SELIGMAN
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SELECT
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MUNICIPAL
FUND, INC.
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ANNUAL REPORT
DECEMBER 31, 1996
Seligman Select Municipal Fund, Inc.
Managed by
[LOGO OMITTED]
J. & W. SELIGMAN & CO.
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
PHOTO: COURTESY MICHIGAN TRAVEL BUREAU
CESEL2 12/96
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TO THE STOCKHOLDERS
We are pleased to provide you with Seligman Select Municipal Fund's 1996
Annual Report. Seligman Select Municipal Fund posted moderate investment
results, continuing to provide consistent monthly income while preserving the
capital behind your investment. The Fund's investment results for Common
Stockholders appear on page 4.
Nineteen ninety-six was a challenging year for the municipal markets. In
the first half of 1996, economic growth improved after slowing late in 1995, and
municipal market participants became apprehensive that inflation would
re-ignite. Yields in the municipal market increased steadily thereafter.
Long-term municipal yields, as measured by the Bond Buyer 20-Bond General
Obligation Index, rose to a high of 6.12% in June, after hitting lows of 5.33%
following the reduction of the fed funds rate by the Federal Reserve Board in
February.
In the third quarter, uncertainty as to the direction of the economy
continued, but as the fed funds rate was left unchanged by the Fed, interest
rates in the municipal market stabilized. Consistent signs of economic
moderation improved market psychology in the fourth quarter, and long-term
yields declined. Despite the movement in yields during the year, long-term
municipal yields stood at 5.66% on December 31, 1996, only modestly higher than
the 5.44% yields on December 31, 1995.
Currently, there are no clear indications that there will be either runaway
economic expansion or recession in 1997. Looking ahead, the environment for the
US fixed-income markets 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 on the
long-term outlook for the fixed-income markets and your Fund.
On a final note, the activity witnessed in the financial markets in 1996,
where strong rallies were countered by abrupt corrections, is not unusual in the
challenging world of investing. A professional financial advisor can help you
formulate a long-term investment plan to help you seek your financial goals, and
can provide the insight and support needed to weather the day-to-day uncertainty
that accompanies investing. 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 Select Municipal Fund,
and look forward to serving your investment needs in the many years to come.
/s/ William C. Morris
- ----------------------
William C. Morris
Chairman
/s/ Thomas G. Moles
-------------------
Thomas G. Moles
President
January 31, 1997
1
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INTERVIEW WITH YOUR PORTFOLIO MANAGER
THOMAS G. MOLES is a Managing Director
of J. & W. Seligman & Co. Incorporated,
[Photograph Omitted] President and Portfolio Manager of
Seligman Select Municipal Fund and
Seligman Quality Municipal Fund, and
Vice President and Portfolio Manager of
the Seligman municipal mutual funds
Seligman Municipals Team: which include 19 separate portfolios. He
(from left) Audrey Kuchtyak, is responsible for $1.8 billion in
Theresa Friscia, Debra municipal securities. Mr. Moles, with
McGuinness, (seated) Eileen more than 25 years of experience, has
Comerford, Thomas G. Moles spearheaded Seligman's municipal efforts
(Portfolio Manager) since joining the firm in 1983.
WHICH ECONOMIC FACTORS AFFECTED SELIGMAN SELECT MUNICIPAL FUND IN THE LAST 12
MONTHS?
"During 1996, long-term municipal yields (as measured by the Bond Buyer 20-Bond
General Obligation Index) ranged from a low of 5.33% in February to a high of
6.12% in June. The rise in interest rates was the result of
stronger-than-expected economic growth in the first half of the year, which
re-ignited fears of inflation. Though economic reports were mixed in the third
quarter, showing strength in some areas and weakness in others, long-term yields
stabilized and settled into a narrow trading range. By the fourth quarter of
1996, the economy began to exhibit more consistent signs of slowing, leading to
a modest decline in long-term yields. Despite the three-quarter point swing in
yields during the year, municipal yields were less than one-quarter point higher
at December 31 than at the start of the year."
WHICH MARKET FACTORS INFLUENCED THE FUND'S PERFORMANCE IN 1996?
"For most of 1996, the municipal bond market outperformed the US Treasury
market, due mostly to an imbalance in supply and demand. Heavy bond calls and
redemptions resulted in a decrease in outstanding supply, while the higher-yield
environment led to a modest improvement in investor demand. Further, individual
investors, many of whom had remained on the sidelines while flat tax debates
overshadowed the municipal market in 1995, re-entered the market in 1996.
Finally, the continued health of the economy improved the financial condition of
many municipal issuers, and, in 1996, credit rating upgrades significantly
outnumbered downgrades. We expect this positive trend will continue in 1997."
