<PAGE>
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SELIGMAN
SELIGMAN
U.S.
GOVERNMENT
SECURITIES
SERIES
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Seeking High Current Income By
Investing In US Government Securities
DECEMBER 31, 1997 * ANNUAL REPORT
<PAGE>
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To the Shareholders
For the 12 months ended December 31, 1997, Seligman U.S. Government
Securities Series posted a solid total return of 8.53% based on the net asset
value of Class A shares. The Fund's peers, as measured by the Lipper General US
Government Bond Funds Average, had a total return of 8.96% for the year. The
Lehman Brothers Government Bond Index had a total return of 9.59% for the year.
This was the seventh year of economic expansion in the US, with real
domestic growth of 3.8%. Consumer price inflation slowed to under 2%, interest
rates moved steadily lower, productivity rose, and unemployment levels reached
27-year lows. Meanwhile, the federal budget deficit virtually disappeared and
corporate profits posted a third consecutive year of strong gains. Despite
year-end problems in Asia, the domestic business environment remained positive.
Except for a one-quarter percentage point increase in March, the Federal Reserve
Board left interest rates untouched this year.
Despite occasional setbacks tied to fears of inflation and concerns
regarding the possibility of further Fed interventions, 1997 was a successful
year for the fixed-income markets. Once the effects of the March adjustment in
the federal funds rate had subsided, yields progressively trended downward as
prices improved. Investors slowly grew more at ease with the rate of economic
growth and the sustainability of the low-inflation environment. This prompted a
rally that began at the end of the second quarter. Following the crisis in Asia,
investors moved out of the equity markets and into US Treasury securities,
driving yields down and prices up further in the fourth quarter.
The low-interest-rate environment reduced the difference between long-term
and short-term bond yields. Investors took advantage of the flattening yield
curve, increasing their weighting in long-term bonds, as the best price
performance is found in long-term bonds when yields move lower. Over the year,
the Fund's maturity had gradually been lengthened in anticipation of the reduced
interest rate environment, and this strategic decision improved the Fund's
overall investment results. The yield on the benchmark 30-year US Treasury bond
dipped below 6.00%, to end the year at 5.92%, significantly lower than the 6.64%
yield on December 31, 1996.
The outlook for the fixed-income markets remains positive. The Asian crisis
could have a negative effect on corporate profitability and slow the growth of
the economy, making fixed-income securities more attractive. Barring problems
caused by the tightness of the labor market, we expect a continuation of the
current low-inflation and low-interest-rate environment. In this type of
environment, the yields available in the US Treasury market remain attractive.
Further, the reduced deficit may allow the US Treasury to offer fewer bonds in
1998, reducing supply, which should improve the prices of the Fund's holdings.
Thank you for your continued support of Seligman U.S. Government Securities
Series. We look forward to serving your investment needs in the many years to
come. A discussion with your Portfolio Manager, the Fund's portfolio of
investments, and financial statements, follow this letter. Additional
information on the Fund's investment results appears starting on page 4.
By order of the Trustees,
/s/ William c. Morris
- ----------------------
William C. Morris
Chairman
/s/Brian T. Zino
-----------------
Brian T. Zino
President
January 30, 1998
1
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Interview With Your Portfolio Manager, Leonard J. Lovito
Q. How did Seligman U.S. Government Securities Series perform in the last 12
months?
A. For the 12 months ended December 31, 1997, Seligman U.S. Government
Securities Series posted an 8.53% total return based on the net asset value
of Class A shares. This compares to the Lipper General US Government Bond
Funds Average's total return of 8.96%. The Fund lengthened maturities most
significantly during the final quarter of the year, taking advantage of
falling bond yields and rising prices. The Lehman Brothers Government Bond
Index, which measures the performance of government bonds in the market,
had a total return of 9.59% for the year.
Q. How did economic and market factors influence the Fund's results in 1997?
A. This was a year of solid economic growth accompanied by disinflation (a
slowdown in the rate of inflation). However, it took time for bond market
participants to be convinced that solid economic growth could coexist with
low inflation. This sentiment was shared by the Federal Reserve Board,
which raised the federal funds rate by 25 percentage points in March. The
tightening of monetary policy drove the benchmark 30-year US Treasury bond
yield higher, to peak at 7.17% in April. However, as the year progressed,
bond yields traded lower as it became evident that the rate of inflation
was declining. In concert with falling unemployment and rising wages,
worker productivity increased, which made it unnecessary for producers to
raise prices to defray higher costs.
In the fixed-income markets, positive sentiment gained momentum during
the fourth quarter as the Asian crisis led to a surge in demand for US
Treasuries. Global production overcapacity and currency devaluations
participated in the disinflationary trend, as commodity prices continued
their descent and the US dollar strengthened. Seligman U.S. Government
Securities Series took advantage of these events and lengthened its
portfolio's maturities, particularly during the fourth quarter, in
anticipation of a continuing decline in interest rates.
Q. What was your investment strategy?
A. The Funds' portfolio entered 1997 with an average maturity that was in line
with its peers. The portfolio's
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A TEAM APPROACH
Seligman U.S. Government Securities Series is managed by the Seligman
Taxable Fixed Income Team. Leonard J. Lovito, Portfolio Manager, is assisted by
seasoned research professionals who identify securities that are backed by the
full faith and credit of the US government. The Team seeks to position the Fund
so as to minimize the negative effects of any sharp rise in interest rates while
maximizing current income.
