SELIGMAN
========================
SELECT
========================
MUNICIPAL
FUND, INC.
[GRAPHIC]
[J. & W. SELIGMAN & CO. LOGO]
Annual Report
December 31, 1999
Seligman Select Municipal Fund, Inc.
Managed by
[J. & W. SELIGMAN & CO. LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
Photo: Courtesy Michigan Travel Bureau
CESEL2 12/99
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To the Stockholders
The fiscal year ended December 31, 1999 was one of the most difficult ever for
the fixed-income markets and for Seligman Select Municipal Fund, and investment
results were thus disappointing. It is important to realize that the Fund
responded to last year's environment similarly to other fixed-income
investments. When interest rates move higher, as they did dramatically last
year, the value of fixed-income securities fall, producing negative rates of
return.
The past year was one of transition for international and domestic
financial markets. In 1998, many market observers feared that the US would be
unable to withstand the global financial crisis and would itself be pulled into
a recession. The US Federal Reserve Board reacted by lowering the federal funds
rate three times during that year. This response, combined with similar actions
by central banks around the world, was successful and allowed global economies
to recover.
The US not only avoided recession, but economic growth continued to be
robust. As economic activity around the world accelerated, the US Federal
Reserve Board became concerned that the ongoing strength of the US economy,
combined with the looser monetary policy of 1998, would produce inflationary
pressures. This led the Fed to increase the federal funds rate three times
during 1999, reversing all of 1998's rate cuts. So far in 2000, there has been
one 25 basis point rate increase by the Fed.
The Fed's more restrictive policy, along with increased inflation concerns
in the market, drove bond yields steadily higher during the year. The 30-year US
government bond yield increased by nearly 140 basis points over the course of
the year. The municipal market mostly avoided this turmoil during the first half
of the year, and yields and prices remained fairly stable. A slowdown in
new-issue supply and already high relative yields for these bonds kept the
municipal market from falling as much as the Treasury market. By the end of the
fiscal year, however, municipal yields had risen to 6%, up from 5% at the
beginning of the year.
We believe that the US economy will begin to slow as the year progresses,
in line with stated Federal Reserve Board policy. This should allow interest
rates to stabilize and perhaps to fall modestly. Municipal bonds remain
attractive for many investors and currently offer after-tax yields that are very
competitive with taxable bonds. For example, the taxable-equivalent yield for
municipal bonds, as measured by the Bond Buyer 20 Bond Index, was 9.93% at year
end for investors in the top federal tax bracket of 39.6%. At this time, the
30-year US Treasury bond was yielding 6.44%. We are also optimistic about the
municipal market because the strong economy has allowed many states, cities, and
municipalities to improve their financial conditions, and thus improve credit
ratings for their bonds.
We thank you for your continued support of 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,
financial statements and performance history, follow this letter.
By order of the Board of Directors,
/s/ William C. Morris /s/ Thomas G. Moles
- --------------------- -------------------
William C. Morris Thomas G. Moles
Chairman President
February 4, 2000
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
[GRAPHIC]
SELIGMAN MUNICIPALS TEAM: (STANDING FROM LEFT) AUDREY KUCHTYAK, THERESA BARTON,
DEBRA McGUINNESS, (SEATED) EILEEN COMERFORD, THOMAS G. MOLES (PORTFOLIO MANAGER)
WHAT ECONOMIC AND MARKET FACTORS AFFECTED SELIGMAN SELECT MUNICIPAL FUND'S
PERFORMANCE OVER THE PAST FISCAL YEAR?
