SELIGMAN
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SELECT
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MUNICIPAL
FUND, INC.
[LOGO]
THIRD QUARTER REPORT
SEPTEMBER 30, 1996
SELIGMAN SELECT MUNICIPAL FUND, INC.
MANAGED BY
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
INVESTMENT MANAGERS AND ADVISORS
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
PHOTO: COURTESY MICHIGAN TRAVEL BUREAU
CESEL3c 9/96
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TO THE STOCKHOLDERS
Seligman Select Municipal Fund had a positive third quarter based on net asset
value, as it continued to provide monthly income free from regular income tax to
its Stockholders. On a market price basis, however, the Fund underperformed.
Specific performance information and a discussion with your Portfolio Manager
about the past three months begin on page 2.
Throughout the third quarter of 1996, the economy continued to grow at a
healthy pace with virtually no inflationary repercussions and no action from the
Federal Reserve Board to alter interest rates. Reports issued in September
reflected the economy's health, showing improvement in production, new home
sales, wages, and spending.
With the lowest unemployment rate since June 1990, strong personal incomes,
interest rates far below their 1980s levels, and few signs of inflationary
pressure, consumer confidence as measured by The Conference Board rose 25% above
its January 1996 level.
In the municipal bond markets, the economy continued to display signs of
strength in the third quarter, producing some concern in market participants
about inflation and possible interest rate increases. Given conflicting economic
reports, market participants were unable to form a consensus with respect to the
direction of the economy, and, as a result, yields in the municipal markets rose
or fell with the interpretations of each new economic report.
On September 24, the Fed stated that it had not seen sufficient evidence of
an acceleration in inflation to warrant an increase in the fed funds rate. Once
the decision was announced, long-term municipal bond yields, as measured by the
Bond Buyer 20-Bond General Obligation Index, declined slightly and ended the
quarter at 5.76%. The unchanged monetary policy somewhat stabilized the
municipal bond market by the end of the Fund's third quarter.
Going forward, we foresee continued, albeit moderate, economic growth and a
benign level of inflation. This environment of modest growth, combined with
relatively stable interest rates, should be beneficial for financial markets in
the months ahead. As always, there could be short-term volatility, but we remain
confident in the long-term outlook.
As we near the end of the year, we encourage you to review your overall
investment portfolio. When doing so, you may wish to consult your financial
advisor to discuss financial issues such as tax planning, and to ensure that you
are following the best investment strategy to help you seek your financial
goals.
We thank you for your continued interest in Seligman Select Municipal 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/ Thomas G. Mole
Thomas G. Moles
President
October 30, 1996
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Important Telephone Numbers
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STOCKHOLDER
SERVICES
(800) 874-1092
24-HOUR AUTOMATED
TELEPHONE ACCESS SERVICE
(800) 622-4597
1
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Interview with Your Portfolio Manager
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[PHOTO]
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THOMAS G. MOLES
WHAT ECONOMIC FACTORS AFFECTED SELIGMAN SELECT MUNICIPAL FUND OVER THE PAST
THREE MONTHS?
Investor uncertainty over the strength of the economy continued to have a
significant influence on the municipal bond market in the third quarter of 1996.
Over the period, mixed economic data suggested weakness in some areas and vigor
in others. Continuing the year's trend, yields in the municipal markets moved in
response to each new economic report. Late in the quarter, the Federal Reserve
Board's decision to leave the fed funds rate unchanged caused long-term yields
to decline moderately through the end of the quarter.
WHAT WAS YOUR INVESTMENT STRATEGY IN THE PAST THREE MONTHS?
We believe that the economy is expanding at an acceptable rate of growth and
that inflation remains in check. Therefore, we have been purchasing long-term
municipal bonds, despite the market's frequent ups and downs. Additionally, to
better protect the net asset value of the Fund during periods of rising interest
rates, we have concentrated new acquisitions in current coupon bonds rather than
discount or zero coupon bonds, as the prices of discount and zero coupon bonds
are more vulnerable to rising interest rates.
Also, due to an increase in demand, there were shortages of certain types of
municipal bonds. The supply imbalance pushed buyers to bid up prices to obtain
the specific bonds they required, which caused a narrowing of the yield
differentials within the various sectors of the market. Given the narrower yield
spread between higher- and lower-quality bonds, there was little incentive to
buy lower-quality bonds. Therefore, new Fund purchases during the quarter were
of higher quality bonds. Though we primarily focus on our long-term goals rather
than short-term gains, we continue to search for ways to improve the relative
value of the Fund by taking advantage of aberrations and inefficiencies within
the municipal marketplace.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The debate within the municipal markets over the strength of the economy, which
caused this quarter's shifting markets, will most likely continue to influence
the direction of interest rates in the short term. Our team, however, takes a
long-term, conservative approach to managing your Fund. We believe municipal
bond funds will continue to play an important role in helping investors meet
their long-term financial goals, and we remain committed to maintaining a
diversified portfolio of high-quality municipal bonds while providing our
Stockholders with competitive yields.
