SELIGMAN
--------^--------
QUALITY
--------^--------
MUNICIPAL
FUND, INC.
[PHOTO]
ANNUAL REPORT
OCTOBER 31, 1997
[LOGO]
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
CESQF2 10/97
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TO THE STOCKHOLDERS
We are pleased to provide you with Seligman Quality
Municipal Fund's 1997 Annual Report. Seligman Quality
Municipal Fund ended its fiscal year on a strong note
as its investment results improved
significantly in its last two fiscal quarters. The steady growth of the
economy, combined with benign levels of inflation, led to a continuation of the
municipal bond market rally that began in May. Yields fell and bond prices
rose, improving your Fund's total return while it provided consistent monthly
income. The Fund's investment results for Common Stockholders appear on page 5.
On balance, it was a good year for the municipal bond market. The Federal
Reserve Board increased short-term interest rates only once in the 12-month
period, by a quarter percentage point on March 25, despite chronic fears of an
overheating economy and worries of growing inflationary risks. Even as the labor
market tightened to levels not seen in 20 years, there were few indications of
price pressure. While paychecks grew, consumer spending was relatively
restrained, productivity was on the rise, and producer prices did not post
significant increases.
Municipal market participants, however, took some time to be convinced that
the rate of economic growth would not prompt the Fed to implement an additional
increase in the federal funds rate. Therefore, yields continued to fluctuate in
a narrow range during the Fund's first two fiscal quarters, and a pronounced
bond market rally did not occur until May. The rally continued in the Fund's
fourth fiscal quarter, although at a more modest rate, as investors moved out of
the more volatile equity markets. The yield on the Bond Buyer 20-Bond General
Obligation Index, a benchmark for the municipal bond market, stood at 5.35% on
October 31, 1997, significantly lower than the 5.70% a year ago.
At this time, we anticipate continued unrest in the equity markets.
Meanwhile, the fixed-income markets, including the municipal bond market, should
remain safe havens for cautious investors. It is possible that the Southeast
Asian currency crisis could help slow the US economy, reducing the necessity of
a future Fed intervention, and ultimately supporting the performance of the
fixed-income markets. Overall, the long-term outlook for the municipal bond
market and your Fund remains encouraging.
On November 20, 1997, the Board of Directors of the Fund approved a monthly
dividend payment of $0.075 per share to Common Stockholders effective in January
1998. This amount represents a $0.0032 per share reduction in the amount of the
monthly dividend previously paid to Common Stockholders.
The principal reason for this decision was the continued narrow spread
between the Fund's earnings from its investment portfolio and the dividend rate
paid on its Preferred Stock. There are basically two reasons for this narrow
spread. First, the preferred dividend rate, which is determined weekly by
auction, has remained higher than when the preferred stock was issued in early
1992. Second, the gross earnings on the portfolio have declined as the proceeds
from called bonds and coupon interest have been reinvested at lower current
market yields.
1
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TO THE STOCKHOLDERS (continued)
Based on current market conditions, a small portion of future dividends will
continue to be taxable as ordinary income. The exact amount of the taxable
portion of the dividends cannot be determined until after the end of the Fund's
fiscal year.
A discussion with your Portfolio Manager, the Fund's portfolio of
investments, and financial statements, follow this letter.
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.
