================================================================================
FIRST QUARTER REPORT
SELIGMAN
FRONTIER
FUND, INC.
December 31, 1996
[LOGO]
================================================================================
A Capital Appreciation Fund
Established in 1984
<PAGE>
================================================================================
TO THE SHAREHOLDERS
- --------------------------------------------------------------------------------
Seligman Frontier Fund had a difficult first fiscal quarter. As a result, the
Fund's total return based on the net asset value of Class A shares lagged that
of the Russell 2000 Growth Index, which measures the performance of
small-company growth stocks. Despite the difficult first quarter, Seligman
Frontier Fund matched the results of the Russell 2000 Growth Index for the 12
months ended December 31, 1996. The Fund's investment results appear on page 4.
Driven by the outstanding performance of a small number of the largest
stocks, the US equity markets continued their advances in the fourth quarter of
1996, setting successive new highs by recovering quickly from occasional sharp,
short-term, setbacks. The small-company market advanced more slowly, led by
technology and value stocks, and continued to rebound from its summer lows.
While the Fund's electronics holdings improved in this environment due to the
strength of technology stocks, the Fund's small-company growth style of
investing kept it from fully participating in the market advances.
On the management side, we added two investment people to the Seligman Small
Company Team, which manages the portfolio of the Seligman Frontier Fund. They
are: Ted Hillenmeyer and Rick Ruvkun. The new team members provide specialized
knowledge in high-growth areas, particularly in trucking, industrials, business
services, technology, and media. We believe these additions to your Fund's team
will provide added insight to better meet the challenges of investing in the
competitive small-company universe.
Looking ahead, the environment for the US small-company market and investors
remains generally positive, given continued modest economic growth, low
inflation, and bipartisan efforts to balance the federal budget without raising
taxes. While we always recognize that there could be further short-term
volatility, we remain positive about the long-term outlook for the small-company
market and your Fund.
On a final note, the activity witnessed in the equity markets in 1996 and
particularly in the small-company market, where large one-day increases followed
abrupt corrections, is not unusual in the challenging world of investing. We
believe the best strategy for growth of capital is long-term investing. A
professional financial advisor can help you formulate a long-term investment
plan to help you seek your financial goals. It is time, not timing, that counts
when it comes to investing.
A discussion with your Portfolio Manager and the Fund's portfolio of
investments follow this letter.
We thank you for your continued interest in Seligman Frontier Fund, and look
forward to serving your investment needs in the many years to come.
By order of the Board of Directors,
/s/William C. Morris
- --------------------------------
William C. Morris
Chairman
/s/Brian T. Zino
------------------------------
Brian T. Zino
President
January 31, 1997
1
<PAGE>
================================================================================
INTERVIEW WITH YOUR PORTFOLIO MANAGER, ARSEN MRAKOVCIC
- --------------------------------------------------------------------------------
HOW DID SELIGMAN FRONTIER FUND PERFORM IN ITS FIRST FISCAL QUARTER?
| | "Seligman Frontier Fund's results are consistent
| | with its small-company growth style of investing
| | and the markets. The Fund had a total return of
| | -1.33% based on the net asset value of Class A
| [PHOTO] | shares for its first fiscal quarter, which lagged
| | the 0.27% total return of the Russell 2000 Growth
| | Index. However, for the 12 months ended December
| | 31, 1996, the Fund's total return of 11.26% based
on the net asset value of Class A shares matched
SELIGMAN SMALL COMPANY TEAM: the total return of the Russell 2000 Growth
(FROM LEFT)RICK RUVKUN, Index."
LAWRENCE ROSSO, SONIA THOMAS
(ADMINISTRATIVE ASSISTANT), WHICH ECONOMIC FACTORS INFLUENCED SELIGMAN
BRUCE ZIRMAN, (SEATED) ARSEN FRONTIER FUND'S PERFORMANCE IN THE FOURTH QUARTER
MRAKOVCIC (PORTFOLIO MANAGER), OF 1996?
TED HILLENMEYER "The Fund benefited from the continued growth of
the economy and the low levels of inflation that
marked the period. Continued strength in corporate profits was another factor
driving the equity markets and the Fund's performance."
