Seligman
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SELECT
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Municipal
Fund, Inc.
[photo]
Seligman Select Municipal Fund, Inc. [GRAPHIC OMITTED]
Managed by
[GRAPHIC OMITTED] First Quarter Report
J. & W. SELIGMAN & CO. March 31, 1999
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
Photo: Courtesy Michigan Travel Bureau
CESEL3a 3/99
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TO THE STOCKHOLDERS
During Seligman Select Municipal Fund's first fiscal quarter of 1999, the US
economy remained strong. Consumer confidence continued to be a powerful, and
often underestimated, economic force as a result of high employment and
increasing asset prices.
During this three-month period, an unexpected acceleration in economic
activity led to concerns that inflation might reappear, pushing Treasury yields
significantly higher. Treasury bond yields fluctuated within a range of 63 basis
points while municipal bond yields remained relatively stable, fluctuating
within a much narrower range of 18 basis points.
During 1998, yield spreads between municipal bonds and Treasuries were
unprecedentedly narrow. However, this has begun to reverse and, during the first
quarter, yield spreads between municipal bonds and Treasury bonds began to widen
to a more historically normal range. We believe that this will continue and, as
it does, the performance of the municipal market should improve relative to the
Treasury market.
The ongoing economic expansion in the US continued to benefit the municipal
bond market during the period under review. Municipal bond issuers have been
able to improve their financial situations and, for the fourth year in a row,
there were more credit-rating upgrades than downgrades. We expect that this
positive trend will continue.
The Fund's manager, J. & W. Seligman & Co. Incorporated, continues to work to
ensure that all of its operations are prepared for the challenges posed by the
Year 2000 (Y2K) computer issue. We are confident that there will be no
disruption in the investment and shareholder services provided by the Fund as a
result of Y2K. In addition, your portfolio management team considers the
potential ramifications of Y2K when making decisions on which securities should
be held by the Fund.
We appreciate your confidence in Seligman Select Municipal Fund and look
forward to serving your investment needs for 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 C. Morris
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William C. Morris
Chairman
/s/ Thomas G. Moles
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Thomas G. Moles
President
April 30, 1999
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
[PHOTO]
Seligman Municipals Team: (standing from left)
Audrey Kuchtyak, Theresa Barion, Debra
McGuinness, (seated) Eileen Comerford,
Thomas G. Moles (Portfolio Manager)
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED SELIGMAN SELECT MUNICIPAL FUND OVER
THE LAST THREE MONTHS?
The municipal market remained stable over the past three months, in contrast
to the volatile US Treasury market. Long-term municipal interest rates
fluctuated within a narrow trading range of just 18 basis points, while the
30-year Treasury bond experienced a considerably wider yield range of 63 basis
points. The sharp increase in Treasury yields was due mostly to an unexpected
acceleration in economic activity, which prompted renewed concerns over the
sustainability of low inflation.
During 1998, historically low interest rates led to a surge in municipal new
issue volume. This increase in supply caused the yield spread between municipal
bonds and Treasury bonds to narrow, making municipals particularly attractive.
For a brief period in October, long-term municipal yields actually exceeded
long-term Treasury yields, an unusual occurrence given the tax advantages of
municipal ownership. During the first three months of 1999, municipal new issue
volume slowed from its robust pace. As a result, the yield spread between
municipal bonds and Treasury bonds has been widening. As yield spreads normalize
going forward, the performance of the municipal market should improve relative
to the Treasury market.
The US economy has entered its ninth year of economic expansion and the
financial condition of the nation's states, cities, and municipalities has been
steadily improving. For the fourth year in a row, credit-rating upgrades
exceeded downgrades. This positive trend is expected to continue in the months
ahead with the possible exception of healthcare bonds, whose issuers have been
experiencing increased financial and operating pressures.
WHAT WAS YOUR INVESTMENT STRATEGY?
Our investment strategy has been consistent with our positive outlook for the
economy and long-term interest rates. Purchases for the quarter consisted of
municipal bonds with maturities of 30 to 40 years. In general, the longer the
maturity of a municipal bond, the higher the yield. Additionally, longer-term
bonds offer the greatest opportunity for price appreciation during periods of
declining interest rates. (Conversely, in periods of rising interest rates,
long-term bonds depreciate more than shorter-term bonds.) During the past three
months, long-term municipal yields rose slightly, resulting in a decline of less
than 1% of Seligman Select Municipal Fund's net asset value.
All new purchases were triple "A" insured bonds due to the prevailing narrow
yield spread between high-quality and lower-quality bonds. Lower-quality bonds
do not currently offer enough additional yield to compensate for the increased
credit risk. For the quarter, insured bonds outperformed lower-quality bonds.
Further, we have concentrated new purchases in the essential service sector,
which includes transportation, water and sewer, and higher education bonds.
