EX-99.17.K 20 e75311mod.txt Exhibit 17(k) Seligman Municipal Funds ------------------------------------------------------------------------------- Seligman Municipal Series Trust - California High-Yield Fund - California Quality Fund - Florida Fund - North Carolina Fund Seligman New Jersey Municipal Fund, Inc. Seligman Pennsylvania Municipal Fund Series Annual Report September 30, 2008 Seeking Income Exempt From Regular Income Tax (J. & W. SELIGMAN LOGO) (SELIGMAN LOGO) EXPERIENCE Seligman has been in business for more than 140 years, at times playing a central role in the financial development of the country and its markets. Over that time, the firm has managed clients' wealth through dramatic market changes and has remained a consistent, reliable presence on Wall Street. Today, Seligman is drawing on its long history and long-term perspective as we focus on the future and on developing investment solutions that help clients arrive at their goals. INSIGHT Asset management is driven by insight -- into the direction of the economy, how companies will perform, how markets will behave, and how investors will respond. Portfolio managers at the firm have been in the investment business, on average, for more than 20 years. Over that time, they have refined their ability to assess a company's prospects, management, and products, while also weighing the impact of economic and market cycles, new trends, and developing technologies. SOLUTIONS Seligman's commitment to the development of innovative investment products -- including the nation's first growth mutual fund, pioneering single- state municipal funds, and one of the country's premier technology funds -- defines our past and informs our future. Our ongoing research into the nature of investment risk -- begun in the early 1990s -- has resulted in the Seligman Time Horizon Matrix(R) asset allocation strategy that redefines the relationship between risk and reward over time. The strategy offers investors a variety of investment solutions for goals ranging from college savings to retirement planning. Whether you select Seligman for one investment product, or as a comprehensive asset manager, we believe we can help you reach your goals. TABLE OF CONTENTS To The Shareholders............ 1 Interview With Your Portfolio Managers............. 2 Performance and Portfolio Overview............. 4 Understanding and Comparing Your Fund's Expenses........... 12 Portfolios of Investments...... 14 Statements of Assets and Liabilities................ 20 Statements of Operations....... 21 Statements of Changes in Net Assets.......... 22 Notes to Financial Statements..................... 25 Financial Highlights........... 36 Report of Independent Registered Public Accounting Firm......... 46 Proxy Results.................. 47 Matters Relating to the Directors'/Trustees' Consideration of the Approval of the Investment Management Services Agreements..................... 48 Directors/Trustees and Officers....................... 53 Additional Fund Information.... 55
To the Shareholders The annual shareholder report for Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., and Seligman Pennsylvania Municipal Fund Series follows this letter. The report contains a discussion with your Portfolio Managers, as well as each Fund's investment results, financial statements, and portfolio of investments on September 30, 2008. Shareholders voted in favor of approving a new investment management services agreement between the Funds and RiverSource Investments, LLC at Special Meetings of Shareholders held on November 3, 2008. Shareholders also voted 10 directors/trustees to the Funds' Boards at the Special Meetings. Details of the proxy vote can be found on page 47 of this report. On November 7, 2008, the acquisition of the Funds' investment manager, J. & W. Seligman & Co. Incorporated, by RiverSource Investments, a subsidiary of Ameriprise Financial (NYSE: AMP), will be completed. Thomas Moles and Eileen Comerford will continue to serve as the Funds' portfolio managers. We believe the acquisition of J. & W. Seligman & Co. Incorporated by RiverSource Investments will create a stronger combined investment management business having greater resources, which should no doubt be in the best interest of shareholders. In conjunction with the acquisition of Seligman, Stephen Lewis will be the Chairman of the Funds and Patrick Bannigan will assume the position of President. We thank you for your continued support of Seligman Municipal Funds, and for the opportunity to have served as members of the Funds' Boards. Respectfully, LOGO LOGO William C. Morris Brian T. Zino Chairman President
November 6, 2008 -------------------------------------------------------------------------------- MANAGER Until November 6, 2008 J. & W. Seligman & Co. Incorporated 100 Park Avenue New York, NY 10017 From November 7, 2008 RiverSource Investments, LLC 200 Ameriprise Financial Center Minneapolis, MN 55474 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 Mail Inquiries To: P.O. Box 9759 Providence, RI 02940-9759 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP IMPORTANT TELEPHONE NUMBERS (800) 221-2450 Shareholder Services (800) 445-1777 Retirement Plan Services (212) 682-7600 Outside the United States (800) 622-4597 24-Hour Automated Telephone Access Service 1 Interview With Your Portfolio Managers Thomas G. Moles and Eileen A. Comerford Q. How did the Funds perform for the fiscal year ended September 30, 2008? A. For the fiscal year ended September 30, 2008, based in the net asset value of Class A shares, Seligman California High-Yield Fund returned -1.5%, California Quality Fund returned -2.3%, Florida Fund returned -2.3%, North Carolina Fund returned -0.2%, New Jersey Fund returned -2.2%, and Pennsylvania Fund returned -0.9%. The Lehman Brothers Municipal Bond Index returned -1.9% for the same period. Q. What market conditions and economic events materially impacted the performance of the Funds in Seligman Municipal Fund Series during the fiscal year ended September 30, 2008? A. This past fiscal year has been one of the most remarkable periods in the 25- year history of the Seligman Municipal Funds. The credit crisis, which began with sharp credit rating downgrades of securities backed by sub-prime mortgages during the third quarter of 2007, continues to challenge individual investors and investment professionals alike. In the early months of the fiscal year, the municipal market was largely unaffected by the credit crisis. It wasn't until January 2008, when Financial Guarantee Insurance Company (FGIC) -- one of the top four municipal bond insurers -- lost its coveted triple-A rating, that the municipal market began to experience the extraordinary volatility and dislocation that was occurring in most other sectors of the financial market. FGIC provides credit enhancement on public finance, structured finance, and global infrastructure and utility securities. FGIC typically guarantees the scheduled payments of principal and interest on an issuer's obligation. The municipal market had hardly begun to deal with the negative implications of the FGIC downgrade when it was forced to deal with the collapse of the auction rate securities (ARS) market. Investors, concerned about liquidity, were increasingly avoiding any money market product that lacked a liquidity back-stop -- an assurance the vehicles' obligations will be repaid when they are tendered even if they cannot be resold -- including ARS. Remarketing agents were reluctant, due to their own capital constraints, to provide the degree of support needed to prevent auction failures. By June, municipal bond insurers MBIA and Ambac lost their triple-A ratings due to their exposure to mortgage-backed securities. The sudden loss of high- quality investments made it extremely difficult for money market funds, which are prohibited from purchasing securities rated less than double-A, to locate a sufficient supply of securities to meet their needs. This led to a spike in yields on money market securities rated single-A and below. The continuing deterioration in the housing market led to a high degree of anxiety about the financial health of government sponsored mortgage corporations Fannie Mae (Federal National Mortgage Association, or FNMA) and Freddie Mac (Federal Home Loan Mortgage Corp., or FHLMC). The fear of a complete collapse of the financial markets prompted the US government to place these government sponsored entities into conservatorship and to provide a guarantee to holders of FNMA and FHLMC debt. The lack of an explicit US government guarantee, however, remains a source of concern. As the third quarter of 2008 progressed, conditions continued to deteriorate as the rapidly decelerating economy thwarted stock market performance. State and local finances were weakening, prompting further risk aversion in the market. The stunning collapse of Lehman Brothers in mid-September created severe repercussions across all financial markets, including the municipal sector. The value of the Reserve Primary Fund fell below its constant $1.00 share price, "breaking the buck." This led to a run on the fund and ignited a run on other funds as well, including tax-exempt money market funds. The government eased the panic by agreeing to guarantee money market deposits. An imbalance in the supply and demand of longer-term municipal bonds developed, sending prices down and yields to a six-year high. Leveraged positions were forced to unwind, placing further pressure on bond prices. The resulting decline in the net asset value of many municipal bond funds led to shareholder redemptions, which necessitated additional selling by the funds. Throughout the past year, the Federal Reserve and US Treasury have been creating a series of new facilities aimed at easing the liquidity crisis and encouraging lending. These programs have had varying degrees of success, but the ultimate goal of restoring investor confidence has, to date, eluded them. Q. What investment strategies or techniques materially impacted the Funds' performance during the period? A. During 2007, long-term municipal yields fell to a 40-year low, the slope of the municipal yield curve (the difference between 1-year and 30-year yields) narrowed to its lowest level on record, and credit quality yield spreads were near the tightest in history. We were concerned that these municipal market trends could not be sustained and positioned the Funds' portfolios for their reversal. By the end of the reporting period, long-term yields had risen to the highest level since 2002, the yield differential between high-quality and lower-quality bonds had increased dramatically, and the municipal yield curve slope had steepened to the widest level since 2004. 2 Interview With Your Portfolio Managers Thomas G. Moles and Eileen A. Comerford To protect the Funds from an anticipated increase in interest rates and to ensure sufficient liquidity in the event of redemptions, we set a higher target level for cash balances. Further, we elected to maintain an overweight in pre-refunded and escrowed-to- maturity bonds. At fiscal year-end, refunded bonds comprised 30% of total net assets in the Funds, although percentages varied among individual portfolios. Over the years, a significant percentage of fund holdings has been refunded. As interest rate conditions permit, state and local governments issue new bonds at lower yields and use the proceeds to replace outstanding, higher cost debt. All but a few of the Funds' refunded bonds are escrowed with direct US government securities, making them safe and highly liquid investments. For the 12-months ended September 30, 2008, the prerefunded bond sector was the best performing sector of the Lehman Brothers Municipal Bond Index with a return of 4.1%. With the exception of California Quality Fund, refunded bonds represented the largest sector in the Funds' portfolios. In a rising interest rate environment, longer-maturity bonds are more sensitive to yield changes than shorter-maturity bonds. Given our expectation that interest rates would trend higher, we concentrated new purchases in the intermediate maturity sector (10 to 20 year maturities), which is considerably shorter than in years past. For the year ended September 30, 2008, the best performing maturity sector was the short-end of the yield curve and the worst performing sector was for maturities of 22 years and longer. Our avoidance of the longest maturity bonds contributed to our competitive investment returns; however, the Funds would have had stronger results had a greater percentage of holdings been invested in the 1- to 10-year range. Premium coupon bonds (i.e., bonds trading above par) are inherently more defensive than discount coupon bonds (i.e., bonds trading below par). Therefore, with few exceptions, premium coupon bonds were favored. The premium bond sector of the Index returned 1.4%, substantially outperforming the discount bond sector, which suffered a decline of 11.1%, and the current coupon sector, which fell 5.4%. While our preference was for bonds with coupons of 5.25% to 5.75%, the supply of bonds with these characteristics was limited over the past year. The recent spike in long-term interest rates has, however, resulted in an increase in the issuance of bonds within this coupon range. The credit crisis has had a significant impact on credit quality yield spreads. For many years now, steadily declining interest rates led investors to seek lower quality bonds, given their relatively higher yields. Eventually, the increased demand for the sector, as well as strong credit trends, caused the yield spread between higher-quality and lower-quality to narrow to historical lows. Since the credit turmoil began, investors have become more quality-conscious, which has contributed to a dramatic widening of credit spreads, particularly within the high-yield sector. Another reason for the increase in quality yield spread has been the downgrades of the municipal monoline insurers. During the first half of 2008, three of the top four insurers lost their triple-A rating. The fourth, Financial Security Assurance, was downgraded after the close of the reporting period. High quality bonds are now in short supply and are trading at a premium. The non-investment grade sector was down 10.0% for the fiscal year while the insured bond sector fell 3.3%. The Seligman Municipal Funds are permitted to purchase only investment-grade bonds (i.e., rated within the four highest rating categories). We have always viewed insurance as an enhancement and will not purchase a bond unless we approve the underlying credit. Therefore, while we were disappointed with the monoline insurer downgrades, we were not compelled to sell any bonds as a result. In keeping with our emphasis on quality, we do not participate in sectors of the market that historically have been more prone to credit deterioration, such as tobacco bonds, airline debt, automotive industry bonds, nursing homes, convention centers, and stadium facilities. The pollution control/industrial development bond sector fell 10.6%, underperforming all other sectors of the Lehman Brothers Municipal Bond Index. Seligman Florida, California High-Yield, and California Quality Municipal Funds have no exposure to these bonds. Seligman New Jersey, North Carolina, and Pennsylvania Municipal Funds have modest (less than 10% of total net assets) positions in the pollution control/industrial development bond sector and investment returns would likely have been slightly higher absent these holdings. It also bears noting that the Funds are not permitted to hold derivative investments. Derivative losses have contributed to lagging performance for many of the Funds' competitors over the past year. -------- The views and opinions expressed are those of the Portfolio Managers, are provided for general information only, and do not constitute specific tax, legal, or investment advice to, or recommendation for, any person. There can be no guarantee as to the accuracy of market forecasts. Opinions, estimates, and forecasts may be changed without notice. 3 Performance and Portfolio Overview This section of the report is intended to help you understand the performance of each of the four Funds of Seligman Municipal Series Trust (which consists of the California High-Yield Fund, California Quality Fund, Florida Fund, and North Carolina Fund), Seligman New Jersey Municipal Fund, Inc. (the "New Jersey Fund") and Seligman Pennsylvania Municipal Fund Series (the "Pennsylvania Fund") and to provide a summary of the portfolio characteristics of each Fund. Performance data quoted in this report represents past performance and does not guarantee or indicate future investment results. The rates of return will vary and the principal value of an investment will fluctuate. Shares, if redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Total returns of each of the Funds as of the most recent month end will be available at WWW.SELIGMAN.COM(1) by the seventh business day following that month end. Calculations assume reinvestment of distributions. Performance data quoted does not reflect the deduction of taxes that an investor may pay on distributions or the redemption of shares. A portion of each Fund's income may be subject to applicable state and local taxes, and any amount may be subject to the federal alternative minimum tax. Capital gain distributions are subject to federal, state and local taxes. J. & W. Seligman & Co. Incorporated (the "Manager"), at its discretion, waived a portion of its management fees for the California High-Yield and Florida Funds. Such waivers may be discontinued at any time. Absent such waivers, returns and yields for those Funds would have been lower. Returns for Class A shares are calculated with and without the effect of the initial 4.5% maximum sales charge that became effective on January 7, 2008. Although for all periods presented, returns for the Funds' Class A shares reflect the 4.5% maximum sales charge, the actual returns for periods prior to January 7, 2008 would have been lower if the 4.75% maximum sales charge then in effect was incurred. Returns for Class C shares are calculated with and without the effect of the 1% contingent deferred sales charge ("CDSC"), charged on redemptions made within one year of purchase. Returns for Class C shares would have been lower for periods prior to June 4, 2007 if the 1% initial sales charge then in effect was incurred. On May 16, 2008, Class D shares of the Funds were converted to Class C shares at their respective net asset values. Effective at the close of business on May 16, 2008, Class D shares are no longer offered by the Funds. The chart for each Fund compares a $10,000 hypothetical investment made in Class A shares, with and without the initial 4.5% maximum sales charge, to a $10,000 investment made in the Lehman Brothers Municipal Bond Index (the "Lehman Index") for the ten-year period ended September 30, 2008. The performance of Class C shares of each Fund, which commenced on a later date, and of Class A shares for other periods, with and without applicable sales charges and CDSCs, is not shown in the charts but is included in the total returns table below each chart. The performance of Class C shares will differ from the performance shown for Class A shares, based on the differences in sales charges and expenses paid by shareholders. The Lehman Index does not reflect any taxes, fees, sales charges or expenses, and does not reflect state-specific bond market performance. An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. ---------- (1) The website reference is an inactive textual reference and information contained in or otherwise accessible through the website does not form a part of this report or the Funds' prospectus or the statements of additional information. 4 Performance and Portfolio Overview CALIFORNIA HIGH-YIELD FUND (CHART) Investment Results TOTAL RETURNS For Periods Ended September 30, 2008 --------------------------------------------------------------------------------
AVERAGE ANNUAL ------------------------------------------------------ CLASS C SIX ONE FIVE TEN SINCE INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 -------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------------------------------------------- With Sales Charge (6.56)% (5.96)% 2.18% 3.37% n/a -------------------------------------------------------------------------------------------------------------- Without Sales Charge (2.21) (1.51) 3.12 3.85 n/a -------------------------------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------------------------------- With 1% CDSC (3.76) (3.48) n/a n/a n/a -------------------------------------------------------------------------------------------------------------- Without CDSC (2.81) (2.54) 2.17 n/a 3.11% -------------------------------------------------------------------------------------------------------------- BENCHMARKS** -------------------------------------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42# -------------------------------------------------------------------------------------------------------------- Lipper California Municipal Debt Funds Average (4.49) (6.54) 2.03 3.15 3.26 --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
-------------------------------------------------------------- 9/30/08 3/31/08 9/30/07 -------------------------------------------------------------- CLASS A $6.18 $6.45 $6.55 -------------------------------------------------------------- CLASS C 6.18 6.46 6.56 --------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o) ------------------------------------------------ Revenue Bonds 71% ------------------------------------------------ Pre-refunded/Escrowed-to- Maturity Bonds 29 ------------------------------------------------ WEIGHTED AVERAGE MATURITY(3) 17.9 years ------------------------------------------------ OPTION-ADJUSTED DURATION(3) 8.1 years ------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION For Periods Ended September 30, 2008
----------------------------------------------------------------------- DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++ ----------------------------------------------------------------------- CLASS A $0.265 $0.014 3.53% ----------------------------------------------------------------------- CLASS C 0.207 0.014 2.76 -----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o) ---------------------------------------------------- AAA 19% ---------------------------------------------------- AA 19 ---------------------------------------------------- A 46 ---------------------------------------------------- BBB 6 ---------------------------------------------------- Non-rated 10 ----------------------------------------------------
---------- See footnotes on page 11. 5 Performance and Portfolio Overview CALIFORNIA QUALITY FUND (CHART) Investment Results TOTAL RETURNS For Periods Ended September 30, 2008 --------------------------------------------------------------------------------
AVERAGE ANNUAL ------------------------------------------------------ CLASS C SIX ONE FIVE TEN SINCE INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 -------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------------------------------------------- With Sales Charge (7.18)% (6.66)% 1.35% 2.98% n/a -------------------------------------------------------------------------------------------------------------- Without Sales Charge (2.85) (2.26) 2.27 3.46 n/a -------------------------------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------------------------------- With 1% CDSC (4.40) (4.08) n/a n/a n/a -------------------------------------------------------------------------------------------------------------- Without CDSC (3.45) (3.15) 1.37 n/a 2.78% -------------------------------------------------------------------------------------------------------------- BENCHMARKS** -------------------------------------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42# -------------------------------------------------------------------------------------------------------------- Lipper California Municipal Debt Funds Average (4.49) (6.54) 2.03 3.15 3.26 --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
-------------------------------------------------------------- 9/30/08 3/31/08 9/30/07 -------------------------------------------------------------- CLASS A $6.13 $6.43 $6.57 -------------------------------------------------------------- CLASS C 6.10 6.41 6.54 --------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o) ------------------------------------------------ Revenue Bonds 77% ------------------------------------------------ Pre-refunded/Escrowed-to- Maturity Bonds 16 ------------------------------------------------ General Obligation Bonds 7 ------------------------------------------------ WEIGHTED AVERAGE MATURITY(3) 15.8 years ------------------------------------------------ OPTION-ADJUSTED DURATION(3) 8.7 years ------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION For Periods Ended September 30, 2008
----------------------------------------------------------------------- DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++ ----------------------------------------------------------------------- CLASS A $0.249 $0.053 3.53% ----------------------------------------------------------------------- CLASS C 0.191 0.053 2.76 -----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o) ---------------------------------------------------- AAA 30% ---------------------------------------------------- AA 52 ---------------------------------------------------- A 18 ----------------------------------------------------
---------- See footnotes on page 11. 6 Performance and Portfolio Overview FLORIDA FUND (CHART) Investment Results TOTAL RETURNS For Periods Ended September 30, 2008 --------------------------------------------------------------------------------
AVERAGE ANNUAL ------------------------------------------------------ CLASS C SIX ONE FIVE TEN SINCE INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 -------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------------------------------------------- With Sales Charge (7.35)% (6.69)% 1.02% 2.97% n/a -------------------------------------------------------------------------------------------------------------- Without Sales Charge (3.01) (2.31) 1.95 3.45 n/a -------------------------------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------------------------------- With 1% CDSC (4.32) (3.90) n/a n/a n/a -------------------------------------------------------------------------------------------------------------- Without CDSC (3.37) (2.97) 1.20 n/a 2.89% -------------------------------------------------------------------------------------------------------------- BENCHMARKS** -------------------------------------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42# -------------------------------------------------------------------------------------------------------------- Lipper Florida Municipal Debt Funds Average (4.80) (6.32) 1.95 3.17 3.30 --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
---------------------------------------------------------------- 9/30/08 3/31/08 9/30/07 ---------------------------------------------------------------- CLASS A $7.11 $7.48 $7.66 ---------------------------------------------------------------- CLASS C 7.13 7.50 7.67 ----------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o) ------------------------------------------------ Pre-refunded/Escrowed-to- Maturity Bonds 53% ------------------------------------------------ Revenue Bonds 47 ------------------------------------------------ WEIGHTED AVERAGE MATURITY(3) 9.3 years ------------------------------------------------ OPTION-ADJUSTED DURATION(3) 5.4 years ------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION For Periods Ended September 30, 2008
----------------------------------------------------------------------- DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++ ----------------------------------------------------------------------- CLASS A $0.295 $0.091 3.41% ----------------------------------------------------------------------- CLASS C 0.233 0.091 2.80 -----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o) ---------------------------------------------------- AAA 22% ---------------------------------------------------- AA 30 ---------------------------------------------------- A 48 ----------------------------------------------------