Interest rates rose sharply throughout 1999, making it one of the most
difficult years ever for fixed-income investments, including Seligman Select
Municipal Fund. As 1999 began, the outlook for bonds was positive, but
progressively worsened during the year. At the start of 1999, market experts
predicted that economic growth would slow, thus quelling inflation fears and
pushing interest rates lower. However, as the year progressed, the economy
proved remarkably strong, spurred by improving overseas markets, confident
consumers, and low unemployment. The strength of the economy caused the Federal
Reserve Board to raise the federal funds rate three times during the year,
pushing yields on US Treasury bonds steadily higher. By December 31, 1999, the
30-year Treasury bond was yielding almost 6.5%, the highest level since
September 1997. In contrast, yields on long-term municipal bonds remained
relatively stable through most of the first half of 1999. A combination of
slowing municipal supply and attractive yields on a relative basis prevented
municipal yields from increasing to the same extent as Treasury yields. By the
second half of 1999, however, investors had become increasingly concerned that
interest rates would need to rise significantly in order to slow economic
activity, and municipal yields began to rise sharply, at times outpacing the
increase in Treasury yields. By year-end, municipal yields had risen to 6%, the
highest level in over three-and-a-half years.
WHAT WAS YOUR STRATEGY DURING THE YEAR?
In February 2000, Seligman Select Municipal Fund will celebrate its tenth
anniversary. When the Fund was introduced, municipal bond yields were
significantly higher than they are today. The higher-coupon bonds purchased
during the Fund's early years are either currently callable or approaching their
optional call dates. During the past year, we tried to mitigate the reinvestment
risk posed by bond calls by gradually reducing the percentage of holdings with
near-term call exposure. We reinvested bond sale proceeds at the higher market
yields available during the year, thereby lessening the impact on the Fund's
income distribution. As a result of this strategy, however, Seligman Select
Municipal Fund's net asset value declined more than it would have had short-call
bonds not been sold. Higher-coupon, short-call bonds are defensive securities,
and are thus less sensitive to changes in interest rates.
2
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WERE THERE ANY SECTOR-SPECIFIC ISSUES THAT CONCERNED YOU DURING THE FISCAL YEAR?
Seligman Select Municipal Fund remains well diversified among the major
sectors of the municipal marketplace. All sectors remain stable-to-improving
with the exception of health care, which is vulnerable to further credit-quality
deterioration mainly as a result of government cutbacks and the growth of
managed care. Many well-managed health care providers that have achieved
consistently sound finances are suddenly facing serious budget deficits. As a
result of this alarming trend, we have been particularly diligent in monitoring
the Fund's health care holdings. However, despite the current situation, the
health care sector continues to offer selective opportunities. Through in-depth
credit analysis, we endeavor to identify strong health care credits for
inclusion in the Fund's portfolio.
A NUMBER OF MARKET EXPERTS EXPECT THAT INTEREST RATES WILL CONTINUE TO RISE.
WHAT EFFECT WOULD SUCH AN ENVIRONMENT HAVE ON SELIGMAN SELECT MUNICIPAL FUND?
It is our opinion that long-term municipal yields are at or near their
highs. However, until the economy exhibits conclusive signs of slowing, rising
interest rates remain a possibility. Increasing interest rates erode the value
of fixed-income investments, including those held by Seligman Select Municipal
Fund. However, several factors should help to mitigate the impact of higher
interest rates on the value of the Fund's holdings. Despite having reduced
positions of defensive short-call bonds, the Fund still contains substantial
positions in these bonds. Additionally, the Fund is comprised mostly of
triple-A-rated municipal bonds. (Seligman Select Municipal Fund must maintain a
minimum of 80% of the portfolio in triple-A-rated bonds.) In general,
higher-quality bonds outperform lower-quality bonds during periods of rising
interest rates. Finally, any increase in long-term municipal yields is likely to
be tempered by an anticipated slowdown in municipal issuance, comparable to what
occurred during the first half of 1999, and should lessen the impact of rising
rates on the municipal market.
WHAT CURRENT FACTORS BODE WELL FOR THE MUNICIPAL MARKET FOR THE COMING FISCAL
YEAR?