By order of the Board of Directors,
/s/William C. Morris
- ---------------------
William C. Morris
Chairman
/s/Thomas G. Moles
------------------
Thomas G. Moles
President
November 28, 1997
PROXY RESULTS
Stockholders of Seligman Quality Municipal
Fund voted on the following proposals at the Annual Meeting of Stockholders on
May 15, 1997, in Boston, MA. The description of each proposal and number of
shares voted are as follows:
ELECTION OF DIRECTORS:
FOR WITHHELD
--------- ----------
John R. Galvin 4,210,045 62,359
William C. Morris 4,211,510 60,894
James Q. Riordan 4,210,834 61,570
Richard R. Schmaltz 4,211,510 60,894
Robert L. Shafer 4,211,510 60,894
Brian T. Zino 4,211,510 60,894
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR 1997:
FOR AGAINST ABSTAIN
--------- --------- ---------
4,184,677 17,572 70,155
2
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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)
THOMAS G. MOLES is a Managing Director of J. & W. Seligman & Co. Incorporated,
President and Portfolio Manager of Seligman Quality Municipal Fund and Seligman
Select Municipal Fund, and Vice President and Portfolio Manager of the Seligman
municipal mutual funds, which include 19 separate portfolios. He is responsible
for more than $1.8 billion in municipal securities. Mr. Moles, with more than 25
years of experience, has spearheaded Seligman's municipal investment efforts
since joining the firm in 1983.
WHAT ECONOMIC FACTORS INFLUENCED SELIGMAN QUALITY MUNICIPAL FUND'S INVESTMENT
RESULTS IN THE LAST 12 MONTHS?
"Throughout Seligman Quality Municipal Fund's fiscal year, the US economy
continued to grow at a healthy pace with little sign of inflationary pressures.
However, municipal market participants became increasingly convinced that an
acceleration in the rate of inflation was inevitable, given the strength of the
economy. The release of any data that could be perceived as inflationary
prompted sharp increases in long-term interest rates, while evidence to the
contrary elicited a more modest response. A strong municipal market rally did
occur during the Fund's third fiscal quarter, but inflation concerns persisted.
It took a major pullback in the equity markets in October to dampen inflationary
expectations and spur a further rally in the US Treasury and municipal bond
markets."
WHAT MARKET FACTORS AFFECTED THE FUND IN ITS FISCAL YEAR ENDED OCTOBER 31, 1997?
"Overall, fiscal 1997 was a positive year for Seligman Quality Municipal
Fund. At October 31, 1997, long-term municipal yields, as measured by the Bond
Buyer 20-Bond General Obligation Index, were 35 basis points lower than 12
months ago. For most of the past year, the municipal market has been less
volatile than the US Treasury market, with municipal bonds generally
outperforming US Treasury Bonds as yields rose and underperforming as yields
declined. The October rally in the US Treasury market, the result of a `flight
to quality' response by anxious equity investors, led to a decline of nearly a
quarter point in the yield of the benchmark 30-year US Treasury Bond. In
contrast, long-term municipal bond yields declined only modestly, leaving
municipal bond yields at the most attractive levels of the year relative to US
Treasury Bonds. Seligman Quality Municipal Fund was well positioned to benefit
from the reduction in yields that occurred in its fiscal third and fourth
quarters, when turmoil in the world equity markets precipitated another bond
market rally."
WHAT WAS YOUR INVESTMENT STRATEGY?
"Our investment strategy was based on the assumption that long-term interest
rates would trend lower during the year as economic growth slowed. Therefore,
holdings of pre-refunded bonds, which are defensive investments, were reduced.
The proceeds were used to purchase bonds with maturities of 20 years and longer,
as longer-term bonds will outperform shorter-term bonds given an equal decline
in yields. Market conditions also provided us with an opportunity to improve the
call protection of the Fund by reducing the number of bonds
3
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES (continued)
with short calls (bonds that are redeemable on specified dates and at specified
prices -- prior to maturity -- at the option of the issuer)."
WHAT IS YOUR OUTLOOK?
"Subsequent to the turmoil in the world equity markets, the US stock markets
demonstrated their resiliency, making steady progress toward recovery. Many
investors, however, remain cautious regarding the equity markets and could find
the municipal bond market's record of safety and stability particularly
appealing. This should support the fixed-income markets, including the municipal
bond market, in the months ahead.
"As Seligman Quality Municipal Fund heads into a new year, we remain
optimistic regarding the prospects for the municipal bond market and your Fund.
Relatively stable long-term interest rates, improving credit trends, and
attractive real rates of return bode well for the performance of the Fund going
forward. We will continue to follow our long-term investment strategy, building
a diversified portfolio of quality bonds while working to provide our
Stockholders with competitive investment results."