---------- See footnotes on page 11. 7 Performance and Portfolio Overview NORTH CAROLINA FUND (CHART) Investment Results TOTAL RETURNS For Periods Ended September 30, 2008 --------------------------------------------------------------------------------
AVERAGE ANNUAL ------------------------------------------------------ CLASS C SIX ONE FIVE TEN SINCE INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 -------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------------------------------------------- With Sales Charge (5.86)% (4.66)% 1.10% 2.84% n/a -------------------------------------------------------------------------------------------------------------- Without Sales Charge (1.42) (0.19) 2.03 3.31 n/a -------------------------------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------------------------------- With 1% CDSC (2.76) (1.84) n/a n/a n/a -------------------------------------------------------------------------------------------------------------- Without CDSC (1.79) (0.87) 1.28 n/a 2.75% -------------------------------------------------------------------------------------------------------------- BENCHMARKS** -------------------------------------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42# -------------------------------------------------------------------------------------------------------------- Lipper North Carolina Municipal Debt Funds Average (3.96) (5.39) 1.69 3.03 3.20 --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
-------------------------------------------------------------- 9/30/08 3/31/08 9/30/07 -------------------------------------------------------------- CLASS A $7.42 $7.65 $7.68 -------------------------------------------------------------- CLASS C 7.42 7.65 7.67 --------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o) ------------------------------------------------ Pre-refunded/Escrowed-to- Maturity Bonds 56% ------------------------------------------------ Revenue Bonds 38 ------------------------------------------------ General Obligation Bonds 6 ------------------------------------------------ WEIGHTED AVERAGE MATURITY(3) 9.1 years ------------------------------------------------ OPTION-ADJUSTED DURATION(3) 6.4 years ------------------------------------------------
DIVIDEND PER SHARE AND YIELD INFORMATION For Periods Ended September 30, 2008
----------------------------------------------------------------- DIVIDEND+ SEC 30-DAY YIELD++ ----------------------------------------------------------------- CLASS A $0.251 2.27% ----------------------------------------------------------------- CLASS C 0.188 1.61 -----------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o) ---------------------------------------------------- AAA 69% ---------------------------------------------------- AA 23 ---------------------------------------------------- A 8 ----------------------------------------------------
---------- See footnotes on page 11. 8 Performance and Portfolio Overview NEW JERSEY FUND (CHART) Investment Results TOTAL RETURNS For Periods Ended September 30, 2008 --------------------------------------------------------------------------------
AVERAGE ANNUAL ------------------------------------------------------ CLASS C SIX ONE FIVE TEN SINCE INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 -------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------------------------------------------- With Sales Charge (7.06)% (6.59)% 1.13% 2.75% n/a -------------------------------------------------------------------------------------------------------------- Without Sales Charge (2.63) (2.23) 2.07 3.23 n/a -------------------------------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------------------------------- With 1% CDSC (3.91) (3.81) n/a n/a n/a -------------------------------------------------------------------------------------------------------------- Without CDSC (2.96) (2.87) 1.31 n/a 2.64% -------------------------------------------------------------------------------------------------------------- BENCHMARKS** -------------------------------------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42# -------------------------------------------------------------------------------------------------------------- Lipper New Jersey Municipal Debt Funds Average (4.34) (5.81) 2.15 3.22 3.29 --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
-------------------------------------------------------------- 9/30/08 3/31/08 9/30/07 -------------------------------------------------------------- CLASS A $6.83 $7.14 $7.28 -------------------------------------------------------------- CLASS C 6.94 7.25 7.38 --------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o) ------------------------------------------------ Revenue Bonds 74% ------------------------------------------------ Pre-refunded/Escrowed-to- Maturity Bonds 26 ------------------------------------------------ WEIGHTED AVERAGE MATURITY(3) 14.6 years ------------------------------------------------ OPTION-ADJUSTED DURATION(3) 8.1 years ------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION For Periods Ended September 30, 2008
----------------------------------------------------------------------- DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++ ----------------------------------------------------------------------- CLASS A $0.262 $0.035 3.05% ----------------------------------------------------------------------- CLASS C 0.202 0.035 2.41 -----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o) ---------------------------------------------------- AAA 56% ---------------------------------------------------- AA 15 ---------------------------------------------------- A 16 ---------------------------------------------------- BBB 4 ---------------------------------------------------- Non-rated 9 ----------------------------------------------------
---------- See footnotes on page 11. 9 Performance and Portfolio Overview PENNSYLVANIA FUND (CHART) Investment Results TOTAL RETURNS For Periods Ended September 30, 2008 --------------------------------------------------------------------------------
AVERAGE ANNUAL ------------------------------------------------------ CLASS C SIX ONE FIVE TEN SINCE INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 -------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------------------------------------------- With Sales Charge (6.24)% (5.33)% 0.83% 2.67% n/a -------------------------------------------------------------------------------------------------------------- Without Sales Charge (1.83) (0.91) 1.76 3.15 n/a -------------------------------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------------------------------- With 1% CDSC (3.04) (2.55) n/a n/a n/a -------------------------------------------------------------------------------------------------------------- Without CDSC (2.08) (1.59) 1.02 n/a 2.57% -------------------------------------------------------------------------------------------------------------- BENCHMARKS** -------------------------------------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42# -------------------------------------------------------------------------------------------------------------- Lipper Pennsylvania Municipal Debt Funds Average (4.29) (5.87) 1.71 3.04 3.20 --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
-------------------------------------------------------------- 9/30/08 3/31/08 9/30/07 -------------------------------------------------------------- CLASS A $7.40 $7.66 $7.72 -------------------------------------------------------------- CLASS C 7.39 7.64 7.70 --------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o) ------------------------------------------------ Revenue Bonds 46% ------------------------------------------------ Pre-refunded/Escrowed-to- Maturity Bonds 37 ------------------------------------------------ General Obligation Bonds 17 ------------------------------------------------ WEIGHTED AVERAGE MATURITY(3) 11.2 years ------------------------------------------------ OPTION-ADJUSTED DURATION(3) 6.3 years ------------------------------------------------
DIVIDEND PER SHARE AND YIELD INFORMATION For Periods Ended September 30, 2008
----------------------------------------------------------------- DIVIDEND+ SEC 30-DAY YIELD++ ----------------------------------------------------------------- CLASS A $0.256 2.65% ----------------------------------------------------------------- CLASS C 0.192 2.06 -----------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o) ---------------------------------------------------- AAA 21% ---------------------------------------------------- AA 41 ---------------------------------------------------- A 33 ---------------------------------------------------- Non-rated 5 ----------------------------------------------------
---------- See footnotes on page 11. 10 Performance and Portfolio Overview --------- (2) Credit ratings are primarily those issued by Moody's Investors Service, Inc. ("Moody's"). Where Moody's ratings have not been assigned, ratings from Standard & Poor's Ratings Services ("S&P") were used. A generic rating designation has been utilized, and therefore, it cannot be inferred solely from the rating category whether ratings reflect those assigned by Moody's or S&P. Pre-refunded and escrowed-to-maturity securities that have been rerated as AAA or its equivalent by either Moody's or S&P have been included in the AAA category. Holdings and credit ratings are subject to change. (3) Excludes variable rate demand notes. Weighted average maturity is the number of years to stated maturity, weighted based upon current market value. Duration is the average amount of time that it takes to receive the interest and principal of a bond or portfolio of bonds. The duration formula is based on a formula that calculates the weighted average of the cash flows (interest and principal payments) of the bond, discounted to present time, taking into account call dates and related call premiums, if any. * Returns for periods of less than one year are not annualized. ** The Lehman Brothers Municipal Bond Index ("Lehman Index") and the Lipper Single-State Municipal Debt Funds Averages ("Lipper Averages") are unmanaged benchmarks that assume reinvestment of all distributions and exclude the effect of taxes, fees, and sales charges. The Lehman Index also excludes the effect of expenses. The Lehman Index is an unmanaged index of long-term, fixed-rate, investment-grade, tax-exempt bonds representative of the municipal bond market and is composed of approximately 60% revenue bonds and 40% state government obligations. The Lipper Single-State Municipal Debt Funds Averages measure the performance of funds that limit their assets to those securities exempt from taxation in a specified state (double tax-exempt) or city (triple tax-exempt). Investors cannot invest directly in an index or average. # From 5/28/99. o Percentages based on current market values of long-term holdings at September 30, 2008. + Represents per share amount paid or declared for the year ended September 30, 2008. ++ Current yield, representing the annualized yield for the 30-day period ended September 30, 2008, has been computed in accordance with SEC regulations and will vary. During the period, the Manager, at its discretion, waived a portion of its management fee for the California High-Yield and Florida Funds. Such waivers may be discontinued at any time. Without these waivers the yields would be as follows:
Class A Class C ------------------------------------------------------------------------------------------------- California High-Yield Fund 3.43% 2.66% ------------------------------------------------------------------------------------------------- Florida Fund 3.26 2.65 -------------------------------------------------------------------------------------------------
11 Understanding and Comparing Your Fund's Expenses As a shareholder of a Fund, you incur ongoing expenses, such as management fees, distribution and service (12b-1) fees, and other fund expenses. The information below is intended to help you understand your ongoing expenses (in dollars) of investing in a Fund and to compare them with the ongoing expenses of investing in other mutual funds. Please note that the expenses shown in the tables are meant to highlight your ongoing expenses only and do not reflect any transactional costs, such as sales charges (also known as loads) on certain purchases or redemptions. Therefore, the tables are useful in comparing ongoing expenses only, and will not help you to determine the relative total expenses of owning different funds. In addition, if transactional costs were included, your total expenses would have been higher. The tables are based on an investment of $1,000 invested at the beginning of April 1, 2008 and held for the entire six-month period ended September 30, 2008. ACTUAL EXPENSES The following tables provide information about actual expenses and actual account values. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value at the beginning of the period by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During Period" for the share class of the Fund that you own to estimate the expenses that you paid on your account during the period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The tables also provide information about hypothetical expenses and hypothetical account values based on the actual expense ratios of each Fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of any Fund. The hypothetical expenses and account values may not be used to estimate the ending account value or the actual expenses you paid for the period. You may use this information to compare the ongoing expenses of investing in a Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds.
ACTUAL HYPOTHETICAL ---------------------------- ------------------------------ BEGINNING ENDING ENDING ACCOUNT ANNUALIZED ACCOUNT EXPENSES PAID ACCOUNT EXPENSES PAID VALUE EXPENSE VALUE DURING PERIOD** VALUE DURING PERIOD** 4/1/08 RATIO* 9/30/08 4/1/08 TO 9/30/08 9/30/08 4/1/08 TO 9/30/08 -------------------------------------------------------------------------------------------------------------------------- CALIFORNIA HIGH-YIELD FUND ========================================================================================================================== Class A $1,000.00 0.93% $977.90 $ 4.60 $1,020.35 $ 4.70 -------------------------------------------------------------------------------------------------------------------------- Class C 1,000.00 1.83 971.90 9.02 1,015.85 9.22 -------------------------------------------------------------------------------------------------------------------------- CALIFORNIA QUALITY FUND ========================================================================================================================== Class A 1,000.00 1.01 971.50 4.98 1,019.95 5.10 -------------------------------------------------------------------------------------------------------------------------- Class C 1,000.00 1.91 965.50 9.39 1,015.45 9.62 -------------------------------------------------------------------------------------------------------------------------- FLORIDA FUND ========================================================================================================================== Class A 1,000.00 1.06 969.90 5.22 1,019.70 5.35 -------------------------------------------------------------------------------------------------------------------------- Class C 1,000.00 1.81 966.30 8.90 1,015.95 9.12 -------------------------------------------------------------------------------------------------------------------------- NORTH CAROLINA FUND ========================================================================================================================== Class A 1,000.00 1.38 985.80 6.85 1,018.10 6.96 -------------------------------------------------------------------------------------------------------------------------- Class C 1,000.00 2.13 982.10 10.55 1,014.35 10.73 --------------------------------------------------------------------------------------------------------------------------
(Continued on page 13.) -------- See footnotes on page 13. 12 Understanding and Comparing Your Fund's Expenses
ACTUAL HYPOTHETICAL ---------------------------- ------------------------------ BEGINNING ENDING ENDING ACCOUNT ANNUALIZED ACCOUNT EXPENSES PAID ACCOUNT EXPENSES PAID VALUE EXPENSE VALUE DURING PERIOD** VALUE DURING PERIOD** 4/1/08 RATIO* 9/30/08 4/1/08 TO 9/30/08 9/30/08 4/1/08 TO 9/30/08 -------------------------------------------------------------------------------------------------------------------------- NEW JERSEY FUND ========================================================================================================================== Class A $1,000.00 1.27% $973.70 $ 6.27 $1,018.65 $ 6.41 -------------------------------------------------------------------------------------------------------------------------- Class C 1,000.00 2.02 970.40 9.95 1,014.90 10.18 -------------------------------------------------------------------------------------------------------------------------- PENNSYLVANIA FUND ========================================================================================================================== Class A 1,000.00 1.50 981.70 7.43 1,017.50 7.57 -------------------------------------------------------------------------------------------------------------------------- Class C 1,000.00 2.25 979.20 11.13 1,013.75 11.33 --------------------------------------------------------------------------------------------------------------------------
-------- * Expenses of Class C shares differ from the expenses of Class A shares due to the difference in 12b-1 fees paid by each share class. See the Funds' prospectus for a description of each share class and its fees, expenses and sales charges. J. & W. Seligman & Co. Incorporated, the Manager, at its discretion, waived 0.10% and 0.15% per annum of its fees for the California High-Yield Fund and Florida Fund, respectively. Absent such waivers, the expense ratios and expenses paid for the period would have been higher. ** Expenses are equal to the Funds' annualized expense ratios based on actual expenses for the period April 1, 2008 to September 30, 2008, multiplied by the average account value over the period, multiplied by 183/366 (number of days in the period). 13 Portfolios of Investments September 30, 2008 CALIFORNIA HIGH-YIELD FUND
------------------------------------------------------------------------------------------------------- FACE AMOUNT MUNICIPAL BONDS RATING+ VALUE ------------------------------------------------------------------------------------------------------- $1,000,000 California Department of Veterans' Affairs Rev. (Home Aa2 $ 986,460 Purchase), 5.50% due 12/1/2018* ------------------------------------------------------------------------------------------------------- 665,000 California Educational Facilities Authority Rev. (California Baa1 618,144 Lutheran University), 5.25% due 10/1/2021 ------------------------------------------------------------------------------------------------------- 2,000,000 California Educational Facilities Authority Rev. (Scripps A1 1,834,220 College), 5% due 8/1/2031 ------------------------------------------------------------------------------------------------------- 1,485,000 California Educational Facilities Authority Rev. (University A2 1,367,492 of the Pacific), 5% due 11/1/2025 ------------------------------------------------------------------------------------------------------- 750,000 California Health Facilities Financing Authority Rev. (Cedars- A2 675,555 Sinai Medical Center), 5% due 11/15/2027 ------------------------------------------------------------------------------------------------------- 3,000,000 California Health Facilities Financing Authority Rev. (Cedars- NR 3,165,870 Sinai Medical Center), 6.25% due 12/1/2034(o) ------------------------------------------------------------------------------------------------------- 2,750,000 California Health Facilities Financing Authority Rev. (Kaiser AAA++ 2,755,637 Permanente), 5.40% due 5/1/2028++ ------------------------------------------------------------------------------------------------------- 2,280,000 California Housing Finance Agency Rev. (Multi-Family Housing), Aa3 1,969,395 5.375% due 2/1/2036* ------------------------------------------------------------------------------------------------------- 595,000 California Housing Finance Agency Rev. (Single Family Aa3 599,213 Mortgage), 5.40% due 8/1/2028* ------------------------------------------------------------------------------------------------------- 2,500,000 California Infrastructure and Economic Development Bank Rev. A-++ 2,285,300 (The J. David Gladstone Institutes Project), 5.25% due 10/1/2034 ------------------------------------------------------------------------------------------------------- 2,500,000 California Statewide Communities Development Authority Rev. Aa3 2,357,775 (Sutter Health), 5.625% due 8/15/2042 ------------------------------------------------------------------------------------------------------- 1,500,000 Foothill/Eastern Transportation Corridor Agency, CA Toll Road Baa3 1,359,375 Rev., 5.75% due 1/15/2040 ------------------------------------------------------------------------------------------------------- 1,000,000 Los Angeles, CA Municipal Improvement Corporation Lease Rev. A2 944,330 (Capital Equipment), 5% due 9/1/2024 ------------------------------------------------------------------------------------------------------- 2,360,000 Modesto, CA Irrigation District Certificates of Participation A2 2,307,986 Rev., 5.30% due 7/1/2022 ------------------------------------------------------------------------------------------------------- 500,000 Puerto Rico Electric Power Authority Rev., 5.375% due 7/1/2023 A3 471,040 ------------------------------------------------------------------------------------------------------- 3,000,000 Puerto Rico Highway & Transportation Authority Rev., 5.50% due Aaa 3,316,170 7/1/2036(o) ------------------------------------------------------------------------------------------------------- 3,000,000 San Bernardino, CA Joint Powers Financing Authority Rev. A2 2,966,760 (California Dept. of Transportation Lease), 5.50% due 12/1/2020 ------------------------------------------------------------------------------------------------------- 2,000,000 Washington Township, CA Hospital District Hospital Healthcare A3 1,788,240 System Rev., 5.25% due 7/1/2029 ------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost $32,595,571) -- 87.6% 31,768,962 ------------------------------------------------------------------------------------------------------- SHORT-TERM HOLDINGS ------------------------------------------------------------------------------------------------------- 410,000 Connecticut State Health & Education Facilities Rev. (Yale VMIG 1 410,000 University), VRDN, due 7/1/2035 ------------------------------------------------------------------------------------------------------- 200,000 Kansas State Development Finance Authority Rev. (Sisters of VMIG 1 200,000 Charity), VRDN, due 12/1/2019 ------------------------------------------------------------------------------------------------------- 460,000 Lincoln County, WY Pollution Control Rev. (Exxon Project), P-1 460,000 VRDN, due 11/1/2014 ------------------------------------------------------------------------------------------------------- 400,000 Massachusetts State Development Finance Agency Rev. (Harvard VMIG 1 400,000 University), VRDN, due 7/15/2036 ------------------------------------------------------------------------------------------------------- 300,000 Massachusetts State Health & Educational Facilities Authority VMIG 1 300,000 Rev. (Wellesley College), VRDN, due 7/1/2039 ------------------------------------------------------------------------------------------------------- 700,000 Missouri State Health & Educational Facilities Authority Rev. VMIG 1 700,000 (Washington University), VRDN, due 2/15/2034 ------------------------------------------------------------------------------------------------------- 300,000 Montana Finance Facilities Authority Rev. (Sisters of VMIG 1 300,000 Charity), VRDN, due 12/1/2025 ------------------------------------------------------------------------------------------------------- 285,000 New Jersey State Educational Facilities Authority Rev. VMIG 1 285,000 (Princeton University), VRDN, due 7/1/2023 ------------------------------------------------------------------------------------------------------- 200,000 New York City, NY GOs, VRDN, due 8/1/2016 VMIG 1 200,000 ------------------------------------------------------------------------------------------------------- 700,000 New York City, NY Municipal Water Finance Authority Rev. VMIG 1 700,000 (Water & Sewer System), VRDN, due 6/15/2033 ------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $3,955,000) -- 10.9% 3,955,000 ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $36,550,571) -- 98.5% 35,723,962 ------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES -- 1.5% 550,957 ------------------------------------------------------------------------------------------------------- NET ASSETS -- 100.0% $36,274,919 -------------------------------------------------------------------------------------------------------
---------- See footnotes on page 19. 14 Portfolios of Investments September 30, 2008 CALIFORNIA QUALITY FUND
------------------------------------------------------------------------------------------------------- FACE AMOUNT MUNICIPAL BONDS RATING+ VALUE ------------------------------------------------------------------------------------------------------- $1,500,000 California Department of Water Resources Rev. (Central Valley Project), 5% due 12/1/2027 Aa2 $ 1,460,220 ------------------------------------------------------------------------------------------------------- 3,000,000 California Educational Facilities Authority Rev. (Pepperdine University), 5% due 11/1/2029 Aa3 2,857,140 ------------------------------------------------------------------------------------------------------- 1,315,000 California Educational Facilities Authority Rev. (Scripps College), 5% due 11/1/2025 A1 1,253,905 ------------------------------------------------------------------------------------------------------- 3,000,000 California Educational Facilities Authority Rev. (University of San Diego), 5% due 10/1/2028 Aa3 2,812,470 ------------------------------------------------------------------------------------------------------- 1,000,000 California Infrastructure & Economic Development Bank Rev. (Bay Area Toll Bridge Seismic Retrofit), 5% due 7/1/2023++ Aaa 1,012,440 ------------------------------------------------------------------------------------------------------- 235,000 California State GOs, 5.375% due 10/1/2027(o) AAA++ 247,930 ------------------------------------------------------------------------------------------------------- 3,295,000 California State GOs, 5.375% due 10/1/2027(o) Aaa 3,459,124 ------------------------------------------------------------------------------------------------------- 470,000 California State GOs, 5.375% due 10/1/2027(o) Aaa 495,859 ------------------------------------------------------------------------------------------------------- 1,750,000 California State University System Rev., 5% due 11/1/2027 Aaa 1,681,278 ------------------------------------------------------------------------------------------------------- 2,420,000 California State Veterans' GOs, 5.70% due 12/1/2032* A1 2,202,878 ------------------------------------------------------------------------------------------------------- 2,000,000 California Statewide Communities Development Authority Rev. (Kaiser Permanente), 5.50% due 11/1/2032 A+++ 1,885,480 ------------------------------------------------------------------------------------------------------- 2,500,000 Eastern Municipal Water District, CA Water and Sewer Rev., 6.75% due 7/1/2012 Aa3 2,681,075 ------------------------------------------------------------------------------------------------------- 2,000,000 Los Angeles, CA Department of Water & Power Water System Rev., 5.125% due 7/1/2041 Aa3 1,860,800 ------------------------------------------------------------------------------------------------------- 1,500,000 Regents of the University of California General Rev., 5% due 5/15/2026 Aa1 1,448,775 ------------------------------------------------------------------------------------------------------- 1,325,000 Riverside, CA Electric Rev., 5% due 10/1/2028 AAA++ 1,265,335 ------------------------------------------------------------------------------------------------------- 1,500,000 Sacramento County, CA Airport System Rev., 5% due 7/1/2025 Aaa 1,437,465 ------------------------------------------------------------------------------------------------------- 2,000,000 Sacramento County, CA Sanitation Districts Financing Authority Rev. (Sacramento Regional County Sanitation District), 5% due 12/1/2027 Aa3 1,893,620 ------------------------------------------------------------------------------------------------------- 500,000 Sacramento, CA Municipal Utility District Electric Rev., 5.25% due 5/15/2024 A1 480,390 ------------------------------------------------------------------------------------------------------- 1,530,000 San Francisco, CA Bay Area Rapid Transit District Rev. (Sales Tax), 5% due 7/1/2028 Aa3 1,463,261 ------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost $33,019,783) -- 86.2% 31,899,445 ------------------------------------------------------------------------------------------------------- SHORT-TERM HOLDINGS ------------------------------------------------------------------------------------------------------- 200,000 Connecticut State Health & Educational Facilities Authority Rev. (Yale University), VRDN, due 7/1/2036 VMIG 1 200,000 ------------------------------------------------------------------------------------------------------- 100,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 100,000 ------------------------------------------------------------------------------------------------------- 200,000 New York City, NY GOs, VRDN, due 8/1/2016 VMIG 1 200,000 ------------------------------------------------------------------------------------------------------- 900,000 New York City, NY GOs, VRDN, due 8/1/2017 VMIG 1 900,000 ------------------------------------------------------------------------------------------------------- 3,000,000 Orange County, CA Local Transportation Authority Rev. (Measure M Sales Tax), 6% due 2/15/2009 Aa2 3,041,700 ------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $4,394,582) -- 12.0% 4,441,700 ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $37,414,365) -- 98.2% 36,341,145 ------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES -- 1.8% 653,848 ------------------------------------------------------------------------------------------------------- NET ASSETS -- 100.0% $36,994,993 -------------------------------------------------------------------------------------------------------