Seligman Taxable Fixed Income Team: (from left) Nicholas Walsh, Susan Egan,
(seated) Leonard J. Lovito (Portfolio Manager)
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2
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Interview With Your Portfolio Manager, Leonard J. Lovito
holdings of mortgage-backed securities were increased, as they have higher
yields and have historically outperformed US Treasury securities in stable and
higher interest rate environments. After the Fed raised the federal funds rate
by 0.25 to 5.50% late in the first quarter, the Fund shortened maturities in
anticipation of further monetary tightening and robust economic growth. This was
a successful strategy until economic activity moderated in the second quarter.
Thereafter, the bond market reversed course and rallied through July. The Fund
lagged its peers during the rally but narrowed the gap in the fourth quarter,
when the portfolio's maturities were lengthened. Longer maturities were
purchased in response to the disinflationary trend, the surging US dollar, and
the Asian financial crisis.
Q. What is the outlook?
A. As we enter 1998, the Fund's longer maturities remain in the
portfolio, as the Asian financial crisis is expected to slow the US
economy. Additionally, the possibility of deflation (declining prices
for goods and services) exists, as evidenced by falling commodity
prices, continuing improvements in worker productivity, and ongoing
fierce global competition. Finally, the declining budget deficit could
reduce the need for the US Treasury to issue securities. If US
Treasury issuance were to decline, the balance of supply and demand
would be altered, with greater capital chasing fewer bonds. These
events could lead to further declines in bond yields and enhanced
returns in the Seligman U.S.Government Securities Series.
3
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Performance Overview
This chart compares a $10,000 hypothetical investment made in Seligman U.S.
Government Securities Series Class A shares, with and without the maximum
initial sales charge of 4.75% for the 10-year period ended December 31, 1997, to
a $10,000 investment made in the Lipper General US Government Bond Funds Average
(Lipper Average), the Lipper General US Government Bond Fund Index (Lipper
Index), and the Lehman Brothers Government Bond Index (Lehman Bond Index) for
the same period. The performances of Seligman U.S. Government Securities Series
Class B and Class D shares are not shown in this chart, but are included in the
table on page 5. It is important to keep in mind that the Lipper Index and
Lipper Average exclude the effect of sales charges, and the Lehman Bond Index
excludes the effect of fees and sales charges.
Seligman U.S. Government Securities Series will no longer be compared to
the Lipper Index after December 31, 1997. Instead, the Fund will be compared to
the Lipper Average, which measures the performance of the entire universe of
funds that have similar investment objectives to your Fund. The Manager believes
that the Lipper Average is more appropriate than the more narrowly focused
Lipper Index, which measures the performance of only 30 funds. Therefore, your
Fund will continue to be compared to the Lipper Average and the Lehman Bond
Index.
USG Plot Points
Without With Lehman
Sales Sales Lipper Index Bond Lipper Average
Charge Charge Index
12/31/87 $10,000 $9,519 $10,000 $10,000 $10,000
3/31/88 $10,425 $9,924 $10,335 $10,330 $10,330
6/30/88 $10,527 $10,020 $10,432 $10,427 $10,435
9/30/88 $10,687 $10,172 $10,603 $10,603 $10,599
12/31/88 $10,784 $10,265 $10,665 $10,703 $10,664
3/31/89 $10,798 $10,278 $10,749 $10,816 $10,760
6/30/89 $11,372 $10,824 $11,510 $11,686 $11,504
9/30/89 $11,443 $10,892 $11,586 $11,783 $11,591
12/31/89 $11,782 $11,215 $11,989 $12,226 $11,986
3/31/90 $11,493 $10,940 $11,839 $12,075 $11,856
6/30/90 $11,823 $11,254 $12,214 $12,497 $12,237
9/30/90 $11,891 $11,319 $12,285 $12,601 $12,305
12/31/90 $12,533 $11,930 $12,951 $13,293 $12,955
3/31/91 $12,733 $12,120 $13,231 $13,581 $13,223
6/30/91 $12,917 $12,295 $13,374 $13,764 $13,375
9/30/91 $13,624 $12,968 $14,137 $14,549 $14,137
12/31/91 $14,294 $13,606 $14,847 $15,329 $14,851
3/31/92 $13,989 $13,316 $14,581 $15,061 $14,567
6/30/92 $14,531 $13,832 $15,116 $15,657 $15,106
9/30/92 $15,125 $14,397 $15,709 $16,430 $15,739
12/31/92 $15,120 $14,392 $15,753 $16,437 $15,787
3/31/93 $15,556 $14,807 $16,312 $17,180 $16,420
6/30/93 $15,918 $15,152 $16,723 $17,676 $16,852
9/30/93 $16,301 $15,516 $17,118 $18,251 $17,315
12/31/93 $16,247 $15,465 $17,066 $18,189 $17,248
3/31/94 $15,913 $15,147 $16,532 $17,641 $16,693
6/30/94 $15,658 $14,904 $16,209 $17,440 $16,411
9/30/94 $15,699 $14,943 $16,231 $17,514 $16,426
12/31/94 $15,617 $14,866 $16,252 $17,575 $16,468
3/31/95 $16,185 $15,406 $16,984 $18,403 $17,231
6/30/95 $17,214 $16,385 $17,924 $19,544 $18,232
9/30/95 $17,479 $16,638 $18,241 $19,889 $18,563
12/31/95 $18,452 $17,564 $19,002 $20,798 $19,391
3/31/96 $17,809 $16,952 $18,551 $20,328 $18,871
6/30/96 $17,739 $16,886 $18,567 $20,426 $18,882
9/30/96 $17,964 $17,100 $18,860 $20,769 $19,170
12/31/96 $18,397 $17,512 $19,388 $21,376 $19,716
3/31/97 $18,217 $17,340 $19,228 $21,202 $19,520
6/30/97 $18,792 $17,887 $19,893 $21,938 $20,203
9/30/97 $19,262 $18,335 $20,512 $22,673 $20,855
12/31/97 $19,966 $19,005 $21,095 $23,426 $21,482
Although the payment of principal and interest with respect to certain
long-term securities held in Seligman U.S. Government Securities Series are
guaranteed by the US Government or its agencies, the rate of return will vary
and the principal value of an investment in the Fund will fluctuate. Shares, if
redeemed, may be worth more or less than their original cost. Past performance
is not indicative of future investment results.