4
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INVESTMENT RESULTS PER COMMONSHARE
TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 1997
AVERAGE ANNUAL
---------------------------------
SINCE
THREE ONE FIVE INCEPTION
MONTHS** YEAR YEARS 11/29/91
--------- ------ ------ --------
Market Price 0.72% 13.42% 9.05% 7.40%
Net Asset Value 0.38 8.95 9.67 9.00
<TABLE>
<CAPTION>
PRICE PER SHARE
<S> <C> <C> <C> <C> <C>
OCTOBER 31, JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1997 1997 1997 1997 1996
------------ ------------ ------------ ------------ ------------
Market Price $15.00 $15.125 $14.125 $14.375 $14.25
Net Asset Value 15.35 15.53 14.77 14.93 15.18
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1997
CAPITAL GAIN
----------------------------------
DIVIDENDS PAID+ PAID REALIZED UNREALIZED
-------------- ------- -------- ----------
$0.9384 $0.154 $0.269 $1.620++
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at October 31, 1997,
was 6.26%, which is equivalent to a taxable yield of 9.94% based on the maximum
federal tax rate of 39.6%.
------------------------------------------------------------
*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. The rates of return will vary and the principal value
of an investment will fluctuate. Shares, if sold, may be worth more or less
than their original cost. Past performance is not indicative of future
investment results.
**Returns for periods of less than one year are not annualized.
+ Preferred Stockholders were paid dividends at annual rates ranging from 3.25%
to 5.05%. Earnings on the Fund's assets in excess of the preferred dividend
requirements constituted dividend income for Common Stockholders. For the
year ended October 31, 1997, $0.0947 of the dividends paid to Common
Stockholders is taxable as ordinary income.
++Represents the per share amount of net unrealized appreciation of portfolio
securities as of October 31, 1997.
5
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<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA-- 2.7% $1,110,000 Alaska Housing Finance Corporation (Collateralized
Mortgage Obligation), 7.05% due 6/1/2025 ................. Aaa/AAA $ 1,178,920
1,610,000 Alaska Housing Finance Corporation (Collateralized
Veterans' Mortgage Program), 6 1/2% due 6/1/2034 .......... Aaa/AAA 1,674,497
CALIFORNIA-- 13.0% 5,000,000 San Francisco City and County Airport Commission
International Airport Rev., 5.80% due 5/1/2021* .......... Aaa/AAA 5,109,850
2,750,000 San Joaquin Hills Transportation Corridor Agency Rev.
(Senior Lien Toll Road), 6 3/4% due 1/1/2032 .............. NR/NR 3,100,378
5,000,000 University of California Regents Rev. (Multiple
Purpose Project), 6 3/8% due 9/1/2024 ..................... Aaa/AAA 5,451,500
GEORGIA-- 3.0% 3,000,000 Atlanta Airport Facilities Rev., 6 1/4% due 1/1/2021* ...... Aaa/AAA 3,154,230
HAWAII-- 1.8% 1,750,000 Hawaii State Airports System Rev., 7% due 7/1/2020* ....... Aaa/AAA 1,904,822
ILLINOIS-- 3.2% 3,000,000 Regional Transportation Authority GOs,
6.70% due 11/1/2011 ...................................... Aaa/AAA 3,326,670
KANSAS-- 3.1% 3,000,000 Burlington Pollution Control Rev. (Kansas Gas and
Electric Company Project), 7% due 6/1/2031 ............... Aaa/AAA 3,276,810
LOUISIANA-- 3.2% 970,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals Inc. Project),
8% due 5/15/2012 ......................................... NR/AAA 1,187,396
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 2,167,000
MASSACHUSETTS-- 7.2% 4,000,000 Massachusetts Health & Educational Facilities
Authority Rev. (New England Medical Center),
6 5/8% due 7/1/2025 ....................................... Aaa/AAA 4,379,840
3,000,000 Massachusetts Housing Finance Agency Rev.
