EX-17(h)
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Seligman
U.S. Government
Securities Fund
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Annual Report
December 31, 2008
Seeking High Current
Income by Investing in
US Government Securities
[SELIGMAN INVESTMENTS LOGO]
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Table of Contents
Interview With Your Portfolio Manager 2
Performance and Portfolio Overview 4
Understanding and Comparing Your Fund's Expenses 7
Portfolio of Investments 8
Statement of Assets and Liabilities 10
Statement of Operations 11
Statements of Changes in Net Assets 12
Notes to Financial Statements 13
Financial Highlights 21
Report of Independent Registered Public Accounting Firm 26
Matters Relating to the Trustees' Consideration of the Approval of the
Investment Management Services Agreement 27
Proxy Results 31
Trustees and Officers 32
Additional Fund Information 36
1
Interview With Your Portfolio Manager
NOTE: IN CONJUNCTION WITH THE ACQUISITION OF THE FUND'S PREVIOUS INVESTMENT
MANAGER BY RIVERSOURCE INVESTMENTS, LLC, THE SELIGMAN INVESTMENT GRADE TEAM IS
NO LONGER RESPONSIBLE FOR THE PORTFOLIO MANAGEMENT OF THE FUND. THE FUND IS NOW
MANAGED BY RIVERSOURCE INVESTMENTS.
Q. HOW DID SELIGMAN U.S. GOVERNMENT SECURITIES FUND PERFORM DURING THE YEAR
ENDED DECEMBER 31, 2008?
A. For the year ended December 31, 2008, Seligman U.S. Government Securities
Fund posted a total return of 8.8%, based on the net asset value of Class
A shares. In comparison, the Fund's peers, as measured by the Lipper
General US Government Funds Average returned 7.3%. The Barclays Capital
Government Bond Index returned 12.4%. The Blended Index, which is
comprised of an equal 50% weighting in the Barclays Capital Government
Bond Index and the Barclays Capital Fixed-Rate Mortgage Backed Securities
Index, returned 10.5%.
Q. HOW DID MARKET CONDITIONS AND ECONOMIC EVENTS IMPACT THE PERFORMANCE OF
THE FUND DURING THE YEAR?
A. The economic landscape during the year ended can be characterized by
several major themes: further erosion in the housing market as prices
remained on a downward trend, significant selling pressure as a result of
deflating consumer confidence, continued large bank and brokerage firm
write-offs which accelerated an ongoing flight to quality and credit
contraction, and the significant widening of spreads.
Weak economic data points released in January in manufacturing,
employment, and retail sales fueled fears of global recession and sparked
a sharp sell-off in equities. The credit freeze continued as growth slowed
and banks and brokers reined in capital as the financial system continued
to absorb losses related to subprime debt. The combined crises in housing,
the credit market, and the economy spurred an activist Federal Reserve
Board (the Fed) and the Administration to take unprecedented steps to
shore up the economy.
As the year unfolded, concerns regarding the housing market spread to
other asset classes. Fears of spreading credit problems led to an
overwhelming unwillingness by banks and other financial institutions to
lend. Ongoing declines in asset values at financial institutions
effectively resulted in a dysfunctional lending market in the US. The
collapse of credit growth, along with the continued erosion of household
net worth due to weakening housing and equity markets severely hampered
consumer spending.
In September we witnessed the unfolding of several unprecedented events
that affected markets on a global scale. Fannie Mae and Freddie Mac were
put into conservatorship. On September 15, Lehman Brothers filed for
bankruptcy. The ripple effects of the failing of this 158-year old
investment bank were wide-spread. Several cash management funds with
exposure to Lehman debt suffered, with the net asset value of the Reserve
Primary Fund falling below $1 per share -- "breaking the buck." Credit
markets across the globe froze up, which had a significant implication on
markets as a whole. Investors started focusing more on higher quality
stocks.
The downgrading of AIG's credit rating led to a liquidity crisis (its
stock price suffered a 95% decline on September 16, 2008) that ended in
the largest government bailout of a company in US history. Merrill Lynch
quickly sold itself to Bank of America, and commercial banks WAMU and
Wachovia were quickly sold to JPMorgan Chase and Wells Fargo,
respectively.
2
Interview With Your Portfolio Manager
Interest rates fell significantly during the period as investors fled
riskier assets for the relative safety of Treasuries, pushing prices
higher and yields lower. Away from Treasuries, however, other fixed income
sectors posted less-strong results. Securities with credit risk --
especially those with mortgage-related credit risk -- faced significant
selling pressure during the July and August "credit panic." Although the
market stabilized temporarily in the fall, November brought a fresh round
of panic as the market was spooked by increasing talk of an impending
recession -- a conversation that continued through the end of the year.
Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES MATERIALLY IMPACTED THE FUND'S
PERFORMANCE DURING THE YEAR?
A. One of the Fund's principal strategies during the year, and one that
benefitted the Fund's performance during the year, was to maintain a
duration that exceeded that of the benchmark. This strategy was employed
to enable the portfolio to participate in the ongoing rally in US
Treasuries as investors broadly sought higher quality instruments, as well
as in anticipation of continued sluggish growth.
Though its allocation to mortgage-backed securities was decreased in the
second half of the year, the Fund's exposure to this asset class detracted
from the Fund's results, as mortgage-backed securities posted positive
returns but underperformed both agency securities and Treasuries during
the annual period. That said, issue selection within mortgage-backed
securities boosted returns, particularly the Fund's emphasis on premium
coupon securities. Higher coupon mortgage-backed securities outperformed
lower coupon mortgage-backed securities for the period.
At the end of December, we believed that fixed income market fundamentals
had taken a back seat in investors' minds to technical factors and to
overly-pessimistic fears regarding both liquidity and the U.S. economy,
causing rates to decline more than was warranted. Thus, we intend to
position the Fund to take advantage of the compelling valuations that we
saw in the last months of the period and to participate in the recovery of
high quality spread sectors, or non-Treasury sectors, that we anticipate
for 2009 when fears have hopefully subsided and liquidity returns to the
markets. We expect economic growth prospects and the potential for higher
inflation to ultimately recapture investors' attention.
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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, AND 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
Seligman U.S. Government Securities Fund and to provide a summary of the Fund's
portfolio characteristics.
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 THE FUND 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, if any. Performance data quoted does not reflect the deduction
of taxes that an investor may pay on distributions or the redemption of shares.
The chart on page 5 compares $10,000 hypothetical investments made in Class A
shares, with and without the initial 4.5% maximum sales charge, and in Class B
shares, without contingent deferred sales charge ("CDSC"), to $10,000
investments made in the Barclays Capital Government Bond Index and the Blended
Index for the ten-year period ended December 31, 2008. The ten-year return for
Class B shares reflects automatic conversion to Class A shares approximately
eight years after their date of purchase. The performance of Class C and Class R
shares, which commenced on later dates, and of Class A and Class B shares for
other periods, with and without applicable sales charges and CDSCs, is not shown
in the chart but is included in the total returns table that follows the chart.
The performance of Class C and Class R shares will differ from the performance
shown for Class A and Class B shares, based on the differences in sales charges
and fees paid by shareholders.
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 THE FUND'S 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 B SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT
OF THE MAXIMUM 5% CDSC, CHARGED ON REDEMPTIONS MADE WITHIN ONE YEAR OF THE DATE
OF PURCHASE, DECLINING TO 1% IN THE SIXTH YEAR AND 0% THEREAFTER. RETURNS FOR
CLASS C AND CLASS R SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT OF THE 1%
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 FUND 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 FUND.
An investment in the 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.
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(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 Fund's prospectus or statement of additional
information.
4
Performance and Portfolio Overview
[THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE.]
