N-30B-2 1 c25306.htm c25306

To the Stockholders

For the three months ended July 31, 2002, Seligman Quality Municipal Fund posted a total return of 6.79%, based on market price, and 3.36%, based on net asset value. The Fund’s annual distribution rate based on the current monthly dividend and market price at July 31, 2002, was 5.82%, which is equivalent to a taxable yield of 9.48% based on the maximum federal tax rate of 38.6%. Preferred Stockholders of the Fund were paid dividends at annual rates ranging from 1.13% to 2.00%.

     During the Fund’s third fiscal quarter, the nascent US economic recovery seemed to lose momentum. While gross domestic product (GDP) expanded at an annualized rate of 5.0% during the first three months of 2002, it rose by only 1.1% during the second quarter. Corporate accounting scandals weighed heavily on the equity markets and on consumer sentiment during this time, threatening what had appeared to be a fairly robust economic rebound. The Federal Reserve Board acknowledged that the economy is currently at risk of weakening, and indicated that it would consider an interest rate cut this year if the economy continues to struggle.

     Not surprisingly, municipal bonds fared well in this environment. Investors have increasingly viewed municipal bonds as a haven of relative stability and as a means of diversifying their portfolio holdings. Municipal yields continued to be less volatile than those of Treasury bonds during this time, and new issuance increased sharply, with demand fortunately keeping up with supply. Municipal bonds are viewed as attractive despite the toll the economic slowdown has taken on the nation’s states and municipalities. Faced with budget deficits, many have enacted tax increases, cut spending, or employed a combination of the two. Credit quality has generally held up, but this is something we continue to monitor closely.

     Looking ahead, we believe that the economy will strengthen moderately. Inflation remains benign, and industrial production has been on the rise for several months. An economic pickup would likely help the financial situation of the nation’s states and municipalities. However, the economic recovery is fragile. The second quarter saw a decline in productivity growth, and consumer confidence has been weakened by the volatile stock market and by corporate scandals. We are hopeful that the corporate and accounting reforms enacted this summer will have a reassuring effect on investors, and we think that continued low interest rates should support a recovery.

     The economic slowdown continues to impact the municipal bond market, and in this environment the Fund’s focus remains on high-quality holdings. A minimum of 80% of the Fund’s portfolio is in AAA-rated bonds (most of which are backed by municipal bond insurance). For this reason, we believe the Fund will continue to successfully weather these challenging times.

     Thank you for your continued support of Seligman Quality Municipal Fund. A discussion with your Portfolio Manager, as well as the Fund’s performance history and portfolio of investments, follows this letter. By order of the Board of Directors,

William C. Morris Chairman

Thomas G. Moles President

August 30, 2002

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Interview With Your Portfolio Manager, Thomas G. Moles

What economic and market factors affected Seligman Quality Municipal Fund during the three months ended July 31, 2002?

     The pace of the economic recovery slowed during the period under review, undermining the sustainability of the current expansion. Gross domestic product (GDP) fell to a 1.1% rate of growth for the second calendar quarter, a significant decline from the 5.0% increase reported for the first quarter. Accelerating stock market losses, mounting corporate accounting scandals, and escalating Middle East violence have taken their toll on consumer confidence. The US economy could be in for an extended period of sluggish growth if the loss of confidence results in a prolonged slowdown in consumer spending. Despite the current setback, however, the positive fundamentals that contributed to the nascent recovery continue to support economic growth. Inflation remains subdued, precluding the need for the Federal Reserve Board to reverse their accommodative monetary policy. Further, the Fed has made clear its intention to act promptly, as it had throughout the recession, to prevent the expansion from faltering. Long-term interest rates are at the lowest levels in decades, lowering borrowing costs and spurring home buying. Further, record mortgage re-financings have increased homeowners’ disposable income. Since the start of the recession, the national unemployment rate has remained under 5.9%, well below the levels of the last several recessions.

     Long-term municipal yields fell modestly during the period, resulting in positive performance returns for Seligman Quality Municipal Fund. At fiscal quarter-end, the Bond Buyer 20-Bond General Obligation Index was at the lowest yield of the year. The attractive interest rate environment prompted a sharp increase in municipal bond issuance. Supply for the first half of 2002 was the largest on record, up 20% over the same period last year. Fortuitously, demand for municipal securities has kept pace with the increased supply. New York State and its municipalities issued the largest number of bonds year-to-date, surpassing California for the number one ranking. September 11 recovery efforts helped drive New York issuance up 132%.