(Residential Development), 6 7/8% due 11/15/2021 .......... Aaa/AAA 3,213,030
MONTANA-- 5.6% 2,220,000 Forsyth Pollution Control Rev. (Puget Sound
Power & Light Co.), 7 1/4% due 8/1/2021* .................. Aaa/AAA 2,438,359
1,620,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ....................................... Aaa/AAA 1,835,816
845,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ....................................... Aaa/AAA 957,571
535,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ....................................... Aaa/AAA 606,273
</TABLE>
6
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<TABLE>
<CAPTION>
OCTOBER 31, 1997
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FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK-- 18.5% $3,000,000 Metropolitan Transportation Authority Rev.
(Commuter Facilities), 6.10% due 7/1/2026 ................ Aaa/AAA $ 3,221,220
2,000,000 Metropolitan Transportation Authority Rev.,
(Transit Facilities), 6.10% due 7/1/2026 ................. Aaa/AAA 2,144,080
5,000,000 New York City GOs, 6 1/4% due 4/15/2027 .................... Baa1/BBB+ 5,295,800
5,125,000 New York State Thruway Authority Rev.,
6% due 1/1/2025 .......................................... Aaa/AAA 5,409,028
3,000,000 New York State Local Government Assistance
Corporation, 7% due 4/1/2021 ............................. Aaa/AAA 3,325,830
PENNSYLVANIA-- 9.6% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* .............. Aaa/AAA 2,720,675
2,000,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6 5/8% due 1/1/2022* ............. Aaa/AAA 2,157,200
5,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* ........... Aaa/AAA 5,248,150
SOUTH CAROLINA-- 8.6% 4,000,000 South Carolina Public Service Authority Rev. (Santee
Cooper), 6.10% due 7/1/2027 .............................. Aaa/AAA 4,214,120
4,500,000 South Carolina State Ports Authority Rev., 6 3/4% due
7/1/2021* ................................................ Aaa/AAA 4,860,765
TEXAS-- 1.8% 1,730,000 Texas State Veterans' Housing Assistance GOs,
6.80% due 12/1/2023* ..................................... Aa2/AA 1,837,969
VIRGINIA-- 3.6% 3,500,000 Virginia Housing Development Authority (Multi-
Family Housing), 7% due 11/1/2012 ........................ Aa1/AA+ 3,747,135
WASHINGTON-- 7.0% 860,000 Douglas County Public Utilities District #1
Hydroelectric Rev., 7.80% due 9/1/2018* .................. A/A+ 938,466
5,000,000 King County Sewer GOs, 6 1/8% due 1/1/2033 ................ Aaa/AAA 5,294,000
1,000,000 Municipality of Metropolitan Seattle Sewer Rev.,
6.60% due 1/1/2032 ....................................... Aaa/AAA 1,089,180
WISCONSIN-- 4.0% 4,000,000 Wisconsin Housing & Economic Development
Authority Housing Rev., 6.85% due 11/1/2012 .............. Aaa/AAA 4,235,960
------------
TOTAL MUNICIPAL BONDS (Cost $93,165,855)-- 95.9% ................................................................ 100,702,540
SHORT-TERM HOLDINGS (Cost $2,400,000)-- 2.3% .................................................................... 2,400,000
OTHER ASSETS LESS LIABILITIES-- 1.8% ............................................................................ 1,913,771
------------
NET INVESTMENT ASSETS-- 100.0% .................................................................................. $105,016,311
============
</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.