Class A Class A
With Sales Without Sales Class B Barclays Capital Blended
Date Charge Charge Without CDSC Govt. Bond Index Index
12/31/1998 $9,555.26 $ 10,000 $ 10,000 $ 10,000 $ 10,000
$9,405.78 $9,843.57 $9,814.64 $ 9,857 $9,977.84
$9,217.73 $9,646.77 $9,601.07 $9,773.22 $ 9,912.9
$9,240.28 $9,670.36 $9,620.42 $9,837.72 $9,991.71
12/31/1999 $9,192.14 $9,619.97 $9,538.67 $9,776.72 $9,979.91
$ 9,419.3 $ 9,857.7 $9,756.88 $10,104.2 $10,215.9
$9,563.06 $10,008.1 $9,902.79 $10,262.9 $10,411.3
$9,841.05 $10,299.1 $10,171.4 $10,545.1 $10,722.4
12/31/2000 $ 10,319 $10,799.3 $ 10,645 $11,071.3 $ 11,198
$10,551.3 $11,042.4 $10,864.4 $11,349.2 $11,491.4
$10,521.7 $11,011.4 $10,798.6 $ 11,322 $11,536.1
$11,068.4 $11,583.5 $11,353.8 $11,942.4 $12,095.1
12/31/2001 $10,937.8 $11,446.9 $11,183.7 $ 11,872 $12,063.5
$10,827.2 $11,331.1 $11,066.9 $11,797.1 $12,085.4
$11,309.1 $11,835.5 $11,536.8 $ 12,321 $ 12,564
$12,048.5 $12,609.2 $12,267.2 $13,141.5 $13,149.7
12/31/2002 $12,085.4 $12,647.9 $12,265.2 $13,236.1 $13,286.4
$12,126.1 $12,690.4 $12,283.9 $13,377.8 $13,418.9
$12,349.5 $12,924.3 $ 12,486 $13,716.2 $13,633.2
$12,306.1 $12,878.9 $12,417.9 $13,606.5 $13,613.4
12/31/2003 $12,154.2 $12,719.9 $12,257.8 $13,546.6 $ 13,647
$12,411.2 $12,988.8 $ 12,476 $13,943.5 $13,977.9
$12,054.8 $12,615.8 $12,112.3 $ 13,528 $13,690.8
$12,278.9 $12,850.3 $12,296.9 $13,948.8 $14,082.2
12/31/2004 $12,287.1 $ 12,859 $12,299.3 $14,017.1 $14,205.6
$12,189.7 $ 12,757 $12,162.6 $13,958.2 $14,167.3
$ 12,463 $ 13,043 $12,428.7 $14,427.2 $14,566.3
$12,254.1 $12,824.4 $12,198.2 $14,291.6 $14,487.1
12/31/2005 $12,285.4 $12,857.1 $ 12,189 $14,387.4 $14,579.1
$12,149.3 $12,714.8 $12,031.6 $14,256.4 $ 14,508
$12,100.1 $12,663.2 $11,960.9 $14,259.3 $14,510.1
$12,467.5 $13,047.8 $12,318.6 $14,764.1 $ 15,030
12/31/2006 $12,564.6 $13,149.3 $12,392.8 $14,888.1 $15,213.4
$12,740.9 $13,333.8 $12,524.6 $15,102.5 $15,443.1
$12,623.7 $13,211.2 $12,405.1 $15,052.6 $15,367.4
$12,954.3 $13,557.2 $12,705.4 $ 15,596 $15,854.5
12/31/2007 $ 13,339 $13,959.8 $13,038.5 $16,177.8 $16,401.5
$13,681.2 $14,317.9 $13,366.6 $ 16,833 $16,937.9
$13,542.1 $14,172.3 $13,187.2 $16,511.5 $ 16,721
$13,721.8 $14,360.4 $13,337.3 $16,828.5 $17,052.1
12/31/2008 $14,523.7 $15,199.6 $14,104.7 $18,183.2 $18,117.9
Investment Results
TOTAL RETURNS
For Periods Ended December 31, 2008
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AVERAGE ANNUAL
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CLASS C CLASS R
SINCE SINCE
SIX ONE FIVE TEN INCEPTION INCEPTION
MONTHS* YEAR YEARS YEARS 5/27/99 4/30/03
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CLASS A
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With Sales Charge 2.26% 3.82% 2.66% 3.80% n/a n/a
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Without Sales Charge 7.12 8.76 3.61 4.28 n/a n/a
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CLASS B
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With CDSC+ 1.86 3.08 2.47 n/a n/a n/a
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Without CDSC 6.86 8.08 2.83 3.66++ n/a n/a
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CLASS C
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With 1% CDSC 5.71 6.94 n/a n/a n/a n/a
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Without CDSC 6.71 7.94 2.83 n/a 3.98% n/a
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CLASS R
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With 1% CDSC 5.99 7.50 n/a n/a n/a n/a
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Without CDSC 6.99 8.50 3.33 n/a n/a 2.92%
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BENCHMARKS**
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Barclays Capital Government Bond Index 10.13 12.39 6.06 6.16 6.67 5.48
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Blended Index 8.36 10.46 5.83 6.12 6.46 5.36
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Lipper General US Government Funds Average 6.51 7.27 4.18 4.68 5.12 3.63
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See footnotes on page 6.
5
Performance and Portfolio Overview
Investment Results
NET ASSET VALUE PER SHARE
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12/31/08 6/30/08 12/31/07
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CLASS A $ 7.34 $ 6.94 $ 6.95
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CLASS B 7.36 6.95 6.96
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CLASS C 7.35 6.95 6.96
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CLASS R 7.34 6.94 6.95
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DURATIONooo
December 31, 2008 4.1 years
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DIVIDEND PER SHARE AND YIELD INFORMATION
For Periods Ended December 31, 2008
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DIVIDENDS PAIDo SEC 30-DAY YIELDSoo
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$0.208 1.55%
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0.156 0.85
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0.156 0.85
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0.192 1.34
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* Returns for periods of less than one year are not annualized.
** The Barclays Capital Government Bond Index (the "Barclays Capital Index"),
the Blended Index, and the Lipper General US Government Funds Average (the
"Lipper Average") are unmanaged benchmarks that assume reinvestment of
dividends and exclude the effect of fees, taxes and sales charges. The
Barclays Capital Index and the Blended Index also exclude the effect of
expenses. The Lipper Average includes funds that invest at least 65% of
their assets in US government and government agency issues. The Barclays
Capital Index is a benchmark index made up of the Treasury Bond Index and
the Agency Bond Index as well as the 1-3 Year Government Index and 20+
Year Treasury Index. The Blended Index is an index created by J.W.
Seligman & Co. Incorporated ("JWS"), the Fund's former investment manager.
The Blended Index consists of a fifty percent equal weighting in the
Barclays Capital Index and the Barclays Capital Fixed-Rate Mortgage Backed
Securities Index (the "Barclays Capital MBS Index"), which covers the
fixed-rate agency mortgage-backed pass-through securities of the
Government National Mortgage Association (Ginnie Mae), the Federal
National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). In JWS's view, the Blended Index
better represents the securities in which the Fund expects to invest since
Fund shareholders approved amendments to the Fund's principal investment
strategies in October 2005. The Fund's holdings, however, may not be
evenly weighted among the securities covered by the Barclays Capital Index
and Barclays Capital MBS Index, and the weighting of the Fund's holdings
may vary significantly among such securities. The Fund is actively managed
and its holdings are subject to change. Investors cannot invest directly
in an average or an index.
+ The CDSC is 5% if you sell your shares within one year of purchase, and 2%
for the five-year period.
++ The ten-year return for Class B shares reflects automatic conversion to
Class A shares approximately eight years after their date of purchase.
o Represents per share amount paid or declared for the year ended December
31, 2008.
oo Current yield, representing the annualized yield for the 30-day period
ended December 31, 2008, has been computed in accordance with SEC
regulations and will vary.
ooo 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.
Composition of Net Assets
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PERCENTAGE OF NET ASSETS
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12/31/08 12/31/07
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US Treasury Securities 27.3 21.2
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Other US Full Faith and Credit Obligations 1.6 3.1
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US Government Agency Obligations 18.3 14.0
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Mortgage-Backed Securities 45.7 61.7
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Short-Term Holdings and Other Assets Less Liabilities 7.1 --
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Total 100.0 100.0
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6
Understanding and Comparing Your Fund's Expenses
As a shareholder of the Fund, you incur ongoing expenses, such as management
fees, distribution and/or 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 the Fund and to compare them with the ongoing expenses
of investing in other mutual funds. Please note that the expenses shown in the
table 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 table is 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 table is based on an investment of $1,000 invested at the beginning of July
1, 2008 and held for the entire six-month period ended December 31, 2008.
ACTUAL EXPENSES
The table below provides 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 Fund's share class that
you own to estimate the expenses that you paid on your account during the
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical expenses and
hypothetical account values based on the actual expense ratio of each class and
an assumed rate of return of 5% per year before expenses, which is not the
actual return of any class of the 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 the 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 EXPENSES PAID
ACCOUNT ANNUALIZED ACCOUNT EXPENSES PAID ACCOUNT DURING PERIOD
VALUE EXPENSE VALUE DURING PERIOD VALUE 7/1/08 TO
7/1/08 RATIO* 12/31/08 7/1/08 TO 12/31/08** 12/31/08 12/31/08**
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Class A $ 1,000.00 1.41% $ 1,071.20 $ 7.34 $ 1,018.05 $ 7.15
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Class B 1,000.00 2.18 1,068.60 11.34 1,014.18 11.04
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Class C 1,000.00 2.19 1,067.10 11.38 1,014.13 11.09
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Class R 1,000.00 1.68 1,069.90 8.74 1,016.69 8.52
- ------------------------------------------------------------------------------------------------------------------------------------
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* Expenses of Class B, Class C and Class R shares differ from the expenses
of Class A shares due to the differences in 12b-1 fees paid by each share
class. See the Fund's prospectus for a description of each share class and
its expenses and sales charges.
** Expenses are equal to the annualized expense ratio based on actual
expenses for the period July 1, 2008 to December 31, 2008, multiplied by
the average account value over the period, multiplied by 184/366 (number
of days in the period).
7
Portfolio of Investments
December 31, 2008
PRINCIPAL
AMOUNT VALUE
US FULL FAITH AND CREDIT OBLIGATIONS 28.9%
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US Treasury Bonds:
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1.75%, 1/15/2028 $ 517,060 $ 477,877
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5.375%, 2/15/2031 375,000 515,391
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4.5%, 2/15/2036 585,000 777,411
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US Treasury Inflation-Protected Security:
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2%, 1/15/2014 363,469 344,500
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2%, 1/15/2016 283,798 271,870
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US Treasury Notes:
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2.125%, 4/30/2010 260,000 266,297
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4.5%, 2/28/2011 175,000+ 189,274
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4.875%, 6/30/2012 735,000 826,358
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4.125%, 8/31/2012 2,830,000+ 3,130,690
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2%, 11/30/2013 3,415,000 3,504,647
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1.5%, 12/31/2013 3,950,000 3,942,285
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4%, 2/15/2014 405,000 459,169
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4.625%, 11/15/2016 1,000,000 1,180,938
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4.25%, 11/15/2017 3,315,000 3,862,754
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1.375%, 7/15/2018 251,165 234,977
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3.75%, 11/15/2018 2,672,000+ 3,025,620
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US Treasury STRIPS Principal 6.5%, 11/15/2026* 2,400,000 1,383,754
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TOTAL US FULL FAITH AND CREDIT OBLIGATIONS (Cost $22,581,796) 24,393,812
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US GOVERNMENT AGENCY OBLIGATIONSo 18.3%
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Fannie Mae:
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3.255%, 6/9/2010 580,000 598,379
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3.25%, 8/12/2010 870,000 901,421
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4.75%, 11/19/2012 730,000+ 804,027
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5%, 2/13/2017 2,500,000+ 2,841,022
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5%, 7/9/2018 500,000+ 487,855
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Federal Home Loan Bank:
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2.625%, 5/20/2011 2,565,000+ 2,624,988
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3.625%, 10/18/2013 2,000,000 2,106,294
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5%, 11/17/2017 500,000 574,295
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Freddie Mac:
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6%, 6/15/2011 500,000 554,465
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5.5%, 8/20/2012 2,610,000+ 2,915,370
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5%, 7/15/2014 900,000 1,015,163
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TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Cost $14,393,850) 15,423,279
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MORTGAGE-BACKED SECURITIESoo 45.7%
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Fannie Maeo:
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4.5%, 12/1/2020 984,015 1,009,978
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5%, 6/25/2025 2,000,000+ 1,996,232
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4.841%, 11/1/2034# 1,075,007 1,074,852
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4.737%, 8/1/2035# 1,298,779 1,296,274
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See footnotes on page 9.