The positive aspects of the municipal market have been overshadowed by last
year's rise in interest rates, which resulted in disappointing investment
returns. Nevertheless, municipal bond funds remain an appropriate investment
vehicle for many investors, continuing to offer attractive yields compared to
the after-tax returns of taxable bond funds. Municipal funds also provide an
attractive yield advantage relative to inflation, which has remained stable for
most of the past decade. Further, the credit quality of the nation's states,
cities, and municipalities continues to improve with many municipal issuers
reporting record budget surpluses for the year. During 1999, credit-rating
upgrades significantly outnumbered downgrades. Lastly, should equity market
returns disappoint in the months ahead, the municipal market's record of
relative safety and stability may begin to look more appealing to investors.
3
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INVESTMENT RESULTS PER COMMON SHARE
TOTAL RETURNS*
For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Average Annual
----------------------------------
Since
Three One Five Inception
Months Year Years 2/15/90
------ ---- ----- ---------
<S> <C> <C> <C> <C>
Market Price** (6.03)% (23.76)% 4.28% 4.46%
Net Asset Value** (2.97) (7.42) 5.92 7.08
<CAPTION>
PRICE PER SHARE
December 31, September 30, June 30, March 31, December 31,
1999 1999 1999 1999 1998
------------ ------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Market Price $ 8.9375 $ 9.75 $10.875 $12.00 $12.5625
Net Asset Value 10.62 11.22 11.67 12.20 12.29
<CAPTION>
DIVIDEND AND CAPITAL GAIN INFORMATION
For the Year Ended December 31, 1999
Capital Gain (Loss)
------------------------------------
Dividends Paid+ Paid Realized Unrealized
-------------- ---- -------- ----------
<S> <C> <C> <C> <C>
$0.648 $0.066 $0.070 $(0.416)++
</TABLE>
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at December 31, 1999,
was 7.25%, which is equivalent to a taxable yield of 12.00% 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.
* 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
2.995% to 3.95%. 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 depreciation of portfolio
securities as of December 31, 1999.
4
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PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
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FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALABAMA--5.8% $10,000,000 Jefferson County Sewer Rev.
(Capital Improvement Warrants),
5.125% due 2/1/2039................................. Aaa/AAA $ 8,336,800
5,000,000 McIntosh Industrial Development Board,
Environmental Facilities Rev. (CIBA Specialty
Chemicals), 5.375% due 6/1/2028..................... A2/AA- 4,293,800
ALASKA--2.3% 4,700,000 Alaska Housing Finance Corp. (Collateralized
Home Mortgage Rev.), 7.65% due 6/1/2024............. Aaa/AAA 4,873,524
CALIFORNIA--17.1% 9,130,000 California Pollution Control Financing Authority
Sewage and Solid Waste Disposal Facilities
Rev. (Anheuser-Busch Project),
5.75% due 12/1/2030*................................ A1/A+ 8,567,135
4,100,000 Foothill/Eastern Transportation Corridor Agency
Toll Road Rev., 5.75% due 1/15/2040................. Baa3/BBB- 3,641,210
4,000,000 San Diego Public Facilities Financing Authority
Sewer Rev. Series 1999-A,
5% due 5/15/2029.................................... Aaa/AAA 3,401,880
5,700,000 San Diego Public Facilities Financing Authority
Sewer Rev. Series 1999-B,
5% due 5/15/2029.................................... Aaa/AAA 4,847,679
10,000,000 San Francisco City and County Airports
Commission Rev. (International Airport),
6.30% due 5/1/2025*................................. Aaa/AAA 10,095,200
6,000,000 San Joaquin Hills Transportation Corridor Agency
Rev. (Orange County Senior Lien Toll Road),
6.75% due 1/1/20320................................. Aaa/AAA 6,485,220
DELAWARE--2.4% 5,000,000 Delaware Economic Development Authority
Exempt Facilities Rev. (Delmarva Power and
Light Co. Project), 7.60% due 3/1/2020*............. Aaa/AAA 5,123,250
FLORIDA--0.7% 1,405,000 Florida Housing Finance Agency (Home Ownership
Rev.), 7.90% due 3/1/2022*.......................... Aaa/NR 1,448,667
GEORGIA--3.6% 8,000,000 Georgia Housing and Finance
Authority (Single Family Mortgage),
6.10% due 6/1/2031.................................. NR/AAA 7,701,360
ILLINOIS--3.0% 7,500,000 Chicago GOs, 5.25% due 1/1/2028....................... Aaa/AAA 6,514,200
INDIANA--2.4% 5,000,000 Indiana Employment Development Commission
Environmental Rev. (Public Service Company of
Indiana Inc.), 7.50% due 3/15/2015*................. Aaa/AAA 5,127,150
LOUISIANA--4.8% 8,940,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project), 8%
due 5/15/2012++..................................... NR/AAA 10,266,696
MASSACHUSETTS--1.9% 4,000,000 Massachusetts Bay Transportation Authority General
Transportation System Rev., 5.625% due 3/1/2026o.... Aaa/AAA 4,164,360
</TABLE>
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See footnotes on page 7.