WHAT WAS YOUR INVESTMENT STRATEGY?
"In February 1996, long-term municipal bond yields fell to a two-year low after
the Federal Reserve Board lowered the fed funds rate. Soon after, however,
market participants became increasingly concerned that the pickup in economic
growth would bring about a higher level of inflation and an increase in interest
rates. The Fund's maturity was not increased until yields rose sufficiently to
compensate for the possibility of an increase in the rate of inflation. (Yields
rise in response to perceived inflationary pressures, and long-term bond yields
increase more than shorter-term bond yields in a rising interest rate
environment.) As long-term municipal bond yields approached the 6% level at the
end of the first quarter, we lengthened the Fund's maturity because we believed
that further market risk would be limited. Additionally, by focusing on
long-term municipal bonds, rather than on lower-yielding short-term bonds, we
were better able to maintain the Fund's monthly dividend.
2
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"As part of our effort to enhance the performance of the Fund, we are
continually looking for opportunities in the municipal marketplace. In the past
year, much of our focus was on public power bonds, due to a widening of yield
spreads within the sector. Competition and deregulation within the industry have
had an adverse impact on the credit quality of many, but not all, issuers.
Through credit analysis, several public power credits which had demonstrated the
ability to meet the challenges ahead were identified. Strong public power bonds
were therefore purchased at improved yield levels for the Fund."
WHAT IS THE OUTLOOK?
"Though the rate of economic growth can be influenced by a number of variables
and is difficult to forecast, the economy appears to be growing at a moderate
pace, and inflation seems to be under control at this time. We are optimistic
about the coming year and expect long-term interest rates to remain stable,
though the market could experience brief periods of rising interest rates in
response to economic reports suggesting inflationary pressures.
"We remain committed to our long-term objective of providing our stockholders
with competitive yields while maintaining a high-quality, diversified portfolio
of municipal bonds."
3
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INVESTMENT RESULTS PER COMMONSHARE
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TOTAL RETURNS*
FOR PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Average Annual
-----------------------------------------
Since
Three One Five Inception
Months Year Years 2/15/90
------ ---- ----- -------
<S> <C> <C> <C> <C>
Market Price 3.10% 7.49% 8.21% 8.25%
Net Asset Value 2.32 4.48 8.15 8.96
</TABLE>
<TABLE>
<CAPTION>
PRICE PER SHARE
December 31, 1996 September 30, 1996 June 30, 1996 March 31, 1996 December 31, 1995
--------------- --------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Market Price $12.50 $12.375 $12.75 $12.50 $12.50
Net Asset Value 12.16 12.13 12.01 12.09 12.51
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
Capital Gain
----------------------------------------
Dividend Paid** Paid Realized Unrealized+
-------------- ------ -------- ------------
$0.84 $0.040 $0.066 $0.974
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at December 31, 1996,
was 6.72%, which is equivalent to a taxable yield of 11.13% based on the maximum
federal rate of 39.6%.
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* 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 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.
** Preferred Stockholders were paid dividends at annual rates ranging from
3.399% to 4.050%. 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 December 31, 1996.
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4
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Portfolio of Investments December 31, 1996
<TABLE>
<CAPTION>
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FACE RATINGS
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P+ MARKET VALUE
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<S> <C> <C>
ALASKA-- 4.5% $10,000,000 Alaska Housing Finance Corp. (Collateralized
Home Mortgage Rev.), 7.65% due 6/1/2024 .................. Aaa/AAA $ 10,537,900
CALIFORNIA-- 7.2% 10,000,000 San Francisco City and County Airports Commission
(San Francisco International Airport Rev.), 6.30%
due 5/1/2025* ............................................ Aaa/AAA 10,453,400
6,000,000 San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Rev. (Orange County),
63/4% due 1/1/2032 ....................................... NR/NR 6,345,000
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 7,154,160
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- 9,810,360
7,500,000 District of Columbia GOs, 71/2% due 6/1/2009................. Aaa/AAA 8,196,600
FLORIDA-- 6.9% 5,700,000 Brevard County Utility Rev., 73/8% due 3/1/2014.............. Aaa/AAA 6,045,591
975,000 Brevard County Utility Rev., 73/8% due 3/1/2014.............. Aaa/AAA 1,027,007
2,625,000 Florida Housing Finance Agency (Home Ownership
Rev.), 7.90% due 3/1/2022* ............................... Aaa/NR 2,769,139
1,500,000 Florida Municipal Power Agency Rev. (St. Lucie
Project), 51/2% due 10/1/2012 ............................ Aaa/AAA 1,507,380
4,645,000 Orange County Housing Finance Authority
(Mortgage Rev.), 7.80% due 10/1/2022* .................... Aaa/NR 4,897,734
ILLINOIS-- 2.3% 5,000,000 Chicago O'Hare International Airport International
Terminal Special Rev., 75/8% due 1/1/2010* ............... Aaa/AAA 5,485,900
INDIANA-- 2.3% 5,000,000 Indiana Employment Development Commission
Environmental Rev. (Public Service Company of
Indiana Inc.), 71/2% due 3/15/2015* ...................... Aaa/AAA 5,496,200
LOUISIANA-- 5.0% 10,000,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project), 8%
due 5/15/2012 ............................................ NR/AAA 11,728,100
MASSACHUSETTS-- 3.4% 5,370,000 Massachusetts Housing Finance Agency (Multi-
Family Residential Development Rev.), 7.65%
due 2/1/2028* ............................................ Aaa/AAA 5,630,123
2,125,000 Massachusetts State GOs Consolidated Loan, 73/8%
due 12/1/2008 ............................................ Aaa/AAA 2,298,889
MICHIGAN-- 1.3% 3,000,000 Royal Oak Hospital Finance Authority Rev.