8
Portfolio of Investments
December 31, 2008
PRINCIPAL
AMOUNT
OR SHARES VALUE
Fannie Mae: (continued)
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5.5%, 2/1/2036 $ 1,983,750 $ 2,036,217
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5.356%, 4/1/2036# 814,154 830,420
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6.047%, 4/1/2036# 1,296,704 1,328,454
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5.959%, 8/1/2036# 668,034 683,885
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5.82%, 9/1/2037# 972,667 999,044
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6.5%, 9/1/2037 2,022,594 2,071,945
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6.5%, 12/1/2037 3,570,489+ 3,713,108
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6.5%, TBA 1/2009 3,000,000 3,115,782
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Freddie Maco:
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6.161%, 8/1/2036# 779,970 791,849
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6.109%, 12/1/2036# 1,521,409 1,566,099
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Freddie Mac Goldo:
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5%, 5/1/2018 1,377,928 1,422,680
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5.5%, 10/1/2018 1,196,107 1,237,400
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7%, 4/1/2038 386,101 400,985
- -------------------------------------------------------------------------------------------------------
6%, TBA 1/2009 1,000,000 1,030,156
- -------------------------------------------------------------------------------------------------------
4.5%, TBA 1/2009 3,000,000 3,067,500
- -------------------------------------------------------------------------------------------------------
5.5%, TBA 1/2009 3,250,000 3,326,680
- -------------------------------------------------------------------------------------------------------
5.5%, TBA 1/2009 2,800,000 2,882,687
- -------------------------------------------------------------------------------------------------------
Ginnie Mae:
- -------------------------------------------------------------------------------------------------------
5%, 5/20/2029 440,232 444,248
- -------------------------------------------------------------------------------------------------------
5.5%, 10/15/2035 1,597,777 1,650,071
- -------------------------------------------------------------------------------------------------------
Small Business Administration 5.199%, 8/10/2012 493,280 501,515
- -------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES (Cost $37,834,163) 38,478,061
- -------------------------------------------------------------------------------------------------------
SHORT TERM HOLDINGS 22.2%
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Bank 0.28%, 3/25/2009 2,500,000+ 2,499,745
- -------------------------------------------------------------------------------------------------------
US Treasury Bill 0.50%, 10/22/2009 2,000,000 1,994,742
- -------------------------------------------------------------------------------------------------------
US Treasury Note 3.5%, 8/15/2009 1,500,000 1,529,825
- -------------------------------------------------------------------------------------------------------
SSgA U.S. Treasury Money Market Fund 12,673,821 shs. 12,673,821
- -------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM HOLDINGS (Cost $18,645,168) 18,698,133
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $93,454,977) 115.1% 96,993,285
- -------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES (15.1)% (12,732,996)
- -------------------------------------------------------------------------------------------------------
NET ASSETS 100.0% $ 84,260,289
=======================================================================================================
- ----------
* STRIPS (Separate Trading of Registered Interest and Principal of
Securities) Principal is purchased at a discount, receives no interest and
receives a single payment at maturity.
o Securities issued by these agencies are neither guaranteed nor issued by
the United States Government.
oo Investments in mortgage-backed securities are subject to principal
paydowns. As a result of prepayments from refinancing or satisfaction of
the underlying mortgage instruments, the average life may be less than the
original maturity. This in turn may impact the ultimate yield realized
from these investments.
# Floating rate security, the interest rate is reset periodically. The
interest rate disclosed reflects the rate in effect at December 31, 2008.
+ At December 31, 2008, these securities with a total value of $24,007,650
were held as collateral for the TBA securities.
TBA--To be announced.
- ----------
See Notes to Financial Statements.
9
Statement of Assets and Liabilities
December 31, 2008
ASSETS:
- -------------------------------------------------------------------------------
Investments, at value:
- -------------------------------------------------------------------------------
US Full Faith and Credit Obligations (cost $22,581,796) $ 24,393,812
- -------------------------------------------------------------------------------
US Government Agency Obligations (cost $14,393,850) 15,423,279
- -------------------------------------------------------------------------------
Mortgage-Backed Securities (cost $37,834,163) 38,478,061
- -------------------------------------------------------------------------------
Short-Term Holdings (cost $18,645,168) 18,698,133
- -------------------------------------------------------------------------------
Total investments (cost $93,454,977) 96,993,285
- -------------------------------------------------------------------------------
Cash (including restricted cash of $10,000) 27,916
- -------------------------------------------------------------------------------
Receivable for shares of Beneficial Interest sold 936,132
- -------------------------------------------------------------------------------
Dividends and interest receivable 477,354
- -------------------------------------------------------------------------------
Paydown receivable 39,511
- -------------------------------------------------------------------------------
Expenses prepaid to shareholder service agent 4,816
- -------------------------------------------------------------------------------
Other 2,674
- -------------------------------------------------------------------------------
TOTAL ASSETS 98,481,688
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for securities purchased 13,260,070
- -------------------------------------------------------------------------------
Payable for shares of Beneficial Interest repurchased 781,272
- -------------------------------------------------------------------------------
Dividends payable 62,173
- -------------------------------------------------------------------------------
Distribution and service fees (12b-1) payable 37,937
- -------------------------------------------------------------------------------
Management fees payable 35,224
- -------------------------------------------------------------------------------
Accrued expenses and other 44,723
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 14,221,399
- -------------------------------------------------------------------------------
NET ASSETS $ 84,260,289
===============================================================================
COMPOSITION OF NET ASSETS:
- -------------------------------------------------------------------------------
Shares of Beneficial Interest, at par ($0.001 par value; unlimited shares
authorized; 11,470,030 shares outstanding):
- -------------------------------------------------------------------------------
Class A $ 6,702
- -------------------------------------------------------------------------------
Class B 1,215
- -------------------------------------------------------------------------------
Class C 2,944
- -------------------------------------------------------------------------------
Class R 609
- -------------------------------------------------------------------------------
Additional paid-in capital 87,269,498
- -------------------------------------------------------------------------------
Dividends in excess of net investment income (Note 7) (21,148)
- -------------------------------------------------------------------------------
Accumulated net realized loss (Note 7) (6,537,839)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,538,308
- -------------------------------------------------------------------------------
NET ASSETS $ 84,260,289
===============================================================================
NET ASSET VALUE PER SHARE:
- -------------------------------------------------------------------------------
CLASS A ($49,207,829 / 6,702,682 shares) $ 7.34
- -------------------------------------------------------------------------------
CLASS B ($8,941,291 / 1,215,366 shares) $ 7.36
- -------------------------------------------------------------------------------
CLASS C ($21,645,636 / 2,943,964 shares) $ 7.35
- -------------------------------------------------------------------------------
CLASS R ($4,465,533 / 608,018 shares) $ 7.34
- -------------------------------------------------------------------------------
- ----------
See Notes to Financial Statements.
10
Statement of Operations
For the Year Ended December 31, 2008
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $ 2,934,730
- -------------------------------------------------------------------------------
Dividends 332
- -------------------------------------------------------------------------------
Other 244
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 2,935,306
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Distribution and service (12b-1) fees 371,653
- -------------------------------------------------------------------------------
Management fee 355,918
- -------------------------------------------------------------------------------
Shareholder account services 334,511
- -------------------------------------------------------------------------------
Registration 65,833
- -------------------------------------------------------------------------------
Auditing and legal fees 39,360
- -------------------------------------------------------------------------------
Custody and related services 31,533
- -------------------------------------------------------------------------------
Shareholder reports and communications 23,939
- -------------------------------------------------------------------------------
Trustees' fees and expenses 5,509
- -------------------------------------------------------------------------------
Miscellaneous 8,624
- -------------------------------------------------------------------------------
TOTAL EXPENSES 1,236,880
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,698,426
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
- -------------------------------------------------------------------------------
Net realized gain on investments 1,857,879
- -------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 2,454,089
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 4,311,968
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $ 6,010,394
===============================================================================
- ----------
See Notes to Financial Statements.
11
Statements of Changes In Net Assets
YEAR ENDED DECEMBER 31,
----------------------------
2008 2007
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS:
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 1,698,426 $ 2,066,771
- -------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,857,879 57,571
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 2,454,089 1,091,242
- -------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 6,010,394 3,215,584
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- -------------------------------------------------------------------------------------------------------------------
Net investment income:
- -------------------------------------------------------------------------------------------------------------------
Class A (1,132,757) (1,382,704)
- -------------------------------------------------------------------------------------------------------------------
Class B (148,122) (181,998)
- -------------------------------------------------------------------------------------------------------------------
Class C (234,492) (121,185)
- -------------------------------------------------------------------------------------------------------------------
Class D (109,184) (321,812)
- -------------------------------------------------------------------------------------------------------------------
Class R (73,871) (51,517)
- -------------------------------------------------------------------------------------------------------------------
Total (1,698,426) (2,059,216)
- -------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income
- -------------------------------------------------------------------------------------------------------------------
Class A (120,687) --
- -------------------------------------------------------------------------------------------------------------------
Class B (15,782) --
- -------------------------------------------------------------------------------------------------------------------
Class C (24,984) --
- -------------------------------------------------------------------------------------------------------------------
Class D (11,633) --
- -------------------------------------------------------------------------------------------------------------------
Class R (7,870) --
- -------------------------------------------------------------------------------------------------------------------
Total (180,956) --
- -------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS (1,879,382) (2,059,216)
- -------------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
- -------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 14,518,267 6,212,172
- -------------------------------------------------------------------------------------------------------------------
Investment of distributions 1,624,673 1,714,738
- -------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 39,761,476 6,781,291
- -------------------------------------------------------------------------------------------------------------------
Total 55,904,416 14,708,201
- -------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (26,915,633) (16,229,260)
- -------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (6,378,414) (5,688,660)
- -------------------------------------------------------------------------------------------------------------------
Total (33,294,047) (21,917,920)
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST 22,610,369 (7,209,719)
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 26,741,381 (6,053,351)
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------
Beginning of year 57,518,908 63,572,259
- -------------------------------------------------------------------------------------------------------------------
END OF YEAR (net of dividends in excess of net investment income of $21,148 and
$24,156, respectively) $ 84,260,289 $ 57,518,908
===================================================================================================================
- ----------
See Notes to Financial Statements.