5
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PORTFOLIO OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
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FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MICHIGAN--0.8% $ 2,000,000 Kalamazoo Hospital Finance Authority Rev.
(Bronson Methodist Hospital),
5.50% due 5/15/2028................................. Aaa/NR $ 1,792,720
NEVADA--3.3% 7,000,000 Clark County Industrial Development Rev. (Nevada
Power Company Project), 7.80% due 6/1/2020*......... Aaa/AAA 7,226,660
NEW JERSEY--3.8% 7,000,000 New Jersey Economic Development Authority
Water Facilities Rev. (American Water Co. Inc.),
5.375% due 5/1/2032*................................ Aaa/AAA 6,185,760
2,000,000 New Jersey Educational Facilities Authority Rev.
(Princeton University), 6% due 7/1/20240............ Aaa/AAA 2,098,580
NEW YORK--9.6% 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 10,050,100
10,000,000 New York State Thruway Authority General Rev.,
6% due 1/1/20250.................................... Aaa/AAA 10,644,200
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.), 5.75% due 12/1/2022*......................... Aaa/AAA 6,220,760
OHIO--1.5% 2,895,000 Cleveland Waterworks Improvement First
Mortgage Rev., 5.75% due 1/1/20210.................. Aaa/AAA 3,060,247
105,000 Cleveland Waterworks Improvement First
Mortgage Rev., 5.75% due 1/1/2021................... Aaa/AAA 102,011
PENNSYLVANIA--7.1% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010*......... Aaa/AAA 2,620,175
3,000,000 Lehigh County Industrial Development Authority
Pollution Control Rev. (Pennsylvania Power &
Light Company Project), 6.15% due 8/1/2029.......... Aaa/AAA 2,983,620
10,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025*....... Aaa/AAA 9,784,800
SOUTH CAROLINA--2.0% 5,000,000 South Carolina Ports Authority Rev.,
5.30% due 7/1/2026*................................. Aaa/AAA 4,297,950
TENNESSEE--3.8% 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- 8,213,120
TEXAS--7.4% 4,000,000 Houston Higher Education Finance Corporation Rev.
(Rice University Project), 5.375% due 11/15/2029.... Aaa/AAA 3,563,240
5,000,000 Lower Neches Valley Authority Industrial
Development Corp. Sewer Facilities Rev. (Mobil
Oil Refining Corp. Project), 6.40% due 3/1/2030*.... Aaa/AAA 5,019,350
7,500,000 Matagorda County Navigation District No. 1
Pollution Control Rev. (Central Power and Light
Co. Project), 6.125% due 5/1/2030*.................. Aaa/AAA 7,322,625
VIRGINIA--1.9% 5,000,000 Pocahontas Parkway Association Toll Road Rev.
(Route 895 Connector), 5.50% due 8/15/2028.......... Baa3/BBB- 4,077,650
</TABLE>
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See footnotes on page 7.