4
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Performance Overview
INVESTMENT RESULTS PER SHARE
TOTAL RETURNS
For Periods Ended December 31, 1997
<TABLE>
<CAPTION>
AVERAGE ANNUAL
---------------------------------------------------------------
CLASS B CLASS D
SINCE SINCE
ONE FIVE 10 INCEPTION INCEPTION
SIX MONTHS* YEAR YEARS YEARS 1/1/97 9/21/93
----------- ------ ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A**
With Sales Charge 1.24% 3.44% 4.69% 6.63% n/a n/a
Without Sales Charge 6.25 8.53 5.72 7.16 n/a n/a
CLASS B**
With 5% CDSL 0.83 2.32 n/a n/a 2.32% n/a
Without CDSL 5.83 7.32 n/a n/a 7.32 n/a
CLASS D**
With 1% CDSL 4.83 6.53 n/a n/a n/a n/a
Without CDSL 5.83 7.53 n/a n/a n/a 3.88%
LIPPER AVERAGE+ 6.33 8.96 6.35 7.95 8.96 5.20++
LIPPER INDEX+ 6.05 8.81 6.02 7.75 8.81 5.05++
LEHMAN BOND INDEX+ 6.78 9.59 7.34 8.89 9.59 6.05++
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDEND AND YIELD INFORMATION
For the Year Ended December 31, 1997
DECEMBER 31, JUNE 30, DECEMBER 31,
1997 1997 1996 DIVIDENDS0 YIELD+++
------------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
CLASS A $6.88 $6.66 $6.71 CLASS A $0.3808 5.04%
CLASS B 6.89 6.67 6.73*** CLASS B 0.3291 4.52
CLASS D 6.89 6.67 6.73 CLASS D 0.3291 4.52
</TABLE>
WEIGHTED AVERAGE MATURITY 21.69 years
- ---------------
* Returns for periods of less than one year are not annualized.
** Return figures reflect any change in price per share and assume the
investment of dividends and capital gain distributions. Returns for Class A
shares are calculated with and without the effect of the initial 4.75%
maximum sales charge. Returns for Class B shares are calculated with and
without the effect of the maximum 5% contingent deferred sales load
("CDSL"), charged only on redemptions made within one year of the date of
purchase, declining to 1% in the sixth year and 0% thereafter. Returns for
Class D shares are calculated with and without the effect of the 1% CDSL,
charged only on redemptions made within one year of the date of purchase.
*** From January 1, 1997, inception date of Class B shares.
+ The Lipper Average, the Lipper Index, and the Lehman Bond Index are
unmanaged benchmarks that assume investment of dividends. The Lipper
Average and the Lipper Index exclude the effect of sales charges. The
Lehman Bond Index excludes the effect of fees and sales charges. The
monthly performances of the Lipper Average are used for the Performance
Overview. Investors cannot invest directly in an average or an index.
++ From September 30, 1993.
+++ Current yield, representing the annualized yield for the 30-day period
ended December 31, 1997, has been computed in accordance with SEC
regulations and will vary.
0 Represents per share amount paid or declared for the year ended December
31, 1997.