7
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<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997
<S> <C> <C>
ASSETS:
Investments at value:
Long-term holdings (cost $93,165,855)........................................ $100,702,540
Short-term holdings (cost $2,400,000)........................................ 2,400,000 $103,102,540
-----------
Cash.............................................................................................. 8,436
Interest receivable............................................................................... 2,094,073
Expenses prepaid to stockholder service agent..................................................... 17,839
Other............................................................................................. 9,931
------------
TOTAL ASSETS...................................................................................... 105,232,819
------------
LIABILITIES:
Accrued expenses, taxes, and other................................................................ 216,508
------------
NET INVESTMENT ASSETS............................................................................. 105,016,311
Preferred Stock................................................................................... 33,600,000
------------
NET ASSETS FOR COMMON STOCK ...................................................................... $ 71,416,311
============
NET ASSETS PER SHARE OF COMMON STOCK (Market value $15.00)........................................ $15.35
============
COMPOSITION OF NET INVESTMENT ASSETS:
Preferred Stock Series TH, $.01 par value, liquidation preference and asset
coverage per share--$50,000 and $156,274, 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-- 4,652,250.................................................................... 46,523
Additional paid-in capital........................................................................ 62,597,144
Accumulated net investment loss................................................................... (16,787)
Undistributed net realized gain................................................................... 1,252,746
Net unrealized appreciation of investments........................................................ 7,536,685
------------
NET INVESTMENT ASSETS............................................................................. $105,016,311
============
</TABLE>
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See Notes to Financial Statements.
8
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<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME:
<S> <C> <C>
INTEREST.......................................................................................... $6,213,010
EXPENSES:
Management fee.................................................................. $ 673,508
Stockholder account and registrar services...................................... 112,139
Auction agent fee............................................................... 83,852
Auditing and legal fees......................................................... 70,306
Stockholder reports and communications.......................................... 59,400
Custody and related services.................................................... 27,405
Stockholders' meeting........................................................... 23,826
Directors' fees and expenses.................................................... 12,843
Miscellaneous................................................................... 91,179
---------
TOTAL EXPENSES.................................................................................... 1,154,458
----------
NET INVESTMENT INCOME............................................................................. 5,058,552*
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................................ 1,249,355
Net change in unrealized appreciation of investments............................ 801,937
---------
NET GAIN ON INVESTMENTS........................................................................... 2,051,292
----------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS................................................. $7,109,844
==========
- ---------------------
* Net investment income available for Common Stock is $3,831,426, which is net of Preferred Stock dividends.
See Notes to Financial Statements.
</TABLE>
9
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<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
YEAR ENDED OCTOBER 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income........................................................ $ 5,058,552 $ 5,169,116
Net realized gain on investments............................................. 1,249,355 716,096
Net change in unrealized appreciation of investments......................... 801,937 (415,682)
------------ ------------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS............................ 7,109,844 5,469,530
------------ ------------
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income:
Preferred Stock, Series TH (per share: $1,826.08 and $1,844.31)........... (1,227,126) (1,239,376)
Common Stock (per share: $.8254 and $.8951)............................... (3,831,426) (4,151,518)
------------ ------------
Total..................................................................... (5,058,552) (5,390,894)
Dividends in excess of net investment income
(per share: $.1130 and $.0433)............................................ (524,427) (200,782)
Net realized gain on investments:
Common Stock (per share: $.154 and $.103)................................. (713,041) (477,034)
------------ ------------
DECREASE IN NET INVESTMENT ASSETS FROM DISTRIBUTIONS......................... (6,296,020) (6,068,710)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Value of shares of Common Stock issued for investment plan
(68,714 and 74,829 shares)................................................ 1,004,990 1,046,819
Value of shares of Common Stock issued in payment of gain
distribution (10,157 and 6,982 shares).................................... 145,346 99,912
Cost of shares purchased for investment plan
(69,500 and 82,300 shares)................................................ (1,016,195) (1,162,776)
------------ ------------
INCREASE (DECREASE) IN NET INVESTMENT ASSETS FROM
CAPITAL SHARE TRANSACTIONS................................................ 134,141 (16,045)
------------ ------------
INCREASE (DECREASE) IN NET INVESTMENT ASSETS................................. 947,965 (615,225)
NET INVESTMENT ASSETS:
Beginning of year............................................................ 104,068,346 104,683,571
------------ ------------
END OF YEAR (including accumulated net investment loss of $16,787
and $14,644, respectively)................................................ $105,016,311 $104,068,346
============ ============
- ----------------------
See Notes to Financial Statements.
