2601 Northwest Expressway, investment companies; Director, Kimberly-Clark Corporation,
Suite 805E consumer products; Bank of Oklahoma Holding Company; Baptist
Oklahoma City, OK 73112 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.
John E. Merow Trustee Retired Chairman and Senior Partner, Sullivan & Cromwell,
(70) law firm; Director or Trustee, the Seligman Group of
125 Broad Street, investment companies; Director, Commonwealth Industries,
New York, NY 10004 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, 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
(57) investment companies; Trustee, The Geraldine R. Dodge
P.O. Box 449 Foundation, charitable foundation. Formerly, Chairman of the
Gladstone, NJ 07934 Board of Trustees of St. George's School (Newport, RI)and
Director, the National Association of Independent Schools
(Washington, DC).
James C. Pitney Trustee Retired Partner, Pitney, Hardin, Kipp & Szuch, law firm; Director
(73) or Trustee, the Seligman Group of investment companies. Formerly,
Park Avenue at Morris Director, Public Service Enterprise Group, public utility.
County, P.O. Box 1945,
Morristown, NJ 07962
James Q. Riordan Trustee Director or Trustee, the Seligman Group of investment
(72) companies; Director, The Houston Exploration Company, oil
675 Third Avenue, exploration; The Brooklyn Museum, KeySpan Energy
Suite 3004 Corporation; and Public Broadcasting Service; and Trustee,
New York, NY 10017 the 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.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
------- --------- ------------
<S> <C> <C>
Robert L. Shafer Trustee Retired Vice President, Pfizer Inc., pharmaceuticals;
(67) Director or Trustee, the Seligman Group of investment
96 Evergreen Avenue, companies. Formerly, Director, USLIFE Corporation, life
Rye, NY 10580 insurer.
James N. Whitson Trustee Director and Consultant, Sammons Enterprises, Inc., a
(64) diversified holding company; Director or Trustee, the
6606 Forestshire Drive Seligman Group of investment companies; Director, C-SPAN,
Dallas, TX 75230 cable television, and CommScope, Inc., 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 Director and Managing Director, J. & W. Seligman & Co.
(57) Senior Portfolio Incorporated; Vice President and Senior Portfolio Manager,
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.
(43) Incorporated, Seligman Advisors, Inc., and Seligman Data
Corp.; Vice President, the Seligman Group of investment
companies and Seligman Services, Inc.; Vice President and
Treasurer, Seligman International, Inc.; and Treasurer,
Seligman Henderson Co.
Frank J. Nasta Secretary General Counsel, Senior Vice President, Law and Regulation
(35) 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 and Seligman
(42) 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.
10
<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 $1,260 N/A $82,000
Alice S. Ilchman, Trustee 1,220 N/A 80,000
Frank A. McPherson, Trustee 1,260 N/A 80,000
John E. Merow, Trustee 1,260 N/A 80,000
Betsy S. Michel, Trustee 1,260 N/A 82,000
James C. Pitney, Trustee 1,180 N/A 74,000
James Q. Riordan, Trustee 1,220 N/A 80,000
Robert L. Shafer, Trustee 1,220 N/A 80,000
James N. Whitson, Trustee 1,220(3) N/A 80,000(3)
</TABLE>
- ----------
(1) For the Funds' fiscal year ended September 30, 1999.
(2) The Seligman Group of investment companies consists of twenty investment
companies.
(3) 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 certain of the investment companies advised by J. & W.
Seligman & Co. Incorporated (Seligman), 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,
1999 was $13,529.
Messrs. Merow and Pitney no longer defer current compensation; however, they
have accrued deferred compensation in the amounts of $28,259 and $12,996,
respectively, as of September 30, 1999.
Each Fund may, but is not obligated to, purchase shares of the other funds in
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 Seligman
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 Seligman 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.
Code of Ethics
Seligman, Seligman Advisors, Inc. (Seligman Advisors), their subsidiaries and
affiliates, and the Seligman Group of Investment Companies have adopted a Code
of Ethics that sets forth the circumstances under which officers, directors and
employees (collectively, Employees) are permitted to engage in personal
securities transactions. The Code of Ethics proscribes certain practices with
regard to personal securities transactions and personal
11
<PAGE>
dealings, provides a framework for the reporting and monitoring of personal
securities transactions by Seligman's Director of Compliance, and sets forth a
procedure of identifying, for disciplinary action, those individuals who violate
the Code of Ethics. The Code of Ethics prohibits Employees (including all
investment team members) from purchasing or selling any security or an
equivalent security that is being purchased or sold by any client, or where the
Employee intends, or knows of another's intention, to purchase or sell the
security on behalf of a client. The Code also prohibits all Employees from
acquiring securities in a private placement or in an initial or secondary public
offering unless an exemption has been obtained from Seligman's Director of
Compliance.
The Code of Ethics 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) that the portfolio manager or investment team
manages; (2) each Employee from engaging in short-term trading (a purchase and
sale or vice-versa within 60 days); and (3) each member of an investment team
from engaging in short sales of a security if, at that time, any client managed
by that team has a long position in that security. Any profit realized pursuant
to any of these prohibitions must be disgorged.
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 Employees are also required to disclose all
securities beneficially owned by them upon commencement of employment and at the
end of each calendar year.
A copy of the Code of Ethics is on public file with, and is available upon
request from, the SEC. You can access it through the SEC's Internet site,
http://www.sec.gov.
Control Persons and Principal Holders of Securities
Control Persons
As of January 7, 2000, 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 January 7, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated
(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 7.27% of
Quality Fund's Class A shares of beneficial interest then outstanding and 60.22%
of Quality Fund's Class D shares of beneficial interest then outstanding. As of
the same date, MLPF&S owned of record 6.35% of the High-Yield Fund's Class A
shares of beneficial interest then outstanding and 18.86% of the High-Yield
Fund's Class D shares of beneficial interest then outstanding.
As of January 7, 2000, Bruce Berg & Linda Bert Ttees, Bruce O. Berg & Linda E.
Berg TR U/A Dtd 06/14/94, One Rolling Hills Road, Tiburon, CA 94920 owned of
record 10.03% of the Quality Fund's Class C shares of beneficial interest then
outstanding and Prudential Securities Inc FBO Mr. Carol G. Townsend Ttee Carol
G. Townsend Trust UA Dtd 10/19/88 FBO Carol G. Townsend Trust, Monarch Beach, CA
926 owned of record 89.97% and 7.74%, respectively, of the Quality Fund's and
High-Yield Fund's Class C shares of beneficial interest then outstanding. As of
the same date, Roy M. Adams, Ttee J.W. Family Trust #4 Separate, FBO J.
Gigloiotti U/A Dtd 0/0/0 Attn. Victor Xistris, 153 East 53rd Street, New York,
NY 10022-4675 owned of record 5.60% of the High-Yield Fund's Class A shares of
beneficial interest then outstanding.
As of January 7, 2000, A & D Christopher Ranch, 305 Bloomfield Avenue, Gilroy,
CA 95020 owned of record 14.38% of the High-Yield Fund's Class D shares of
beneficial interest then outstanding and CIBC World Markets Corp FBO
C33-57182-19, PO Box 3484, Church Street Station, New York, NY 10008-3484, owned
of record 5.50% of the High-Yield Fund's Class D shares of beneficial interest
then outstanding.
12
<PAGE>
As of the same date, the following entities owned of record more than 5% of the
High-Yield Fund's Class D shares of beneficial interest then outstanding:
14.72% Dean Witter For the Benefit of Herman Maier & Shreene
Maier, PO Box 250, Church Street Station, New York, NY
92067-3213
8.17% PaineWebber For the Benefit of George P. Sabatte Jr.,
2101 Trafalgar Place, Oakland, CA 94611.
8.17% PaineWebber for the Benefit of John B. Sabatte, 2101
Trafalgar Place, Oakland, CA 94611.
5.42% Dean Witter for the Benefit of Ernestine B. Grimm &
Edward Grimm, PO Box 250, Church Street Station, New
York, NY 02106-2409.
6.35% PaineWebber For the Benefit of Judith Was and Jerry Wax
Co-Ttees of Agrmt dtd 12/11/95, 5240-2 Yarmouth Avenue,
Encino, CA 91316
5.50% Patricia M. Gough Risk Ttee, Patricia M. Gough Risk
Trust U/A Dtd 11/18/98, 1731 Mantelli Drive, Gilroy, CA
95020.
8.38% Dean Witter Reynolds Inc FBO Margaret E. Carl Ttee, PO
Box 250, Church Street Station, New York, NY 10048.
6.33% Dean Witter Reynolds Inc FBO Gloria Desser Ttee, PO Box
250, Church Street Station, New York, NY 10008.
Management Ownership
As of January 7, 2000, Trustees and officers of the Funds as a group owned less
than 1% of the then outstanding Class A, Class C and Class D shares of
beneficial interest of the High-Yield Fund and the Quality Fund.
Investment Advisory and Other Services
Investment Manager
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 for the fiscal years ended September 30, 1999, 1998 and 1997.
13
<PAGE>
Fiscal Management
Year Fee
Fund Ended Paid ($)
---- ----- --------
High-Yield Fund 9/30/99 $338,183
9/30/98 303,287
9/30/97 266,730
Quality Fund 9/30/99 $433,279
9/30/98 442,776
9/30/97 461,278
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 Board of 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 Board of
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.
Principal Underwriter
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
14
<PAGE>
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:
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 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
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 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
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 fiscal years ended
September 30, 1999, 1998 and 1997, Seligman Services received commissions in the
following amounts:
Fund Commissions Paid to Seligman Services
---- -------------------------------------
1999 1998 1997
------ ------ ------
High-Yield Fund $5,005 $1,887 $ 495
Quality Fund 1,156 1,346 1,571
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, 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 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 Trustees. 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. This fee is 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 Trustees and may not be increased from .10% without approval of the
Trustees. 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, equivalent to
.10% per annum of the Class A shares' average daily net assets for the fiscal
year ended September 30, 1999, was as follows:
Total
Fund Fees Paid
---- ---------
High-Yield Fund $61,474
Quality Fund 84,881
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. This 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
16
<PAGE>
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 total amount paid by each Fund to Seligman Advisors in respect
of Class C shares from May 27, 1999 (inception)to September 30, 1999,
equivalent to 1% per annum of the Class C shares' average daily net assets, as
follows:
Total
Fund Fees Paid
---- ---------
High-Yield Fund $1,884
Quality Fund 29
The amounts expended by Seligman Advisors in any one year with respect to Class
C shares of the Funds may exceed the 12b-1 fees paid by the Funds in that year.
The 12b-1 Plan permits expenses incurred by Seligman Advisors in respect of each
Fund's Class C shares in one fiscal year to be paid from Class C 12b-1 fees in
any other fiscal year; 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, 1999, Seligman Advisors incurred $14,942 and $123,
respectively, of unreimbursed expenses in respect of the High-Yield Fund and the
Quality Fund's Class C shares. These amounts are equal to 1.44% and 1.29%,
respectively, of the net assets of the High-Yield Fund's and the Quality Fund's
Class C shares at September 30, 1999.
If the 12b-1 Plan is terminated in respect of Class C shares of each Fund, no
amounts (other than amounts accrued but not yet paid) would be owed by that Fund
to Seligman Advisors with respect to its Class C shares.
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 to Seligman Advisors in respect of Class D shares
for the fiscal year ended September 30, 1999, equivalent to 1% per annum of the
Class D shares' average daily net assets, as follows:
Total
Fund Fees Paid
---- ---------
High-Yield Fund $75,765
Quality Fund 44,706
17
<PAGE>
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, 1999, there were $13,266 and $16,106, 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 .17%
and .38%, respectively, of the net assets of Class D shares of the High-Yield
Fund and the Quality Fund at September 30, 1999.
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 in respect of Class A and Class
D shares for the fiscal year ended September 30, 1999, and in respect of Class C
shares from May 27, 1999 (inception) to September 30, 1999, were spent on the
following activities in the following amounts:
Compensation Compensation
To to
Fund/Class Underwriters Broker/Dealers
---------- ------------ --------------
High-Yield Fund/A $61,474 $ -0-
High-Yield Fund/C 1,884 -0-
High-Yield Fund/D 27,742 48,023
Quality/A 84,881 -0-
Quality/C 29 -0-
Quality/D 24,797 19,909
The 12b-1 Plan was approved on July 16, 1992 by the Board of 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
(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, 1999, 1998 and 1997, Seligman Services received
distribution and service fees from the Funds pursuant to the 12b-1 Plan, as
follows:
18
<PAGE>
Distribution and Service Fees Paid to
Seligman Services
-----------------
Fund 1999 1998 1997
---- ---- ---- ----
High-Yield Fund $2,017 $1,597 $1,414
Quality 2,438 2,602 2,688
Brokerage Allocation and Other Practices
Brokerage Transactions
For the fiscal years ended September 30, 1999, 1998 and 1997, 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, 1999, 1998 and 1997, 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.
Regular Broker-Dealers
During the Funds' fiscal year ended September 30, 1999, neither of the Funds
acquired securities of their 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 of shares of beneficial interest. 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.
19
<PAGE>
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.
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
20
<PAGE>
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;
(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
21
<PAGE>
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 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
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 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.
22
<PAGE>
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.
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 September 30, 1999, the maximum offering price
of the Funds' shares is as follows:
23
<PAGE>
Class A
<TABLE>
<CAPTION>
NAV Maximum Sales Charge Offering Price
Fund Per Share (4.75% of Offering Price) to Public
---- --------- ------------------------- ---------
<S> <C> <C> <C>
High-Yield Fund $6.28 $.31 $6.59
Quality Fund 6.42 .32 6.74
<CAPTION>
Class C
NAV Maximum Sales Charge Offering Price
Fund Per Share (1.00% of Offering Price(1)) to Public
---- --------- ---------------------------- ---------
<S> <C> <C> <C>
High-Yield Fund $6.29 $.06 $6.35
Quality Fund 6.40 .06 6.46
Class D
<CAPTION>
NAV and Offering
Fund Price Per Share(2)
---- ------------------
<S> <C>
High-Yield Fund $6.29
Quality Fund 6.40
</TABLE>
- ---------------
(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 18 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 SEC. 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).
24
<PAGE>
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 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
25
<PAGE>
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.
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 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 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 and Class C 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 and Class C shares
of the Funds for the fiscal year ended September 30, 1999, and of Class A shares
of the Funds for the fiscal years ended September 30, 1998 and 1997, are shown
below. No Class C shares were issued or outstanding for the fiscal years ended
September 30, 1998 and 1997. Also shown are the amounts of Class A and Class C
sales charges that were retained by Seligman Advisors for the same periods:
1999
Total Sales Charges Paid by Amount of Class A and Class C
Shareholders On Class A and Sales Charges Retained by
Fund Class C Shares Seligman Advisors
- ---- -------------- -----------------
High-Yield Fund $113,308 $12,848
Quality Fund 83,957 9,862
1998
Total Sales Charges Amount of Class A
Paid by Shareholders Sales Charges Retained by
Fund On Class A Shares Seligman Advisors
- ---- ----------------- -----------------
High-Yield Fund $137,920 $17,349
Quality Fund 99,647 11,984
26
<PAGE>
1997
Total Sales Charges Amount of Class A
Paid by Shareholders Sales Charges Retained by
Fund On Class A Shares Seligman Advisors
- ---- ----------------- -----------------
High-Yield Fund $146,934 $17,268
Quality Fund 55,181 6,928
Compensation
Seligman Advisors received the following commissions and other compensation from
the Funds during the fiscal year ended September 30, 1999:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and
Commissions Repurchases
(Class A and Class C (CDSC on Class A,
Sales Charges Class C and Class D Brokerage Other
Fund Retained) Shares Retained) Commissions Compensation
- ---- --------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
High-Yield Fund $12,848 $14,468 $-0- $-0-
Quality Fund 9,862 2,264 -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 the Manager during a specified period of time. Such bonus or
other incentive will be made in the form of cash or, if permitted, may take the
form of non-cash payments. The non-cash payments will include (i) business
seminars at Seligman's headquarters or other locations, (ii) travel expenses,
including meals, entertainment and lodging, incurred in connection with trips
taken by qualifying registered representatives and members of their families to
places within or outside the United States, or (iii) the receipt of certain
merchandise. The cash payments may include payment of various business expenses
of the dealer. 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 yields for the 30-day period ended September 30, 1999 for the
Class A shares of the High-Yield Fund and the Quality Fund were 4.71% and 4.47%,
respectively. The annualized yields were 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, 1999, 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 9,430,572 and 11,718,048, 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, 1999 were
8.60% and 8.16%, 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,
1999 for the Class A shares of the High-Yield Fund and the Quality Fund were
(7.44)% and (8.26)%, respectively. The average annual total returns for the
five-year period ended September 30, 1999 for the Class A shares of the
High-Yield Fund and the Quality Fund were 4.83% and 5.18%, respectively. The
average annual total returns for the ten-year period ended September 30, 1999
for the Class A shares of the High-Yield Fund and the Quality Fund were 6.17%
and 6.12%, 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 the public offering price) was deducted.
It was then assumed that all of the dividends and capital gain distributions by
each Fund's Class A shares over the relevant time periods were reinvested. It
was then assumed that at the end of the one-, five- and ten-year periods 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 C
The annualized yields for the 30-day period ended September 30, 1999 for the
Class C shares of the High-Yield Fund and the Quality Fund were 3.99% and 3.76%,
respectively. The annualized yields were computed as discussed above 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
plus the maximum sales load of 1.00% of the net amount invested) on September
30, 1999, which was the last day of this period. The average number of Class C
shares of the High-Yield Fund and the Quality Fund were 122,745 and 1,486,
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 C shares of the High-Yield
Fund and the Quality Fund for the 30-day period ended September 30, 1999 were
7.28% and 6.86%, respectively. The tax equivalent annualized yields were
computed by first computing the annualized yield as discussed above for Class A
shares. Then the
28
<PAGE>
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 C shares' yield, if any, that was attributable to securities the
income of which was not tax-exempt.
The total returns for the period from May 27, 1999 (inception) to September 30,
1999 for the Class C shares of the High-Yield Fund and the Quality Fund were
(5.74)% and (5.96)%, respectively. These returns were computed by assuming a
hypothetical initial payment of $1,000 in Class C shares of each Fund. From this
$1,000, the maximum sales load of $10.00 (1.00% of the public offering price)
was deducted. It was then assumed that all of the dividends and capital gain
distributions by each Fund's Class C shares over the period were reinvested. It
was then assumed that at the end of the period of each Fund, the entire amount
was redeemed, subtracting the 1% CDSC, if applicable.
Class D
The annualized yields for the 30-day period ended September 30, 1999 of the
Class D shares of the High-Yield Fund and the Quality Fund were 4.03% and 3.79%,
respectively. The annualized yields were computed as discussed above 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, 19998, 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
1,223,536 and 664,535, 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 30-day period ended September 30,
1999 for the Class D shares of the High-Yield Fund and the Quality Fund were
7.36% and 6.92%, respectively. The tax equivalent annualized yields were
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, 1999 were
(4.47)% and (5.47)%, respectively. The average annual total returns for the
Class D shares of the High-Yield Fund and the Quality Fund for the five-year
period ended September 30, 1999 were 4.88% and 5.21%, respectively. The average
annual total returns for the period from February 1, 1994 (inception) through
September 30, 1999 for the High-Yield Fund and the Quality Fund were 3.83 and
3.06%, 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 capital gain distributions by each Fund's Class D shares over the
relevant time periods were reinvested. It was then assumed that at the end of
the one- and five-year periods and the period since inception of each Fund, the
entire amount was redeemed, subtracting the 1% CDSC, if applicable.
The tables below illustrate the total returns on a $1,000 investment in each of
the Fund's Class A, Class C and Class D shares for the ten years ended September
30, 1999, or from a Class's inception through September 30, 1999, assuming
investment of all dividends and capital gain distributions.
29
<PAGE>
<TABLE>
<CAPTION>
Class A
Fund/ Value of Value of Value Total Value
Year Initial Capital Gain of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
High-Yield
9/30/90 $ 925 $ 15 $ 65 $1,005
9/30/91 973 17 141 1,131
9/30/92 996 19 218 1,233
9/30/93 1,007 58 299 1,364
9/30/94 943 71 356 1,370
9/30/95 969 72 450 1,491
9/30/96 973 78 537 1,588
9/30/97 990 103 634 1,727
9/30/98 1,018 115 740 1,873
9/30/99 940 112 768 1,820 81.98%
Quality
9/30/90 $ 916 $ 17 $ 60 $ 993
9/30/91 979 24 133 1,136
9/30/92 1,008 28 208 1,244
9/30/93 1,072 51 294 1,417
9/30/94 941 73 326 1,340
9/30/95 979 90 416 1,485
9/30/96 994 94 501 1,589
9/30/97 1,029 98 603 1,730
9/30/98 1,062 109 709 1,880
9/30/99 946 153 712 1,811 81.13%
<CAPTION>
Class C
Fund/ Value of Value of Value Total Value
Year Initial Capital Gain of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
High-Yield
9/30/99 $931 $-0- $12 $943 (5.74)%
Quality
9/30/99 $929 $-0- $11 $940 (5.96)%
<CAPTION>
Class D
Fund/ Value of Value of Value Total Value
Year Initial Capital Gain 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 $ -0- $ 29 $ 975
9/30/95 971 -0- 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 1,283
9/30/99 943 29 265 1,237 23.73%
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Quality
9/30/94 $ 895 $ -0- $ 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
9/30/99 898 53 235 1,186 18.60%
</TABLE>
- ----------
(1) For the ten-year period ended September 30, 1999 for Class A shares, from
commencement of operations for Class C shares on May 27, 1999 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 charge 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, 1999 , contains a schedule of the investments of
the Funds as of September 30, 1999, as well as certain other financial
information. The financial statements and notes included in the Annual Report
and the Independent Auditors' Report thereon, are incorporated herein by
reference. The Annual 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 SECor 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.
31
<PAGE>
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 10% 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% 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 SEC,
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 SEC 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 SEC 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 SEC 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 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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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 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
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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.
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.
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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
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 high technology, trade, entertainment,
agriculture, manufacturing, 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% of the total United States population with
total employment over 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 October 1, 1999, the State had outstanding $19,630,276,000 aggregate
principal amount of long-term general obligation bonds, and unused voter
authorizations for the future issuance of $12,827,414,000 of long-term general
obligation bonds.
In its 1999 session, the Legislature passed and the Governor signed five bond
acts, totaling $4.69 billion in new authorizations. These bond acts will be
placed on the March 7, 2000 ballot for voter approval.
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 $1.5 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 October 1, 1999, the Finance Committees had authorized the issuance of up to
$4,451,734,000 of commercial paper notes; as of that date $814,565,000 aggregate
principal amount of general obligation commercial paper notes was outstanding.
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" or
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"lease-purchasing financing" 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
$6,578,874,434 General Fund-supported lease-purchase debt outstanding at October
1, 1999. The State Public Works Board, which is authorized to sell lease revenue
bonds, had $2,035,434,000 authorized and unissued as of October 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
$26,008,006,628 aggregate principal amount of revenue bonds and notes which are
non-recourse to the General Fund outstanding as of June 30, 1999.
Cash Flow Borrowings. As part of its cash management program, the State has
regularly issued short-term obligations to meet cash flow needs.
The State issued $1.0 billion of revenue anticipation notes for the 1999-2000
Fiscal Year to mature on June 30, 2000.
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.
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.
At the time of signing of the 1999 Budget Act, on June 29, 1999, the Department
of Finance projected the SFEU would have a balance of about $1.932 billion at
June 30, 1999, compared to the original budgeted amount of $1.1 billion. The
1999 Budget Act projects a balance in the SFEU of $880 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, 1999, the General Fund had no outstanding loans from the SFEU, General
Fund special accounts or any other special funds.
At the November 1998 election voters approved Proposition 2. This proposition
requires the General Fund to repay loans made from certain transportation
special accounts (such as the State Highway Account) at least once per fiscal
year, or up to 30 days after adoption of the annual budget act. Since the
General Fund may reborrow from the transportation accounts soon after the annual
repayment is made, the proposition is not expected to have any adverse impact on
the State's cash flow.
State Appropriations Limit. The State is subject to an annual appropriations
limit imposed by Article XIII B of the State Constitution (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
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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 or any transfer of the financial source for the provisions of
services from tax proceeds to non-tax proceeds. 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.
As of the enactment of the 1999-2000 Budget, the Department of Finance projects
the State's Appropriations Subject to Limitations will be $6.1 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 44% from the level in place from 1991-92
through 1993-94, and is estimated at about $6,025 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. Furthermore, since General Fund revenue growth is
expected to continue in 1999-00, there are also new initiatives to increase
school safety, improve schools' accountability for pupil performance, provide
additional textbooks to schools, fund deferred maintenance projects, increase
beginning teacher's salaries and provide performance incentives to teachers.