5
<PAGE>
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Portfolio of Investments
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
US GOVERNMENT SECURITIES 60.4%
US Treasury Bonds:
8 3/4%, due 5/15/2020....................................................... $ 6,000,000 $ 7,991,256
6 5/8%, due 2/15/2027....................................................... 15,000,000 16,284,390
US Treasury Notes:
6 1/4%, due 6/30/2002....................................................... 4,000,000 4,082,504
6 5/8%, due 5/15/2007....................................................... 8,000,000 8,472,504
-----------
TOTAL US GOVERNMENT SECURITIES (Cost $35,627,812).............................. 36,830,654
-----------
US GOVERNMENT AGENCY SECURITIES 36.2% (Cost $20,992,978)
Government National Mortgage Association Obligations,
Mortgage-backed Pass-through Certificates:
7 1/2%, with various maturities from 1/15/2023 to 4/15/2027*................ 21,478,908 22,053,688
-----------
REPURCHASE AGREEMENTS 6.0% (Cost $3,671,000)
HSBC Securities Inc., 5%, maturing 1/2/1998 collateralized by:
$2,856,000 US Treasury Notes 11 7/8%, due 11/15/2003, with a fair
market value of $3,757,681.................................................. 3,671,000 3,671,000
-----------
TOTAL INVESTMENTS 102.6% (Cost $60,291,790).......................................................... 62,555,342
OTHER ASSETS LESS LIABILITIES (2.6)%................................................................. (1,560,453)
-----------
NET ASSETS 100.0%.................................................................................... $60,994,889
===========
</TABLE>
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* Investments in mortgage-backed securities are subject to principal paydowns.
As a result of prepayments from refinancing or satisfaction of the underlying
mortgage instruments, the average life may be less than the original maturity.
This, in turn, may impact the ultimate yield realized from these securities.
See Notes to Financial Statements.
6
<PAGE>
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Statement of Assets and Liabilities
December 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value:
Long-term holdings (cost $56,620,790)............................................. $58,884,342
Short-term holdings (cost $3,671,000)............................................. 3,671,000 $62,555,342
-----------
Cash 30,049
Interest receivable................................................................................ 647,776
Receivable for shares of Beneficial Interest sold.................................................. 149,884
Expenses prepaid to shareholder service agent...................................................... 9,884
Other.............................................................................................. 19,821
-----------
Total Assets....................................................................................... 63,412,756
-----------
LIABILITIES:
Payable for shares of Beneficial Interest repurchased.............................................. 2,175,708
Dividends payable.................................................................................. 121,889
Accrued expenses, taxes, and other................................................................. 120,270
-----------
Total Liabilities.................................................................................. 2,417,867
-----------
Net Assets......................................................................................... $60,994,889
===========
COMPOSITION OF NET ASSETS:
Shares of Beneficial Interest, at par ($.001 par value; unlimited shares
authorized; 8,865,994 shares outstanding):
Class A.......................................................................................... $ 6,606
Class B.......................................................................................... 467
Class D.......................................................................................... 1,793
Additional paid-in capital......................................................................... 72,981,796
Accumulated net realized loss...................................................................... (14,259,325)
Net unrealized appreciation of investments......................................................... 2,263,552
-----------
Net Assets......................................................................................... $60,994,889
===========
NET ASSET VALUE PER SHARE:
Class A ($45,425,627 / 6,605,989 shares)........................................................... $6.88
=====
Class B ($3,219,604 / 467,356 shares).............................................................. $6.89
=====
Class D ($12,349,658 / 1,792,649 shares)........................................................... $6.89
=====
</TABLE>
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See Notes to Financial Statements.
7
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Statement of Operations
For the Year Ended December 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest......................................................................................... $3,758,646
EXPENSES:
Management fee.................................................................... $ 271,995
Distribution and service fees..................................................... 197,450
Shareholder account services...................................................... 117,897
Registration...................................................................... 83,220
Shareholder reports and communications............................................ 28,461
Custody and related services...................................................... 18,851
Auditing and legal fees........................................................... 9,561
Trustees' fees and expenses....................................................... 9,458
Miscellaneous..................................................................... 8,512
----------
Total Expenses................................................................................... 745,405
----------
Net Investment Income............................................................................ 3,013,241
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments.................................................. (611,943)
Net change in unrealized appreciation of investments.............................. 1,949,757
----------
Net Gain on Investments.......................................................................... 1,337,814
----------
Increase in Net Assets from Operations........................................................... $4,351,055
==========
</TABLE>
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See Notes to Financial Statements.