(William Beaumont Hospital), 51/2% due 1/1/2018 .......... Aa/AA 2,923,500
NEBRASKA-- 1.4% 3,185,000 Nebraska Investment Finance Authority (Single
Family Mortgage Rev.), 81/8% due 8/15/2038* .............. Aaa/AAA 3,332,911
NEVADA-- 5.6% 7,000,000 Clark County Industrial Development Rev. (Nevada
Power Company Project), 7.80% due 6/1/2020* .............. Aaa/AAA 7,787,220
5,000,000 Washoe County Water Facility Rev. (Sierra Pacific
Power Company Project), 6.65% due 6/1/2017* .............. Aaa/AAA 5,406,800
NEW HAMPSHIRE-- 5.6% 5,310,000 New Hampshire Housing Finance Authority (Single
Family Residential Mortgage Rev.), 7.90% due
7/1/2022* ................................................ Aa/A+ 5,586,332
6,950,000 New Hampshire State Industrial Development
Authority Pollution Control Rev. (The
Connecticut Light and Power Company
Project), 73/8% due 12/1/2019* ........................... Aaa/AAA 7,590,164
</TABLE>
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See footnotes on page 6.
5
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PORTFOLIO OF INVESTMENTS (continued) December 31, 1996
<TABLE>
<CAPTION>
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FACE RATINGS
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P+ MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NEW JERSEY-- 2.3% $ 2,000,000 New Jersey Educational Facilities Authority Rev.
(Princeton University), 6% due 7/1/2024 .................. Aaa/AAA $ 2,039,380
3,315,000 New Jersey Housing & Mortgage Finance Agency
(Home Buyer Rev.), 7.70% due 10/1/2029* .................. Aaa/AAA 3,454,827
NEW YORK-- 8.9% 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 10,449,400
10,000,000 New York State Thruway Authority General Rev.,
6% due 1/1/2025 .......................................... Aaa/AAA 10,357,300
OHIO-- 4.5% 6,235,000 Ohio Housing Finance Agency (Single Family
Mortgage Rev.), 7.65% due 3/1/2029* ...................... NR/AAA 6,588,088
4,000,000 Ohio Turnpike Commission (Turnpike Rev.), 5.70%
due 2/15/2017 ............................................ Aaa/AAA 4,052,320
PENNSYLVANIA-- 6.9% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* .............. Aaa/AAA 2,705,925
3,000,000 Lehigh County Industrial Development Authority
Pollution Control Rev. (Pennsylvania Power &
Light Company Project), 6.15% due 8/1/2029 ............... Aaa/AAA 3,144,900
10,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025*.............. Aaa/AAA 10,216,700
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- 8,566,080
TEXAS-- 6.6% 5,000,000 Lower Neches Valley Authority Industrial
Development Corp. Sewer Facilities Rev. (Mobil
Oil Refining Corp. Project), 6.40% due 3/1/2030* ......... Aa2/AA 5,173,900
5,000,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Houston Lighting and
Power Company Project), 77/8% due 11/1/2016* ............. Aaa/AAA 5,116,650
5,000,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Central Power and Light
Co. Project), 61/8% due 5/1/2030* ........................ Aaa/AAA 5,175,150
WASHINGTON-- 8.4% 2,000,000 Grant County Public Utility District No. 002 (Priest
Rapids Hydroelectric Development Rev.), 7.70%
due 1/1/2018* ............................................ A1/A+ 2,150,140
10,000,000 King County Sewer GOs, 61/8% due 1/1/2033 Aaa/AAA 10,345,600
6,000,000 Snohomish County Public Utility District Rev., 6%
due 1/1/2018 ............................................. Aaa/AAA 6,087,420
1,000,000 Spokane Regional Solid Waste Management System
Rev., 73/4% due 1/1/2011* ................................ Aaa/AAA 1,077,600
------------
TOTAL MUNICIPAL BONDS (Cost $215,944,016)-- 97.6%.............................................................. 228,711,790
SHORT-TERM HOLDINGS (Cost $1,400,000)-- 0.6%................................................................... 1,400,000
OTHER ASSETS LESS LIABILITIES-- 1.8%........................................................................... 4,287,108
------------
NET INVESTMENT ASSETS-- 100.0%................................................................................. $234,398,898
============
</TABLE>
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* Interest income earned from this security is subject to the federal
alternative minimum tax.