Prior Fiscal Years' Financial Results. The State's financial condition improved
markedly during the fiscal years starting in 1995-96, 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 four fiscal years. The last borrowing to
spread out the repayment of a budget deficit over the end of a fiscal year was
$4.0 billion of revenue anticipation warrants issued in July, 1994 and which
matured in April, 1996.
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The economy grew strongly during the fiscal years beginning in 1995-96, 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, $2.4 billion in 1997-98 and $1.0
billion in 1998-99) than were initially planned when the budgets were enacted.
The accumulated budget deficit from the recession years was finally eliminated.
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 and particularly in 1998-99 to fund new
program incentives.
The following were major features of the 1998 Budget Act and certain additional
fiscal bills enacted before the end of the legislative session:
1. The most significant feature of the 1998-99 budget was agreement on a total
of $1.4 billion of tax cuts. The central element was a bill which provided for a
phased-in reduction of the Vehicle License Fee (VLF). Since the VLF is
transferred to cities and countries under existing law, the bill provided for
the General Fund to replace the lost revenues. Starting on January 1, 1999, the
VLF has been reduced by 25%, 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 included both temporary and
permanent increases 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).
2. Proposition 98 funding for K-14 schools was increased by $1.7 billion in
General Fund moneys over revised 1997-98 levels, over $300 million higher than
the minimum Proposition 98 guarantee. Of the 1998-99 funds, major new programs
included 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. The Budget also included $250 million as repayment of prior years'
loans to schools, as part of the settlement of the CTA v. Gould lawsuit.
3. Funding for higher education increased substantially above the actual 1997-98
level. General Fund support was increased by $340 million (15.6%) for the
University of California and $267 million (14.1%) for the California State
University system. In addition, Community Colleges funding increased by $300
million (6.6%).
4. The Budget included increased funding for health, welfare and social services
programs. A 4.9% grant increase was included in the basic welfare grants, the
first increase in those grants in 9 years.
5. Funding for the judiciary and criminal justice programs increased by about
11% over 1997-98, primarily to reflect increased State support for local trial
courts and rising prison population.
6. Major legislation enacted after the 1998 Budget Act included new funding for
resources projects, a share of the purchase of the Headwaters Forest, funding
for the Infrastructure and Economic Development Bank ($50 million) and funding
for the construction of local jails. The State realized savings of $433 million
from a reduction in the State's contribution to the State Teacher's Retirement
System in 1998-99.
The May Revision to the 1999-2000 Governor's Budget (hereafter, 1999-00),
released on May 14, 1999 (1999 May Revision), reported that stronger than
expected economic conditions in the State for the latter part of 1998 and into
1999 would produce total 1998-99 General Fund revenues of about $57.9 billion,
almost $1.0 billion above the 1998 Budget Act estimates and $1.6 billion above
the initial estimates in the January 1999-2000 Governor's Budget. The 1999 May
Revision projects 1998-99 General Fund expenditures of $58.6 billion, about $400
million higher than the January 1999-2000 Governor's Budget estimate. Some of
this additional revenue will be directed to K-14 schools pursuant to Proposition
98. The 1999 May Revision projected a balance in the SFEU at June 30, 1999, of
approximately $1.9 billion, $1.3 billion higher than estimated in January.
Current State Budget. The discussion below of the 1999-00 Fiscal Year budget is
based on estimates and projections of revenues and expenditures for the current
fiscal year and must not be construed as statements of fact. These estimates and
projections are based upon various assumptions as updated in the 1999 Budget
Act, 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.
1999-2000 Fiscal Year Budget. On January 8, 1999, Governor Davis released his
proposed budget for Fiscal Year 1999-00 (January Governor's Budget). The January
Governor's Budget generally reported that general fund revenues for FY 1998-99
and FY 1999-00 would be lower than earlier projections (primarily due to weaker
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overseas economic conditions perceived in late 1998), while some caseloads would
be higher than earlier projections. The January Governor's Budget proposed $60.5
billion of general fund expenditures in FY 1999-00, with a $415 million SFEU
reserve at June 30, 2000.
The 1999 May Revision showed an additional $4.3 billion of revenues for combined
fiscal years 1998-99 and 1999-00. The completion of the 1999 Budget Act occurred
in a timely fashion. The final Budget Bill was adopted by the Legislature on
June 16, 1999, and was signed by the Governor on June 29, 1999 (1999 Budget
Act), meeting the Constitutional deadline for budget enactment for only the
second time in the 1990's.
The final 1999 Budget Act estimated General Fund revenues and transfers of $63.0
billion, and contained expenditures totaling $63.7 billion after the Governor
used his line-item veto to reduce the legislative Budget Bill expenditures by
$581 million (both General Fund and Special Fund). The 1999 Budget Act also
contained expenditures of $16.1 billion from special funds and $1.5 billion from
bond funds. The Administration estimated that the SFEU would have a balance at
June 30, 2000, of about $880 million. Not included in this amount was an
additional $300 million which (after the Governor's vetoes) was "set aside" to
provide funds for employee salary increases (to be negotiated in bargaining with
employee unions), and for litigation reserves. The 1999 Budget Act anticipates
normal cash flow borrowing during the fiscal year. See "State Indebtedness-Cash
Flow Borrowings."
The principal features of the 1999 Budget Act include the following:
1. Proposition 98 funding for K-12 schools was increased by $1.6 billion in
General Fund moneys over revised 1998-99 levels, $108.6 million higher than the
minimum Proposition 98 guarantee. Of the 1990-00 funds, major new programs
included money for reading improvement, new textbooks, school safety, improving
teacher quality, funding teacher bonuses, providing greater accountability for
school performance, increasing preschool and after school care programs and
funding deferred maintenance of school facilities. The Budget also includes $310
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 1998-99
level. General Fund support was increased by $184 million (7.3%) for the
University of California and $126 million (5.9%) for the California State
University system. In addition, Community Colleges funding increased by $324.3
million (6.6%). As a result, undergraduate fees at UC and CSU will be reduced
for the second consecutive year, and the per-unit charge at Community Colleges
will be reduced by $1.
3. The Budget included increased funding of nearly $600 million for health and
human services.
4. About $800 million from the general fund will be directed toward
infrastructure costs, including $425 million in additional funding for the
Infrastructure Bank, initial planning costs for a new prison in the Central
Valley, additional equipment for train and ferry service, and payment of
deferred maintenance for state parks.
5. The Legislature enacted a one-year additional reduction of 10% of the VLF for
calendar year 2000, at a General Fund cost of about $250 million in each of FY
1999-00 and 2000-01 to make up lost funding to local governments. Conversion of
this one-time reduction to a permanent cut will remain subject to the revenue
tests in the legislation adopted last year. Several other targeted tax cuts,
primarily for businesses, were also approved, at a cost of $54 million in
1999-00.
6. A one-time appropriation of $150 million, to be split between cities and
counties, was made to offset property tax shifts during the early 1990's.
Additionally, an ongoing $50 million was appropriated as a subvention to cities
for jail booking or processing fees charged by counties when an individual
arrested by city personnel is taken to a county detention facility.
Year 2000-Related 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 departments to
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report each week on their Y2K status. The DOIT has emphasized to departments
that efforts should be focused on applications that support mission-critical
services or functions.
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, Governor Davis
issued Executive Order D-3-99, broadening the responsibilities of the DOIT to
resolve these issues as well as legal questions associated with Y2K issues.
In its quarterly report for the period ending October 15, 1999 (October
Quarterly Report), the DOIT discusses the State's progress in addressing Y2K
issues. Since the DOIT's previous Quarterly Report in July, the DOIT continued
to receive and review departmental reports and assessments. The DOIT also
arranged for outside vendors to perform an Independent Verification and
Validation of state mission critical system documentation. As remediation of
mission critical systems nears completion, the DOIT is also focusing on assuring
that each entity has in place a Continuity Plan for Business (CPB) to assure
delivery of critical services in the event of Y2K problems. All state
departments with mission critical systems have filed CPB plans with the DOIT.
An ongoing survey of State departments reported in the October Quarterly Report
indicated that for some 500 mission critical IT systems and interfaces,
approximately 97% had completed remediation. (Designation of a system as
"mission critical" is made by the department, and the total number changes from
time to time as departments re-evaluate their activities.)
The DOIT estimates total Y2K costs identified by the departments under its
supervision at about $357 million. 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
posing the highest risk to essential programs. For fiscal year 1999-00, the
Legislature created a fund of $33.5 million ($13.5 million General Fund) for
unanticipated Y2K costs, which can be increased if necessary.
The State Treasurer's Office has reported that its systems for bond payments are
fully Y2K compliant. The State Controller's Office has reported that it has
completed the necessary Y2K remediation projects for the State fiscal and
accounting system, consistent with the Governor's Executive Order. 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 some unexpected
difficulties. The State cannot guarantee that all mission critical systems will
be ready and tested by late 1999 or what impact the failure of any particular IT
system(s) or the outside interfaces that exchange information with IT systems
might have. However, the DOIT is requiring that all mission critical systems
have a continuity business plan in place to mitigate potential system failures.
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)
lawsuits 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) 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;
(ix) an action to compel a change in early screening procedures for children
with mental health
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needs with potential liability approximately $13 million annually; (x) cases
brought against the State seeking payments under the AFDC-Foster Care program
with potential liability in excess of $200 million; (xi) actions seeking relief
requiring the State to retract increase out-patient Medi-Cal reimbursement
rates; damages are estimated to be several million dollars; (xii) actions
challenging the constitutionality of Proposition 10, which increases the excise
tax on tobacco products with potential liability of the $750 million collected
annually; (xiii) challenges to the constitutionality of the interest offset
provisions of the Revenue and Tax Code with potential liability of over $15
million; (xiv) challenge to the constitutionality of the interest-offset
provisions of the Franchise Tax Board with potential liability of $90 million
annually and $500 million past collections and interest exposure; (xv)
corporation tax refund action involving the solar energy system tax credit
provided for under the Revenue & Taxation Code with potential liability of $150
million annually and a refund of at least $500 million; (xvi) challenge to the
validity of the Vehicle Smog Impact Fee with potential liability of $350
million; (xvii) proceeding claiming that federally funded programs were
overcharged because they did not receive pension credits with potential
liability of over $200 million; and (xviii) challenge seeking to overturn the
tobacco Master Settlement Agreement entered between 46 states and the tobacco
industry with potential liability of $1 billion annually.
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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 US 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.
...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.
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...1950-1989
o Develops new open-end investment companies. Today, manages more than 50
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 Global Fund, Inc., which today offers five separate
series: Seligman International Growth Fund, Seligman Global Smaller
Companies Fund, Seligman Global Technology Fund, Seligman Global Growth
Fund and Seligman Emerging Markets Fund.
o Launches Seligman Value Fund Series, which currently offers two separate
series: Seligman Large-Cap Value Fund and Seligman Small-Cap Value Fund.
o Launches innovative Seligman New Technologies Fund, Inc., a closed-end
"interval" fund seeking long-term capital appreciation by investing in
technology companies, including venture capital investing.
...2000
o Introduces Seligman Time Horizon/Harvester Series, Inc., an asset
allocation type mutual fund containing four funds: Seligman Time Horizon 30
Fund, Seligman Time Horizon 20 Fund, Seligman Time Horizon 10 Fund and
Seligman Harvester Fund.
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SELIGMAN MUNICIPAL SERIES TRUST
Seligman Florida Municipal Series
Statement of Additional Information
February 1, 2000
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 February 1, 2000. 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
the Independent Auditors' Report thereon, are incorporated herein by reference.
The Annual 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 ................................ 7
Control Persons and Principal Holders of Securities ... 12
Investment Advisory and Other Services ................ 13
Brokerage Allocation and Other Practices .............. 17
Shares of Beneficial Interest and Other Securities .... 18
Purchase, Redemption, and Pricing of Shares ........... 18
Taxation of the Fund .................................. 23
Underwriters .......................................... 25
Calculation of Performance Data ....................... 26
Financial Statements .................................. 28
General Information ................................... 28
Appendix A ............................................ 31
Appendix B ............................................ 34
Appendix C ............................................ 36
TEB1B
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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.
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
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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.
On September 16, 1999, the Board of Trustees eliminated the non-fundamental
policy that prohibited the Fund, with respect to 75% of the value of its assets,
from purchasing 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.
However, the Fund remains subject to a fundamental policy which prohibits the
Fund, with respect to 50% of the value of its total assets, from purchasing the
securities of any one issuer if, as a result of such purchase, more than 5% of
the Fund's total assets (at market value) would be invested in the securities of
a single issuer (except for obligations issued or guaranteed by the US
Government or its agencies or instrumentalities).
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 securities provide that the rate of interest is
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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).
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
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<PAGE>
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 (SEC) for an exemptive order relating to such
commitments and the valuation thereof. There can be no assurance that the SEC
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 SEC.
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 Florida 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.
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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 its deferred
compensation plan for trustees;
- - 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
- - 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
6
<PAGE>
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, 1999 and 1998, were 18.31% and
6.73%, 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.
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.
7
<PAGE>
<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 Chairman, J. & W. Seligman & Co. Incorporated, Chairman and Chief
(61) the Board, Chief Executive Officer, the Seligman Group of investment companies;
Executive Officer and Chairman, Seligman Advisors, Inc, Seligman Services, Inc., and
Chairman of the Carbo Ceramics Inc., ceramic proppants for oil and gas industry;
Executive Committee 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 Director and President, J. & W. Seligman & Co. Incorporated;
(47) Member of the Executive President (with the exception of Seligman Quality Municipal Fund,
Committee 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 Director and Managing Director, Director of Investments, J. & W.
(59) the Executive Committee 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.
John R. Galvin Trustee Dean, Fletcher School of Law and Diplomacy at Tufts University;
(70) Director or Trustee, the Seligman Group of investment companies;
Tufts University Chairman Emeritus, American Council on Germany; Governor of the
Packard Avenue, Center for Creative Leadership; Director, Raytheon Co.,
Medford, MA 02155 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 Trustee,
(64) the Seligman Group of investment companies; Trustee, the
18 Highland Circle Committee for Economic Development; and Chairman, The Rockefeller
Bronxville, NY 10708 Foundation, charitable foundation. Formerly, Trustee, The Markle
Foundation, philanthropic organization; and Director, New York
Telephone Company and International Research and Exchange Board,
intellectual exchanges.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
--------- ---------------- --------------------
<S> <C> <C>
Frank A. McPherson Trustee Retired Chairman and Chief Executive Officer, Kerr-McGee
(66) Corporation; Director or Trustee, the Seligman Group of
2601 Northwest Expressway, investment companies; Director, Kimberly-Clark Corporation,
Suite 805E consumer products; Bank of Oklahoma Holding Company; Baptist
Oklahoma City, OK 73112 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.
John E. Merow Trustee Retired Chairman and Senior Partner, Sullivan & Cromwell, law
(70) firm; Director or Trustee, the Seligman Group of investment
125 Broad Street, companies; Director, Commonwealth Industries, Inc., manufacturers
New York, NY 10004 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, 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 investment
(57) companies; Trustee, The Geraldine R. Dodge Foundation, charitable
P.O. Box 449 foundation. Formerly, Chairman of the Board of Trustees of St.
Gladstone, NJ 07934 George's School (Newport, RI) and Director, the National
Association of Independent Schools (Washington, DC).
James C. Pitney Trustee Retired Partner, Pitney, Hardin, Kipp & Szuch, law firm; Director
(73) or Trustee, the Seligman Group of investment companies.
Park Avenue at Morris Formerly, Director, Public Service Enterprise Group, public
County, P.O. Box 1945, utility.
Morristown, NJ 07962
James Q. Riordan Trustee Director or Trustee, the Seligman Group of investment companies;
(72) Director, The Houston Exploration Company, oil exploration; The
675 Third Avenue, Brooklyn Museum, KeySpan Energy Corporation; and Public
Suite 3004 Broadcasting Service; and Trustee, the Committee for Economic
New York, NY 10017 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., pharmaceuticals; Director or
(67) Trustee, the Seligman Group of investment companies. Formerly,
96 Evergreen Avenue, Director, USLIFE Corporation, life insurer.
Rye, NY 10580
</TABLE>
9
<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., a
(64) diversified holding company; Director or Trustee, the
6606 Forestshire Drive Seligman Group of investment companies; Director, C-SPAN,
Dallas, TX 75230 cable television, and CommScope, Inc., 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 Director and Managing Director, J. & W. Seligman & Co.
(57) Senior Portfolio Incorporated; Vice President and Senior Portfolio Manager,
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.
(43) Incorporated, Seligman Advisors, Inc., and Seligman Data
Corp.; Vice President, the Seligman Group of investment
companies and Seligman Services, Inc.; Vice President and
Treasurer, Seligman International, Inc.; and Treasurer,
Seligman Henderson Co.
Frank J. Nasta Secretary General Counsel, Senior Vice President, Law and Regulation
(35) 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 and
(42) 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.
10
<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>
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 $586 N/A $82,000
Alice S. Ilchman, Trustee 566 N/A 80,000
Frank A. McPherson, Trustee 586 N/A 80,000
John E. Merow, Trustee 586 N/A 80,000
Betsy S. Michel, Trustee 586 N/A 82,000
James C. Pitney, Trustee 546 N/A 74,000
James Q. Riordan, Trustee 566 N/A 80,000
Robert L. Shafer, Trustee 566 N/A 80,000
James N. Whitson, Trustee 566(3) N/A 80,000(3)
</TABLE>
- ----------
(1) For the Fund's fiscal year ended September 30, 1999.
(2) The Seligman Group of investment companies consists of twenty investment
companies.
(3) 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 certain of the investment companies advised by J. & W.
Seligman & Co. Incorporated (Seligman), 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, 1999
was $3,827.
Messrs. Merow and Pitney no longer defer current compensation; however, they
have accrued deferred compensation in the amounts of $7,063 and $3,249,
respectively, as of September 30, 1999.
The Fund may, but is not obligated to, purchase shares of the other funds in 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 Seligman 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 Seligman 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.
11
<PAGE>
Code of Ethics
Seligman, Seligman Advisors, Inc. (Seligman Advisors), their subsidiaries and
affiliates, and the Seligman Group of Investment Companies have adopted a Code
of Ethics that sets forth the circumstances under which officers, directors or
trustees and employees (collectively, Employees) are permitted to engage in
personal securities transactions. 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 Director of Compliance, and sets forth a procedure of
identifying, for disciplinary action, those individuals who violate the Code of
Ethics. The Code of Ethics prohibits Employees (including all investment team
members) from purchasing or selling any security or an equivalent security that
is being purchased or sold by any client, or where the Employee intends, or
knows of another person's intention, to purchase or sell the security on behalf
of a client. The Code also prohibits all Employees from acquiring securities in
a private placement or in an initial or secondary public offering unless an
exemption has been obtained from Seligman's Director of Compliance.
The Code of Ethics 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) that the portfolio manager or investment team
manages; (2) each Employee from engaging in short-term trading (a purchase and
sale or vice-versa within 60 days); and (3) each member of an investment team
from engaging in short sales of a security if, at that time, any client managed
by that team has a long position in that security. Any profit realized pursuant
to any of these prohibitions must be disgorged.
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 Employees are also required to disclose all
securities beneficially owned by them upon commencement of employment and at the
end of each calendar year.
A copy of the Code of Ethics is on public file with, and is available upon
request from, the SEC. You can access it through the SEC's Internet site,
http://www.sec.gov.
Control Persons and Principal Holders of Securities
Control Persons
As of January 7, 2000, 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 January 7, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated for
the Sole Benefit of Its Customers, Attn. Fund Administration, 4800 Deer Lake
Drive East, 3rd Floor, Jacksonville, FL 32246 owned of record 16.00% of the then
outstanding Class A shares of beneficial interest of the Fund and 55.68% of the
then outstanding Class D shares of beneficial interest of the Fund. As of the
same date, PaineWebber for the Benefit of Hercules Segalas and Margaret Segalas
JTWROS, 10625 Wittington Avenue, Vero Beach, FL 32963, owned of record 84.80% of
the then outstanding Class C shares of beneficial interest of the Fund,
PaineWebber for the Benefit of Hazel Haas Rev Tr, 7605 NW 5 Pl, Margate, FL
33063 owned of record 15.20% of the then oustanding Class C shares of beneficial
interest of the Fund, Raymond James & Associates, Inc for Elite Accounts, FAO
Banner Rev Tr, 797 Pinetree Rd., Winter Park, FL 32789 owned of record 6.65% of
the then outstanding Class D shares of beneficial interest of the Fund and
Dwight C. Byers TR UA 3/17/92 FBO Dwight C. Byers Trust, 2701 60th Way N., Saint
Petersburg, FL 32246, owned of record 7.63% of the then outstanding Class D
shares of beneficial interest of the Fund.
12
<PAGE>
Management Ownership
As of January 7, 2000, Trustees and officers of the Fund as a group owned less
than 1% of the outstanding Class A, Class C and Class D shares of beneficial
interest of the Fund.
Investment Advisory and Other Services
Investment Manager
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, 1999, 1998
and 1997, the Fund paid Seligman management fees in the amount of $222,815,
$220,971 and $228,202, respectively.
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 Board of 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.
The Fund's Management Agreement was approved by the Board of 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.
Principal Underwriter
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.
13
<PAGE>
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 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 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
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 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
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 fiscal years ended
September 30, 1999, 1998 and 1997, Seligman Services received commissions of
$1,318, $2,125 and $1,118, respectively.
14
<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 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. This fee is 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, 1999 was $105,809, equivalent to .25% 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. This 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
15
<PAGE>
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 total amount paid by the
Fund to Seligman Advisors in respect of Class C shares from May 27, 1999
(inception) to September 30, 1999 was $711, equivalent to 1% per annum of the
Class C shares' average daily net assets.
The amounts expended by Seligman Advisors in any one year with respect to Class
C 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 C shares in one fiscal year to be paid from Class C 12b-1 fees 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, 1999, Seligman Advisors incurred $3,374 of unreimbursed
expenses in respect of the Fund's Class C shares. This amounts is equal to 1.33%
of net assets of Class C shares at September 30, 1999.
If the 12b-1 Plan is terminated in respect of Class C 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 C shares.
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. 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 the Fund. The
total amount paid by the Fund to Seligman Advisors in respect of Class D shares
for the fiscal year ended September 30, 1999 was $21,982, equivalent to 1% per
annum of the Class D shares' average daily net assets.
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, 1999 Seligman Advisors incurred $783 of unreimbursed
expenses in respect of the Fund's Class D shares. This amount is equal to .04%
of the net assets of Class D shares at September 30, 1999.
Payments made by the Fund under the 12b-1 Plan for the fiscal year ended
September 30, 1999, were spent on the following activities in the following
amounts:
16
<PAGE>
<TABLE>
<CAPTION>
Class A Class C* Class D
------- ------- -------
<S> <C> <C> <C>
Compensation to underwriters $-0- $711 $4,526
Compensation to broker/dealers $105,809 $-0- $17,456
</TABLE>
* From May 27,1999 (inception) to September 30, 1999
The 12b-1 Plan was approved on June 21, 1990 by the Board of 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
(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, 1999, 1998 and 1997, Seligman Services received
distribution and service fees of $4,753, $4,566 and $5,302, respectively, from
the Fund pursuant to the 12b-1 Plan.
Brokerage Allocation and Other Practices
Brokerage Transactions
For the fiscal years ended September 30, 1999, 1998 and 1997, 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, 1999, 1998 and 1997, 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.
17
<PAGE>
Regular Broker-Dealers
During the Fund's fiscal year ended September 30, 1999, the Fund did not acquire
securities of its regular brokers or dealers (as defined in Rule 10b-1 under the
1940 Act) or of its 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 of shares of beneficial interest. 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.
18
<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 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;
19
<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.
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:
20
<PAGE>
(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 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
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
21
<PAGE>
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 September 30, 1999, the maximum offering price
of the Fund's shares is as follows:
Class A
Net asset value per share ..................................... $7.41
-----
Maximum sales charge (4.75% of offering price) ................ .37
-----
Offering price to public ...................................... $7.78
=====
Class C
Net asset value per share ..................................... $7.43
-----
Maximum sales charge (1.00% of offering price(1)) ............. .08
-----
Offering price to public ...................................... $7.51
=====
Class D
Net asset value and offering price per share(2) ............... $7.43
=====
- ----------
(1) 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 18 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 SEC. 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.
22
<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
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
23
<PAGE>
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, if on
January 1 of that year, at least 90% of the Florida Fund's assets consists
entirely of the following exempt assets:
1. Notes, bonds, and other obligations issued by the State of Florida or
its municipalities, counties, and other taxing districts, or by the
United States Government and its agencies.
2. Any interest as a partner in a partnership, either general or limited,
other than any interest as a limited partner in a limited partnership
registered with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended.
3. Notes and other obligations, except bonds, to the extent that such
notes and obligations are secured by mortgage, deed of trust, or other
lien upon real property situated outside the State of Florida.
4. The assets of a corporation registered under the Investment Company
Act of 1940, 15 U.S.C. s. 80a-1-52, as amended.
