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To the Stockholders
During Seligman Select Municipal Fund's first quarter, the US economy's
expansion continued unabated and inflation remained virtually nonexistent, which
contributed to the relative stability of the municipal market. Long-term
municipal yields ended the quarter slightly higher than at year-end, resulting
in a modest decline in the Fund's net asset value. More specific investment
results for the Fund appear on page 5.
The municipal bond market also benefited from favorable municipal tax
receipts and a reduced federal budget deficit, while the Federal Reserve Board's
decision to maintain current short-term interest rate levels drove the optimism
of municipal market participants even further. Over the course of the quarter,
yields in the municipal market remained in a narrow range that was near the
historic low reached in the fourth quarter of 1997.
Municipal bond issuers took advantage of the current market environment and
issued a record number of bonds in the first three months of the year, which
historically is a slow period for new issuance. The yield on the Bond Buyer
20-Bond General Obligation Index, a benchmark for the municipal bond market,
stood at 5.20% on March 31, 1998, slightly higher than its 5.15% yield on
December 31, 1997.
Thus far, the effect of the Asian economic crisis on the US has been to
counter inflationary pressures, with the reduced cost of imported goods
offsetting the increase in wages seen in the tight US labor market. However,
although the current domestic environment is very encouraging, the Asian
financial crisis is not behind us, and we still anticipate a net slowdown in the
rate of economic expansion for the balance of 1998.
Nonetheless, while the US stock markets may become more volatile as
corporate earnings weaken, the outlook for the municipal bond market remains
optimistic. A continuation of positive fundamentals, which characterized the
municipal market for the past six months, should support the municipal bond
market for the remainder of the year. Further, a decrease in US Treasury bond
issuance will likely benefit the municipal bond market as a reduction in
Treasury supply would likely force Treasury yields lower relative to municipal
yields.
On March 19, 1998, the Fund's Board of Directors approved a reduction in the
monthly dividend paid to Common Stockholders from $0.07 per share to $ 0.062 per
share effective in April 1998.
The principal reason for this decision was the continued narrow spread
between the Fund's earnings from its investment portfolio and the dividend rate
paid on its preferred stock. The Interview with Your Portfolio Manager on page 2
contains further discussion regarding investment strategies and outlooks.
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. A
discussion with your Portfolio Manager and the Fund's portfolio of investments
follow this letter. By order of the Board of Directors,
/s/William Morris
- --------------------------
William C. Morris
Chairman
/s/Thomas G. Moles
----------------------------
Thomas G. Moles
President
May 1, 1998
1
<PAGE>
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
WHAT ECONOMIC AND MARKET FACTORS
INFLUENCED SELIGMAN SELECT MUNICIPAL
FUND IN THE LAST THREE MONTHS?
"Overall, the enduring rally in the
municipal bond market continued through
[PHOTO] year-end 1997 and into the first quarter
of 1998. By mid-January, long-term
municipal yields had fallen to their
lowest level in 26 years. It was at this
point, however, that the rally stalled
due to renewed concerns about the pace
of economic growth and the specter of
inflation. Yields moved modestly higher
over the next several weeks before
SELIGMAN MUNICIPALS TEAM: (FROM LEFT) settling into a narrow range.
AUDREY KUCHTYAK, THERESA BARION, Nonetheless, the rise in rates was
DEBRA MCGUINNESS, (SEATED) EILEEN generally viewed as a buying opportunity
COMERFORD, THOMAS G. MOLES and did little to dampen overall
(PORTFOLIO MANAGER) municipal market optimism.
"Also in the first quarter, municipal new issue volume rose sharply. The
nation's cities and states took advantage of the attractive interest rate
environment to issue bonds for new money and refunding purposes. Year-to-date,
municipal bond issuance is up 70% versus the same period last year. Most of
1998's offerings have been well received by the market, due in part to an
increase in demand resulting from a continuation of heavy bond calls and
redemptions.
"Finally, in a widely anticipated move, the Federal Reserve Board voted on
March 31 to leave the fed funds rate unchanged. Additionally, the minutes of the
Fed's February meeting, released on April 2, reveal that the Fed elected to
maintain a neutral policy directive, rather than to reinstate a tightening bias.
This suggests that the Fed is not overly concerned that economic growth is in
imminent danger of exceeding its non-inflationary potential. The Fed's "wait and
see" posture in the face of robust economic growth suggests that the Fed
believes that the impact of the Asian financial crisis could be sufficient to
slow the economy and preclude Fed intervention. Further, while inflation remains
at such a favorable rate, the risk of waiting is likely minimal."
WHAT WAS YOUR INVESTMENT STRATEGY?