+ Ratings have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
6
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STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments at value:
Long-term holdings (cost $215,944,016)............................................... $228,711,790
Short-term holdings (cost $1,400,000)................................................ 1,400,000 $230,111,790
------------
Cash...................................................................................................... 84,638
Interest receivable....................................................................................... 4,224,394
Receivable for securities sold 215,236
Expenses prepaid to stockholder service agent............................................................. 29,925
Other..................................................................................................... 12,492
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TOTAL ASSETS.............................................................................................. 234,678,475
------------
LIABILITIES:
Accrued expenses, taxes, and other........................................................................ 279,577
------------
NET INVESTMENT ASSETS..................................................................................... 234,398,898
Preferred Stock........................................................................................... 75,000,000
------------
NET ASSETS FOR COMMON STOCK............................................................................... $159,398,898
============
NET ASSETS PER SHARE OF COMMON STOCK (market value $12.50)................................................ $12.16
======
COMPOSITION OF NET ASSETS:
Preferred Stock Series A, $.01 par value, liquidation preference and asset
coverage per share--$100,000 and $312,532, respectively; shares authorized,
issued and
outstanding--375....................................................................................... $ 37,500,000
Preferred Stock Series B, $.01 par value, liquidation preference and asset coverage
per share--$100,000 and $312,532, respectively; shares authorized, issued and
outstanding--375....................................................................................... 37,500,000
Common Stock, $.01 par value: shares authorized--49,999,250; issued and
outstanding--13,112,040................................................................................ 131,120
Additional paid-in capital................................................................................ 144,408,755
Undistributed net investment income....................................................................... 1,750,212
Undistributed net realized gain........................................................................... 341,037
Net unrealized appreciation of investments................................................................ 12,767,774
------------
NET INVESTMENT ASSETS..................................................................................... $234,398,898
============
</TABLE>
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See Notes to Financial Statements.
7
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STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................................................................ $15,338,302
EXPENSES:
Management fee................................................................. $ 1,284,737
Stockholder account, transfer, and registrar services.......................... 243,747
Preferred stock remarketing fee................................................ 187,500
Auditing and legal fees........................................................ 65,223
Stockholder reports and communications......................................... 64,479
Custody and related services................................................... 46,260
Stockholders' meeting.......................................................... 45,425
Directors' fees and expenses................................................... 34,046
Miscellaneous.................................................................. 46,409
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TOTAL EXPENSES.......................................................................................... 2,017,826
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NET INVESTMENT INCOME................................................................................... 13,320,476*
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................................... 864,958
Net change in unrealized appreciation of investments........................... (4,653,130)
----------
NET LOSS ON INVESTMENTS................................................................................. (3,788,172)
-----------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS....................................................... $ 9,532,304
===========
</TABLE>
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*Net investment income available for Common Stock is $10,648,376, which is
net of Preferred Stock dividends.
See Notes to Financial Statements.