Otherwise, shareholders will be taxed on the entire value of their Fund shares,
exclusive of any portion of the shares' value that is attributable to US
government obligations, valued as of the close of business on December 31st of
the previous calendar year. 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. 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.
24
<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 and Class C 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 and Class C shares
of the Fund for the fiscal year ended September 30, 1999, and of Class A shares
of the Fund for the fiscal years ended September 30, 1998 and 1997, are shown
below. No Class C shares were issued or outstanding for the fiscal years ended
September 30, 1998 and 1997. Also shown are the amounts of Class A and Class C
sales charges that were retained by Seligman Advisors for the same periods:
Total Sales Charges Paid by Amount of Class A and Class C
Shareholders on Class A Sales Charges Retained by
Fiscal Year and Class C Shares Seligman Advisors
----------- ------------------ -----------------
1999 $58,433 $6,782
1998 69,408 8,741
1997 76,147 9,343
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 the fiscal year ended September 30, 1999:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and
Commissions Repurchases (CDSC on
(Class A and Class C Sales Class A, Class C and Brokerage Other
Charges Retained) Class D Shares Retained) Commissions Compensation
----------------- ------------------------ ----------- ------------
<S> <C> <C> <C>
$6,782 $1,475 $-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%
25
<PAGE>
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 the Manager during a specified period of time. Such bonus or
other incentive will be made in the form of cash or, if permitted, may take the
form of non-cash payments. The non-cash payments will include (i) business
seminars at Seligman's headquarters or other locations, (ii) travel expenses,
including meals, entertainment and lodging, incurred in connection with trips
taken by qualifying registered representatives and members of their families to
places within or outside the United States, or (iii) the receipt of certain
merchandise. The cash payments may include payment of various business expenses
of the dealer. 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, 1999 for the
Fund's Class A shares was 4.49%. 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, 1999, which was
the last day of this period. The average number of Class A shares of the Fund
was 5,060,638, 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,
1999 for the Fund's Class A shares was 7.43%. 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, 1999 was (7.98)%. The average annual total return for
the Fund's Class A shares for the five-year period ended September 30, 1999 was
4.87%. The average annual total return for the Fund's Class A shares for the
ten-year period ended September 30, 1999 was 6.23%. 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 the public
offering price) was deducted. It was then assumed that all of the dividends and
capital gain distributions by the Fund's Class A shares over the relevant time
periods were reinvested. It was then assumed that at the end of the one-, five-,
and ten-year periods 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 C
The annualized yield for the 30-day period ended September 30, 1999 for the
Fund's Class C shares was 3.92%. 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 1.00% of the net amount invested) on September 30, 1999, which was
the last day of this period. The average number of Class C shares of the Fund
was 34,122, 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.
26
<PAGE>
The tax equivalent annualized yield for the 30-day period ended September 30,
1999 for the Fund's Class C shares was 6.49%. 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 total return for the Fund's Class C shares for the period from May 27, 1999
(inception) to September 30, 1999 was (5.87)%. This return was computed by
assuming a hypothetical initial payment of $1,000 in Class C shares of the Fund.
From this $1,000, the maximum sales load of $10.00 (1.00% of the public offering
price) was deducted. It was then assumed that all of the dividends and capital
gain distributions by the Fund's Class C shares over the period were reinvested.
It was then assumed that at the end of the period, the entire amount was
redeemed, subtracting the 1% CDSC, if applicable.
Class D
The annualized yield for the 30-day period ended September 30, 1999 for the
Fund's Class D shares was 3.96%. The annualized yield was computed as discussed
above 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, 1999, which was the last day of this
period. The average number of Class D shares of the Fund was 248,158, 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,
1999 for the Fund's Class D shares was 6.56%. 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, 1999 was (4.93)%. The average annual total return for
the Fund's Class D shares for the five-year period ended September 30, 1999 was
5.14%. The average annual total return for the Fund's Class D shares for the
period from February 1, 1994 (inception) through September 30, 1999 was 3.26%.
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 capital gain
distributions by the Fund's Class D shares over the relevant time periods were
reinvested. It was then assumed that at the end of the one-and five-year periods
and the period since inception of the Fund, the entire amount was redeemed,
subtracting the 1% CDSC, if applicable.
The tables below illustrate the total returns on a $1,000 investment in the
Fund's Class A, Class C and Class D shares for the ten years ended September 30,
1999 or from the Class's inception through September 30, 1999, 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 $ 940 $-0- $ 62 $1,002
9/30/91 1,004 -0- 132 1,136
9/30/92 1,029 -0- 212 1,241
9/30/93 1,117 2 311 1,430
9/30/94 1,000 22 351 1,373
9/30/95 1,051 23 449 1,523
9/30/96 1,045 39 523 1,607
9/30/97 1,063 62 611 1,736
9/30/98 1,100 80 715 1,895
9/30/99 1,010 85 735 1,830 82.99%
</TABLE>
27
<PAGE>
Class C
<TABLE>
<CAPTION>
Value of Value of Value Total Value
Period Initial Capital Gain of of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
9/30/99 $ 930 $-0- $ 11 $ 941 (5.87)%
</TABLE>
Class D
<TABLE>
<CAPTION>
Value of Value of Value Total Value
Period Initial Capital Gain of of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
9/30/94 $ 906 $-0- $ 28 $ 934
9/30/95 954 -0- 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
9/30/99 918 42 240 1,200 19.95%
</TABLE>
- ----------
(1) For the ten-year period ended September 30, 1999 for Class A shares, from
commencement of operations for Class C shares on May 27, 1999, 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 charge 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.
Financial Statements
The Annual Report to Shareholders of Seligman Municipal Series Trust for the
fiscal year ended September 30, 1999, contains a schedule of the investments of
the Fund as of September 30, 1999, as well as certain other financial
information. The financial statements and notes included in the Annual Report
and the Independent Auditors' Report thereon, are incorporated herein by
reference. The Annual 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,
28
<PAGE>
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 SECor 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 10% 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% 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 SEC,
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 SEC 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 SEC 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 SEC 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.
29
<PAGE>
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.
30
<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 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
31
<PAGE>
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.
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.
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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 estimated collections of
the General Revenue Fund were significantly increase at the November 12 Florida
Revenue Estimating Conference. Largely on the basis of higher sales tax
collections, the revenue estimate for the current fiscal year was raised by
$363.7 million, to $18,592.1 million. For the 2000-2001 fiscal year, the
estimate was raised by $338.4 million, to $19,454.7 million. This is a
year-over-year increase of 4.6%. Other changes to the estimate by a major tax
source included increases in the corporate income tax and estate taxes. Higher
revenues are being offset in part by higher refund payments, in response to
processing efficiencies implemented by the Department of Revenue to expedite
refund payments for overpayment of taxes. The ending fiscal position for the
current fiscal year was also increased as a result of the closeout of FY
1998-1999. The closeout increased the balance forward into the current fiscal
year by $127.3 million, largely on the basis of revenues for last year being
higher than forecasted and the amount of unused appropriations also being higher
than projected. The ending balance in the combined General Revenue and Working
Capital Funds for this year is now projected at $860.1 million. This represents
a 4.8% reserve against a potential shortfall in the revenue estimate. In
addition to these reserves, there is $907.1 million in the Budget Stabilization
Fund.
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.
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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 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 construction related
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.
35
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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.
...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.
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...1950-1989
o Develops new open-end investment companies. Today, manages more than 50
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 Global Fund Series, Inc., which today offers
five separate series: Seligman International Growth Fund, Seligman
Global Smaller Companies Fund, Seligman Global Technology Fund, Seligman
Global Growth Fund and Seligman Emerging Markets Fund.
o Launches Seligman Value Fund Series, which currently offers two separate
series: Seligman Large-Cap Value Fund and Seligman Small-Cap Value Fund.
o Launches innovative Seligman New Technologies Fund, Inc., a closed-end
"interval" fund seeking long-term capital appreciation by investing in
technology companies, including venture capital investing.
...2000
o Introduces Seligman Time Horizon/Harvester Series, Inc., an asset
allocation type mutual fund containing four funds: Seligman Time Horizon 30
Fund, Seligman Time Horizon 20 Fund, Seligman Time Horizon 10 Fund and
Seligman Harvester Fund.
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SELIGMAN MUNICIPAL SERIES TRUST
Seligman North Carolina Municipal Series
Statement of Additional Information
February 1, 2000
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 February 1, 2000. 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
the Independent Auditors' Report thereon, are incorporated herein by reference.
The Annual 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 ........................................ 7
Control Persons and Principal Holders of Securities ........... 12
Investment Advisory and Other Services ........................ 13
Brokerage Allocation and Other Practices ...................... 17
Shares of Beneficial Interest and Other Securities ............ 17
Purchase, Redemption, and Pricing of Shares ................... 18
Taxation of the Fund .......................................... 22
Underwriters .................................................. 24
Calculation of Performance Data ............................... 25
Financial Statements .......................................... 28
General Information ........................................... 28
Appendix A .................................................... 30
Appendix B .................................................... 33
Appendix C .................................................... 34
TEB1C
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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 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.
2
<PAGE>
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.
On September 16, 1999, the Board of Trustees eliminated the non-fundamental
policy that prohibited the Fund, with respect to 75% of the value of its assets,
from purchasing 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.
However, the Fund remains subject to a fundamental policy which prohibits the
Fund, with respect to 50% of the value of its total assets, from purchasing the
securities of any one issuer if, as a result of such purchase, more than 5% of
the Fund's total assets (at market value) would be invested in the securities of
a single issuer (except for obligations issued or guaranteed by the US
Government or its agencies or instrumentalities).
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,
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
3
<PAGE>
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 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.
4
<PAGE>
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 (SEC) for an exemptive order relating to such
commitments and the valuation thereof. There can be no assurance that the SEC
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 SEC.
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 North Carolina 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.
5
<PAGE>
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 its deferred
compensation plan for trustees;
- - 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.
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.
6
<PAGE>
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, 1999 and 1998, were 1.52% and
20.37%, 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.
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.
7
<PAGE>
<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, Chairman
(61) Board, Chief Executive and Chief Executive Officer, the Seligman Group of
Officer and Chairman of investment companies; Chairman, Seligman Advisors, Inc,
the Executive Committee 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 Director and President, J. & W. Seligman & Co.
(47) Member of the Executive Incorporated; President (with the exception of Seligman
Committee 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 Director and Managing Director, Director of Investments,
(59) the Executive Committee 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.
John R. Galvin Trustee Dean, Fletcher School of Law and Diplomacy at Tufts
(70) University; Director or Trustee, the Seligman Group of
Tufts University investment companies; Chairman Emeritus, American Council
Packard Avenue, 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.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
--------- ---------------- ----------------------
<S> <C> <C>
Frank A. McPherson Trustee Retired Chairman and Chief Executive Officer of
(66) Kerr-McGee Corporation; Director or Trustee, the Seligman
2601 Northwest Expressway, Group of investment companies; Director, Kimberly-Clark
Suite 805E Corporation, consumer products; Bank of Oklahoma Holding
Oklahoma City, OK 73112 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.
John E. Merow Trustee Retired Chairman and Senior Partner, Sullivan & Cromwell,
(70) law firm; Director or Trustee, the Seligman Group of
125 Broad Street, investment companies; Director, Commonwealth Industries,
New York, NY 10004 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, 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
(57) investment companies; Trustee, The Geraldine R. Dodge
P.O. Box 449 Foundation, charitable foundation. Formerly, Chairman of
Gladstone, NJ 07934 the Board of Trustees of St. George's School (Newport,
RI), and Director, the National Association of
Independent Schools (Washington, DC).
James C. Pitney Trustee Retired Partner, Pitney, Hardin, Kipp & Szuch, law firm;
(73) Director or Trustee, the Seligman Group of investment
Park Avenue at Morris County, companies. Formerly, Director, Public Service Enterprise
P.O. Box 1945, Group, public utility.
Morristown, NJ 07962
James Q. Riordan Trustee Director or Trustee, the Seligman Group of investment
(72) companies; Director, The Houston Exploration Company, oil
675 Third Avenue, exploration; The Brooklyn Museum, KeySpan Energy
Suite 3004 Corporation; and Public Broadcasting Service; and
New York, NY 10017 Trustee, the 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.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name, Principal
(Age) and Position(s) Held Occupation(s) During
Address with Fund Past 5 Years
--------- ---------------- ----------------------
<S> <C> <C>
Robert L. Shafer Trustee Retired Vice President, Pfizer Inc., pharmaceuticals;
(67) Director or Trustee, the Seligman Group of investment
96 Evergreen Avenue, companies. Formerly, Director, USLIFE Corporation, life
Rye, NY 10580 insurer.
James N. Whitson Trustee Director and Consultant, Sammons Enterprises, Inc., a
(64) diversified holding company; Director or Trustee, the
6606 Forestshire Drive Seligman Group of investment companies; Director, C-SPAN,
Dallas, TX 75230 cable television, and CommScope, Inc., 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.
(57) 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.
(43) Incorporated, Seligman Advisors, Inc., and Seligman Data
Corp.; Vice President, the Seligman Group of investment
companies and Seligman Services, Inc.; Vice President and
Treasurer, Seligman International, Inc., and Treasurer,
Seligman Henderson Co.
Frank J. Nasta Secretary General Counsel, Senior Vice President, Law and
(35) 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 and
(42) 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.
10
<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 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 $570 N/A $82,000
Alice S. Ilchman, Trustee 550 N/A 80,000
Frank A. McPherson, Trustee 570 N/A 80,000
John E. Merow, Trustee 570 N/A 80,000
Betsy S. Michel, Trustee 570 N/A 82,000
James C. Pitney, Trustee 530 N/A 74,000
James Q. Riordan, Trustee 550 N/A 80,000
Robert L. Shafer, Trustee 550 N/A 80,000
James N. Whitson, Trustee 550(3) N/A 80,000(3)
</TABLE>
- ----------
(1) For the Fund's fiscal year ended September 30, 1999.
(2) The Seligman Group of investment companies consists of twenty investment
companies.
(3) 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 certain of the investment companies advised by J. & W.
Seligman & Co. Incorporated (Seligman), 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, 1999
was $3,037.
Messrs. Merow and Pitney no longer defer current compensation; however, they
have accrued deferred compensation in the amounts of $5,182 and $2,383,
respectively, as of September 30, 1999.
The Fund may, but is not obligated to, purchase shares of the other funds in 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 or trustees, trustees, officers, employees (and their family
members) of the Fund, the other investment companies in the Seligman Group, and
Seligman 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
Seligman 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.
11
<PAGE>
Code of Ethics
Seligman, Seligman Advisors, Inc. (Seligman Advisors), their subsidiaries and
affiliates, and the Seligman Group of investment companies have adopted a Code
of Ethics that sets forth the circumstances under which officers, directors or
trustees and employees (collectively, Employees) are permitted to engage in
personal securities transactions. 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 Director of Compliance, and sets forth a procedure of
identifying, for disciplinary action, those individuals who violate the Code of
Ethics. The Code of Ethics prohibits Employees (including all investment team
members) from purchasing or selling any security or an equivalent security that
is being purchased or sold by any client, or where the Employee intends, or
knows of another's intention to purchase or sell a security on behalf of a
client. The Code also prohibits all Employees from acquiring securities in a
private placement or in an initial or secondary public offering unless an
exemption has been obtained from Seligman's Director of Compliance.
The Code of Ethics 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) that the portfolio manager or investment team
manages; (2) each Employee from engaging in short-term trading (a purchase and
sale or vice-versa within 60 days); and (3) each member of an investment team
from engaging in short sales of a security if, at that time, any client managed
by that team has a long position in that security. Any profit realized pursuant
to any of these prohibitions must be disgorged.
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 Employees are also required to disclose all
securities beneficially owned by them upon commencement of employment and at the
end of each calendar year.
A copy of the Code of Ethics is on public file with, and is available upon
request from, the SEC. You can access it through the SEC's Internet site,
http://www.sec.gov.
Control Persons and Principal Holders of Securities
Control Persons
As of January 7, 2000, 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 January 7, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated for
the Sole Benefit of Its Customers, Attn. Fund Administration, 4800 Deer Lake
Drive East, 3rd Floor, Jacksonville, FL 32246 owned of record 5.28% of the then
outstanding Class A shares of beneficial interest of the Fund and 11.07% of the
then outstanding Class D shares of beneficial interest of the Fund; Alice M.
Borland Rev Trust, 111 Scotia Village, 2200 Elm Avenue, Laurinburg, NC 28352
owned of record 95.03% of the then outstanding Class C shares of beneficial
interest of the Fund; Donaldson Lufkin Jenrette Securities Corporation Inc., PO
Box 2052, Jersey City, NJ 07303 owned of record 5.21% of the then outstanding
Class D shares of beneficial interest of the Fund; Edward D. Jones & Co F/A/O
Don Davis, PO Box 2500, Maryland Heights, MO 63043 owned of record 11.64% of the
then outstanding Class D shares of beneficial interest of the Fund; Carol M.
Calderwood, 1301 Clipper Lane, Wilmington, NC 28405 owned of record 5.16% of the
then outstanding Class D shares of beneficial interest of the Fund and Bailey
Sellars Barnett, 1038 Bolling Road, Charlotte, NC 28207 owned of record 7.36% of
the then outstanding Class D shares of beneficial interest of the Fund.
Management Ownership
As of January 7, 2000, no Trustees or officers of the Fund owned any shares of
any class of the Fund.
12
<PAGE>
Investment Advisory and Other Services
Investment Manager
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, 1999, 1998
and 1997, the Fund paid Seligman management fees in the amount of $161,355,
$168,365 and $176,659, respectively.
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 Board of 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.
The Fund's Management Agreement was approved by the Board of Trustees at a
meeting held on June 21, 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.
Principal Underwriter
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
13
<PAGE>
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 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 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
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 0 0 0
</TABLE>
(1) "Offering Price" is the amount that you actually pay for Fund shares; it
includes the initial sales charge.
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 fiscal years ended
September 30, 1999, 1998 and 1997, Seligman Services received commissions in the
amounts of $2,175, $975 and $-0-, respectively.
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
14
<PAGE>
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. This fee is 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, 1999 was $78,017, equivalent to .25% 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. This 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 Fund. The total amount paid by the Fund to Seligman Advisors in respect
of Class C shares from May 27, 1999 (inception) to September 30, 1999 was $30,
equivalent to 1% per annum of the Class C shares' average daily net assets.
The amounts expended by Seligman Advisors in any one year with respect to Class
C 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
15
<PAGE>
Seligman Advisors in respect of Class C shares in one fiscal year to be paid
from Class C 12b-1 fees 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, 1999, Seligman Advisors incurred $133 of unreimbursed
expenses in respect of the Fund's Class C shares. This amount is equal to 1.31%
of the net assets of Class C shares at September 30, 1999.
If the 12b-1 Plan is terminated in respect of Class C shares of the Fund, no
amounts (other than amounts accrued by not yet paid) would be owed by the Fund
to Seligman Advisors with respect to Class C shares.
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. 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 the Fund. The
total amount paid by the Fund to Seligman Advisors in respect of Class D shares
for the fiscal year ended September 30, 1999 was $15,959 equivalent to 1% per
annum of the Class D shares' average daily net assets.
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, 1999 Seligman Advisors has incurred $11,369 of unreimbursed
expenses in respect of the Fund's Class D shares. This amount is equal to .68%
of the net assets of Class D shares at September 30, 1999.
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 the fiscal year ended
September 30, 1999, were spent on the following activities in the following
amounts :
<TABLE>
<CAPTION>
Class A Class C* Class D
------- -------- -------
<S> <C> <C> <C>
Compensation to underwriters $-0- $30 $4,461
Compensation to broker/dealers $78,017 $-0- $11,498
</TABLE>
* From May 27, 1999 (inception) to September 30, 1999.
The 12b-1 Plan was approved on June 21, 1990 by the Board of 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
(Qualified Trustees) and was approved by shareholders of the Fund on April 11,
1991. Amendments to the Plan were
16
<PAGE>
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, 1999, 1998 and 1997, Seligman Services received
distribution and service fees of $2,644, $2,401 and $1,858, respectively, of the
Fund pursuant to the 12b-1 Plan.
Brokerage Allocation and Other Practices
Brokerage Transactions
For the fiscal years ended September 30, 1999, 1998 and 1997, 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, 1999, 1998 and 1997, 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, 1999, the Fund did not acquire
securities of its regular brokers or dealers (as defined in Rule 10b-1 under the
1940 Act) or of its 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
17
<PAGE>
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 of
shares of beneficial interest. 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 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:
18
<PAGE>
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;
(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
19
<PAGE>
(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.
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.
20
<PAGE>
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.
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.
21
<PAGE>
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 September 30, 1999, the maximum offering price
of the Fund's shares is as follows:
Class A
Net asset value per share ..................................... $7.59
Maximum sales charge (4.75% of offering price) ................ .38
-----
Offering price to public ...................................... $7.97
=====
Class C
Net asset value per share ..................................... $7.59
Maximum sales charge (1.00% of offering price(1)) ............. .08
-----
Offering price to public ...................................... $7.67
=====
Class D
Net asset value and offering price per share(2) ............... $7.59
=====
- ----------
(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 18 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 SEC. 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
22
<PAGE>
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
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
23
<PAGE>
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.
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 and Class C 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 and Class C shares
of the Fund for the fiscal year ended September 30, 1999, and of Class A shares
of the Fund for the fiscal years ended September 30, 1998 and 1997, are shown
below. No Class C shares were issued or outstanding for the fiscal years ended
September 30, 1998 and 1997. Also shown are the amounts of the Class A and Class
C sales charges that were retained by Seligman Advisors for the same periods:
Total Sales Charges Amount of Class A and
Paid by Shareholders on Class C Sales Charges
Class A and Class C Retained by Seligman
Fiscal Year Shares Advisors
----------- ------ --------
1999 $46,056 $5,533
----
1998 50,052 6,114
1997 51,778 6,321
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 the fiscal year ended September 30, 1999:
24
<PAGE>
<TABLE>
<CAPTION>
Compensation on
Net Underwriting Redemptions and
Discounts and Repurchases
Commissions (CDSC on Class A, Class
(Class A and Class C Sales C and Class D Shares Brokerage Other
Charge Retained) Retained) Commissions Compensation
---------------- --------- ----------- ------------
<S> <C> <C> <C>
$5,533 $12 $-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 the Manager during a specified period of time. Such bonus or
other incentive will be made in the form of cash or, if permitted, may take the
form of non-cash payments. The non-cash payments will include (i) business
seminars at Seligman's headquarters or other locations, (ii) travel expenses,
including meals, entertainment and lodging, incurred in connection with trips
taken by qualifying registered representatives and members of their families to
places within or outside the United States, or (iii) the receipt of certain
merchandise. The cash payments may include payment of various business expenses
of the dealer. 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, 1999 for the
Fund's Class A shares was 4.26%. 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, 1999, which was
the last day of this period. The average number of Class A shares of the Fund
was 3,624,960, 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.
25
<PAGE>
The tax equivalent annualized yield for the 30-day period ended September 30,
1999 for the Fund's Class A shares was 7.64%. 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, 1999 was (7.63)%. The average annual total return for
the Fund's Class A shares for the five-year period ended September 30, 1999 was
5.23%. The average annual total return for the Fund's Class A shares for the
period from August 27, 1990 (inception) through September 30, 1999 was 5.84%.
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 the public offering price) was deducted. It was then assumed
that all of the dividends and capital gain distributions by the Fund's Class A
shares over the relevant time periods were reinvested. It was then assumed that
at the end of the one-, five-, and ten-year periods and the period since
inception 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 C
The annualized yield for the 30-day period ended September 30, 1999 for the
Fund's Class C shares was 3.68%. The annualized yield was computed as discussed
above 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 plus the maximum sales load of 1.00% of the net amount
invested) on September 30, 1999. The average number of Class C shares of the
Fund was 1,327, 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 September 30, 1999 for
the Fund's Class C shares was 6.60%. The tax equivalent annualized yield was
computed by first computing the annualized yield, as discussed above for Class A
shares. 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 C shares' yield, if any, that was attributable to
securities the income of which was not tax-exempt.
The total return for the Fund's Class C shares for the period from May 27, 1999
(inception) to September 30, 1999 was (5.52)%. This return was computed by
assuming a hypothetical initial payment of $1,000 in Class C shares of the Fund.
From this $1,000, the maximum sales load of $10.00 (1.00% of the public offering
price) was deducted. It was then assumed that all of the dividends and capital
gain distributions by the Fund's Class C shares over the period were reinvested.
It was then assumed that at the end of the period, the entire amount was
redeemed, subtracting the 1% CDSC, if applicable.
Class D
The annualized yield for the 30-day period ended September 30, 1999 for the
Fund's Class D shares was 3.72%. The annualized yield was computed as discussed
above for Class A shares by dividing the Fund's net investment
26
<PAGE>
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, 1999, which was the last
day of this period. The average number of Class D shares of the Fund was
223,981, 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,
1999 for the Fund's Class D shares was 6.67%. 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, 1999 was (4.71)%. The average annual total return for
the Fund's Class D shares for the five-year period ended September 30, 1999 was
5.47%. The average annual total return for the Fund's Class D shares for the
period from February 1, 1994 (inception) through September 30, 1999 was 3.25%.
