ANNUAL REPORT
DECEMBER 31, 1997
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 12/97
================================================================================
TO THE STOCKHOLDERS
Seligman Select Municipal Fund had strong investment results for the year
ended December 31, 1997, as robust economic growth combined with subdued
inflation supported the municipal bond market. The municipal market rally that
began in May strengthened substantially during the last two quarters of the
year. Yields fell and bond prices rose, improving your Fund's total return while
it continued to provide consistent monthly income.
Overall, the municipal bond market performed well in 1997. In this seventh
year of economic expansion, the 3.8% real domestic growth rate improved the
financial standing and credit ratings of states and local municipalities across
the nation, with budget surpluses for several entities. Consumer price inflation
slowed to under 2%, interest rates moved steadily lower, productivity rose, and
unemployment levels reached 27-year lows. Meanwhile, the federal budget deficit
virtually disappeared. Except for a one-quarter percentage point increase in the
federal funds rate in March, the Federal Reserve Board left interest rates
untouched this year.
Nevertheless, it took some time to convince municipal bond market
participants of the sustainability of the healthy-growth and low-inflation
environment. There were ongoing fears that the vigorous economy and tight labor
market would prompt a steep increase in the rate of inflation. Municipal yields
fluctuated within a narrow range and did not decisively move downward until May.
The view that the US economy had produced a stable growth environment became
established in the third quarter, finally quieting inflationary concerns.
Reaching the year's low, the yield on the Bond Buyer 20-Bond General Obligation
Index, a benchmark for the municipal bond market, fell to 5.15% on December 31,
1997, significantly lower than the 5.66% yield a year ago.
At this time, we anticipate continued uncertainty in the equity markets
that could make the relative stability of the municipal bond market attractive
to cautious investors. The significant tax advantage of municipal bonds should
continue to make this asset class attractive relative to other fixed-income
investments, particularly to those investors in the highest federal income tax
brackets.
Barring problems caused by the tightness of the labor market, we expect that
the current low-inflation environment will endure and continue to support the
municipal bond market. We believe that the improving credit quality of municipal
issuers and favorable supply and demand fundamentals should also support the
performance of the municipal bond market in 1998. Overall, the outlook for the
municipal bond market and your Fund remains encouraging.
Thank you for your continued support of Seligman Select Municipal Fund. We
look forward to serving your investment needs in the many years to come. A
discussion with your Portfolio Manager, the Fund's portfolio of investments, and
financial statements follow this letter. The Fund's investment results appear on
page 4.
By order of the Board of Directors,
/s/ William C. Morris
- ---------------------------
William C. Morris
Chairman
/s/ Thomas G. Moles
--------------------------
Thomas G. Moles
President
January 30, 1998
1
<PAGE>
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INTERVIEW WITH YOUR PORTFOLIO MANAGER
Thomas G. Moles is a Managing Director of J. & W. Seligman & Co.
Incorporated, President and Portfolio Manager of Seligman Select
[PIC] Municipal Fund and Seligman Quality Municipal Fund. He is also
Vice President and Portfolio Manager of the Seligman municipal
mutual funds, which include 19 separate portfolios. He is
responsible for more than $1.8 billion in municipal securities.
Mr. Moles, with more than 25 years of experience, has spearheaded
Seligman's municipal investment efforts since joining the firm in
1983.
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED SELIGMAN SELECT
MUNICIPAL FUND'S INVESTMENT RESULTS IN THE LAST 12 MONTHS?
"This was a positive year for the municipal bond market. Long-term
municipal yields declined by more than half a percentage point during the last
12 months, reaching their lowest levels in 24 years by year end. However,
long-term municipal bonds became more attractive relative to US Treasury bonds
during the fourth quarter. This improvement in the relative value of municipal
bonds was due to the onset of the Asian financial crisis and the resulting
"flight-to-quality" by nervous equity investors into the US Treasury securities
market. This trend caused the decline in US Treasury bond yields to outpace the
decline in municipal bond yields. (The yields and prices of bonds move in
opposite directions; when yields decline, prices increase.)
"In the municipal bond market, new issue supply increased by 19% in 1997
compared to 1996. The downward trend in interest rates prompted a surge in
new-money issuance and refunding issuance, particularly during the second half
of the year. (Refunding issuance is a process where new bonds are issued to
retire outstanding, higher-coupon debt. Proceeds from the refunding issue are
deposited in an escrow account, generally comprised of government obligations,
which provides debt service on the refunded bonds.) Given historically low
municipal yields, a rise in issuance would ordinarily be a negative for the
market. However, the municipal market experienced record bond calls and
redemptions that sharply mitigated the impact of the increase in new issue
volume.