6
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DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WASHINGTON--9.1% $ 4,795,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.),
6.25% due 7/1/2017*................................. Aaa/AAA $ 4,860,068
5,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.),
6.35% due 7/1/2028*................................. Aaa/AAA 5,015,200
10,000,000 King County Sewer GOs, 6.125% due 1/1/2033............ Aaa/AAA 9,895,200
------------
TOTAL MUNICIPAL BONDS (Cost $215,448,580)--97.2%.............................................. 209,922,167
VARIABLE RATE DEMAND NOTES (Cost $2,400,000)--1.1%............................................ 2,400,000
OTHER ASSETS LESS LIABILITIES--1.7%........................................................... 3,719,928
------------
Net Investment Assets-- 100.0%................................................................ $216,042,095
============
</TABLE>
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+ Ratings have not been audited by Deloitte & Touche LLP.
++ Escrowed-to-maturity security.
* Interest income earned from this security is subject to the federal
alternative minimum tax.
o Pre-refunded security.
See Notes to Financial Statements.
7
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STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Investments at value:
Long-term holdings (cost $215,448,580)....................................... $209,922,167
Short-term holdings (cost $2,400,000)........................................ 2,400,000 $212,322,167
------------
Cash............................................................................................. 275,834
Interest receivable.............................................................................. 3,725,248
Expenses prepaid to stockholder service agent.................................................... 14,590
Other............................................................................................ 5,238
------------
TOTAL ASSETS..................................................................................... 216,343,077
------------
LIABILITIES:
Accrued expenses and other....................................................................... 300,982
------------
NET INVESTMENT ASSETS 216,042,095
Preferred Stock.................................................................................. 75,000,000
------------
NET ASSETS FOR COMMON STOCK...................................................................... $141,042,095
============
NET ASSETS PER SHARE OF COMMON STOCK (Market Value $8.9375)...................................... $10.62
======
COMPOSITION OF NET INVESTMENT ASSETS:
Preferred Stock Series A, $.01 par value, liquidation preference and asset
coverage per share--$100,000 and $288,056, 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 $288,056, respectively; Shares authorized,
issued and
outstanding--375.............................................................................. 37,500,000
Common Stock, $.01 par value: Shares authorized--49,999,250; issued and
outstanding--13,278,164....................................................................... 132,782
Additional paid-in capital....................................................................... 146,045,993
Undistributed net investment income.............................................................. 336,045
Undistributed net realized gain.................................................................. 53,688
Net unrealized depreciation of investments....................................................... (5,526,413)
------------
NET INVESTMENT ASSETS............................................................................ $216,042,095
============
</TABLE>
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See Notes to Financial Statements.
8
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STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
INTEREST......................................................................................... $ 13,482,540
EXPENSES:
Management fee................................................................. $ 1,263,720
Stockholder account, transfer, and registrar services.......................... 206,007
Preferred stock remarketing fee................................................ 187,500
Auditing and legal fees........................................................ 68,826
Stockholder reports and communications......................................... 57,509
Stockholders' meeting.......................................................... 37,168
Custody and related services................................................... 35,849
Directors' fees and expenses................................................... 33,007
Miscellaneous.................................................................. 67,506
-------------
TOTAL EXPENSES................................................................................... 1,957,092
------------
NET INVESTMENT INCOME............................................................................ 11,525,448*
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................................... 929,454
Net change in unrealized appreciation of investments........................... (22,625,094)
-------------
NET LOSS ON INVESTMENTS.......................................................................... (21,695,640)
------------
DECREASE IN NET INVESTMENT ASSETS FROM OPERATIONS................................................ $(10,170,192)
============
</TABLE>
- ---------------
* Net investment income available for Common Stock is $8,996,666, which is net
of Preferred Stock dividends.
See Notes to Financial Statements.