WHICH MARKET FACTORS AFFECTED THE FUND'S PERFORMANCE OVER THE QUARTER?
"The equity markets continued to advance in the fourth quarter of 1996, the
Fund's first fiscal quarter, though there were several abrupt setbacks. The
advances in the large-company indices were due, for the most part, to increases
in the prices of a small number of the large-company stocks, which were sought
as refuge from the ongoing short-term volatility in the markets. Larger-company
stocks generally outperformed smaller issues, thus the Standard & Poor's 500
Composite Stock Price Index (S&P 500) outpaced the Russell 2000 Growth Index in
the fourth quarter. The Fund's fourth quarter results were heavily influenced by
the size of the companies in the portfolio and by the value-stock orientation of
the small-company market."
WHAT WAS YOUR INVESTMENT STRATEGY OVER THE FUND'S FIRST FISCAL QUARTER?
"Our investment strategy continued to focus on earnings growth. The four main
criteria used in stock selection were: 1) sales growth greater than 18%;
2) compound annual estimated earnings growth of more than 20%; 3) the presence
of surplus cash due to strong earnings; and 4) a management ownership stake of
5% or more, to ensure that corporate goals are in line with shareholder needs.
Further, purchases were limited to those companies whose prices were reasonable
relative to their projected earnings growth rates, and which had better balance
sheets than their competitors. This stock selection discipline proved
successful, and, through December, more than three quarters of the stocks in the
portfolio reported earnings that were either in line or better than expected.
"In its first fiscal quarter, the Fund remained widely diversified. As of
December 31, the portfolio held 112 stocks covering 24 industries. No industry
exceeded a 25% weighting, and no individual stock represented more than 3% of
the portfolio. The Fund continued to be heavily invested in business goods and
services, electronics, media, and health care. The Fund was overweighted in some
of the faster growing areas of the US economy."
2
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHICH SECTORS MOST AFFECTED THE FUND'S PERFORMANCE IN ITS FIRST QUARTER?
"Health care, consumer goods and services, and energy, which were overweighted
in the portfolio throughout the quarter, had very strong results. The health
care sector provided the greatest support to the portfolio's performance, and
here the Fund's strength depended on purchasing only those companies with strong
cash flows. Among the strongest performers were Protein Design Labs, Sybron
International, and Watson Pharmaceuticals. The consumer goods and services area
also did very well, benefiting from a strong economy and solid corporate
profits. Performing stocks included Barefoot, a lawn care provider, and Carriage
Services, a provider of funeral services. The energy sector also improved,
seeing dramatic price appreciation due to increased demand. Stocks such as
CalEnergy, an independent power producer, and Pogo Producing, an oil and gas
producer, had outstanding returns.
"Other sectors in the portfolio had mixed results. The business goods and
services sector, in which the Fund has substantial holdings, depreciated in the
quarter. We expect that the performance of the business goods and services
stocks held in the portfolio will improve, as the companies have strong
financials and good long-term growth prospects. The Fund's communications and
electronics stocks also suffered losses in the fourth quarter of 1996. However,
these companies still have strong fundamentals, and we expect that their stock
valuations should improve. Finally, due to its relative underweighting in
financial issues, the Fund did not fully participate in the appreciation seen in
this sector in the December quarter."
WHAT IS THE OVERALL OUTLOOK?
"Seligman Frontier Fund's portfolio is well positioned in relation to the
small-company market for 1997, as the stocks in the portfolio have both higher
projected earnings growth and a lower average price-to-earnings ratio (P/E
ratio) than the overall Russell 2000 Index, which measures the performance of
both growth and value small-company stocks. The Fund also compares favorably to
large-company indices such as the S&P 500, having a similar P/E ratio but more
than four times the expected earnings growth for 1997. We believe that share
price appreciation in the equity markets is linked to earnings growth, and that
our disciplined investment approach should support the Fund's long-term
performance."