8
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STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income........................................................ $ 13,320,476 $ 13,420,693
Net realized gain on investments............................................. 864,958 1,237,692
Net change in unrealized appreciation of investments......................... (4,653,130) 13,171,520
------------ ------------
Increase in net investment assets from operations............................ 9,532,304 27,829,905
------------ ------------
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income:
Preferred Stock, Series A (per share: $3,554.69 and $4,004.38)........... (1,333,009) (1,501,642)
Preferred Stock, Series B (per share: $3,570.91 and $4,000.69)........... (1,339,091) (1,500,259)
Common Stock (per share: $.84 and $.84).................................. (10,971,304) (10,926,597)
------------ ------------
Total................................................................ (13,643,404) (13,928,498)
Net realized gain on investments:
Common Stock (per share: $.040 and $.096)............................ (523,921) (1,248,854)
------------ ------------
Decrease in net investment assets from distributions ....................... (14,167,325) (15,177,352)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Value of shares of Common Stock issued for investment plan
(81,487 and 88,591 shares)............................................... 990,409 1,069,268
Value of shares of Common Stock issued in payment of gain
distribution (7,404 and 16,144 shares).................................... 90,033 200,250
Cost of shares purchased for investment plan (88,200 shares)................. -- (1,068,255)
------------ ------------
Increase in net investment assets from capital share transactions............ 1,080,442 201,263
------------ ------------
Increase (decrease) in net investment assets................................. (3,554,579) 12,853,816
NET INVESTMENT ASSETS:
Beginning of year............................................................ 237,953,477 225,099,661
------------ ------------
End of year (including undistributed net investment
income of $1,750,212 and $2,073,140)..................................... $234,398,898 $237,953,477
============ ============
</TABLE>
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See Notes to Financial Statements.
9
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NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies followed, all in conformity with generally
accepted accounting principles, are given below:
a. All 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 value determined in
accordance with pro-cedures approved by the Board of Directors. Short-term
holdings maturing in 60 days or less are generally valued at amortized
cost.
b. The Fund has elected to be taxed as a regulated investment company and
intends to distribute substantially all taxable net income and net gain
realized.
c. Investment transactions are recorded on trade dates. Identified cost of
investments sold is used for both financial statement and federal income
tax purposes. Interest income is recorded on the accrual basis. The Fund
amortizes original issue discounts and premiums paid on purchases of
portfolio securities. Discounts other than original issue discounts are not
amortized.
d. Dividends and distributions paid by the Fund are recorded on the
ex-dividend date.
e. The treatment for financial statement purposes of distributions made during
the year from net investment income or net realized gains may differ from
their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of
certain components of income, expense, or realized capital gain. Where such
differences are permanent in nature, they are reclassified in the
components of net assets based on their ultimate characterization for
federal income tax purposes. Any such reclassification will have no effect
on net assets, results of operations, or net asset value per share of the
Fund.
2. Purchases and sales of portfolio securities, excluding short-term
investments, for the year ended December 31, 1996, amounted to $50,182,510 and
$49,636,710, respectively.
At December 31, 1996, the cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes, and the tax basis gross unrealized appreciation and depreciation of
portfolio securities amounted to $12,839,612 and $71,838, respectively.
3. Under the Fund's Charter, dividends or other distributions on the Common
Stock cannot be declared unless the Fund can satisfy the requirements of two
separate asset maintenance tests after giving effect to such distributions.
The Fund, in connection with its Dividend Investment Plan (the "Plan"),
acquires and issues shares of its own Common Stock, as needed, to satisfy Plan
requirements. For the year ended December 31, 1996, there were no shares
purchased in the open market.
4. The Fund is authorized to issue 50,000,000 shares of Capital Stock, par
value $.01 per share, all of which were initially classified as Common Stock.
The Board of Directors is authorized to classify and reclassify any unissued
shares of Capital Stock, and has reclassified 750 shares of unissued Common
Stock as Preferred Stock.
The Preferred Stock is redeemable at the option of the Fund, in whole or in
part, on any dividend payment date at $100,000 per share plus any accumulated
but unpaid dividends. The Preferred Stock is also subject to mandatory
redemption at $100,000 per share plus any accumulated but unpaid dividends in
April 2020 (Series A) and April 2022 (Series B) or if certain requirements
relating to the composition of the assets and liabilities of the Fund as set
forth in its Charter are not satisfied. Liquidation preference of the Preferred
Stock is $100,000 per share plus accumulated and unpaid dividends.
10
<PAGE>
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Dividends on each series of Preferred Stock are cumulative at a rate
established at the initial public offering and typically are reset every 28 days
based on the lowest rate which would permit the shares to be remarketed at
$100,000 per share.
The holders of Preferred Stock have voting rights equal to the holders of
Common Stock (one vote per share) and generally will vote together with holders
of shares of Common Stock as a single class. Voting as a separate class, holders
of Preferred Stock are entitled to elect two of the Fund's directors.
5. J. & W. Seligman & Co. Incorporated (the "Manager") manages the affairs of
the Fund and provides the necessary personnel and facilities. Compensation of
all officers of the Fund, all directors of the Fund who are employees or
consultants of the Manager, and all personnel of the Fund and the Manager, is
paid by the Manager. The Manager's fee, calculated daily and payable monthly, is
equal to 0.55% per annum of the Fund's average daily net assets.
Seligman Data Corp., which is owned by certain associated investment
companies, charged at cost $191,837 for stockholder account services.