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 capital gain
distributions by the Fund's Class D shares over the relevant time periods were
reinvested. It was then assumed that at the end of the one- and five-year
periods and the period since inception of the Fund, the entire amount was
redeemed, subtracting the 1% CDSC, if applicable
The tables below illustrate the total returns on a $1,000 investment in the
Fund's Class A, Class C and Class D shares for the ten years ended September 30,
1999 or from the Class's inception through September 30, 1999, assuming
investment of all dividends and capital gain distributions.
Class A
<TABLE>
<CAPTION>
Value of Value of Value Total Value
Year Initial Capital Gain Of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
9/30/90 $ 939 $-0- $ -0- $ 939
9/30/91 985 -0- 66 1,051
9/30/92 1,015 -0- 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
9/30/99 1,013 56 607 1,676 67.57%
</TABLE>
Class C
<TABLE>
<CAPTION>
Value of Value of Value Total Value
Period Initial Capital Gain Of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C>
9/30/99 $ 934 $-0- $ 11 $ 945 (5.52)%
</TABLE>
Class D
<TABLE>
<CAPTION>
Value of Value of Value Total Value
Period Initial Capital Gain of Of Total
Ended(1) Investment(2) Distributions Dividends Investment(2) Return(1)(3)
-------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C>
9/30/94 $ 893 $-0- $ 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
9/30/99 930 33 236 1,199 19.85%
</TABLE>
27
<PAGE>
- ----------
(1) From commencement of operations of Class A shares on August 27, 1990, from
commencement of operations for Class C shares on May 27, 1999 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 charge 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, 1999, contains a schedule of the investments of
the Fund as of September 30, 1999, as well as certain other financial
information. The financial statements and notes included in the Annual Report
and the Independent Auditors' Report thereon, are incorporated herein by
reference. The Annual 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 SECor 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.
28
<PAGE>
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 10% 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% 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 SEC,
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 SEC 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 SEC 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 SEC 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.
29
<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 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
30
<PAGE>
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.
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.
31
<PAGE>
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.
32
<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 being cut 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 had been in a steep decline, resulting in
significant losses by hog producers. The eastern section of North Carolina was
affected by two significant hurricanes during the fall of 1999 which caused
record flooding in many portions of the eastern section of the State, resulting
in very significant losses to livestock and other agricultural products as well
as widespread property damage. All these developments have adversely impacted
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 and North Carolina
continues to lose textile jobs. Tourist spending has become a larger factor in
the North Carolina economy in recent years. While most sectors of the North
Carolina economy, excluding tobacco and textiles, have experienced a period of
steady growth, the rate of future growth is expected to be slow. In fact, while
continued economic growth for North Carolina is projected, 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 and higher interest rates.
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.
33
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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.
...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.
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...1950-1989
o Develops new open-end investment companies. Today, manages more than 50
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 Global Fund Series, Inc., which today offers five
separate series: Seligman International Growth Fund, Seligman Global
Smaller Companies Fund, Seligman Global Technology Fund, Seligman Global
Growth Fund and Seligman Emerging Markets Fund.
o Launches Seligman Value Fund Series, which currently offers two separate
series: Seligman Large-Cap Value Fund and Seligman Small-Cap Value Fund.
o Launches innovative Seligman New Technologies Fund, Inc., a closed-end
"interval" fund seeking long-term capital appreciation by investing in
technology companies, including venture capital investing.
...2000
o Introduces Seligman Time Horizon/Harvester Series, Inc., an asset
allocation type mutual fund containing four mutual funds: Seligman Time
Horizon 30 Fund, Seligman Time Horizon 20 Fund, Seligman Time Horizon 10
Fund and Seligman Harvester Fund.
35
<PAGE>
To the Shareholders
The fiscal year ended September 30, 1999, was a period of steadily rising
interest rates, creating a difficult environment for fixed-income securities and
for Seligman New Jersey Municipal Fund.
At the end of the Fund's fiscal-year 1998, the Federal Reserve Board was easing
monetary policy in an effort to protect the US economy from the effects of the
global economic crisis. Central banks around the world also lowered key interest
rates in response to global turmoil. These easing actions were successful and
the world economy rebounded. However, the global recovery, combined with
continued growth in the US, soon caused the US Fed to voice concerns about
inflation. In May, the Fed announced its bias toward a tighter policy and has
since followed through with two federal funds rate hikes, for a total of 50
additional basis points.
Throughout this fiscal year, continued robust growth in the US, the recovering
world economy, growing concerns regarding inflation, and tighter monetary
policy, sent market interest rates steadily higher. On September 30, 1998, the
30-year US Treasury bond was yielding 4.98%. One year later, the yield had moved
to 6.06%. The New Jersey State general obligation 30-year municipal bond
fluctuated within a narrower range, but still rose significantly, from 4.75% on
September 30, 1998, to 5.68% on September 30, 1999. The additional stability in
the New Jersey municipal market was largely the result of an imbalance in
municipal supply and demand. For much of the past year, rising yields were
attracting investors, while municipal issuers were reluctant to offer new supply
at higher rates.
Looking ahead, we believe that the US economy will slow, as was intended by the
Fed's most recent actions, and that inflation fears will thus subside and reduce
bond market volatility. We anticipate that the municipal market will outperform
the Treasury market for the balance of calendar-year 1999, as a result of
improving municipal market fundamentals, the most significant of which is the
slowdown in municipal issuance, which is expected to continue into the new year.
As the millennium approaches, we have become concerned that the media's focus on
the Year 2000 (Y2K) computer issue, and the fears that this attention may spark,
will cause some investors to take actions that are not in their best long-term
interests. In our view, the primary danger to investors is losing sight of their
long-term financial goals and altering their portfolios and asset allocations in
an attempt to respond to the confusion surrounding this issue.
In the US, governments and businesses have committed substantial resources to
this issue and, while there may be scattered inconveniences, we believe that the
US will enter the year 2000 relatively seamlessly, and that much of the rest of
the developed world is also well positioned to deal with the new millennium.
For the past several years, J. & W. Seligman & Co. Incorporated (Seligman), your
Fund's manager, and Seligman Data Corp. (Seligman Data), your Fund's shareholder
service agent, have been working to ensure that shareholders do not experience
any Y2K-related inconveniences at Seligman. We are pleased to report that the
early start has paid off. During the spring of this year, Seligman and Seligman
Data participated in Y2K testing conducted by the Securities Industry
Association. These tests were completed without any Y2K-related problems on the
part of Seligman or Seligman Data. Tests with key service providers were also
conducted, all of which were successfully completed in a Y2K environment.
We appreciate your confidence in Seligman New Jersey Municipal Fund and look
forward to serving your investment needs for many years to come. A discussion
with your Portfolio Manager, as well as the Fund's portfolio of investments and
financial statements, follows this letter.
By order of the Board of Directors,
/s/ William C. Morris
- ---------------------
William C. Morris
Chairman
/s/ Brian T. Zino
-----------------
Brian T. Zino
President
November 5, 1999
1
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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.
James, Jesse, and Joseph Seligman, 1870
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................................. 22
Report of Independent Auditors...................... 26
Trustees............................................. 27
Executive Officers and For More Information.......... 28
Glossary of Financial Terms......................... 29
<PAGE>
TO THE SHAREHOLDERS
The fiscal year ended September 30, 1999, was a period of steadily rising
interest rates, creating a difficult environment for fixed-income securities and
for Seligman Municipal Series Trust.
At the end of the Fund's fiscal-year 1998, the Federal Reserve Board was easing
monetary policy in an effort to protect the US economy from the effects of the
global economic crisis. Central banks around the world also lowered key interest
rates in response to global turmoil. These easing actions were successful and
the world economy has rebounded. However, the global recovery, combined with
continued growth in the US, soon caused the US Fed to voice concerns about
inflation. In May, the Fed announced its bias toward a tighter policy and has
since followed through with two federal funds rate hikes, for a total of 50
additional basis points.
Throughout this fiscal year, continued robust growth in the US, the recovering
world economy, growing concerns regarding inflation, and tighter monetary policy
sent market interest rates steadily higher. On September 30, 1998, the 30-year
US Treasury bond was yielding 4.98%. One year later, the yield had moved to
6.06%. Municipal bonds (as measured by the Bond Buyer 20-bond General Obligation
Index) fluctuated within a much narrower range, but still rose significantly,
from 4.94% on September 30, 1998, to 5.73% on September 30, 1999. The additional
stability in the municipal market was largely the result of an imbalance in
municipal supply and demand. Rising yields were attracting investors, while
municipal issuers were reluctant to offer new supply at higher rates.
Looking ahead, we believe that the US economy will slow, as was intended by the
Fed's most recent actions, and that inflation fears will thus subside and reduce
bond market volatility. We anticipate that the municipal market will outperform
the Treasury market for the balance of calendar-year 1999, as a result of
improving municipal market fundamentals, the most significant of which is the
slowdown in municipal issuance, which is expected to continue into the new year.
As the millennium approaches, we have become concerned that the media's focus on
the Year 2000 (Y2K) computer issue, and the fears that this attention may spark,
will cause some investors to take actions that are not in their best long-term
interests. In our view, the primary danger to investors is losing sight of their
long-term financial goals and altering their portfolios and asset allocations in
an attempt to respond to the confusion surrounding this issue.
In the US, governments and businesses have committed substantial resources to
this issue and, while there may be scattered inconveniences, we believe that the
US will enter the year 2000 relatively seamlessly, and that much of the rest of
the developed world is also well positioned to deal with the new millennium.
For the past several years, J. & W. Seligman & Co. Incorporated (Seligman), your
Trust's manager, and Seligman Data Corp. (Seligman Data), your Trust's
shareholder service agent, have been working to ensure that shareholders do not
experience any Y2K-related inconveniences. We are pleased to report that the
early start has paid off. During the spring of this year, Seligman and Seligman
Data participated in Y2K testing conducted by the Securities Industry
Association. These tests were completed without any Y2K-related problems on the
part of Seligman or Seligman Data. Tests with key service providers were also
conducted, all of which were successfully completed in a Y2K environment.
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, as well as the Trust's portfolios of investments
and financial statements, follows this letter.
By order of the Trustees,
/s/ William C. Morris
- ---------------------
William C. Morris
Chairman
/s/ Brian T. Zino
-----------------
Brian T. Zino
President
November 5, 1999
1
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGER,
Thomas G. Moles
Q: What economic and market factors influenced Seligman Municipal Series Trust
in the last 12 months?
A: The past 12 months have been challenging for the financial markets,
including the fixed-income markets. At this time last year, global equity
markets were struggling to recover from the Asian financial crisis, as well
as economic turmoil in Russia. In September 1998, the Federal Reserve Board
initiated a series of federal funds rate easings in an effort to restore
stability and liquidity to anxious world markets. At that time, market
participants generally expected that US economic growth would contract as a
result of world events, thereby preventing an acceleration in the rate of
inflation. Additionally, many experts predicted that, with the approach of
the new millennium, computer glitches would at best slow economic growth
and at worst cause major disruptions leading to worldwide recession. One
year later, the Fed has tightened to slow economic growth, world equity
markets have recovered, and most market watchers expect the transition to
the year 2000 to be uneventful.
During the past year, the municipal market did not exhibit the degree of
volatility that characterized the US Treasury market. This was largely the
result of the powerful influences of supply and demand that served to
mitigate both upward and downward movements in municipal yields. Last
year's Treasury market rallies were caused by heavy demand for Treasury
securities during periods of equity market declines. Conversely, demand for
municipal bonds was not greatly affected, which lessened municipal market
volatility. Further, year-to-date municipal issuance is down 20% over the
same period last year. This lack of supply held municipal yields steady and
was the primary reason municipal bonds outperformed Treasury bonds for much
of the past 12 months.
While the municipal market was relatively stable overall, it was not immune
to the effects of shifting economic and inflation expectations. By June
1999, municipal yields began moving higher in response to increasing
concern regarding the pace of economic activity and continued to move
higher through fiscal year end. Accordingly, net asset values of the
Trust's shares deteriorated during the last quarter of the fiscal year and
performance was disappointing.
Q: What was your investment strategy?
A: Over the past year, long-term municipal yields rose to levels not seen in
several years. This presented an opportunity to enhance Trust yields by
purchasing higher-yielding, longer-term bonds and by reducing positions in
shorter-term bonds. In general, the longer the maturity of a bond, the more
sensitive it is to changes in interest rates. During periods of declining
interest rates, longer-term bonds
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
outperform shorter-term bonds. However, during periods of rising interest
rates, such as we have been experiencing, longer-term bonds decline more in
price than shorter-term bonds.
New purchases were concentrated in higher-rated bonds due primarily to a
continuation of narrow yield spreads between higher- and lower-quality
bonds. Additionally, a number of holdings received credit-rating upgrades,
further contributing to the overall improvement in the Trust's credit
quality.
The Trust is well diversified among all major sectors of the municipal
marketplace. Most sectors remain stable with the exception of health care,
which remains vulnerable to further credit-quality deterioration mainly as
a result of government cutbacks and the growth of managed care. Many health
care issuers that have been well managed and have maintained consistently
healthy finances are suddenly facing serious budget deficits. As a result
of this alarming trend, we have been particularly diligent in monitoring
our health care holdings. During the past year, portfolio activity in the
sector has been heavier than usual as we restructured our positions.
Despite the current situation, the health care sector continues to offer
selective opportunities. Through in-depth credit analysis, we endeavor to
identify strong health care credits for inclusion in the Trust's portfolio.
Q: What is your outlook?
A: The long-awaited economic slowdown has yet to materialize, increasing the
risk that the rate of inflation will accelerate. In response, bond yields
have been rising steadily year to date. For the remainder of calendar year
1999, the bond markets will likely experience continued volatility until
solid signs that the economy is moderating emerge. Many market participants
expect the Fed to raise rates once more before year-end. This, together
with higher market rates, may ease inflationary pressures and spark a
bond-market rally.
As we head toward the new millennium, we believe that there is much to be
optimistic about. In the year 2000, the US economy will likely enter its
tenth year of expansion, an extraordinary achievement. The financial well
being of the nation's states, cities, and municipalities continues to
improve, with many reporting record budget surpluses. The jobless rate
remains below 5% nationally and consumer confidence remains high. Finally,
as one of the few remaining possible ways to shelter income, municipal bond
trusts currently offer attractive yields compared to the after-tax yields
of many taxable bond investments.
3
<PAGE>
PERFORMANCE OVERVIEW AND PORTFOLIO 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, and assume that all distributions within the
period are invested in additional shares for the 10-year or since-inception
(where applicable) periods ended September 30, 1999, to a $10,000 hypothetical
investment made in the Lehman Brothers Municipal Bond Index (Lehman Index) for
the same periods. The performances of each Series of Seligman Municipal Series
Trust Class C and Class D shares are not shown in the charts but are 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 Without Sales
Charge Charge Lehman Index
9/30/89 $9,521 $10,000 $10,000
12/31/89 $9,809 $10,303 $10,384
3/31/90 $9,896 $10,394 $10,431
6/30/90 $10,109 $10,618 $10,675
9/30/90 $10,051 $10,557 $10,681
12/31/90 $10,398 $10,921 $11,142
3/31/91 $10,636 $11,172 $11,393
6/30/91 $10,866 $11,413 $11,636
9/30/91 $11,310 $11,879 $12,089
12/31/91 $11,488 $12,066 $12,495
3/31/92 $11,652 $12,238 $12,532
6/30/92 $12,070 $12,677 $13,009
9/30/92 $12,328 $12,948 $13,353
12/31/92 $12,583 $13,216 $13,596
3/31/93 $12,948 $13,600 $14,101
6/30/93 $13,322 $13,992 $14,562
9/30/93 $13,642 $14,329 $15,054
12/31/93 $13,829 $14,525 $15,265
3/31/94 $13,511 $14,191 $14,427
6/30/94 $13,587 $14,270 $14,587
9/30/94 $13,699 $14,388 $14,686
12/31/94 $13,443 $14,120 $14,475
3/31/95 $14,314 $15,035 $15,498
6/30/95 $14,589 $15,323 $15,871
9/30/95 $14,911 $15,661 $16,329
12/31/95 $15,400 $16,175 $17,001
3/31/96 $15,259 $16,026 $16,796
6/30/96 $15,471 $16,249 $16,925
9/30/96 $15,878 $16,677 $17,314
12/31/96 $16,250 $17,068 $17,756
3/31/97 $16,185 $17,000 $17,715
6/30/97 $16,738 $17,580 $18,326
9/30/97 $17,266 $18,135 $18,879
12/31/97 $17,668 $18,557 $19,391
3/31/98 $17,904 $18,805 $19,614
6/30/98 $18,204 $19,120 $19,912
9/30/98 $18,726 $19,668 $20,524
12/31/98 $18,759 $19,703 $20,647
3/31/99 $18,892 $19,842 $20,830
6/30/99 $18,544 $19,477 $20,462
9/30/99 $18,198 $19,114 $20,380
The performances of Class C and 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, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
---------------------------------------------------------
CLASS C CLASS D
SINCE INCEPTION SIX ONE FIVE 10 SINCE INCEPTION
5/27/99* MONTHS* YEAR YEARS YEARS 2/1/94
---------------- --------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Class A**
With Sales Charge n/a (8.20)% (7.44)% 4.83% 6.17% n/a
Without Sales Charge n/a (3.67) (2.82) 5.85 6.69 n/a
Class C**
With Sales Charge and CDSC (5.74)% n/a n/a n/a n/a n/a
Without Sales Charge and CDSC (3.79) n/a n/a n/a n/a n/a
Class D**
With 1% CDSC n/a (5.04) (4.47) n/a n/a n/a
Without CDSC n/a (4.10) (3.54) 4.88 n/a 3.83%
Lehman Index*** (1.83)++ (2.16) (0.70) 6.77 7.38 5.02++++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
For Periods Ended September 30, 1999
9/30/99 3/31/99 9/30/98 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
-------- -------- -------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $6.28 $6.68 $6.80 Class A $0.312 $0.024 4.71%
Class C 6.29 n/a n/a Class C 0.088 -- 3.99
Class D 6.29 6.69 6.80 Class D 0.253 0.024 4.03
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 95% Aaa/AAA 17%
General Obligation Bonds00 5 Aa/AA 16
A/A 52
Baa/BBB 15
WEIGHTED AVERAGE MATURITY 24.9 years
</TABLE>
- -----------------
See footnotes on page 7.
4
<PAGE>
PERFORMANCE OVERVIEW AND PORTFOLIO SUMMARY
Seligman California Municipal Quality Series
With Sales Without Sales
Charge Charge Lehman Index
9/30/89 $9,529 $10,000 $10,000
12/31/89 $9,870 $10,358 $10,384
3/31/90 $9,858 $10,346 $10,431
6/30/90 $10,108 $10,607 $10,675
9/30/90 $9,931 $10,422 $10,681
12/31/90 $10,518 $11,038 $11,142
3/31/91 $10,695 $11,224 $11,393
6/30/91 $10,898 $11,437 $11,636
9/30/91 $11,356 $11,918 $12,089
12/31/91 $11,698 $12,277 $12,495
3/31/92 $11,680 $12,257 $12,532
6/30/92 $12,194 $12,797 $13,009
9/30/92 $12,442 $13,057 $13,353
12/31/92 $12,691 $13,319 $13,596
3/31/93 $13,296 $13,953 $14,101
6/30/93 $13,702 $14,380 $14,562
9/30/93 $14,174 $14,875 $15,054
12/31/93 $14,291 $14,998 $15,265
3/31/94 $13,344 $14,004 $14,427
6/30/94 $13,365 $14,026 $14,587
9/30/94 $13,400 $14,063 $14,686
12/31/94 $13,105 $13,753 $14,475
3/31/95 $14,281 $14,987 $15,498
6/30/95 $14,467 $15,183 $15,871
9/30/95 $14,853 $15,588 $16,329
12/31/95 $15,699 $16,475 $17,001
3/31/96 $15,368 $16,129 $16,796
6/30/96 $15,525 $16,293 $16,925
9/30/96 $15,894 $16,680 $17,314
12/31/96 $16,313 $17,120 $17,756
3/31/97 $16,203 $17,004 $17,715
6/30/97 $16,752 $17,580 $18,326
9/30/97 $17,304 $18,160 $18,879
12/31/97 $17,748 $18,626 $19,391
3/31/98 $17,907 $18,793 $19,614
6/30/98 $18,200 $19,100 $19,912
9/30/98 $18,804 $19,735 $20,524
12/31/98 $18,859 $19,792 $20,647
3/31/99 $18,958 $19,895 $20,830
6/30/99 $18,479 $19,392 $20,462
9/30/99 $18,113 $19,008 $20,380
The performances of Class C and 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, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
---------------------------------------------------------
CLASS C CLASS D
SINCE INCEPTION SIX ONE FIVE 10 SINCE INCEPTION
5/27/99* MONTHS* YEAR YEARS YEARS 2/1/94
---------------- --------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Class A**
With Sales Charge n/a (8.96)% (8.26)% 5.18% 6.12% n/a
Without Sales Charge n/a (4.46) (3.68) 6.21 6.63 n/a
Class C**
With Sales Charge and CDSC (5.96)% n/a n/a n/a n/a n/a
Without Sales Charge and CDSC (4.04) n/a n/a n/a n/a n/a
Class D**
With 1% CDSC n/a (5.85) (5.47) n/a n/a n/a
Without CDSC n/a (4.91) (4.58) 5.21 n/a 3.06%
Lehman Index*** (1.83)++ (2.16) (0.70) 6.77 7.38 5.02++++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
FOR PERIODS ENDED SEPTEMBER 30, 1999
9/30/99 3/31/99 9/30/98 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
------- -------- -------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $6.42 $6.88 $7.21 Class A $0.311 $0.230 4.47%
Class C 6.40 n/a n/a Class C 0.086 -- 3.76
Class D 6.40 6.86 7.19 Class D 0.249 0.230 3.79
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 85% Aaa/AAA 76%
General Obligation Bonds00 15 Aa/AA 18
A/A 6
WEIGHTED AVERAGE MATURITY 22.9 years
</TABLE>
- ----------------
See footnotes on page 7.
5
<PAGE>
PERFORMANCE OVERVIEW AND PORTFOLIO SUMMARY
Seligman Florida Municipal Series
With Sales Without Sales
Charge Charge Lehman Index
9/30/89 $9,523 $10,000 $10,000
12/31/89 $9,924 $10,421 $10,384
3/31/90 $9,902 $10,398 $10,431
6/30/90 $10,161 $10,670 $10,675
9/30/90 $10,021 $10,523 $10,681
12/31/90 $10,565 $11,094 $11,142
3/31/91 $10,765 $11,304 $11,393
6/30/91 $10,986 $11,537 $11,636
9/30/91 $11,364 $11,933 $12,089
12/31/91 $11,686 $12,271 $12,495
3/31/92 $11,715 $12,301 $12,532
6/30/92 $12,177 $12,787 $13,009
9/30/92 $12,415 $13,037 $13,353
12/31/92 $12,746 $13,385 $13,596
3/31/93 $13,221 $13,883 $14,101
6/30/93 $13,794 $14,484 $14,562
9/30/93 $14,303 $15,019 $15,054
12/31/93 $14,470 $15,194 $15,265
3/31/94 $13,603 $14,284 $14,427
6/30/94 $13,710 $14,396 $14,587
9/30/94 $13,732 $14,420 $14,686
12/31/94 $13,671 $14,356 $14,475
3/31/95 $14,628 $15,361 $15,498
6/30/95 $14,859 $15,603 $15,871
9/30/95 $15,226 $15,988 $16,329
12/31/95 $15,951 $16,749 $17,001
3/31/96 $15,591 $16,372 $16,796
6/30/96 $15,707 $16,493 $16,925
9/30/96 $16,070 $16,874 $17,314
12/31/96 $16,392 $17,212 $17,756
3/31/97 $16,171 $16,981 $17,715
6/30/97 $16,807 $17,649 $18,326
9/30/97 $17,357 $18,226 $18,879
12/31/97 $17,921 $18,818 $19,391
3/31/98 $18,094 $19,000 $19,614
6/30/98 $18,369 $19,289 $19,912
9/30/98 $18,947 $19,896 $20,524
12/31/98 $18,937 $19,885 $20,647
3/31/99 $19,090 $20,046 $20,830
6/30/99 $18,717 $19,654 $20,462
9/30/99 $18,298 $19,215 $20,380
The performances of Class C and 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, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
---------------------------------------------------------
CLASS C CLASS D
SINCE INCEPTION SIX ONE FIVE 10 SINCE INCEPTION
5/27/99* MONTHS* YEAR YEARS YEARS 2/1/94
---------------- --------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Class A**
With Sales Charge n/a (8.65)% (7.98)% 4.87% 6.23% n/a
Without Sales Charge n/a (4.15) (3.42) 5.91 6.75 n/a
Class C**
With Sales Charge and CDSC (5.87)% n/a n/a n/a n/a n/a
Without Sales Charge and CDSC (3.96) n/a n/a n/a n/a n/a
Class D**
With 1% CDSC n/a (5.43) (4.93) n/a n/a n/a
Without CDSC n/a (4.49) (4.01) 5.14 n/a 3.26%
Lehman Index*** (1.83)++ (2.16) (0.70) 6.77 7.38 5.02++++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
FOR PERIODS ENDED SEPTEMBER 30, 1999
9/30/99 3/31/99 9/30/98 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
-------- -------- -------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $7.41 $7.91 $8.07 Class A $0.343 $0.051 4.49%
Class C 7.43 n/a n/a Class C 0.100 -- 3.92
Class D 7.43 7.93 8.08 Class D 0.284 0.051 3.96
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 88% Aaa/AAA 67%
General Obligation Bonds00 12 Aa/AA 23
A/A 10
WEIGHTED AVERAGE MATURITY 24.2 years
</TABLE>
- ----------------
See footnotes on page 7.