"The net slowdown in the growth of the outstanding municipal bond supply was
the principal reason that the municipal bond market was less volatile than the
US Treasury market for most of the year. As a result, municipal bonds
underperformed US Treasury bonds as interest rates declined and outperformed US
Treasury bonds as interest rates rose. The strong US Treasury market rally
during the fourth quarter, which was prompted by turmoil in world equity
markets, contributed to a net lag in municipal bond performance versus US
Treasury bonds for the year.
"Finally, the continuing strength of the economy led to improving credit
trends among the nation's states and municipalities. In 1997, rating upgrades
significantly outnumbered rating downgrades, leading to an improvement in the
overall creditworthiness of the municipal sector."
[CAPTION]
SELIGMAN MUNICIPALS TEAM: (FROM LEFT) AUDREY KUCHTYAK, THERESA BARION, DEBRA
MCGUINNESS, (SEATED) EILEEN COMERFORD, THOMAS G. MOLES (PORTFOLIO MANAGER)
2
<PAGE>
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
WHAT WAS YOUR INVESTMENT STRATEGY?
"Market conditions during the past 12 months presented us with opportunities
and challenges in the management of Seligman Select Municipal Fund. The
declining interest rate environment, which has prevailed since the start of the
second quarter, compelled us to concentrate new purchases in bonds with maturity
dates in excess of 25 years. In general, the longer the maturity of a bond, the
greater its price appreciation when yields move lower.
"Additionally, as yields declined, the risk that the Fund's older,
higher-coupon bonds would be called increased. (A callable bond is a bond which
the issuer is permitted to redeem, prior to maturity, on specified dates and at
predetermined prices.) We could have opted to hold onto our short-call
positions, thereby ensuring the stability of Seligman Select Municipal Fund's
investment income in the near-term, but this approach could have left the Fund
vulnerable to excessive bond calls and the possibility of a significant
reduction in future dividends. As we anticipate continued reductions in interest
rates, we chose to adopt a more proactive strategy, extending the Fund's call
protection by selling short-call bonds and locking in current long-term yields
before they declined further. By acting sooner, rather than later, we can better
control the impact of bond calls on the Fund's investment income. Given the
positive interest rate environment, we believe this strategy will benefit the
Stockholders over the long term, outweighing any short-term drawbacks.
"Seligman Select Municipal Fund is required to maintain a minimum of 80% of
the portfolio in "triple A"-rated securities. Most of these highly-rated bonds
are "triple A" because they are backed by municipal bond insurance. It is our
policy, however, to perform in-depth credit analysis on every bond we purchase,
regardless of insurance coverage. Portfolio holdings are continually monitored
in order to identify deteriorating credits and replace them with stronger
credits.
"As mentioned earlier, declining interest rates during the year prompted an
increase in the volume of refunding issuance in 1997. The Fund held a number of
higher coupon bonds that we refrained from selling due to a strong possibility
that these bonds would be refunded. When a bond is refunded, total return
performance is improved, and the bond's rating is often upgraded. In fact, over
the past 12 months, several portfolio holdings were refunded and subsequently
sold to capture the resulting price appreciation."
WHAT IS YOUR OUTLOOK?
"Nineteen ninety-seven was a successful year for the municipal bond market
and your Fund. Yields declined, credit ratings improved, and total issuance
rose. We anticipate a continuance of these positive trends in the months to
come. Recent economic reports seem to suggest that the long-awaited slowdown in
the rate of economic growth may finally be taking hold. Long-term yields should
therefore remain stable in the absence of inflationary pressures. Finally, a
healthy economy could elicit additional credit-rating upgrades going forward.
While our outlook for 1998 is decidedly upbeat, a certain degree of risk exists
in all markets until the final impact of the Asian turmoil on the US economy is
more clearly understood."