3
<PAGE>
================================================================================
SELIGMAN FRONTIER FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS PER SHARE
TOTAL RETURNS*
FOR PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AVERAGE ANNUAL
---------------------------------------------------------------
CLASS B CLASS D
SINCE SINCE
INCEPTION THREE ONE FIVE 10 INCEPTION
4/22/96 MONTHS YEAR YEARS YEARS 5/3/93
------- ---------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
With Sales Charge n/a (6.03)% 5.98% 17.78% 15.60% n/a
Without Sales Charge n/a (1.33) 11.26 18.92 16.15 n/a
CLASS B
With 5% CDSL (4.66)% (6.14) n/a n/a n/a n/a
Without CDSL 0.04 (1.52) n/a n/a n/a n/a
CLASS D
With 1% CDSL n/a (2.38) 9.44 n/a n/a n/a
Without CDSL n/a (1.45) 10.44 n/a n/a 21.68%
RUSSELL 2000 GROWTH INDEX** (2.29)+ 0.27 11.26 11.69 10.88 15.49++
</TABLE>
NET ASSET VALUE
DECEMBER 31, 1996 SEPTEMBER 30, 1996
-------------------- ---------------------
CLASS A $14.29 $15.38
CLASS B 13.67 14.78
CLASS D 13.67 14.77
CAPITAL GAIN INFORMATION
FOR THE PERIOD ENDED DECEMBER 31, 1996
CAPITAL GAIN
---------------------------------------------------------
PAID REALIZED UNREALIZEDo
--------- -------------- --------------
CLASS A $0.870 $0.050 $1.423
CLASS B 0.870 0.050 1.423
CLASS D 0.870 0.050 1.423
The performances of Class B and D shares will be greater than or less than the
performance shown for Class A shares, based on the differences in sales charges
and fees paid by the shareholders.
- --------------------------------------------------------------------------------
* Return figures reflect any change in price per share and assume the
reinvestment of dividends and capital gain distributions. Return figures
for Class A shares are calculated with and without the effect of the
initial 4.75% maximum sales charge. Class A share returns reflect the
effect of the 0.25% Administration, Shareholder Services and
Distribution Plan after June 1, 1992, only. Returns for Class B shares
are calculated with and without the effect of the maximum 5% contingent
deferred sales load ("CDSL"), charged only on certain redemptions made
within one year of the date of purchase, declining to 1% in the sixth
year and 0% thereafter. Returns for Class D shares are calculated with
and without the effect of the 1% CDSL, charged only on redemptions made
within one year of the date of purchase.
Performance data quoted represent changes in prices and assume that all
distributions within the periods are invested in additional shares. 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. Past performance is not indicative of future investment
results.
** The Russell 2000 Growth Index is an unmanaged index that assumes
investment of dividends. The Russell 2000 Growth Index does not reflect
fees and sales charges. Investors may not invest directly in an index.
+ From April 30, 1996.
++ From April 30, 1993.
o Represents the per share amount of net unrealized appreciation of
portfolio securities as of December 31, 1996.
4
<PAGE>
================================================================================
SELIGMAN FRONTIER FUND, INC.
- --------------------------------------------------------------------------------
LARGEST PORTFOLIO CHANGES
DURING PAST THREE MONTHS
SHARES
----------------------------
HOLDINGS
ADDITIONS INCREASE 12/31/96
- ------------ ----------- -------------
AccuStaff ............................... 290,000 700,000
ADVO .................................... 600,000 600,000
Carson (Class A) ........................ 345,000 345,000
Dendrite International .................. 300,000 300,000
Education Management .................... 310,000 310,000
Educational Medical ..................... 605,000 605,000
Electronics for Imaging ................. 200,000 200,000
Gucci Group ............................. 150,000 150,000
Memtec (ADRs) ........................... 175,000 475,000
Suburban Ostomy Supply .................. 400,000 400,000
SHARES
----------------------------
HOLDINGS
REDUCTIONS DECREASE 12/31/96
- -------------- ----------- -------------
BISYS Group ............................. 220,000 --
Corporate Express ....................... 330,000 --
HFS ..................................... 112,600 100,000
Inter-Tel ............................... 433,000 --
Minerals Technologies ................... 250,000 --
Rural/Metro ............................. 202,300 --
Sanmina ................................. 130,000 100,000
Sealed Air .............................. 215,000 --
Wolverine Tube .......................... 150,000 --
Zilog ................................... 300,000 --
Largest portfolio changes from the previous quarter to the current quarter are
based on cost of purchases and proceeds from sales of securities.
