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TO THE STOCKHOLDERS
The possibility that the Federal Reserve Board would increase the federal funds
rate provoked an upward trend in yields, reducing the prices of municipal
securities in the first quarter of 1997. Seligman Select Municipal Fund's net
asset value, therefore, declined in the quarter. On a market price basis,
however, the Fund had a solid quarter. The Fund's investment results for Common
Stockholders appear on page 5.
In the first quarter, the economy continued its expansion without provoking
a significant increase in inflationary pressures. Nonetheless, on March 25, the
Fed increased the fed funds rate -- the interest rate charged for interbank
loans -- from 5.25% to 5.50%, due to concerns that strong consumer demand could
be enough to fuel higher levels of inflation in the near future.
The near-term result of the Fed's action has been an increase in the yields
of fixed-income securities regardless of maturities. The Bond Buyer 20-Bond
General Obligation Index, a benchmark for the municipal market, moved slightly
higher over the course of the quarter, from 5.66% on December 31, 1996, to 5.81%
on March 31, 1997.
The current uncertainty about the direction of the economy has caused
bearish sentiment in the municipal bond market, and market participants remain
alert for any signs of a resurgence in inflation, which could prompt another Fed
move. Nevertheless, municipal securities continue to outperform other
fixed-income investments.
The financial markets may remain unsettled in the short term until the
effect of the Fed's action on the economy becomes clearer. However, economic
fundamentals remain encouraging, and we believe that the municipal bond market
will stabilize over time, while continuing to provide investors with attractive
taxable-equivalent yields.
Seligman Select Municipal Fund's Annual Meeting will be held on Thursday,
May 15, 1997, at 9:00 a.m. in the Harborview Ballroom at the World Trade Center
Boston, 164 Northern Avenue, Boston, MA 02210. We encourage those Stockholders
who are able to attend to do so.
On a final note, we have regretfully accepted Fred E. Brown's decision to
formally retire from your Fund's Board of Directors. Mr. Brown has been elected
Director Emeritus of the Board, and Seligman Select Municipal Fund will still be
able to benefit from his invaluable advice and counsel. Mr. Brown, who was
Chairman and CEO of J. & W. Seligman & Co. from 1965 to 1988, and joined your
Fund's Board in 1989, has served with unparalleled dedication for nearly 60
years.
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.
By order of the Board of Directors,
/s/ William C. Morris
- ----------------------------
William C. Morris
Chairman
/s/ Thomas G. Moles
--------------------------
Thomas G. Moles
President
May 2, 1997
<PAGE>
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
[PHOTO]
Seligman Municipals Team: (from left) Audrey Kuchtyak, Theresa Barion,
Debra McGuinness, (seated) Eileen Comerford, Thomas G. Moles (Portfolio Manager)
What economic and market factors affected Seligman Select Municipal Fund in its
first quarter?
"Year-to-date, the municipal bond market has outperformed other fixed-income
markets, due largely to an imbalance in supply and demand. The outstanding
supply of municipal bonds decreased due to a rise in the volume of bond calls
and redemptions, while positive municipal fundamentals moderately improved
investor demand. During the month of March, however, long-term municipal yields
began to rise due to an increase in economic growth and the Federal Reserve
Board's resulting attempt to contain it by raising the federal funds rate.
Overall, the higher-yield environment caused a modest decline in the Fund's net
asset value for the quarter. Nonetheless, the continued health of the US economy
has helped improve the financial status of many municipal issuers, including
issues held by the Fund. If the economy remains on track, this trend could
continue."
What was your investment strategy?
"During the past six months, our outlook for the municipal market remained
positive. Investment strategy was based on the assumption that long-term yields
would continue to fluctuate within a narrow range. In this environment, the
Fund's performance was primarily due to coupon income rather than price
appreciation. Therefore, portfolio purchases were concentrated in current coupon
bonds, in an effort to maximize coupon returns in the expected absence of price
appreciation.
"We believe that the rise in yields seen in March will be short-lived, and we
view the current market environment as a buying opportunity. We have been
committing cash, where appropriate, to the purchase of longer-term, quality
municipal bonds. While rising interest rates generally have a negative impact on
municipal bond prices and on the Fund's performance, opportunities to enhance
returns exist in all markets. Through active professional management, we are
able to identify undervalued or improving situations that can benefit the
portfolio, regardless of the direction of interest rates."
What is your outlook?