2
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<TABLE>
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Portfolio of Investments (unaudited)
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Face Ratings
State Amount Municipal Bonds Moody's/S&P Market Value
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<S> <C> <C> <C>
Alaska-- 4.5% $10,000,000 Alaska Housing Finance Corp. (Collateralized
Home Mortgage Rev.), 7.65% due 6/1/2024................ Aaa/AAA $ 10,523,800
California-- 7.1% 10,000,000 San Francisco City and County Airports Commission
(San Francisco International Airport Rev.), 6.30%
due 5/1/2005*.......................................... Aaa/AAA 10,402,300
6,000,000 San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Rev. (Orange County),
6 3/4% due 1/1/2032.................................... NR/NR 6,233,460
Delaware-- 3.1% 6,500,000 Delaware Economic Development Authority
Exempt Facilities Rev. (Delmarva Power and
Light Co. Project), 7.60% due 3/1/2020*................ Aaa/AAA 7,119,515
District of 9,000,000 Metropolitan Washington, D.C. Airports Authority
Columbia-- 7.7% Airport System Rev., 7.60% due 10/1/2014*.............. A1/AA- 9,822,420
7,500,000 District of Columbia GOs, 7 1/2% due 6/1/2009.............. Aaa/AAA 8,222,400
Florida-- 7.6% 5,700,000 Brevard County Utility Rev., 7 3/8% due 3/1/2014........... Aaa/AAA 6,065,826
975,000 Brevard County Utility Rev., 7 3/8% due 3/1/2014........... Aaa/AAA 1,036,542
2,625,000 Florida Housing Finance Agency (Home Ownership
Rev.), 7.90% due 3/1/2022*............................. Aaa/NR 2,773,076
3,000,000 Florida Municipal Power Agency Rev. (St. Lucie
Project), 5 1/2% due 10/1/2012......................... Aaa/AAA 2,974,800
4,645,000 Orange County Housing Finance Authority
(Mortgage Rev.), 7.80% due 10/1/2022*.................. Aaa/NR 4,901,450
Illinois-- 2.3% 5,000,000 Chicago O'Hare International Airport International
Terminal Special Rev., 7 5/8% due 1/1/2010*............ Aaa/AAA 5,461,500
Indiana-- 2.3% 5,000,000 Indiana Employment Development Commission
Environmental Rev. (Public Service Company of
Indiana Inc.), 7 1/2% due 3/15/2015*................... Aaa/AAA 5,469,950
Louisiana-- 5.0% 10,000,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project), 8%
due 5/15/2012.......................................... NR/AAA 11,709,700
Massachusetts-- 3.4% 5,370,000 Massachusetts Housing Finance Agency (Multi-
Family Residential Development Rev.), 7.65%
due 2/1/2028*.......................................... Aaa/AAA 5,636,406
2,125,000 Massachusetts State GOs Consolidated Loan, 7 3/8%
due 12/1/2008.......................................... Aaa/AAA 2,303,968
Michigan-- 2.5% 6,000,000 Royal Oak, Hospital Finance Authority Rev.
(William Beaumont Hospital), 5 1/2% due 1/1/2020....... Aa/AA 5,788,260
Nebraska-- 1.4% 3,185,000 Nebraska Investment Finance Authority (Single
Family Mortgage Rev.), 8 1/8% due 8/15/2038*........... Aaa/AAA 3,342,466
Nevada-- 5.6% 7,000,000 Clark County Industrial Development Rev. (Nevada
Power Company Project), 7.80% due 6/1/2020* Aaa/AAA 7,745,850
5,000,000 Washoe County Water Facility Rev. (Sierra Pacific
Power Company Project), 6.65% due 6/1/2017* Aaa/AAA 5,341,300
New Hampshire-- 5.7% 5,525,000 New Hampshire Housing Finance Authority (Single
Family Residential Mortgage Rev.), 7.90% due
7/1/2022*.............................................. Aa/A+ 5,820,919
6,950,000 New Hampshire State Industrial Development
Authority Pollution Control Rev. (The
Connecticut Light and Power Company
Project), 7 3/8% due 12/1/2019*........................ Aaa/AAA 7,597,949
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See footnotes on page 4.
3
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September 30, 1996
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Face Ratings
State Amount Municipal Bonds Moody's/S&P Market Value
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New Jersey-- 2.4 % $ 2,000,000 New Jersey Educational Facilities Authority Rev.
