Seligman Quality Municipal Fund, Inc.
MANAGED BY
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
CESQF3b 4/98
SELIGMAN
-----------------
QUALITY
-----------------
MUNICIPAL
FUND, INC.
[LOGO]
MID-YEAR REPORT
APRIL 30, 1998
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TO THE STOCKHOLDERS
During Seligman Quality Municipal Fund's second quarter, the US economy's
expansion continued unabated and inflation remained virtually nonexistent, which
contributed to the relative stability of the municipal market.
The crisis in the Asian financial markets in 1997 prompted a rally in the US
fixed-income markets. Bond market participants were cautiously optimistic that
the impact of the Asian situation would be sufficient to slow the US economy to
a more acceptable rate of growth. However, economic growth remained vigorous,
and by the Fund's second quarter investors once again became concerned that the
favorable rate of inflation was unsustainable given growing inflationary
pressures apparent in several sectors of the economy.
Nonetheless, the effect of the Asian economic crisis on the US thus far
actually has been to counter inflationary pressures. After months of steady
declines in late 1997, long-term municipal yields reversed direction and began
to trend higher in the past three months. Further, the optimism of municipal
market participants was heightened by the Federal Reserve Board's decision, on
March 31, to maintain current short-term interest rate levels. The Fed's
decision benefited the municipal bond market, and investor sentiment, because it
suggests that the Fed is not overly concerned about the rate of economic growth.
Last year's flight to quality in the Treasury market caused the spread
between municipal bond yields and US Treasury yields to narrow. Further, the
current surge in municipal bond issuance, occurring simultaneously with a
reduction in US Treasury supply, has prevented this yield spread from
normalizing. As a result, municipal bonds yields are at their most attractive
level, compared with US Treasury bonds, since tax reform fears gripped the
municipal market in 1995 and 1996.
Going forward, we remain optimistic regarding the future prospects for the
municipal market and your Fund. The economic expansion has improved the
financial well-being of municipal credits and has increased investor confidence
in the municipal bond market. Finally, 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 higher
federal income tax brackets.
We thank you for your continued interest in Seligman Quality Municipal Fund,
and look forward to serving your investment needs in the many years to come.
Your Fund's investment results, 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
- --------------------
William C. Morris
Chairman
/s/Thomas G. Moles
------------------
Thomas G. Moles
President
May 29, 1998
1
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
[PHOTO]
SELIGMAN MUNICIPALS TEAM: (FROM LEFT) AUDREY KUCHTYAK, THERESA BARION, DEBRA
MCGUINNESS, (SEATED) EILEEN COMERFORD, THOMAS G. MOLES (PORTFOLIO MANAGER)
WHAT ECONOMIC AND MARKET FACTORS AFFECTED SELIGMAN QUALITY MUNICIPAL FUND IN THE
LAST THREE MONTHS?
"In the past three months, the acceleration in the pace of economic growth
re-ignited concerns about inflation, and caused long-term municipal yields to
modestly rise. However, the increase in yields did little to dampen municipal
market optimism, and was generally viewed by investors as a buying opportunity.
"Despite the recent increase in long-term yields, municipal bond yields
remained at attractive levels. Municipal new issue supply has been expanding
sharply, as the nation's states and cities take advantage of the attractive
interest rate environment. Year-to-date, municipal issuance is up 60% versus the
same period last year.
"Further, in a widely anticipated move, the Federal Reserve Board voted on
March 31 to leave the federal funds rate unchanged. While the Fed remains
concerned about the economic expansion's robust pace, it has nevertheless
adopted a "wait-and-see" posture in light of the remarkably favorable inflation
data. Additionally, the possibility exists that the effects of the Asian crisis
could be sufficient to slow the economy to a more acceptable rate of growth,
thus eliminating the need for the Fed to tighten monetary policy."
WHAT WAS YOUR INVESTMENT STRATEGY?
"Our investment strategy reflects our positive outlook for interest rates. We
continue to seek municipal bonds with characteristics that will enhance Seligman
Quality Municipal Fund's performance in a stable, or declining, yield
environment. Additionally, recent purchases have been concentrated in insured,
triple-A rated bonds, as a narrowing of the yield spread between high-quality
and lower-quality credits has reduced the incentive to invest in lower-rated
bonds.