12
Notes to Financial Statements
1. ORGANIZATION AND MULTIPLE CLASSES OF SHARES -- Seligman U.S. Government
Securities Fund (the "Fund") is a series of Seligman High Income Fund
Series (the "Series"), which is registered with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end diversified management
investment company (Note 11). The Fund offers the following four classes
of shares:
Class A shares are sold with an initial sales charge of up to 4.5% (4.75%
prior to January 7, 2008) and are subject to a continuing service fee of
up to 0.25% on an annual basis. Class A shares purchased in an amount of
$1,000,000 or more are sold without an initial sales charge but are
subject to a contingent deferred sales charge ("CDSC") of 1% on
redemptions made 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
a plan termination, will be subject to a CDSC of 1% on redemption of
shares purchased within 18 months prior to plan termination.
Class B shares are sold without an initial sales charge but are subject to
a distribution fee of 0.75% and a service fee of up to 0.25% on an annual
basis, and a CDSC, if applicable, of 5% on redemptions in the first year
of purchase, declining to 1% in the sixth year and 0% thereafter. Class B
shares will automatically convert to Class A shares approximately eight
years after their date of purchase. If Class B shares of the Fund are
exchanged for Class B shares of another Seligman mutual fund, the holding
period of the shares exchanged will be added to the holding period of the
shares acquired, both for determining the applicable CDSC and the
conversion of Class B shares to Class A shares.
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 Board of Trustees of the Series approved the automatic conversion of
all of the Fund's outstanding Class D shares to Class C shares at their
relative net asset values. The conversion was implemented on May 16, 2008.
Effective at the close of business on May 16, 2008, the Fund no longer
offers Class D shares. The conversion did not affect individual
shareholder account values.
Class R shares are offered to certain employee benefit plans and are not
available to all investors. They are sold without an initial sales charge,
but are subject to a distribution fee of up to 0.25% and a service fee of
up to 0.25% on an annual basis, and a CDSC, if applicable, of 1% on
redemptions made within one year of a plan's initial purchase of Class R
shares.
All classes of shares represent interests in the same portfolio of
investments, have the same rights and are generally identical in all
respects except that each class bears its separate distribution and
certain other class-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 Fund:
A. SECURITY VALUATION AND RISK -- Investments in US Government and
Government agency obligations are valued at current market values
or, in their absence, at fair values determined in accordance with
procedures approved by the trustees. Securities traded on an
exchange are valued at last sales prices or, in their absence and in
the case of over-the-counter securities, at the mean of bid and
asked prices. 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
maturing in 60 days or less are valued at current market quotations
or amortized cost if RiverSource Investments, LLC ("RiverSource" or
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
13
Notes to Financial Statements
60th day prior to maturity and are then valued as described above
for securities maturing in 60 days or less. Investments in money
market funds are valued at net asset value.
On January 1, 2008, the Fund adopted Statement of Financial
Accounting Standards No. 157 ("SFAS 157"), "Fair Value
Measurements." SFAS 157 establishes a three-tier hierarchy to
classify the assumptions, referred to as inputs, used in valuation
techniques (as described above) to measure fair value of the Fund's
investments. These inputs are summarized in three broad levels:
Level 1 - quoted prices in active markets for identical investments;
Level 2 - other significant observable inputs (including quoted
prices in inactive markets or for similar investments, interest
rates, prepayment speeds, credit risk, etc.); and Level 3 -
significant unobservable inputs (including the Fund's own
assumptions in determining fair value) (Note 3). Observable inputs
are those based on market data obtained from sources independent of
the Fund, and unobservable inputs reflect the Fund's own assumptions
based on the best information available. The inputs or methodology
used for valuing securities may not be an indication of the risk
associated with investing in those securities.
US government securities are subject to interest rate risk,
prepayment risk, credit risk and market risk. Securities that are
not guaranteed by the US Government may have increased credit risk,
including, but not limited to, the risk of non-payment of principal
or interest.
B. SECURITIES PURCHASED AND SOLD ON A TBA BASIS -- The Fund may
purchase or sell securities (typically mortgage-backed securities)
on a to-be-announced (TBA) basis, with payment and delivery
scheduled for a future date. These transactions are subject to
market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price.
Unsettled TBA commitments are valued at fair value in accordance
with the procedures for security valuation described above. The Fund
segregates securities as collateral for its obligations to purchase
TBA mortgage securities.
C. MORTGAGE DOLLAR ROLLS -- The Fund may enter into mortgage dollar
roll transactions using TBAs in which the Fund sells a
mortgage-backed security to a counterparty and simultaneously enters
into an agreement with the same counterparty to buy back a similar
security on a specific future date at a predetermined price. Each
mortgage dollar roll is treated as a sale and purchase transaction,
with any gain or loss recognized at the time of each sale. The Fund
may be exposed to market or credit risk if the price of the security
changes unfavorably or the counterparty fails to perform under the
terms of the agreement.
D. RESTRICTED CASH -- Restricted cash represents deposits that are
being held by banks as collateral for letters of credit issued in
connection with the Fund's insurance policies.
E. MULTIPLE CLASS ALLOCATIONS -- All income, expenses (other than
class-specific expenses), and realized and unrealized gains or
losses are allocated daily to each class of shares based upon the
relative value of shares of each class. Class-specific expenses,
which include distribution and service (12b-1) fees and any other
items that are specifically attributable to a particular class, are
charged directly to such class. For the year ended December 31,
2008, distribution and service (12b-1) fees were the only
class-specific expenses.
F. 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 an accrual
basis. The Fund amortizes premiums and discounts on purchases of
portfolio securities for financial reporting purposes.
G. DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and other distributions
to shareholders are recorded on ex-dividend dates.
H. TAXES -- There is no provision for federal income tax. The Fund has
elected to be taxed as a regulated investment company and intends to
distribute substantially all taxable net income and net realized
gain.
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 Fund to
measure and recognize in its financial statements the benefit of a
tax position taken (or expected to be
14
Notes to Financial Statements
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 Fund files income tax returns in the US Federal
jurisdiction, as well as the New York State and New York City
jurisdictions. Based upon its review of tax positions for the Fund's
open tax years of 2005-2008 in these jurisdictions, the Fund has
determined that FIN 48 did not have a material impact on the Fund's
financial statements for the year ended December 31, 2008.
3. FAIR VALUE MEASUREMENTS -- A summary of the value of the Fund's
investments as of December 31, 2008, based on the level of inputs used in
accordance with SFAS 157 (Note 2a), is as follows:
VALUATION INPUTS VALUE
- -------------------------------------------------------------------------------------------------------------
Level 1 - Quoted Prices in Active Markets for Identical Investments $ 12,673,821
- -------------------------------------------------------------------------------------------------------------
Level 2 - Other Significant Observable Inputs 84,319,464
- -------------------------------------------------------------------------------------------------------------
Level 3 - Significant Unobservable Inputs --
- -------------------------------------------------------------------------------------------------------------
Total $ 96,993,285
=============================================================================================================
4. MANAGEMENT AND DISTRIBUTION SERVICES, AND OTHER RELATED-PARTY
TRANSACTIONS --
A. MANAGEMENT AND ADMINISTRATIVE SERVICES -- On November 7, 2008,
RiverSource, investment manager to the RiverSource complex of funds,
and a wholly owned subsidiary of Ameriprise Financial, Inc.
("Ameriprise"), announced the closing of its acquisition (the
"Acquisition") of J. & W. Seligman & Co. Incorporated ("JWS"). With
the Acquisition completed and shareholders of the Fund having
previously approved (at a Special Meeting held earlier in November
2008) a new Investment Management Services Agreement between
RiverSource and the Fund, RiverSource is the new investment manager
of the Fund effective November 7, 2008.
The Manager receives a fee (and, prior to November 7, 2008, JWS
received a fee), calculated daily and payable monthly, equal to
0.50% per annum of the Fund's average daily net assets. For the year
ended December 31, 2008, RiverSource received $61,258 of such fee
and the balance was paid to JWS.
Under an Administrative Services Agreement, effective November 7,
2008, Ameriprise administers certain aspects of the Fund's business
and other affairs at no cost. Ameriprise provides the Fund with
office space, and certain administrative and other services and
executive and other personnel as are necessary for Fund operations.
Ameriprise pays all of the compensation of Board members of the Fund
who are employees or consultants of RiverSource and of the officers
and other personnel of the Fund. Ameriprise reserves the right to
seek Board approval to increase the fees payable by the Fund under
the Administrative Services Agreement. However, Ameriprise
anticipates that any such increase in fees would be offset by
corresponding decreases in advisory fees under the Investment
Management Services Agreement. If an increase in fees under the
Administrative Services Agreement would not be offset by
corresponding decreases in advisory fees, the Fund will inform
shareholders prior to the effectiveness of such increase. Prior to
November 7, 2008, administrative services were provided to the Fund
by JWS as part of its former management agreement with the Fund.
B. DISTRIBUTION SERVICES -- For the year ended December 31, 2008,
RiverSource Fund Distributors, Inc. (formerly Seligman Advisors,
Inc.) (the "Distributor"), agent for the distribution of the Fund's
shares and an affiliate of the Manager, received commissions and
concessions of $10,293 from sales of Class A shares. Commissions of
$60,052 were also paid to dealers for sales of Class A shares.
The Fund has an Administration, Shareholder Services and
Distribution Plan (the "Plan") with respect to distribution of its
shares. Under the Plan, with respect to Class A shares, service
organizations can enter into agreements with the Distributor and
receive a continuing fee of up to 0.25% on an annual basis, payable
quarterly, of the average daily net assets of the Class A shares
attributable to the particular service organizations for providing
personal services and/or the maintenance of shareholder accounts.