"The fixed-income markets may remain unsettled in the near term until investors
become satisfied that the Fed has achieved its objectives. Ultimately, we
anticipate that confidence in the market will be restored, and that long-term
municipal yields will settle back into a narrow trading range. Additionally, new
issue volume in the municipal market is not expected to vary significantly from
last year, and this predictable supply of bonds should add stability to the
marketplace. We are confident that Seligman Select Municipal Fund will continue
to play an important role in helping investors meet their long-term financial
goals."
2
<PAGE>
<TABLE>
<CAPTION>
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PORTFOLIO OF INVESTMENTS (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Face Ratings
State Amount Municipal Bonds Moody's/S&P Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alaska -- 7.6% $10,000,000 Alaska Housing Finance Corp. (Collateralized
Home Mortgage Rev.), 7.65% due 6/1/2024 ............ Aaa/AAA $ 10,505,500
7,500,000 Valdez Marine Terminal Rev. (BP Pipelines Inc.
Project), 5.65% due 12/1/2028 ...................... Aa2/AA 7,038,525
California -- 11.0% 9,130,000 California Pollution Control Financing Authority
Sewage and Solid Waste Disposal Facilities
Rev. (Anheuser-Busch Project), 5 3/4% due
12/1/2030* ......................................... A1/AA- 8,781,599
10,000,000 San Francisco City and County Airports Commission
(San Francisco International Airport Rev.), 6.30%
due 5/1/2025* ...................................... Aaa/AAA 10,247,200
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 6,241,020
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 7,047,105
District of Columbia -- 3.5% 7,500,000 District of Columbia GOs, 7 1/2% due 6/1/2009 ........ Aaa/AAA 8,108,100
Florida -- 6.0% 5,700,000 Brevard County Utility Rev., 7 3/8% due 3/1/2014 ..... Aaa/AAA 5,991,042
775,000 Brevard County Utility Rev., 7 3/8% due 3/1/2014 ..... Aaa/AAA 809,271
2,455,000 Florida Housing Finance Agency (Home Ownership
Rev.), 7.90% due 3/1/2022* ......................... Aaa/NR 2,577,799
4,290,000 Orange County Housing Finance Authority
(Mortgage Rev.), 7.80% due 10/1/2022* .............. Aaa/NR 4,518,314
Illinois -- 2.4% 5,000,000 Chicago O'Hare International Airport International
Terminal Special Rev., 7 5/8% due 1/1/2010* ........ Aaa/AAA 5,421,400
Indiana -- 2.4% 5,000,000 Indiana Employment Development Commission
Environmental Rev. (Public Service Company of
Indiana Inc.), 7 1/2% due 3/15/2015* ............... Aaa/AAA 5,431,500
Louisiana -- 5.1% 10,000,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project), 8%
due 5/15/2012 ...................................... NR/AAA 11,715,400
Massachusetts -- 4.7% 5,370,000 Massachusetts Housing Finance Agency (Multi-
Family Residential Development Rev.), 7.65%
due 2/1/2028* ...................................... Aaa/AAA 5,614,872
5,500,000 Massachusetts Bay Transportation Authority General
Transportation System Rev., 5 5/8% due 3/1/2026 .... Aaa/AAA 5,276,315
Nebraska -- 1.3% 2,920,000 Nebraska Investment Finance Authority (Single
Family Mortgage Rev.), 8 1/8% due 8/15/2038* ....... Aaa/AAA 3,040,625
Nevada -- 3.3% 7,000,000 Clark County Industrial Development Rev. (Nevada
Power Company Project), 7.80% due 6/1/2020* ........ Aaa/AAA 7,697,340
New Hampshire -- 3.3% 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 7,503,915
New Jersey -- 2.2% 2,000,000 New Jersey Educational Facilities Authority Rev.