     The damaging effects of the US recession continue to plague the nation’s states, cities and municipalities. Tax revenues have declined for all but a handful of states, while expenditure reductions have fallen far short of alleviating widening budget deficits. Nevertheless, credit rating upgrades continue to outpace downgrades. Municipal credits, in general, improved their financial position during the decade-long economic expansion, which has enabled them to better withstand the recent downturn. For the quarter ended June 30, 2002, overall rating upgrades exceeded downgrades by a ratio of 3.3 to 1, as stated by Standard & Poor’s, and by a ratio of 1.6 to 1, as reported by Moody’s Investors Service. The Fund’s emphasis on high quality, AAA-rated bonds continues to help insulate the Fund from the impact of credit deterioration.

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Interview With Your Portfolio Manager (continued)

What was your investment strategy during this time?

     The Fund remains concentrated in the transportation and water and sewer sectors. These essential service bonds have, historically, enjoyed more predictable revenue streams, particularly during periods of economic weakness. The housing sector also represents a significant percentage of the Fund’s portfolio. Housing bonds typically offer higher yields, due in part to their complexity, as well as to limited price appreciation potential. The Fund’s housing positions are comprised of state housing credits because they generally provide more timely and comprehensive disclosure than many smaller, local housing authorities. The Fund has no exposure to affordable housing or Section 8 debt, two areas of the industry that have been experiencing rising credit pressures.

     During the Fund’s third fiscal quarter, we continued our ongoing efforts to improve the near-term call protection of the Fund. By limiting the percentage of bonds callable in any given year, we can better manage the Fund’s dividend distributions. During the past quarter, the Fund sold a number of portfolio securities that were callable over the next three years, while new purchases have been exclusively of bonds with a minimum of ten years of call protection.

What is your outlook?

     A return to economic vigor appears less certain than just a few months ago. The nation’s states and municipalities continue to experience financial difficulties as a result of the recession. The quarter ended June 30, 2002 marked the fourth consecutive quarter of revenue decline for US states. Municipalities have fared somewhat better due to the sharp rise in real estate value, which boosted property tax revenues. With the latest statistics suggesting a weakening of economic activity, we have become more cautious with respect to the near-term prospects for the economy and the municipal market. However, our long-term outlook remains positive, and we will continue to position the Fund’s portfolio to benefit from an extended period of modest economic growth and stable long-term interest rates.

     Municipal investments, including Seligman Quality Municipal Fund, continue to provide many investors with a significant yield advantage over taxable bonds. In addition, municipal investors enjoy needed diversification, given recent equity market volatility. While the stock market has historically provided superior investment returns in comparison to municipal investments, investors have been exposed to significantly higher risk in exchange for the extra performance. By adding municipal securities to the investment mix, risk profiles can be significantly reduced.

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Investment Results Per Common Share (unaudited)

TOTAL RETURNS*                              
For Periods Ended July 31, 2002
          Average Annual  
         
 
  Three   Nine   One       Five   Ten  
  Months   Months   Year       Years   Years  
 
   
 
     
   
 
                       
   Market Price** 6.79 %   7.74 % 12.86 %   4.46 %   6.28 %
                               
   Net Asset Value** 3.36     3.77   6.96     5.95     6.85  
                               
PRICE PER SHARE                              
  July 31, 2002   April 30, 2002      
January 31, 2002   October 31, 2001  
 
   
       
 
 
                               
   Market Price
$
12.88
  
$
12.23
        
$
12.61
  
$
12.59
  
                               
   Net Asset Value  
14.19
      
13.92
          
13.97
    
14.40
  

DIVIDEND AND CAPITAL GAIN INFORMATION
For the Nine Months Ended July 31, 2002

      Capital Gain  
       
 
  Dividends Paid†   Paid   Realized   Unrealized  
 
 
 
 
 
 
$
0.527
  
$
0.119
  
$
0.032
  
$
 0.741
††
  

ANNUAL DISTRIBUTION RATE

The annual distribution rate based on the current monthly dividend and market price at July 31, 2002, was 5.82%, which is equivalent to a taxable yield of 9.48% based on the maximum federal tax rate of 38.6%.