9
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STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 11,525,448 $ 11,919,890
Net realized gain on investments ................................... 929,454 1,430,172
Net change in unrealized appreciation of investments ............... (22,625,094) 602,983
------------- -------------
INCREASE (DECREASE) IN NET INVESTMENT ASSETS FROM OPERATIONS ....... (10,170,192) 13,953,045
------------- -------------
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income:
Preferred Stock, Series A (per share: $3,422.15 and $3,894.95)... (1,283,306) (1,460,606)
Preferred Stock, Series B (per share: $3,321.27 and $3,520.69)... (1,245,476) (1,320,259)
Common Stock (per share: $0.648 and $0.737) ..................... (8,602,132) (9,755,973)
------------- -------------
Total ........................................................... (11,130,914) (12,536,838)
Dividends in excess of net investment income:
Common Stock (per share: $0.031) ................................ -- (416,270)
Net realized gain on investments:
Common Stock (per share: $0.066 and $0.108) ..................... (875,766) (1,431,625)
------------- -------------
DECREASE IN NET INVESTMENT ASSETS FROM DISTRIBUTIONS ............... (12,006,680) (14,384,733)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Value of shares of Common Stock issued for investment plan
(57,232 and 64,241 shares) ...................................... 601,560 793,243
Value of shares of Common Stock issued in payment of gain
distribution (16,012 and 18,595 shares) ......................... 145,909 227,975
Cost of shares purchased for investment plan
(74,300 and 26,400 shares) ...................................... (777,534) (325,032)
------------- -------------
INCREASE (DECREASE) IN NET INVESTMENT ASSETS FROM
CAPITAL SHARE TRANSACTIONS ...................................... (30,065) 696,186
------------- -------------
INCREASE (DECREASE) IN NET INVESTMENT ASSETS ....................... (22,206,937) 264,498
NET INVESTMENT ASSETS:
Beginning of year .................................................. 238,249,032 237,984,534
------------- -------------
ENDOF YEAR (including undistributed net investment income and dividends in
excess of net investment income of $336,045 and
$(58,489), respectively) ........................................ $ 216,042,095 $ 238,249,032
============= =============
</TABLE>
- ---------------
See Notes to Financial Statements.
10
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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,
1999, amounted to $37,570,210 and $37,423,408, respectively.
At December 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes, and the tax basis gross unrealized appreciation and depreciation of
portfolio securities amounted to $4,226,193 and $9,752,606, respectively.
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, 1999, 74,300 shares were purchased
in the open market at a cost of $777,534, which represented a weighted average
discount of 8.86% from the net asset value of those acquired shares. A total of
57,232 shares were issued to Plan participants during the period for proceeds of
$601,560, a weighted average discount of 10.20% from the net asset value of
those shares.
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
11
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (continued)
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. The liquidation preference of the
Preferred Stock is $100,000 per share plus accumulated and unpaid dividends.
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 the Fund at cost $155,917 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. Directors may elect to have their
deferred fees accrue interest or earn a return based on the performance of the
Fund or other funds in the Seligman Group of Investment Companies. The cost of
such fees and earnings accrued thereon is included in directors' fees and
expenses, and the accumulated balance thereof at December 31, 1999, of $65,955
is included in other liabilities. Deferred fees and related accrued earnings are
not deductible for federal income tax purposes until such amounts are paid.
12
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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, based on average shares
outstanding.