"Investment returns for municipal bond funds are comprised of coupon
interest and price appreciation or depreciation. In today's municipal
marketplace, historically low long-term interest rates have reduced dividend
yields while the relative lack of volatility has limited price appreciation
potential. Therefore, our municipal team has been focusing on value-added
investing in an effort to enhance portfolio returns. Through in-depth credit
analysis, we can identify overvalued portfolio holdings and replace them with
undervalued municipal credits. Additionally, through diligent market analysis we
can identify, and profit from, aberrations and inefficiencies in the municipal
market."
WHAT IS YOUR OUTLOOK?
"For the remainder of the year, we anticipate that positive municipal market
fundamentals will prevail. The Federal Reserve Board remains committed to
sustaining the economic expansion, and we are confident the Fed will act
promptly to prevent a rise in the rate of inflation from occurring. We believe a
healthy economy and a stable rate of inflation bode well for the performance of
the municipal market going forward. Even though long-term municipal yields have
fallen to the lowest levels seen in many years, municipal securities, including
Seligman Select Municipal Fund, currently offer a significant yield advantage
relative to the after-tax returns of other fixed-income investments, as well as
to the rate of inflation."
2
<PAGE>
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PORTFOLIO OF INVESTMENTS (unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA -- 7.2% $ 8,885,000 Alaska Housing Finance Corp. (Collateralized
Home Mortgage Rev.), 7.65% due 6/1/2024 ................. Aaa/AAA $ 9,500,109
7,500,000 Valdez Marine Terminal Rev. (BP Pipelines Inc.
Project), 5.65% due 12/1/2028 ........................... Aa2/AA 7,658,250
CALIFORNIA -- 11.4% 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/A+ 9,492,918
10,000,000 San Francisco City and County Airports Commission
(San Francisco International Airport Rev.), 6.30%
due 5/1/2025* ........................................... Aaa/AAA 10,770,000
6,000,000 San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Rev. (Orange County),
6 3/4% due 1/1/2032 ..................................... Aaa/NR 6,778,440
DELAWARE -- 2.9% 6,500,000 Delaware Economic Development Authority
Exempt Facilities Rev. (Delmarva Power and
Light Co. Project), 7.60% due 3/1/2020* ................. Aaa/AAA 6,992,570
DISTRICT OF COLUMBIA -- 3.4% 7,500,000 District of Columbia GOs, 7 1/2% due 6/1/2009 ............ Aaa/AAA 7,961,175
FLORIDA -- 2.6% 2,145,000 Florida Housing Finance Agency (Home Ownership
Rev.), 7.90% due 3/1/2022* .............................. Aaa/NR 2,272,005
3,735,000 Orange County Housing Finance Authority
(Mortgage Rev.), 7.80% due 10/1/2022* ................... Aaa/NR 3,920,592
ILLINOIS -- 4.3% 5,000,000 Chicago GO's 5 1/4%, 1/1/2028 ............................ Aaa/AAA 4,932,850
5,000,000 Chicago O'hare International Airport International
Terminal Special Rev., 7 5/8% due 1/1/2010* ............. AAA/AAA 5,360,050
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 5,375,200
LOUISIANA -- 5.0% 9,675,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project), 8%
due 5/15/2012 ........................................... NR/AAA 11,865,710
MASSACHUSETTS -- 4.9% 5,500,000 Massachusetts Bay Transportation Authority General
Transportation System Rev., 5 5/8% due 3/1/2026 ......... Aaa/AAA 5,977,345
5,370,000 Massachusetts Housing Finance Agency (Multi-
Family Residential Development Rev.), 7.65%
due 2/1/2028* ........................................... Aaa/AAA 5,575,617
NEBRASKA -- 1.1% 2,435,000 Nebraska Investment Finance Authority (Single
Family Mortgage Rev.), 8 1/8% due 8/15/2038* ............ Aaa/AAA 2,502,961
NEVADA -- 3.2% 7,000,000 Clark County Industrial Development Rev. (Nevada
Power Company Project), 7.80% due 6/1/2020* ............. Aaa/AAA 7,607,390
NEW HAMPSHIRE -- 1.3% 3,000,000 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 3,202,890
NEW JERSEY -- 5.0% 7,000,000 New Jersey Economic Development Authority Water
Facilities Rev. (American Water Company Inc.),
5 3/8% due 5/1/2032* .................................... Aaa/AAA 7,058,520
2,000,000 New Jersey Educational Facilities Authority Rev.
(Princeton University), 6% due 7/1/2024 ................. Aaa/AAA 2,133,660
2,445,000 New Jersey Housing & Mortgage Finance Agency
(Home Buyer Rev.), 7.70% due 10/1/2029* ................. Aaa/AAA 2,556,419
</TABLE>
- ----------
See footnotes on page 4.