LARGEST PORTFOLIO HOLDINGS
AT DECEMBER 31, 1996
SECURITY VALUE
- ----------- -----------
Watson Pharmaceuticals .................................. $26,962,500
CalEnergy ............................................... 23,537,500
Scherer (R.P.) .......................................... 16,934,250
Electronics for Imaging ................................. 16,375,000
DST Systems ............................................. 16,158,125
Memtec (ADRs) ........................................... 15,467,188
AccuStaff ............................................... 14,787,500
Ceridian ................................................ 14,175,000
Sybron International .................................... 14,025,000
Avondale Industries ..................................... 13,934,375
FEDERAL TAX STATUS OF 1996
GAIN DISTRIBUTION FOR
TAXABLE ACCOUNTS
A distribution of $0.870 per share, consisting of $0.589 from net long-term and
$0.281 from net short-term gain realized on investments from November 1995 to
October 1996, was paid on November 22, 1996, to Class A, B, and D shareholders.
The distribution from net long-term gain is designated as a "capital gain
dividend" for federal income tax purposes and is taxable to shareholders in 1996
as a long-term gain from the sale of capital assets, no matter how long your
shares have been owned or whether the distribution was paid in additional shares
or cash. However, if shares on which a long-term capital gain distribution was
received are subsequently sold, and such shares were held for six months or less
from the date of purchase, any loss on the sale would be treated as long-term to
the extent it offsets the long-term gain distribution. Net short-term gain is
taxable as ordinary income whether paid to you in cash or shares.
If the distribution was paid in shares, the per share cost basis for federal
income tax purposes is $14.03 for Class A shares, and $13.43 for Class B and D
shares.
A year-end statement of account showing activity for 1996, a Form 1099-DIV,
and if applicable, a Form 1099-B have been mailed to each shareholder. The Form
1099-B shows the proceeds of any redemptions paid to the shareholder during the
year and reported to the Internal Revenue Service as required by federal
regulations. Form 1099-DIV shows the amount of the distribution from gain on
investments paid to the shareholder during the year.
5
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS (unaudited)
- --------------------------------------------------------------------------------
SHARES VALUE
-------- -------
COMMON STOCKS 95.3%
ADVERTISING 1.4%
ADVO ......................................... 600,000 $ 8,400,000
Heritage Media (Class A)* .................... 336,000 3,780,000
------------
12,180,000
------------
AEROSPACE AND
DEFENSE 1.6%
Avondale Industries* ......................... 650,000 13,934,375
------------
BUSINESS GOODS AND
SERVICES 18.9%
AccuStaff * .................................. 700,000 14,787,500
American Pad & Paper* ........................ 605,100 13,690,387
BDM International* ........................... 175,000 9,428,125
Bell & Howell Holdings* ...................... 200,000 4,750,000
Ceridian* .................................... 350,000 14,175,000
Coinmach Laundry ............................. 411,400 7,199,500
DST Systems* ................................. 515,000 16,158,125
Education Management* ........................ 310,000 6,432,500
Fiserv* ...................................... 195,000 7,202,813
MetroMail* ................................... 500,000 9,125,000
National Data ................................ 300,000 13,050,000
National Processing .......................... 283,200 4,531,200
Nu-Kote Holdings (Class A)* .................. 310,000 3,177,500
OMI* ......................................... 600,000 5,250,000
Personnel Group of America* .................. 175,000 4,221,875
TeleSpectrum Worldwide* ...................... 390,000 6,142,500
US Office Products* .......................... 335,000 11,369,062
US Xpress Enterprises* ....................... 380,000 6,103,750
Wilmar Industries* ........................... 252,000 6,961,500
------------
163,756,337
------------
CAPITAL GOODS 5.2%
Carbide/Graphite Group* ...................... 475,000 9,262,500
Fusion Systems* .............................. 110,000 2,365,000