Overall, essential service bonds have a predictable revenue stream and a
positive credit outlook. The credit quality of the portfolio's holdings is of
paramount
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
importance. Therefore, all municipal bonds, including triple "A" insured bonds,
must meet our credit criteria before we approve them for purchase. In addition,
we continually monitor the issuers of our portfolio holdings to ensure that they
remain financially sound.
The lower interest-rate environment has increased the likelihood that
municipal issuers will act to reduce their interest costs by redeeming their
higher-coupon callable bonds. (A callable bond can be redeemed by the issuer,
prior to maturity, at specified prices and at predetermined dates.) In our
ongoing effort to extend the call protection of the Fund, we have reduced the
percentage of holdings callable within the next two years. This strategy did
reduce the Fund's investment income. However, by taking a proactive approach, we
can reduce the potential reinvestment risk posed by a further decline in
interest rates.
WHAT IS YOUR OUTLOOK?
The municipal bond market has been the beneficiary of a healthy economy and a
stable rate of inflation, and we anticipate that these favorable market
conditions will continue for the balance of the year. Recently, economic reports
have suggested that economic activity may be strengthening, raising concerns
about an acceleration in the rate of inflation. In response, long-term municipal
yields have inched up modestly. However, we believe that any increase in
long-term yields will be temporary and our outlook remains positive. We
continually monitor economic and market conditions and will revise the Fund's
investment strategy to reflect shifts in market trends.
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INVESTMENT RESULTS PER COMMON SHARE
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TOTAL RETURNS*
For Periods Ended March 31, 1999
Average Annual
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Since
Three One Five Inception
Months Year Years 2/15/90
------ ---- ----- -------
Market Price** (3.14)% 5.36% 7.07% 7.62%
Net Asset Value** 0.64 6.48 7.72 8.68
PRICE PER SHARE
March 31, December 31,
1999 1998
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Market Price $12.00 $12.5625
Net Asset Value 12.20 12.29
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Capital Gain
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Dividends Paid+ Realized Unrealized
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$0.162 $0.028 $1.155++
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at March 31, 1999,
was 5.40%, which is equivalent to a taxable yield of 8.94% based on the maximum
federal tax rate of 39.6%.
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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.
** 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.
+ Preferred Stockholders were paid dividends at annual rates ranging from
3.00% to 3.75%. Earnings on the Fund's assets in excess of the Preferred
dividend requirements constituted dividend income for Common Stockholders.
A portion of dividends paid to Common Stockholders may be taxable as
ordinary income.
++ Represents the per share amount of unrealized appreciation of portfolio
securities as of March 31, 1999.
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PORTFOLIO OF INVESTMENTS (unaudited) March 31, 1999
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Face Ratings
State Amount Municipal Bonds Moody's/S&P Market Value
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<S> <C> <C> <C> <C>
ALABAMA -- 6.3% $10,000,000 Jefferson County Sewer Rev.
(Capital Improvement Warrants),
51/8% due 2/1/2039 ............................... Aaa/AAA $ 9,791,400
5,000,000 Mcintosh Industrial Development Board,
Environmental Facilities Rev. (Cibaspecialty
Chemicals), 53/8% due 6/1/2028 ................... A2/AA- 5,047,700
ALASKA -- 2.8% 6,240,000 Alaska Housing Finance Corp. (Collateralized
Home Mortgage Rev.), 7.65% due 6/1/2024 .......... Aaa/AAA 6,618,331
CALIFORNIA -- 15.6% 9,130,000 California Pollution Control Financing Authority
Sewage and Solid Waste Disposal Facilities
Rev. (Anheuser-Busch Project),
53/4% due 12/1/2030* ............................. A1/A+ 9,619,277
4,000,000 San Diego Public Facilities Financing Authority
Sewer Rev. Series 1999-A,
5% due 5/15/2029 ................................. Aaa/AAA 3,944,600
5,700,000 San Diego Public Facilities Financing Authority
Sewer Rev. Series 1999-B,
5% due 5/15/2029 ................................. Aaa/AAA 5,621,055
0,000,000 San Francisco City and County Airports
Commission Rev. (International Airport),
6.30% due 5/1/2025* .............................. Aaa/AAA 11,003,900
6,000,000 San Joaquin Hills Transportation Corridor Agency
Rev. (Orange County Senior Lien Toll Road),
63/4% due 1/1/2032 ............................... Aaa/AAA 6,766,500
DELAWARE -- 2.2% 5,000,000 Delaware Economic Development Authority
Exempt Facilities Rev. (Delmarva Power and
Light Co. Project), 7.60% due 3/1/2020* .......... Aaa/AAA 5,269,700
FLORIDA -- 2.1% 1,635,000 Florida Housing Finance Agency (Home Ownership
Rev.), 7.90% due 3/1/2022* ....................... Aaa/NR 1,721,164
3,060,000 Orange County Housing Finance Authority
(Mortgage Rev.), 7.80% due 10/1/2022* ............ Aaa/NR 3,174,964
ILLINOIS -- 2.1% 5,000,000 Chicago GOs, 51/4% due 1/1/2028 .................... Aaa/AAA 5,024,900
INDIANA -- 2.2% 5,000,000 Indiana Employment Development Commission
Environmental Rev. (Public Service Company of
Indiana Inc.), 71/2% due 3/15/2015* .............. Aaa/AAA 5,276,550
LOUISIANA -- 4.8% 9,325,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project),
8% due 5/15/2012 ................................. NR/AAA 11,386,571
MASSACHUSETTS -- 4.4% 5,500,000 Massachusetts Bay Transportation Authority General
Transportation System Rev., 55/8% due 3/1/2026 ... Aaa/AAA 6,024,645
4,175,000 Massachusetts Housing Finance Agency Rev.