"Additionally, we have been focusing on extending the call protection of the
Fund. (A callable bond is a bond which the issuer is permitted to redeem, prior
to maturity, on specified dates and at predetermined prices.) As the Fund
matures, older portfolio holdings are approaching their optional call dates,
resulting in increased reinvest- ment risk as yields decline.
"Our municipal team is continually seeking to improve the Fund's investment
returns. Through in-depth credit analysis and market research, we seek to
identify, and profit from, opportunities in the municipal marketplace."
WHAT IS THE OUTLOOK?
"Overall, we are very positive about the long-term prospects for the
municipal market in general, and your Fund in particular. Stable long-term
interest rates, improving credit trends, and attractive real rates of return
bode well for the performance of the municipal bond market going forward. At J.
& W. Seligman & Co. Incorporated, our approach to managing Seligman Quality
Municipal Fund is straightforward: We invest for the long term, building a
diversified portfolio of quality bonds, while seeking to provide our
Stockholders with competitive investment returns."
2
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INVESTMENT RESULTS PER COMMON SHARE
TOTAL RETURNS*
FOR PERIODS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
--------------------------------------
SINCE
THREE SIX ONE FIVE INCEPTION
MONTHS** MONTHS** YEAR YEARS 11/29/91
------ ------ ----- ----- --------
<S> <C> <C> <C> <C> <C>
Market Price (3.76)% 3.96% 13.93% 8.06% 7.45%
Net Asset Value (1.07) 2.59 10.02 7.40 8.71
PRICE PER SHARE
APRIL 30, 1998 JANUARY 31, 1998 OCTOBER 31, 1997
-------------- ---------------- ----------------
<S> <C> <C> <C>
Market Price $14.875 $15.6875 $15.00
Net Asset Value 15.02 15.41 15.35
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE SIX MONTHS ENDED APRIL 30, 1998
CAPITAL GAIN
---------------------------------------
DIVIDENDS PAID+ PAID REALIZED UNREALIZED
-------------- ---- -------- ----------
<S> <C> <C> <C> <C>
$0.4564 $0.269 $0.128 $1.470++
</TABLE>
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at April 30, 1998,
was 6.09%, which is equivalent to a taxable yield of 9.58% based on the maximum
federal tax rate of 39.6%.
-------------------------------------------------
The rates of return will vary and the principal value of an investment will
fluctuate. Shares, if sold, may be worth more or less than their original cost.
Past performance is not indicative of future investment results.
*These rates of return reflect changes in market price or net asset value, as
applicable, and assume that all distributions within the period are invested
in additional shares.
**Returns for periods of less than one year are not annualized.
+ Preferred Stockholders were paid dividends at annual rates ranging from 3.05%
to 5.15%. 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 is taxable as ordinary income.
++ Represents the per share amount of net unrealized appreciation of portfolio
securities as of April 30, 1998.
3
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PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA -- 2.4% $ 930,000 Alaska Housing Finance Corporation (Collateralized
Mortgage Obligation), 7.05% due 6/1/2025 ................... Aaa/AAA $ 990,264
1,490,000 Alaska Housing Finance Corporation (Collateralized
Veterans' Mortgage Program), 61/2% due 6/1/2034 ............ Aaa/AAA 1,564,381
CALIFORNIA -- 7.9% 5,000,000 San Francisco City and County Airport Commission
International Airport Rev., 5.80% due 5/1/2021* ............ Aaa/AAA 5,151,900
2,750,000 San Joaquin Hills Transportation Corridor Agency Rev.