Greenfield Industries ........................ 275,000 8,404,687
Oak Industries* .............................. 400,000 9,200,000
UCAR International* .......................... 300,000 11,287,500
Wyman Gordon ................................. 200,000 4,437,500
------------
44,957,187
------------
CHEMICALS 0.8%
Polymer Group ................................ 540,000 7,492,500
------------
COMMUNICATIONS 3.3%
Arch Communications Group* ................... 400,000 3,700,000
CIDCO* ....................................... 340,000 5,907,500
Glenayre Technologies* ....................... 400,000 8,625,000
Omnipoint* ................................... 475,000 9,114,063
Western Wireless (Class A)* .................. 126,750 1,750,734
------------
29,097,297
------------
COMPUTER SOFTWARE
AND SERVICES 5.5%
Control Data Systems* ........................ 460,000 10,091,250
Dendrite International ....................... 300,000 2,512,500
Electronics for Imaging ...................... 200,000 16,375,000
HCIA* ........................................ 125,000 4,335,938
Mentor Graphics* ............................. 525,000 5,151,563
Synopsys* .................................... 200,000 9,200,000
------------
47,666,251
------------
CONSUMER GOODS AND
SERVICES 4.0%
American Homestar* ........................... 300,000 6,787,500
Barefoot ..................................... 290,000 4,585,625
Carriage Services (Class A)* ................. 127,500 2,828,906
Carson (Class A)* ............................ 345,000 4,786,875
Gucci Group .................................. 150,000 9,581,250
HFS* ......................................... 100,000 5,975,000
------------
34,545,156
------------
DRUGS AND
HEALTH CARE 17.6%
American Home Patient* ....................... 300,000 8,100,000
American Medserve* ........................... 250,000 3,843,750
AmeriSource Health (Class A)* ................ 240,500 11,604,125
CompDent* .................................... 320,000 11,360,000
Educational Medical .......................... 605,000 6,806,250
Health Management Associates
(Class A)* ............................... 500,000 11,250,000
HealthCor Holdings* .......................... 300,000 2,775,000
National Surgery Centers* .................... 315,000 11,891,250
Omnicare ..................................... 250,000 8,031,250
Protein Design Labs* ......................... 197,000 7,141,250
Renal Care Group ............................. 100,000 3,193,750
Scherer (R.P.)* .............................. 337,000 16,934,250
Total Renal Care Holdings* ................... 300,000 10,875,000
Transitional Hospital* ....................... 485,000 4,668,125
Vivra* ....................................... 250,000 6,906,250
Watson Pharmaceuticals* ...................... 600,000 26,962,500
------------
152,342,750
------------
ELECTRONICS 7.5%
Cognex* ...................................... 700,000 12,906,250
Credence Systems* ............................ 250,000 4,984,375
Electro Scientific Industries* ............... 160,000 4,190,000
International Rectifier* ..................... 400,000 6,100,000
Lattice Semiconductor* ....................... 290,000 13,303,750
Maxim Integrated Products* ................... 250,000 10,828,125
Sanmina* ..................................... 100,000 5,650,000
SCI Systems .................................. 40,100 1,794,475
Vicor* ....................................... 300,000 5,006,250
------------
64,763,225
------------
6
<PAGE>
================================================================================
December 31, 1996
- --------------------------------------------------------------------------------
SHARES. VALUE
-------------- -------
FARM EQUIPMENT 0.6%
AGCO ......................................... 185,000 $ 5,295,625
------------
FINANCIAL SERVICES 6.4%
CMAC Investment .............................. 200,000 7,350,000
Commerce Bancorp ............................. 150,000 4,950,000
EVEREN Capital* .............................. 98,000 2,192,750
First Investors Financial
Services Group* .......................... 150,000 1,134,375
First Savings Bank of
Washington ............................... 150,000 2,784,375
Flushing Financials* ......................... 200,000 3,625,000
GCR Holdings ................................. 210,000 4,659,375