</TABLE>
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 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 year ended October 31,
1997, amounted to $16,680,615 and $18,875,870, respectively.
At October 31, 1997, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes, and the
tax basis gross unrealized appreciation of portfolio securities amounted to
$7,536,685.
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 October 31, 1997, 69,500 shares were purchased
in the open market at a cost of $1,016,195, which represented a weighted average
discount of 3.29% from the net asset value of those acquired shares. A total of
70,434 shares were issued to Plan participants during this period for proceeds
of $1,021,936, a discount of 3.09% 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 1,000 shares of
unissued Common Stock as Preferred Stock.
11
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NOTES TO FINANCIAL STATEMENTS (continued)
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 $78,093 for stockholder account services.
Certain officers and directors of the Fund are officers or directors of the
Manager and/or Seligman Data Corp.
The Fund has a compensation arrangement under which directors who receive
fees may elect to defer receiving such fees. Interest is accrued on the de-
ferred balances. The annual cost of such fees and interest is included in
directors' fees and expenses, and the accumulated balance thereof at October 31,
1997, of $16,787 is included in other liabilities. Deferred fees and related
accrued interest are not deductible for federal income tax purposes until such
amounts are paid.
6. RESULTS OF OPERATIONS -- Following is a summary of unaudited quarterly
results of operations, in thousands of dollars except for per share amounts:
<TABLE>
<CAPTION>
FOR QUARTERS ENDED IN THE YEAR 1997
--------------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
----------- -------- ------- -----------
<S> <C> <C> <C> <C>
Total investment income .................................. $1,613 $1,485 $1,564 $1,551
Income for Common Stock .................................. $1,036 $948 $946 $901
Per Common Share ...................................... $.22 $.21 $.20 $.20
Net realized and unrealized investment gain (loss) ....... $(392) $(608) $3,700 $(649)
Per Common Share ...................................... $(.09) $(.13) $.79 $(.14)
FOR QUARTERS ENDED IN THE YEAR 1996
--------------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
----------- -------- ------- -----------
Total investment income .................................. $1,590 $1,563 $1,587 $1,584
Income for Common Stock .................................. $946 $1,018 $992 $974
Per Common Share ...................................... $.20 $.22 $.22 $.21
Net realized and unrealized investment gain (loss) ....... $2,069 $(3,723) $721 $1,233
Per Common Share ...................................... $.44 $(.80) $.15 $.27
</TABLE>
12
<PAGE>
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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 assuming
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 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>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1997 1996 1995 1994 1993
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR .............................. $15.18 $15.31 $13.76 $16.49 $14.05
------ ------ ------ ------ ------
Net investment income ................... 1.09 1.12 1.13 1.13 1.13
Net realized and unrealized
investment gain (loss) ............... 0.43 0.06 1.72 (2.45) 2.46
------ ------ ------ ------ ------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS ................ 1.52 1.18 2.85 (1.32) 3.59
Dividends paid from net investment
income on Preferred Stock ............ (0.26) (0.27) (0.29) (0.20) (0.19)
Dividends paid from net investment
income on Common Stock ............... (0.83) (0.90) (0.94) (0.94) (0.94)
Dividends in excess of net investment
income paid on Common Stock .......... (0.11) (0.04) -- -- --
Distribution from net realized gain ..... (0.15) (0.10) (0.07) (0.27) (0.02)
------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN NET
ASSET VALUE .......................... 0.17 (0.13) 1.55 (2.73) 2.44
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR ............ $15.35 $15.18 $15.31 $13.76 $16.49
====== ====== ====== ====== ======
MARKET VALUE, END OF YEAR ............... $15.00 $14.25 $13.625 $11.50 $15.75
====== ====== ======= ====== ======
</TABLE>
13
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENT RETURN FOR YEAR:
Based upon market value ................. 13.42% 12.62% 27.87% (20.50)% 18.79%
Based upon net asset value .............. 8.95% 6.77% 20.09% (9.15)% 25.03%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net