(Senior Lien Toll Road), 63/4% due 1/1/2032 ................ Aaa/NR 3,077,167
GEORGIA -- 3.0% 3,000,000 Atlanta Airport Facilities Rev., 61/4% due 1/1/2021* ........ Aaa/AAA 3,165,810
HAWAII -- 1.8% 1,750,000 Hawaii State Airports System Rev., 7% due 7/1/2020* ......... Aaa/AAA 1,891,908
ILLINOIS -- 3.2% 3,000,000 Regional Transportation Authority GOs,
6.70% due 11/1/2011 ........................................ Aaa/AAA 3,289,680
KANSAS -- 3.1% 3,000,000 Burlington Pollution Control Rev. (Kansas Gas and
Electric Company Project), 7% due 6/1/2031 ................. Aaa/AAA 3,252,420
LOUISIANA -- 3.2% 970,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals Inc. Project),
8% due 5/15/2012 ........................................... NR/AAA 1,176,620
2,000,000 Louisiana Public Facilities Authority Hospital Rev.
(Our Lady of Lourdes Regional Medical Center
Project), 6.45% due 2/1/2022 ............................... Aaa/AAA 2,170,500
MASSACHUSETTS -- 7.3% 4,000,000 Massachusetts Health & Educational Facilities
Authority Rev. (New England Medical Center),
65/8% due 7/1/2025 ......................................... Aaa/AAA 4,346,120
3,000,000 Massachusetts Housing Finance Agency Rev.
(Residential Development), 67/8% due 11/15/2021 ............ Aaa/AAA 3,221,760
MONTANA -- 5.5% 2,220,000 Forsyth Pollution Control Rev. (Puget Sound
Power & Light Co.), 71/4% due 8/1/2021* .................... Aaa/AAA 2,419,822
1,620,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
67/8% due 6/1/2020 ......................................... Aaa/AAA 1,758,267
845,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
67/8% due 6/1/2020 ......................................... Aaa/AAA 917,121
535,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
67/8% due 6/1/2020 ......................................... Aaa/AAA 580,662
</TABLE>
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See footnotes on page 5.
4
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APRIL 30, 1998
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FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK -- 18.7% $3,000,000 Metropolitan Transportation Authority Rev.
(Commuter Facilities), 6.10% due 7/1/2026 .................. Aaa/AAA $ 3,218,250
2,000,000 Metropolitan Transportation Authority Rev.
(Transit Facilities), 6.10% due 7/1/2026 ................... Aaa/AAA 2,145,500
5,000,000 New York City GOs, 61/4% due 4/15/2027 ...................... A3/BBB+ 5,348,000
3,000,000 New York State Local Government Assistance
Corporation, 7% due 4/1/2021 ............................... Aaa/AAA 3,280,680
5,125,000 New York State Thruway Authority Rev.,
6% due 1/1/2025 ............................................ Aaa/AAA 5,429,784
PENNSYLVANIA -- 9.8% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* ................ Aaa/AAA 2,700,275
2,000,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 65/8% due 1/1/2022* ................ Aaa/AAA 2,152,800
5,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* Aaa/AAA 5,293,500
SOUTH CAROLINA -- 8.7% 4,000,000 South Carolina Public Service Authority Rev. (Santee
Cooper), 6.10% due 7/1/2027 ................................ Aaa/AAA 4,276,960
4,500,000 South Carolina State Ports Authority Rev., 63/4% due
7/1/2021* .................................................. Aaa/AAA 4,832,190
TEXAS -- 7.1% 5,000,000 Houston Water & Sewer Systems Rev.,
61/8% due 12/1/2015 ........................................ Aaa/AAA 5,520,450
1,730,000 Texas State Veterans' Housing Assistance GOs,
6.80% due 12/1/2023* ....................................... Aa2/AA 1,854,577
VIRGINIA -- 3.6% 3,500,000 Virginia Housing Development Authority (Multi-
Family Housing), 7% due 11/1/2012 .......................... Aa1/AA+ 3,741,360
WASHINGTON -- 7.1% 860,000 Douglas County Public Utilities District #1
Hydroelectric Rev., 7.80% due 9/1/2018* .................... A/A+ 931,285
5,000,000 King County Sewer GOs, 61/8% due 1/1/2033 ................... Aaa/AAA 5,346,850
1,000,000 Municipality of Metropolitan Seattle Sewer Rev.,
6.60% due 1/1/2032 ......................................... Aaa/AAA 1,078,100
WISCONSIN -- 4.1% 4,000,000 Wisconsin Housing & Economic Development
Authority Housing Rev., 6.85% due 11/1/2012 ................ Aaa/AAA 4,263,040
------------
TOTAL MUNICIPAL BONDS (Cost $93,497,115)-- 96.5% .............................................................. 100,388,003
SHORT-TERM HOLDINGS (Cost $1,500,000)-- 1.4% .................................................................. 1,500,000
OTHER ASSETS LESS LIABILITIES-- 2.1% .......................................................................... 2,132,091
------------
NET INVESTMENT ASSETS-- 100.0% ................................................................................ $104,020,094
============
</TABLE>
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+ 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.