3
<PAGE>
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INVESTMENT RESULTS PER COMMON SHARE
- --------------------------------------------------------------------------------
TOTAL RETURNS*
FOR PERIODS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Average Annual
----------------------------------
Since
Three One Five Inception
Months** Year Years 2/15/90
------ ---- ----- -------
<S> <C> <C> <C> <C>
Market Price 6.40% 20.97% 9.95% 9.78%
Net Asset Value 3.22 10.01 7.80 9.09
PRICE PER SHARE
<CAPTION>
December 31, September 30, June 30, March 31, December 31,
1997 1997 1997 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Market Price $13.9375 $13.50 $12.9375 $12.625 $12.50
Net Asset Value 12.33 12.31 12.08 11.85 12.16
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<CAPTION>
Capital Gain
-------------------------------------
Dividends Paid+ Paid Realized Unrealized
------------ --- ------- --------
<S> <C> <C> <C> <C>
$0.84 $0.181 $0.154 $1.248++
</TABLE>
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at December 31, 1997,
was 6.03%, which is equivalent to a taxable yield of 9.98% based on the maximum
federal tax 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 SOLD, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE INVESTMENT RESULTS.
** RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
+ PREFERRED STOCKHOLDERS WERE PAID DIVIDENDS AT ANNUAL RATES RANGING FROM
3.40% TO 3.83%. 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, 1997.
- --------------------------------------------------------------------------------
4
<PAGE>
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PORTFOLIO OF INVESTMENTS December 31, 1997
<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 $ 9,443,866
7,500,000 Valdez Marine Terminal Rev. (BP Pipelines Inc.
Project), 5.65% due 12/1/2028 Aa2/AA 7,667,550
CALIFORNIA-- 11.3% 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+ 9,404,174
10,000,000 San Francisco City and County Airports Commission
(San Francisco International Airport Rev.),
6.30% due 5/1/2025* Aaa/AAA 10,787,500
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 6,775,260
DELAWARE-- 3.0% 6,500,000 Delaware Economic Development Authority
Exempt Facilities Rev. (Delmarva Power and
Light Co. Project), 7.60% due 3/1/2020* Aaa/AAA 7,022,015
DISTRICT OF COLUMBIA--3.4% 7,500,000 District of Columbia GOs, 7 1/2% due 6/1/2009 Aaa/AAA 8,005,500
FLORIDA -- 5.6% 5,700,000 Brevard County Utility Rev., 7 3/8% due 3/1/2014 Aaa/AAA 5,847,744
775,000 Brevard County Utility Rev., 7 3/8% due 3/1/2014 Aaa/AAA 794,786
2,320,000 Florida Housing Finance Agency (Home Ownership
Rev.), 7.90% due 3/1/2022* Aaa/NR 2,467,065
4,085,000 Orange County Housing Finance Authority
(Mortgage Rev.), 7.80% due 10/1/2022* Aaa/NR 4,301,423
ILLINOIS -- 2.3% 5,000,000 Chicago O'Hare International Airport International
Terminal Special Rev., 7 5/8% due 1/1/2010* Aaa/AAA 5,377,200
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 5,396,250
LOUISIANA-- 5.1% 9,675,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project), 8%
due 5/15/2012 NR/AAA 12,029,992
MASSACHUSETTS-- 4.7% 5,370,000 Massachusetts Housing Finance Agency (Multi-
Family Residential Development Rev.), 7.65%
due 2/1/2028* Aaa/AAA 5,586,089
5,500,000 Massachusetts Bay Transportation Authority General
Transportation System Rev., 5 5/8% due 3/1/2026 Aaa/AAA 5,726,435
NEBRASKA-- 1.2% 2,700,000 Nebraska Investment Finance Authority (Single
Family Mortgage Rev.), 8 1/8% due 8/15/2038* Aaa/AAA 2,788,047
NEVADA-- 3.2% 7,000,000 Clark County Industrial Development Rev. (Nevada
Power Company Project), 7.80% due 6/1/2020* Aaa/AAA 7,640,290
NEW HAMPSHIRE-- 3.1% 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 7,453,597
NEW JERSEY-- 2.0% 2,000,000 New Jersey Educational Facilities Authority Rev.
(Princeton University), 6% due 7/1/2024 Aaa/AAA 2,131,500
2,510,000 New Jersey Housing & Mortgage Finance Agency
(Home Buyer Rev.), 7.70% due 10/1/2029* Aaa/AAA 2,634,220
- -------------
See footnotes on page 6.