---------- See footnotes on page 19. 15 Portfolios of Investments September 30, 2008 FLORIDA FUND
------------------------------------------------------------------------------------------------------- FACE AMOUNT MUNICIPAL BONDS RATING+ VALUE ------------------------------------------------------------------------------------------------------- $2,000,000 Broward County, FL Airport System Rev., 5.25% due 10/1/2026* Aa3 $ 1,716,120 ------------------------------------------------------------------------------------------------------- 1,750,000 Escambia County, FL Health Facilities Authority Rev. (Ascension Health Credit Group), 6% due 11/15/2031(o) AAA++ 1,831,078 ------------------------------------------------------------------------------------------------------- 320,000 Florida Housing Finance Corporation Rev. (Homeowner Mortgage), 5.95% due 1/1/2032* Aaa 301,558 ------------------------------------------------------------------------------------------------------- 2,500,000 Florida Ports Financing Commission Rev. (State Transportation Trust Fund), 5.375% due 6/1/2027* A2 2,177,425 ------------------------------------------------------------------------------------------------------- 1,000,000 Marion County, FL Hospital District Health System Rev. (Munroe Regional Health System), 5% due 10/1/2029 A2 842,550 ------------------------------------------------------------------------------------------------------- 1,990,000 Marion County, FL Hospital District Health System Rev. (Munroe Regional Health System), 5.625% due 10/1/2024(o) A2 2,072,844 ------------------------------------------------------------------------------------------------------- 10,000 Marion County, FL Hospital District Health System Rev. (Munroe Regional Health System), 5.625% due 10/1/2024 A2 10,309 ------------------------------------------------------------------------------------------------------- 1,000,000 Ocala, FL Utility Systems Rev., 5% due 10/1/2024 A1 938,130 ------------------------------------------------------------------------------------------------------- 1,750,000 Orange County, FL Health Facilities Authority Hospital Rev. (Adventist Health System/Sunbelt Obligation Group), 6.375% due 11/15/2020(o) A1 1,892,537 ------------------------------------------------------------------------------------------------------- 2,000,000 Pinellas County, FL Health Facilities Authority Rev. (Baycare Health System), 5.50% due 11/15/2033(o) Aa3 2,173,360 ------------------------------------------------------------------------------------------------------- 1,040,000 Polk County, FL Constitutional Fuel Tax Rev., 5% due 12/1/2020 A2 1,019,876 ------------------------------------------------------------------------------------------------------- 230,000 Reedy Creek, FL Improvement District Utilities Rev., 5.125% due 10/1/2019 Aa3 230,009 ------------------------------------------------------------------------------------------------------- 600,000 South Florida Water Management District Certificates of Participations Rev. (Master Lease Purchase Agreement), 5% due 10/1/2026 Aa3 563,382 ------------------------------------------------------------------------------------------------------- 1,000,000 St. Johns County, FL Transport Improvement Rev., 5% due 10/1/2026 Aa3 936,810 ------------------------------------------------------------------------------------------------------- 1,750,000 Tampa Bay, FL Regional Water Supply Utility System Authority Rev., 5.75% due 10/1/2029(o) AAA++ 1,886,168 ------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost $19,097,685) -- 87.1% 18,592,156 ------------------------------------------------------------------------------------------------------- SHORT-TERM HOLDINGS ------------------------------------------------------------------------------------------------------- 2,000,000 Hillsborough County, FL School Board Certificates of Participation, 6% due 7/1/2025(o) Aa3 2,068,960 ------------------------------------------------------------------------------------------------------- 300,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 300,000 ------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $2,291,536) -- 11.1% 2,368,960 ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $21,389,221) -- 98.2% 20,961,116 ------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES -- 1.8% 389,839 ------------------------------------------------------------------------------------------------------- NET ASSETS -- 100.0% $21,350,955 -------------------------------------------------------------------------------------------------------
---------- See footnotes on page 19. 16 Portfolios of Investments September 30, 2008 NORTH CAROLINA FUND
------------------------------------------------------------------------------------------------------- FACE AMOUNT MUNICIPAL BONDS RATING+ VALUE ------------------------------------------------------------------------------------------------------- $1,250,000 Appalachian State University, NC Housing & Student Center System Rev., 5.60% due 7/15/2020(o) Aaa $ 1,328,425 ------------------------------------------------------------------------------------------------------- 685,000 Buncombe County, NC Metropolitan Sewer District Sewer System Rev., 5% due 7/1/2020 Aa3 687,822 ------------------------------------------------------------------------------------------------------- 1,000,000 Charlotte, NC Storm Water Fee Rev., 6% due 6/1/2025(o) AAA++ 1,066,190 ------------------------------------------------------------------------------------------------------- 1,000,000 Charlotte, NC Water & Sewer System Rev., 5.25% due 6/1/2025(o) AAA++ 1,054,010 ------------------------------------------------------------------------------------------------------- 750,000 Durham County, NC Public Improvement GOs, 5% due 6/1/2022 Aaa 755,940 ------------------------------------------------------------------------------------------------------- 750,000 Forsyth County, NC Certificates of Participation (Forsyth County School Project), 5% due 2/1/2026 Aa1 706,778 ------------------------------------------------------------------------------------------------------- 215,000 Greensboro, NC Combined Enterprise System Rev., 5.25% due 6/1/2022(o) AAA++ 231,837 ------------------------------------------------------------------------------------------------------- 250,000 High Point, NC Combined Enterprise System Rev., 5% due 11/1/2023 Aa3 239,012 ------------------------------------------------------------------------------------------------------- 350,000 High Point, NC Combined Enterprise System Rev., 5% due 11/1/2028 Aaa 337,099 ------------------------------------------------------------------------------------------------------- 135,000 North Carolina Housing Finance Agency Rev. (Home Ownership), 6.40% due 7/1/2028* Aa2 137,823 ------------------------------------------------------------------------------------------------------- 500,000 North Carolina Infrastructure Finance Corporation Certificates of Participation (State of North Carolina Repair and Renovation Projects), 5% due 6/1/2017 Aa1 512,285 ------------------------------------------------------------------------------------------------------- 500,000 North Carolina Medical Care Commission Hospital Rev. (First Health of the Carolinas Project), 5% due 10/1/2028 Aa3 457,990 ------------------------------------------------------------------------------------------------------- 1,750,000 North Carolina Municipal Power Agency No. 1 Rev. (Catawba Electric), 5% due 1/1/2020++ Aaa 1,793,820 ------------------------------------------------------------------------------------------------------- 1,000,000 Raleigh, NC Combined Enterprise System Rev., 5% due 3/1/2024(o) AAA++ 1,070,220 ------------------------------------------------------------------------------------------------------- 1,000,000 Wake County, NC Industrial Facilities & Pollution Control Financing Authority Rev. (Carolina Power & Light), 5.375% due 2/1/2017 A2 1,001,440 ------------------------------------------------------------------------------------------------------- 500,000 Wilmington City, NC Water & Sewer System Rev., 5% due 6/1/2025 Aaa 487,815 ------------------------------------------------------------------------------------------------------- 250,000 Winston-Salem, NC Water & Sewer System Rev., 5.125% due 6/1/2028(o) AAA++ 266,315 ------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost $11,876,004) -- 95.1% 12,134,821 ------------------------------------------------------------------------------------------------------- SHORT-TERM HOLDINGS ------------------------------------------------------------------------------------------------------- 200,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 200,000 ------------------------------------------------------------------------------------------------------- 200,000 New York City, NY GOs, VRDN, due 8/1/2019 VMIG 1 200,000 ------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $400,000) -- 3.1% 400,000 ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $12,276,004) -- 98.2% 12,534,821 ------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES -- 1.8% 230,991 ------------------------------------------------------------------------------------------------------- NET ASSETS -- 100.0% $12,765,812 -------------------------------------------------------------------------------------------------------
---------- See footnotes on page 19. 17 Portfolios of Investments September 30, 2008 NEW JERSEY FUND
------------------------------------------------------------------------------------------------------- FACE AMOUNT MUNICIPAL BONDS RATING+ VALUE ------------------------------------------------------------------------------------------------------- $ 790,000 Bergen County, NJ Improvement Authority Governmental Loan Rev., 5% due 9/1/2014 Aaa $ 844,818 ------------------------------------------------------------------------------------------------------- 2,000,000 Delaware River & Bay Authority Rev. (New Jersey and Delaware), 5.75% due 1/1/2029(o) Aa3 2,100,000 ------------------------------------------------------------------------------------------------------- 1,000,000 New Jersey Economic Development Authority Rev. (The Seeing Eye, Inc. Project), 5% due 12/1/2024 Aa3 965,510 ------------------------------------------------------------------------------------------------------- 1,500,000 New Jersey Economic Development Authority State Lease Rev. (Liberty State Park Project), 5% due 3/1/2027 Aaa 1,456,005 ------------------------------------------------------------------------------------------------------- 3,000,000 New Jersey Economic Development Authority Water Facilities Rev. (New Jersey American Water Co., Inc.), 5.375% due 5/1/2032* NR 2,533,470 ------------------------------------------------------------------------------------------------------- 1,250,000 New Jersey Educational Facilities Authority Rev. (Princeton University), 5% due 7/1/2028 Aaa 1,222,287 ------------------------------------------------------------------------------------------------------- 1,250,000 New Jersey Educational Facilities Authority Rev. (Stevens Institute of Technology), 5.25% due 7/1/2022 Baa2 1,124,987 ------------------------------------------------------------------------------------------------------- 1,000,000 New Jersey Educational Facilities Authority Rev. (William Paterson University of New Jersey), 5% due 7/1/2024 Aaa 976,490 ------------------------------------------------------------------------------------------------------- 1,480,000 New Jersey Environmental Infrastructure Trust Rev., 5% due 9/1/2022 Aaa 1,481,184 ------------------------------------------------------------------------------------------------------- 1,110,000 New Jersey Health Care Facilities Financing Authority Rev. (Atlantic City Medical Center), 5.75% due 7/1/2025 A2 1,100,465 ------------------------------------------------------------------------------------------------------- 890,000 New Jersey Health Care Facilities Financing Authority Rev. (Atlantic City Medical Center), 5.75% due 7/1/2025(o) A2 962,731 ------------------------------------------------------------------------------------------------------- 2,450,000 New Jersey Health Care Facilities Financing Authority Rev. (Hackensack University Medical Center), 6% due 1/1/2034 A3 2,430,841 ------------------------------------------------------------------------------------------------------- 2,255,000 New Jersey Health Care Facilities Financing Authority Rev. (Meridian Health System Obligated Group), 5.375% due 7/1/2024 Aaa 2,241,786 ------------------------------------------------------------------------------------------------------- 2,000,000 New Jersey Highway Authority Rev. (Garden State Parkway), 5.625% due 1/1/2030(o) AAA++ 2,094,140 ------------------------------------------------------------------------------------------------------- 215,000 New Jersey Housing & Mortgage Finance Agency Rev. (Multi- Family Housing), 5.75% due 5/1/2025 Aaa 215,686 ------------------------------------------------------------------------------------------------------- 1,500,000 New Jersey Housing & Mortgage Finance Agency Rev. (Multi- Family Housing), 6.35% due 11/1/2031* Aaa 1,490,550 ------------------------------------------------------------------------------------------------------- 1,000,000 New Jersey Transportation Trust Fund Authority Rev., 5% due 12/15/2021(o) Aaa 1,059,560 ------------------------------------------------------------------------------------------------------- 1,000,000 Port Authority of New York and New Jersey Consolidated Bonds, 5% due 10/1/2028 Aa3 957,330 ------------------------------------------------------------------------------------------------------- 500,000 Port Authority of New York and New Jersey Consolidated Bonds, 5% due 8/15/2022 Aaa 494,260 ------------------------------------------------------------------------------------------------------- 1,000,000 Puerto Rico Electric Power Authority Rev., 5% due 7/1/2023 Aaa 941,160 ------------------------------------------------------------------------------------------------------- 1,000,000 Puerto Rico Highway & Transportation Authority Rev., 5.50% due 7/1/2036(o) Aaa 1,105,390 ------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost $28,303,343) -- 97.2% 27,798,650 ------------------------------------------------------------------------------------------------------- SHORT-TERM HOLDINGS ------------------------------------------------------------------------------------------------------- 400,000 New York City, NY GOs, VRDN, due 8/1/2010 VMIG 1 400,000 ------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $400,000) -- 1.4% 400,000 ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $28,703,343) -- 98.6% 28,198,650 ------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES -- 1.4% 407,981 ------------------------------------------------------------------------------------------------------- NET ASSETS -- 100.0% $28,606,631 -------------------------------------------------------------------------------------------------------
---------- See footnotes on page 19. 18 Portfolios of Investments September 30, 2008 PENNSYLVANIA FUND
------------------------------------------------------------------------------------------------------- FACE AMOUNT MUNICIPAL BONDS RATING+ VALUE ------------------------------------------------------------------------------------------------------- $ 490,000 Allegheny County, PA Higher Education Building Authority A2 $ 446,787 University Rev. (Duquesne University), 5% due 3/1/2028 ------------------------------------------------------------------------------------------------------- 1,000,000 Berks County, PA Municipal Authority Hospital Rev. (The Aa3 1,058,780 Reading Hospital & Medical Center Project), 5.70% due 10/1/2014 ------------------------------------------------------------------------------------------------------- 1,000,000 Berks County, PA Municipal Authority Hospital Rev. (The Aaa 1,059,310 Reading Hospital & Medical Center Project), 6% due 11/1/2029(o) ------------------------------------------------------------------------------------------------------- 1,100,000 Butler County, PA GO's 5.25% due 7/15/2023(o) A+++ 1,186,900 ------------------------------------------------------------------------------------------------------- 530,000 Commonwealth of Pennsylvania GOs, 5.375% due 7/1/2017 Aa2 572,766 ------------------------------------------------------------------------------------------------------- 1,000,000 Delaware Valley, PA Regional Finance Authority Rev. (Local Aa2 1,221,000 Government), 7.75% due 7/1/2027 ------------------------------------------------------------------------------------------------------- 430,000 Montgomery County, PA GOs, 5.25% due 8/15/2017 Aaa 463,239 ------------------------------------------------------------------------------------------------------- 1,000,000 Northampton County, PA General Purpose Authority Rev., 5.25% Aaa 984,620 due 10/1/2030 ------------------------------------------------------------------------------------------------------- 1,000,000 Pennsylvania Economic Development Financing Authority Rev. Aa3 898,500 (The Procter & Gamble Paper Products Company Project), 5.375% due 3/1/2031* ------------------------------------------------------------------------------------------------------- 1,050,000 Pennsylvania Higher Educational Facilities Authority Rev. A2 1,059,807 (Drexel University), 5.75% due 5/1/2022 ------------------------------------------------------------------------------------------------------- 750,000 Pennsylvania Intergovernmental Cooperative Authority Special A1 733,395 Tax Rev. (Philadelphia Funding Program), 5% due 6/15/2021 ------------------------------------------------------------------------------------------------------- 500,000 Pennsylvania State Turnpike Commission Rev. (Oil Franchise A2 541,025 Tax), 5.25% due 12/1/2016(o) ------------------------------------------------------------------------------------------------------- 1,000,000 Pennsylvania State Turnpike Commission Rev. (Registration Aa3 1,062,940 Fee), 5% due 7/15/2041(o) ------------------------------------------------------------------------------------------------------- 450,000 Philadelphia, PA Redevelopment Authority Rev. (Home NR 594,486 Mortgage), 9% due 6/1/2017++ ------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost $11,596,380) -- 87.2% 11,883,555 ------------------------------------------------------------------------------------------------------- SHORT-TERM HOLDINGS ------------------------------------------------------------------------------------------------------- 500,000 Connecticut State Health & Educational Facilities Authority VMIG 1 500,000 Rev. (Yale University), VRDN, due 7/1/2036 ------------------------------------------------------------------------------------------------------- 500,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 500,000 ------------------------------------------------------------------------------------------------------- 400,000 Montana Finance Facilities Authority Rev. (Sisters of VMIG 1 400,000 Charity), VRDN, due 12/1/2025 ------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $1,400,000) -- 10.3% 1,400,000 ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $12,996,380) -- 97.5% 13,283,555 ------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES -- 2.5% 338,032 ------------------------------------------------------------------------------------------------------- NET ASSETS -- 100.0% $13,621,587 -------------------------------------------------------------------------------------------------------
---------- + Credit ratings are primarily those issued by Moody's Investors Service, Inc. ("Moody's"). Where Moody's ratings have not been assigned, ratings from Standard & Poor's Ratings Services ("S&P") were used (indicated by the symbol ++). Pre-refunded and escrowed-to-maturity securities that have been rerated as AAA by S&P but have not been rerated by Moody's have been reported as AAA. Ratings have not been audited by Deloitte & Touche LLP. ++ Escrowed-to-maturity security. o Pre-refunded security. Such securities that will be paid off within one year are classified as short-term holdings. * Interest income earned from this security is subject to the federal alternative minimum tax. VRDN -- Variable Rate Demand Notes (See Note 2d). See Notes to Financial Statements. 19 Statements of Assets and Liabilities September 30, 2008
CALIFORNIA CALIFORNIA NORTH NEW HIGH-YIELD QUALITY FLORIDA CAROLINA JERSEY PENNSYLVANIA FUND FUND FUND FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------- ASSETS: ------------------------------------------------------------------------------------------------------------------------- Investments, at value (see portfolios of investments): ------------------------------------------------------------------------------------------------------------------------- Long-term holdings $31,768,962 $31,899,445 $18,592,156 $12,134,821 $27,798,650 $11,883,555 ------------------------------------------------------------------------------------------------------------------------- Short-term holdings 3,955,000 4,441,700 2,368,960 400,000 400,000 1,400,000 ------------------------------------------------------------------------------------------------------------------------- Total investments* 35,723,962 36,341,145 20,961,116 12,534,821 28,198,650 13,283,555 ------------------------------------------------------------------------------------------------------------------------- Cash** 243,708 233,514 2,123 110,931 66,497 180,510 ------------------------------------------------------------------------------------------------------------------------- Interest receivable 515,953 688,969 476,211 165,146 412,939 201,376 ------------------------------------------------------------------------------------------------------------------------- Expenses prepaid to shareholder service agent 1,426 1,474 903 523 1,284 571 ------------------------------------------------------------------------------------------------------------------------- Receivable for Shares of Beneficial Interest/Capital Stock sold -- 1,332 14,995 1,774 25,501 11,576 ------------------------------------------------------------------------------------------------------------------------- Other 2,110 2,329 1,366 783 1,889 824 ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS 36,487,159 37,268,763 21,456,714 12,813,978 28,706,760 13,678,412 ------------------------------------------------------------------------------------------------------------------------- LIABILITIES: ------------------------------------------------------------------------------------------------------------------------- Payable for Shares of Beneficial Interest/ Capital Stock repurchased 95,178 155,650 25,005 50 4,913 875 ------------------------------------------------------------------------------------------------------------------------- Dividends payable 58,622 54,561 37,092 17,185 38,555 17,118 ------------------------------------------------------------------------------------------------------------------------- Management fee payable 12,273 15,695 6,366 5,383 12,158 5,740 ------------------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees payable 6,929 5,177 6,136 3,135 7,352 3,482 ------------------------------------------------------------------------------------------------------------------------- Accrued expenses and other 39,238 42,687 31,160 22,413 37,151 29,610 ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 212,240 273,770 105,759 48,166 100,129 56,825 ------------------------------------------------------------------------------------------------------------------------- NET ASSETS $36,274,919 $36,994,993 $21,350,955 $12,765,812 $28,606,631 $13,621,587 ------------------------------------------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS: ------------------------------------------------------------------------------------------------------------------------- Shares of Beneficial Interest/Capital Stock, at par value ($0.001 par value; unlimited shares authorized, 100,000,000 shares, in the case of New Jersey Fund): ------------------------------------------------------------------------------------------------------------------------- Class A $ 4,999 $ 5,568 $ 2,604 $ 1,604 $ 3,759 $ 1,684 ------------------------------------------------------------------------------------------------------------------------- Class C 874 471 398 117 422 156 ------------------------------------------------------------------------------------------------------------------------- Additional paid-in capital 37,013,866 37,829,416 21,827,135 12,425,866 28,880,224 13,135,690 ------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income 94,589 237,015 66,331 63,535 92,981 71,826 ------------------------------------------------------------------------------------------------------------------------- Undistributed/accumulated net realized gain (loss) (12,800) (4,257) (117,408) 15,873 133,938 125,056 ------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments (826,609) (1,073,220) (428,105) 258,817 (504,693) 287,175 ------------------------------------------------------------------------------------------------------------------------- NET ASSETS $36,274,919 $36,994,993 $21,350,955 $12,765,812 $28,606,631 $13,621,587 ------------------------------------------------------------------------------------------------------------------------- NET ASSETS: ------------------------------------------------------------------------------------------------------------------------- Class A $30,873,007 $34,123,376 $18,510,298 $11,901,144 $25,679,630 $12,467,145 ------------------------------------------------------------------------------------------------------------------------- Class C $ 5,401,912 $ 2,871,617 $ 2,840,657 $ 864,668 $ 2,927,001 $ 1,154,442 ------------------------------------------------------------------------------------------------------------------------- SHARES OF BENEFICIAL INTEREST/CAPITAL STOCK OUTSTANDING: ------------------------------------------------------------------------------------------------------------------------- Class A 4,998,662 5,567,547 2,604,408 1,603,956 3,758,547 1,684,072 ------------------------------------------------------------------------------------------------------------------------- Class C 873,627 470,512 398,471 116,524 421,689 156,301 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE: ------------------------------------------------------------------------------------------------------------------------- CLASS A $6.18 $6.13 $7.11 $7.42 $6.83 $7.40 ------------------------------------------------------------------------------------------------------------------------- CLASS C $6.18 $6.10 $7.13 $7.42 $6.94 $7.39 ------------------------------------------------------------------------------------------------------------------------- ---------- * Cost of total investments $36,550,571 $37,414,365 $21,389,221 $12,276,004 $28,703,343 $12,996,380 ** Includes restricted cash of $ 5,300 $ 6,300 $ 2,000 -- $ 5,000 $ 4,000