5
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<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1998
ASSETS:
Investments at value:
<S> <C> <C>
Long-term holdings (cost $93,497,115)........................................ $100,388,003
Short-term holdings (cost $1,500,000)........................................ 1,500,000 $ 101,888,003
------------
Cash.............................................................................................. 93,399
Interest receivable............................................................................... 2,145,553
Expenses prepaid to stockholder service agent..................................................... 12,796
Other............................................................................................. 31,903
-------------
TOTAL ASSETS...................................................................................... 104,171,654
-------------
LIABILITIES:
Accrued expenses, taxes, and other................................................................ 151,560
-------------
NET INVESTMENT ASSETS............................................................................. 104,020,094
Preferred Stock................................................................................... 33,600,000
-------------
NET ASSETS FOR COMMON STOCK ...................................................................... $ 70,420,094
=============
NET ASSETS PER SHARE OF COMMON STOCK (Market value $14.875)....................................... $15.02
======
COMPOSITION OF NET INVESTMENT ASSETS:
Preferred Stock Series TH, $.01 par value, liquidation preference and asset
coverage per share--$50,000 and $154,792, respectively; Shares
authorized and outstanding--1,000 and 672, respectively........................................ $ 33,600,000
Common Stock, $.01 par value: Shares authorized-- 49,999,000; issued
and outstanding-- 4,688,183.................................................................... 46,882
Additional paid-in capital........................................................................ 63,147,288
Dividends in excess of net investment income...................................................... (263,631)
Undistributed net realized gain................................................................... 598,667
Net unrealized appreciation of investments........................................................ 6,890,888
-------------
NET INVESTMENT ASSETS............................................................................. $104,020,094
============
</TABLE>
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See Notes to Financial Statements.
6
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<CAPTION>
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STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1998
INVESTMENT INCOME:
<S> <C> <C>
INTEREST.......................................................................................... $3,055,945
EXPENSES:
Management fee.................................................................. $339,049
Stockholder account and registrar services...................................... 51,851
Auction agent fee............................................................... 41,926
Auditing and legal fees......................................................... 36,910
Stockholder reports and communications.......................................... 28,686
Custody and related services.................................................... 12,376
Stockholders' meeting........................................................... 12,369
Directors' fees and expenses.................................................... 6,372
Miscellaneous................................................................... 6,272
--------
TOTAL EXPENSES.................................................................................... 535,811
----------
NET INVESTMENT INCOME............................................................................. 2,520,134*
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................................ 598,457
Net change in unrealized appreciation of investments............................ (645,797)
--------
NET LOSS ON INVESTMENTS........................................................................... (47,340)
----------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS................................................. $2,472,794
==========
</TABLE>
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* Net investment income available for Common Stock is $1,886,290, which is net
of Preferred Stock dividends.
See Notes to Financial Statements.