The Distributor charges such fees to the Fund pursuant to the Plan.
For the year ended December 31, 2008, fees incurred under the Plan
aggregated $103,242, or 0.25% per annum of the average daily net
assets of Class A shares.
15
Notes to Financial Statements
Under the Plan, with respect to Class B shares, Class C shares,
Class D shares (only through May 16, 2008), and Class R shares,
service organizations can enter into agreements with the Distributor
and receive a continuing fee 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 B, Class C, Class
D, and Class R shares for which the organizations are responsible;
and, for Class C, Class D, and Class R shares, fees for providing
other distribution assistance of up to 0.75% (0.25%, in the case of
Class R shares) on an annual basis of such average daily net assets.
Such fees are paid monthly by the Fund to the Distributor pursuant
to the Plan.
For the year ended December 31, 2008, fees incurred under the Plan,
equivalent to 1% per annum of the average daily net assets of Class
B, Class C, and Class D shares, and 0.50% per annum of average daily
net assets of Class R shares amounted to $76,276, $129,748, $46,701,
and $15,686, respectively.
The Distributor and RiverSource Services, Inc. (formerly Seligman
Services, Inc.), also an affiliate of the Manager, are eligible to
receive distribution and service (12b-1) fees pursuant to the Plan.
For the year ended December 31, 2008, the Distributor and
RiverSource Services, Inc. received distribution and service (12b-1)
fees of $9,438.
The Distributor is entitled to retain any CDSC imposed on certain
redemptions of Class A, Class C, Class D and Class R shares. For the
year ended December 31, 2008, such charges amounted to $9,328. The
Distributor has sold its rights to third parties to collect any CDSC
imposed on redemptions of Class B shares.
C. TRANSFER AGENT AND SHAREHOLDER SERVICES -- For the year ended
December 31, 2008, Seligman Data Corp., which is owned by certain
associated investment companies, charged the Fund at cost $334,511
for shareholder account services in accordance with a methodology
approved by the Fund's trustees.
Costs of Seligman Data Corp. directly attributable to the Fund were
charged to the Fund. The remaining charges were allocated to the
Fund by Seligman Data Corp. pursuant to a formula based on the
Fund's net assets, shareholder transaction volume and number of
shareholder accounts.
The Series 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 the Series to pay any amount due under the Guaranty is
limited to a specified percentage of the full amount, which
generally is based on the Series' percentage of the expenses billed
by Seligman Data Corp. to all Guarantors in the preceding calendar
quarter. As of December 31, 2008, the Series' potential obligation
under the Guaranty is $527,500. As of December 31, 2008, no event
has occurred which would result in the Series becoming liable to
make any payment under the Guaranty. The Fund would bear a portion
of any payments made by the Series under the Guaranty. A portion of
the rent paid by Seligman Data Corp. is charged to the Fund as part
of Seligman Data Corp.'s shareholder account services cost.
The Series' Board has approved RiverSource Service Corporation
("RSC") as the Fund's new transfer and shareholder service agent,
and the termination of the Fund's relationship with Seligman Data
Corp., effective on or about May 9, 2009. RSC is an affiliate of
RiverSource. The fees and expenses expected to be charged to the
Fund by RSC are generally lower than the fees and expenses charged
by Seligman Data Corp. Nevertheless, as a result of the termination
of the relationship with Seligman Data Corp., the Fund will incur
certain non-recurring charges, including charges relating to
Seligman Data Corp.'s leases, that would in the aggregate
approximate 0.16% of the Fund's net assets as of January 23, 2009
(the "Non-Recurring Charges"). These Non-Recurring Charges will be
incurred over a period of several months beginning January 28, 2009.
Fund shareholders would bear their proportionate share of the Fund's
expenses, including the Non-Recurring Charges.
D. TRUSTEES' FEES AND EXPENSES -- Trustees' fees and expenses includes
the compensation of Board members who are not employees of
RiverSource and the Fund's proportionate share of certain expenses
of a company providing limited administrative services to the Fund
and the other Seligman
16
Notes to Financial Statements
and RiverSource Funds. These expenses include boardroom and office
expense, employee compensation, employee health and retirement
benefits and certain other expenses.
The Series has a compensation arrangement under which trustees who
receive fees may elect to defer receiving such fees. Trustees may
elect to have their deferred fees accrue interest or earn a return
based on the performance of the Fund or other funds in the Seligman
and RiverSource Groups of Investment Companies. The cost of such
fees and earnings/losses accrued thereon is included in trustees'
fees and expenses, and the accumulated balance thereof at December
31, 2008, of $867 is included in accrued expenses and other
liabilities. Deferred fees and related accrued earnings are not
deductible by the Fund for federal income tax purposes until such
amounts are paid.
Certain officers and trustees of the Series are officers or directors of
the Manager, Ameriprise, the Distributor, RiverSource Services, Inc., RSC,
and/or Seligman Data Corp.
5. COMMITTED LINE OF CREDIT -- The Fund is a participant 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. The trustees
have currently limited the Fund's borrowings to 10% of its net assets.
Borrowings pursuant to the credit facility are subject to interest at a
rate equal to the overnight federal funds rate plus 0.50%. The 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
December 31, 2008, the Fund did not borrow from the credit facility.
6. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of portfolio
securities, excluding short-term investments, for the year ended December
31, 2008, amounted to $262,156,724 and $239,615,414, respectively.
7. 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 Fund. 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 treatment for federal income tax
purposes. Further, the cost of investments also can differ for federal
income tax purposes.
At December 31, 2008, the cost of investments for federal income tax
purposes was $93,517,606. The tax basis cost was greater than the cost for
financial reporting purposes due to the deferral of losses on wash sales
of $41,407 and the amortization of premium for financial reporting
purposes of $21,222.
At December 31, 2008, the tax basis components of accumulated losses were
as follows:
Gross unrealized appreciation of portfolio securities $ 3,547,810
--------------------------------------------------------------------------
Gross unrealized depreciation of portfolio securities (72,131)
--------------------------------------------------------------------------
Net unrealized appreciation of portfolio securities 3,475,679
--------------------------------------------------------------------------
Capital loss carryforwards (6,496,525)
--------------------------------------------------------------------------
Undistributed ordinary income 866
--------------------------------------------------------------------------
Total accumulated losses $ (3,019,980)
--------------------------------------------------------------------------
17
Notes to Financial Statements
At December 31, 2008, the Fund had net capital loss carryforwards for
federal income tax purposes of $6,496,525, which are available for offset
against future taxable net capital gains, with $2,553,158 expiring in
2012, $1,912,635 expiring in 2013, and $2,030,732 expiring in 2014.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net capital gains have been realized in excess of the
available capital loss carryforwards. There can be no assurance that the
Fund will be able to utilize all of these capital loss carryforwards
before they expire. During the year ended December 31, 2008, the Fund
utilized $1,655,259 or prior years' capital loss carryforwards to offset
current year's net capital gains.
For the years ended December 31, 2008 and 2007, all distributions to
shareholders were ordinary income for tax purposes.
8. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST -- Transactions in Shares of
Beneficial Interest were as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2008 2007
---------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 909,798 $ 6,426,560 330,169 $ 2,250,085
- ----------------------------------------------------------------------------------------------------------------------
Investment of distributions 150,292 1,054,586 164,842 1,120,783
- ----------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 3,237,683 22,768,697 467,532 3,201,817
- ----------------------------------------------------------------------------------------------------------------------
Converted from Class B* 288,533 2,029,969 204,624 1,390,068
- ----------------------------------------------------------------------------------------------------------------------
Total 4,586,306 32,279,812 1,167,167 7,962,753
- ----------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (2,604,040) (18,231,134) (1,329,688) (9,070,085)
- ----------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (510,632) (3,577,014) (584,026) (3,980,147)
- ----------------------------------------------------------------------------------------------------------------------
Total (3,114,672) (21,808,148) (1,913,714) (13,050,232)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) 1,471,634 $ 10,471,664 (746,547) $ (5,087,479)
======================================================================================================================
CLASS B SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 144,180 $ 1,020,768 19,111 $ 130,412
- ----------------------------------------------------------------------------------------------------------------------
Investment of distributions 20,128 141,355 20,939 142,602
- ----------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 958,803 6,752,264 131,564 901,715
- ----------------------------------------------------------------------------------------------------------------------
Total 1,123,111 7,914,387 171,614 1,174,729
- ----------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (199,495) (1,408,901) (334,128) (2,280,744)
- ----------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (97,394) (685,996) (73,597) (500,718)
- ----------------------------------------------------------------------------------------------------------------------
Converted to Class A* (287,798) (2,029,290) (204,103) (1,389,467)
- ----------------------------------------------------------------------------------------------------------------------
Total (584,687) (4,124,187) (611,828) (4,170,929)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) 538,424 $ 3,790,200 (440,214) $ (2,996,200)
======================================================================================================================
CLASS C SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 352,507 $ 2,477,941 20,200 $ 138,160
- ----------------------------------------------------------------------------------------------------------------------
Investment of distributions 32,096 225,023 14,063 95,830
- ----------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 1,124,403 7,911,952 98,866 676,141
- ----------------------------------------------------------------------------------------------------------------------
Converted from Class D** 1,722,582 12,075,298 -- --
- ----------------------------------------------------------------------------------------------------------------------
Total 3,231,588 22,690,214 133,129 910,131
- ----------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (575,940) (4,047,977) (98,862) (673,174)
- ----------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (272,956) (1,916,690) (86,768) (592,383)
- ----------------------------------------------------------------------------------------------------------------------
Total (848,896) (5,964,667) (185,630) (1,265,557)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) 2,382,692 $ 16,725,547 (52,501) $ (355,426)
======================================================================================================================
- ----------
See footnotes on page 19.