8
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Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income................................................................... $ 3,013,241 $3,451,825
Net realized loss on investments........................................................ (611,943) (531,212)
Net change in unrealized appreciation of investments.................................... 1,949,757 (3,266,304)
---------- ----------
Increase (Decrease) in Net Assets from Operations....................................... 4,351,055 (345,691)
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A.............................................................................. (2,522,929) (2,998,077)
Class B.............................................................................. (45,289) --
Class D.............................................................................. (445,023) (453,748)
---------- ----------
Decrease in Net Assets from Distributions .............................................. (3,013,241) (3,451,825)
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C> <C> <C>
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:*
Net proceeds from sale of shares:
Class A............................................ 829,234 781,071 5,624,748 5,275,155
Class B............................................ 182,897 -- 1,228,800 --
Class D............................................ 198,244 428,534 1,326,662 2,920,596
Investment of dividends:
Class A ........................................... 202,913 224,948 1,359,967 1,522,409
Class B............................................ 5,291 -- 35,836 --
Class D............................................ 42,659 48,704 286,730 329,724
Exchanged from associated Funds:
Class A............................................ 1,572,537 487,261 10,660,240 3,303,371
Class B ........................................... 574,598 -- 3,899,673 --
Class D ........................................... 1,591,469 585,467 10,742,800 3,947,861
--------- --------- ---------- ----------
Total................................................. 5,199,842 2,555,985 35,165,456 17,299,116
--------- --------- ---------- ----------
Cost of shares repurchased:
Class A ........................................... (1,364,274) (1,236,706) (9,183,343) (8,375,696)
Class B ........................................... (14,942) -- (101,411) --
Class D ........................................... (369,696) (333,282) (2,477,886) (2,247,483)
Exchanged into associated Funds:
Class A ........................................... (1,618,861) (972,823) (10,932,716) (6,587,848)
Class B ........................................... (280,488) -- (1,910,778) --
Class D ........................................... (1,050,159) (491,240) (7,074,255) (3,360,753)
--------- --------- ---------- ----------
Total ................................................ (4,698,420) (3,034,051) (31,680,389) (20,571,780)
--------- --------- ---------- ----------
Increase (Decrease) in Net Assets from
Transactions in Shares of Beneficial Interest ........ 501,422 (478,066) 3,485,067 (3,272,664)
========= ========== ---------- ----------
Increase (Decrease) in Net Assets ................................................... 4,822,881 (7,070,180)
NET ASSETS:
Beginning of year ................................................................... 56,172,008 63,242,188
----------- -----------
End of Year ......................................................................... $60,994,889 $56,172,008
=========== ===========
</TABLE>
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* The Fund began offering Class B shares on January 1, 1997.
See Notes to Financial Statements.
9
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Notes to Financial Statements
1. Multiple Classes of Shares -- Seligman U.S. Government Securities Series
(the "Fund"), a series of Seligman High Income Fund Series, offers three classes
of shares. All shares existing prior to September 21, 1993, the commencement of
Class D shares, were classified as Class A shares. The Fund began offering Class
B shares on January 1, 1997. Class A shares are sold with an initial sales
charge of up to 4.75% and a continuing service fee of up to 0.25% on an annual
basis. Class A shares purchased in an amount of $1,000,000 or more are sold
without an initial sales charge but are subject to a contingent deferred sales
load ("CDSL") of 1% on redemptions within 18 months of purchase. Class B shares
are sold without an initial sales charge but are subject to a distribution fee
of 0.75%, a service fee of up to 0.25% on an annual basis, and a CDSL, if
applicable, of 5% on redemptions in the first year of purchase, declining to 1%
in the sixth year and 0% thereafter. Class B shares will automatically convert
to Class A shares on the last day of the month that precedes the eighth
anniversary of their date of purchase. Class D shares are sold without an
initial sales charge but are subject to a distribution fee of up to 0.75% and a
service fee of up to 0.25% on an annual basis, and a CDSL, if applicable, of 1%
imposed on certain redemptions made within one year of purchase. The three
classes of shares represent interests in the same portfolio of investments, have
the same rights and are generally identical in all respects except that each
class bears its separate distribution and certain other class expenses, and has
exclusive voting rights with respect to any matter on which a separate vote of
any class is required.
2. Significant Accounting Policies -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Fund:
a. Security Valuation -- Investments in US Government and Government agency
securities are valued at current market values or, in their absence, at fair
values determined in accordance with procedures approved by the Trustees.
Securities traded on national exchanges are valued at last sales prices or,
in their absence and in the case of over-the-counter securities, at the mean
of bid and asked prices. Short-term holdings maturing in 60 days or less are
valued at amortized cost.
b. Federal Taxes -- There is no provision for federal income tax. The Fund has
elected to be taxed as a regulated investment company and intends to
distribute substantially all taxable net income and net gain realized.
c. Security Transactions and Related Investment Income -- Investment
transactions are recorded on trade dates. Identified cost of
investments sold is used for both financial statement and federal
income tax purposes. Dividends receivable and payable are recorded on
ex-dividend dates. Interest income is recorded on an accrual basis. The Fund
accretes original issue discounts and market discounts on purchases of
portfolio securities.
d. Repurchase Agreements -- The Fund may enter into repurchase agreements with
commerical banks and with broker/dealers deemed to be creditworthy by J. &
W. Seligman & Co. Incorporated (the "Manager"). Securities received as
collateral subject to repurchase agreements are deposited with the Fund's
custodian and, pursuant to the terms of the repurchase agreement, must have
an aggregate market value greater than or equal to the repurchase price plus
accrued interest, at all times. Procedures have been established to monitor,
on a daily basis, the market value of repurchase agreements' underlying
securities to ensure the existence of the proper level of collateral.
e. Multiple Class Allocations -- All income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses are
allocated daily to each class of shares based upon the relative value of
shares of each class. Class-specific expenses, which include distribution
and service fees and any other items that are specifically attributable to a
particular class, are charged directly to such class. For the year ended
December 31, 1997, distribution and service fees were the only
class-specific expenses.
10
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Notes to Financial Statements
f. Distributions to Shareholders -- Dividends are declared daily and paid
monthly. Other distributions paid by the Fund 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 reclassification will have no
effect on net assets, results of operations, or net asset value per share of
the Fund.
3. Purchases and Sales of Securities -- Purchases and sales of US Government
obligations, excluding short-term investments, for the year ended December 31,
1997, amounted to $99,697,220 and $95,957,706, respectively.