5
<PAGE>
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PORTFOLIO OF INVESTMENTS (continued) December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK-- 9.1% $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 $ 10,924,400
10,000,000 New York State Thruway Authority General Rev.,
6% due 1/1/2025 Aaa/AAA 10,824,900
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 6,820,190
OHIO-- 4.9% 6,000,000 Cleveland Waterworks Improvement First Mortgage
Rev., 5 3/4% due 1/1/2021 Aaa/AAA 6,326,580
5,205,000 Ohio Housing Finance Agency (Single Family
Mortgage Rev.), 7.65% due 3/1/2029* NR/AAA 5,457,703
PENNSYLVANIA-- 7.0% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* Aaa/AAA 2,721,375
3,000,000 Lehigh County Industrial Development Authority
Pollution Control Rev. (Pennsylvania Power &
Light Company Project), 6.15% due 8/1/2029 Aaa/AAA 3,288,570
10,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* Aaa/AAA 10,742,500
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- 8,868,960
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 5,423,950
7,500,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Central Power and Light
Co. Project), 61/8% due 5/1/2030* Aaa/AAA 8,104,650
WASHINGTON-- 9.6% 4,795,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.), 6 1/4%
due 7/1/2017* Aaa/AAA 5,303,893
5,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.), 6.35%
due 7/1/2028* Aaa/AAA 5,560,050
10,000,000 King County Sewer GOs, 6 1/8% due 1/1/2033 Aaa/AAA 10,829,100
1,000,000 Spokane Regional Solid Waste Management System
Rev., 7 3/4% due 1/1/2011* Aaa/AAA 1,051,270
------------
TOTAL MUNICIPAL BONDS (Cost $215,032,896)-- 97.3%............................................. 231,528,594
SHORT-TERM HOLDINGS (Cost $2,700,000)-- 1.1%.................................................. 2,700,000
OTHER ASSETS LESS LIABILITIES-- 1.6%.......................................................... 3,755,940
------------
NET INVESTMENT ASSETS-- 100.0%................................................................ $237,984,534
============
</TABLE>
- -------------
+ Ratings have not been audited by Deloitte &Touche LLP.
* Interest income earned from this security is subject to the federal
alternative minimum tax.
See Notes to Financial Statements.
6
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value:
Long-term holdings (cost $215,032,896) ......................................... $231,528,594
Short-term holdings (cost $2,700,000) .......................................... 2,700,000 $234,228,594
------------
Cash ................................................................................................ 187,138
Interest receivable ................................................................................. 3,921,570
Expenses prepaid to stockholder service agent ....................................................... 17,724
Other ............................................................................................... 13,758
------------
TOTAL ASSETS ........................................................................................ 238,368,784
------------
LIABILITIES:
Accrued expenses, taxes, and other .................................................................. 384,250
------------
NET INVESTMENT ASSETS ............................................................................... 237,984,534
Preferred Stock ..................................................................................... 75,000,000
------------
NET ASSETS FOR COMMON STOCK ......................................................................... $162,984,534
============
NET ASSETS PER SHARE OF COMMON STOCK (MARKET VALUE $13.9375) ........................................ $12.33
======
COMPOSITION OF NET INVESTMENT ASSETS:
Preferred Stock Series A, $.01 par value, liquidation preference and asset coverage
per share--$100,000 and $317,313, 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 $317,313, respectively; shares authorized, issued and
outstanding--375 ................................................................................. 37,500,000
Common Stock, $.01 par value: shares authorized--49,999,250; issued and
outstanding--13,222,784 .......................................................................... 132,228
Additional paid-in capital .......................................................................... 145,798,149
Undistributed net investment income ................................................................. 558,459
Net unrealized appreciation of investments .......................................................... 16,495,698
------------
NET INVESTMENT ASSETS ............................................................................... $237,984,534
============
</TABLE>
- --------------
See Notes to Financial Statements.
7
<PAGE>
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STATEMENT OF OPERATIONS For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
INTEREST ............................................................................................. $14,667,889
EXPENSES:
Management fee ................................................................... $1,290,830
Stockholder account, transfer, and registrar services ............................ 227,262
Preferred stock remarketing fee .................................................. 187,500
Stockholder reports and communications ........................................... 74,256
Auditing and legal fees .......................................................... 64,031
Custody and related services ..................................................... 40,286
Directors' fees and expenses ..................................................... 35,804
Stockholders' meeting ............................................................ 34,094
Miscellaneous .................................................................... 150,798
----------
TOTAL EXPENSES ....................................................................................... 2,104,861
-----------
NET INVESTMENT INCOME ................................................................................ 12,563,028*
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ................................................. 2,042,013
Net change in unrealized appreciation of investments ............................. 3,727,924
----------
NET GAIN ON INVESTMENTS .............................................................................. 5,769,937
-----------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS .................................................... $18,332,965
===========
</TABLE>
- ----------
* Net investment income available for Common Stock is $9,852,336, which is net
of Preferred Stock dividends.