3
<PAGE>
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MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK -- 10.0% $ 2,000,000 New York State DormitoryAuthority Rev.
(Rockefeller University), 7 3/8% due 7/1/2014 ............... Aaa/AAA $ 2,056,720
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 10,864,800
10,000,000 New York State Thruway Authority General Rev.,
6% due 1/1/2025 ............................................ Aaa/AAA 10,708,100
NEW YORK AND 6,500,000 PORT AUTHORITY OF NEW YORK AND NEW JERSEY
NEW JERSEY -- 2.9% (JFK International Air Terminal LLC Project Rev.),
5 3/4% due 12/1/2022* ...................................... Aaa/AAA 6,838,325
OHIO -- 4.7% 6,000,000 Cleveland Waterworks Improvement First Mortgage
Rev., 5 3/4% due 1/1/2021 .................................. Aaa/AAA 6,310,260
4,585,000 Ohio Housing Finance Agency (Single Family
Mortgage Rev.), 7.65% due 3/1/2029* ........................ NR/AAA 4,822,457
Pennsylvania -- 7.0% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* ................ Aaa/AAA 2,717,650
3,000,000 Lehigh County Industrial Development Authority
Pollution Control Rev. (Pennsylvania Power &
Light Company Project), 6.15% due 8/1/2029 ................. Aaa/AAA 3,267,210
10,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* .............. Aaa/AAA 10,726,500
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- 8,856,320
TEXAS -- 5.7% 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 5,429,900
7,500,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Central Power and Light
Co. Project), 6 1/8% due 5/1/2030* .......................... Aaa/AAA 8,105,925
WASHINGTON-- 9.5% 4,795,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.), 6 1/4%
due 7/1/2017* .............................................. AAA/AAA 5,253,642
5,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.), 6.35%
due 7/1/2028* .............................................. Aaa/AAA 5,514,700
10,000,000 King County Sewer GOs, 6 1/8% due 1/1/2033 ................... Aaa/AAA 10,797,100
1,000,000 Spokane Regional Solid Waste Management System
Rev., 7 3/4% due 1/1/2011* .................................. Aaa/AAA 1,044,850
...................................................................................................... ------------
TOTAL MUNICIPAL BONDS (Cost $217,224,430) -- 98.1%.................................................................. 232,809,130
SHORT-TERM HOLDINGS (Cost $5,300,000) -- 2.2%....................................................................... 5,300,000
OTHER ASSETS LESS LIABILITIES -- (0.3)%............................................................................. (794,979)
------------
NET INVESTMENT ASSETS-- 100.0%...................................................................................... $237,314,151
============
</TABLE>
- ----------
* 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 that 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.
4
<PAGE>
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INVESTMENT RESULTS PER COMMON SHARE
- --------------------------------------------------------------------------------
TOTAL RETURNS*
FOR PERIODS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
----------------------------------
SINCE
THREE ONE FIVE INCEPTION
MONTHS** YEAR YEARS 2/15/90
------ ---- ----- -------
<S> <C> <C> <C> <C>
Market Price (11.08)% 4.65% 6.23% 7.90%
Net Asset Value 1.11 12.16 7.14 8.95
</TABLE>
PRICE PER SHARE
MARCH 31, DECEMBER 31,
1998 1997
-------- ----------
Market Price $12.1875 $13.9375
Net Asset Value 12.26 12.33
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 1998
CAPITAL GAIN
------------------------
DIVIDENDS PAID+ REALIZED UNREALIZED
-------------- -------- ----------
$0.21 $0.034 $1.177++
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at March 31, 1998,
was 6.30%, which is equivalent to a taxable yield of 10.43% based on the maximum
federal tax rate of 39.6%.
- --------------------------------------------------------------------------------
THE RATES OF RETURN WILL VARY AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE. SHARES, IF SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE INVESTMENT RESULTS.
* 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.
** Returns for periods of less than one year are not annualized.
+ Preferred Stockholders were paid dividends at annual rates ranging from
3.40% to 4.00%. 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, 1998.
- --------------------------------------------------------------------------------
5
<PAGE>
SELIGMAN
=============
SELECT
=============
MUNICIPAL
FUND, INC.
Seligman Select Municipal Fund, Inc.
Managed by
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
J. & W. SELIGMAN & CO. FIRST QUARTER REPORTF
INCORPORATED MARCH 31, 1998
Investment Managers and Advisors
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
PHOTO: COURTESY MICHIGAN TRAVEL BUREAU
CESEL3a 3/98