At December 31, 1997, the cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes, and the tax basis gross unrealized appreciation of portfolio
securities amounted to $2,263,552.
4. Management Fee, Administrative Services, and Other Transactions -- The
Manager manages the affairs of the Fund and provides the necessary personnel
and facilities. Compensation of all officers of the Fund, all trustees of
the Fund who are employees or consultants of the Manager, and all personnel
of the Fund and the Manager is paid by the Manager. The Manager receives a
fee, calculated daily and payable monthly, equal to 0.50% per annum of
the Fund's average daily net assets.
Seligman Financial Services, Inc. (the "Distributor"), agent for the
distribution of the Fund's shares, and an affiliate of the Manager, received
concessions of $4,683 from sales of Class A shares after commissions of
$36,460 were paid to dealers.
The Fund has an Administration, Shareholder Services and Distribution
Plan (the "Plan") with respect to distribution of its shares. Under the Plan,
with respect to Class A shares, service organizations can enter into agreements
with the Distributor and receive a continuing fee of up to 0.25% on an annual
basis, payable quarterly, of the average daily net assets of the Class A shares
attributable to the particular service organizations for providing personal
services and/or the maintenance of shareholder accounts. The Distributor charges
such fees to the Fund pursuant to the Plan. For the year ended December 31,
1997, fees incurred aggregated $97,552, or 0.22% per annum of the average daily
net assets of Class A shares.
Under the Plan, with respect to Class B and Class D shares, service
organizations can enter into agreements with the Distributor and receive a
continuing fee for providing personal services and/or the maintenance of share
holder accounts of up to 0.25% on an annual basis of the average daily net
assets of the Class B and Class D shares for which the organizations are
responsible; and, for Class D shares only, fees for providing other distribution
assistance of up to 0.75% on an annual basis of such average daily net assets.
Such fees are paid monthly by the Fund to the Distributor pursuant to the Plan.
With respect to Class B shares, a distribution fee of 0.75% on an annual
basis of average daily net assets is payable monthly by the Fund to the
Distributor; however, the Distributor has sold its rights to substantially all
of this fee to a third party (the "Purchaser"), which provides funding to the
Distributor to enable it to pay commissions to dealers at the time of the sale
of the related Class B shares.
For the year ended December 31, 1997, fees incurred under the Plan,
equivalent to 1% per annum of the average daily net assets of Class B and Class
D shares, amounted to $9,412 and $90,486, respectively.
11
<PAGE>
- ------------------------------------------------------------------------------
Notes to Financial Statements
The Distributor is entitled to retain any CDSL imposed on redemptions of
Class D shares occurring within one year of purchase and on certain
redemptions of Class A shares occurring within 18 months of purchase. For the
year ended December 31, 1997, such charges amounted to $3,312.
The Distributor has sold its rights to collect any CDSL imposed on
redemptions of Class B shares to the Purchaser. In connection with the sale of
its rights to collect any CDSL and the distribution fees with respect to Class B
shares described above, the Distributor receives payments from the Purchaser
based on the value of Class Bshares sold. The aggregate amount of such payments
and the Class B shares distribution fees retained by the Distributor for the
year ended December 31, 1997, amounted to $2,003.
Seligman Services, Inc., an affiliate of the Manager, is eligible to receive
commissions from certain sales of shares of beneficial interest of the Fund, as
well as distribution and service fees pursuant to the Plan. For the year ended
December 31, 1997, Seligman Services, Inc. received commissions of $954 from the
sales of Fund shares. Seligman Services, Inc. also received distribution and
service fees of $13,630, pursuant to the Plan.
Seligman Data Corp., which is owned by certain associated investment
companies, charged the Fund at cost $117,897 for shareholder account services.
Certain officers and trustees of the Fund are officers or directors of the
Manager, the Distributor, Seligman Services, Inc., and/or Seligman Data Corp.
The Fund has a compensation arrangement under which trustees who receive
fees may elect to defer receiving such fees. Interest is accrued on the deferred
balances. The annual cost of such fees and interest is included in trustees'
fees and expenses and the accumulated balance thereof at December 31, 1997,
of $42,280 is included in other liabilities. Deferred fees and the related
accrued interest are not deductible for federal income tax purposes until such
amounts are paid.
5. Loss Carryforward -- At December 31, 1997, the Fund had a net loss
carryforward for federal income tax purposes of $14,118,544, which is available
for offset against future taxable net capital gains, expiring in various amounts
through 2005. Accordingly, no capital gain distributions are expected to be paid
to shareholders until net capital gains have been realized in excess of the
available capital loss carryforwards.
12
<PAGE>
- ------------------------------------------------------------------------------
Financial Highlights
The Fund's financial highlights are presented below. "Per share operating
performance" data is designed to allow investors to trace the operating
performance of each Class, on a per share basis, from the beginning net asset
value to the ending net asset value, so that investors can understand what
effect the individual items have on their investment, assuming it was held
throughout the period. Generally, per share amounts are derived by converting
the actual dollar amounts incurred for each item, as disclosed in the financial
statements, to their equivalent per share amounts, using average shares
outstanding.