Certain officers and directors of the Fund are officers or directors of the
Manager and/or Seligman Data Corp.
Fees of $14,000 were incurred by the Fund for the legal services of
Sullivan & Cromwell, a member of which firm is a director of the Fund.
The Fund has a compensation arrangement under which directors who receive
fees may elect to defer receiving such fees. Interest is accrued on the deferred
balances. The annual cost of such fees and interest is included in directors'
fees and expenses, and the accumulated balance thereof at December 31, 1996, of
$48,525 is included in other liabilities. Deferred fees and related accrued
interest are not deductible for federal income tax purposes until such amounts
are paid.
6. Following is a summary of unaudited quarterly results of operations, in
thousands of dollars, except for per share amounts:
<TABLE>
<CAPTION>
FOR QUARTERS ENDED IN THE YEAR 1996
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total investment income ............................... $3,839 $3,827 $3,855 $3,817
Net investment income for Common Stock ................ $2,610 $2,700 $2,661 $2,677
Per Common Share ................................... $.20 $.21 $.20 $.21
Net realized and unrealized investment gain (loss) .... $(5,423) $(939) $1,658 $916
Per Common Share ................................... $(.42) $(.07) $.13 $.07
</TABLE>
<TABLE>
<CAPTION>
FOR QUARTERS ENDED IN THE YEAR 1995
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total investment income ............................... $3,956 $3,902 $3,799 $3,896
Net investment income for Common Stock ................ $2,586 $2,664 $2,525 $2,644
Per Common Share ................................... $.20 $.20 $.20 $.20
Net realized and unrealized investment gain ........... $7,555 $1,407 $1,503 $3,944
Per Common Share ................................... $.58 $.11 $.12 $.30
</TABLE>
11
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
The Fund's financial highlights are presented below. The per share operating
performance data is designed to allow investors to trace the operating
performance, on a per Common share basis, from the Fund's beginning net asset
value to the ending net asset value so that they can understand what effect the
individual items have on their investment, assuming it was held throughout the
period. Generally, the per share amounts are derived by converting the actual
dollar amounts incurred for each item, as disclosed in the financial statements,
to their equivalent per Common share amount.
The total investment return based on market value measures the Fund's
performance assuming investors purchased Fund shares at market value as of the
beginning of the period, reinvested dividends and capital gains paid as provided
for in the Fund's dividend investment plan, and then sold their shares at the
closing market value per share on the last day of the period. The computations
do not reflect any sales commissions investors may incur in purchasing or
selling Fund shares. The total investment return based on net asset value is
similarly computed except that the Fund's net asset value is substituted for the
corresponding market value.
The ratios of expenses to average net assets and net investment income to
average net assets for all periods presented do not reflect the effect of
dividends paid to Preferred Stockholders.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................... $12.51 $11.54 $13.14 $12.45 $11.95
-------- ------- ------- ------- -------
Net investment income ................................ 1.02 1.03 1.05 1.05 1.09
Net realized and unrealized investment gain (loss) ... (0.29) 1.11 (1.61) 0.85 0.45
-------- ------- ------- ------- -------
Increase (decrease) from investment operations ....... 0.73 2.14 (0.56) 1.90 1.54
Dividends paid on Preferred Stock .................... (0.20) (0.23) (0.17) (0.15) (0.18)
Dividends paid on Common Stock ....................... (0.84) (0.84) (0.84) (0.84) (0.84)
Net realized gain paid on Common Stock ............... (0.04) (0.10) (0.03) (0.22) (0.02)
-------- ------- ------- ------- -------
Net increase (decrease) in net asset value ........... (0.35) 0.97 (1.60) 0.69 0.50
-------- ------- ------- ------- -------
Net asset value, end of year ......................... $12.16 $12.51 $11.54 $13.14 $12.45
======== ======= ======= ======= =======
Market value, end of year ............................ $12.50 $12.50 $10.50 $13.00 $12.75
======== ======= ======= ======= =======
TOTAL INVESTMENT RETURN:
Based upon market value .......................... 7.49% 28.58% (13.05)% 10.55% 11.67%
Based upon net asset value ....................... 4.48% 17.09% (5.46)% 14.44% 11.78%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net assets ....................... 0.86% 0.91% 0.90% 0.92% 0.90%
Net investment income to average
net assets ....................................... 5.70% 5.74% 5.84% 5.58% 6.06%
Portfolio turnover ................................... 21.74% 13.37% 10.74% 15.83% 3.90%
Net investment assets, end of year
(000s omitted):
For Common Stock ................................. $159,399 $162,953 $150,100 $170,645 $160,844
For Preferred Stock .............................. 75,000 75,000 75,000 75,000 75,000
-------- -------- -------- -------- --------
Total net investment assets .......................... $234,399 $237,953 $225,100 $245,645 $235,844
======== ======== ======== ======== ========
</TABLE>
- ----------
See Notes to Financial Statements.