18
Notes to Financial Statements
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2008+ 2007
---------------------------------------------------------
CLASS D SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 204,553 $ 1,441,119 327,306 $ 2,233,964
- ----------------------------------------------------------------------------------------------------------------------
Investment of dividends 17,454 122,831 44,836 305,278
- ----------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 315,869 2,231,550 291,266 1,990,662
- ----------------------------------------------------------------------------------------------------------------------
Total 537,876 3,795,500 663,408 4,529,904
- ----------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (321,774) (2,271,590) (521,512) (3,550,798)
- ----------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (25,539) (180,119) (90,173) (615,412)
- ----------------------------------------------------------------------------------------------------------------------
Converted to Class C** (1,722,581) (12,075,298) -- --
- ----------------------------------------------------------------------------------------------------------------------
Total (2,069,894) (14,527,007) (611,685) (4,166,210)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) (1,532,018) $(10,731,507) 51,723 $ 363,694
======================================================================================================================
CLASS R SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 447,837 $ 3,151,200 214,181 $ 1,458,949
- ----------------------------------------------------------------------------------------------------------------------
Investment of distributions 11,530 80,878 7,386 50,247
- ----------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 13,679 97,013 1,605 10,955
- ----------------------------------------------------------------------------------------------------------------------
Total 473,046 3,329,091 223,172 1,520,151
- ----------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (136,565) (956,031) (96,174) (654,459)
- ----------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (2,667) (18,595) -- --
- ----------------------------------------------------------------------------------------------------------------------
Total (139,232) (974,626) (96,174) (654,459)
- ----------------------------------------------------------------------------------------------------------------------
Increase 333,814 $ 2,354,465 126,998 $ 865,692
======================================================================================================================
- ----------
* Automatic conversion of Class B shares to Class A shares approximately
eight years after their initial purchase date. The amount of dividends
accrued on Class B shares between the last dividend payment date and the
conversion date is invested in Class A shares and is included in the
conversion from Class B amount.
** Effective May 16, 2008, Class D shares were converted to Class C shares.
+ January 1, 2008 to May 16, 2008, in the case of Class D shares.
9. OTHER MATTERS -- In late 2003, 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
19
Notes to Financial Statements
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 be paid by JWS
and not by the Seligman Funds. If the NYAG obtains injunctive relief, each
of JWS, 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.
10. RECENT ACCOUNTING PRONOUNCEMENT -- In March 2008, the FASB issued
Statement of Financial Accounting Standards No. 161 ("SFAS 161"),
"Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133," which requires enhanced disclosures
about a fund's derivative and hedging activities. Funds are required to
provide enhanced disclosures about (a) how and why a fund uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. As of December 31, 2008, management does not
believe the adoption of SFAS 161 will impact the financial statement
amounts; however, additional footnote disclosures may be required about
the use of derivative instruments and hedging items.
11. SUBSEQUENT EVENTS -- On January 8, 2009, the Series' Board approved in
principle the merger of the Fund into RiverSource Short Duration U.S.
Government Fund. The completion of the merger is subject to approval by
shareholders of the Fund. It is currently anticipated that proxy materials
regarding the merger will be distributed to shareholders of the Fund
during the first or second quarter of 2009, and that a special meeting of
shareholders to consider such merger will be scheduled for the second
quarter of 2009.
20
Financial Highlights
The tables below are intended to help you understand each Class's financial
performance for the periods presented. Certain information reflects financial
results for a single share of Beneficial Interest 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 dividends and capital gain distributions, if any. Total returns do not
reflect any sales charges, fees or transaction costs on your investments or
taxes investors may incur on distributions or on the redemption of shares, and
are not annualized for periods of less than one year.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 6.95 $ 6.80 $ 6.89 $ 7.10 $ 7.23
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.18 0.26 0.24 0.20 0.19
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.42 0.15 (0.09) (0.20) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.60 0.41 0.15 -- 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.18) (0.26) (0.24) (0.20) (0.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income (0.03) -- -- (0.01) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.21) (0.26) (0.24) (0.21) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.34 $ 6.95 $ 6.80 $ 6.89 $ 7.10
====================================================================================================================================
TOTAL RETURN 8.76% 6.10% 2.33% --% 1.09%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $ 49,208 $ 36,335 $ 40,676 $ 44,402 $ 47,553
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.46% 1.52% 1.42% 1.50% 1.31%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets 2.62% 3.80% 3.55% 2.90% 2.66%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02%
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------
See footnotes on page 25.
21
Financial Highlights
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
CLASS B 2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 6.96 $ 6.82 $ 6.90 $ 7.12 $ 7.25
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.21 0.19 0.15 0.14
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.43 0.14 (0.08) (0.21) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.56 0.35 0.11 (0.06) 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.13) (0.21) (0.19) (0.15) (0.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income (0.03) -- -- (0.01) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.16) (0.21) (0.19) (0.16) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.36 $ 6.96 $ 6.82 $ 6.90 $ 7.12
====================================================================================================================================
TOTAL RETURN 8.08% 5.15% 1.73% (0.88)% 0.34%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $ 8,941 $ 4,713 $ 7,619 $ 13,986 $ 24,045
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.22% 2.28% 2.17% 2.26% 2.06%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.86% 3.04% 2.80% 2.14% 1.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02%
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------
See footnotes on page 25.
22
Financial Highlights
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
CLASS C 2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 6.96 $ 6.82 $ 6.90 $ 7.11 $ 7.25
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.21 0.19 0.15 0.14
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.42 0.14 (0.08) (0.20) (0.12)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.55 0.35 0.11 (0.05) 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.13) (0.21) (0.19) (0.15) (0.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income (0.03) -- -- (0.01) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.16) (0.21) (0.19) (0.16) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.35 $ 6.96 $ 6.82 $ 6.90 $ 7.11
====================================================================================================================================
TOTAL RETURN 7.94% 5.15% 1.84% (0.74)% 0.20%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $ 21,646 $ 3,906 $ 4,185 $ 6,016 $ 9,764
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.22% 2.28% 2.17% 2.26% 2.06%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.86% 3.04% 2.80% 2.14% 1.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02%
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------
See footnotes on page 25.
23
Financial Highlights
1/1/08 YEAR ENDED DECEMBER 31,
TO -----------------------------------------
CLASS D 5/16/08* 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.96 $ 6.82 $ 6.90 $ 7.11 $ 7.24
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.07 0.21 0.19 0.15 0.14
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.05 0.14 (0.08) (0.20) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.12 0.35 0.11 (0.05) 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.07) (0.21) (0.19) (0.15) (0.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income -- -- -- (0.01) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.07) (0.21) (0.19) (0.16) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.01 $ 6.96 $ 6.82 $ 6.90 $ 7.11
====================================================================================================================================
TOTAL RETURN 1.70% 5.15% 1.70% (0.74)% 0.34%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) -- $10,660 $ 10,091 $ 10,992 $ 11,556
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.25%+ 2.28% 2.17% 2.26% 2.06%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.59%+ 3.04% 2.80% 2.14% 1.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 327.26%o 204.04% 347.09% 286.60% 133.02%
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------
See footnotes on page 25.
24
Financial Highlights
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
CLASS R 2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 6.95 $ 6.81 $ 6.89 $ 7.10 $ 7.23
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.17 0.24 0.22 0.18 0.17
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.41 0.14 (0.08) (0.20) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.58 0.38 0.14 (0.02) 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.17) (0.24) (0.22) (0.18) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income (0.02) -- -- (0.01) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.19) (0.24) (0.22) (0.19) (0.19)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.34 $ 6.95 $ 6.81 $ 6.89 $ 7.10
====================================================================================================================================
TOTAL RETURN 8.50% 5.63% 2.21% (0.25)% 0.82%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $ 4,466 $ 1,905 $ 1,002 $ 671 $ 440
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.72% 1.78% 1.67% 1.76% 1.56%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.36% 3.54% 3.30% 2.64% 2.41%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02%
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------
* Date of conversion to Class C shares.
+ Annualized.
o Computed at the Fund level for the year ended December 31, 2008.
See Notes to Financial Statements.
25
Report of Independent Registered
Public Accounting Firm
THE TRUSTEES AND SHAREHOLDERS OF
SELIGMAN U.S. GOVERNMENT SECURITIES FUND OF
SELIGMAN HIGH INCOME FUND SERIES:
We have audited the accompanying statement of assets and liabilities of Seligman
U.S. Government Securities Fund, one of the funds constituting Seligman High
Income Fund Series (the "Fund"), including the portfolio of investments, as of
December 31, 2008, and the related statement 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 Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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 Fund
is not required to have, nor were we engaged to perform, an audit of its 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 Fund's 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 December 31, 2008, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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
Seligman U.S. Government Securities Fund of Seligman High Income Fund Series as
of December 31, 2008, the results of its operations for the year then ended, the
changes in its 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
February 27, 2009
26
Matters Relating to the Trustees'
Consideration of the Approval of the
Investment Management Services Agreement
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 shareholders 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 resulted in the automatic termination of the Fund's management
agreement with Seligman (the "Seligman Management Agreement"). In anticipation
of the termination of the Seligman Management Agreement, at a meeting held on
July 29, 2008, the trustees of Seligman High Income Fund Series then serving, of
which the Fund is a separate series, unanimously approved an investment
management agreement between the Fund and RiverSource (the "Proposed Advisory
Agreement"). At the special meeting of shareholders of the Fund held on November
3, 2008, the shareholders approved the Proposed Advisory Agreement. The
Transaction closed on November 7, 2008, and upon the closing, RiverSource became
the investment advisor to the Fund.
BOARD CONSIDERATIONS
Prior to their approval of the Proposed Advisory Agreement, the trustees
requested and evaluated extensive materials from, and were provided materials
and information about the Transaction and matters related to the proposed
approval by, Seligman, RiverSource and Ameriprise.
In consultation with experienced counsel, who advised on the legal standards for
consideration by the trustees, the trustees reviewed the Proposed Advisory
Agreement with RiverSource. The independent trustees also discussed the proposed
approval with counsel in private sessions.
At their meetings on June 12, 2008, July 17, 2008 and July 29, 2008, the
trustees discussed the Transaction with Seligman, and the Transaction and
RiverSource's plans and intentions regarding the Fund with representatives of
Ameriprise and RiverSource.