Klamath First Bancorp ........................ 250,000 3,906,250
Leasing Solutions* ........................... 180,000 4,680,000
PFF Bancorp* ................................. 100,000 1,475,000
T. Rowe Price ................................ 230,000 10,005,000
Roosevelt Financial Group .................... 300,000 6,262,500
Statewide Financial .......................... 150,000 2,175,000
------------
55,199,625
------------
GAMING 1.1%
GTECH Holdings* .............................. 300,000 9,600,000
------------
INDEPENDENT POWER
PRODUCERS 4.1%
AES* ......................................... 75,000 3,487,500
CalEnergy* ................................... 700,000 23,537,500
Calpine* ..................................... 432,500 8,650,000
------------
35,675,000
------------
INDUSTRIAL GOODS
AND SERVICES 1.8%
Memtec (ADRs) ................................ 475,000 15,467,188
------------
MEDIA AND
BROADCASTING 4.0%
Argyle Television (Class A)* ................. 395,000 9,578,750
Chancellor Broadcasting
(Class A)* ............................... 225,000 5,315,625
Evergreen Media (Class A)* ................... 337,500 8,395,312
Jacor Communications* ........................ 230,000 6,310,625
Paxson Communications
(Class A)* ............................... 600,000 4,725,000
------------
34,325,312
------------
MEDICAL PRODUCTS
AND TECHNOLOGY 5.4%
Biacore International (ADRs)* ................ 250,000 5,468,750
Dentsply International ....................... 290,000 13,793,125
Suburban Ostomy Supply* ...................... 400,000 5,475,000
Sybron International* ........................ 425,000 14,025,000
Waters* ...................................... 275,000 8,353,125
------------
47,115,000
------------
SHARES. OR
PRIN. AMT. VALUE
-------------- -------
METALS 0.2%
NN Ball & Roller ............................. 100,000 $1,537,500
-------------
OIL AND GAS 2.0%
Pogo Producing ............................... 225,000 10,631,250
Santa Fe Energy Resources* ................... 500,000 6,937,500
------------
17,568,750
------------
PLASTICS 0.5%
Spartech ..................................... 400,000 4,450,000
------------
PUBLISHING 0.4%
World Color Press* ........................... 201,800 3,884,650
------------
RESTAURANTS 0.7%
Rare Hospitality International* .............. 300,000 5,700,000
------------
RETAIL TRADE 1.8%
Borders Group* ............................... 125,000 4,484,375
Saks Holdings* ............................... 250,000 6,750,000
Stage Stores* ................................ 240,000 4,320,000
------------
15,554,375
------------
WASTE DISPOSAL 0.5%
Allied Waste Industries* ..................... 500,000 4,593,750
------------
TOTAL COMMON STOCKS
(Cost $738,522,599) ....................... 826,701,853
------------
SHORT -TERM
HOLDINGS 7.9%
First National Bank of Chicago,
Grand Cayman, Fixed Time
Deposit 61/4%, 1/2/1997 ............... $34,000,000 34,000,000
Republic National Bank of New
York, Grand Cayman, Fixed
Time Deposit, 63/4%, 1/2/1997 ......... 34,261,000 34,261,000
------------
TOTAL SHORT -TERM
HOLDINGS
(Cost $68,261,000) ..................... 68,261,000
------------
TOTAL INVESTMENTS 103.2%
(Cost $806,783,599) .................... 894,962,853
OTHER ASSETS LESS
LIABILITIES (3.2)% ................... (27,398,566)
------------
NET ASSETS 100.0% ........................ $867,564,287
============
- ---------------
* Non-income producing security.
Note: Investments in stocks are valued at current market values or, in their
absence, at fair values determined in accordance with procedures approved by the
Board of Directors. Securities traded on national exchanges are valued at last
sales prices or, in their absence and in the case of over-the-counter
securities, at a mean of bid and asked prices. Short-term holdings maturing in
60 days or less are valued at amortized cost.
7
<PAGE>
SELIGMAN FINANCIAL SERVICES, INC.
an affiliate of
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
This report is intended only for the information of shareholders or those who
have received the offering prospectus covering shares of Capital Stock of
Seligman Frontier Fund, Inc., which contains information about the sales
charges, management fee, and other costs. Please read the prospectus carefully
before investing or sending money.
EQFR3a 12/96