"Total return based on net asset value" measures each Class's performance
assuming that investors purchased Fund shares at net asset value as of the
beginning of the period, invested dividends and capital gains paid at net asset
value, and then sold their shares at the net asset value on the last day of the
period. The total return computations do not reflect any sales charges investors
may incur in purchasing or selling shares of the Fund. Total returns for periods
of less than one year are not annualized.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Year $6.71 $7.15 $6.47 $7.18 $7.19
----- ----- ----- ----- -----
Net investment income ............................... .38 .41 .46 .44 .53
Net realized and unrealized investment gain (loss)... .17 (.44) .68 (.71) (.01)
----- ----- ----- ----- -----
Increase (Decrease) from Investment
Operations........................................... .55 (.03) 1.14 (.27) .52
Dividends paid or declared........................... (.38) (.41) (.46) (.44) (.53)
----- ----- ----- ----- -----
Net Increase (Decrease) in Net Asset Value........... .17 (.44) .68 (.71) (.01)
----- ----- ----- ----- -----
Net Asset Value, End of Year ........................ $6.88 $6.71 $7.15 $6.47 $7.18
===== ===== ===== ===== =====
TOTAL RETURN BASED ON NET
ASSET VALUE: 8.53% (0.29)% 18.15% (3.88)% 7.46%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets ...................... 1.23% 1.14% 1.14% 1.10% 1.11%
Net investment income to average net assets ......... 5.68% 6.05% 6.71% 6.49% 7.22%
Portfolio turnover .................................. 193.90% 175.25% 213.06% 445.18% 170.35%
Net Assets, End of Year (000s omitted)............... $45,426 $46,889 $55,061 $54,714 $69,805
</TABLE>
- --------------
See footnotes on page 14.
13
<PAGE>
- ------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
CLASS B CLASS D
-------- -------------------------------------
1/1/97* YEAR ENDED DECEMBER 31, 9/21/93*
TO -------------------------------------- TO
12/31/97 1997 1996 1995 1994 12/31/93
----- ----- ----- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Year................. $6.73 $6.73 $7.16 $6.48 $7.20 $7.33
----- ----- ----- ----- ----- -----
Net investment income ............................. .33 .33 .36 .40 .37 .09
Net realized and unrealized investment gain (loss) .16 .16 (.43) .68 (.72) (.13)
----- ----- ----- ----- ----- -----
Increase (Decrease) from Investment
Operations ........................................ .49 .49 (.07) 1.08 (.35) (.04)
Dividends paid or declared ........................ (.33) (.33) (.36) (.40) (.37) (.09)
----- ----- ----- ----- ----- -----
Net Increase (Decrease) in Net Asset Value ........ .16 .16 (.43) .68 (.72) (.13)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Year ...................... $6.89 $6.89 $6.73 $7.16 $6.48 $7.20
===== ===== ===== ===== ===== =====
TOTAL RETURN BASED ON NET
ASSET VALUE: 7.32% 7.53% (0.92)% 17.10% (5.05)% (0.65)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets .................... 2.01% 2.01% 1.92% 2.01% 2.22% 2.09%+
Net investment income to average net assets ...... 4.90% 4.90% 5.27% 5.84% 5.40% 5.28%+
Portfolio turnover ................................ 193.90% 193.90% 175.25% 213.06% 445.18% 170.35%++
Net Assets, End of Year (000s omitted) ............ $3,219 $12,350 $9,283 $8,181 $6,062 $2,317
</TABLE>
- --------------
* Commencement of offering of shares.
+ Annualized.
++ For the year ended December 31, 1993.
See Notes to Financial Statements.
14
<PAGE>
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Report of Independent Auditors
The Trustees and Shareholders,
Seligman U.S. Government Securities Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Seligman U.S. Government Securities
Series as of December 31, 1997, the related statements of operations for the
year then ended and of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the Fund's custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Seligman U.S.
Government Securities Series as of December 31, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
January 30, 1998
15
<PAGE>
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Trustees
John R. Galvin 2
Dean, Fletcher School of Law and Diplomacy
at Tufts University
Director, Raytheon Company
Director, USLIFE Corporation
Alice S. Ilchman 3
President, Sarah Lawrence College
Trustee, Committee for Economic Development
Chairman, The Rockefeller Foundation
Frank A. McPherson 2
Director, Kimberly-Clark Corporation
Director, Baptist Medical Center
John E. Merow
Retired Chairman and Senior Partner,
Sullivan & Cromwell, Law Firm
Director, Commonwealth Industries, Inc.
Betsy S. Michel 2
Trustee, Geraldine R. Dodge Foundation
Chairman of the Board of Trustees, St. George's School
William C. Morris 1
Chairman
Chairman of the Board, J. & W. Seligman & Co.
Incorporated
Chairman, Carbo Ceramics Inc.
Director, Kerr-McGee Corporation
James C. Pitney 3
Retired Partner, Pitney, Hardin, Kipp & Szuch,
Law Firm
James Q. Riordan 3
Director, The Brooklyn Union Gas Company
Trustee, Committee for Economic Development
Director, Dow Jones & Co., Inc.