(Princeton University), 6% due 7/1/2024 Aaa/AAA $ 2,028,960
3,315,000 New Jersey Housing & Mortgage Finance Agency
(Home Buyer Rev.), 7.70% due 10/1/2029*................ Aaa/AAA 3,454,528
New York-- 7.6% 10,000,000 New York State Energy Research & Development
Authority Electric Facilities Rev. (Consolidated
Edison Co. NY Inc. Project), 6.10% due 8/15/2020....... Aaa/AAA 10,244,500
7,500,000 New York State Thruway Authority Rev., 6% due
1/1/2025............................................... Aaa/AAA 7,613,925
Ohio-- 4.5% 6,235,000 Ohio Housing Finance Agency (Single Family
Mortgage Rev.), 7.65% due 3/1/2029*.................... NR/AAA 6,546,251
4,000,000 Ohio Turnpike Commission (Turnpike Rev.), 5.70%
due 2/15/2017......................................... Aaa/AAA 4,009,680
Pennsylvania-- 6.8% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010*............ Aaa/AAA 2,692,175
3,000,000 Lehigh County Industrial Development Authority
Pollution Control Rev. (Pennsylvania Power &
Light Company Project), 6.40% due 11/1/2021............ Aaa/AAA 3,158,160
10,000,000 Philadelphia Airport Rev., 6.10% due
6/15/2025*............................................. Aaa/AAA 10,092,800
South Dakota-- 3.1% 6,765,000 South Dakota Student Loan Corporation Student
Loan Rev., 7 5/8% due 8/1/2006*........................ Aaa/AAA 7,208,852
Tennessee-- 3.7% 8,000,000 Humphreys County Industrial Development Board
Solid Waste Disposal Rev. (E.I. du Pont de
Nemours & Co. Project), 6.70% due 5/1/2024*............ Aa3/AA- 8,527,520
Texas-- 6.6% 5,000,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Houston Lighting and
Power Company Project), 7 7/8% due 11/1/2016*.......... Aaa/AAA 5,116,400
5,000,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Central Power and Light
Co. Project), 7 7/8% due 12/1/2016*.................... Aaa/AAA 5,132,550
5,000,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Central Power and Light
Co. Project), 6 1/8% due 5/1/2030*..................... Aaa/AAA 5,079,300
Washington-- 4.0% 2,000,000 Grant County Public Utility District No. 002 (Priest
Rapids Hydroelectric Development Rev.), 7.70%
due 1/1/2018*.......................................... A1/A+ 2,152,140
6,000,000 Snohomish County Public Utility District Rev., 6%
due 1/1/2018........................................... Aaa/AAA 6,053,700
1,000,000 Spokane Regional Solid Waste Management System
Rev., 7 3/4% due 1/1/2011*............................. Aaa/AAA 1,082,610
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TOTAL MUNICIPAL BONDS (COST $214,110,245)-- 96.9%.................................................... 226,487,908
SHORT-TERM HOLDINGS (COST $3,000,000)-- 1.3%......................................................... 3,000,000
OTHER ASSETS LESS LIABILITIES-- 1.8%................................................................. 4,261,453
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NET INVESTMENT ASSETS-- 100.0%....................................................................... $233,749,361
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* Interest income earned from this security is subject to the federal
alternative minimum tax.
Note: Investments in tax-exempt securities and other short-term holdings
maturing in more than 60 days are valued based upon quotations provided by an
independent pricing service or, in their absence, at fair values determined in
accordance with procedures approved by the Board of Directors. Short-term
holdings maturing in 60 days or less are generally valued at amortized cost.
4
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INVESTMENT RESULTS PER COMMON SHARE
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TOTAL RETURNS*
FOR PERIODS ENDED SEPTEMBER 30, 1996
Average Annual
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Since
Three Nine One Five Inception
Months Months Year Years 2/15/90
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Market Price (1.24)% 4.26% 11.31% 7.93% 8.08%
Net Asset Value 2.77 2.11 6.36 8.54 9.03
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PRICE PER SHARE
September 30, 1996 June 30, 1996 March 31, 1996 December 31, 1995
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<S> <C> <C> <C> <C>
Market Price $ 12.375 $ 12.75 $ 12.50 $ 12.50
Net Asset Value 12.13 12.01 12.09 12.51
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DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Capital Gain
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Dividend Paid** Realized Unrealized+
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$ 0.63 $ 0.026 $ 0.946
* These rates of return reflect changes in market price or net asset
value, as applicable, and assume that all distributions within the
period are reinvested in additional shares. The rates of return will
vary and the principal value of an inves fluctuate. Shares, if
redeemed, may be worth more or less than their original cost. Past
performance is not indicative of future investment results.
** Preferred Stockholders were paid dividends at annual rates ranging
from 3.40% to 4.05%. Earnings on the Fund's assets in excess of the
preferred dividend requirements constituted dividend income for Common
Stockholders.
+ Represents the per share amount of unrealized appreciation of
portfolio securities as of September 30, 1996.
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