SELIGMAN
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QUALITY
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MUNICIPAL
FUND, INC.
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[LOGO]
THIRD QUARTER REPORT
JULY 31, 1998
SELIGMAN QUALITY MUNICIPAL FUND, INC.
MANAGED BY
[GRAPHIC OMITTED]
J. & W. SELIGMAN & CO.
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 PARK AVENUE, NEW YORK, NY 10017
CESQF3c 7/98
<PAGE>
TO THE STOCKHOLDERS
During Seligman Quality Municipal Fund's third fiscal quarter, the US economy
continued to grow, bringing its expansion into an unprecedented eighth year.
Inflation was low, wages exceeded inflation, consumer spending remained strong,
and the labor market was tight. However, as the quarter came to a close, some
economic indicators suggested the start of a deceleration in the pace of
economic growth. This expectation of slower growth, combined with the effects of
the Asian financial crisis, was sufficient to subdue inflationary pressures,
allowing the Federal Reserve Board to leave short-term interest rates unchanged.
Throughout the period, the Asian financial crisis heightened investor demand
for "safe haven" US fixed-income investments. Both foreign and domestic
investors continued to prefer the safety and quality of US Treasury securities.
Many overseas investors pulled assets out of foreign stock and bond markets in
favor of these securities. This "flight to quality" caused the spread between
long-term municipal bond yields and long-term US Treasury yields to narrow.
Due to strong demand throughout the Fund's third fiscal quarter, municipal
bond issuers took advantage of attractive long-term municipal yields. In fact,
year-to-date, the supply of municipal issues rose by 49%. The sheer volume of
bonds being underwritten compelled municipal issuers to price their deals at
attractive yields, thereby preventing municipal yields from declining to the
same extent as Treasury's. Nevertheless, the decline in yields led to a modest
improvement in Seligman Quality Municipal Fund's net asset value.
Early in the Fund's fourth fiscal quarter, global political and economic
turmoil began to negatively impact equity markets throughout the world. The
devaluation of the Russian ruble, the US military strikes on Afghanistan and
Sudan, Japan's unresolved banking problems, the ongoing Asian financial crisis,
and currency weakness in Latin America all combined to significantly pressure US
equity prices. Most stock exchanges, currencies, and emerging markets suffered
severe losses, and even US blue chips slid. There was sentiment that the bull
market in stocks was facing its biggest test in years. If there is continued
volatility in the equity markets, US investors may seek, with even greater zeal,
the safety and quality of municipal bonds. Further, it is expected that
municipal new-issue volume should begin to slow. Finally, the tax advantage
offered by municipal bonds could also improve investor interest, as municipal
securities offer a significant yield advantage compared to the after-tax returns
of other investments.
As you may know, companies are modifying their computer systems to recognize
dates of January 1, 2000, and beyond. This is often referred to as the "Y2K"
problem. Unless systems are updated, many applications may interpret the last
two digits of the year to mean 1900 instead of 2000. J. & W. Seligman & Co.
Incorporated, the Seligman Investment Companies, and Seligman Data Corp., your
shareholder service agent, have jointly established a team to ensure that your
investment and shareholder services are not disrupted. This team is supported by
consulting firms specializing in Y2K solutions. Substantial work has been
performed to date, and we are confident that there will be no disruption in the
services provided by your Fund.
Seligman Quality Municipal Fund's 1998 Annual Meeting took place Thursday,
May 21, 1998, in St. Louis, Missouri. All proposals as set forth in the proxy
you received earlier in the year passed. For the complete results of the vote,
please refer to page 7.
Thank you for your confidence in Seligman Quality Municipal Fund. We look
forward to serving your investment needs in the many years to come. A discussion
with your Portfolio Manager and the Fund's portfolio of investments follow this
letter.
By order of the Board of Directors,
/s/ William C. Morris
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William C. Morris
Chairman
/s/ Thomas G. Moles
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Thomas G. Moles
President
August 28, 1998
1
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
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SELIGMAN MUNICIPALS TEAM: (FROM LEFT)
AUDREY KUCHTYAK, THERESA BARION, DEBRA
MCGUINNESS, (SEATED) EILEEN COMERFORD,
THOMAS G. MOLES (PORTFOLIO MANAGER)
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED SELIGMAN QUALITY MUNICIPAL FUND IN
ITS THIRD FISCAL QUARTER OF 1998?
"During Seligman Quality Municipal Fund's third fiscal quarter, investors grew
more concerned about the effects of the Asian financial crisis, and this
heightened investor demand for `safe haven' US fixed-income investments. Thus
far, the Asian crisis has actually countered inflationary pressures in the US.
Depressed demand for consumer products throughout Asia led many overseas
companies to flood the US with inexpensive imports, and the reduced cost of
imported goods offset increasing wages in the tight labor market. Moreover,
economic indicators throughout the period signaled that the pace of economic
growth was slowing. These factors compelled the Federal Reserve Board to again
leave short-term interest rates unchanged. We believe that the Fed is unlikely
to change monetary policy until the economy exhibits signs of a sharp
deceleration in growth.