See Notes to Financial Statements.
8
<PAGE>
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STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 12,563,028 $ 13,320,476
Net realized gain on investments .......................................... 2,042,013 864,958
Net change in unrealized appreciation of investments ...................... 3,727,924 (4,653,130)
------------ ------------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS ......................... 18,332,965 9,532,304
------------ ------------
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income:
Preferred Stock, Series A (per share: $3,623.18 and $3,554.69) ......... (1,358,693) (1,333,009)
Preferred Stock, Series B (per share: $3,605.33 and $3,570.91) ......... (1,351,999) (1,339,091)
Common Stock (per share: $.84 and $.84) ................................ (11,044,089) (10,971,304)
------------ ------------
Total .................................................................. (13,754,781) (13,643,404)
Net realized gain on investments:
Common Stock (per share: $.181 and $.040) .............................. (2,386,003) (523,921)
------------ ------------
DECREASE IN NET INVESTMENT ASSETS FROM DISTRIBUTIONS ...................... (16,140,784) (14,167,325)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Value of shares of Common Stock issued for investment plan
(76,238 and 81,487 shares) ............................................. 940,671 990,409
Value of shares of Common Stock issued in payment of gain
distribution (34,506 and 7,404 shares) ................................. 452,784 90,033
------------ ------------
INCREASE IN NET INVESTMENT ASSETS FROM
CAPITAL SHARE TRANSACTIONS ............................................. 1,393,455 1,080,442
------------ ------------
INCREASE (DECREASE) IN NET INVESTMENT ASSETS 3,585,636 (3,554,579)
NET INVESTMENT ASSETS:
Beginning of year ......................................................... 234,398,898 237,953,477
------------ ------------
END OF YEAR (including undistributed net investment
income of $558,459 and $1,750,212, respectively) ....................... $237,984,534 $234,398,898
============ ============
</TABLE>
- --------------------
See Notes to Financial Statements
9
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Fund:
A. SECURITY VALUATION -- All 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.
B. FEDERAL TAXES -- 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. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- 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. DISTRIBUTIONS TO STOCKHOLDERS -- Dividends and distributions paid by the
Fund are recorded on the ex-dividend date.
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 SECURITIES -- Purchases and sales of portfolio
securities, excluding short-term investments, for the year ended December 31,
1997, amounted to $64,176,967 and $67,036,876, respectively.
At December 31, 1997, 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 of portfolio
securities amounted to $16,495,698.
3. DIVIDEND INVESTMENT PLAN -- 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, 1997, there were no
shares purchased in the open market.
4. CAPITALIZATION -- 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>
================================================================================
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. MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS -- 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 $174,998 for stockholder account services.
Certain officers and directors of the Fund are officers or directors of the
Manager and/or Seligman Data Corp.
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, 1997, of
$54,730 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. QUARTERLY RESULTS OF OPERATIONS -- 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 1997
------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total investment income .............................. $ 3,676 $3,660 $3,667 $3,665
Net investment income for Common Stock ............... $ 2,472 $2,528 $2,427 $2,425
Per Common Share ................................... $ .19 $ .19 $ .19 $ .18
Net realized and unrealized investment gain (loss) ... $(3,768) $3,226 $3,367 $2,945
Per Common Share ................................... $ (.29) $ .25 $ .26 $ .22
For Quarters Ended in the Year 1996
------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
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>
11
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
The Fund's financial highlights are presented below. "Per share operating
performance" data is designed to allow investors to trace the operating
performance, on a per Common share basis, from the beginning net asset value to
the ending net asset value, so that investors 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.