The trustees considered all factors they believed relevant, including the
specific matters discussed below. In their deliberations, the trustees did not
identify any particular information that was all-important or controlling, and
trustees may have attributed different weights to the various factors. The
trustees determined that the selection of RiverSource to advise the Fund, and
the overall arrangements between the Fund and RiverSource as provided in the
Proposed Advisory Agreement, including the proposed advisory fee and the related
administration arrangements between the Fund and Ameriprise, were fair and
reasonable in light of the services to be performed, expenses incurred and such
other matters as the trustees considered relevant. The material factors and
conclusions that formed the basis for the trustees' 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 Fund's Chief
Compliance Officer;
(iv) that RiverSource and Ameriprise assured the trustees that following the
Transaction there will not be any diminution in the nature, quality and
extent of services provided to the Fund or its shareholders;
(v) that within the past year the trustees had performed a full annual review
of the Seligman Management Agreement, as required by the Investment
Company Act of 1940 ("1940 Act"), for the Fund and had determined that
they were satisfied with the nature, extent and quality of services
provided thereunder and that the management fee rate for the Fund was
satisfactory;
(vi) the potential benefits to the Fund of the combination of RiverSource and
Seligman to the Fund, including: greater resources to attract and retain
high quality investment personnel; greater depth and breadth of
investment management capabilities, including a new team of portfolio
managers for the Fund; a
27
Matters Relating to the Trustees'
Consideration of the Approval of the
Investment Management Services Agreement
continued high level of service to the Fund; and the potential for
realization of economies of scale over time since the Fund will be part
of a much larger fund complex;
(vii) the fact that the Fund's total advisory and administrative fees would not
increase by virtue of the Proposed Advisory Agreement, but would remain
the same;
(viii) that RiverSource, and not the Fund, would bear the costs of obtaining all
approvals of the Proposed Advisory Agreement;
(ix) the qualifications of the personnel of RiverSource and Ameriprise that
would provide advisory and administrative services to the Fund;
(x) the terms and conditions of the Proposed Advisory Agreement, including
the trustees' review of differences from the Seligman Management
Agreement;
(xi) that RiverSource and Ameriprise have agreed to refrain from imposing or
seeking to impose, for a period of two years after the closing of the
Transaction, any "unfair burden" (within the meaning of Section 15(f) of
1940 Act) on the Fund; and
(xii) 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 Agreement, the trustees of the Fund considered,
among other things, the expected impact of the Transaction on the operations of
the Fund, the information provided by RiverSource with respect to the nature,
extent and quality of services to be provided by it, RiverSource's 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 Fund.
The trustees noted the professional experience and qualifications of the new
portfolio management team proposed for the Fund and other senior personnel of
RiverSource. The trustees considered a report by, the Fund's Chief Compliance
Officer, assessing RiverSource's compliance system, which was followed by a
private session with the Fund's Chief Compliance Officer. They also discussed
RiverSource's compliance system with the Chief Compliance Officer for the funds
managed by RiverSource. The trustees also considered RiverSource's presentation
on the selection of brokers and dealers for portfolio transactions. As
administrative services (provided under the Seligman Management Agreement) would
be provided to the Fund by Ameriprise at no additional cost under a new
administrative services agreement rather than pursuant to the Proposed Advisory
Agreement, the trustees considered Ameriprise's capability to provide such
administrative services as well as RiverSource's and Ameriprise's roles in
coordinating the activities of the Fund's other service providers. The trustees
noted that Ameriprise intended to continue Seligman's practice of
sub-contracting administrative services provided by Seligman for the Fund to
State Street Bank and Trust Company for the foreseeable future. The trustees
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 Fund under the Proposed Advisory Agreement and the new
administrative services agreement.
COSTS OF SERVICES PROVIDED AND PROFITABILITY
In considering the costs of services to be provided by RiverSource under the
Proposed Advisory Agreement, the trustees considered, among other things, the
projected pre-tax, pre-distribution expense profitability of RiverSource's
proposed relationship with the Fund and discussed the assumptions of RiverSource
and the limitations of the information provided. The trustees noted that
RiverSource had undertaken to provide
28
Matters Relating to the Trustees'
Consideration of the Approval of the
Investment Management Services Agreement
profitability information in connection with future contract continuances. The
trustees also considered RiverSource's financial condition based on information
provided by it.
The trustees noted that the proposed fee under the Proposed Advisory Agreement
was the same as provided under the Seligman Management Agreement. The trustees
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 trustees considered the effect of fall-out
benefits on RiverSource's expenses. The trustees concluded that they were
satisfied that RiverSource's estimated future profitability from its
relationship with the Fund was not excessive.
FALL-OUT BENEFITS
The trustees reviewed information about RiverSource's practices with respect to
allocating portfolio brokerage for brokerage and research services. The trustees
also considered that broker-dealer affiliates of RiverSource, including a
broker-dealer affiliate of Seligman (which became an affiliate of RiverSource
following the closing of the Transaction) will receive 12b-1 fees from the Fund
in respect of shares held in certain accounts, and that the Fund's distributor
(which also became a subsidiary of RiverSource following the closing of the
Transaction) retains a portion of the 12b-1 fees from the Fund and receives a
portion of the sales charges on sales or redemptions of certain classes of
shares of the Fund. The trustees recognized that RiverSource's profitability
would be somewhat lower without these benefits. The trustees noted that
RiverSource may derive reputational and other benefits from its association with
the Fund.
INVESTMENT RESULTS
The trustees received and reviewed detailed performance information on the Fund
at each regular Board meeting during the year in addition to the information
received for the meeting regarding approval of the Proposed Advisory Agreement.
The trustees noted that a new portfolio manager was being proposed by
RiverSource for the Fund and that it was proposed that the new manager would use
an investment process derived from that used with RiverSource Short Duration
U.S. Government Bond Fund, modified to comply with the Fund's investment
strategy as disclosed in its prospectus. The trustees discussed the portfolio
management team, its investment strategy and process and historical performance
record with representatives of RiverSource.
The trustees reviewed performance information on the Fund covering a wide range
of periods, including the first six months of the calendar year, the preceding
seven calendar years and annualized one-, three- and five-year rolling periods
ending June 30, 2008. The trustees reviewed information comparing the Fund to
the Lipper General U.S. Government Funds Average and the Lehman Brothers U.S.
Government Bond Index, as well as performance relative to the other funds in the
Lipper General U.S. Government Funds Average and to a group of competitor funds
selected by Seligman, as well as performance information of RiverSource Short
Duration U.S. Government Bond Fund. The trustees noted the performance results
of RiverSource fund presented were generally better than that of the Fund,
although not for all periods, including the first six months of 2008. The
trustees also noted that the RiverSource fund generally trailed its benchmarks
for the periods presented.
The trustees recognized that it is not possible to predict what effect, if any,
consummation of the Transaction would have on the future performance of the
Fund.
MANAGEMENT FEE AND OTHER EXPENSES
The trustees considered the proposed advisory fee rate to be paid by the Fund to
RiverSource, which is the same as the management fee rate paid by the Fund under
the Seligman Management Agreement. The trustees 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.
29
Matters Relating to the Trustees'
Consideration of the Approval of the
Investment Management Services Agreement
In considering the proposed advisory fee rate, the trustees noted that the
management fee rate under the Seligman Management Agreement covers
administrative services provided by Seligman, whereas the Proposed Advisory
Agreement does not include such services, but that Ameriprise will provide such
services to the Fund pursuant to a separate administrative services agreement
initially without a fee. The trustees further considered that the administrative
fees, since they are not included in an advisory agreement, could be increased
without stockholder approval, although RiverSource noted that, at that time, it
did not have an intention to seek an increase, and that any such administrative
fee increase would require board approval. The trustees 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 trustees compared the Fund's proposed advisory fee rate to the rate paid by
other funds in the Fund's Lipper category. The Fund's peer group consisted of
those funds in the Lipper General U.S. Government Fund category having net
assets in a range that more closely corresponds to the net assets of the Fund
(the "peer group"). The information showed that the Fund's current effective
management fee rate was lower than the average and the median for the funds in
the peer group.
The trustees also reviewed the Fund's total expense ratio as compared to the
fees and expenses of funds within its peer group. In considering the expense
ratios of the Fund, the trustees noted that the Fund has elected to have
shareholder services provided at cost by Seligman Data Corp. ("SDC"). SDC
provides services exclusively to the Seligman Group of Funds, and the trustees
believed that the arrangement with SDC has provided the Fund and its
shareholders with a consistently high level of service. The trustees noted that
RiverSource had previously indicated that no changes to the arrangements with
SDC were being proposed at the time by RiverSource.
The trustees also noted that the Fund's expense ratio was the highest in the
peer group and was considerably higher than the median and the average for the
peer group. Seligman noted that costs were somewhat high for the Fund as a
result of the Fund's small size relative to the funds in its peer group, a large
number of small shareholder accounts due in part to the fact that the Fund is a
core fund for many retirement plans. The trustees concluded that the Fund's
expense ratio was acceptable in light of the high quality of service that the
Fund receives and the other factors considered.
ECONOMIES OF SCALE
The trustees noted that the management fee schedule for the Fund does not
contain breakpoints that reduce the fee rate on assets above specified levels.
The trustees 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 trustees 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
trustees also observed that in the investment company industry as a whole, as
well as among funds similar to the Fund, 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 trustees noted that RiverSource had indicated that no changes to the Fund's
breakpoint arrangements were proposed to be made at the time. Having taken these
factors into account, the trustees concluded that the Fund's breakpoint
arrangements were acceptable under the Fund's circumstances. The trustees also
recognized that the Fund may benefit from certain economies of scale over time
from becoming a part of the larger RiverSource fund complex, based on potential
future synergies of operations.