The rates of return will vary and the principal value of an investment will fluctuate. Shares, if sold, may be worth more or less than their original cost. Performance data quoted does not reflect the deduction of taxes that investors may pay on Fund distributions or on the sale of Fund shares. Past performance is not indicative of future investment results. An investment in the Fund is not insured by the Federal Deposit Insurance Corporation or any other government agency.

* Returns for periods of less than one year are not annualized.
** These rates of return reflect changes in market price or net asset value, as applicable, and assume that all distributions within the period are reinvested in additional shares.
† Preferred Stockholders were paid dividends at annual rates ranging from 1.13% to 2.00%. Earnings on the Fund’s assets in excess of the preferred dividend requirements constituted dividend income for Common Stockholders.
†† Represents the per share amount of net unrealized appreciation of portfolio securities as of July 31, 2002.

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Portfolio of Investments (unaudited)
July 31, 2002

    Face     Ratings      
State#   Amount   Municipal Bonds Moody’s/S&P   Market Value  
 
                     
Alabama — 7.4%   $ 5,000,000   Jefferson County Sewer Rev. (Capital Improvement          
               Warrants), 5.125% due 2/1/2039 Aaa/AAA   $ 4,930,900  
Alaska — 6.1%     2,000,000   Alaska Energy Authority Power Rev. (Bradley Lake          
               Hydroelectric Project), 6% due 7/1/2021 Aaa/AAA     2,301,480  
      1,720,000   Alaska Housing Finance Corporation Mortgage          
               Rev., 6% due 12/1/2040 Aaa/AAA     1,798,466  
California — 23.4%     4,000,000   Foothill/Eastern Transportation Corridor Agency Toll          
               Road Rev., 5.75% due 1/15/2040 Baa3/BBB-     4,052,240  
      1,500,000   Los Angeles Regional Airports Improvement          
               Corporation Facilities Rev. (LAXFUEL Corporation),          
               5.50% due 1/1/2032* Aaa/AAA     1,504,290  
      5,000,000   San Diego Public Facilities Financing Authority Sewer          
               Rev., 5% due 5/15/2029 Aaa/AAA     4,948,650  
      5,000,000   San Francisco City and County Airports Commission          
               Rev. (International Airport), 5.80% due 5/1/2021* Aaa/AAA     5,181,550  
Illinois — 7.3%     5,000,000   Illinois Educational Facilities Authority Rev.          
               (University of Chicago), 5.125% due 7/1/2038 Aa1/AA     4,860,700  
Kansas — 4.7%     3,000,000   Burlington Pollution Control Rev. (Kansas Gas and          
               Electric Company Project), 7% due 6/1/2031 Aaa/AAA     3,124,200  
Louisiana — 1.4%     760,000   Louisiana Public Facilities Authority Hospital Rev.          
               (Southern Baptist Hospitals, Inc. Project),          
               8% due 5/15/2012† NR/AAA     930,384  
Massachusetts — 17.4%     4,000,000   Massachusetts Development Finance Agency Rev.          
               (WGBH Educational Foundation),          
               5.75% due 1/1/2042 Aaa/AAA     4,511,880  
      4,000,000   Massachusetts Health & Educational Facilities          
               Authority Rev. (New England Medical Center),          
               6.625% due 7/1/2025 Aaa/AAA     4,096,240  
      3,000,000   Massachusetts Housing Finance Agency Rev.          
               (Residential Development), 6.875% due 11/15/2021 Aaa/AAA     3,063,780  
Michigan — 3.7%     2,500,000   Harper Creek Community School District GOs,          
               5.125% due 5/1/2031 Aaa/AAA     2,494,575  
Minnesota — 0.8%     500,000   Minneapolis - Saint Paul Metropolitan Airports          
               Commission Rev., 5.75% due 1/1/2032 Aaa/AAA     530,420  
Missouri — 4.0%     2,575,000   Missouri Housing Development Commission Rev.          
               (Single Family Mortgage), 6.375% due 9/1/2031* NR/AAA     2,701,716  
Montana — 3.4%     2,220,000   Forsyth Pollution Control Rev. (Puget Sound          
               Power & Light Co.), 7.25% due 8/1/2021* Aaa/AAA     2,252,767  
New York — 20.0%     3,000,000   Metropolitan Transportation Authority Rev.          
               (Commuter Facilities), 6.10% due 7/1/2026Ø Aaa/AAA     3,473,280  
      1,875,000   New York City GOs, 6.25% due 4/15/2027 A2/A     2,018,475  
      230,000   New York City GOs, 6.25% due 4/15/2027Ø Aaa/A     268,203  
      5,000,000   New York City Municipal Water Finance Authority          
               (Water & Sewer System Rev.), 5.75% due 6/15/2026 Aaa/AAA     5,261,150  
      2,125,000   New York State Thruway Authority General Rev.,          
               6% due 1/1/2025Ø Aaa/AAA     2,366,103  

See footnotes on page 6.