"Throughout the quarter, municipal bond issuers continued to take advantage
of attractive long-term municipal yields, leading to a sharp increase in
municipal underwriting. Year-to-date, the municipal bond supply rose 49%. The
large volume of new bonds being underwritten caused issuers to price deals at
higher yields to attract investors. This prevented municipal yields from
declining to the same extent as Treasury yields. Long-term municipal bond yields
declined slightly during Seligman Quality Municipal Fund's third fiscal quarter,
which led to a modest improvement in the Fund's net asset value."
WHAT WAS YOUR INVESTMENT STRATEGY?
"As Seligman Quality Municipal Fund matures, the older portfolio holdings are
approaching their optional call dates, resulting in increased reinvestment risk
as yields decline. Given the enduring low interest rate environment, we have
continued to focus on extending the call protection of the Fund. (A callable
bond can be redeemed by the issuer, prior to maturity, on specified dates and at
predetermined prices.)
"Seligman Quality Municipal Fund directly benefited from the substantial
increase in the volume of refunding bonds because several portfolio holdings
were refunded by these new deals. In general, a refunding bond is issued to
retire outstanding, higher-coupon bonds. When a bond is refunded, the total
return performance is usually improved and its rating is often upgraded.
"The historically low long-term interest rates reduced dividend yields, while
the relative lack of volatility limited the price appreciation potential.
Therefore, we placed additional emphasis on enhancing the relative value of the
Fund. Through in-depth credit analysis and market research, the Seligman
Municipals Team was able to identify and profit from opportunities and
inefficiencies within the municipal bond marketplace."
2
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
WHAT IS THE OUTLOOK?
"By the end of Seligman Quality Municipal Fund's third fiscal quarter, municipal
bonds were at their most attractive level, relative to Treasuries, in more than
two years. This was the result of the narrowing of the yield spread between
long-term municipal bonds and long-term Treasury bonds. Municipal securities,
such as those held by Seligman Quality Municipal Fund, offer an even greater
yield advantage when compared with the after-tax returns of other fixed-income
investments. Going forward, we believe that municipal issuance should slow from
the current pace. Therefore, we anticipate that municipal market performance
should improve relative to the Treasury market."
3
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INVESTMENT RESULTS PER COMMON SHARE
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TOTAL RETURNS*
FOR PERIODS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL
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SINCE
THREE NINE ONE FIVE INCEPTION
MONTHS MONTHS YEAR YEARS 11/29/91
------ ------ ----- ----- --------
<S> <C> <C> <C> <C> <C>
Market Price** 4.06% 8.19% 8.96% 8.05% 7.80%
Net Asset Value** 3.33 6.00 6.40 7.26 8.90
</TABLE>
PRICE PER SHARE
<TABLE>
<CAPTION>
JULY 31, 1998 APRIL 30, 1998 JANUARY 31, 1998 OCTOBER 31, 1997
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<S> <C> <C> <C> <C>
Market Price $15.25 $14.875 $15.6875 $15.00
Net Asset Value 15.29 15.02 15.41 15.35
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
For the Nine Months Ended July 31, 1998
<TABLE>
<CAPTION>
CAPITAL GAIN
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DIVIDENDS PAID+ PAID REALIZED UNREALIZED
-------------- ------- -------- -----------
<S> <C> <C> <C> <C>
$0.6814 $0.269 $0.277 $1.610++
</TABLE>
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at July 31, 1998, was
5.94%, which is equivalent to a taxable yield of 8.74% 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 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 3.05%
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 July 31, 1998.
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4
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<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS (unaudited) JULY 31, 1998
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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>
ALASKA-- 2.1% $ 715,000 Alaska Housing Finance Corporation (Collateralized
Mortgage Obligation), 7.05% due 6/1/2025 ............. Aaa/AAA $ 762,076
1,360,000 Alaska Housing Finance Corporation (Collateralized
Veterans' Mortgage Program), 6 1/2% due 6/1/2034 ..... Aaa/AAA 1,429,863
CALIFORNIA-- 7.9% 5,000,000 San Francisco City and County Airports Commission
International Airport Rev., 5.80% due 5/1/2021* ...... Aaa/AAA 5,236,950
2,750,000 San Joaquin Hills Transportation Corridor Agency Rev.
Senior Lien Toll Road Rev. (Orange County),
6 3/4% due 1/1/2032 .................................. Aaa/AAA 3,094,685
GEORGIA-- 3.0% 3,000,000 Atlanta Airport Facilities Rev., 6 1/4% due 1/1/2021*.. Aaa/AAA 3,174,810
HAWAII-- 1.8% 1,750,000 Hawaii State Airports System Rev., 7% due 7/1/2020*.... Aaa/AAA 1,895,985
ILLINOIS-- 4.6% 5,000,000 Illinois Educational Facilities Authority Rev.