"Total investment return" measures the Fund's performance assuming that
investors purchased Fund shares at market value or net asset value as of the
beginning of the period, invested 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 or net asset value 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 ratios of expenses and net investment income to average net assets and
to average net assets for Common Stock, for all the years presented, do not
reflect the effect of dividends paid to Preferred Stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ....................... $12.16 $12.51 $11.54 $13.14 $12.45
------- ------- ------- ------- -------
Net investment income .................................... 0.96 1.02 1.03 1.05 1.05
Net realized and unrealized investment gain (loss) ....... 0.44 (0.29) 1.11 (1.61) 0.85
------- ------- ------- ------- -------
INCREASE (DECREASE) FROM INVESTMENT
OPERATIONS ............................................ 1.40 0.73 2.14 (0.56) 1.90
Dividends paid on Preferred Stock ........................ (0.21) (0.20) (0.23) (0.17) (0.15)
Dividends paid on Common Stock ........................... (0.84) (0.84) (0.84) (0.84) (0.84)
Distribution from net realized gain ...................... (0.18) (0.04) (0.10) (0.03) (0.22)
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN NET ASSET VALUE ............... 0.17 (0.35) 0.97 (1.60) 0.69
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ............................. $12.33 $12.16 $12.51 $11.54 $13.14
======= ======= ======= ======= =======
MARKET VALUE, END OF YEAR ................................ $13.9375 $12.50 $12.50 $10.50 $13.00
========= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:
Based upon market value .................................. 20.97% 7.49% 28.58% (13.05)% 10.55%
Based upon net asset value ............................... 10.01% 4.48% 17.09% (5.46)% 14.44%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net investment assets ................ 0.90% 0.86% 0.91% 0.90% 0.92%
Expenses to average net assets for Common Stock .......... 1.32% 1.27% 1.34% 1.32% 1.33%
Net investment income to average net
investment assets ..................................... 5.35% 5.70% 5.74% 5.84% 5.58%
Net investment income to average net assets for
Common Stock .......................................... 7.87% 8.40% 8.45% 8.60% 8.06%
Portfolio turnover ....................................... 27.83% 21.74% 13.37% 10.74% 15.83%
NET INVESTMENT ASSETS, END OF YEAR (000s omitted):
For Common Stock ......................................... $162,985 $159,399 $162,953 $150,100 $170,645
For Preferred Stock ...................................... 75,000 75,000 75,000 75,000 75,000
-------- -------- -------- -------- --------
TOTAL NET INVESTMENT ASSETS .............................. $237,985 $234,399 $237,953 $225,100 $245,645
======== ======== ======== ======== ========
</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, 1997, 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 years in the
five-year period then ended. 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, 1997, 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, 1997, 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 30, 1998
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, or 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, 1997, 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, 1997.
15
<PAGE>
================================================================================
BOARD OF DIRECTORS
JOHN R. GALVIN 2
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, Raytheon Company
DIRECTOR, USLIFE Corporation
ALICE S. ILCHMAN 3
PRESIDENT, Sarah Lawrence College
TRUSTEE, Committee for Economic Development
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON 2
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW
RETIRED CHAIRMAN AND SENIOR PARTNER,
Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Industries, Inc.
BETSY S. MICHEL 2
TRUSTEE, Geraldine R. Dodge Foundation
CHAIRMAN OF THE BOARD OF TRUSTEES,
St. George's School
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
RETIRED PARTNER,
Pitney, Hardin, Kipp & Szuch, Law Firm
JAMES Q. RIORDAN 3
DIRECTOR, The Brooklyn Union Gas Company
TRUSTEE, Committee for Economic Development
DIRECTOR, Dow Jones & Co., Inc.
DIRECTOR, Public Broadcasting Service
RICHARD R. SCHMALTZ 1
MANAGING DIRECTOR,
J. & W. Seligman & Co. Incorporated
TRUSTEE EMERITUS, Colby College
ROBERT L. SHAFER 3
RETIRED VICE PRESIDENT, Pfizer Inc.
DIRECTOR, USLIFECorporation
JAMES N. WHITSON 2
EXECUTIVE VICE PRESIDENT AND DIRECTOR,
Sammons Enterprises, Inc.
DIRECTOR, CommScope, Inc.
DIRECTOR, C-SPAN
BRIAN T. ZINO 1
PRESIDENT, J. & W. Seligman & Co. Incorporated
CHAIRMAN, Seligman Data Corp.
DIRECTOR EMERITUS
FRED E. BROWN
DIRECTOR AND CONSULTANT,
J. & W. Seligman & Co. Incorporated
- ---------------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
16
<PAGE>
================================================================================
EXECUTIVE OFFICERS
WILLIAM C. MORRIS AUDREY G. KUCHTYAK THOMAS G. ROSE
CHAIRMAN VICE PRESIDENT TREASURER
THOMAS G. MOLES LAWRENCE P. VOGEL FRANK J. NASTA
PRESIDENT VICE PRESIDENT SECRETARY
EILEEN A. COMERFORD
VICE PRESIDENT
- -------------------------------------------------------------------------------
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
(212) 682-7600 Outside the Continental United States
(800) 622-4597 24-Hour Automated
Telephone Access Service
17
<PAGE>
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
SELIGMAN
==========================
SELECT
==========================
MUNICIPAL
FUND, INC.
[LOGO]
ANNUAL REPORT
DECEMBER 31, 1997