6
<PAGE>
PERFORMANCE OVERVIEW AND PORTFOLIO SUMMARY
Seligman North Carolina Municipal Series
With Sales Without Sales
Charge Charge Lehman Index
8/27/90 $9,520 $10,000 $10,000
9/30/90 $9,387 $9,860 $10,006
12/31/90 $9,784 $10,277 $10,437
3/31/91 $9,982 $10,485 $10,673
6/30/91 $10,083 $10,591 $10,900
9/30/91 $10,510 $11,040 $11,325
12/31/91 $10,824 $11,370 $11,705
3/31/92 $10,779 $11,323 $11,740
6/30/92 $11,212 $11,777 $12,186
9/30/92 $11,479 $12,058 $12,509
12/31/92 $11,706 $12,297 $12,737
3/31/93 $12,197 $12,812 $13,209
6/30/93 $12,631 $13,268 $13,641
9/30/93 $13,139 $13,801 $14,102
12/31/93 $13,226 $13,893 $14,300
3/31/94 $12,335 $12,957 $13,515
6/30/94 $12,372 $12,996 $13,665
9/30/94 $12,377 $13,001 $13,758
12/31/94 $12,254 $12,872 $13,560
3/31/95 $13,323 $13,994 $14,518
6/30/95 $13,563 $14,247 $14,868
9/30/95 $13,852 $14,551 $15,296
12/31/95 $14,651 $15,390 $15,927
3/31/96 $14,255 $14,973 $15,734
6/30/96 $14,394 $15,120 $15,855
9/30/96 $14,738 $15,481 $16,220
12/31/96 $15,049 $15,807 $16,633
3/31/97 $14,993 $15,749 $16,595
6/30/97 $15,483 $16,264 $17,168
9/30/97 $15,918 $16,720 $17,686
12/31/97 $16,365 $17,190 $18,165
3/31/98 $16,504 $17,336 $18,374
6/30/98 $16,792 $17,638 $18,653
9/30/98 $17,287 $18,158 $19,226
12/31/98 $17,317 $18,190 $19,342
3/31/99 $17,415 $18,293 $19,514
6/30/99 $17,084 $17,946 $19,168
9/30/99 $16,757 $17,602 $19,092
The performances of Class C and 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, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
--------------------------------------------------------
CLASS C CLASS A CLASS D
SINCE INCEPTION SIX ONE FIVE SINCE INCEPTION SINCE INCEPTION
5/27/99* MONTHS* YEAR YEARS 8/27/90 2/1/94
---------------- --------- --------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A**
With Sales Charge n/a (8.32)% (7.63)% 5.23% 5.84% n/a
Without Sales Charge n/a (3.78) (3.07) 6.25 6.41 n/a
Class C**
With Sales Charge and CDSC (5.52)% n/a n/a n/a n/a n/a
Without Sales Charge and CDSC (3.62) n/a n/a n/a n/a n/a
Class D**
With 1% CDSC n/a (4.97) (4.71) n/a n/a n/a
Without CDSC n/a (4.03) (3.79) 5.47 n/a 3.25%
Lehman Index*** (1.83)++ (2.16) (0.70) 6.77 7.37+ 5.02++++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND, CAPITAL GAIN, AND YIELD INFORMATION
FOR PERIODS ENDED SEPTEMBER 30, 1999
9/30/99 3/31/99 9/30/98 DIVIDENDS++ CAPITAL GAIN++ SEC YIELD+++
-------- -------- -------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $7.59 $8.07 $8.30 Class A $0.350 $0.117 4.26%
Class C 7.59 n/a n/a Class C 0.102 -- 3.68
Class D 7.59 8.06 8.30 Class D 0.290 0.117 3.72
HOLDINGS BY MARKET SECTOR0 MOODY'S/S&P RATINGS0
Revenue Bonds 77% Aaa/AAA 46%
General Obligation Bonds00 23 Aa/AA 35
A/A 19
WEIGHTED AVERAGE MATURITY 19.0 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 C shares are calculated with and
without the effect of the initial 1% maximum sales charge and the 1%
contingent deferred sales charge ("CDSC") that is charged on redemptions
made within 18 months of the date of purchase. Returns for Class D shares
are calculated with and without the effect of the 1% CDSC, charged on
redemptions made within one year of the date of purchase. 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. It is composed of approximately 60% revenue bonds and 40%
state government obligations. Investors cannot invest directly in an index.
++ From 5/31/99.
++++ From 1/31/94.
+ From 8/31/90.
++ Represents per share amount declared for the year ended September 30, 1999
(for Class C shares, for the period May 27, 1999 to September 30, 1999).
+++ Current yield, representing the annualized yield for the 30-day period
ended September 30, 1999, has been computed in accordance with SEC
regulations and will vary.
0 Percentages based on current market values of long-term holdings at
September 30, 1999.
00 Includes pre-refunded and escrowed-to-maturity securities.
7
<PAGE>
Portfolios of Investments
September 30, 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 $ 2,548,175
1,000,000 California Department of Veterans Affairs Rev. (Home Purchase),
5 1/2% due 12/1/2018*................................................... Aa3/AA- 955,460
2,190,000 California Department of Water Resources Water System Rev.
(Central Valley Project), 6% due 12/1/2020.............................. Aa2/AA 2,243,611
500,000 California Educational Facilities Authority Rev. (Los Angeles College
of Chiropractic Medicine), 5.60% due 11/1/2017.......................... Baa2/NR 482,890
2,500,000 California Educational Facilities Authority Rev. (Loyola Marymount
University), 5 3/4% due 10/1/2024....................................... A2/NR 2,490,150
3,000,000 California Educational Facilities Authority Rev. (Pepperdine University),
5% due 11/1/2029........................................................ A1/NR 2,644,710
2,500,000 California Health Facilities Financing Authority Rev. (Cedars-Sinai
Medical Center), 5 1/4% due 8/1/2027.................................... Aaa/AAA 2,314,225
2,500,000 California Health Facilities Financing Authority Rev. (Kaiser Permanente),
5.40% due 5/1/2028...................................................... A3/A 2,286,450
1,500,000 California Housing Finance Agency Home Mortgage Rev.,
6 3/8% due 8/1/2027*.................................................... Aa2/AA- 1,533,870
2,500,000 California Housing Finance Agency (Single Family Mortgage),
5.40% due 8/1/2028*..................................................... Aaa/AAA 2,324,275
3,500,000 California Housing Finance Agency (Multi-family Housing Rev.),
5 3/8% due 2/1/2036*................................................... Aa3/AA- 3,168,165
2,500,000 California Pollution Control Financing Authority Rev. (San Diego
Gas & Electric Co.), 5.85% due 6/1/2021*................................ Aa3/AA- 2,426,625
1,750,000 California Pollution Control Financing Authority Rev. (Pacific Gas &
Electric Co.), 5 7/8% due 6/1/2023*..................................... A1/AA- 1,748,723
1,000,000 California Pollution Control Financing Authority Rev. (Pacific Gas &
Electric Co.), 5.85% due 12/1/2023*..................................... A1/AA- 1,001,960
3,500,000 California Statewide Certificates of Participation (Children's Hospital
of Los Angeles), 5 1/4% due 8/15/2029................................... A1/A+ 3,141,495
2,500,000 Cupertino, CA Certificates of Participation (Capital Improvement Projects),
5 3/4% due 1/1/2016..................................................... A1/A+ 2,503,100
3,000,000 Foothill/Eastern Transportation Corridor Agency, CA Toll Road Rev.,
5 3/4% due 1/15/2040.................................................... Baa3/BBB- 2,851,440
3,500,000 Los Angeles, CA Department of Water & Power Electric Plant Rev.,
5 1/2% due 6/15/2029.................................................... Aaa/AAA 3,395,105
3,000,000 Modesto, CA Irrigation District Certificates of Participation,
5.30% due 7/1/2022...................................................... A2/A+ 2,779,410
</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.
8
<PAGE>
Portfolios of Investments
September 30, 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 $ 647,580
2,010,000 Pleasanton, CA Joint Powers Financing Authority Reassessment Rev.,
6.15% due 9/2/2012...................................................... Baa1/NR 2,079,265
4,000,000 Puerto Rico Highway & Transportation Authority Rev., 5 1/2% due 7/1/2036.. Baa1/A 3,818,000
2,500,000 Sacramento, CA Municipal Utility District Electric Rev.,
5 1/4% due 7/1/2028..................................................... A2/A 2,282,525
3,000,000 San Bernardino, CA Joint Powers Financing Authority (California Dept. of
Transportation Lease), 5 1/2% due 12/1/2020............................. A1/A 2,869,710
3,000,000 San Joaquin Hills, CA Transportation Corridor Agency Rev. (Orange County
Senior Lien Toll Road), 6 3/4% due 1/1/20320............................ Aaa/AAA 3,294,060
2,500,000 Santa Barbara, CA Certificates of Participation, 5.70% due 3/1/2011....... A1/A+ 2,564,625
1,000,000 Southern California Public Power Authority Power Project Rev.
(Multiple Projects), 6% due 7/1/2018.................................... A2/A 1,002,220
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/A- 660,409
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/A- 1,188,431
2,000,000 Washington Township, CA Hospital District Hospital Healthcare System Rev.,
5 1/4% due 7/1/2029..................................................... A2/NR 1,777,720
-----------
TOTAL MUNICIPAL BONDS (Cost $66,395,041)--97.8%............................................................. 65,024,384
VARIABLE RATE DEMAND NOTES (Cost $300,000)--0.4%............................................................ 300,000
OTHER ASSETS LESS LIABILITIES--1.8%......................................................................... 1,181,859
-----------
NET ASSETS--100.0%.......................................................................................... $66,506,243
===========
</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 12/1/20290.......................... Aaa/AA $ 3,305,100
3,440,000 California Educational Facilities Authority Rev. (Pomona College),
6% due 2/15/2017........................................................ Aaa/AAA 3,559,816
2,000,000 California Educational Facilities Authority Rev. (Stanford University),
5.35% due 6/1/2027...................................................... Aaa/AAA 1,907,760
4,000,000 California Educational Facilities Authority Rev. (University of San Diego),
5% due 10/1/2028........................................................ Aaa/NR 3,563,600
</TABLE>
- --------------
+ Ratings have not been audited by Deloitte & Touche LLP.
0 Pre-refunded security.
See Notes to Financial Statements.
9
<PAGE>
Portfolios of Investments
September 30, 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. (University of Southern
California), 5% due 10/1/2028........................................... Aa2/AA $ 3,548,240
3,000,000 California Health Facilities Financing Authority Rev. (Kaiser Permanente),
6 1/2% due 12/1/20200................................................... A3/A 3,154,920
360,000 California Housing Finance Agency (Housing Revenue Insured Bonds),
8 5/8% due 8/1/2015..................................................... Aaa/AAA 367,160
2,730,000 California Housing Finance Agency Home Mortgage Rev.,
6 3/4% due 2/1/2025*.................................................... Aa2/AA- 2,807,750
4,000,000 California Pollution Control Financing Authority Rev. (Mobil Oil Corporation
Project), 5 1/2% due 12/1/2029*......................................... Aa2/AA 3,796,920
890,000 California Public Capital Improvements Financing Authority
(Pooled Projects), 8.10% due 3/1/2018................................... Aaa/AAA 906,287
4,000,000 California State GOs, 5% due 10/1/2023.................................... Aa3/AA- 3,597,680
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 2,296,950
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 2,676,870
4,000,000 Contra Costa, CA Water District Rev., 5% due 10/1/2024.................... Aaa/AAA 3,585,200
3,500,000 East Bay, CA Municipal Utility District Water System Rev., 5% due 6/1/2026 Aaa/AAA 3,130,750
2,500,000 Eastern Municipal Water District Riverside County, CA Water and Sewer Rev.,
6 3/4% due 7/1/2012..................................................... Aaa/AAA 2,880,475
3,000,000 Fresno, CA Sewer System Rev., 5 1/4% due 9/1/2019......................... Aaa/AAA 2,874,750
4,000,000 Los Angeles, CA Department of Water & Power Electric Plant Rev.,
5 1/2% due 6/15/2029.................................................... Aaa/AAA 3,880,120
2,000,000 Marin, CA Municipal Water District Water Rev., 5.65% due 7/1/2023......... A1/AA 1,968,980
2,000,000 Metropolitan Water District of Southern California Waterworks GOs,
4 3/4% due 3/1/2037..................................................... Aaa/AAA 1,656,920
4,500,000 Orange County, CA Local Transportation Authority (Measure M Sales
Tax Rev.), 6% due 2/15/2009............................................. Aaa/AAA 4,889,385
2,500,000 Rancho, CA Water District Financing Authority Rev., 5.90% due 11/1/2015... Aaa/AAA 2,579,575
4,000,000 Regents of the University of California Rev. (Multiple Purpose Projects),
5 3/8% due 9/1/2024..................................................... Aaa/AAA 3,838,200
4,300,000 San Diego, CA Public Facilities Financing Authority Sewer Rev.,
5% due 5/15/2029........................................................ Aaa/AAA 3,826,699
4,250,000 San Francisco Bay Area Rapid Transit District, CA (Sales Tax Rev.),
5% due 7/1/2028......................................................... Aaa/AAA 3,787,515
</TABLE>
- ----------------
+ Ratings have not been audited by Deloitte & Touche LLP.
* Interest income earned from this security is subject to the federal
alternative minimum tax.
0 Pre-refunded security.
See Notes to Financial Statements.
10
<PAGE>
Portfolios of Investments
September 30, 1999
CALIFORNIA QUALITY SERIES (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ----------------- -------------
<S> <C> <C> <C>
$3,000,000 San Francisco, CA City and County Airports Commission Rev.
(International Airport), 6.60% due 5/1/2024*............................ Aaa/AAA $ 3,214,110
-----------
TOTAL MUNICIPAL BONDS (Cost $79,057,826)--98.1%........................................................... 77,601,732
VARIABLE RATE DEMAND NOTES (Cost $100,000)--0.1%.......................................................... 100,000
OTHER ASSETS LESS LIABILITIES--1.8%....................................................................... 1,387,292
-----------
NET ASSETS--100.0%........................................................................................ $79,089,024
===========
</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 $ 1,765,800
1,000,000 Broward County, FL Water & Sewer Utility Rev., 5% due 10/1/2018........... Aaa/AAA 908,610
1,000,000 Dade County, FL Aviation Rev., 6 1/8% due 10/1/2020*...................... Aaa/AAA 1,023,680
2,000,000 Dade County, FL Public Improvement GOs, 5 3/4% due 10/1/2016.............. Aaa/AAA 2,020,980
2,000,000 Dade County, FL Water & Sewer System Rev., 5 3/4% due 10/1/2022........... Aaa/AAA 2,000,000
945,000 Florida Housing Finance Agency Rev. (General Mortgage),
6.35% due 6/1/2014...................................................... NR/AAA 981,723
705,000 Florida Housing Finance Agency Rev. (Single Family Mortgage),
6.55% due 7/1/2014*..................................................... Aaa/AAA 728,286
1,860,000 Florida Housing Finance Agency Rev. (Homeowner Mortgage),
6.20% due 7/1/2027*..................................................... Aa3/AA 1,886,133
2,500,000 Florida Ports Financing Commission Rev. (State Transportation Trust Fund),
5 3/8% due 6/1/2027*.................................................... Aaa/AAA 2,344,450
2,500,000 Florida State Turnpike Authority Rev., 5 5/8% due 7/1/2025................ Aaa/AAA 2,464,625
2,000,000 Greater Orlando Aviation Authority, FL Airport Facilities Rev.,
5 1/4% due 10/1/2023*................................................... Aaa/AAA 1,839,020
2,500,000 Hillsborough County, FL Aviation Authority Rev. (Tampa International
Airport), 5 3/8% due 10/1/2023*......................................... Aaa/AAA 2,354,000
2,000,000 Jacksonville Electric Authority, FL Rev. (Electric System),
5.10% due 10/1/2032..................................................... Aa2/AA 1,763,360
2,000,000 Jacksonville Electric Authority, FL Rev. (Water & Sewer System),
5 5/8% due 10/1/2037.................................................... Aa3/AA- 1,922,840
2,000,000 Jacksonville, FL Sewage & Solid Waste Disposal Facilities Rev.
(Anheuser-Busch Project), 5 7/8% due 2/1/2036*.......................... A1/A+ 1,960,100
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+ 1,807,960
1,000,000 Lee County, FL Transportation Facilities Rev., 6% due 10/1/2015........... Aaa/AAA 1,032,670
</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, 1999
FLORIDA SERIES (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ----------------- -------------
<S> <C> <C> <C>
$2,000,000 Marion County, FL Hospital District Health System Rev. (Munroe
Regional Health System), 5 5/8% due 10/1/2024........................... A2/NR $ 1,876,500
1,000,000 Osceola County, FL Transportation Rev. (Osceola Parkway Project),
6.10% due 4/1/2017...................................................... Aaa/AAA 1,044,600
1,200,000 Palm Beach County, FL Criminal Justice Facilities Rev., 7 1/4% due 6/1/20110 Aaa/AAA 1,251,552
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/A1+ 1,982,800
2,000,000 Reedy Creek Improvement District, FL Utilities Rev., 5 1/8% due 10/1/2019. Aaa/AAA 1,837,420
1,750,000 Tampa Bay, FL Regional Water Supply Utility System Authority Rev.,
5 3/4% due 10/1/2029.................................................... Aaa/AAA 1,740,095
1,250,000 Volusia County, FL Educational Facilities Authority Rev. (Embry-Riddle
Aeronautical University Project), 6 5/8% due 10/15/20220................ NR/AAA 1,355,612
-----------
TOTAL MUNICIPAL BONDS (Cost $40,318,791)--100.5%.......................................................... 39,892,816
VARIABLE RATE DEMAND NOTES (Cost $500,000)--1.2%.......................................................... 500,000
OTHER ASSETS LESS LIABILITIES--(1.7)%..................................................................... (690,542)
-----------
NET ASSETS--100.0%........................................................................................ $39,702,274
===========
</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 $ 1,254,475
1,250,000 Asheville, NC Water System Rev., 5.70% due 8/1/2025....................... Aaa/AAA 1,246,538
2,000,000 Charlotte-Mecklenberg Hospital Authority, NC Health Care System Rev.,
5 3/4% due 1/15/2021.................................................... Aa3/AA 1,958,940
1,000,000 Charlotte, NC Certificates of Participation (Charlotte-Mecklenburg Law
Enforcement Center Project), 5 3/8% due 6/1/2013........................ Aa1/AA 992,760
2,000,000 Charlotte, NC Water & Sewer GOs, 5.90% due 2/1/20170...................... Aaa/AAA 2,145,140
1,000,000 Concord, NC Utilities System Rev., 5% due 12/1/2022....................... Aaa/AAA 893,980
1,500,000 Fayetteville, NC Public Works Commission Rev., 5 1/8% due 3/1/2024........ Aaa/AAA 1,366,755
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 2,456,200
600,000 North Carolina Housing Finance Agency Rev. (Multi-Family),
5.80% due 7/1/2014...................................................... Aa2/AA 606,150
1,370,000 North Carolina Housing Finance Agency Rev. (Single Family),
6 1/2% due 3/1/2018..................................................... Aa2/AA 1,417,745
</TABLE>
- ---------------
+ Ratings have not been audited by Deloitte & Touche LLP.
0 Pre-refunded security.
* 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, 1999
NORTH CAROLINA SERIES (continued)
<TABLE>
<CAPTION>
FACE RATINGS+ MARKET
AMOUNT MUNICIPAL BONDS MOODY'S/S&P VALUE
---------- --------------------- ----------------- -------------
<S> <C> <C> <C>
$1,000,000 North Carolina Medical Care Commission Hospital Rev. (Presbyterian
Health Services Corp. Project), 6% due 10/1/20240....................... Aa3/AA $ 1,064,570
1,500,000 North Carolina Medical Care Commission Hospital Rev. (First Health
of the Carolinas Project), 5% due 10/1/2028............................. Aa3/AA- 1,289,520
1,500,000 North Carolina Medical Care Commission Hospital Rev. (Gaston Health
Care), 5% due 2/15/2029................................................. A1/A+ 1,273,905
1,500,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev.,
5 3/4% due 1/1/2015..................................................... Aaa/AAA 1,503,810
3,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev.,
5% due 1/1/2020++....................................................... Aaa/AAA 2,759,490
1,000,000 Orange, NC Water & Sewer Authority Rev., 5.20% due 7/1/2016............... Aa2/AA 945,370
1,500,000 University of North Carolina Charlotte Rev. (Student Activity Center),
5 1/2% due 6/1/2021..................................................... Aaa/AAA 1,464,630
500,000 University of North Carolina Hospitals at Chapel Hill Rev.,
6 3/8% due 2/15/20170................................................... Aa3/AA 532,605
500,000 University of North Carolina Hospitals at Chapel Hill Rev.,
5% due 2/15/2024........................................................ Aaa/AAA 443,950
1,000,000 University of North Carolina Hospitals at Chapel Hill Rev.,
5 1/4% due 2/15/2026.................................................... Aa3/AA 906,110
1,550,000 Wake County Industrial Facilities & Pollution Control Financing Authority,
NC (Carolina Power & Light), 6.90% due 4/1/2009......................... A2/A1 1,600,607
-----------
TOTAL MUNICIPAL BONDS (Cost $28,288,397)--97.3%........................................................... 28,123,250
VARIABLE RATE DEMAND NOTES (Cost $300,000)--1.0%.......................................................... 300,000
OTHER ASSETS LESS LIABILITIES--1.7%....................................................................... 493,712
-----------
NET ASSETS-- 100.0%....................................................................................... $28,916,962
===========
</TABLE>
- --------------
+ Ratings have not been audited by Deloitte & Touche LLP.
++ Escrowed-to-maturity security.
0 Pre-refunded security.
See Notes to Financial Statements.
13
<PAGE>
Statements of Assets and Liabilities
September 30, 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...................... $65,024,384 $77,601,732 $39,892,816 $28,123,250
Short-term holdings..................... 300,000 100,000 500,000 300,000
--------------- --------------- ---------------- ---------------
65,324,384 77,701,732 40,392,816 28,423,250
Cash ...................................... 71,689 84,662 68,713 148,505
Interest receivable........................ 1,073,226 1,462,922 898,007 434,942
Receivable for Shares of Beneficial
Interest sold........................... 268,270 65,824 202,783 480
Expenses prepaid to shareholder
service agent........................... 7,939 9,829 4,914 4,158
Other...................................... 6,158 6,839 5,711 6,199
--------------- --------------- ---------------- ---------------
Total Assets............................... 66,751,666 79,331,808 41,572,944 29,017,534
=============== =============== ================ ===============
LIABILITIES:
Dividends payable.......................... 97,465 113,763 54,744 40,014
Payable for Shares of Beneficial Interest
repurchased............................. 45,844 14,893 170 --
Payable for securities purchased........... -- -- 1,742,510 --
Accrued expenses and other................. 102,114 114,128 73,246 60,558
--------------- --------------- ---------------- ---------------
Total Liabilities ......................... 245,423 242,784 1,870,670 100,572
--------------- --------------- ---------------- ---------------
Net Assets................................. $66,506,243 $79,089,024 $39,702,274 $28,916,962
=============== =============== ================ ===============
COMPOSITION OF NET ASSETS:
Shares of Beneficial Interest, at par:
Class A................................. $ 9,205 $ 11,649 $ 5,072 $ 3,586
Class C................................. 166 2 34 1
Class D................................. 1,218 669 248 222
Additional paid-in capital................. 67,087,924 79,948,659 39,895,503 28,831,283
Undistributed net realized gain............ 778,387 584,139 227,392 247,017
Net unrealized depreciation
of investments.......................... (1,370,657) (1,456,094) (425,975) (165,147)
--------------- --------------- ---------------- ---------------
Net Assets................................. $66,506,243 $79,089,024 $39,702,274 $28,916,962
=============== =============== ================ ===============
NET ASSETS:
Class A................................. $57,806,975 $74,793,186 $37,605,866 $27,224,340
Class C................................. $ 1,041,062 $ 9,538 $ 253,579 $ 10,180
Class D................................. $ 7,658,206 $ 4,286,300 $1,842,829 $ 1,682,442
SHARES OF BENEFICIAL INTEREST OUTSTANDING (Unlimited shares authorized; $0.001
par value):
Class A................................. 9,205,204 11,649,366 5,072,047 3,585,733
Class C ............................... 165,621 1,490 34,134 1,341
Class D ............................... 1,218,263 669,391 248,053 221,717
NET ASSET VALUE PER SHARE:
Class A.................................... $6.28 $6.42 $7.41 $7.59
Class C.................................... $6.29 $6.40 $7.43 $7.59
Class D.................................... $6.29 $6.40 $7.43 $7.59
</TABLE>
- -------------------
See Notes to Financial Statements.