(Multi-Family Residential Development),
7.65% due 2/1/2028* .............................. Aaa/AAA 4,287,975
</TABLE>
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See footnotes on page 7.
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PORTFOLIO OF INVESTMENTS (unaudited) (continued)
<S> <C> <C> <C> <C>
</TABLE>
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Face Ratings
State Amount Municipal Bonds Moody's/S&P Market Value
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<S> <C> <C> <C> <C>
MICHIGAN -- 0.9% $ 2,000,000 Kalamazoo Hospital Finance Authority Rev.
(Bronson Methodist Hospital), 51/2% due 5/15/2028 ........ Aaa/NR $ 2,077,480
NEVADA -- 3.1% 7,000,000 Clark County Industrial Development Rev. (Nevada
Power Company Project), 7.80% due 6/1/2020* .............. Aaa/AAA 7,450,940
NEW JERSEY -- 4.7% 7,000,000 New Jersey Economic Development Authority
Water Facilities Rev. (American Water Co. Inc.),
53/8% due 5/1/2032* ...................................... Aaa/AAA 7,167,090
2,000,000 New Jersey Educational Facilities Authority Rev.
(Princeton University), 6% due 7/1/2024 .................. Aaa/AAA 2,198,520
1,700,000 New Jersey Housing & Mortgage Finance Agency
(Home Buyer Rev.), 7.70% due 10/1/2029* .................. Aaa/AAA 1,745,628
NEW YORK -- 9.4% 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 10,998,300
10,000,000 New York State Thruway Authority General Rev.,
6% due 1/1/2025 .......................................... Aaa/AAA 11,171,300
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.), 53/4% due 12/1/2022* .............................. Aaa/AAA 6,954,285
OHIO -- 4.4% 5,895,000 Cleveland Waterworks Improvement First
Mortgage Rev., 53/4% due 1/1/2021 ........................ Aaa/AAA 6,560,133
105,000 Cleveland Waterworks Improvement First
Mortgage Rev., 53/4% due 1/1/2021 ........................ Aaa/AAA 111,973
3,675,000 Ohio Housing Finance Agency (Single Family
Mortgage Rev.), 7.65% due 3/1/2029* ...................... NR/AAA 3,763,568
PENNSYLVANIA -- 7.1% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* .............. Aaa/AAA 2,703,375
3,000,000 Lehigh County Industrial Development Authority
Pollution Control Rev. (Pennsylvania Power &
Light Company Project), 6.15% due 8/1/2029 ............... Aaa/AAA 3,320,460
10,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* ........... Aaa/AAA 10,805,000
SOUTH CAROLINA -- 2.1% 5,000,000 South Carolina Ports Authority Rev.,
5.30% due 7/1/2026* ...................................... Aaa/AAA 4,999,550
TENNESSEE -- 3.7% 8,000,000 Humphreys County Industrial Development Board
Solid Waste Disposal Rev. (E.I. duPont de
Nemours & Co. Project), 6.70% due 5/1/2024* .............. Aa3/AA- 8,861,120
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 5,450,650
</TABLE>
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See footnotes on page 7.
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March 31, 1999
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Face Ratings
State Amount Municipal Bonds Moody's/S&P Market Value
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<S> <C> <C> <C> <C>
TEXAS (continued) $ 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 $ 8,136,225
VIRGINIA -- 2.1% 5,000,000 Pocahontas Parkway Association Toll Road Rev.
(Route 895 Connector), 51/2% due 8/15/2028 ................. Baa3/BBB- 4,928,000
WASHINGTON -- 9.2% 4,795,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.),
61/4% due 7/1/2017* ........................................ Aaa/AAA 5,283,515
5,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.),
6.35% due 7/1/2028* ........................................ Aaa/AAA 5,550,150
10,000,000 King County Sewer GOs, 61/8% due 1/1/2033 .................... Aaa/AAA 10,976,800
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Total Municipal Bonds (Cost $216,463,044)-- 97.8% ........................................................... 231,793,294
Variable Rate Demand Notes (Cost $1,300,000)-- 0.5% ......................................................... 1,300,000
Other Assets Less Liabilities-- 1.7% ........................................................................ 3,937,532
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Net Investment Assets-- 100.0% .............................................................................. $237,030,826
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* 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.
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