(University of Chicago), 5 1/8% due 7/1/2038 ........ Aa1/AA 4,855,150
KANSAS-- 3.1% 3,000,000 Burlington Pollution Control Rev. (Kansas Gas and
Electric Company Project), 7% due 6/1/2031 .......... Aaa/AAA 3,257,610
LOUISIANA-- 3.2% 935,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals Inc. Project),
8% due 5/15/2012 .................................... NR/AAA 1,139,129
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 2,219,440
MASSACHUSETTS-- 7.3% 4,000,000 Massachusetts Health & Educational Facilities
Authority Rev. (New England Medical Center),
6 5/8% due 7/1/2025 ................................. Aaa/AAA 4,366,120
3,000,000 Massachusetts Housing Finance Agency Rev.
(Residential Development), 67/8% due 11/15/2021 ..... Aaa/AAA 3,269,700
MONTANA-- 5.4% 2,220,000 Forsyth Pollution Control Rev. (Puget Sound
Power & Light Co.), 7 1/4% due 8/1/2021* ............ Aaa/AAA 2,424,462
1,620,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ................................. Aaa/AAA 1,765,897
845,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ................................. Aaa/AAA 921,422
535,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ................................. Aaa/AAA 583,182
NEW YORK-- 16.6% 3,000,000 Metropolitan Transportation Authority Rev.
(Commuter Facilities), 6.10% due 7/1/2026 ........... Aaa/AAA 3,403,980
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See footnotes on page 6.
5
</TABLE>
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<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS (unaudited) (continued) JULY 31, 1998
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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>
NEW YORK (continued) $2,000,000 Metropolitan Transportation Authority Rev.
(Transit Facilities), 6.10% due 7/1/2026 ............ Aaa/AAA $ 2,269,320
2,640,000 New York City GOs, 6 1/4% due 4/15/2027 .............. A3/A- 2,866,142
3,000,000 New York State Local Government Assistance
Corporation, 7% due 4/1/2021 ........................ Aaa/AAA 3,284,070
5,125,000 New York State Thruway Authority Rev.,
6% due 1/1/2025 ..................................... Aaa/AAA 5,705,201
PENNSYLVANIA-- 9.7 % 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* ......... Aaa/AAA 2,707,300
2,000,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6 5/8% due 1/1/2022* ........ Aaa/AAA 2,162,840
5,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* ...... Aaa/AAA 5,367,650
SOUTH CAROLINA-- 8.7% 4,000,000 South Carolina Public Service Authority Rev.
(Santee Cooper), 6.10% due 7/1/2027 ................. Aaa/AAA 4,314,000
4,500,000 South Carolina State Ports Authority Rev.,
6 3/4% due 7/1/2021* ................................ Aaa/AAA 4,844,970
TEXAS-- 7.0% 5,000,000 Houston Water & Sewer Systems Rev.,
6 1/8% due 12/1/2015 ................................ Aaa/AAA 5,568,400
1,660,000 Texas State Veterans' Housing Assistance GOs,
6.80% due 12/1/2023* ................................ Aa2/AA 1,784,069
VIRGINIA-- 5.9% 2,500,000 Pocahontas Parkway Association Toll Road
Bonds (Route 895 Connector),
5 1/2% due 8/15/2028 ................................ Baa3/BBB- 2,474,550
3,500,000 Virginia Housing Development Authority (Multi-
Family Housing), 7% due 11/1/2012 ................... Aa1/AA+ 3,743,495
WASHINGTON -- 7.1% 860,000 Douglas County Public Utilities District #1
Hydroelectric Rev., 7.80% due 9/1/2018* ............. A/A+ 929,497
5,000,000 King County Sewer GOs, 6 1/8% due 1/1/2033 ........... Aaa/AAA 5,457,750
1,000,000 Municipality of Metropolitan Seattle Sewer Rev.,
6.60% due 1/1/2032 .................................. Aaa/AAA 1,077,460
WISCONSIN-- 4.1% 4,000,000 Wisconsin Housing & Economic Development
Authority Housing Rev., 6.85% due 11/1/2012 ......... Aaa/AAA 4,264,600
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TOTAL MUNICIPAL BONDs (Cost $95,073,927)-- 97.5% 102,621,775
SHORT-TERM HOLDINGS (Cost $1,700,000)-- 1.6% 1,700,000
OTHER ASSETS LESS LIABILITIES-- 0.9% 977,122
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NET INVESTMENT ASSETS-- 100.0% $105,298,897
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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.
</TABLE>
6
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PROXY RESULTS
Stockholders of Seligman Quality Municipal Fund, Inc. voted on the following
proposals at the Annual Meeting of Stockholders on May 21, 1998, in St. Louis,
MO. The description of each proposal and number of shares voted are as
follows:
ELECTION OF DIRECTORS:
FOR WITHHELD
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Alice S. Ilchman 4,362,912 22,448
Frank A. McPherson 4,362,912 22,448
Richard R. Schmaltz 4,362,912 22,448
Brian T. Zino 4,362,912 22,448
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR FISCAL 1998:
FOR AGAINST ABSTAIN
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4,353,314 3,920 28,126
7