investment assets .................... 1.11% 1.11% 1.08% 1.11% 1.17%
Expenses to average net assets for
Common Stock ......................... 1.65% 1.65% 1.62% 1.63% 1.72%
Net investment income to average
net investment assets ................ 4.88% 4.98% 5.19% 5.06% 4.96%
Net investment income to average net
assets for Common Stock .............. 7.21% 7.36% 7.76% 7.48% 7.28%
Portfolio turnover rate ................. 16.74% 14.05% 8.63% 12.36% 10.69%
NET INVESTMENT ASSETS, END OF YEAR
(000s omitted):
For Common Stock ........................ $ 71,416 $ 70,468 $ 71,084 $63,906 $ 76,588
For Preferred Stock ..................... 33,600 33,600 33,600 33,600 33,600
--------- --------- --------- -------- ---------
TOTAL NET INVESTMENT ASSETS ............. $105,016 $104,068 $104,684 $97,506 $110,188
========= ========= ========= ======== =========
</TABLE>
- -------------------------
See Notes to Financial Statements.
14
<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
October 31, 1997, the related statements of operations for the year then ended
and of changes in net investment assets for the 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 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 October
31, 1997, by correspondence with the Fund's custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Seligman Quality
Municipal Fund, Inc. as of October 31, 1997, the results of its operations, the
changes in its net investment assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
November 28, 1997
15
<PAGE>
================================================================================
DIVIDEND INVESTMENT PLAN
The Dividend Investment Plan (the "Plan") is available for any holder of
Common Stock with shares registered in his/her own name who wishes to purchase
additional shares of Common Stock with dividends or distributions received on
Fund shares owned. The Plan is not automatic; a Stockholder may elect to
participate in the Plan by notifying his/her broker when the account is set up
or, if the account is maintained by the Fund, by sending a written request to
Seligman Data Corp. ("Seligman Data"), 100 Park Avenue, New York, NY 10017.
Under the Plan, Stockholders appoint the Fund as Plan Agent to invest dividends
in shares of the Fund. Such shares will be acquired by the Fund for
Stockholders, either through open market purchases if the Fund is trading at a
discount, or through the issuance of authorized but unissued shares of Common
Stock if the Fund is trading at a premium. If the market price of a share on the
payable date of a dividend is at or above the Fund's net asset value per share
on such date, the number of shares to be issued by the Fund to each Stockholder
receiving shares in lieu of cash dividends will be determined by dividing the
amount of the cash distribution to which such stockholder would be entitled by
the greater of the net asset value per share on such date, or 95% of the market
price of a share on such date. If the market price of a share on such a
distribution date is below the net asset value per share, the number of shares
to be issued to such Stockholder will be determined by dividing such amount by
the per share market price.
Purchases will be made by the Fund from time to time on the New York Stock
Exchange (the "Exchange") or elsewhere to satisfy dividend and distribution
investment requirements under the Plan. Purchases will be suspended on any day
when the closing price (or closing bid price if there were no sales) of the
shares on the Exchange on the preceding trading day was higher than the net
asset value per share. If, on the dividend payable date, purchases by the Fund
are insufficient to satisfy dividend investments, and on the last trading day
immediately preceding the dividend payable date the closing sale or bid price of
the shares is lower than or the same as the net asset value per share, the Fund
will continue to purchase shares until all investments by Stockholders have been
completed, or the closing sale or bid price of the shares becomes higher than
the net asset value, in which case the Fund will issue the necessary additional
shares from authorized but unissued shares. If on the last trading day
immediately preceding the dividend payable date, the closing sale or bid price
of the shares of Common Stock is higher than the net asset value per share, and
if the number of shares previously purchased on the Exchange or elsewhere is
insufficient to satisfy dividend investments, the Fund will issue the necessary
additional shares from authorized but unissued shares of Common Stock. There
will be no brokerage charges with respect to shares of Common Stock issued
directly by the Fund to satisfy the dividend investment requirements.