12
<PAGE>
================================================================================
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS,
SELIGMAN SELECT MUNICIPAL FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Seligman Select Municipal Fund, Inc. as of
December 31, 1996, the related statements of operations for the year then ended
and of changes in net investment assets for each of the years in the two-year
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 the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1996, by correspondence with the Fund's custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Seligman Select
Municipal Fund, Inc. as of December 31, 1996, the results of its operations, the
changes in its net investment assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
January 31, 1997
13
<PAGE>
================================================================================
DIVIDEND INVESTMENT PLAN
The Dividend Investment Plan (the "Plan") is available for any holder of Common
Stock with shares registered in his/her own name who wishes to purchase
additional shares of Common Stock with dividends or distributions received on
Fund shares owned. The Plan is not automatic; a Stockholder may elect to
participate in the Plan by notifying his/her broker when the account is set up
or, if the account is maintained by the Fund, by sending a written request to
Seligman Data Corp. ("Seligman Data"), 100 Park Avenue, New York, New York
10017. Under the Plan, Stockholders appoint the Fund as Plan Agent to invest
dividends in shares of the Fund. Such shares will be acquired by the Fund for
Stockholders either through open market purchases if the Fund is trading at a
discount or through the issuance of authorized but unissued shares of Common
Stock if the Fund is trading at a premium. If the market price of a share on the
payable date of a dividend is at or above the Fund's net asset value per share
on such date, the number of shares to be issued by the Fund to each Stockholder
receiving shares in lieu of cash dividends will be determined by dividing the
amount of the cash distribution to which such Stockholder would be entitled by
the greater of the net asset value per share on such date of 95% of the market
price of a share on such date. If the market price of a share on such a
distribution date is below the net asset value per share, the number of shares
to be issued to such Stockholder will be determined by dividing such amount by
the per share market price.
Purchases will be made by the Fund from time to time on the New York Stock
Exchange (the "Exchange") or elsewhere to satisfy dividend and distribution
investment requirements under the Plan. Purchases will be suspended on any day
when the closing price (or closing bid price if there were no sales) of the
shares on the Exchange on the preceding trading day was higher than the net
asset value per share. If on the dividend payable date, purchases by the Fund
are insufficient to satisfy dividend investments and on the last trading day
immediately preceding the dividend payable date the closing sale or bid price of
the shares is lower than or the same as the net asset value per share, the Fund
will continue to purchase shares until all investments by Stockholders have been
completed or the closing sale or bid price of the shares becomes higher than the
net asset value, in which case the Fund will issue the necessary additional
shares from authorized but unissued shares. If on the last trading day
immediately preceding the dividend payable date, the closing sale or bid price
of the shares of Common Stock is higher than the net asset value per share, and
if the number of shares previously purchased on the Exchange or elsewhere is
insufficient to satisfy dividend investments, the Fund will issue the necessary
additional shares from authorized but unissued shares of Common Stock. There
will be no brokerage charges with respect to shares of Common Stock issued
directly by the Fund to satisfy the dividend investment requirements. However,
each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Fund's open market purchases of shares. In each case, the
cost per share of shares purchased for each Common Stockholder's account will be
the average cost, including brokerage commissions, of any shares of Common Stock
purchased in the open market plus the cost of any shares issued by the Fund. For
the year ended December 31, 1996, there were no shares purchased in the open
market for dividend and gain investment purposes.
Common Stockholders who elect to hold their shares in the name of a broker
or other nominee should contact such broker or other nominee to determine
whether they may participate in the Plan. To the extent such participation is
permitted, the Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time by the broker or other nominee as
representing the total amount registered in the nominee's name and
14
<PAGE>
================================================================================
held for the account of beneficial owners who are participating in such Plan by
delivering shares on behalf of such holder to such nominee's account at
Depository Trust Company ("DTC"). Stockholders holding shares that participate
in the Plan in a brokerage account may not be able to transfer the shares to
another broker and continue to participate in the Plan.
A Common Stockholder who has elected to participate in the Plan may
withdraw from the Plan at any time. There will be no penalty for withdrawal from
the Plan, and Common Stockholders who have previously withdrawn from the Plan
may rejoin it at any time. Changes in elections must be in writing and should
include the Common Stockholder's name and address as they appear on the account
registration or in respect of an account held at DTC, the account registration.