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Portfolio of Investments (unaudited)
July 31, 2002


    Face       Ratings      
State#   Amount   Municipal Bonds   Moody’s/S&P   Market Value  
 
                       
Pennsylvania — 7.9%   $ 5,000,000   Philadelphia Airport Rev., 6.10% due            
               6/15/2025*   Aaa/AAA   $ 5,285,700  
Texas — 7.5%     3,000,000   Dallas Area Rapid Transit Sales Tax Rev.,            
               5% due 12/1/2031   Aaa/AAA     2,918,790  
      2,000,000   Matagorda County Navigation District            
               No. 1 Pollution Control Rev.            
               (Central Power and Light            
               Co. Project), 6.125% due 5/1/2030*   Aaa/AAA     2,107,720  
Virginia — 8.0%     2,500,000   Pocahontas Parkway Association Toll Road Rev.            
               (Route 895 Connector), 5.50% due 8/15/2028   Baa3/BBB-     1,796,850  
      3,500,000   Virginia Housing Development Authority            
               (Multi-Family Housing), 7% due 11/1/2012   Aa1/AA+     3,576,475  
Washington — 14.0%     2,000,000   Chelan County Public Utility District No. 001            
               (Chelan Hydro Consolidated System Rev.),            
               5.25% due 7/1/2033*   Aaa/AAA     1,949,600  
      2,000,000   Chelan County Public Utility District No. 001            
               Construction Rev. (Chelan Hydro),            
               5.60% due 1/1/2036*   Aaa/AAA     2,050,360  
      5,000,000   King County Sewer GOs, 6.125% due 1/1/2033   Aaa/AAA     5,397,050  
Wisconsin — 1.4%     905,000   Wisconsin Housing & Economic Development            
               Authority Housing Rev., 6.85% due 11/1/2012   Aaa/AAA   924,566  
                 
 
Total Municipal Bonds (Cost $89,185,258) — 138.4%       92,678,560  
             
 
          Variable Rate Demand Notes            
         
           
New York — 4.3%     2,500,000   New York City GOs, due 8/1/2017   VMIG-1/A-1+     2,500,000  
      400,000   New York City GOs, due 10/1/2021   VMIG-1/A-1+     400,000  
Wyoming — 6.0%     4,000,000   Lincoln County Pollution Control Rev.            
               (Exxon Project) due 7/1/2017*   P-1/A-1+   4,000,000  
                 
 
Total Variable Rate Demand Notes (Cost $6,900,000) — 10.3%       6,900,000  
       
 
Total Investments (Cost $96,085,258) — 148.7%         99,578,560  
Other Assets Less Liabilities — 1.5%           966,090  
Preferred Stock — (50.2)%           (33,600,000 )
               
 
Net Assets for Common Stock — 100.0%           $ 66,944,650  
                   
 

 

#
  		 The percentage shown for each state represents the total market value of bonds held of issuers in that state, measured as a percent of net assets for Common Stock which do not include the net assets attributable to Preferred Stock of the Fund.
* Interest income earned from this security is subject to the federal alternative minimum tax.
† Escrowed-to-maturity security.
Ø Pre-refunded security.

Note: Investments in municipal securities and other short-term holdings maturing in more than 60 days are valued based upon quotations provided by an independent pricing service or, in their absence, at fair value determined in accordance with procedures approved by the Board of Directors. Short-term holdings maturing in 60 days or less are generally valued at amortized cost.

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For More Information        
     
Manager Stockholder Service Agent Important Telephone Numbers
J. & W. Seligman & Co. Incorporated Seligman Data Corp. (800) 874-1092   Stockholder Services
100 Park Avenue 100 Park Avenue (212) 682-7600   Outside the United States
New York, NY 10017 New York, NY 10017 (800) 622-4597   24-Hour Automated
  website: www.seligman.com     Telephone Access Service
         
General Counsel        
Sullivan & Cromwell        
         

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