See Notes to Financial Statements. 20 Statements of Operations For the Year Ended September 30, 2008
CALIFORNIA CALIFORNIA NORTH NEW HIGH-YIELD QUALITY FLORIDA CAROLINA JERSEY PENNSYLVANIA FUND FUND FUND FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: ------------------------------------------------------------------------------------------------------------------------ INTEREST $ 1,752,400 $ 1,945,793 $ 1,216,922 $ 638,549 $ 1,617,074 $ 721,544 ------------------------------------------------------------------------------------------------------------------------ EXPENSES: ------------------------------------------------------------------------------------------------------------------------ Management fees 173,288 196,281 120,150 66,993 161,913 73,439 ------------------------------------------------------------------------------------------------------------------------ Distribution and service (12b-1) fees 82,833 62,477 82,199 40,524 103,961 48,153 ------------------------------------------------------------------------------------------------------------------------ Shareholder account services 57,715 64,006 40,791 23,747 59,508 27,335 ------------------------------------------------------------------------------------------------------------------------ Auditing fees 30,252 32,818 24,421 18,612 28,859 27,569 ------------------------------------------------------------------------------------------------------------------------ Registration 18,868 17,694 14,001 12,572 20,416 15,946 ------------------------------------------------------------------------------------------------------------------------ Legal fees 12,090 13,598 9,753 16,104 24,648 22,500 ------------------------------------------------------------------------------------------------------------------------ Shareholder reports and communications 9,354 8,909 6,465 4,059 7,833 6,325 ------------------------------------------------------------------------------------------------------------------------ Custody and related services 8,273 7,285 5,986 2,304 10,157 1,620 ------------------------------------------------------------------------------------------------------------------------ Directors'/Trustees' fees and expenses 4,501 4,827 3,872 3,204 4,880 3,761 ------------------------------------------------------------------------------------------------------------------------ Miscellaneous 4,985 5,484 4,270 3,480 5,592 3,822 ------------------------------------------------------------------------------------------------------------------------ TOTAL EXPENSES BEFORE MANAGEMENT FEE WAIVER 402,159 413,379 311,908 191,599 427,767 230,470 ------------------------------------------------------------------------------------------------------------------------ Management fee waiver (Note 3) (34,658) -- (36,045) -- -- -- ------------------------------------------------------------------------------------------------------------------------ TOTAL EXPENSES AFTER MANAGEMENT FEE WAIVER 367,501 413,379 275,863 191,599 427,767 230,470 ------------------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME 1,384,899 1,532,414 941,059 446,950 1,189,307 491,074 ------------------------------------------------------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: ------------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments (21,722) 131,082 (83,501) 18,829 109,355 91,753 ------------------------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation of investments (2,057,347) (2,531,624) (1,339,901) (473,577) (1,895,489) (690,084) ------------------------------------------------------------------------------------------------------------------------ NET LOSS ON INVESTMENTS (2,079,069) (2,400,542) (1,423,402) (454,748) (1,786,134) (598,331) ------------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM OPERATIONS $ (694,170) $ (868,128) $ (482,343) $ (7,798) $ (596,827) $(107,257) ------------------------------------------------------------------------------------------------------------------------
---------- See Notes to Financial Statements. 21 Statements of Changes in Net Assets
CALIFORNIA HIGH-YIELD FUND CALIFORNIA QUALITY FUND -------------------------------- -------------------------------- YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, -------------------------------- -------------------------------- 2008 2007 2008 2007 ------------------------------------------------------------------------------------------------------------------ OPERATIONS: ------------------------------------------------------------------------------------------------------------------ Net investment income $ 1,384,899 $ 1,437,824 $ 1,532,414 $ 1,765,529 ------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments (21,722) 67,521 131,082 285,451 ------------------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation of investments (2,057,347) (436,813) (2,531,624) (992,937) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM OPERATIONS (694,170) 1,068,532 (868,128) 1,058,043 ------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: ------------------------------------------------------------------------------------------------------------------ Net investment income: ------------------------------------------------------------------------------------------------------------------ Class A (1,196,136) (1,195,595) (1,408,168) (1,646,981) ------------------------------------------------------------------------------------------------------------------ Class C (112,958) (81,924) (54,560) (55,345) ------------------------------------------------------------------------------------------------------------------ Class D (56,269) (90,377) (20,614) (30,086) ------------------------------------------------------------------------------------------------------------------ Total (1,365,363) (1,367,896) (1,483,342) (1,732,412) ------------------------------------------------------------------------------------------------------------------ Net realized long-term gain on investments: ------------------------------------------------------------------------------------------------------------------ Class A (61,428) -- (296,071) (81,972) ------------------------------------------------------------------------------------------------------------------ Class C (4,879) -- (12,743) (3,623) ------------------------------------------------------------------------------------------------------------------ Class D (5,958) -- (6,610) (2,002) ------------------------------------------------------------------------------------------------------------------ Total (72,265) -- (315,424) (87,597) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS (1,437,628) (1,367,896) (1,798,766) (1,820,009) ------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: ------------------------------------------------------------------------------------------------------------------ Net proceeds from sales of shares 7,157,014 648,122 4,138,665 492,091 ------------------------------------------------------------------------------------------------------------------ Investment of dividends 850,379 840,334 913,485 1,027,593 ------------------------------------------------------------------------------------------------------------------ Exchanged from associated funds 675,454 153,320 1,655,204 640,630 ------------------------------------------------------------------------------------------------------------------ Investment of gain distributions 51,400 -- 228,536 61,687 ------------------------------------------------------------------------------------------------------------------ Total 8,734,247 1,641,776 6,935,890 2,222,001 ------------------------------------------------------------------------------------------------------------------ Cost of shares repurchased (3,830,737) (3,264,320) (6,632,621) (6,514,802) ------------------------------------------------------------------------------------------------------------------ Exchanged into associated funds (195,785) (163,874) (624,743) (414,780) ------------------------------------------------------------------------------------------------------------------ Total (4,026,522) (3,428,194) (7,257,364) (6,929,582) ------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS 4,707,725 (1,786,418) (321,474) (4,707,581) ------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS 2,575,927 (2,085,782) (2,988,368) (5,469,547) ------------------------------------------------------------------------------------------------------------------ NET ASSETS: ------------------------------------------------------------------------------------------------------------------ Beginning of year 33,698,992 35,784,774 39,983,361 45,452,908 ------------------------------------------------------------------------------------------------------------------ END OF YEAR* $36,274,919 $33,698,992 $36,994,993 $39,983,361 ------------------------------------------------------------------------------------------------------------------ ---------- * Including undistributed net investment income $ 94,589 $ 86,840 $ 237,015 $ 204,015
See Notes to Financial Statements. 22 Statements of Changes in Net Assets
FLORIDA FUND NORTH CAROLINA FUND -------------------------------- -------------------------------- YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, -------------------------------- -------------------------------- 2008 2007 2008 2007 ------------------------------------------------------------------------------------------------------------------ OPERATIONS: ------------------------------------------------------------------------------------------------------------------ Net investment income $ 941,059 $ 1,147,515 $ 446,950 $ 551,387 ------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments (83,501) 194,266 18,829 (21,778) ------------------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation of investments (1,339,901) (596,682) (473,577) (273,495) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM OPERATIONS (482,343) 745,099 (7,798) 256,114 ------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: ------------------------------------------------------------------------------------------------------------------ Net investment income: ------------------------------------------------------------------------------------------------------------------ Class A (824,183) (995,082) (406,597) (488,700) ------------------------------------------------------------------------------------------------------------------ Class C (73,986) (88,869) (15,389) (27,226) ------------------------------------------------------------------------------------------------------------------ Class D (18,589) (39,465) (7,311) (12,527) ------------------------------------------------------------------------------------------------------------------ Total (916,758) (1,123,416) (429,297) (528,453) ------------------------------------------------------------------------------------------------------------------ Net realized long-term gain on investments: ------------------------------------------------------------------------------------------------------------------ Class A (260,619) (32,733) -- (142,487) ------------------------------------------------------------------------------------------------------------------ Class C (24,633) (3,907) -- (10,580) ------------------------------------------------------------------------------------------------------------------ Class D (12,001) (1,626) -- (4,650) ------------------------------------------------------------------------------------------------------------------ Total (297,253) (38,266) -- (157,717) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS (1,214,011) (1,161,682) (429,297) (686,170) ------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: ------------------------------------------------------------------------------------------------------------------ Net proceeds from sales of shares 328,450 485,516 752,918 23,134 ------------------------------------------------------------------------------------------------------------------ Investment of dividends 567,489 665,122 257,209 335,669 ------------------------------------------------------------------------------------------------------------------ Exchanged from associated funds 187,366 14,064 45,023 67,237 ------------------------------------------------------------------------------------------------------------------ Investment of gain distributions 211,383 26,605 -- 118,956 ------------------------------------------------------------------------------------------------------------------ Total 1,294,688 1,191,307 1,055,150 544,996 ------------------------------------------------------------------------------------------------------------------ Cost of shares repurchased (3,418,309) (5,257,705) (1,609,432) (3,439,972) ------------------------------------------------------------------------------------------------------------------ Exchanged into associated funds (288,077) (143,295) -- (47,989) ------------------------------------------------------------------------------------------------------------------ Total (3,706,386) (5,401,000) (1,609,432) (3,487,961) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS (2,411,698) (4,209,693) (554,282) (2,942,965) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS (4,108,052) (4,626,276) (991,377) (3,373,021) ------------------------------------------------------------------------------------------------------------------ NET ASSETS: ------------------------------------------------------------------------------------------------------------------ Beginning of year 25,459,007 30,085,283 13,757,189 17,130,210 ------------------------------------------------------------------------------------------------------------------ END OF YEAR* $21,350,955 $25,459,007 $12,765,812 $13,757,189 ------------------------------------------------------------------------------------------------------------------ ---------- * Including undistributed net investment income $ 66,331 $ 54,950 $ 63,535 $ 50,713
See Notes to Financial Statements. 23 Statements of Changes in Net Assets
NEW JERSEY FUND PENNSYLVANIA FUND -------------------------------- -------------------------------- YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, -------------------------------- -------------------------------- 2008 2007 2008 2007 ------------------------------------------------------------------------------------------------------------------ OPERATIONS: ------------------------------------------------------------------------------------------------------------------ Net investment income $ 1,189,307 $ 1,378,404 491,074 $ 567,772 ------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments 109,355 152,732 91,753 (23,382) ------------------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation of investments (1,895,489) (510,530) (690,084) (275,048) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM OPERATIONS (596,827) 1,020,606 (107,257) 269,342 ------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: ------------------------------------------------------------------------------------------------------------------ Net investment income: ------------------------------------------------------------------------------------------------------------------ Class A (1,065,351) (1,251,627) (454,897) (496,120) ------------------------------------------------------------------------------------------------------------------ Class C (71,238) (84,129) (18,632) (15,022) ------------------------------------------------------------------------------------------------------------------ Class D (16,944) (26,125) (6,745) (11,213) ------------------------------------------------------------------------------------------------------------------ Total (1,153,533) (1,361,881) (480,274) (522,355) ------------------------------------------------------------------------------------------------------------------ Net realized long-term gain on investments: ------------------------------------------------------------------------------------------------------------------ Class A (145,171) (87,975) -- -- ------------------------------------------------------------------------------------------------------------------ Class C (11,446) (8,786) -- -- ------------------------------------------------------------------------------------------------------------------ Class D (4,675) (2,220) -- -- ------------------------------------------------------------------------------------------------------------------ Total (161,292) (98,981) -- -- ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS (1,314,825) (1,460,862) (480,274) (522,355) ------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: ------------------------------------------------------------------------------------------------------------------ Net proceeds from sales of shares 1,218,866 1,626,910 625,794 204,074 ------------------------------------------------------------------------------------------------------------------ Investment of dividends 837,017 958,961 319,766 354,192 ------------------------------------------------------------------------------------------------------------------ Exchanged from associated funds 158,210 510,335 139,068 -- ------------------------------------------------------------------------------------------------------------------ Investment of gain distributions 127,190 77,261 -- -- ------------------------------------------------------------------------------------------------------------------ Total 2,341,283 3,173,467 1,084,628 558,266 ------------------------------------------------------------------------------------------------------------------ Cost of shares repurchased (5,267,211) (4,292,048) (2,255,065) (2,843,225) ------------------------------------------------------------------------------------------------------------------ Exchanged into associated funds (444,836) (1,154,399) (34,934) (199,728) ------------------------------------------------------------------------------------------------------------------ Total (5,712,047) (5,446,447) (2,289,999) (3,042,953) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS (3,370,764) (2,272,980) (1,205,371) (2,484,687) ------------------------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS (5,282,416) (2,713,236) (1,792,902) (2,737,700) ------------------------------------------------------------------------------------------------------------------ NET ASSETS: ------------------------------------------------------------------------------------------------------------------ Beginning of year 33,889,047 36,602,283 15,414,489 18,152,189 ------------------------------------------------------------------------------------------------------------------ END OF YEAR* $28,606,631 $33,889,047 $13,621,587 $15,414,489 ------------------------------------------------------------------------------------------------------------------ ---------- * Including undistributed net investment income $ 92,981 $ 81,812 $ 71,826 $ 95,402
See Notes to Financial Statements. 24 Notes to Financial Statements 1. ORGANIZATION AND MULTIPLE CLASSES OF SHARES -- Seligman Municipal Series Trust (the "Trust"), Seligman New Jersey Municipal Fund, Inc. (the "New Jersey Fund") and Seligman Pennsylvania Municipal Fund Series (the "Pennsylvania Fund") are registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), as non-diversified open-end management investment companies. The Trust consists of four separate funds: the "California High- Yield Fund," the "California Quality Fund," the "Florida Fund," and the "North Carolina Fund." Each Fund of the Trust, as well as the New Jersey Fund and the Pennsylvania Fund (each a "Fund", collectively, the "Funds"), offers two classes of shares. Class A shares are subject to a continuing service fee of up to 0.25% on an annual basis and, through January 6, 2008, were sold with an initial sales charge of up to 4.75% (4.5% effective January 7, 2008). Class A shares purchased in an amount of $1,000,000 or more are sold without an initial sales charge but are subject to a contingent deferred sales charge ("CDSC") of 1% on redemptions within 18 months of purchase. Effective January 7, 2008, eligible employee benefit plans that have at least $2,000,000 in plan assets may purchase Class A shares at net asset value, but, in the event of plan termination, will be subject to a CDSC of 1% on redemption of shares purchased within 18 months prior to plan termination. Class C shares are sold without an initial sales charge but are subject to a distribution fee of up to 0.75% and a service fee of up to 0.25% on an annual basis, and a CDSC, if applicable, of 1% imposed on redemptions made within one year of purchase. The Boards of Directors/Trustees of the Funds approved the automatic conversion of all of the Funds' outstanding Class D shares to Class C shares at their respective net asset values. The conversion was implemented on May 16, 2008. Effective at the close of business on May 16, 2008, the Funds no longer offer Class D shares. The conversion did not affect individual shareholder account values. All classes of shares for each Fund 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-specific expenses, and has exclusive voting rights with respect to any matter on which a separate vote of any class is required. 2. SIGNIFICANT ACCOUNTING POLICIES -- The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results may differ from these estimates. The following summarizes the significant accounting policies of the Funds: A. SECURITY VALUATION AND RISK -- Traded securities are valued at the last sales price on the primary market on which they are traded. Securities for which there is no last sales price are valued by independent pricing services based on bid prices which consider such factors as transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities, or are valued by the Funds' investment manager (the "Manager") based on quotations provided by primary market makers in such securities. Securities for which market quotations are not readily available (or are otherwise no longer valid or reliable) are valued at fair value determined in accordance with procedures approved by the Boards of Directors/Trustees. This can occur in the event of, among other things, natural disasters, acts of terrorism, market disruptions, intra-day trading halts, and extreme market volatility. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the prices used by other mutual funds to determine net asset value or the price that may be realized upon the actual sale of the security. Short-term holdings that mature in 60 days or less are valued at current market quotations or amortized cost if the Manager believes it approximates fair value. Short-term holdings that mature in more than 60 days are valued at current market quotations until the 60th day prior to maturity and are then valued as described above for securities maturing in 60 days or less. Fixed-income securities owned by the Funds are subject to interest-rate risk, credit risk, prepayment risk, and market risk. To the extent that the Funds concentrate their investments 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. B. RESTRICTED CASH -- Restricted cash represents deposits that are being held by banks as collateral for letters of credit issued in connection with the insurance policies of the Trust, New Jersey Fund and Pennsylvania Fund. C. MULTIPLE CLASS ALLOCATIONS -- Each Fund's income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares of that Fund 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, 2008, distribution and service fees were the only class-specific expenses. D. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Investment transactions are recorded on trade dates. Identified cost of investments sold is used for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis. The Funds amortize discounts and premiums paid on bonds and other debt securities for financial reporting purposes. Short-term holdings include securities with stated or effective maturity dates of less than one year. Variable rate demand notes purchased by the Funds may be put back to the designated remarketing agent for the issue at par on any day, for settlement within seven days, and, accordingly, are treated as short-term holdings. These notes bear interest at a rate that resets daily or weekly. At September 30, 2008, the interest rates paid on these notes ranged from 2.50% to 7.50%. 25 Notes to Financial Statements E. DISTRIBUTIONS TO SHAREHOLDERS -- Dividends are declared daily and paid monthly. Other distributions paid by the Funds are recorded on the ex- dividend date. F. TAXES -- There is no provision for federal income tax. Each Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all taxable net income and net realized gains. Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109," requires the Funds to measure and recognize in their financial statements the benefit of a tax position taken (or expected to be taken) on an income tax return if such position will more likely than not be sustained upon examination based on the technical merits of the position. The Funds file income tax returns in the US Federal jurisdiction, as well as the New York State and New York City jurisdictions. Based upon their review of tax positions for the Funds' open tax years of 2005-2008 in these jurisdictions, the Funds have determined that FIN 48 did not have a material impact on the Funds' financial statements for the year ended September 30, 2008. 3. MANAGEMENT FEE, DISTRIBUTION SERVICES, AND OTHER TRANSACTIONS -- The Manager manages the affairs of the Trust, the New Jersey Fund and the Pennsylvania Fund (see Note 10) and provides the necessary personnel and facilities. Compensation of all officers of the Trust, the New Jersey Fund and the Pennsylvania Fund, all directors/trustees of the Trust, the New Jersey Fund and the Pennsylvania Fund who are employees of the Manager, and all personnel of the Trust, the New Jersey Fund and the Pennsylvania Fund and the Manager is paid by the Manager. The Manager's fee is calculated daily and payable monthly, equal to 0.50% per annum of each Fund's average daily net assets. The Manager, at its discretion, agreed to waive a portion of its fees for the year ended September 30, 2008 to limit the per annum fee of California High- Yield Fund and Florida Fund to 0.40% and 0.35%, respectively. For the year ended September 30, 2008, the amounts of fees waived by the Manager for California High-Yield Fund and Florida Fund were $34,658 and $36,045, respectively. For the year ended September 30, 2008, Seligman Advisors, Inc. (the "Distributor"), agent for the distribution of the Funds' shares and an affiliate of the Manager, received the following commissions and concessions from sales of Class A shares. The following commissions were also paid to dealers for sales of Class A shares:
COMMISSIONS AND CONCESSIONS DEALER FUND RETAINED BY DISTRIBUTOR COMMISSIONS ------------------------------------------------------------- California High- Yield $13,104 $85,598 ------------------------------------------------------------- California Quality 5,413 32,385 ------------------------------------------------------------- Florida 1,194 8,883 ------------------------------------------------------------- North Carolina 1,995 12,728 ------------------------------------------------------------- New Jersey 2,283 18,489 ------------------------------------------------------------- Pennsylvania 1,313 11,781 -------------------------------------------------------------