30
Proxy Results
Shareholders of Seligman U.S. Government Securities Fund voted on two proposals
at a Special Meeting 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:
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
5,257,504.319 242,183.305 198,436.573
- --------------------------------------------------------------------------------
PROPOSAL 2 (combined votes of both Funds in the Series)
To elect ten trustees to the Board:
FOR WITHHELD
- --------------------------------------------------------------------------------
Kathleen Blatz 51,198,749.236 2,437,544.928
- --------------------------------------------------------------------------------
Arne H. Carlson 51,131,650.856 2,504,643.308
- --------------------------------------------------------------------------------
Pamela G. Carlton 51,203,587.404 2,432,706.760
- --------------------------------------------------------------------------------
Patricia M. Flynn 51,212,005.780 2,424,288.384
- --------------------------------------------------------------------------------
Anne P. Jones 51,129,788.135 2,506,506.029
- --------------------------------------------------------------------------------
Jeffrey Laikind 51,183,153.004 2,453,141.160
- --------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 51,247,061.722 2,389,232.442
- --------------------------------------------------------------------------------
Catherine James Paglia 51,200,482.648 2,435,811.516
- --------------------------------------------------------------------------------
Alison Taunton-Rigby 51,166,054.471 2,470,239.693
- --------------------------------------------------------------------------------
William F. Truscott 51,230,947.413 2,405,346.751
- --------------------------------------------------------------------------------
31
Trustees and Officers
Shareholders elect a Board of Trustees that oversees the Fund's 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 Fund voted at a Special Meeting of Shareholders held on November 3, 2008 to
elect 10 members to the Fund's Board. Messrs. Maher and Richie served on the
Fund's Board prior to the acquisition and will continue to do so.
Each member of the Board 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 is 901 S. Marquette Ave., Minneapolis, MN
55402.
Independent Trustees
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS
HELD WITH FUND AND OTHER INFORMATION
- ------------------------------------------------------------------------------------------------------------------------
KATHLEEN BLATZ (54)1,2,6,7 Attorney. Formerly, Chief Justice, Minnesota Supreme Court, 1998-2006.
o Trustee: From
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
ARNE H. CARLSON (74)1,2,3,5,6 Formerly, Chairman, RiverSource Funds, 1999-2006; Governor of Minnesota.
o Trustee: From
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
PAMELA G. CARLTON (54)4,6,7 President, Springboard - Partners in Cross Cultural Leadership (consulting
o Trustee: From company).
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
PATRICIA M. FLYNN (58)1,3,6 Trustee Professor of Economics and Management, Bentley College. Formerly, Dean,
o Trustee: From McCallum Graduate School of Business, Bentley College.
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
ANNE P. JONES (73)1,2,6,7 Attorney and Consultant.
o Trustee: From
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
JEFFREY LAIKIND, CFA (73)4,6,7 Director, American Progressive Insurance. Formerly, Managing Director, Shikiar
o Director: From Asset Management.
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
STEPHEN R. LEWIS, JR. (69)1,2,3,4,6 President Emeritus and Professor of Economics, Carleton College; Director,
o Trustee and Chairman Valmont Industries, Inc. (manufactures irrigation systems).
of the Board: From
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
JOHN F. MAHER (64)4,6,7 Retired President and Chief Executive Officer, and former Director, Great
o Trustee: December 2006 Western Financial Corporation (bank holding company) and its principal
to Date subsidiary, Great Western Bank (a federal savings bank).
- ------------------------------------------------------------------------------------------------------------------------
- ----------
See footnotes on page 33.
32
Trustees and Officers
Independent Trustees (continued)
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS AND OTHER
HELD WITH FUND INFORMATION
- ------------------------------------------------------------------------------------------------------------------------
CATHERINE JAMES PAGLIA (56)2,3,4,5,6 Director, Enterprise Asset Management, Inc. (private real estate and asset
o Trustee: From management company).
November 7, 2008
- ------------------------------------------------------------------------------------------------------------------------
LEROY C. RICHIE (66)3,4,6 Counsel, Lewis & Munday, P.C. (law firm); Director, Vibration Control
o Trustee: 2000 to Date Technologies, LLC (auto vibration technology); Lead Outside Director, Digital
Ally Inc. (digital imaging) and 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.
- ------------------------------------------------------------------------------------------------------------------------
ALISON TAUNTON-RIGBY (64)3,4,5,6 Chief Executive Officer and Director, RiboNovix, Inc. since 2003
o Trustee: From (biotechnology); Director, Idera Pharmaceutical, Inc. (biotechnology);
November 7, 2008 Healthways, Inc. (health management programs). Formerly, President, Forester
Biotech.
- ------------------------------------------------------------------------------------------------------------------------
Interested Trustee*
- ------------------------------------------------------------------------------------------------------------------------
WILLIAM F. TRUSCOTT (48)*6 President - US Asset Management and Chief Investment Officer, Ameriprise
o Trustee and Vice Financial, Inc. and President, Chairman of the Board, and Chief Investment
President: Officer, RiverSource Investments, LLC; Director, President and Chief Executive
From November 7, 2008 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 Fund, 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
2 Compliance Committee
3 Contracts Committee
4 Distribution Committee
5 Executive Committee
6 Investment Review Committee
7 Joint Audit Committee
33
Trustees and Officers
Fund Officers
The 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 Trustee and Vice
President of the Fund, the Fund's other officers are:
NAME, (AGE), POSITION(S)
HELD WITH FUND, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------
PATRICK T. BANNIGAN (43) Director and Senior Vice President -- Asset Management, Products and Marketing,
o President: From RiverSource Investments, LLC; Director and Vice President -- Asset Management,
November 7, 2008 Products and Marketing, RiverSource Distributors, Inc. Formerly, Managing
o 172 Ameriprise Financial Director and Global Head of Product, Morgan Stanley Investment Management,
Center 2004-2006; President, Touchstone Investments, 2002-2004.
Minneapolis, MN 55474
- ------------------------------------------------------------------------------------------------------------------------
MICHELLE M. KEELEY (44) Executive Vice President -- Equity and Fixed Income, Ameriprise Financial, Inc.
o Vice President: From and RiverSource Investments, LLC; Vice President -- Investments, Ameriprise
November 7, 2008 Certificate Company. Formerly, Senior Vice President -- Fixed Income,
o 172 Ameriprise Financial Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC,
Center 2004-2006.
Minneapolis, MN 55474
- ------------------------------------------------------------------------------------------------------------------------
AMY K. JOHNSON (43) Vice President -- Asset Management and Trust Company Services, RiverSource
o Vice President: From Investments, LLC. Formerly, Vice President -- Operations and Compliance,
November 7, 2008 RiverSource Investments, LLC, 2004-2006; Director of Product Development --
o 5228 Ameriprise Financial Mutual Funds, Ameriprise Financial, Inc., 2001-2004.
Center
Minneapolis, MN 55474
- ------------------------------------------------------------------------------------------------------------------------
SCOTT R. PLUMMER (49) Vice President and Chief Counsel -- Asset Management, Ameriprise Financial,
o Vice President, General Inc.; Chief Counsel, RiverSource Distributors, Inc. and Chief Legal Officer an
Counsel and Secretary: Assistant Secretary, RiverSource Investments, LLC; Vice President, General
From November 7, 2008 Counsel, and Secretary, Ameriprise Certificate Company. Formerly, Vice
o 5228 Ameriprise Financial President -- Asset Management Compliance, Ameriprise Financial, Inc.,
Center 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset
Minneapolis, MN 55474 Management, 2002-2004.
- ------------------------------------------------------------------------------------------------------------------------
LAWRENCE P. VOGEL (52) Treasurer of each of the investment companies of the Seligman Group of Funds
o Treasurer: 2000 to Date since 2000; and Treasurer, Seligman Data Corp. since 2000. Formerly, Senior
o 100 Park Avenue Vice President, J. & W. Seligman & Co. Incorporated and Vice President of each
New York, NY 10017 of the investment companies of the Seligman Group of Funds, 1992-2008.
- ------------------------------------------------------------------------------------------------------------------------
34
Trustees and Officers
Fund Officers (continued)
NAME, (AGE), POSITION(S)
HELD WITH FUND, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------
ELEANOR T.M. HOAGLAND (56) Chief Compliance Officer, RiverSource Investments, LLC (J. & W. Seligman & Co.
o Chief Compliance Incorporated prior to November 7, 2008), of each of the investment companies of
Officer: 2004 to Date the Seligman Group of Funds since 2004; Money Laundering Prevention Officer and
o Money Laundering Identity Theft Prevention Officer, RiverSource Investments, LLC for each of the
Prevention Officer investment companies of the Seligman Group of Funds since November 7, 2008.
and Identity Theft Formerly, Managing Director, J. & W. Seligman & Co. Incorporated and Vice
Prevention Officer: President of each of the investment companies of the Seligman Group of Funds,
From November 7, 2008 2004-2008.
o 100 Park Avenue
New York, NY 10017
- ------------------------------------------------------------------------------------------------------------------------
The Fund's Statement of Additional Information (SAI) includes additional
information about Fund trustees 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 Fund, or to make shareholder inquiries.
35
Additional Fund Information
FUND SYMBOLS
Class A: SUSGX
Class B: SXGMX
Class C: SGVCX
Class R: SGVRX
MANAGER
FROM NOVEMBER 7, 2008
RiverSource Investments, LLC
200 Ameriprise Financial
Center
Minneapolis, MN 55474
UNTIL NOVEMBER 6, 2008
J. & W. Seligman & Co.
Incorporated
100 Park Avenue
New York, NY 10017
GENERAL DISTRIBUTOR
RiverSource Fund Distributors, Inc.
(formerly 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
- --------------------------------------------------------------------------------
QUARTERLY SCHEDULE OF INVESTMENTS
A complete schedule of portfolio holdings owned by the Fund will be filed with
the SEC for the first and third quarter 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 in 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 Fund to determine how
to vote proxies relating to portfolio securities as well as information
regarding how the Fund voted proxies relating to portfolio securities during the
12-month period ended December 31 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 Fund's prospectus or statement of additional
information.
36
- --------------------------------------------------------------------------------
------------------------------------
[LOGO] GO PAPERLESS --
SIGN UP FOR E-DELIVERY
AT WWW.SELIGMAN.COM
------------------------------------
This report is intended only for the information of shareholders or those who
have received the offering prospectus covering shares of Beneficial Interest of
Seligman U.S. Government Securities Fund, which contains information about the
investment objectives, risks, charges, and expenses of the Fund, each of which
should be considered carefully before investing or sending money.
- --------------------------------------------------------------------------------
TXUSG2 12/08