14
<PAGE>
Statements of Operations
For the Year Ended September 30, 1999
<TABLE>
<CAPTION>
CALIFORNIA CALIFORNIA NORTH
HIGH-YIELD QUALITY FLORIDA CAROLINA
SERIES SERIES SERIES SERIES
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest ..................................... $ 3,760,581 $ 4,662,484 $ 2,410,303 $ 1,753,890
--------------- --------------- --------------- --------------
EXPENSES:
Management fees............................... 338,183 433,279 222,815 161,355
Distribution and service fees................. 139,123 129,616 128,502 94,006
Shareholder account services.................. 84,384 106,096 59,292 45,575
Auditing and legal fees....................... 31,744 38,302 28,825 21,377
Custody and related services.................. 14,747 8,182 9,328 8,820
Registration.................................. 9,877 13,157 9,780 9,356
Trustees' fees and expenses................... 9,789 10,184 7,437 6,709
Shareholder reports and communications........ 6,121 8,472 5,689 4,568
Miscellaneous................................. 3,645 3,336 3,078 2,790
--------------- --------------- --------------- --------------
Total Expenses................................ 637,613 750,624 474,746 354,556
--------------- --------------- --------------- --------------
Net Investment Income......................... 3,122,968 3,911,860 1,935,557 1,399,334
--------------- --------------- --------------- --------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.............. 848,260 967,560 232,488 253,645
Net change in unrealized appreciation
of investments.............................. (6,115,178) (8,037,661) (3,636,357) (2,615,290)
--------------- --------------- --------------- --------------
Net Loss on Investments ...................... (5,266,918) (7,070,101) (3,403,869) (2,361,645)
--------------- --------------- --------------- --------------
Decrease in Net Assets from Operations........ $(2,143,950) $(3,158,241) $(1,468,312) $ (962,311)
=============== =============== =============== ==============
</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,
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ................... $ 3,122,968 $ 2,869,233 $ 3,911,860 $ 4,188,124
Net realized gain on investments......... 848,260 315,617 967,560 2,703,169
Net change in unrealized appreciation
of investments........................ (6,115,178) 1,697,381 (8,037,661) 429,796
------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
from Operations....................... (2,143,950) 4,882,231 (3,158,241) 7,321,089
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A............................... (2,825,817) (2,672,172) (3,747,630) (4,112,546)
Class C............................... (7,503) -- (114) --
Class D............................... (289,648) (197,061) (164,116) (75,578)
Net realized gain on investments:
Class A............................... (207,681) (255,159) (2,762,949) (410,719)
Class C............................... -- -- -- --
Class D............................... (23,942) (16,987) (100,451) (9,630)
------------ ------------ ------------ ------------
Decrease in Net Assets
from Distributions.................... (3,354,591) (3,141,379) (6,775,260) (4,608,473)
------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales of shares ....... 21,297,184 11,837,819 6,015,293 3,421,093
Investment of dividends.................. 1,817,908 1,555,429 1,932,726 2,114,625
Exchanged from associated Funds.......... 6,342,123 3,313,043 2,462,908 11,535,295
Value of shares issued in payment of
gain distributions.................... 162,740 188,579 1,751,037 255,071
------------ ------------ ------------ ------------
Total ................................... 29,619,955 16,894,870 12,161,964 17,326,084
------------ ------------ ------------ ------------
Cost of shares repurchased............... (15,119,823) (8,535,835) (10,056,106) (9,709,059)
Exchanged into associated Funds.......... (7,262,583) (1,535,432) (2,907,275) (9,174,765)
------------ ------------ ------------ ------------
Total ................................... (22,382,406) (10,071,267) (12,963,381) (18,883,824)
------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
from Transactions in Shares
of Beneficial Interest................ 7,237,549 6,823,603 (801,417) (1,557,740)
------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets........ 1,739,008 8,564,455 (10,734,918) 1,154,876
NET ASSETS:
Beginning of year........................ 64,767,235 56,202,780 89,823,942 88,669,066
------------ ------------ ------------ ------------
End of Year.............................. $66,506,243 $64,767,235 $79,089,024 $89,823,942
============ ============ ============ ============
</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,
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ................... $ 1,935,557 $ 1,954,649 $ 1,399,334 $ 1,474,812
Net realized gain on investments......... 232,488 283,504 253,645 471,836
Net change in unrealized appreciation
of investments........................ (3,636,357) 1,624,389 (2,615,290) 828,922
------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
from Operations....................... (1,468,312) 3,862,542 (962,311) 2,775,570
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A............................... (1,853,149) (1,887,251) (1,341,165) (1,428,764)
Class C............................... (2,744) -- (113) --
Class D............................... (79,664) (67,398) (58,056) (46,048)
Net realized gain on investments:
Class A............................... (272,671) (385,124) (451,811) (259,010)
Class C............................... -- -- -- --
Class D............................... (14,496) (16,296) (20,721) (9,526)
------------ ------------ ------------ ------------
Decrease in Net Assets
from Distributions.................... (2,222,724) (2,356,069) (1,871,866) (1,743,348)
------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales of shares ....... 4,498,419 2,370,389 1,889,423 1,960,723
Investment of dividends.................. 732,052 778,626 747,439 781,990
Exchanged from associated Funds.......... 3,209,545 2,116,091 221,185 651,369
Value of shares issued in payment of
gain distributions.................... 163,562 236,832 351,195 201,030
------------ ------------ ------------ ------------
Total ................................... 8,603,578 5,501,938 3,209,242 3,595,112
------------ ------------ ------------ ------------
Cost of shares repurchased............... (6,378,034) (4,243,367) (4,748,910) (4,163,732)
Exchanged into associated Funds.......... (3,235,898) (2,063,608) (523,333) (550,126)
------------ ------------ ------------ ------------
Total ................................... (9,613,932) (6,306,975) (5,272,243) (4,713,858)
------------ ------------ ------------ ------------
Decrease in Net Assets
from Transactions in Shares
of Beneficial Interest................ (1,010,354) (805,037) (2,063,001) (1,118,746)
------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets........ (4,701,390) 701,436 (4,897,178) (86,524)
NET ASSETS:
Beginning of year........................ 44,403,664 43,702,228 33,814,140 33,900,664
------------ ------------ ------------ ------------
End of Year.............................. $39,702,274 $44,403,664 $28,916,962 $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 three classes of shares. Class A shares
are sold with an initial sales charge of up to 4.75% and a continuing service
fee of up to 0.25% on an annual basis. Class A shares purchased in an amount of
$1,000,000 or more are sold without an initial sales charge but are subject to a
contingent deferred sales charge ("CDSC") of 1% on redemptions within 18
months of purchase. The Trust began offering Class C shares on May 27, 1999.
Class C shares are sold with an initial sales charge of up to 1% and are subject
to a distribution fee of up to 0.75% and a service fee of up to 0.25% on an
annual basis, and a CDSC, if applicable, of 1% imposed on redemptions made
within 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, if applicable, of 1% imposed on
redemptions made within one year of purchase. The three 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 -- Each Series' income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses are
allocated daily to each class of shares of that Series 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, 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 year ended September 30,
1999, were as follows:
SERIES PURCHASES SALES
- ---------- ----------- -----------
California High-Yield $25,843,638 $18,255,298
California Quality 17,190,650 20,244,980
Florida 7,925,059 7,946,257
North Carolina 481,430 3,017,128
At September 30, 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 $1,081,968 $2,452,625
California Quality 2,199,066 3,655,160
Florida 592,110 1,018,085
North Carolina 600,068 765,215
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,
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
equal to 0.50% per annum of each Series' average daily net assets.
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 and
Class C shares:
DISTRIBUTOR DEALER
SERIES CONCESSIONS COMMISSIONS
- ---------- ----------- ------------
California High-Yield $12,848 $100,460
California Quality 9,862 74,095
Florida 6,782 51,651
North Carolina 5,533 40,523
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,
1999, for the California High-Yield, California Quality, Florida, and North
Carolina Series, fees incurred under the Plan aggregated $61,474, $84,881,
$105,809, and $78,017, respectively, or 0.10%, 0.10%, 0.25%, and 0.25%,
respectively, per annum of average daily net assets of Class A shares.
Under the Plan, with respect to Class C shares and 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 C and 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, 1999, fees incurred under the Plan equivalent to 1% per annum of
the average daily net assets of Class C and Class D shares were as follows:
SERIES CLASS C CLASS D
- --------- ----------- ------------
California High-Yield $1,884 $75,765
California Quality 29 44,706
Florida 711 21,982
North Carolina 30 15,959
The Distributor is entitled to retain any CDSC imposed on certain
redemptions of Class A and Class C shares occurring within 18 months of purchase
and redemptions of Class D shares occurring within one year of purchase. For the
year ended September 30, 1999, such charges amounted to $14,468 for the
California High-Yield Series, $2,264 for the California Quality Series, $1,475
for the Florida Series, and $12 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, 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 $5,005 $2,017
California Quality 1,156 2,438
Florida 1,318 4,753
North Carolina 2,175 2,644
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 $ 84,384
California Quality 106,096
Florida 59,292
North Carolina 45,575
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
selected Series 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, 1999, are included in other
liabilities as follows:
SERIES
- ----------
California High-Yield $27,329
California Quality 27,455
Florida 14,139
North Carolina 10,602
5. Committed Line of Credit -- The Trust is a participant in a joint $750
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 in June 2000, but is renewable annually with
the consent of the participating banks. For the year ended September 30, 1999,
the Trust had 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 SERIES CLASS A
------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1999 1998
------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net proceeds from sales of shares.............. 2,624,733 $ 17,491,961 1,277,052 $ 8,495,720
Investment of dividends........................ 242,874 1,601,698 211,143 1,407,211
Exchanged from associated Funds................ 861,977 5,696,785 413,298 2,763,236
Shares issued in payment of gain distributions. 21,223 142,616 26,588 174,948
---------- ------------ ---------- ------------
Total.......................................... 3,750,807 24,933,060 1,928,081 12,841,115
---------- ------------ ---------- ------------
Cost of shares repurchased..................... (2,152,611) (14,122,052) (1,201,761) (8,007,292)
Exchanged into associated Funds................ (983,221) (6,519,246) (140,692) (937,063)
---------- ------------ ---------- ------------
Total.......................................... (3,135,832) (20,641,298) (1,342,453) (8,944,355)
---------- ------------ ---------- ------------
Increase....................................... 614,975 $ 4,291,762 585,628 $ 3,896,760
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA QUALITY SERIES CLASS A
------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1999 1998
------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net proceeds from sales of shares.............. 392,761 $ 2,663,057 412,540 $ 2,910,248
Investment of dividends........................ 272,151 1,853,060 294,684 2,074,707
Exchanged from associated Funds................ 184,375 1,277,793 1,335,307 9,378,739
Shares issued in payment of gain distributions. 242,713 1,679,573 35,850 249,515
---------- ------------ ---------- ------------
Total.......................................... 1,092,000 7,473,483 2,078,381 14,613,209
---------- ------------ ---------- ------------
Cost of shares repurchased..................... (1,304,849) (8,809,973) (1,299,234) (9,140,974)
Exchanged into associated Funds................ (280,143) (1,967,426) (1,081,747) (7,593,529)
---------- ------------ ---------- ------------
Total.......................................... (1,584,992) (10,777,399) (2,380,981) (16,734,503)
---------- ------------ ---------- ------------
Increase (Decrease)............................ (492,992) $ (3,303,916) (302,600) $ (2,121,294)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FLORIDA SERIES CLASS A
------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1999 1998
------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net proceeds from sales of shares.............. 519,451 $ 4,068,773 231,028 $ 1,820,657
Investment of dividends........................ 88,673 692,647 93,274 735,335
Exchanged from associated Funds................ 307,595 2,411,983 237,657 1,868,336
Shares issued in payment of gain distributions. 19,319 153,195 29,005 224,788
---------- ------------ ---------- ------------
Total.......................................... 935,038 7,326,598 590,964 4,649,116
---------- ------------ ---------- ------------
Cost of shares repurchased..................... (726,633) (5,630,569) (482,133) (3,801,719)
Exchanged into associated Funds................ (401,208) (3,048,712) (234,463) (1,850,538)
---------- ------------ ---------- ------------
Total.......................................... (1,127,841) (8,679,281) (716,596) (5,652,257)
---------- ------------ ---------- ------------
Increase (Decrease)............................ (192,803) $ (1,352,683) (125,632) $ (1,003,141)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA SERIES CLASS A
------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1999 1998
------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net proceeds from sales of shares............... 175,103 $ 1,412,517 202,159 $ 1,639,241
Investment of dividends......................... 88,130 704,629 92,259 749,183
Exchanged from associated Funds................. 26,310 212,683 67,414 551,292
Shares issued in payment of gain distributions.. 40,880 331,130 24,008 192,301
---------- ------------ ---------- ------------
Total........................................... 330,423 2,660,959 385,840 3,132,017
---------- ------------ ---------- ------------
Cost of shares repurchased...................... (578,427) (4,584,553) (480,689) (3,903,375)
Exchanged into associated Funds................. (64,700) (523,333) (67,042) (545,626)
---------- ------------ ---------- ------------
Total........................................... (643,127) (5,107,886) (547,731) (4,449,001)
---------- ------------ ---------- ------------
Increase (Decrease)............................. (312,704) $ (2,446,927) (161,891) $ (1,316,984)
========== ============ ========== ============
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD SERIES CLASS C CLASS D
------------------------ --------------------------------------------------
YEAR ENDED SEPTEMBER 30,
MAY 27, 1999* TO --------------------------------------------------
SEPTEMBER 30, 1999 1999 1998
------------------------ ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net proceeds from sales of shares................ 164,917 $1,063,949 409,465 $ 2,741,274 499,452 $ 3,342,099
Investment of dividends.......................... 707 4,509 31,985 211,701 22,196 148,218
Exchanged from associated Funds.................. -- -- 96,237 645,338 82,354 549,807
Shares issued in payment of gain distributions... -- -- 2,990 20,124 2,068 13,631
------- ---------- -------- ----------- -------- -----------
Total............................................ 165,624 1,068,458 540,677 3,618,437 606,070 4,053,755
------- ---------- -------- ----------- -------- -----------
Cost of shares redeemed.......................... (3) (21) (150,575) (997,750) (79,088) (528,543)
Exchanged into associated Funds.................. -- -- (111,644) (743,337) (89,085) (598,369)
------- ---------- -------- ----------- -------- -----------
Total............................................ (3) (21) (262,219) (1,741,087) (168,173) (1,126,912)
------- ---------- -------- ----------- -------- -----------
Increase......................................... 165,621 $1,068,437 278,458 $ 1,877,350 437,897 $ 2,926,843
======= ========== ======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA QUALITY SERIES CLASS C CLASS D
------------------------ --------------------------------------------------
YEAR ENDED SEPTEMBER 30,
MAY 27, 1999* TO --------------------------------------------------
SEPTEMBER 30, 1999 1999 1998
------------------------ ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net proceeds from sales of shares................ 1,474 $ 9,904 484,533 $ 3,342,332 72,661 $ 510,845
Investment of dividends.......................... 16 103 11,719 79,563 5,681 39,918
Exchanged from associated Funds.................. -- -- 167,993 1,185,115 307,189 2,156,556
Shares issued in payment of gain distributions... -- -- 10,357 71,464 799 5,556
------- ---------- -------- ----------- -------- -----------
Total............................................ 1,490 10,007 674,602 4,678,474 386,330 2,712,875
------- ---------- -------- ----------- -------- -----------
Cost of shares redeemed.......................... -- -- (183,777) (1,246,133) (80,796) (568,085)
Exchanged into associated Funds.................. -- -- (141,466) (939,849) (225,899) (1,581,236)
------- ---------- -------- ----------- -------- -----------
Total............................................ -- -- (325,243) (2,185,982) (306,695) (2,149,321)
------- ---------- -------- ----------- -------- -----------
Increase (Decrease).............................. 1,490 $ 10,007 349,359 $ 2,492,492 79,635 $ 563,554
======= ========== ======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FLORIDA SERIES CLASS C CLASS D
------------------------ --------------------------------------------------
YEAR ENDED SEPTEMBER 30,
MAY 27, 1999* TO --------------------------------------------------
SEPTEMBER 30, 1999 1999 1998
------------------------ ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net proceeds from sales of shares................ 34,107 $ 263,437 20,914 $ 166,209 69,634 $ 549,732
Investment of dividends.......................... 27 204 4,975 39,201 5,481 43,291
Exchanged from associated Funds.................. -- -- 100,105 797,562 31,343 247,755
Shares issued in payment of gain distributions... -- -- 1,306 10,367 1,550 12,044
------- ---------- -------- ----------- -------- -----------
Total............................................ 34,134 263,641 127,300 1,013,339 108,008 852,822
------- ---------- -------- ----------- -------- -----------
Cost of shares redeemed.......................... -- -- (95,272) (747,465) (55,774) (441,648)
Exchanged into associated Funds.................. -- -- (23,955) (187,186) (27,097) (213,070)
------- ---------- -------- ----------- -------- -----------
Total............................................ -- -- (119,227) (934,651) (82,871) (654,718)
------- ---------- -------- ----------- -------- -----------
Increase (Decrease).............................. 34,134 $ 263,641 8,073 $ 78,688 25,137 $ 198,104
======= ========== ======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA SERIES CLASS C CLASS D
------------------------ --------------------------------------------------
YEAR ENDED SEPTEMBER 30,
MAY 27, 1999* TO --------------------------------------------------
SEPTEMBER 30, 1999 1999 1998
------------------------ ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net proceeds from sales of shares................ 1,329 $ 10,422 58,041 $ 466,484 39,497 $ 321,482
Investment of dividends.......................... 12 101 5,351 42,709 4,042 32,807
Exchanged from associated Funds.................. -- -- 1,053 8,502 12,161 100,077
Shares issued in payment of gain distributions... -- -- 2,477 20,065 1,091 8,729
------- ---------- -------- ----------- -------- -----------
Total............................................ 1,341 10,523 66,922 537,760 56,791 463,095
------- ---------- -------- ----------- -------- -----------
Cost of shares redeemed.......................... -- -- (20,733) (164,357) (31,930) (260,357)
Exchanged into associated Funds.................. -- -- -- -- (560) (4,500)
------- ---------- -------- ----------- -------- -----------
Total............................................ -- -- (20,733) (164,357) (32,490) (264,857)
------- ---------- -------- ----------- -------- -----------
Increase (Decrease).............................. 1,341 $ 10,523 46,189 $ 373,403 24,301 $ 198,238
======= ========== ======== =========== ======== ===========
</TABLE>
- ----------
*Commencement of offering of Class C shares.
21
<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 years or from its
inception if less than five 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 during
the period. "Total return" shows the rate that you would have earned (or lost)
on an investment in each Class, assuming you reinvested all your 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 CLASS C
------------------------------------------------------- --------------
YEAR ENDED SEPTEMBER 30, 5/27/99*
------------------------------------------------------- to
1999 1998 1997 1996 1995 9/30/99
-------- ------- ------- ------- -------- --------------
<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 $6.62
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income......................... 0.31 0.32 0.34 0.36 0.37 0.09
Net realized and unrealized gain (loss)
on investments............................. (0.50) 0.22 0.20 0.05 0.17 (0.33)
----- ----- ----- ----- ----- -----
Total from Investment Operations.............. (0.19) 0.54 0.54 0.41 0.54 (0.24)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.......... (0.31) (0.32) (0.34) (0.36) (0.37) (0.09)
Distributions from net realized capital gain.. (0.02) (0.03) (0.09) (0.02) -- --
----- ----- ----- ----- ----- -----
Total Distributions........................... (0.33) (0.35) (0.43) (0.38) (0.37) (0.09)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period................ $6.28 $6.80 $6.61 $6.50 $6.47 $6.29
===== ===== ===== ===== ===== =====
TOTAL RETURN: (2.82)% 8.45% 8.74% 6.49% 8.85% (3.79)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted)...... $57,807 $58,374 $52,883 $50,264 $51,504 $1,041
Ratio of expenses to average net assets....... 0.84% 0.82% 0.87% 0.84% 0.90% 1.72%+
Ratio of net income to average net assets..... 4.71% 4.81% 5.26% 5.49% 5.84% 3.95%+
Portfolio turnover rate....................... 27.61% 10.75% 22.42% 34.75% 17.64% 27.61%++
</TABLE>
<TABLE>
<CAPTION>
CLASS D
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Year............... $6.80 $6.61 $6.51 $6.48 $6.31
----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................ 0.25 0.26 0.28 0.30 0.31
Net realized and unrealized gain (loss)
on investments................................ (0.49) 0.22 0.19 0.05 0.17
----- ----- ----- ----- -----
Total from Investment Operations................. (0.24) 0.48 0.47 0.35 0.48
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income............. (0.25) (0.26) (0.28) (0.30) (0.31)
Distributions from net realized capital gain..... (0.02) (0.03) (0.09) (0.02) --
----- ----- ----- ----- -----
Total Distributions.............................. (0.27) (0.29) (0.37) (0.32) (0.31)
----- ----- ----- ----- -----
Net Asset Value, End of Year..................... $6.29 $6.80 $6.61 $6.51 $6.48
===== ===== ===== ===== =====
TOTAL RETURN: (3.54)% 7.47% 7.60% 5.53% 7.78%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of year (000s omitted)........... $7,658 $6,393 $3,320 $1,919 $1,277
Ratio of expenses to average net assets.......... 1.74% 1.73% 1.77% 1.74% 1.91%
Ratio of net income to average net assets........ 3.81% 3.90% 4.36% 4.59% 4.84%
Portfolio turnover rate.......................... 27.61% 10.75% 22.42% 34.75% 17.64%
</TABLE>
- ------------
See footnotes on page 25.
22
<PAGE>
FINANCIAL HIGHLIGHTS
CALIFORNIA QUALITY SERIES
<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------------------------------- --------------
YEAR ENDED SEPTEMBER 30, 5/27/99*
------------------------------------------------------- to
1999 1998 1997 1996 1995 9/30/99
-------- ------- ------- ------- -------- --------------
<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 $6.75
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.31 0.33 0.34 0.35 0.34 0.09
Net realized and unrealized gain (loss)
on investments................................. (0.56) 0.25 0.24 0.11 0.32 (0.35)
----- ----- ----- ----- ----- -----
Total from Investment Operations.................. (0.25) 0.58 0.58 0.46 0.66 (0.26)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.31) (0.33) (0.34) (0.35) (0.34) (0.09)
Distributions from net realized capital gain...... (0.23) (0.03) -- (0.01) (0.06) --
----- ----- ----- ----- ----- -----
Total Distributions............................... (0.54) (0.36) (0.34) (0.36) (0.40) (0.09)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.................... $6.42 $7.21 $6.99 $6.75 $6.65 $6.40
===== ===== ===== ===== ===== =====
TOTAL RETURN: (3.68)% 8.67% 8.87% 7.00% 10.85% (4.04)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted).......... $74,793 $87,522 $86,992 $95,560 $94,947 $10
Ratio of expenses to average net assets........... 0.82% 0.77% 0.82% 0.79% 0.89% 1.72%+
Ratio of net income to average net assets......... 4.56% 4.75% 4.99% 5.11% 5.34% 3.80%+
Portfolio turnover rate........................... 20.24% 30.82% 12.16% 12.84% 11.24% 20.24%++
</TABLE>
<TABLE>
<CAPTION>
CLASS D
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Year................ $7.19 $6.97 $6.74 $6.63 $6.38
----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.25 0.27 0.28 0.28 0.28
Net realized and unrealized gain (loss)
on investments................................. (0.56) 0.25 0.23 0.12 0.31
----- ----- ----- ----- -----
Total from Investment Operations.................. (0.31) 0.52 0.51 0.40 0.59
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.25) (0.27) (0.28) (0.28) (0.28)
Distributions from net realized capital gain...... (0.23) (0.03) -- (0.01) (0.06)
----- ----- ----- ----- -----
Total Distributions............................... (0.48) (0.30) (0.28) (0.29) (0.34)
----- ----- ----- ----- -----
Net Asset Value, End of Year...................... $6.40 $7.19 $6.97 $6.74 $6.63
===== ===== ===== ===== =====
TOTAL RETURN:..................................... (4.58)% 7.71% 7.75% 6.20% 9.61%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of year (000s omitted)............ $4,286 $2,302 $1,677 $1,645 $863
Ratio of expenses to average net assets........... 1.72% 1.68% 1.72% 1.69% 1.88%
Ratio of net income to average net assets......... 3.66% 3.84% 4.09% 4.21% 4.36%
Portfolio turnover rate........................... 20.24% 30.82% 12.16% 12.84% 11.24%
</TABLE>
- ------------
See footnotes on page 25.