However, each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Fund's open market purchases of shares. In each
case, the cost per share of shares purchased for each Common Stockholder's
account will be the average cost, including brokerage commissions, of any shares
of Common Stock purchased in the open market plus the cost of any shares issued
by the Fund. For the year ended October 31, 1997, the Fund purchased 69,500
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
16
<PAGE>
================================================================================
DIVIDEND INVESTMENT PLAN (continued)
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
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
account, including information needed by Common Stockholders for tax records.
Shares in the account of each Plan participant may be held by the Plan Agent in
non-certificated form in the name of the participant, and each Common
Stockholder's proxy will include those shares purchased or received pursuant to
the Plan.
The Fund seeks to pay dividends that are exempt from regular federal income
taxes; however, to the extent that any dividends or distributions do not qualify
as exempt from regular federal income taxes or are subject to state income
taxes, the automatic investment of dividends will not relieve participants of
any income taxes that may be payable (or required to be withheld) on such
dividends. Stockholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan should be treated for federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the stockholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
The Fund reserves the right to amend or terminate the Plan, as applied to any
dividend paid subsequent to written notice of the change sent to participants in
the Plan at least 90 days before the record date for such dividend. There is no
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable to the Fund by the
participants. All correspondence concerning the Plan, including requests for
additional information about the Plan, should be directed to Seligman Data.
The Fund may make additional purchases of its Common Stock in the open market
and elsewhere at such prices and in such amounts as the Board of Directors may
deem advisable. No such additional purchases were made during the year ended
October 31, 1997.
17
<PAGE>
================================================================================
BOARD OF DIRECTORS
FRED E. BROWN
DIRECTOR EMERITUS
DIRECTOR AND CONSULTANT,
J. & W. Seligman &Co. Incorporated
JOHN R. GALVIN 2
DEAN, Fletcher School of Law and Diplomacy
at Tufts University
DIRECTOR, Raytheon Company
DIRECTOR, USLIFE Corporation
ALICE S. ILCHMAN 3
PRESIDENT, Sarah Lawrence College
TRUSTEE, Committee for Economic Development
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON 2
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW
RETIRED CHAIRMAN AND SENIOR PARTNER,
Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Aluminum Corporation
BETSY S. MICHEL 2
TRUSTEE, Geraldine R. Dodge Foundation
CHAIRMAN OF THE BOARD OF TRUSTEES, St. George's School
WILLIAM C. MORRIS 1
CHAIRMAN
CHAIRMAN OF THE BOARD,
J. & W. Seligman &Co. Incorporated
CHAIRMAN, Carbo Ceramics Inc.
DIRECTOR, Kerr-McGee Corporation
JAMES C. PITNEY 3
RETIRED PARTNER, Pitney, Hardin, Kipp &Szuch, Law Firm
JAMES Q. RIORDAN 3
DIRECTOR, The Brooklyn Union Gas Company
TRUSTEE, Committee for Economic Development
DIRECTOR, Dow Jones &Co., Inc.
DIRECTOR, Public Broadcasting Service
RICHARD R.SCHMALTZ 1
MANAGING DIRECTOR,
J. & W. Seligman &Co. Incorporated
TRUSTEE EMERITUS, Colby College
ROBERT L. SHAFER 3
RETIRED VICE PRESIDENT, Pfizer Inc.
DIRECTOR, USLIFE Corporation
JAMES N. WHITSON 2
EXECUTIVE VICE PRESIDENT AND DIRECTOR,
Sammons Enterprises, Inc.
DIRECTOR, C-SPAN
BRIAN T. ZINO 1
PRESIDENT, J. &W. Seligman &Co. Incorporated
CHAIRMAN, Seligman Data Corp.
- -------------------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
18
<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
19
<PAGE>