7
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STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
------------------- ------------------
OPERATIONS:
<S> <C> <C>
Net investment income........................................................ $ 2,520,134 $ 5,058,552
Net realized gain on investments............................................. 598,457 1,249,355
Net change in unrealized appreciation of investments......................... (645,797) 801,937
------------ ------------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS............................ 2,472,794 7,109,844
------------ ------------
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income:
Preferred Stock, Series TH (per share: $943.22 and $1,826.08)............. (633,844) (1,227,126)
Common Stock (per share: $.4036 and $.8254)............................... (1,886,290) (3,831,426)
------------ ------------
Total..................................................................... (2,520,134) (5,058,552)
Dividends in excess of net investment income:
Common Stock (per share: $.0528 and $.1130)............................... (246,844) (524,427)
Net realized gain on investments:
Common Stock (per share: $.269 and $.154)................................. (1,252,536) (713,041)
------------ ------------
DECREASE IN NET INVESTMENT ASSETS FROM DISTRIBUTIONS......................... (4,019,514) (6,296,020)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Value of shares of Common Stock issued for investment plan
(31,794 and 68,714 shares)................................................ 483,934 1,004,990
Value of shares of Common Stock issued in payment of gain
distribution (17,439 and 10,157 shares)................................... 266,817 145,346
Cost of shares purchased for investment plan
(13,300 and 69,500 shares)................................................ (200,248) (1,016,195)
------------ ------------
INCREASE IN NET INVESTMENT ASSETS FROM CAPITAL SHARE TRANSACTIONS............ 550,503 134,141
------------ ------------
INCREASE (DECREASE) IN NET INVESTMENT ASSETS................................. (996,217) 947,965
NET INVESTMENT ASSETS:
Beginning of period.......................................................... 105,016,311 104,068,346
------------ ------------
END OF PERIOD (including dividends in excess of net investment
income of $263,631 and $16,787, respectively)............................. $104,020,094 $105,016,311
============ ============
</TABLE>
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See Notes to Financial Statements.
8
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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 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 gain may differ from their ultimate treatment for federal income
tax purposes. These differences are caused primarily 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 six months ended April 30,
1998, amounted to $5,590,250 and $5,838,650, respectively.
At April 30, 1998, 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 $6,953,328 and $62,440, 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 six months ended April 30, 1998, 13,300 shares were
purchased in the open market at a cost of $200,248, which represented a weighted
average discount of 1.66% from the net asset value of those acquired shares. A
total of 11,846 shares were issued to Plan participants during this period for
proceeds of $177,517, a discount of 1.11% from the net asset value of those
shares.
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 six months
ended April 30, 1998.
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
9
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of Capital Stock, and has reclassified 1,000 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 $50,000 per share plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption at
$50,000 per share plus any accumulated but unpaid dividends 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 $50,000 per share plus accumulated and unpaid dividends.
Dividends on Preferred Shares are cumulative at a rate established at the
initial public offering and are typically reset every seven days based on the
rate per annum or such other period as determined by the Fund that results from
an auction.
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 0.65% per
annum of the Fund's average daily net assets.
Seligman Data Corp., which is owned by certain associated investment
companies, charged at cost $34,901 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 April 30, 1998, of $17,056 is
included in other liabilities. Deferred fees and related accrued earnings are
not deductible by the Fund for federal income tax purposes until such amounts
are paid.
10
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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, 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 for period" measures the Fund's performance but
assumes 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. Total investment return for periods of less
than one year is not annualized.