"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 the years presented, do not reflect
the effect of dividends paid to Preferred Stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR......................... $12.29 $12.33 $12.16 $12.51 $11.54
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... 0.87 0.90 0.96 1.02 1.03
Net realized and unrealized investment gain (loss)......... (1.63) 0.15 0.44 (0.29) 1.11
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS........................... (0.76) 1.05 1.40 0.73 2.14
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends paid from net investment income
on Preferred Stock...................................... (0.19) (0.21) (0.21) (0.20) (0.23)
Dividends paid from net investment income
on Common Stock......................................... (0.65) (0.74) (0.84) (0.84) (0.84)
Dividends in excess of net investment income paid
on Common Stock......................................... -- (0.03) -- -- --
Distributions from net realized gain....................... (0.07) (0.11) (0.18) (0.04) (0.10)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS........................................ (0.91) (1.09) (1.23) (1.08) (1.17)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR............................... $10.62 $12.29 $12.33 $12.16 $12.51
====== ====== ====== ====== ======
MARKET VALUE, END OF YEAR.................................. $ 8.9375 $12.5625 $13.9375 $12.50 $12.50
======== ======== ======== ====== ======
TOTAL INVESTMENT RETURN:
Based upon market value.................................... (23.76)% (3.28)% 20.97% 7.49% 28.58%
Based upon net asset value................................. (7.42)% 6.98% 10.01% 4.48% 17.09%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net investment assets.................. 0.85% 0.88% 0.90% 0.86% 0.91%
Expenses to average net assets for Common Stock............ 1.26% 1.28% 1.32% 1.27% 1.34%
Net investment income to average net
investment assets....................................... 5.02% 5.00% 5.35% 5.70% 5.74%
Net investment income to average net assets for
Common Stock............................................ 7.45% 7.29% 7.87% 8.40% 8.45%
Portfolio turnover......................................... 16.72% 16.85% 27.83% 21.74% 13.37%
NET INVESTMENT ASSETS, END OF YEAR (000s omitted):
FOR COMMON STOCK........................................... $141,042 $163,249 $162,985 $159,399 $162,953
FOR PREFERRED STOCK........................................ 75,000 75,000 75,000 75,000 75,000
-------- -------- -------- -------- --------
TOTAL NET INVESTMENT ASSETS................................ $216,042 $238,249 $237,985 $234,399 $237,953
======== ======== ======== ======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
13
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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, 1999, 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, 1999,
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 referred to
above present fairly, in all material respects, the financial position of
Seligman Select Municipal Fund, Inc. as of December 31, 1999, 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
February 4, 2000
14
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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"), P.O. Box 9759, Providence, RI02940-9759.
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, 1999, the Fund purchased 74,300 shares 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
15
<PAGE>
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DIVIDEND INVESTMENT PLAN
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' accounts in the Plan
not held by DTC, and furnish written confirmation of all transactions in the
accounts, 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, 1999.
16
<PAGE>
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BOARD OF DIRECTORS
JOHN R. GALVIN 2, 4
Dean, Fletcher School of Law and Diplomacy
at Tufts University
Director, Raytheon Company
ALICE S. ILCHMAN 3, 4
Trustee, Committee for Economic Development
Chairman, The Rockefeller Foundation
FRANK A. MCPHERSON 2, 4
Director, Kimberly-Clark Corporation
Director, Baptist Medical Center
Director, Conoco Inc.
JOHN E. MEROW 2, 4
Retired Chairman and Senior Partner,
Sullivan & Cromwell, Law Firm
Director, Commonwealth Industries, Inc.
Director, New York Presbyterian Hospital
BETSY S. MICHEL 2, 4
Trustee, The Geraldine R. Dodge Foundation
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, 4
Retired Partner,
Pitney, Hardin, Kipp & Szuch, Law Firm
JAMES Q. RIORDAN 3, 4
Director, The Brooklyn Union Gas Company
Trustee, Committee for Economic Development
Director, Public Broadcasting Service
RICHARD R. SCHMALTZ 1
Managing Director, Director of Investments,
J. & W. Seligman & Co. Incorporated
Trustee Emeritus, Colby College
ROBERT L. SHAFER 3, 4
Retired Vice President, Pfizer Inc.
JAMES N. WHITSON 2, 4
Director and Consultant,
Sammons Enterprises, Inc.
Director, C-SPAN
Director, CommScope, Inc.
BRIAN T. ZINO 1
President, J. & W. Seligman & Co. Incorporated
Chairman, Seligman Data Corp.
Director, ICI Mutual Insurance Company
Member of the Board of Governors,
Investment Company Institute
DIRECTOR EMERITUS
Fred E. Brown
Director and Consultant,
J. & W. Seligman & Co. Incorporated
- ---------------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
4 Board Operations Committee
17
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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
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
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 United States
(800) 622-4597 24-Hour Automated
Telephone Access Service
18