Each 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 continuing fees of up to 0.25% on an annual basis 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 Funds monthly pursuant to the Plan. For the year ended September 30, 2008, for California High-Yield Fund, California Quality Fund, Florida Fund, North Carolina Fund, New Jersey Fund and Pennsylvania Fund, fees incurred under the Plan aggregated to $29,518, $36,951, $52,115, $31,183, $71,974 and $38,008, respectively, or 0.10%, 0.10%, 0.25%, 0.25%, 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 (only through May 16, 2008), 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 Funds to the Distributor pursuant to the Plan. For the year ended September 30, 2008, fees incurred under the Plan equivalent to 1% per annum of the average daily net assets of Class C and Class D (only through May 16, 2008) shares were as follows:
FUND CLASS C CLASS D ---------------------------------------------------- California High-Yield $35,791 $17,524 ---------------------------------------------------- California Quality 18,443 7,083 ---------------------------------------------------- Florida 23,796 6,288 ---------------------------------------------------- North Carolina 6,277 3,064 ---------------------------------------------------- New Jersey 25,859 6,128 ---------------------------------------------------- Pennsylvania 7,437 2,708 ----------------------------------------------------
The Distributor and Seligman Services, Inc., also an affiliate of the Manager, are eligible to receive distribution and service fees pursuant to the Plan. For the year ended September 30, 2008, the Distributor and Seligman Services, Inc. received distribution and service fees as follows:
DISTRIBUTION AND DISTRIBUTION AND FUND SERVICE FEES FUND SERVICE FEES ------------------------------------------------------------------------------------- California High-Yield $3,304 North Carolina $2,408 ------------------------------------------------------------------------------------- California Quality 1,714 New Jersey 9,423 ------------------------------------------------------------------------------------- Florida 2,836 Pennsylvania 712 -------------------------------------------------------------------------------------
The Distributor is entitled to retain any CDSC imposed on certain redemptions of shares. For the year ended September 30, 2008, such charges amounted to $141 for the California High-Yield Fund, $24 for the California Quality Fund and $2,320 for the New Jersey Fund. 26 Notes to Financial Statements For the year ended September 30, 2008, Seligman Data Corp., which is owned by certain associated investment companies, charged each Fund at cost for shareholder account services in accordance with a methodology approved by the Funds' directors/trustees as follows:
FUND FUND ------------------------------------------------------------- California High-Yield $57,715 North Carolina $23,747 ------------------------------------------------------------- California Quality 64,006 New Jersey 59,508 ------------------------------------------------------------- Florida 40,791 Pennsylvania 27,335 -------------------------------------------------------------
Costs of Seligman Data Corp. directly attributable to a Fund were charged to that Fund. The remaining charges were allocated to each Fund by Seligman Data Corp. pursuant to a formula based on each Fund's net assets, shareholder transaction volume and number of shareholder accounts. The Trust, New Jersey Fund and Pennsylvania Fund and certain other associated investment companies (together, the "Guarantors") have severally but not jointly guaranteed the performance and observance of all the terms and conditions of a lease entered into by Seligman Data Corp., including the payment of rent by Seligman Data Corp. (the "Guaranty"). The lease and the related Guaranty expire in January 2019. The obligation of a Guarantor to pay any amount due under the Guaranty is limited to a specified percentage of the full amount, which generally is based on each Guarantor's percentage of the expenses billed by Seligman Data Corp. to all Guarantors in the most recent calendar quarter. At September 30, 2008, the potential obligations under the Guaranty were $85,900 for the Trust, $27,500 for the New Jersey Fund and $11,900 for the Pennsylvania Fund. As of September 30, 2008, no event has occurred which would result in the Guarantors becoming liable to make any payment under the Guaranty. Each Fund of the Trust would bear a portion of any payments made by the Trust under the Guaranty. A portion of the rent paid by Seligman Data Corp. is charged to the Funds as part of Seligman Data Corp.'s shareholder account services cost. During the year ended September 30, 2008, certain officers and directors/trustees of the Trust, the New Jersey Fund and the Pennsylvania Fund were officers or directors of the Manager, the Distributor, Seligman Services, Inc., and/or Seligman Data Corp. The Trust, New Jersey Fund, and Pennsylvania Fund have a compensation agreement under which directors/trustees who receive fees may elect to defer receiving such fees. Directors/trustees may elect to have their deferred fees accrue interest or earn a return based on the performance of the Funds or other funds in the Seligman Group of Investment Companies. Deferred fees and related accrued earnings are not deductible by the Funds for federal income tax purposes until such amounts are paid. The cost of such fees and earnings/loss accrued thereon is included in directors'/trustees' fees and expenses, and the accumulated balances thereof at September 30, 2008, are included in accrued expenses and other liabilities as follows:
FUND FUND ------------------------------------------------------- California High-Yield $778 North Carolina $632 ------------------------------------------------------- California Quality 819 New Jersey 769 ------------------------------------------------------- Florida 709 Pennsylvania 639 -------------------------------------------------------
4. COMMITTED LINE OF CREDIT -- The Trust, New Jersey Fund, and Pennsylvania Fund are each participants in a joint $200 million committed line of credit that is shared by substantially all open-end funds in the Seligman Group of Investment Companies. Each Fund's borrowings are limited to 10% of its net assets. Borrowings pursuant to the credit facility are subject to interest at a per annum rate equal to the overnight federal funds rate plus 0.50%. Each Fund incurs a commitment fee of 0.12% per annum on its share of the unused portion of the credit facility. The credit facility may be drawn upon only for temporary purposes and is subject to certain other customary restrictions. The credit facility commitment expires in June 2009, but is renewable annually with the consent of the participating banks. For the year ended September 30, 2008, the Funds did not borrow from the credit facility. 5. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of portfolio securities, excluding short-term holdings, for the year ended September 30, 2008, were as follows:
FUND PURCHASES SALES ------------------------------------------------------- California High-Yield $2,188,323 $1,219,160 ------------------------------------------------------- California Quality 7,481,595 4,768,830 ------------------------------------------------------- Florida 2,143,560 4,108,290 ------------------------------------------------------- North Carolina 364,035 536,513 ------------------------------------------------------- New Jersey 2,610,797 3,644,980 ------------------------------------------------------- Pennsylvania 1,567,372 3,670,307 -------------------------------------------------------
27 Notes to Financial Statements 6. FEDERAL TAX INFORMATION -- Certain components of income, expense and realized capital gain and loss are recognized at different times or have a different character for federal income tax purposes and for financial reporting purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Funds. As a result of the differences described above, the treatment for financial reporting purposes of distributions made during the year from net investment income or net realized gains may differ from their ultimate treatment for federal income tax purposes. Further, the cost of investments also can differ for federal income tax purposes. At September 30, 2008, each Fund's cost of investments for federal income tax purposes was less than the cost for financial reporting purposes due to the amortization of market discount for financial reporting purposes, offset, in part, for the California Quality Fund by the tax deferral of losses on wash sales of $149,160. The tax basis cost of investments was as follows:
TAX FUND BASIS COST -------------------------------------------------- California High-Yield $36,453,117 -------------------------------------------------- California Quality 37,326,510 -------------------------------------------------- Florida 21,322,890 --------------------------------------------------
TAX FUND BASIS COST -------------------------------------------------- North Carolina $12,212,469 -------------------------------------------------- New Jersey 28,610,362 -------------------------------------------------- Pennsylvania 12,924,554 --------------------------------------------------
The tax basis components of accumulated earnings/losses at September 30, 2008 are presented below. Undistributed tax-exempt/ordinary income primarily consists of net investment income and net realized short-term gain.
CALIFORNIA CALIFORNIA NORTH NEW HIGH-YIELD QUALITY FLORIDA CAROLINA JERSEY PENNSYLVANIA ------------------------------------------------------------------------------------------------------------------------ Gross unrealized appreciation of portfolio securities $ 746,415 $ 470,459 $ 712,926 $ 548,428 $ 768,945 $ 557,377 ------------------------------------------------------------------------------------------------------------------------ Gross unrealized depreciation of portfolio securities (1,475,570) (1,455,824) (1,074,700) (226,076) (1,180,657) (198,376) ------------------------------------------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) of portfolio securities (729,155) (985,365) (361,774) 322,352 (411,712) 359,001 ------------------------------------------------------------------------------------------------------------------------ Undistributed tax-exempt/ordinary income 56,534 55,380 37,801 17,814 59,839 17,760 ------------------------------------------------------------------------------------------------------------------------ Undistributed long-term gain -- 144,903 593 15,873 113,423 125,056 ------------------------------------------------------------------------------------------------------------------------ Timing differences (post-October losses) (12,800) -- (118,001) -- -- -- ------------------------------------------------------------------------------------------------------------------------ Total accumulated earnings (losses) $ (685,421) $ (785,082) $ (441,381) $ 356,039 $ (238,450) $ 501,817 ------------------------------------------------------------------------------------------------------------------------
During the year ended September 30, 2008, the Pennsylvania Fund utilized $1,073 of prior year's capital loss carryforward to offset current year's net capital gains. From November 1, 2007 through September 30, 2008, the California High-Yield Fund and the Florida Fund incurred $12,800 and $118,001, respectively, of net realized capital losses. As permitted by tax regulations, these Funds intend to elect to defer these losses and treat them as arising in the fiscal year ending September 30, 2009. These losses will be available to offset future taxable net gains. The tax characterization of distributions paid is as follows:
YEAR ENDED SEPTEMBER 30, -------------------------- 2008 2007 ------------------------------------------------------------- Tax-exempt income: ------------------------------------------------------------- California High-Yield $1,365,363 $1,367,896 ------------------------------------------------------------- California Quality 1,483,342 1,732,412 ------------------------------------------------------------- Florida 916,758 1,123,416 ------------------------------------------------------------- North Carolina 429,297 528,453 ------------------------------------------------------------- New Jersey 1,153,533 1,361,881 ------------------------------------------------------------- Pennsylvania 480,274 522,355 ------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, -------------------------- 2008 2007 ------------------------------------------------------------- Long-term capital gains: ------------------------------------------------------------- California High-Yield $72,265 -- ------------------------------------------------------------- California Quality 315,424 $87,597 ------------------------------------------------------------- Florida 297,253 38,266 ------------------------------------------------------------- North Carolina -- 157,717 ------------------------------------------------------------- New Jersey 161,292 98,981 ------------------------------------------------------------- Pennsylvania -- -- -------------------------------------------------------------
28 Notes to Financial Statements 7. SHARE TRANSACTIONS -- Transactions in Shares of Beneficial Interest (for Funds of the Trust and Pennsylvania Fund) or Capital Stock were as follows:
CALIFORNIA HIGH-YIELD FUND --------------------------------------------------------------------------------------------------------------- YEAR ENDED 9/30/08* YEAR ENDED 9/30/07 --------------------------------------------------------------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 977,102 $ 6,327,055 71,761 $ 474,546 --------------------------------------------------------------------------------------------------------------- Investment of dividends 115,192 749,084 113,342 746,092 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 100,435 655,980 23,373 153,320 --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 6,725 43,981 -- -- --------------------------------------------------------------------------------------------------------------- 1,199,4- Total 54 7,776,100 208,476 1,373,958 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (545,964) (3,548,942) (364,823) (2,399,318) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (28,453) (186,652) (24,314) (159,903) --------------------------------------------------------------------------------------------------------------- Total (574,417) (3,735,594) (389,137) (2,559,221) --------------------------------------------------------------------------------------------------------------- Increase (decrease) 625,037 $ 4,040,506 (180,661) $(1,185,263) ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 117,673 $ 767,711 26,255 $ 173,481 --------------------------------------------------------------------------------------------------------------- Investment of dividends 11,836 76,859 8,598 56,675 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 3,086 19,474 -- -- --------------------------------------------------------------------------------------------------------------- Converted from Class D** 410,679 2,681,736 -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 609 3,990 -- -- --------------------------------------------------------------------------------------------------------------- Total 543,883 3,549,770 34,853 230,156 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (17,415) (113,193) (87,624) (576,871) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (770) (4,996) -- -- --------------------------------------------------------------------------------------------------------------- Total (18,185) (118,189) (87,624) (576,871) --------------------------------------------------------------------------------------------------------------- Increase (decrease) 525,698 $ 3,431,581 (52,771) $(346,715) --------------------------------------------------------------------------------------------------------------- CLASS D SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 9,491 $ 62,248 14 $ 95 --------------------------------------------------------------------------------------------------------------- Investment of dividends 3,741 24,436 5,697 37,567 --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 524 3,429 -- -- --------------------------------------------------------------------------------------------------------------- Total 13,756 90,113 5,711 37,662 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (26,096) (168,602) (43,634) (288,131) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (628) (4,137) (601) (3,971) --------------------------------------------------------------------------------------------------------------- Converted to Class C** (410,679) (2,681,736) -- -- --------------------------------------------------------------------------------------------------------------- Total (437,403) (2,854,475) (44,235) (292,102) --------------------------------------------------------------------------------------------------------------- Decrease (423,647) $(2,764,362) (38,524) $(254,440) ---------------------------------------------------------------------------------------------------------------
-------------------- See footnotes on page 34. 29 Notes to Financial Statements
CALIFORNIA QUALITY FUND --------------------------------------------------------------------------------------------------------------- YEAR ENDED 9/30/08* YEAR ENDED 9/30/07 --------------------------------------------------------------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 468,866 $ 3,034,516 67,380 $ 443,678 --------------------------------------------------------------------------------------------------------------- Investment of dividends 131,681 853,554 146,654 969,178 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 167,450 1,073,193 94,722 623,731 --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 32,862 213,923 8,598 57,262 --------------------------------------------------------------------------------------------------------------- Total 800,859 5,175,186 317,354 2,093,849 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (857,186) (5,555,360) (902,259) (5,955,830) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (98,504) (619,372) (48,662) (321,449) --------------------------------------------------------------------------------------------------------------- Total (955,690) (6,174,732) (950,921) (6,277,279) --------------------------------------------------------------------------------------------------------------- Decrease (154,831) $ (999,546) (633,567) $(4,183,430) --------------------------------------------------------------------------------------------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 67,923 $ 434,116 496 $ 3,286 --------------------------------------------------------------------------------------------------------------- Investment of dividends 6,931 44,654 6,585 43,369 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 1,292 8,297 2,551 16,899 --------------------------------------------------------------------------------------------------------------- Converted from Class D** 298,742 1,932,862 -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 1,758 11,391 513 3,408 --------------------------------------------------------------------------------------------------------------- Total 376,646 2,431,320 10,145 66,962 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (145,142) (937,696) (51,873) (342,091) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (842) (5,371) (6,809) (44,394) --------------------------------------------------------------------------------------------------------------- Total (145,984) (943,067) (58,682) (386,485) --------------------------------------------------------------------------------------------------------------- Increase (decrease) 230,662 $ 1,488,253 (48,537) $ (319,523) --------------------------------------------------------------------------------------------------------------- CLASS D SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 104,446 $ 670,033 6,824 $ 45,127 --------------------------------------------------------------------------------------------------------------- Investment of dividends 2,364 15,277 2,284 15,046 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 88,400 573,714 -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 497 3,222 153 1,017 --------------------------------------------------------------------------------------------------------------- Total 195,707 1,262,246 9,261 61,190 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (21,538) (139,565) (32,935) (216,881) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds -- -- (7,426) (48,937) --------------------------------------------------------------------------------------------------------------- Converted to Class C** (298,742) (1,932,862) -- -- --------------------------------------------------------------------------------------------------------------- Total (320,280) (2,072,427) (40,361) (265,818) --------------------------------------------------------------------------------------------------------------- Decrease (124,573) $ (810,181) (31,100) $ (204,628) ---------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 34. 30 Notes to Financial Statements
FLORIDA FUND --------------------------------------------------------------------------------------------------------------- YEAR ENDED 9/30/08* YEAR ENDED 9/30/07 --------------------------------------------------------------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 33,569 $ 252,729 42,311 $ 325,876 --------------------------------------------------------------------------------------------------------------- Investment of dividends 67,115 505,163 75,354 579,424 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 24,898 187,366 1,831 14,064 --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 24,187 182,610 2,880 22,322 --------------------------------------------------------------------------------------------------------------- Total 149,769 1,127,868 122,376 941,686 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (436,689) (3,278,621) (496,238) (3,819,160) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (30,865) (231,762) (18,570) (143,295) --------------------------------------------------------------------------------------------------------------- Total (467,554) (3,510,383) (514,808) (3,962,455) --------------------------------------------------------------------------------------------------------------- Decrease (317,785) $(2,382,515) (392,432) $(3,020,769) --------------------------------------------------------------------------------------------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 10,112 $ 75,721 1,199 $ 9,267 --------------------------------------------------------------------------------------------------------------- Investment of dividends 6,845 51,584 8,623 66,489 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds -- -- -- -- --------------------------------------------------------------------------------------------------------------- Converted from Class D** 129,626 980,460 -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 2,868 21,714 421 3,271 --------------------------------------------------------------------------------------------------------------- Total 149,451 1,129,479 10,243 79,027 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (16,397) (123,723) (146,963) (1,132,446) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (5,127) (38,969) -- -- --------------------------------------------------------------------------------------------------------------- Total (21,524) (162,692) (146,963) (1,132,446) --------------------------------------------------------------------------------------------------------------- Increase (decrease) 127,927 $ 966,787 (136,720) $(1,053,419) --------------------------------------------------------------------------------------------------------------- CLASS D SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares -- $ -- 19,364 $ 150,373 --------------------------------------------------------------------------------------------------------------- Investment of dividends 1,414 10,742 2,492 19,209 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds -- -- -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 932 7,059 130 1,012 --------------------------------------------------------------------------------------------------------------- Total 2,346 17,801 21,986 170,594 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (2,126) (15,965) (39,821) (306,099) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (2,288) (17,346) -- -- --------------------------------------------------------------------------------------------------------------- Converted to Class C** (129,626) (980,460) -- -- --------------------------------------------------------------------------------------------------------------- Total (134,040) (1,013,771) (39,821) (306,099) --------------------------------------------------------------------------------------------------------------- Decrease (131,694) $ (995,970) (17,835) $ (135,505) ---------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 34. 31 Notes to Financial Statements
NORTH CAROLINA FUND --------------------------------------------------------------------------------------------------------------- YEAR ENDED 9/30/08* YEAR ENDED 9/30/07 --------------------------------------------------------------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 81,287 $ 622,846 2,254 $ 16,966 --------------------------------------------------------------------------------------------------------------- Investment of dividends 31,790 245,089 41,155 317,627 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 5,885 45,023 2,569 19,792 --------------------------------------------------------------------------------------------------------------- Investment of gain distributions -- -- 13,961 109,034 --------------------------------------------------------------------------------------------------------------- Total 118,962 912,958 59,939 463,419 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (182,211) (1,403,709) (359,985) (2,750,774) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds -- -- (53) (407) --------------------------------------------------------------------------------------------------------------- Total (182,211) (1,403,709) (360,038) (2,751,181) --------------------------------------------------------------------------------------------------------------- Decrease (63,249) $ (490,751) (300,099) $(2,287,762) --------------------------------------------------------------------------------------------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 16,952 $ 130,072 787 $ 6,074 --------------------------------------------------------------------------------------------------------------- Investment of dividends 1,065 8,198 1,502 11,559 --------------------------------------------------------------------------------------------------------------- Converted from Class D** 62,390 482,897 -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions -- -- 949 7,401 --------------------------------------------------------------------------------------------------------------- Total 80,407 621,167 3,238 25,034 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (25,301) (193,313) (87,120) (661,830) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds -- -- -- -- --------------------------------------------------------------------------------------------------------------- Total (25,301) (193,313) (87,120) (661,830) --------------------------------------------------------------------------------------------------------------- Increase (decrease) 55,106 $ 427,854 (83,882) $ (636,796) --------------------------------------------------------------------------------------------------------------- CLASS D SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares -- -- 13 $ 94 --------------------------------------------------------------------------------------------------------------- Investment of dividends 508 $ 3,922 842 6,483 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds -- -- 6,106 47,445 --------------------------------------------------------------------------------------------------------------- Investment of gain distributions -- -- 323 2,521 --------------------------------------------------------------------------------------------------------------- Total 508 3,922 7,284 56,543 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (1,611) (12,410) (3,500) (27,368) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds -- -- (6,077) (47,582) --------------------------------------------------------------------------------------------------------------- Converted to Class C** (62,470) (482,897) -- -- --------------------------------------------------------------------------------------------------------------- Total (64,081) (495,307) (9,577) (74,950) --------------------------------------------------------------------------------------------------------------- Decrease (63,573) $ (491,385) (2,293) $ (18,407) ---------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 34. 32 Notes to Financial Statements