(Princeton University), 6% due 7/1/2024 ............ Aaa/AAA 2,013,780
2,810,000 New Jersey Housing & Mortgage Finance Agency
(Home Buyer Rev.), 7.70% due 10/1/2029* ............ Aaa/AAA 2,940,862
- --------------------------
See footnote on page 4.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
March 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Face Ratings
State Amount Municipal Bonds Moody's/S&P Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York -- 8.7% 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 $ 10,112,800
10,000,000 New York State Thruway Authority General Rev.,
6% due 1/1/2025 ..................................... Aaa/AAA 10,035,500
Ohio -- 4.9% 6,000,000 Cleveland Waterworks Improvement First Mortgage
Rev., 5 3/4% due 1/1/2021 ........................... Aaa/AAA 5,922,900
5,205,000 Ohio Housing Finance Agency (Single Family
Mortgage Rev.), 7.65% due 3/1/2029* ................. NR/AAA 5,472,537
Pennsylvania -- 6.8% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* ......... Aaa/AAA 2,674,775
3,000,000 Lehigh County Industrial Development Authority
Pollution Control Rev. (Pennsylvania Power &
Light Company Project), 6.15% due 8/1/2029 .......... Aaa/AAA 3,043,200
10,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* ....... Aaa/AAA 9,998,900
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- 8,508,160
Texas -- 4.4% 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 5,140,750
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 5,013,650
Virginia -- 1.3% 3,000,000 Fairfax County Water Authority Water Rev., 6% due
4/1/2022 ............................................ Aa/AA- 3,033,270
Washington -- 12.7% 4,795,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.), 6 1/4%
due 7/1/2017* ....................................... Aaa/AAA 4,918,327
5,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.), 6.35%
due 7/1/2028* ....................................... Aaa/AAA 5,167,250
2,000,000 Grant County Public Utility District No. 002 (Priest
Rapids Hydroelectric Development Rev.), 7.70%
due 1/1/2018* ....................................... Aa3/A+ 2,128,700
6,180,000 Grant County Public Utility District No. 2 (Priest
Rapids Hydroelectric Development Rev.), 5 7/8%
due 1/1/2031* ....................................... Aaa/AAA 6,008,011
10,000,000 King County Sewer GOs, 6 1/8% due 1/1/2033 ............ Aaa/AAA 10,065,500
1,000,000 Spokane Regional Solid Waste Management System
Rev., 7 3/4% due 1/1/2011* .......................... Aaa/AAA 1,066,200
------------
TOTAL MUNICIPAL BONDS (COST $219,882,826)-- 98.4%.............................................................. 226,831,914
SHORT-TERM HOLDINGS (COST $3,600,000)-- 1.5%................................................................... 3,600,000
OTHER ASSETS LESS LIABILITIES-- 0.1%........................................................................... 153,391
------------
NET INVESTMENT ASSETS-- 100.0%................................................................................. $230,585,305
============
- ---------------------
* Interest income earned from this security is subject to the federal
alternative minimum tax.
Note: Investments in municipal securities and other short-term holdings maturing
in more than 60 days are valued based upon quotations provided by an independent
pricing service or, in their absence, at fair value determined in accordance
with procedures approved by the Board of Directors. Short-term holdings maturing
in 60 days or less are generally valued at amortized cost.
</TABLE>
4
<PAGE>
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INVESTMENT RESULTS PER COMMON SHARE
- --------------------------------------------------------------------------------
TOTAL RETURNS*
For Periods Ended March 31, 1997
Average Annual
--------------------------------
Since
Three One Five Inception
Months Year Years 2/15/90
------- ------- ------- -------
Market Price 2.78% 8.61% 8.87% 8.37%
Net Asset Value (0.83) 5.40 7.91 8.51
PRICE PER SHARE
March 31, 1997 December 31, 1996
---------------- ----------------
Market Price $12.625 $12.50
Net Asset Value 11.85 12.16
DIVIDEND AND CAPITAL GAIN INFORMATION
For the Three Months Ended March 31, 1997
Capital Gain
-------------------------------
Dividend Paid** Realized Unrealized+
-------------- ------------ ----------
$0.21 $0.155 $0.529
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at March 31, 1997,
was 6.65%, which is equivalent to a taxable yield of 11.01% based on the maximum
federal rate of 39.6%.
-------------------------------------------------------------------
* These rates of return reflect changes in the market price or net asset
value, as applicable, and assume that all distributions within the period
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.
** Preferred Stockholders were paid dividends at annual rates ranging from
3.40% to 3.60%. 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 March 31, 1997.
- --------------------------------------------------------------------------------
5
<PAGE>
Seligman Select Municipal Fund, Inc.
Managed by
SWS
J. & W. SELIGMAN & CO.
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
Photo: Courtesy Michigan Travel Bureau
CESEL2 3/97
SELIGMAN
===============================================================================
SELECT
================================================================================
MUNICIPAL
FUND, INC.
[PHOTO]
SWS
First Quarter Report
March 31, 1997