The ratios of expenses and net investment income to average net investment
assets and to average net assets for Common Stock, for all periods presented, do
not reflect the effect of dividends paid to Preferred Stockholders.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED ---------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 4/30/98 1997 1996 1995 1994 1993
---------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD .............................. $15.35 $15.18 $15.31 $13.76 $16.49 $14.05
------ ------ ------ ------ ------ ------
Net investment income ..................... 0.54 1.09 1.12 1.13 1.13 1.13
Net realized and unrealized
investment gain (loss) ................. (0.01) 0.43 0.06 1.72 (2.45) 2.46
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS .................. 0.53 1.52 1.18 2.85 (1.32) 3.59
Dividends paid from net investment
income on Preferred Stock .............. (0.13) (0.26) (0.27) (0.29) (0.20) (0.19)
Dividends paid from net investment
income on Common Stock ................. (0.41) (0.83) (0.90) (0.94) (0.94) (0.94)
Dividends in excess of net investment
income paid on Common Stock ............ (0.05) (0.11) (0.04) -- -- --
Distribution from net realized gain ....... (0.27) (0.15) (0.10) (0.07) (0.27) (0.02)
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN NET
ASSET VALUE ............................ (0.33) 0.17 (0.13) 1.55 (2.73) 2.44
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ............ $15.02 $15.35 $15.18 $15.31 $13.76 $16.49
====== ====== ====== ====== ====== ======
MARKET VALUE, END OF PERIOD ............... $14.875 $15.00 $14.25 $13.625 $11.50 $15.75
======= ====== ====== ======= ====== ======
</TABLE>
11
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
-----------------------------------------------------
TOTAL INVESTMENT RETURN FOR PERIOD: 4/30/98 1997 1996 1995 1994 1993
---------- ----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Based upon market value ................... 3.96% 13.42% 12.62% 27.87% (20.50)% 18.79%
Based upon net asset value ................ 2.59% 8.95% 6.77% 20.09% (9.15)% 25.03%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net
investment assets ...................... 1.03%+ 1.11% 1.11% 1.08% 1.11% 1.17%
Expenses to average net assets for
Common Stock ........................... 1.51%+ 1.65% 1.65% 1.62% 1.63% 1.72%
Net investment income to average
net investment assets .................. 4.83%+ 4.88% 4.98% 5.19% 5.06% 4.96%
Net investment income to average net
assets for Common Stock ................ 7.10%+ 7.21% 7.36% 7.76% 7.48% 7.28%
Portfolio turnover rate ................... 5.52% 16.74% 14.05% 8.63% 12.36% 10.69%
NET INVESTMENT ASSETS, END OF PERIOD
(000s omitted):
For Common Stock .......................... $ 70,420 $ 71,416 $ 70,468 $ 71,084 $63,906 $ 76,588
For Preferred Stock ....................... 33,600 33,600 33,600 33,600 33,600 33,600
-------- -------- -------- -------- -------- --------
TOTAL NET INVESTMENT ASSETS ............... $104,020 $105,016 $104,068 $104,684 $97,506 $110,188
======== ======== ======== ======== ======== ========
</TABLE>
- ------------
+ Annualized.
See Notes to Financial Statements.
12
<PAGE>
================================================================================
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS,
SELIGMAN QUALITY MUNICIPAL FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Seligman Quality Municipal Fund, Inc. as of
April 30, 1998, the related statements of operations for the six months then
ended and of changes in net investment assets for the six months then ended and
for the year ended October 31, 1997, and the financial highlights for each of
the periods presented. 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 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 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 April
30, 1998, 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 Quality
Municipal Fund, Inc. as of April 30, 1998, 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
May 29, 1998
13
<PAGE>
================================================================================
Board of Directors
JOHN R. GALVIN 2
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, Raytheon Company
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 2
RETIRED CHAIRMAN AND SENIOR PARTNER,
Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Industries, Inc.
TRUSTEE, The New York and Presbyterian Hospital
BETSY S. MICHEL 2
TRUSTEE, The 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, Public Broadcasting Service
RICHARD R.SCHMALTZ 1
MANAGING DIRECTOR AND DIRECTOR OF INVESTMENTS,
J. & W. Seligman & Co. Incorporated
TRUSTEE EMERITUS, Colby College
ROBERT L. SHAFER 3
RETIRED VICE PRESIDENT, Pfizer Inc.
JAMES N. WHITSON 2
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 EMERITUS
FRED E. BROWN
DIRECTOR AND CONSULTANT,
J. & W. Seligman & Co. Incorporated
- ----------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
14
<PAGE>
EXECUTIVE OFFICERS
WILLIAM C. MORRIS
CHAIRMAN
THOMAS G. MOLES
PRESIDENT
EILEEN A. COMERFORD
VICE PRESIDENT
AUDREY G. KUCHTYAK
VICE PRESIDENT
LAWRENCE P. VOGEL
VICE PRESIDENT
THOMAS G. ROSE
TREASURER
FRANK J. NASTA
SECRETARY
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) 622-4597 24-Hour Automated Telephone Access Service
(800) 874-1092 Stockholder Services
(212) 682-7600 Outside the Continental United States
15