NEW JERSEY FUND --------------------------------------------------------------------------------------------------------------- YEAR ENDED 9/30/08* YEAR ENDED 9/30/07 --------------------------------------------------------------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 90,465 $ 652,394 212,721 $ 1,550,957 --------------------------------------------------------------------------------------------------------------- Investment of dividends 106,996 770,497 120,227 876,267 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 6,614 47,093 69,922 510,335 --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 15,966 115,247 9,308 68,323 --------------------------------------------------------------------------------------------------------------- Total 220,041 1,585,231 412,178 3,005,882 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (608,282) (4,355,199) (502,010) (3,653,723) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (61,745) (444,836) (107,099) (784,791) --------------------------------------------------------------------------------------------------------------- Total (670,027) (4,800,035) (609,109) (4,438,514) --------------------------------------------------------------------------------------------------------------- Decrease (449,986) $(3,214,804) (196,931) $(1,432,632) --------------------------------------------------------------------------------------------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 42,348 $ 305,327 6,316 $ 46,641 --------------------------------------------------------------------------------------------------------------- Investment of dividends 7,294 53,248 7,745 57,284 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 13,058 94,407 -- -- --------------------------------------------------------------------------------------------------------------- Converted from Class D** 98,857 725,007 -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 1,164 8,528 918 6,831 --------------------------------------------------------------------------------------------------------------- Total 162,721 1,186,517 14,979 110,756 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (70,905) (514,811) (75,811) (562,277) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds -- -- (49,713) (369,605) --------------------------------------------------------------------------------------------------------------- Total (70,905) (514,811) (125,524) (931,882) --------------------------------------------------------------------------------------------------------------- Increase (decrease) 91,816 $ 671,706 (110,545) $ (821,126) --------------------------------------------------------------------------------------------------------------- CLASS D SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 35,413 $ 261,145 3,958 $ 29,312 --------------------------------------------------------------------------------------------------------------- Investment of dividends 1,807 13,272 3,435 25,410 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 2,255 16,710 -- -- --------------------------------------------------------------------------------------------------------------- Investment of gain distributions 466 3,415 283 2,107 --------------------------------------------------------------------------------------------------------------- Total 39,941 294,542 7,676 56,829 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (54,281) (397,201) (10,231) (76,048) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds -- -- -- (3) --------------------------------------------------------------------------------------------------------------- Converted to Class C** (98,857) (725,007) -- -- --------------------------------------------------------------------------------------------------------------- Total (153,138) (1,122,208) (10,231) (76,051) --------------------------------------------------------------------------------------------------------------- Decrease (113,197) $ (827,666) (2,555) $ (19,222) ---------------------------------------------------------------------------------------------------------------
---------- See footnotes on page 34. 33 Notes to Financial Statements
PENNSYLVANIA FUND --------------------------------------------------------------------------------------------------------------- YEAR ENDED 9/30/08* YEAR ENDED 9/30/07 --------------------------------------------------------------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 48,922 $ 375,772 25,246 $ 196,716 --------------------------------------------------------------------------------------------------------------- Investment of dividends 40,324 311,358 44,478 344,905 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 14,221 109,499 -- -- --------------------------------------------------------------------------------------------------------------- Total 103,467 796,629 69,724 541,621 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (283,064) (2,182,918) (332,316) (2,583,615) --------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (4,526) (34,934) (25,515) (199,728) --------------------------------------------------------------------------------------------------------------- Total (287,590) (2,217,852) (357,831) (2,783,343) --------------------------------------------------------------------------------------------------------------- Decrease (184,123) $(1,421,223) (288,107) $(2,241,722) --------------------------------------------------------------------------------------------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 32,683 $ 250,022 935 $ 7,263 --------------------------------------------------------------------------------------------------------------- Investment of dividends 1,026 7,899 1,021 7,890 --------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 3,847 29,569 -- -- --------------------------------------------------------------------------------------------------------------- Converted from Class D** 55,161 425,890 -- -- --------------------------------------------------------------------------------------------------------------- Total 92,717 713,380 1,956 15,153 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (8,785) (66,742) (30,035) (234,376) --------------------------------------------------------------------------------------------------------------- Increase (decrease) 83,932 $ 646,638 (28,079) $ (219,223) --------------------------------------------------------------------------------------------------------------- CLASS D SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares -- -- 12 $ 95 --------------------------------------------------------------------------------------------------------------- Investment of dividends 66 $ 509 181 1,397 --------------------------------------------------------------------------------------------------------------- Total 66 509 193 1,492 --------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (690) (5,405) (3,294) (25,234) --------------------------------------------------------------------------------------------------------------- Converted to Class C** (55,161) (425,890) -- -- --------------------------------------------------------------------------------------------------------------- Total (55,851) (431,295) (3,294) (25,234) --------------------------------------------------------------------------------------------------------------- Decrease (55,785) $ (430,786) (3,101) $ (23,742) ---------------------------------------------------------------------------------------------------------------
---------- * October 1, 2007 to May 16, 2008, in the case of Class D shares. ** Effective May 16, 2008, Class D shares converted to Class C shares. 8. OTHER MATTERS -- In late 2003, J. & W. Seligman & Co. Incorporated ("JWS") conducted an extensive internal review concerning mutual fund trading practices. JWS's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies then managed by JWS (the "Seligman Funds"); this arrangement was in the process of being closed down by JWS before September 2003. JWS identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, JWS, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. JWS also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York ("NYAG"). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against JWS and the Distributor relating to frequent trading in the Seligman Funds. JWS responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that JWS had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against JWS, the Distributor, Seligman Data Corp. and Brian T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by JWS is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by JWS to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would 34 Notes to Financial Statements be paid by JWS and not by the Seligman Funds. If the NYAG obtains injunctive relief, each of JWS, RiverSource Investments, LLC ("RiverSource") and their affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies, including those funds in the RiverSource complex. Neither JWS nor RiverSource believes that the foregoing legal action or other possible actions will have a material adverse impact on JWS, RiverSource or their current and former clients, including the Seligman Funds and other investment companies managed by RiverSource; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. 9. RECENT ACCOUNTING PRONOUNCEMENT -- In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS No. 157"), "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value of assets and liabilities and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Funds are currently evaluating the impact of the adoption of SFAS No. 157 but believe the impact will be limited to expanded disclosures in the Funds' financial statements. 10.SUBSEQUENT EVENTS -- On November 7, 2008, RiverSource, a wholly owned subsidiary of Ameriprise Financial, Inc., announced the closing of its acquisition (the "Acquisition") of JWS. With the Acquisition completed and shareholders of each Fund having previously approved (at Special Meetings held earlier in November 2008) a new investment management services agreement between the Trust (with respect to each Fund of the Trust), New Jersey Fund and Pennsylvania Fund, as applicable, and RiverSource, RiverSource is the new investment manager of the Funds effective November 7, 2008. RiverSource will continue any voluntary fee waiver arrangements currently in effect for the Funds. 35 Financial Highlights The tables below are intended to help you understand the financial performance of each Class of each Fund for the periods presented. 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, fees or transaction costs on your investment or taxes investors may incur on distributions or on the redemption of shares, and are not annualized for periods of less than one year. CALIFORNIA HIGH-YIELD FUND
CLASS A -------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $6.55 $6.60 $6.62 $6.65 $6.59 -------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: -------------------------------------------------------------------------------------------------------------------- Net investment income 0.27 0.28 0.28 0.26 0.28 -------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.36) (0.06) (0.02) 0.04 0.06 -------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.09) 0.22 0.26 0.30 0.34 -------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: -------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.27) (0.27) (0.28) (0.26) (0.27) -------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.01) -- -- (0.07) (0.01) -------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.28) (0.27) (0.28) (0.33) (0.28) -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $6.18 $6.55 $6.60 $6.62 $6.65 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (1.51)% 3.35% 3.99% 4.63% 5.30% -------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: -------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $30,873 $28,641 $30,079 $31,432 $34,315 -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.92% 0.85% 0.90% 0.92% 0.90% -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.14% 4.25% 4.26% 3.97% 4.20% -------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 3.79% 8.03% -- 1.47% -- -------------------------------------------------------------------------------------------------------------------- Without management fee waiver:* -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.02% 0.95% 1.00% 1.02% 1.00% -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.04% 4.15% 4.16% 3.87% 4.10% --------------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 36 Financial Highlights CALIFORNIA HIGH-YIELD FUND (continued)
CLASS C ---------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------ PER SHARE DATA: 2008 2007 2006 2005 2004 ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $6.56 $6.61 $6.63 $6.66 $6.60 ---------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ---------------------------------------------------------------------------------------------------------------- Net investment income 0.21 0.22 0.22 0.20 0.22 ---------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.37) (0.06) (0.02) 0.04 0.06 ---------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.16) 0.16 0.20 0.24 0.28 ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ---------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.21) (0.21) (0.22) (0.20) (0.21) ---------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.01) -- -- (0.07) (0.01) ---------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.22) (0.21) (0.22) (0.27) (0.22) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $6.18 $6.56 $6.61 $6.63 $6.66 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (2.54)% 2.42% 3.06% 3.69% 4.35% ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ---------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $5,402 $2,281 $2,649 $2,475 $2,964 ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.82% 1.75% 1.80% 1.82% 1.80% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.24% 3.35% 3.35% 3.07% 3.30% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 3.79% 8.03% -- 1.47% -- ---------------------------------------------------------------------------------------------------------------- Without management fee waiver:* ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.92% 1.85% 1.90% 1.92% 1.90% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.14% 3.25% 3.25% 2.97% 3.20% ----------------------------------------------------------------------------------------------------------------
CLASS D ---------------------------------------------------------------------------------------------------------------- Year Ended September 30, 10/1/07 TO ---------------------------------------------------- PER SHARE DATA: 5/16/08** 2007 2006 2005 2004 ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $6.56 $6.61 $6.63 $6.66 $6.60 ---------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ---------------------------------------------------------------------------------------------------------------- Net investment income 0.13 0.22 0.22 0.20 0.22 ---------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.02) (0.06) (0.02) 0.04 0.06 ---------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.11 0.16 0.20 0.24 0.28 ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ---------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.13) (0.21) (0.22) (0.20) (0.21) ---------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.01) -- -- (0.07) (0.01) ---------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.14) (0.21) (0.22) (0.27) (0.22) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $6.53 $6.56 $6.61 $6.63 $6.66 ---------------------------------------------------------------------------------------------------- TOTAL RETURN 1.80% 2.42% 3.06% 3.69% 4.35% ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ---------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) -- $2,778 $3,056 $2,988 $2,519 ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.88%+ 1.75% 1.80% 1.82% 1.80% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.19%+ 3.35% 3.35% 3.07% 3.30% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 3.79%++ 8.03% -- 1.47% -- ---------------------------------------------------------------------------------------------------------------- Without management fee waiver:* ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.98%+ 1.85% 1.90% 1.92% 1.90% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.08%+ 3.25% 3.25% 2.97% 3.20% ----------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 37 Financial Highlights CALIFORNIA QUALITY FUND
CLASS A -------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $6.57 $6.69 $6.79 $6.89 $6.88 -------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: -------------------------------------------------------------------------------------------------------------------- Net investment income 0.26 0.28 0.28 0.28 0.28 -------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.40) (0.12) (0.07) (0.02) -- -------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.14) 0.16 0.21 0.26 0.28 -------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: -------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.25) (0.27) (0.28) (0.27) (0.27) -------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.05) (0.01) (0.03) (0.09) -- -------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.30) (0.28) (0.31) (0.36) (0.27) -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $6.13 $6.57 $6.69 $6.79 $6.89 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (2.26)% 2.51% 3.14% 3.90% 4.23% -------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: -------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $34,123 $37,598 $42,495 $47,186 $51,395 -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.99% 0.92% 0.94% 0.94% 0.93% -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.97% 4.17% 4.19% 4.04% 4.06% -------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 13.20% 4.66% -- -- 0.86% --------------------------------------------------------------------------------------------------------------------
CLASS C ---------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------ PER SHARE DATA: 2008 2007 2006 2005 2004 ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $6.54 $6.66 $6.76 $6.87 $6.85 ---------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ---------------------------------------------------------------------------------------------------------------- Net investment income 0.20 0.22 0.22 0.21 0.22 ---------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.40) (0.12) (0.07) (0.02) 0.01 ---------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.20) 0.10 0.15 0.19 0.23 ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ---------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.19) (0.21) (0.22) (0.21) (0.21) ---------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.05) (0.01) (0.03) (0.09) -- ---------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.24) (0.22) (0.25) (0.30) (0.21) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $6.10 $6.54 $6.66 $6.76 $6.87 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (3.15)% 1.60% 2.23% 2.84% 3.46% ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ---------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $2,872 $1,570 $1,921 $3,259 $4,783 ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.89% 1.82% 1.84% 1.84% 1.83% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.07% 3.27% 3.29% 3.13% 3.16% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 13.20% 4.66% -- -- 0.86% ----------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 38 Financial Highlights CALIFORNIA QUALITY FUND (continued)
CLASS D --------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, --------------------------------------------------- PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004 --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $6.54 $6.66 $6.76 $6.87 $6.85 --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: --------------------------------------------------------------------------------------------------------------------------- Net investment income 0.12 0.22 0.22 0.21 0.22 --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.02) (0.12) (0.07) (0.02) 0.01 --------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.10 0.10 0.15 0.19 0.23 --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: --------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.12) (0.21) (0.22) (0.21) (0.21) --------------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.05) (0.01) (0.03) (0.09) -- --------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.17) (0.22) (0.25) (0.30) (0.21) --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $6.47 $6.54 $6.66 $6.76 $6.87 ---------------------------------------------------------------------------------------------------- TOTAL RETURN 1.62% 1.60% 2.23% 2.84% 3.46% --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: --------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) -- $815 $1,037 $1,022 $1,306 --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.93%+ 1.82% 1.84% 1.84% 1.83% --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 2.87%+ 3.27% 3.29% 3.13% 3.16% --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 13.20%++ 4.66% -- -- 0.86% ---------------------------------------------------------------------------------------------------------------------------
FLORIDA FUND
CLASS A -------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.66 $7.77 $7.92 $8.00 $8.08 -------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: -------------------------------------------------------------------------------------------------------------------- Net investment income 0.30 0.33 0.33 0.33 0.32 -------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.46) (0.11) (0.11) (0.08) (0.06) -------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.16) 0.22 0.22 0.25 0.26 -------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: -------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.30) (0.32) (0.32) (0.32) (0.32) -------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.09) (0.01) (0.05) (0.01) (0.02) -------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.39) (0.33) (0.37) (0.33) (0.34) -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $7.11 $7.66 $7.77 $7.92 $8.00 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (2.31)% 2.88% 2.86% 3.17% 3.26% -------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: -------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $18,510 $22,372 $25,750 $29,298 $32,470 -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.05% 0.99% 1.00% 0.98% 0.99% -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 4.01% 4.23% 4.20% 4.11% 4.05% -------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9.43% 18.37% 5.12% -- -- -------------------------------------------------------------------------------------------------------------------- Without management fee waiver:* -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.20% 1.14% 1.15% 1.13% 1.14% -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.86% 4.08% 4.05% 3.96% 3.90% --------------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 39 Financial Highlights FLORIDA FUND (continued)
CLASS C ---------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------ PER SHARE DATA: 2008 2007 2006 2005 2004 ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.67 $7.79 $7.93 $8.02 $8.09 ---------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ---------------------------------------------------------------------------------------------------------------- Net investment income 0.25 0.27 0.27 0.27 0.26 ---------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.47) (0.12) (0.09) (0.09) (0.05) ---------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.22) 0.15 0.18 0.18 0.21 ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ---------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.23) (0.26) (0.27) (0.26) (0.26) ---------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.09) (0.01) (0.05) (0.01) (0.02) ---------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.32) (0.27) (0.32) (0.27) (0.28) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $7.13 $7.67 $7.79 $7.93 $8.02 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (2.97)% 1.98% 2.22% 2.27% 2.61% ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ---------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $2,841 $2,076 $3,171 $3,907 $4,683 ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.80% 1.74% 1.75% 1.73% 1.74% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.26% 3.48% 3.45% 3.36% 3.30% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9.43% 18.37% 5.12% -- -- ---------------------------------------------------------------------------------------------------------------- Without management fee waiver:* ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.95% 1.89% 1.90% 1.88% 1.89% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.11% 3.33% 3.30% 3.21% 3.15% ----------------------------------------------------------------------------------------------------------------
CLASS D ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ---------------------------------------------------- PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004 ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $7.67 $7.79 $7.93 $8.02 $8.10 ---------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ---------------------------------------------------------------------------------------------------------------------------- Net investment income 0.15 0.27 0.27 0.27 0.26 ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.03) (0.12) (0.09) (0.09) (0.06) ---------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.12 0.15 0.18 0.18 0.20 ---------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ---------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.14) (0.26) (0.27) (0.26) (0.26) ---------------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.09) (0.01) (0.05) (0.01) (0.02) ---------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.23) (0.27) (0.32) (0.27) (0.28) ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $7.56 $7.67 $7.79 $7.93 $8.02 ---------------------------------------------------------------------------------------------------- TOTAL RETURN 1.63% 1.98% 2.22% 2.27% 2.48% ---------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) -- $1,011 $1,164 $1,176 $1,351 ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.81%+ 1.74% 1.75% 1.73% 1.74% ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.11%+ 3.48% 3.45% 3.36% 3.30% ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9.43%++ 18.37% 5.12% -- -- ---------------------------------------------------------------------------------------------------------------------------- Without management fee waiver:* ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.96%+ 1.89% 1.90% 1.88% 1.89% ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 2.96%+ 3.33% 3.30% 3.21% 3.15% ----------------------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 40 Financial Highlights NORTH CAROLINA FUND