23
<PAGE>
FINANCIAL HIGHLIGHTS
FLORIDA SERIES
<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------------------------------- --------------
YEAR ENDED SEPTEMBER 30, 5/27/99*
------------------------------------------------------- to
1999 1998 1997 1996 1995 9/30/99
-------- ------- ------- ------- -------- --------------
<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 $7.83
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.34 0.35 0.36 0.38 0.40 0.10
Net realized and unrealized gain (loss)
on investments................................. (0.61) 0.34 0.23 0.04 0.37 (0.40)
----- ----- ----- ----- ----- -----
Total from Investment Operations.................. (0.27) 0.69 0.59 0.42 0.77 (0.30)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.34) (0.35) (0.36) (0.38) (0.40) (0.10)
Distributions from net realized capital gain...... (0.05) (0.07) (0.10) (0.08) -- --
----- ----- ----- ----- ----- -----
Total Distributions............................... (0.39) (0.42) (0.46) (0.46) (0.40) (0.10)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.................... $7.41 $8.07 $7.80 $7.67 $7.71 $7.43
===== ===== ===== ===== ===== =====
TOTAL RETURN: (3.42)% 9.16% 8.01% 5.54% 10.87% (3.96)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted).......... $37,606 $42,464 $42,024 $45,200 $49,030 $254
Ratio of expenses to average net assets........... 1.03% 1.00% 1.04% 0.97% 0.72% 1.78%+
Ratio of net income to average net assets......... 4.38% 4.45% 4.70% 4.90% 5.38% 3.82%+
Portfolio turnover rate........................... 18.31% 6.73% 33.68% 18.53% 11.82% 18.31%++
Without management fee waiver:**
Net investment income per share................... $0.38 $0.37
Ratio of expenses to average net assets........... 0.97% 1.03%
Ratio of net income to average net assets......... 4.90% 5.07%
</TABLE>
<TABLE>
<CAPTION>
CLASS D
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Year................ $8.08 $7.81 $7.68 $7.72 $7.34
----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.28 0.29 0.30 0.32 0.34
Net realized and unrealized gain (loss)
on investments................................. (0.60) 0.34 0.23 0.04 0.38
----- ----- ----- ----- -----
Total from Investment Operations.................. (0.32) 0.63 0.53 0.36 0.72
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.28) (0.29) (0.30) (0.32) (0.34)
Distributions from net realized capital gain...... (0.05) (0.07) (0.10) (0.08) --
----- ----- ----- ----- -----
Total Distributions............................... (0.33) (0.36) (0.40) (0.40) (0.34)
----- ----- ----- ----- -----
Net Asset Value, End of Year...................... $7.43 $8.08 $7.81 $7.68 $7.72
===== ===== ===== ===== =====
TOTAL RETURN: (4.01)% 8.32% 7.18% 4.74% 10.07%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of year (000s omitted)............ $1,843 $1,940 $1,678 $1,277 $603
Ratio of expenses to average net assets........... 1.78% 1.77% 1.81% 1.73% 1.66%
Ratio of net income to average net assets......... 3.63% 3.68% 3.93% 4.14% 4.53%
Portfolio turnover rate........................... 18.31% 6.73% 33.68% 18.53% 11.82%
Without management fee waiver:**
Net investment income per share................... $0.32 $0.31
Ratio of expenses to average net assets........... 1.73% 1.97%
Ratio of net income to average net assets......... 4.14% 4.22%
</TABLE>
- ----------------
See footnotes on page 25.
24
<PAGE>
FINANCIAL HIGHLIGHTS
NORTH CAROLINA SERIES
<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------------------------------- --------------
YEAR ENDED SEPTEMBER 30, 5/27/99*
------------------------------------------------------- to
1999 1998 1997 1996 1995 9/30/99
-------- ------- ------- ------- -------- --------------
<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 $7.97
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.35 0.36 0.37 0.37 0.39 0.10
Net realized and unrealized gain (loss)
on investments................................. (0.59) 0.31 0.24 0.11 0.45 (0.38)
----- ----- ----- ----- ----- -----
Total from Investment Operations.................. (0.24) 0.67 0.61 0.48 0.84 (0.28)
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.35) (0.36) (0.37) (0.37) (0.39) (0.10)
Distributions from net realized capital gain...... (0.12) (0.06) (0.03) (0.01) (0.01) --
----- ----- ----- ----- ----- -----
Total Distributions............................... (0.47) (0.42) (0.40) (0.38) (0.40) (0.10)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.................... $7.59 $8.30 $8.05 $7.84 $7.74 $7.59
===== ===== ===== ===== ===== =====
TOTAL RETURN: (3.07)% 8.60% 8.01% 6.39% 11.92% (3.62)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000s omitted).......... $27,224 $32,358 $32,684 $35,934 $37,446 $10
Ratio of expenses to average net assets........... 1.06% 1.05% 1.09% 1.05% 0.82% 1.80%+
Ratio of net income to average net assets......... 4.38% 4.41% 4.66% 4.75% 5.21% 3.77%+
Portfolio turnover rate........................... 1.52% 20.37% 13.04% 15.12% 4.38% 1.52%++
Without management fee waiver:**
Net investment income per share................... $0.37 $0.36
Ratio of expenses to average net assets........... 1.06% 1.18%
Ratio of net income to average net assets......... 4.74% 4.85%
</TABLE>
<TABLE>
<CAPTION>
CLASS D
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Year................ $8.30 $8.05 $7.83 $7.74 $7.29
----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income............................. 0.29 0.30 0.31 0.31 0.33
Net realized and unrealized gain (loss)
on investments................................. (0.59) 0.31 0.25 0.10 0.46
----- ----- ----- ----- -----
Total from Investment Operations.................. (0.30) 0.61 0.56 0.41 0.79
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.............. (0.29) (0.30) (0.31) (0.31) (0.33)
Distributions from net realized capital gain...... (0.12) (0.06) (0.03) (0.01) (0.01)
----- ----- ----- ----- -----
Total Distributions............................... (0.41) (0.36) (0.34) (0.32) (0.34)
----- ----- ----- ----- -----
Net Asset Value, End of Year...................... $7.59 $8.30 $8.05 $7.83 $7.74
===== ===== ===== ===== =====
TOTAL RETURN: (3.79)% 7.77% 7.33% 5.45% 11.19%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of year (000s omitted)............ $1,682 $1,456 $1,217 $1,232 $1,257
Ratio of expenses to average net assets........... 1.81% 1.82% 1.85% 1.81% 1.64%
Ratio of net income to average net assets......... 3.63% 3.64% 3.90% 3.99% 4.42%
Portfolio turnover rate........................... 1.52% 20.37% 13.04% 15.12% 4.38%
Without management fee waiver:**
Net investment income per share................... $0.31 $0.31
Ratio of expenses to average net assets........... 1.82% 2.00%
Ratio of net income to average net assets......... 3.98% 4.06%
<FN>
- --------------------
*Commencement of offering of Class C shares.
**During the periods stated, the Manager, at its discretion, waived a portion
of its fees for the Florida and North Carolina Series.
+Annualized.
++For the year ended September 30, 1999.
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 September 30, 1999, 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, 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 September 30, 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.
s/s DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
November 5, 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
Director, Conoco Inc.
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
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
Member of the Board of Governors,
Investment Company Institute
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 compound ed, 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 1999 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
LOGO Omitted
J.& W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
TEB2 9/99 Printed on Recycled Paper
<PAGE>
SELIGMAN
--------------
MUNICIPAL
SERIES TRUST
ANNUAL REPORT
SEPTEMBER 30, 1999
Providing Income
Exempt From Regular
Income Tax
LOGO Omitted
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
<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.
(Incorporated by reference to Registrant's Post-Effective Amendment
No. 30 filed on May 28, 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 Agreement 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 Agreement 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 Agreement 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 Agreement 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 No. 811-1886) filed on May 28,
1999.)
(e)(1) Form of Bank Agreement between Seligman Advisors, Inc. and Banks.
(Incorporated by reference to Registrant's Post-Effective Amendment
No. 57 to its Registration Statement for Seligman Capital Fund, Inc.
(File No. 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.)
(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.)
C-1
<PAGE>
PART C. OTHER INFORMATION (continued)
(h) Not applicable.
(i) Opinion and Consent of Counsel with respect to Class C shares.
(Incorporated by reference to Registrant's Post-Effective Amendment
No. 30 filed on May 28, 1999.)
(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.
(Incorporated by reference to Registrant's Post-Effective Amendment
No. 30 filed on May 28, 1999.)
(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. (Incorporated by reference to Registrant's Post-Effective
Amendment No. 30 filed on May 28, 1999.)
(n) Plan of Multiple Classes of Shares (three Classes) pursuant to Rule
18f-3 under the Investment Company Act of 1940. (Incorporated by
reference to Registrant's Post-Effective Amendment No. 30 filed on May
28, 1999.)
(p) *Code of Ethics.
(Other Exhibits) Powers of Attorney. (Incorporated by reference to Registrant's
Post-Effective Amendment No. 26 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, as amended, 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-2
<PAGE>
PART C. OTHER INFORMATION (continued)
Item 26. Business and Other Connections of Investment Adviser. J. & W. Seligman
& Co. Incorporated, a Delaware corporation (Seligman), is the
Registrant's investment manager. Seligman also serves as investment
manager to nineteen 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 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 New
Technologies 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., Seligman Time Horizon/Harvester Series, Inc. and Tri-Continental
Corporation.
Seligman has an investment advisory service division which provides
investment management or advice to private clients. The list required
by this Item 26 of officers and directors of Seligman, 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 of Form ADV, filed by Seligman, pursuant to the
Investment Advisers Act of 1940, as amended (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 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 Time Horizon/Harvester Series, Inc.
Seligman Value Fund Series, Inc.
C-3
<PAGE>
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 December 31, 1999
-----------------------
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <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, Domestic None
Funds
Jonathan G. Evans Senior Vice President, Sales None
222 Fairmont Way
Ft. Lauderdale, FL 33326
T. Wayne Knowles Senior Vice President, Division None
104 Morninghills Court 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, Retirement None
Plans
Scott H. Novak* Senior Vice President, Insurance None
Jeff Rold Senior Vice President, Product None
181 East 73rd Street, Apt 20B Business Management
New York, New York 10021
</TABLE>
C-4
<PAGE>
PART C. OTHER INFORMATION (continued)
<TABLE>
<CAPTION>
Seligman Advisors, Inc.
-----------------------
As of December 31, 1999
-----------------------
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
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
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, Managed None
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
2130 Fillmore Street Plans Manager
BMB 280
San Francisco, CA 94115-2224
Marsha E. Jacoby* Vice President, Offshore Business None
Manager
Jody Knapp Vice President, Regional Retirement None
17011 East Monterey Drive Plans Manager
Fountain Hills, AZ 85268
David W. Mountford Vice President, Regional Retirement None
7131 NW 46th Street Plans Manager
Lauderhill, FL 33319
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
117 Carpetners Row Plans Manager
Mount Chanin, DE 19710
Daniel Chambers Regional Vice President None
4618 Lorraine Avenue
Dallas, TX 75209
</TABLE>
C-5
<PAGE>
PART C. OTHER INFORMATION (continued)
<TABLE>
<CAPTION>
Seligman Advisors, Inc.
-----------------------
As of December 31, 1999
-----------------------
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Richard B. Callaghan Regional Vice President None
7821 Dakota Lane
Orland Park, IL 60462
Kevin Casey Regional Vice President None
19 Bayview Avenue
Babylon, NY 11702
Bradford C. Davis Regional Vice President None
241 110th Avenue SE
Bellevue, WA 98004
Cathy Des Jardins Regional Vice President None
PMB 152
1705 14th Street
Boulder, CO 80302
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
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
Leslie A. Mudd Regional Vice President None
5243 East Calle Redonda
Phoenix, AZ 85018
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
</TABLE>
C-6
<PAGE>
PART C. OTHER INFORMATION (continued)
<TABLE>
<CAPTION>
Seligman Advisors, Inc.
-----------------------
As of December 31, 1999
-----------------------
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Craig Prichard Regional Vice President None
9207 Cross Oaks Court
Fairfax Station, VA 22039
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
James Taylor Regional Vice President None
290 Bellington Lane
Creve Coeur, MO 63141
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 10% 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, as amended; 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-7
<PAGE>
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. 31 to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 31 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 27th day of
January, 2000.
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. 31 has been signed below by the following persons
in the capacities indicated on January 27, 2000.
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 ) Brian T. Zino, Attorney-in-Fact
James Q. Riordan, Trustee )
Richard R. Schmaltz, Trustee )
Robert L. Shafer, Trustee )
James N. Whitson, Trustee )
<PAGE>
SELIGMAN MUNICIPAL SERIES TRUST
Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A
EXHIBIT INDEX
Form N1-A Item No. Description
- ------------------ -----------
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(p) Code of Ethics
CONSENT OF INDEPENDENT AUDITORS
Seligman Municipal Series Trust:
We consent to the use in Post-Effective Amendment No. 31 to Registration
Statement No. 2-92569 of our report dated November 5, 1999, appearing in the
Annual Report to Shareholders for the year ended September 30, 1999,
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.
/s/ Deloitte & Touche LLP
New York, New York
January 24, 2000
Seligman Municipal Series Trust -1-
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NY 10004
January 21, 2000
Seligman Municipal Series Trust,
100 Park Avenue, 8th Floor,
New York, New York 10017.
Ladies and Gentlemen:
We have acted as counsel to Seligman Municipal Series Trust (the "Trust"),
and you have requested our opinion regarding the California personal income tax
consequences to holders of certain of the series of shares of beneficial
interest in the Trust.
The Trust, an unincorporated business trust organized under the laws of
Massachusetts pursuant to a Declaration of Trust (the "Declaration"), is an
open-end, non-diversified management investment company. Article VI of the
Declaration authorizes the issuance of shares or units of beneficial interest in
the Trust. The shares may be divided into series of shares, the proceeds of
which may be invested in separate investment portfolios. Each share in a series
represents a beneficial interest in the net assets of the series, and each
shareholder in a series is entitled to receive such shareholder's pro rata share
of distributions of income and capital gains with respect to such series. Upon
redemption of a shareholder's shares in a series, the shareholder is paid solely
out of the funds and property of such series, and, upon liquidation or
<PAGE>
Seligman Municipal Series Trust -2-
termination of a series, a shareholder is entitled only to such shareholder's
pro rata share of the net assets of such series.
All consideration received by the Trust for the issue or sale of shares in
a series, all assets in which such consideration is invested, and all income
from such assets, including any proceeds derived from the sale, exchange, or
liquidation of such assets, belong to that series, subject only to the rights of
creditors of the series. The assets belonging to each series are charged with
the liabilities attributable to that series only and with all expenses, costs,
charges, and reserves attributable to that series.
At present, the Trust offers separate investment series, each with
different investment objectives and policies and each composed of different
types of assets and having different shareholders. The Quality Series seeks high
tax-exempt income consistent with preservation of capital and with consideration
given to capital gain by investing in obligations of the state of California and
its political subdivisions the interest on which is exempt from Federal and
California personal income tax ("California tax-exempt securities") rated within
or of quality comparable to the three highest rating categories of Moody's
Investors Service ("Moody's") or Standard & Poor's Rating Service ("S&P"). The
High-Yield Series seeks the maximum amount of tax-exempt income consistent with
preservation of capital and with consideration given to capital gain by
investing primarily in California tax-exempt securities which are rated in the
medium and lower rating categories of Moody's or S&P or which are unrated (the
Quality Series and the High-Yield Series are collectively referred to herein as
"Series").
<PAGE>
Seligman Municipal Series Trust -3-
It is expected that any further series to be established under the
Declaration and offered by the Trust will have investment objectives and
policies, types of assets, and shareholders that are different from those of the
Series and any other series currently established under the Declaration. Section
6.9 of the Declaration provides that if the Trustees divide shares of the Trust
into two or more series of classes, then all provisions of the Declaration shall
apply equally to each series.
The income of each Series will consist primarily of interest on California
tax-exempt securities, and the balance will consist in part of interest on
certain other securities which is excluded from gross income for Federal and
California personal income tax purposes ("Non-California tax-exempt
securities").
In connection with this opinion we have assumed, with your consent, that
each Series is a separate regulated investment company taxable under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code") and that
dividends paid by each Series will constitute in whole or in part
"exempt-interest dividends" within the meaning of Section 852(b)(5) of the Code.
On the basis of the foregoing, and our consideration of such matters as we
have considered necessary, we advise you that, in our opinion, for California
personal income tax purposes:
(1) Dividends received by a shareholder who is subject to California
personal income tax are generally includible in California gross income.
However, dividends received from each Series attributable to interest
received by the Series during its taxable year on California tax-exempt
securities and on
<PAGE>
Seligman Municipal Series Trust -4-
Non-California tax-exempt securities are excludible from California gross
income provided that at the end of each quarter of its taxable year, at
least 50 percent of the value of the total assets of the Series consists of
such securities. Section 17145 of the California Revenue and Taxation Code.
Because each Series will be treated as a separate regulated investment
company, the determination under Section 17145 with respect to a Series
will be made solely on the basis of the proportion of the value of the
total assets of that Series constituting California tax-exempt securities
and Non-California tax-exempt securities.
(2) Capital gain dividends of each Series, as defined in Section
852(b)(3) of the Code, will be taxed as long-term capital gain to a
shareholder. Section 17088(a) of the California Revenue and Taxation Code.
We hereby consent to the reference to us and the filing of this opinion as
an exhibit to the Registration Statement for the 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
SULLIVAN & CROMWELL
HORACK, TALLEY, PHARR & LOWNDES
Professional Association
2600 ONE FIRST UNION CENTER
301 SOUTH COLLEGE STREET
CHARLOTTE, NORTH CAROLINA 28202-6038
December 14, 1999
Seligman Municipal Series Trust
100 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
With respect to Post-Effective Amendment No. 31 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
CODE OF ETHICS
J. & W. Seligman & Co. Incorporated
Seligman Advisors, Inc.
Seligman Services, Inc.
Seligman Data Corp.
Seligman International, Inc.
Seligman International UK Limited
The Seligman Group of Investment Companies
I. Introduction
A primary duty of all directors, officers and employees (collectively
"Employees") of J. & W. Seligman & Co. Incorporated, its subsidiaries and
affiliates (collectively, "Seligman") is to be faithful to the interest of the
various Seligman advisory clients, including the registered and unregistered
companies advised by Seligman (collectively, "Clients"). Directors of the
Seligman Registered Investment Companies also have a duty to the Seligman
Registered Investment Companies and their shareholders. Persons who are
Disinterested Directors are "Employees" for purposes of this Code of Ethics.
Through the years, Seligman and its predecessor organizations have had a
reputation of maintaining the highest business and ethical standards and have
been favored with the confidence of investors and the financial community. Such
a reputation and confidence are not easily gained and are among the most
precious assets of Seligman. In large measure, they depend on the devotion and
integrity with which each Employee discharges his or her responsibilities. Their
preservation and development must be a main concern of each Employee, and each
Employee has a primary obligation to avoid any action or activity that could
produce conflict between the interest of the Clients and that Employee's
self-interest.
The purpose of this Code of Ethics ("Code") is to set forth the policies of
Seligman in the matter of conflicts of interest and to provide a formal record
for each Employee's reference and guidance. This Code is also designed to
prevent any act, practice or course of business prohibited by the rules and
regulations governing our industry.
Each Employee owes a fiduciary duty to each Client. Therefore, all Employees
must avoid activities, interests and relationships that might appear to
interfere with making decisions in the best interest of the Clients.
As an Employee, you must at all times:
1. Avoid serving your own personal interests ahead of the interests of
Clients. You may not cause a Client to take action, or not to take action,
for your personal benefit rather than the Client's benefit.
2. Avoid taking inappropriate advantage of your position. The receipt of
investment opportunities, perquisites or gifts from persons seeking
business with Clients or with Seligman could call into question the
exercise of your better judgment. Therefore, you must not give or receive
benefits that would compromise your ability to act in the best interest of
the Clients.
3. Conduct all personal Securities Transactions in full compliance with the
Code, including the pre-authorization and reporting requirements, and
comply fully with the Seligman Insider Trading Policies and Procedures (See
Appendix A).
While Seligman encourages you and your families to develop personal investment
programs, you must not take any action that could cause even the appearance that
an unfair or improper action has been taken. Accordingly, you must follow the
policies set forth below with respect to trading in your Account(s). This Code
places reliance on the good sense and judgment of you as an Employee; however,
if you are unclear as to the Code's meaning, you should seek the advice of the
Law and Regulation Department and assume the Code will be interpreted in the
most restrictive manner. Questionable situations should be resolved in favor of
Clients.
<PAGE>
Technical compliance with the Code's procedures will not insulate from scrutiny
any trades that indicate a violation of your fiduciary duties.
Application of the Code to Disinterested Directors
Disinterested Directors are only subject to the reporting requirements in
Section III.5(b) of the Code. Disinterested Directors are not subject to other
provisions of the Code but are subject to the requirements of the federal
securities laws and other applicable laws, such as the prohibition on trading in
securities of an issuer while in possession of material non-public information.
II. Definitions
(a) "Accounts" means all Employee Accounts and Employee Related Accounts.
(b) "Beneficial Interest" is broadly interpreted. The SEC has said that
the final determination of Beneficial Interest is a question to be
determined in the light of the facts of each particular case. The
terms Employee Account and Employee Related Account, as defined below,
generally define Beneficial Interest. However, the meaning of
"Beneficial Interest" may be broader than that described below. If
there are any questions as to Beneficial Interest, please contact the
Director of Compliance, General Counsel or Associate General Counsel.
(i) "Employee Account" means the following securities Accounts: (i)
any of your personal account(s); (ii) any joint or
tenant-in-common account in which you have an interest or are a
participant; (iii) any account for which you act as trustee,
executor, or custodian; (iv) any account over which you have
investment discretion or otherwise can exercise control,
including the accounts of entities controlled directly or
indirectly by you; (v) any account in which you have a direct or
indirect interest through a contract, arrangement or otherwise
(e.g., economic, voting power, power to buy or sell, or
otherwise); (vi) any account held by pledges, or for a
partnership in which you are a member, or by a corporation which
you should regard as a personal holding company; (vii) any
account held in the name of another person in which you do not
have benefits of ownership, but which you can vest or revest
title in yourself at once or some future time; (viii) any account
of which you have benefit of ownership; and (ix) accounts
registered by custodians, brokers, executors or other fiduciaries
for your benefit.
(ii) "Employee Related Account" means any Account of (i) your spouse
and minor children and (ii) any account of relatives or any other
persons to whose support you materially contribute, directly or
indirectly.
(c) "Disinterested Director" means a director or trustee of a Seligman
Registered Investment Company who is not an "interested person" of
such investment company within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940.
(d) "Equivalent Security" includes, among other things, an option to
purchase or sell a Security or an instrument convertible or
exchangeable into a Security.
(e) "Investment Team" means one or more Investment Teams formed by the
Manager in various investment disciplines to review and approve
Securities for purchase and sale by Client Accounts. This includes a
team's leader, portfolio managers, research analysts, traders and
their direct supervisors.
(f) "Security" includes, among other things, stocks, notes, bonds,
debentures, and other evidences of indebtedness (including loan
participation and assignments), limited partnership interests,
investment contracts, and all derivative instruments (e.g., options
and warrants).
<PAGE>
(g) "Securities Transaction" means a purchase or sale of a Security.
(h) "Seligman Registered Investment Company" means an investment company
registered under the Investment Company Act of 1940 for which Seligman
serves as investment manager or adviser.
III. Personal Securities Transactions
1. Prohibited Transactions
These apply to all of your Accounts.
(a) Seven-Day Blackout: If you are a member of an Investment Team,
Securities Transactions are prohibited within seven calendar days
either before or after the purchase or sale of the relevant security
(or an Equivalent Security) by a Client whose Account is managed by
your Investment Team.
(b) Intention to Buy or Sell for Clients: Securities Transactions are
prohibited at a time when you intend, or know of another's intention,
to purchase or sell that Security (or an Equivalent Security) on
behalf of a Client.