Director, Public Broadcasting Service
Richard R. Schmaltz 1
Managing Director, J. & W. Seligman & Co. Incorporated
Trustee Emeritus, Colby College
Robert L. Shafer 3
Retired Vice President, Pfizer Inc.
Director, USLIFE Corporation
James N. Whitson 2
Executive Vice President and Director,
Sammons Enterprises, Inc.
Director, C-SPAN
Director, CommScope, Inc.
Brian T. Zino 1
President
President, J. & W. Seligman & Co. Incorporated
Chairman, Seligman Data Corp.
Trustee Emeritus
Fred E. Brown
Director and Consultant, J. & W. Seligman & Co.
Incorporated
- ----------------
Member: 1 Executive Committee
2 Audit Committee
3 Trustee Nominating Committee
16
<PAGE>
- ------------------------------------------------------------------------------
Executive Officers
William C. Morris
Chairman
Brian T. Zino
President
Leonard J. Lovito
Vice President
Lawrence P. Vogel
Vice President
Thomas G. Rose
Treasurer
Frank J. Nasta
Secretary
FOR MORE INFORMATION
Manager
J. & W. Seligman & Co. Incorporated
100 Park Avenue
New York, NY 10017
General Counsel
Sullivan & Cromwell
Independent Auditors
Deloitte & Touche LLP
General Distributor
Seligman Financial Services, Inc.
100 Park Avenue
New York, NY 10017
Shareholder Service Agent
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
Important Telephone Numbers
(800) 221-2450 Shareholder Services
(800) 445-1777 Retirement Plan Services
(212) 682-7600 Outside the Continental United States
(800) 622-4597 24-Hour Automated Telephone Access Service
17
<PAGE>
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Glossary of Financial Terms
CAPITAL GAIN DISTRIBUTION -- A payment to mutual fund shareholders of
profits realized on the sale of securities in the fund's portfolio. For tax
purposes, these profits may be taxed at different rates, primarily depending
upon the length of time the securities were owned by the fund.
CAPITAL APPRECIATION/DEPRECIATION -- An increase or decrease in the market
value of a mutual fund's portfolio securities, which is reflected in the net
asset value of the fund's shares. Capital appreciation/depreciation of an
individual security is in relation to the original purchase price.
COMPOUNDING -- The increase in the value of an investment as shareholders
receive earnings on their investment's earnings. For example, if $1,000 is
invested at a fixed rate of 7% a year, the initial investment is worth $1,070
after one year. If the return is compounded, second year earnings will not be
based on the original $1,000, but on the $1,070, which includes the first year's
earnings.
CONTINGENT DEFERRED SALES LOAD (CDSL) -- Depending on the class of shares
owned, a fee charged by a mutual fund when shares are sold back to the fund (the
CDSL expires after a fixed time period).
DIVIDEND -- A payment by a mutual fund, usually derived from the fund's net
investment income (dividends and interest less expenses).
DIVIDEND YIELD -- A measurement of a fund's dividend as a percentage of the
maximum offering price.
EXPENSE RATIO -- The cost of doing business for a mutual fund, expressed as
a percent of the fund's net assets.
INVESTMENT OBJECTIVE -- The shared investment goal of a fund and its
shareholders.
MANAGEMENT FEE -- The amount paid by a mutual fund to its investment
advisor(s).
MULTIPLE CLASSES OF SHARES -- Although an individual mutual fund invests in
only one portfolio of securities, it may offer investors several purchase
options which are "classes" of shares. Multiple classes permit shareholders to
choose the fee structure that best meets their needs and goals. Generally, each
class will differ in terms of how and when sales charges and certain fees are
assessed.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (NASD) -- A
self-regulatory body with authority over firms that distribute mutual funds.
NET ASSET VALUE (NAV) PER SHARE -- The market worth of one fund share,
obtained by adding a mutual fund's total assets (securities, cash, and any
accrued earnings), subtracting liabilities, and dividing the resulting net
assets by the number of shares outstanding.
OFFERING PRICE (OP) -- The price at which a mutual fund's share can be
purchased. The offering price is the current net asset value per share 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, such as the fund's investment objective and policies,
services, investment restrictions, officers and directors, how shares are bought
and redeemed, fund fees and other charges, and the fund's financial statements.
SEC YIELD -- SEC Yield refers to the net income earned by a fund during a
recent 30-day period. This income is annualized and then divided by the maximum
offering price per share on the last day of the 30-day period. The SEC Yield
formula reflects semiannual compounding.
SECURITIES AND EXCHANGE COMMISSION -- The primary US federal agency that
regulates the registration and distribution of mutual fund shares.
STATEMENT OF ADDITIONAL INFORMATION -- Document that contains updated or
more detailed information about a mutual fund and supplements the prospectus. It
is available at no charge upon request.
TOTAL RETURN -- A measure of fund 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 maximum offering price of the stock.
- --------------
Adapted from the Investment Company Institute's 1997 Mutual Fund Fact Book.
18
<PAGE>
SELIGMAN FINANCIAL SERVICES, INC.
an affiliate of
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
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 U.S. Government Securities Series, which contains information about
the sales charges, management fee, and other costs. Please read the prospectus
carefully before investing or sending money.
TXUSG2 12/97