CLASS A -------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.68 $7.86 $7.94 $8.05 $8.14 -------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: -------------------------------------------------------------------------------------------------------------------- Net investment income 0.26 0.27 0.27 0.29 0.29 -------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.27) (0.12) (0.02) (0.10) (0.07) -------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.01) 0.15 0.25 0.19 0.22 -------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: -------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.25) (0.26) (0.27) (0.28) (0.28) -------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain -- (0.07) (0.06) (0.02) (0.03) -------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.25) (0.33) (0.33) (0.30) (0.31) -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $7.42 $7.68 $7.86 $7.94 $8.05 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (0.19)% 1.95% 3.14% 2.45% 2.82% -------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: -------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $11,901 $12,799 $15,471 $16,781 $19,856 -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.38% 1.29% 1.28% 1.24% 1.19% -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.39% 3.46% 3.51% 3.60% 3.55% -------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 2.86% 5.17% 29.32% -- 7.93% --------------------------------------------------------------------------------------------------------------------
CLASS C -------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ---------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.67 $7.86 $7.94 $8.04 $8.13 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: -------------------------------------------------------------------------------------------------------------- Net investment income 0.20 0.21 0.22 0.23 0.22 -------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.26) (0.13) (0.03) (0.09) (0.06) -------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.06) 0.08 0.19 0.14 0.16 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: -------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.19) (0.20) (0.21) (0.22) (0.22) -------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain -- (0.07) (0.06) (0.02) (0.03) -------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.19) (0.27) (0.27) (0.24) (0.25) -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $7.42 $7.67 $7.86 $7.94 $8.04 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (0.87)% 1.06% 2.37% 1.82% 2.06% -------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: -------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $865 $471 $1,142 $1,414 $3,012 -------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.13% 2.04% 2.03% 1.99% 1.94% -------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 2.64% 2.71% 2.76% 2.85% 2.80% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 2.86% 5.17% 29.32% -- 7.93% --------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 41 Financial Highlights NORTH CAROLINA FUND (continued)
CLASS D ------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------ PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $7.66 $7.85 $7.93 $8.04 $8.13 ------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ------------------------------------------------------------------------------------------------------------------------- Net investment income 0.12 0.21 0.22 0.23 0.23 ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments 0.07 (0.13) (0.03) (0.10) (0.06) ------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.19 0.08 0.19 0.13 0.16 ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.12) (0.20) (0.21) (0.22) (0.22) ------------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain -- (0.07) (0.06) (0.02) (0.03) ------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.12) (0.27) (0.27) (0.24) (0.25) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $7.73 $7.66 $7.85 $7.93 $8.04 ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- TOTAL RETURN 2.44% 1.06% 2.37% 1.69% 2.06% ------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) -- $487 $517 $532 $706 ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.13%+ 2.04% 2.03% 1.99% 1.94% ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 2.50%+ 2.71% 2.76% 2.85% 2.80% ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 2.86%++ 5.17% 29.32% -- 7.93% -------------------------------------------------------------------------------------------------------------------------
NEW JERSEY FUND
CLASS A -------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.28 $7.37 $7.49 $7.54 $7.60 -------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: -------------------------------------------------------------------------------------------------------------------- Net investment income 0.27 0.29 0.30 0.30 0.29 -------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.42) (0.07) (0.08) (0.04) (0.05) -------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.15) 0.22 0.22 0.26 0.24 -------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: -------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.26) (0.29) (0.30) (0.30) (0.29) -------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.04) (0.02) (0.04) (0.01) (0.01) -------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.30) (0.31) (0.34) (0.31) (0.30) -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $6.83 $7.28 $7.37 $7.49 $7.54 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (2.23)% 3.04% 2.99% 3.40% 3.28% -------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: -------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $25,680 $30,619 $32,449 $35,209 $43,324 -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.25% 1.17% 1.15% 1.20% 1.13% -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.75% 4.00% 4.03% 3.95% 3.91% -------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 8.46% 21.67% 4.39% 2.53% -- --------------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 42 Financial Highlights NEW JERSEY FUND (continued)
CLASS C ---------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------ PER SHARE DATA: 2008 2007 2006 2005 2004 ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.38 $7.47 $7.59 $7.64 $7.69 ---------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ---------------------------------------------------------------------------------------------------------------- Net investment income 0.22 0.24 0.24 0.24 0.24 ---------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.42) (0.08) (0.08) (0.04) (0.04) ---------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.20) 0.16 0.16 0.20 0.20 ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ---------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.20) (0.23) (0.24) (0.24) (0.24) ---------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.04) (0.02) (0.04) (0.01) (0.01) ---------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.24) (0.25) (0.28) (0.25) (0.25) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $6.94 $7.38 $7.47 $7.59 $7.64 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (2.87)% 2.22% 2.17% 2.57% 2.58% ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ---------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $2,927 $2,435 $3,289 $3,453 $3,659 ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.00% 1.92% 1.91% 1.96% 1.90% ---------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.00% 3.25% 3.28% 3.19% 3.14% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 8.46% 21.67% 4.39% 2.53% -- ----------------------------------------------------------------------------------------------------------------
CLASS D -------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------- PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004 -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $7.38 $7.47 $7.59 $7.64 $7.69 -------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: -------------------------------------------------------------------------------------------------------------------------- Net investment income 0.13 0.24 0.24 0.24 0.24 -------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.01) (0.08) (0.08) (0.04) (0.04) -------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.12 0.16 0.16 0.20 0.20 -------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: -------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.13) (0.23) (0.24) (0.24) (0.24) -------------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain (0.04) (0.02) (0.04) (0.01) (0.01) -------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.17) (0.25) (0.28) (0.25) (0.25) -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $7.33 $7.38 $7.47 $7.59 $7.64 ---------------------------------------------------------------------------------------------------- TOTAL RETURN 1.56% 2.22% 2.17% 2.57% 2.58% -------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) -- $836 $864 $920 $1,002 -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.98%+ 1.92% 1.91% 1.96% 1.90% -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 2.88%+ 3.25% 3.28% 3.19% 3.14% -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 8.46%++ 21.67% 4.39% 2.53% -- --------------------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 43 Financial Highlights PENNSYLVANIA FUND
CLASS A ------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ---------------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.72 $7.84 $7.93 $8.03 $8.09 ------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ------------------------------------------------------------------------------------------------------------------- Net investment income 0.26 0.27 0.27 0.28 0.27 ------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.32) (0.14) (0.04) (0.10) (0.05) ------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.06) 0.13 0.23 0.18 0.22 ------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.26) (0.25) (0.26) (0.27) (0.27) ------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain -- -- (0.06) (0.01) (0.01) ------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.26) (0.25) (0.32) (0.28) (0.28) ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $7.40 $7.72 $7.84 $7.93 $8.03 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (0.91)% 1.69% 3.02% 2.34% 2.72% ------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $12,467 $14,428 $16,906 $18,548 $19,721 ------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.49% 1.35% 1.43% 1.48% 1.36% ------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.42% 3.50% 3.45% 3.54% 3.32% ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 11.29% -- 2.98% 18.95% 5.34% -------------------------------------------------------------------------------------------------------------------
CLASS C ------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, --------------------------------------------------------------- PER SHARE DATA: 2008 2007 2006 2005 2004 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $7.70 $7.82 $7.91 $8.01 $8.07 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ------------------------------------------------------------------------------------------------------------- Net investment income 0.21 0.21 0.21 0.22 0.21 ------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments (0.33) (0.14) (0.04) (0.10) (0.05) ------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (0.12) 0.07 0.17 0.12 0.16 ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.19) (0.19) (0.20) (0.21) (0.21) ------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain -- -- (0.06) (0.01) (0.01) ------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.19) (0.19) (0.26) (0.22) (0.22) ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $7.39 $7.70 $7.82 $7.91 $8.01 ---------------------------------------------------------------------------------------------------- TOTAL RETURN (1.59)% 0.94% 2.26% 1.58% 1.96% ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $1,154 $557 $785 $913 $1,100 ------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.24% 2.11% 2.18% 2.23% 2.11% ------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 2.67% 2.74% 2.70% 2.79% 2.57% ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 11.29% -- 2.98% 18.95% 5.34% -------------------------------------------------------------------------------------------------------------
---------------------- See footnotes on page 45. 44 Financial Highlights PENNSYLVANIA FUND (continued)
CLASS D ------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------ PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $7.70 $7.82 $7.91 $8.01 $8.07 ------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: ------------------------------------------------------------------------------------------------------------------------- Net investment income 0.13 0.21 0.21 0.22 0.21 ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments 0.01 (0.14) (0.04) (0.10) (0.05) ------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.14 0.07 0.17 0.12 0.16 ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: ------------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (0.12) (0.19) (0.20) (0.21) (0.21) ------------------------------------------------------------------------------------------------------------------------- Distributions from net realized capital gain -- -- (0.06) (0.01) (0.01) ------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (0.12) (0.19) (0.26) (0.22) (0.22) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $7.72 $7.70 $7.82 $7.91 $8.01 ---------------------------------------------------------------------------------------------------- TOTAL RETURN 1.85% 0.94% 2.26% 1.58% 1.96% ------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) -- $430 $460 $490 $556 ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.25%+ 2.11% 2.18% 2.23% 2.11% ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 2.58%+ 2.74% 2.70% 2.79% 2.57% ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 11.29%++ -- 2.98% 18.95% 5.34% -------------------------------------------------------------------------------------------------------------------------
---------------------- + Annualized. ++ Computed at the Fund level for the year ended September 30, 2008. * During the periods stated, the Manager, at its discretion, waived portions of its management fees for California High-Yield Fund and Florida Fund (Note 3). ** Date of conversion to Class C shares. See Notes to Financial Statements. 45 Report of Independent Registered Public Accounting Firm THE BOARDS OF DIRECTORS/TRUSTEES AND SHAREHOLDERS, SELIGMAN MUNICIPAL SERIES TRUST, SELIGMAN NEW JERSEY MUNICIPAL FUND, INC. AND SELIGMAN PENNSYLVANIA MUNICIPAL FUND SERIES: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Seligman Municipal Series Trust (comprising the California High-Yield, California Quality, Florida and North Carolina Funds), Seligman New Jersey Municipal Fund, Inc. and Seligman Pennsylvania Municipal Fund Series (collectively referred to as the "Funds") as of September 30, 2008, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2008, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the portfolios constituting Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc. and Seligman Pennsylvania Municipal Fund Series as of September 30, 2008, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York November 26, 2008 46 Proxy Results Shareholders of Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., and Seligman Pennsylvania Municipal Fund Series voted on two proposals at Special Meetings of Shareholders held on November 3, 2008. Shareholders voted in favor of each of the proposals. The description of each proposal and number of shares voted are as follows: PROPOSAL 1 To consider and vote upon the proposed Investment Management Services Agreement with RiverSource Investments, LLC: SELIGMAN MUNICIPAL SERIES TRUST:
CALIFORNIA HIGH-YIELD FUND ------------------------------------------- FOR AGAINST ABSTAIN ------------------------------------------- 2,530,285.689 192,468.110 141,283.953 -------------------------------------------
CALIFORNIA QUALITY FUND ------------------------------------------- FOR AGAINST ABSTAIN ------------------------------------------- 2,744,768.210 160,994.776 185,441.425 -------------------------------------------
FLORIDA FUND ----------------------------------------- FOR AGAINST ABSTAIN ----------------------------------------- 1,636,690.350 36,075.000 53,483.184 -----------------------------------------
NORTH CAROLINA FUND ----------------------------------------- FOR AGAINST ABSTAIN ----------------------------------------- 1,020,609.304 46,124.233 37,652.613 -----------------------------------------
SELIGMAN NEW JERSEY MUNICIPAL FUND, INC. ----------------------------------------- FOR AGAINST ABSTAIN ----------------------------------------- 2,026,820.313 62,657.608 29,986.320 -----------------------------------------
SELIGMAN PENNSYLVANIA MUNICIPAL FUND SERIES ----------------------------------------- FOR AGAINST ABSTAIN ----------------------------------------- 1,050,505.700 36,256.326 19,022.124 -----------------------------------------
PROPOSAL 2 To elect 10 directors/trustees to the Boards:
SELIGMAN MUNICIPAL SERIES TRUST ------------------------------------------------------- FOR WITHHELD ------------------------------------------------------- Kathleen Blatz 10,298,999.893 559,520.954 ------------------------------------------------------- Arne H. Carlson 10,272,412.616 586,108.231 ------------------------------------------------------- Pamela G. Carlton 10,289,424.664 569,096.183 ------------------------------------------------------- Patricia M. Flynn 10,296,254.371 562,266.476 ------------------------------------------------------- Anne P. Jones 10,294,921.038 563,599.809 ------------------------------------------------------- Jeffrey Laikind 10,288,091.331 570,429.516 ------------------------------------------------------- Stephen R. Lewis, Jr. 10,286,673.914 571,846.933 ------------------------------------------------------- Catherine James Paglia 10,288,007.247 570,513.600 ------------------------------------------------------- Alison Taunton-Rigby 10,231,269.146 627,251.701 ------------------------------------------------------- William F. Truscott 10,288,822.780 569,698.067 -------------------------------------------------------
SELIGMAN NEW JERSEY MUNICIPAL FUND, INC. ----------------------------------------------------- FOR WITHHELD ----------------------------------------------------- Kathleen Blatz 2,602,730.095 52,759.146 ----------------------------------------------------- Arne H. Carlson 2,602,730.095 52,759.146 ----------------------------------------------------- Pamela G. Carlton 2,597,484.095 58,005.146 ----------------------------------------------------- Patricia M. Flynn 2,602,730.095 52,759.146 ----------------------------------------------------- Anne P. Jones 2,602,730.095 52,759.146 ----------------------------------------------------- Jeffrey Laikind 2,597,484.095 58,005.146 ----------------------------------------------------- Stephen R. Lewis, Jr. 2,597,484.095 58,005.146 ----------------------------------------------------- Catherine James Paglia 2,602,730.095 52,759.146 ----------------------------------------------------- Alison Taunton-Rigby 2,602,730.095 52,759.146 ----------------------------------------------------- William F. Truscott 2,597,484.095 58,005.146 -----------------------------------------------------
SELIGMAN PENNSYLVANIA MUNICIPAL FUND SERIES ----------------------------------------------------- FOR WITHHELD ----------------------------------------------------- Kathleen Blatz 1,341,138.192 32,791.958 ----------------------------------------------------- Arne H. Carlson 1,335,331.376 38,598.774 ----------------------------------------------------- Pamela G. Carlton 1,341,138.192 32,791.958 ----------------------------------------------------- Patricia M. Flynn 1,341,138.192 32,791.958 ----------------------------------------------------- Anne P. Jones 1,341,138.192 32,791.958 ----------------------------------------------------- Jeffrey Laikind 1,335,331.376 38,598.774 ----------------------------------------------------- Stephen R. Lewis, Jr. 1,335,331.376 38,598.774 ----------------------------------------------------- Catherine James Paglia 1,341,138.192 32,791.958 ----------------------------------------------------- Alison Taunton-Rigby 1,341,138.192 32,791.958 ----------------------------------------------------- William F. Truscott 1,335,331.376 38,598.774 -----------------------------------------------------
47 Matters Relating to the Directors'/Trustees' Consideration of the Approval of the Investment Management Services Agreements In the discussion below, the term "Fund" refers to Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc. and Seligman Pennsylvania Municipal Fund Series and the term "Series" refers to Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series and the California High-Yield Fund, the California Quality Fund, the Florida Fund, and the North Carolina Fund of Seligman Municipal Series Trust. References to the "directors" includes the directors of Seligman New Jersey Municipal Fund, Inc., the trustees of Seligman Pennsylvania Municipal Fund Series, and the trustees of Seligman Municipal Series Trust. BACKGROUND On July 7, 2008 RiverSource Investments, LLC ("RiverSource"), a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise"), entered into a stock purchase agreement with the stockholders of J. & W. Seligman & Co. Incorporated ("Seligman") under which RiverSource would acquire all of the outstanding capital stock of Seligman (the "Transaction"). The consummation of the Transaction results in the automatic termination of the applicable management agreement with Seligman relating to each Series (each, a "Seligman Management Agreement"). In anticipation of the termination of the applicable Seligman Management Agreement, at a meeting held on July 29, 2008, the directors unanimously approved an investment management agreement with RiverSource between each Fund (and each Series) (each, a "Proposed Advisory Agreement"). At the special meetings of shareholders of the Funds held on November 3, 2008, the shareholders of each Fund (and each Series) approved the Proposed Advisory Agreement in respect of such Fund (and such Series). The Transaction closed on November 7, 2008 and upon the closing, RiverSource became the investment adviser to each Fund (and each Series). BOARD CONSIDERATIONS Prior to their approval of the Proposed Advisory Agreements, the directors requested and evaluated extensive materials from, and were provided materials and information about the Transaction and other matters by, Seligman, RiverSource and Ameriprise. In consultation with experienced counsel, who advised on the legal standards for consideration by the directors, the directors reviewed each Proposed Advisory Agreement with RiverSource. The independent directors also discussed the proposed approvals with counsel in private sessions. At their meetings on June 12, 2008, July 17, 2008 and July 29, 2008, the directors discussed the Transaction with Seligman, and the Transaction and RiverSource's plans and intentions regarding the Funds with representatives of Ameriprise and RiverSource. The directors considered all factors they believed relevant, including the specific matters discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and directors may have attributed different weights to the various factors. The directors determined that the selection of RiverSource to advise each Fund (and each Series), and the overall arrangements between each Fund (and each Series) and RiverSource as provided in the Proposed Advisory Agreements, including the proposed advisory fees and the related administration arrangements between each Fund (and each Series) and Ameriprise, were fair and reasonable in light of the services to be performed, expenses incurred and such other matters as the directors considered relevant. The material factors and conclusions that formed the basis for the directors' determination included, in addition, the factors discussed in further detail below: (i) the reputation, financial strength and resources of RiverSource, and its parent, Ameriprise; (ii) the capabilities of RiverSource with respect to compliance and its regulatory histories; (iii) an assessment of RiverSource's compliance system by the Funds' Chief Compliance Officer; (iv) that the portfolio management team for each Series would not change as a result of the Transaction; (v) that RiverSource and Ameriprise assured the directors that following the Transaction there will not be any diminution in the nature, quality and extent of services provided to the Funds (and Series) or their shareholders; (vi) that within the past year the directors had performed a full annual review of the Seligman Management Agreement, as required by the Investment Company Act of 1940 ("1940 Act"), for the Funds (and Series) and had determined that they were satisfied with the nature, extent and quality of services provided thereunder and that the management fee rates for the Funds (and Series) were satisfactory; (vii) the potential benefits to each Fund (and Series) of the combination of RiverSource and Seligman, including: greater resources to attract and retain high quality investment personnel; greater depth and breadth of investment management capabilities; a continued high level of service to each Fund (and Series); and the potential for realization of economies of scale over time since each Fund (and Series) will be part of a much larger fund complex; (viii) the fact that each Series' total advisory and administrative fees would not increase by virtue of the Proposed Advisory Agreements, but would remain the same; 48 Matters Relating to the Directors'/Trustees' Consideration of the Approval of the Investment Management Services Agreements (ix) that RiverSource, and not the Funds or Series, would bear the costs of obtaining all approvals of the Proposed Advisory Agreements; (x) the qualifications of the personnel of RiverSource and Ameriprise that would provide advisory and administrative services to the Funds (and Series); (xi) the terms and conditions of the Proposed Advisory Agreements, including the directors' review of differences from the Seligman Management Agreements; (xii) that RiverSource and Ameriprise have agreed to refrain from imposing or seeking to impose, for a period of two years after the Closing, any "unfair burden" (within the meaning of Section 15(f) of 1940 Act) on the Funds (and Series); and (xiii) that certain members of RiverSource's management have a significant amount of experience integrating other fund families. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED In considering the nature, extent and quality of the services to be provided under the Proposed Advisory Agreements, the directors considered, among other things, the expected impact of the Transaction on the operations of the Funds (and Series), the information provided by RiverSource with respect to the nature, extent and quality of services to be provided by it and its compliance programs and compliance records, and presentations provided on the quality of RiverSource's investment research capabilities and the other resources it and Ameriprise have indicated that they would dedicate to performing services for the Funds and Series. The directors noted the professional experience and qualifications of the current portfolio management team of each Series and other senior personnel of RiverSource. The directors considered a report by, the Funds' Chief Compliance Officer, assessing RiverSource's compliance system, which was followed by a private session with the Funds' Chief Compliance Officer. They also discussed RiverSource's compliance system with the Chief Compliance Officer for the RiverSource funds. The directors also considered RiverSource's presentation on the selection of brokers and dealers for portfolio transactions and noted that they receive regular reports concerning such selection and that RiverSource would provide similar reports in the future. As administrative services (currently provided under each Seligman Management Agreement) would be provided to the Funds (and Series) by Ameriprise at no additional cost under a new administrative services agreement rather than pursuant to the Proposed Advisory Agreements, the directors considered Ameriprise's capability to provide such administrative services as well as RiverSource's and Ameriprise's role in coordinating the activities of the Funds' (and Series') other service providers. The directors noted that Ameriprise intended to continue Seligman's practice of sub-contracting administrative services provided by Seligman for the Funds (and Series) to State Street Bank and Trust Company for the foreseeable future. The directors concluded that, overall, they were satisfied with assurances from RiverSource and Ameriprise as to the expected nature, extent and quality of the services to be provided to the Funds and Series under the Proposed Advisory Agreements and the new administrative services agreements. COSTS OF SERVICES PROVIDED AND PROFITABILITY In considering the costs of services to be provided by RiverSource under the Proposed Advisory Agreements, the directors considered, among other things, the projected pre-tax, pre-distribution expense profitability of RiverSource's proposed relationship with each Series and discussed the assumptions of RiverSource and the limitations of the information provided. The directors noted that RiverSource had undertaken to provide profitability information in connection with future contract continuances. The directors also considered RiverSource's financial condition based on information provided by them. The directors noted that the proposed fees under the Proposed Advisory Agreements were the same as provided under the Seligman Management Agreements. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors. In reviewing the projected profitability information, the directors considered the effect of fall-out benefits on RiverSource's expenses. The directors concluded that they were satisfied that RiverSource's estimated future profitability from its relationship with each Series was not excessive. FALL-OUT BENEFITS The directors considered that broker-dealer affiliates of RiverSource, including a broker-dealer affiliate of Seligman (which will become an affiliate of RiverSource following the Transaction) will receive 12b-1 fees from each Series in respect of shares held in certain accounts, and that such Series' distributor (which will also become a subsidiary of RiverSource following the closing of the Transaction) retains a portion of the 12b-1 fees from the Series and receives a portion of the sales charges on sales or redemptions of certain classes of shares of the Series. The directors recognized that RiverSource's profitability would be somewhat lower without these benefits. The directors noted that RiverSource may derive reputational and other benefits from its association with the Series. 49 Matters Relating to the Directors'/Trustees' Consideration of the Approval of the Investment Management Services Agreements INVESTMENT RESULTS The directors receive and review detailed performance information on each Series at each regular Board meeting during the year in addition to the information received for the meeting. The directors noted that each Series' current portfolio management team would continue to advise that Series after the Transaction. The directors reviewed performance information on each Series covering a wide range of periods, including the first six months of the calendar year, the preceding seven calendar years and annualized rolling periods ranging from one to ten years ending June 30, 2008. For most of these periods the directors reviewed information comparing each Series to other funds with similar investment objectives as determined by Lipper, with one or more selected securities indices, to a group of competitor funds selected by Seligman and, where applicable, similar RiverSource funds. The directors also reviewed information about portfolio turnover rates of each Series compared to other investment companies with similar investment objectives, including, where applicable, RiverSource funds. The directors recognized that it is not possible to predict what effect, if any, consummation of the Transaction would have on the future performance of the Series. Seligman explained that its decision to defensively position the Series' portfolios in anticipation of rising interest rates contributed to the recent improvement in performance, although it noted that such position had hurt the Series' performance in the past. The following factors specific to individual Series also were noted and considered by the directors in deciding to approve the Proposed Advisory Agreements: California High-Yield Fund. The directors reviewed information showing the performance of the Series compared to the Lipper California Municipal Debt Funds Average and the Lehman Brothers Municipal Bond Index, as well as performance relative to the other funds in the Lipper California Municipal Debt Funds Average and to a group of competitor funds selected by Seligman. They noted that the Series' performance ranked above the Lipper median for each period presented. The directors also noted that the Series' results had varyingly exceeded or underperformed its benchmarks for the periods presented, but had shown recent improvement and were above each of the Series' benchmarks for 2007 and the first six months of 2008. Taking into account these comparisons and the other factors considered, the directors concluded that the California High-Yield Fund's investment results were satisfactory. California Quality Fund. The directors reviewed information showing the performance of the Series compared to the Lipper California Municipal Debt Funds Average and the Lehman Brothers Municipal Bond Index, as well as performance relative to the other funds in the Lipper California Municipal Debt Funds Average and to a group of competitor funds selected by Seligman. The directors noted that the Series' performance ranked above the Lipper median for each period presented. The directors also noted that the Series' results had varyingly exceeded or underperformed its benchmarks for the periods shown. The directors further noted that the Series' results had shown recent improvement and were above its competitor average and Lipper benchmark for 2007 and each of the benchmarks for the first six months of 2008. Taking into account these comparisons and the other factors considered, the directors concluded that the California Quality Fund's investment results were satisfactory. Florida Fund. The directors reviewed information showing the performance of the Series compared to the Lipper Florida Municipal Debt Funds Average and the Lehman Brothers Municipal Bond Index, as well as performance relative to the other funds in the Lipper Florida Municipal Debt Funds Average and to a group of competitor funds selected by Seligman. The directors noted that the Series' results were above the Lipper median in the one-year, three-year and ten-year periods presented. The directors also noted that the Series' results had from time to time exceeded certain benchmarks, and had shown recent improvement and were above the Lipper and competitor benchmarks for 2007 and the first six months of 2008. Taking into account these comparisons and the other factors considered, the directors concluded that the Florida Fund's investment results were satisfactory. New Jersey Fund. The directors reviewed information showing the performance of the Series compared to the Lipper New Jersey Municipal Debt Funds Average and the Lehman Brothers Municipal Bond Index, as well as performance relative to the other funds in the Lipper New Jersey Municipal Debt Funds Average and to a group of competitor funds selected by Seligman. The directors noted that the Series' results had shown recent improvement and were above each of its Lipper and competitor benchmarks for 2007, and were above each of its benchmarks for the first six months of 2008. The directors noted that the Series' performance ranked above the Lipper median for the one-year and three-year periods presented. The directors also noted that while the Series' results had from time to time exceeded certain benchmarks, the Series' results were generally below its benchmarks by varying degrees for the periods shown. Taking into account these comparisons and the other factors considered, the directors concluded that the New Jersey Fund's investment results were satisfactory. North Carolina Fund. The directors reviewed information showing the performance of the Series compared to the Lipper North Carolina Municipal Debt Funds Average and the Lehman Brothers Municipal Bond Index, as well as performance relative to the other funds in the 50 Matters Relating to the Directors'/Trustees' Consideration of the Approval of the Investment Management Services Agreements Lipper North Carolina Municipal Debt Funds Average and to a group of competitor funds selected by Seligman. The directors noted that the Series' results were above the Lipper median for each of the periods presented. The directors noted that the Series' results had shown recent improvement and were above its Lipper and competitor benchmarks for 2007, and were above each of its benchmarks for the first six months of 2008, although the results were varyingly above or below its other benchmarks for the other periods presented. Taking into account these comparisons and the other factors considered, the directors concluded that the North Carolina Fund's investment results were satisfactory. Pennsylvania Fund. The directors reviewed information showing the performance of the Series' compared to the Lipper Pennsylvania Municipal Debt Funds Average and the Lehman Brothers Municipal Bond Index, as well as performance relative to the other funds in the Lipper Pennsylvania Municipal Debt Funds Average and to a group of competitor funds selected by Seligman. The directors noted that the Series' results had shown recent improvement and were above its competitor average and Lipper benchmark for 2007 and the first six months of 2008. The directors also noted, however, that the Series' results were generally below its benchmarks by varying degrees for most of the other periods presented. Taking into account these comparisons, the other factors considered and the recent improvement in relative performance, the directors concluded that the Pennsylvania Fund's investment results were satisfactory. MANAGEMENT FEES AND OTHER EXPENSES The directors considered the proposed advisory fee rate to be paid by each Series to RiverSource, which is the same as the management fee rate currently paid by each Series. In addition to the materials provided by Seligman, RiverSource provided information regarding the fees for each of the RiverSource funds and managed accounts. The directors noted that in the case of California High-Yield Fund and California Quality Fund, the effective advisory fee rate for a RiverSource fund was lower than the proposed advisory fee rate for the corresponding Series. The directors recognized that it is difficult to make comparisons of advisory and management fees because there are variations in the services that are included in the fees paid by other funds. The directors compared each Series' proposed advisory fee rate to the funds in the applicable Lipper category or a subset thereof having net assets in a range that more closely corresponded to the net assets of the Series (a Series' "peer group"). In considering the proposed advisory fee rates, the directors noted that each Series' current management fee rate covers administrative services provided by Seligman, whereas the Proposed Advisory Agreements do not include such services, but that Ameriprise will provide such services to each Series pursuant to separate administrative services agreements initially without a fee. The directors further considered that the administrative fees, since they are not included in an advisory agreement, could be increased without shareholder approval, although RiverSource noted that, at the time, it did not have an intention to seek an increase, and that any such administrative fee increase would require board approval. The directors also noted RiverSource's and Ameriprise's covenants in the Transaction's stock purchase agreement regarding compliance with Section 15(f) of the 1940 Act. The directors also reviewed each Series' total expense ratio as compared to the fees and expenses of funds within its peer group. In considering the expense ratios of each Series, the directors noted that each Series has elected to have shareholder services provided at cost by SDC. SDC provides services exclusively to the Seligman Group of Funds, and the directors believed that the arrangement with SDC has provided each Series and their shareholders with a consistently high level of service. The directors noted that RiverSource had previously indicated that no changes to the arrangements with SDC were being proposed at the time by RiverSource. The directors noted that they had concluded in their most recent continuance considerations that the management fee and total expense ratio for each Series were at an acceptable level in light of the quality of services provided to each Series and in comparison to the Series' peer group; that the advisory fee would not be increased and would stay the same for each Series; that for the Funds (other than the New Jersey Fund and North Carolina Fund) the total expense ratio had been slightly reduced since the time of the most recent consideration approval; and that RiverSource had represented that the overall expenses for the Series were not expected to be adversely affected by the Transaction. On that basis (other than for the New Jersey Fund, the North Carolina Fund and the Pennsylvania Fund, each of which is discussed below), the directors concluded that the total expense ratio and proposed advisory fee for each Series anticipated to result from the proposed arrangements with RiverSource was acceptable. The directors noted that the New Jersey Fund's expense ratio had slightly increased and was still significantly higher than the peer group median and average and the second highest in its peer group. Seligman explained that the New Jersey Fund's small size relative to the funds in its peer group contributed to its relatively high expense ratio. All of the peer group funds were larger than the New Jersey Fund. On the basis of this review, the directors concluded that the New Jersey Fund's expense ratio was acceptable. The directors noted that the North Carolina Fund's expense ratio had slightly increased and was significantly higher than the peer group median and average and the highest in its peer group. Seligman explained that the North Carolina Fund's small size relative to the funds in its peer group contributed to its relatively high expense ratio. All of the peer group funds were larger than the North Carolina Fund. On the basis of this review, the directors concluded that the North Carolina Fund's expense ratio was acceptable. 51 Matters Relating to the Directors'/Trustees' Consideration of the Approval of the Investment Management Services Agreements The directors noted that comparative information showed that the Pennsylvania Fund's expense ratio was significantly higher than the peer group median and average and the highest in its peer group, and would have been the highest even if other peer group funds had not benefited from reimbursements by their advisers. Seligman explained that the Pennsylvania Fund's small size relative to the funds in its peer group contributed to its relatively high expense ratio, and that no fund in the peer group was smaller than the Pennsylvania Fund. Seligman also explained that the Pennsylvania Fund was organized as a Pennsylvania trust and had no other series, as a result of which the Pennsylvania Fund was unable to allocate certain expenses over multiple series as could most of the other municipal funds managed by Seligman. On the basis of their review, the directors concluded that the Pennsylvania Fund's expense ratio was acceptable. ECONOMIES OF SCALE The directors noted that the management fee schedules for the Series do not contain breakpoints that reduce the fee rate on assets above specified levels. The directors recognized that there is no direct relationship between the economies of scale realized by funds and those realized by their investment advisers as assets increase. The directors do not believe that there is a uniform methodology for establishing breakpoints that give effect to fund- specific economies of scale with respect to services provided by fund advisers. The directors also observed that in the investment company industry as a whole, as well as among funds similar to the Series, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply, and that the advisory agreements for many competitor funds do not have breakpoints at all. The directors noted that RiverSource had indicated that no changes to the Series' breakpoint arrangements were proposed to be made at the time. Having taken these factors into account, the directors concluded that the absence of breakpoints in each Series' fee rate schedule was acceptable under the Series' circumstances. The directors also recognized that the Series may benefit from certain economies of scale over time by becoming a part of the larger RiverSource fund complex, based on potential future synergies of operations. 52 Directors/Trustees and Officers Shareholders elect a Board of Directors/Trustees that oversees the Funds' operations. In connection with the acquisition of the Fund's prior investment manager, J. & W. Seligman & Co. Incorporated, by RiverSource Investments, LLC, shareholders of the Funds voted at Special Meetings of Shareholders held on November 3, 2008 to elect 10 members to the Funds' Boards. Messrs. Maher and Richie served on the Funds' Boards prior to the acquisition and will continue to do so. Each member of the Boards oversees 163 portfolios in the fund complex managed by RiverSource Investments, which includes 59 Seligman Funds and 104 RiverSource Funds. The address of each Director/Trustee is 901 S. Marquette Ave., Minneapolis, MN 55402. Independent Directors/Trustees
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS HELD WITH THE FUNDS AND OTHER INFORMATION ------------------------------------------------------------------------------------------ Kathleen Blatz Attorney. Formerly, Chief Justice, Minnesota Supreme Court, (54)(1,2,6,7) 1998-2006. - Director/Trustee: From November 7, 2008 ------------------------------------------------------------------------------------------ Arne H. Carlson Formerly, Chairman, RiverSource Funds, 1999-2006; Governor of (73)(1,2,3,5,6) Minnesota. - Director/Trustee: From November 7, 2008 ------------------------------------------------------------------------------------------ Pamela G. Carlton President, Springboard -- Partners in Cross Cultural Leadership (53)(4,6,7) (consulting company). - Director/Trustee: From November 7, 2008 ------------------------------------------------------------------------------------------ Patricia M. Flynn Trustee Professor of Economics and Management, Bentley College. (57)(1,3,6) Formerly, Dean, McCallum Graduate School of Business, Bentley - Director/Trustee: College. From November 7, 2008 ------------------------------------------------------------------------------------------ Anne P. Jones Attorney and Consultant. (73)(1,2,6,7) - Director/Trustee: From November 7, 2008 ------------------------------------------------------------------------------------------ Jeffrey Laikind, CFA Director, American Progressive Insurance. Formerly, Managing (72)(4,6,7) Director, Shikiar Asset Management. - Director/Trustee: From November 7, 2008 ------------------------------------------------------------------------------------------ Stephen R. Lewis, Jr. President Emeritus and Professor of Economics, Carleton (69)(1,2,3,4,6) College; Director, Valmont Industries, Inc. (manufactures - Director/Trustee and irrigation systems). Chairman of the Board: From November 7, 2008 ------------------------------------------------------------------------------------------ John F. Maher (64)(4,6,7) Retired President and Chief Executive Officer, and former - Director/Trustee: Director, Great Western Financial Corporation (bank holding December 2006 to company) and its principal subsidiary, Great Western Bank (a Date federal savings bank). ------------------------------------------------------------------------------------------ Catherine James Paglia Director, Enterprise Asset Management, Inc. (private real (55)(2,3,4,5,6) estate and asset management company). - Director/Trustee: From November 7, 2008 ------------------------------------------------------------------------------------------ Leroy C. Richie Counsel, Lewis & Munday, P.C. (law firm); Director, Vibration (66)(3,4,6) Control Technologies, LLC (auto vibration technology); Lead - Director/Trustee: Outside Director, Digital Ally Inc. (digital imaging) and 2000 to Date Infinity, Inc. (oil and gas exploration and production); Director and Chairman, Highland Park Michigan Economic Development Corp.; and Chairman, Detroit Public Schools Foundation; Director, OGE Energy Corp. (energy and energy services provider). Formerly, Chairman and Chief Executive Officer, Q Standards Worldwide, Inc. (library of technical standards); Director, Kerr-McGee Corporation (diversified energy and chemical company); Trustee, New York University Law Center Foundation; and Vice Chairman, Detroit Medical Center and Detroit Economic Growth Corp. ------------------------------------------------------------------------------------------ Allison Taunton-Rigby Chief Executive Officer and Director, RiboNovix, Inc. since (64)(3,4,5,6) 2003 (biotechnology); Director, Idera Pharmaceutical, Inc. - Director: (biotechnology); Healthways, Inc. (health management programs). From November 7, Formerly, President, Forester Biotech. 2008 ------------------------------------------------------------------------------------------
-------- See footnotes on page 54. 53 Interested Director*
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS HELD WITH THE FUNDS, ADDRESS AND OTHER INFORMATION ---------------------------------------------------------------------------------------------------- William F. Truscott (47)*(6) President -- US Asset Management and Chief Investment Advisor, - Director/Trustee and Vice Ameriprise Financial, Inc. and President, Chairman of the President: Board, and Chief Investment Officer, RiverSource Investments, From November 7, 2008 LLC; Director, President and Chief Executive Officer, Ameriprise Certificate Company; and Chairman of the Board, Chief Executive Officer, and President, RiverSource Distributors, Inc. Formerly, Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc.; and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005. ----------------------------------------------------------------------------------------------------
-------- * Mr. Truscott is considered an "interested person" of the Funds, as defined in the Investment Company Act of 1940, as amended, by virtue of his position with Ameriprise Financial, Inc. and its affiliates. Member: 1 Board Governance Committee 5 Executive Committee 2 Compliance Committee 6 Investment Review Committee 3 Contracts Committee 7 Joint Audit Committee 4 Distribution Committee
Officers of the Funds Each Board appoints officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is a Director/Trustee and Vice President of each Fund, the Funds' other officers are:
NAME, (AGE), POSITION(S) HELD WITH THE FUNDS, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ----------------------------------------------------------------------------------------------------- Patrick T. Bannigan (42) Director and Senior Vice President -- Asset Management, - President: Products and Marketing, RiverSource Investments, LLC; Director From November 7, 2008 and Vice President -- Asset Management, Products and Marketing, - 172 Ameriprise Financial Center RiverSource Distributors, Inc. Formerly, Managing Director and Minneapolis, MN 55474 Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004. ----------------------------------------------------------------------------------------------------- Michelle M. Keeley (44) Executive Vice President -- Equity and Fixed Income, Ameriprise - Vice President: Financial, Inc. and RiverSource Investments, LLC; Vice From November 7, 2008 President -- Investments, Ameriprise Certificate Company. - 172 Ameriprise Financial Center Formerly, Senior Vice President -- Fixed Income, Ameriprise Minneapolis, MN 55474 Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006. ----------------------------------------------------------------------------------------------------- Amy K. Johnson (42) Vice President -- Asset Management and Trust Company Services, - Vice President: RiverSource Investments, LLC. Formerly, Vice From November 7, 2008 President -- Operations and Compliance, RiverSource - 5228 Ameriprise Financial Center Investments, LLC, 2004-2006; Director of Product Minneapolis, MN 55474 Development -- Mutual Funds, Ameriprise Financial, Inc., 2001- 2004. ----------------------------------------------------------------------------------------------------- Scott R. Plummer (49) Vice President and Chief Counsel -- Asset Management, - Vice President, General Counsel Ameriprise Financial, Inc.; Chief Counsel, RiverSource and Secretary: Distributors, Inc. and Chief Legal Officer and Assistant From November 7, 2008 Secretary, RiverSource Investments, LLC; Vice President, - 5228 Ameriprise Financial Center General Counsel, and Secretary, Ameriprise Certificate Company. Minneapolis, MN 55474 Formerly, Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002- 2004. ----------------------------------------------------------------------------------------------------- Lawrence P. Vogel (51) Treasurer of each of the investment companies of the Seligman - Treasurer: 2000 to Date Group of Funds since 2000; and Treasurer, Seligman Data Corp. - 100 Park Avenue since 2000. Formerly, Senior Vice President, J. & W. Seligman & New York, NY 10017 Co. Incorporated and Vice President of each of the investment companies of the Seligman Group of Funds, 1992-2008. ----------------------------------------------------------------------------------------------------- Eleanor T.M. Hoagland (56) Chief Compliance Officer, RiverSource Investments, LLC (J. & W. - Chief Compliance Officer: Seligman & Co. Incorporated prior to November 7, 2008), of each 2004 to Date of the investment companies of the Seligman Group of Funds - Money Laundering Prevention since 2004; Money Laundering Prevention Officer and Identity Officer and Identity Theft Theft Prevention Officer, RiverSource Investments, LLC for each Prevention Officer: of the investment companies of the Seligman Group of Funds From November 7, 2008 since November 7, 2008. Formerly, Managing Director, J. & W. - 100 Park Avenue New York, NY Seligman & Co. Incorporated and Vice President of each of the 10017 investment companies of the Seligman Group of Funds, 2004-2008. -----------------------------------------------------------------------------------------------------
The Funds' Statement of Additional Information (SAI) includes additional information about Fund directors and is available, without charge, upon request. You may call toll-free (800) 221-2450 in the US or call collect (212) 682-7600 outside the US to request a copy of the SAI, to request other information about the Funds, or to make shareholder inquiries. 54 Additional Fund Information QUARTERLY SCHEDULE OF INVESTMENTS A complete schedule of portfolio holdings owned by the Funds will be filed with the SEC for the first and third quarters of each fiscal year on Form N-Q, and will be available to shareholders (i) without charge, upon request, by calling toll-free (800) 221-2450 in the US or collect (212) 682-7600 outside the US or (ii) on the SEC's website at WWW.SEC.GOV.(1 )In addition, the Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. Certain of the information contained on the Fund's Form N-Q is also made available to shareholders on Seligman's website at WWW.SELIGMAN.COM.(1) PROXY VOTING A description of the policies and procedures used by the Funds to determine how to vote proxies relating to portfolio securities, as well as information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30 of each year, will be available (i) without charge, upon request, by calling toll-free (800) 221-2450 in the US or collect (212) 682-7600 outside the US and (ii) on the SEC's website at WWW.SEC.GOV.(1) Information for each new 12-month period ending June 30 will be available no later than August 31 of that year. ---------- (1) These website references are inactive textual references and information contained in or otherwise accessible through these websites does not form a part of this report or the Funds' prospectus or statements of additional information. 55 LOGO This report is intended only for the information of shareholders or those who have received the offering prospectus covering shares of Beneficial Interest/Capital Stock of each fund of Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc. and Seligman Pennsylvania Municipal Fund Series, which contains information about the investment objectives, risks, charges and expenses of the Funds, each of which should be considered carefully before investing or sending money. TEB2 9/08