(c) Sixty-Day Holding Period: Profits on Securities Transactions made
within a sixty-day period are prohibited and must be disgorged. This
is a prohibition of short term trading. Specifically,
o Purchase of a Security within 60 days of your sale of the
Security (or an Equivalent Security), at a price that is less
than the price in the previous sale is prohibited.
o Sale of a Security within the 60 day period of your purchase of
the Security (or an Equivalent Security), at a price that is
greater than the price in the previous purchase is prohibited.
Examples are as follows:
1. Employee purchases 100 shares of XYZ ($10 a share) on January 1.
Employee sells 100 shares of XYZ ($15 a share) on February 15.
Employee must disgorge $500.
2. Employee purchases 100 shares of XYZ ($10 a share) on January 1.
Employee purchases 50 shares of XYZ ($12 a share) on January 30.
Employee sells 50 shares of XYZ ($15 a share) on March 15.
Employee must disgorge $150. (The March 15 sale may not be
matched to the January 1 purchase).
3. Employee purchases 100 shares of XYZ ($10 a share) on January 1.
Employee sells 100 shares of XYZ ($10 a share) on February 1.
Employee purchases 100 shares of XYZ ($9 a share) on March 1
Employee must disgorge $100. (The February 1 sale is permissible
because no profit was made. However, the March 1 purchase is
matched against the February 1 sale resulting in a $100 profit).
(d) Restricted Transactions: Transactions in a Security are prohibited (i)
on the day of a purchase or sale of the Security by a Client, or (ii)
anytime a Client's order in the Security is open on the trading desk.
Other Securities may be restricted from time to time as deemed
appropriate by the Law and Regulation Department.
<PAGE>
(e) Short Sales: If you are a member of an Investment Team, you may not
engage in any short sale of a Security if, at the time of the
transaction, any Client managed by your Team has a long position in
that same Security. However, this prohibition does not prevent you
from engaging short sales against the box and covered call writing, as
long as these personal trades are in accordance with the sixty-day
holding period described above.
(f) Public Offerings: Acquisitions of Securities in initial and secondary
public offerings are prohibited, unless granted an exemption by the
Director of Compliance. An exemption for an initial public offering
will only be granted in certain limited circumstances, for example,
the demutualization of a savings bank.
(g) Private Placements: Acquisition of Securities in a private placement
is prohibited absent prior written approval by the Director of
Compliance.
(h) Market Manipulation: Transactions intended to raise, lower, or
maintain the price of any Security or to create a false appearance of
active trading are prohibited.
(i) Inside Information: You may not trade, either personally or on behalf
of others, on material, non-public information or communicate
material, non-public information to another in violation of the law.
This policy extends to activities within and outside your duties at
Seligman. (See Appendix A).
2. Maintenance of Accounts
All Accounts that have the ability to engage in Securities Transactions
must be maintained at Ernst & Company (Investec) and/or the specific
Merrill Lynch branch office located at 712 Fifth Avenue, New York, NY. You
are required to notify the Director of Compliance of any change to your
account status. This includes opening a new Account, converting,
transferring or closing an existing account or acquiring Beneficial
Interest in an Account through marriage or otherwise. You must place all
orders for Securities Transactions in these Account(s) with the Equity
Trading Desk or the appropriate Fixed Income Team as set forth in Section
III.3 ("Trade Pre-authorization Requirements").
The Director of Compliance may grant exceptions to the foregoing
requirements on a case by case basis. All requests for exceptions must be
applied for in writing and submitted for approval to the Director of
Compliance and will be subject to certain conditions.
3. Trade Pre-authorization Requirements
All Securities Transactions in an Employee Account or Employee Related
Account must be pre-authorized, except for Securities Transactions set
forth in Section III.4 ("Exempt Transactions").
(a) Trade Authorization Request Form: Prior to entering an order for a
Securities Transaction in an Employee Account or Employee Related
Account, which is subject to pre-authorization, you must complete a
Trade Authorization Request Form (set forth in Appendix B) and submit
the completed Form (faxed or hand delivered) to the Director of
Compliance (or designee).
(b) Review of the Form and Trade Execution: After receiving the completed
Trade Authorization Request Form, the Director of Compliance (or
designee) will review the information and, as soon as practical,
determine whether to authorize the proposed Securities Transaction.
The authorization, date and time of the authorization must be
reflected on the Form. Once approved the order may then be executed by
Equity Trading Desk or the appropriate Fixed Income Team, except for
accounts for which an exemption was granted under Section III.2.
<PAGE>
(c) Length of Trade Authorization Approval: Any authorization, if granted,
is effective until the earliest of (i) its revocation, (ii) the close
of business on the day from which authorization was granted or (iii)
your discovery that the information in the Trade Authorization Request
Form is no longer accurate. If the Securities Transaction was not
placed or executed within that period, a new pre-authorization must be
obtained. A new pre-authorization need not be obtained for orders
which cannot be filled in one day due to an illiquid market, so long
as such order was placed for execution on the day the original
pre-authorization was given.
No order for a Securities Transaction may be placed prior to the Director
of Compliance (or designee) receiving the completed Trade Pre-authorization
Form and approving the transaction. In some cases, trades may be rejected
for a reason that is confidential.
4. Exempt Transactions
The prohibitions of this Code shall not apply to the following Securities
Transactions in your Account(s):
(a) Purchases or sales of Securities which are non-volitional (i.e., not
involving any investment decision or recommendation).
(b) Purchases of Securities through certain corporate actions (such as
stock dividends, dividend reinvestments, stock splits, mergers,
consolidations, spin-offs, or other similar corporate reorganizations
or distributions generally applicable to all holders of the same class
of Securities).
(c) Purchases of Securities effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its Securities, to the
extent such rights were acquired from the issuer.
(d) Purchases or sales of open-end registered investment companies, U.S.
Government Securities and money market instruments (e.g., U.S.
Treasury Securities, bankers acceptances, bank certificates of
deposit, commercial paper and repurchase agreements).
(e) Purchases of Securities which are part of an automatic dividend
reinvestment plan or stock accumulation plan; however, quarterly
account statement of such plans must be sent to the Director of
Compliance.
(f) Securities Transactions that are granted a prior exemption by the
Director of Compliance, the General Counsel or the Associate General
Counsel.
5. Reporting
(a) You must arrange for the Director of Compliance to receive from the
executing broker, dealer or bank duplicate copies of each confirmation
and account statement for each Securities Transaction in an Employee
Account or Employee Related Account.
(b) If you are a Disinterested Director you are required to report the
information specified below with respect to any Securities Transaction
in any Securities Account in which you have Beneficial Interest, if
you knew, or in the ordinary course of fulfilling your official duties
as a Disinterested Director, should have known, that during 15 days
immediately before or after the date of your transaction, the Security
(or Equivalent Security) was purchased or sold by a Seligman
Registered Investment Company or considered for purchase or sale by a
Seligman Registered Investment Company. Such report shall be made not
later than 10 days after the end of the calendar quarter in which the
Transaction was effected and shall contain the following information:
<PAGE>
(i) The date of the transaction, the name of the company, the number
of shares, and the principal amount of each Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(v) The date the report is submitted.
(c) You are required to disclose all Securities beneficially owned by you
within ten days of commencement of employment and at the end of each
calendar year within 10 days thereafter (See Appendix C).
(d) You are also required to disclose all Employee and Employee Related
Securities Accounts, Private Securities Transactions and Outside
Activities, Affiliations and Investments upon commencement of
employment and annually thereafter (See Appendix D).
(e) Any report may contain a statement that the report shall not be
construed as an admission by you, that you have any direct or indirect
beneficial ownership in the Security to which the report relates.
(f) The Director of Compliance or his designee will review all reports.
6. Dealings with the Clients
You should not have any direct or indirect investment interest in the
purchase or sale of any Security or property from or to Clients. This is a
prohibition against dealings between you and the Clients and is not
intended to preclude or limit investment transactions by you in Securities
or property, provided such transactions are not in conflict with the
provisions of this Code.
7. Preferential Treatment, Favors and Gifts
You are prohibited from giving and receiving gifts of significant value or
cost from any person or entity that does business with or on behalf of any
Client. You should also avoid preferential treatment, favors, gifts and
entertainment which might, or might appear to, influence adversely or
restrict the independent exercise of your best efforts and best judgments
on behalf of the Clients or which might tend in any way to impair
confidence in Seligman by Clients. Cash Gifts that do not exceed $100 in
value per person for a calendar year are permissible. Ordinary courtesies
of business life, or ordinary business entertainment, and gifts of
inconsequential value are also permissible. However, they should not be so
frequent nor so extensive as to raise any question of impropriety.
8. Outside Business Activities and Service as a Director, Trustee or in a
Fiduciary Capacity of any Organization
You may not engage in any outside business activities or serve as a
Director, Trustee or in a fiduciary capacity of any organization, without
the prior written consent of the Director of Compliance.
<PAGE>
9. Remedies of the Code
Upon discovering a violation of this Code, sanctions may be imposed against
the person concerned as may be deemed appropriate, including, among other
things, a letter of censure, fines, suspension or termination of personal
trading rights and/or employment.
As part of any sanction, you may be required to absorb any loss from the
trade. Any profits realized, as a result of your personal transaction that
violates the Code must be disgorged to a charitable organization, which you
may designate.
10. Compliance Certification
At least once a year, you will be required to certify on the Employee
Certification Form (set forth in Appendix E) that you have read and
understand this Code, that you have complied with the requirements of the
Code, and that you have disclosed or reported all personal Securities
Transactions pursuant to the provisions of the Code.
11. Inquiries Regarding the Code
If you have any questions regarding this Code or any other
compliance-related matter, please call the Director of Compliance, or in
his absence, the General Counsel or Associate General Counsel.
----------------------------
William C. Morris
Chairman
December 22, 1966
Revised: March 8, 1968 December 7, 1990
January 14, 1970 November 18, 1991
March 21, 1975 April 1, 1993
May 1, 1981 November 1, 1994
May 1, 1982 February 28, 1995
April 1, 1985 November 19, 1999*
March 27, 1989
* Refers to the incorporation of the Code of Ethics of the Seligman
Investment Companies originally adopted June 12, 1962, as amended.
<PAGE>
Appendix A
Amended November 19, 1999
J. & W. Seligman & Co. Incorporated - Insider Trading Policies and Procedures
SECTION I. BACKGROUND
Introduction
United States law creates an affirmative duty on the part of broker-dealers
and investment advisers to establish, maintain and enforce written policies and
procedures that provide a reasonable and proper system of supervision,
surveillance and internal control to prevent the misuse of material, non-public
information by the broker-dealer, investment adviser or any person associated
with them. The purpose of these procedures is to meet those requirements. The
following procedures apply to J. & W. Seligman & Co. Incorporated, its
subsidiaries and affiliates (collectively, "Seligman") and all officers,
directors and employees (collectively, "Employees") thereof.
Statement of Policy
No Employee may trade, either personally or on behalf of others, on
material, non-public information or communicate material, non-public information
to another in violation of the law. This policy extends to activities within and
outside their duties at Seligman. Each Employee must read, acknowledge receipt
and retain a copy of these procedures.
Inside Information
The term "insider trading" is not defined in the federal securities laws,
but generally is used to refer to the use of material, non-public information to
trade in securities or to communicate material, non-public information to
others.
While the law concerning insider trading is not static, it is understood
that the law generally prohibits:
A. trading by an insider, while in possession of material, non-public
information, or
B. trading by a non-insider, while knowingly in possession of material,
non-public information, where the information either was disclosed to
the non-insider in violation of an insider's duty to keep it
confidential or was misappropriated, or
C. communicating material, non-public information to others.
The elements of insider trading and the penalties for such unlawful conduct
are discussed below. If you have any questions after reviewing these procedures,
you should consult the Director of Compliance, General Counsel or Associate
General Counsel.
1. Who Is An Insider?
The concept of "insider" is broad. It includes Employees of a company. In
addition, a person can be a "temporary insider" if he or she enters into a
special confidential relationship in the conduct of a company's affairs and
as a result is given access to information solely for the company's
purposes. A temporary insider can include, among others, a company's
attorneys, accountants, consultants, bank lending officers, and the
Employees of such organizations. In addition, Seligman may become a
temporary insider of a company it advises or for which it performs other
services. According to the Supreme Court, the company must expect the
outsider to keep the disclosed non-public information
<PAGE>
confidential and the relationship must at least imply such a duty before
the outsider will be considered an insider.
2. What Is Material Information?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment
decisions, or information that is reasonably certain to have a substantial
affect on the price of a company's securities. Information that Employees
should consider material includes, but is not limited to: dividend changes,
earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major
litigation, liquidation problems and extraordinary management developments.
In addition, information about major contracts or new customers could also
qualify as material, depending upon the importance of such developments to
the company's financial condition or anticipated performance.
Material information does not have to relate to a company's business. For
example, in Carpenter v. U.S., 408 U.S. 316 (1987), the Supreme Court
considered as material certain information about the contents of a
forthcoming newspaper column that was expected to affect the market price
of a Security. In that case, a Wall Street Journal reporter was found
criminally liable for disclosing to others the dates that reports on
various companies would appear in the Journal and whether those reports
would be favorable or not.
3. What Is Non-Public Information?
Information is non-public until it has been effectively communicated to the
market place. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the SEC, or appearing in Dow Jones, Reuters Economic Services,
The Wall Street Journal or other publications of general circulation would
be considered public. However, see Section II, Paragraph 2.
4. Penalties for Insider Trading
Penalties for trading on or communicating material, non-public information
are severe, both for individuals involved in such unlawful conduct and
their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
- Civil injunctions
- Disgorgement of profits
- Jail sentences
- Fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the
person actually benefited, and
- Fines for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of policies and procedures set forth herein can
be expected to result in serious sanctions by Seligman, including dismissal of
the persons involved.
<PAGE>
SECTION II. PROCEDURES
Procedures to Implement Policy Against Insider Trading.
The following procedures have been established to assist the Employees of
Seligman in avoiding insider trading, and to aid Seligman in preventing,
detecting and imposing sanctions against insider trading. Every Employee of
Seligman must follow these procedures or risk serious sanctions, including
dismissal, substantial personal liability and criminal penalties. If you have
any questions about these procedures you should consult the Director of
Compliance, the General Counsel or Associate General Counsel.
1. Identifying Inside Information.
Before trading for yourself or others (including investment companies and
private Accounts managed by Seligman), in the securities of a company about
which you may have potential inside information, ask yourself the following
questions:
a. Is the information material? Is this information that an investor
would consider important in making his or her investment decisions? Is
this information that would substantially affect the market price of
the securities if generally disclosed?
b. Is the information non-public? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace in a publication of general circulation or does it fall
within the circumstances set forth in paragraph 2 below.
If, after consideration of the above, you believe that the information is
material and non-public, or if you have questions as to whether the information
is material and non-public, you should take the following steps:
c. Report the matter immediately to the Director of Compliance, General
Counsel or Associate General Counsel.
d. Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private Accounts managed by
Seligman.
e. Do not communicate the information inside or outside Seligman other
than to the Director of Compliance, General Counsel or Associate
General Counsel.
f. After the Director of Compliance, General Counsel or Associate General
Counsel has reviewed the issue, you will be instructed to continue the
prohibitions against trading and communication, or you will be allowed
to trade and communicate the information.
2. Important Specific Examples
a. If you have a telephone or face-to-face conversation with a senior
executive of a publicly-traded company and are provided information
about the company that you have reason to believe has not yet been
disclosed in a widely-disseminated publication such as a press
release, quarterly report or other public filing, you have received
non-public information. This information is considered non-public even
if you believe that the company executive would provide the same
information to other analysts or portfolio managers who call the
company. Until information has been disclosed in a manner that makes
it available to (or capable of being accessed by) the investment
community as a whole, it is considered non-public. If the information
is material, as described above, you may not trade while in possession
of this information unless you first discuss the matter and obtain
approval from the Director of Compliance, General Counsel or Associate
General Counsel. Although it may be lawful for an analyst to act on
the basis of material information that the company's management has
chosen to disclose selectively to that analyst, where the information
is provided in a one-on-one context,
<PAGE>
regulators are likely to question such conduct. Approval from the Law
and Regulation Department will therefore depend on the specific
circumstances of the information and the disclosure. Under the Supreme
Court's important decision of Dirks v. SEC, 463 U.S. 646 (1983),
securities
analysts may be free to act on selectively disclosed material
information if it is provided by company executives exclusively to
achieve proper corporate purposes.
b. If you obtain material information in the course of an analysts'
conference call or meeting conducted by a publicly-traded company in
the ordinary course of its business in which representatives of
several other firms or investors are also present (as distinguished
from the one-on-one situation described in the preceding paragraph),
you may act on the basis of that information without need to consult
with the Director of Compliance, General Counsel or Associate General
Counsel, even if the information has not yet been published by the
news media. You should be aware, however, that if there is something
highly unusual about the meeting or conference call that leads you to
question whether it has been authorized by the company or is otherwise
suspect, you should first consult with the Director of Compliance,
General Counsel or Associate General Counsel.
c. If you are provided material information by a company and are
requested to keep such information confidential, you may not trade
while in possession of that information before first obtaining the
approval of the Director of Compliance, General Counsel or the
Associate General Counsel.
As these examples illustrate, the legal requirements governing insider
trading are not always obvious. You should therefore always consult with the
Director of Compliance, General Counsel or Associate General Counsel if you have
any question at all about the appropriateness of your proposed conduct.
3. Restricting Access To Material, Non-Public Information
Information in your possession that you identify as material and non-public
may not be communicated to anyone, including persons within Seligman,
except as provided in paragraphs 1 and 2 above. In addition, care should be
taken so that such information is secure. For example, files containing
material, non-public information should be sealed; access to computer files
containing material, non-public information should be restricted.
4. Resolving Issues Concerning Insider Trading
If, after consideration of the items set forth in paragraphs 1 and 2, doubt
remains as to whether information is material or non-public, or if there is
any unresolved question as to the applicability or interpretation of the
foregoing procedures, or as to the propriety of any action, it must be
discussed with the Director of Compliance, General Counsel and or the
Associate General Counsel before trading or communicating the information
to anyone.
5. Personal Securities Trading
All Employees shall follow with respect to personal Securities trading the
procedures set forth in the Code of Ethics. In addition, no Employee shall
establish a brokerage Account with a Firm other than those previously
approved without the prior consent of the Director of Compliance and every
Employee shall be subject to reporting requirements under Section III.5 of
the Code of Ethics. The Director of Compliance, or his designee, shall
monitor the personal Securities trading of all Employees.
<PAGE>
Appendix B
Amended November 19, 1999
J. & W. SELIGMAN & CO. INCORPORATED
TRADE AUTHORIZATION REQUEST FORM
1. Name of Employee/Telephone Number: ______________________________
2. If different than #1, name of the person
in whose account the trade will occur: ______________________________
3. Relationship of (2) to (1): ______________________________
4. Name the firm at which the account is held:______________________________
5. Name of Security: ______________________________
6. Number of shares or units to be bought or
sold or amount of bond: ______________________________
7. Approximate price per share, unit or bond: ______________________________
8. Check those that are applicable: _______ Purchase ______
Sale
_____ Market Order ______ Limit Order (Price of Limit Order: _____)
9. Do you possess material non public information
regarding the Security or the issuer of the
Security? ______ Yes ______ No
10. To your knowledge, are there any outstanding
(purchase or sell) orders for this Security or any
Equivalent Security by a Seligman Client? ______ Yes ______ No
11. To your knowledge, is this Security or Equivalent
Security being considered for purchase or sale for
one or more Seligman Clients? ______ Yes ______ No
12. Is this Security being acquired in an initial or
secondary public offering? ______ Yes ______ No
13. Is this Security being acquired in a private
placement? ______ Yes ______ No
14. Have you or any Related Account covered by the
pre- authorization provisions of the Code
purchased or sold this Security within the past 60
days? ______ Yes ______ No
<PAGE>
- - - - - -
For Investment Team Members Only:
15. Has any Client Account managed by your team purchased or sold this Security
or Equivalent Security within the past seven calendar days or do you expect
any such account to purchase or sell this Security or Equivalent Security
within seven calendar days of your purchase or sale? ______ Yes ______ No
16. Why is this Security Transaction appropriate for you and not for one or
more of your team's Clients?
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- - - - - -
I have read the J. & W. Seligman & Co. Incorporated Code of Ethics, as revised
on November 19, 1999, within the prior 12 months and believe that the proposed
trade(s) fully complies with the requirements of the Code of Ethics and Insider
Trading policy.
----------------------------
Employee Signature
----------------------------
Date Submitted
Authorized by: ________________________
Date: ________________________
<PAGE>
Appendix C
Amended November 19, 1999
REPORT OF SECURITIES BENEFICIALLY OWNED
AS OF DECEMBER 31, 1999
The following is a list of all Securities positions (except open-end
investment companies, U.S. Government Securities and money market instruments)
in which I have direct or indirect beneficial ownership, as defined in the Code
of Ethics. This includes Securities held at home, in safe deposit boxes or by an
issuer.
Description of Security No. of Shares Principal Amount Location of Security
- ----------------------- ------------- ---------------- --------------------
- ----------------------- ------------- ---------------- --------------------
- ----------------------- ------------- ---------------- --------------------
- ----------------------- ------------- ---------------- --------------------
- ----------------------- ------------- ---------------- --------------------
- ----------------------- ------------- ---------------- --------------------
_______ The list above (and any additional sheets I have attached)
represents all my Securities positions in which I have direct or
indirect beneficial ownership as defined in the Code of Ethics.
_______ I only have a beneficial ownership interest in open-end investment
companies, U.S. Government Securities and money market instruments,
and/or I do not beneficially own any Securities.
Date: __________________
-----------------------------
First Last, Company
<PAGE>
Appendix D
Amended November 19, 1999
EMPLOYEE REPORTING QUESTIONNAIRE
Employee Name: ____________________ Ext: ______ Department: _______________
Please Print
Company/Affiliate: ______________________ Supervisor: ___________________
1. Securities Accounts
Do you have any Accounts in which Securities can be purchased or sold over
which you have control or in which you have a Beneficial Interest, as
defined in Seligman's Code of Ethics?
Yes _______ No ________
If yes, please list all such Accounts:
Account Account Type of
Institution Number Title Account
----------- ------ ------- -------
-------------------- --------------- ----------------- --------------
-------------------- --------------- ----------------- --------------
-------------------- --------------- ----------------- --------------
2. Financial Interests
Do you have any private placements, restricted stock warrants, general or
limited partnerships, or other investment interests in any organization
(public, private or charitable) not held in the accounts listed above?
Please include Securities and certificates held in your custody.
Yes _______ No _______
If yes, please describe:
------------------------------------------------------
- --------------------------------------------------------------------------------
3. Outside Activities/Affiliations
a) Do you have any activities outside Seligman or its affiliates for
which you receive additional compensation:
Yes _______ No _______
If yes, please describe:
--------------------------------------------------
---------------------------------------------------------------------------
b) Do you serve in the capacity of officer, director, partner or employee
(or in any other fiduciary capacity) for any company or organization
(public, private or charitable) other than Seligman or its affiliates.
Yes ________ No _______
If yes, please describe:
--------------------------------------------------
---------------------------------------------------------------------------
I hereby certify that I have read and understand the foregoing statements
and that each of my responses thereto are true and complete. I agree to
immediately inform the Director of Compliance if there is any change in any
of the above answers. I also understand that any misrepresentation or
omissions of facts in response to this questionnaire and failure to
immediately inform the Director of Compliance of any changes to responses
provided herein may result in termination of my employment.
------------------------------------ ----------------------------
Employee's Signature Date
------------------------------------
Title
<PAGE>
Appendix E
Amended November 19, 1999
Annual Certification of Compliance with the Code of Ethics
I acknowledge that I have received and read the Code of Ethics and Insider
Trading Policies and Procedures, as amended on November 19, 1999 and hereby
agree, in consideration of my continued employment by J. & W. Seligman & Co.
Incorporated, or one of its subsidiaries or affiliates, to comply with the Code
of Ethics and Insider Trading Policies and Procedures.
I hereby certify that during the past calendar year:
1. In accordance with the Code of Ethics, I have fully disclosed the
Securities holdings in my Employee Account(s) and Employee Related
Account(s) (as defined in the Code of Ethics).
2. In accordance with the Code of Ethics, I have maintained all Employee
Accounts and Employee Related Accounts at Ernst & Company (Investec) or
Merrill Lynch located at 712 Fifth Avenue, New York, NY except for Accounts
as to which the Director of Compliance has provided written permission to
maintain elsewhere.
3. In accordance with the Code of Ethics, except for transactions exempt from
reporting under the Code of Ethics, I have arranged for the Director of
Compliance to receive duplicate confirmations and statements for each
Securities Transaction of all Employee Accounts and Employee Related
Accounts, and I have reported all Securities Transactions in each of my
Employee Accounts and Employee Related Accounts.
4. I have complied with the Code of Ethics in all other respects.
--------------------------------
Employee Signature
--------------------------------
Date:____________ Print Name