An election to withdraw from the Plan will, until such election is changed, be
deemed to be an election by a Common Stockholder to take all subsequent
distributions in cash. An election will be effective only for a dividend or gain
distribution if it is received by Seligman Data on or before such record date.
Seligman Data will maintain all Common Stockholders' account in the Plan
not held by DTC, and furnish written confirmation of all transactions in the
account, including information needed by Common Stockholders for tax records.
Shares in the account of each Plan participant may be held by the Plan Agent in
non-certificated form in the name of the participant, and each Common
Stockholder's proxy will include those shares purchased or received pursuant to
the Plan.
The Fund seeks to pay dividends that are exempt from regular federal income
taxes; however, to the extent that any dividends or distributions do not qualify
as exempt from regular federal income taxes or are subject to state income
taxes, the automatic investment of dividends will not relieve participants of
any income taxes that may be payable (or required to be withheld) on such
dividends. Stockholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan should be treated for federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the Stockholders receiving cash dividends or distributions will receive and
should have a cost basis in the shares received equal to such amount.
The Fund reserves the right to amend or terminate the Plan as applied to
any dividend paid subsequent to written notice of the change sent to
participants in the Plan at least 90 days before the record date for such
dividend. There is no service charge to participants in the Plan; however, the
Fund reserves the right to amend the Plan to include a service charge payable to
the Fund by the participants. All correspondence concerning the Plan, including
requests for additional information about the Plan, should be directed to
Seligman Data.
The Fund may make additional purchases of its Common Stock in the open
market and elsewhere at such prices and in such amounts as the Board of
Directors may deem advisable. No such additional purchases were made during the
year ended December 31, 1996.
15
<PAGE>
================================================================================
BOARD OF DIRECTORS
FRED E. BROWN
DIRECTOR AND CONSULTANT,
J. & W. Seligman & Co. Incorporated
JOHN R. GALVIN 2
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, USLIFE Corporation
ALICE S. ILCHMAN 3
PRESIDENT, Sarah Lawrence College
TRUSTEE, Committee for Economic Development
DIRECTOR, NYNEX
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON 2
CHAIRMAN AND CEO, Kerr-McGee Corporation
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW
SENIOR PARTNER, Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Aluminum Corporation
BETSY S. MICHEL 2
DIRECTOR OR TRUSTEE,
Various Organizations
WILLIAM C. MORRIS 1
CHAIRMAN
CHAIRMAN OF THE BOARD,
J. & W. Seligman & Co. Incorporated
CHAIRMAN, Carbo Ceramics Inc.
DIRECTOR, Kerr-McGee Corporation
JAMES C. PITNEY 3
PARTNER, Pitney, Hardin, Kipp & Szuch, Law Firm
DIRECTOR, Public Service Enterprise Group
JAMES Q. RIORDAN 3
DIRECTOR, The Brooklyn Union Gas Company
TRUSTEE, Committee for Economic Development
DIRECTOR, Dow Jones & Co., Inc.
DIRECTOR, Public Broadcasting Service
RONALD T. SCHROEDER 1
MANAGING DIRECTOR,
J. & W. Seligman & Co. Incorporated
ROBERT L. SHAFER 3
DIRECTOR OR TRUSTEE,
Various Organizations
JAMES N. WHITSON 2
EXECUTIVE VICE PRESIDENT AND DIRECTOR,
Sammons Enterprises, Inc.
DIRECTOR, C-SPAN
DIRECTOR, Red Man Pipe and Supply Company
BRIAN T. ZINO 1
PRESIDENT AND MANAGING DIRECTOR,
J. & W. Seligman & Co. Incorporated
CHAIRMAN AND PRESIDENT, Seligman Data Corp.
- ----------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
16
<PAGE>
================================================================================
EXECUTIVE OFFICERS
WILLIAM C. MORRIS
CHAIRMAN
THOMAS G. MOLES
PRESIDENT
EILEEN A. COMERFORD
VICE PRESIDENT
AUDREY G. KUCHTYAK
VICE PRESIDENT
LAWRENCE P. VOGEL
VICE PRESIDENT
THOMAS G. ROSE
TREASURER
FRANK J. NASTA
SECRETARY
- --------------------------------------------------------------------------------
MANAGER
J. & W. Seligman &Co. Incorporated
100 Park Avenue
New York, NY 10017
GENERAL COUNSEL
Sullivan &Cromwell
INDEPENDENT AUDITORS
Deloitte & Touche LLP
STOCKHOLDER SERVICE AGENT
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
IMPORTANT TELEPHONE NUMBERS
(800) 874-1092 Stockholder Services
(800) 622-4597 24-Hour Automated
Telephone Access Service
17
