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SELIGMAN
-----------------
QUALITY
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MUNICIPAL
FUND, INC.
[graphic]
First Quarter Report
January 31, 1999
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To the Stockholders
During Seligman Quality Municipal Fund's first fiscal quarter, the US economy
continued to grow at a surprisingly robust pace. Despite the ongoing economic
expansion, inflation remains low, with few signs of upward price pressures.
Unemployment has fallen to levels not seen in nearly thirty years, but wages
have not been forced significantly higher. As long as this economic equilibrium
continues, the Federal Reserve Board is unlikely to take action in either
direction and policy should remain on hold for the near future.
The municipal bond market was stable during this time, especially compared to
the US Treasury market. Long-term municipal yields experienced only modest ups
and downs and were nearly the same at the end of the quarter as they had been at
the Fund's fiscal year end. The stability can largely be attributed to a
slowdown in new-issue supply, which had been at historically high levels for
much of last year. In January 1999, new-issue supply was 24% lower than it had
been one year earlier.
Municipal bonds continue to offer attractive after-tax yield advantages over
US Treasuries. Last year's high demand for US Treasury securities caused their
yields to fall much faster than those of municipal bonds. At the end of the
Fund's fiscal quarter, the yield differential between Treasuries and municipals
remained narrow, despite the tax advantages of the latter. Municipals had not
been that attractive relative to Treasuries since 1986, when tax-reform concerns
were widespread.
Seligman continues to work to ensure that all of its operations are prepared
for the challenges posed by the Year 2000 (Y2K) computer problem, and we foresee
no disruption as a result of this issue in the investment and shareholder
services provided by your Fund. In addition, your portfolio management team
considers the potential ramifications of Y2K when making decisions on which
securities should be held by the Fund.
Thank you for your confidence in Seligman Quality Municipal Fund. We look
forward to continuing to serve your investment needs. 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
February 26, 1999
1
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
[photo]
Seligman Municipals Team: (standing, from left) Audrey Kuchtyak, Theresa Barion,
Debra McGuinness, (seated) Eileen Comerford, Thomas G. Moles (Portfolio Manager)
WHAT ECONOMIC AND MARKET FACTORS AFFECTED SELIGMAN QUALITY MUNICIPAL FUND DURING
ITS FIRST FISCAL QUARTER?
During the three-month period ended January 31, 1999, the municipal bond
market remained stable. Long-term municipal yields fluctuated within an
extremely narrow range, and ended the fiscal quarter essentially unchanged from
the Fund's fiscal year-end on October 31, 1998. This stability was primarily the
result of a slowdown in new-issue supply, which had been nearing record-high
levels for most of 1998. In January 1999, new-issue supply was 24% lower than it
had been one year earlier.
During the past year and a half of global financial turmoil, demand for US
Treasury bonds grew as investors viewed these securities as a safe haven during
periods of instability and uncertainty. This "flight to quality" created a high
level of volatility in the US Treasury market and pushed Treasury bond yields
lower. Municipal bond yields also declined during that period, but were outpaced
by the faster decline in Treasury yields. At one point during 1998, yields for
long-term Treasuries were actually lower than yields for long-term municipals,
despite the latter's tax-exempt status. At the end of the Fund's fiscal quarter,
the yield spread between municipal and Treasury bonds remained historically
narrow. Municipals had not been that attractive in comparison to Treasuries
since 1986, when tax-reform fears drove municipal yields higher.
WHAT WAS YOUR INVESTMENT STRATEGY DURING THE THREE MONTHS UNDER REVIEW?
During the past fiscal quarter, we continued to concentrate on improving the
Fund's call protection. Most of Seligman Quality Municipal Fund's higher-coupon
bonds were purchased when interest rates were higher than they are today. Over
the past several years, these bonds have been approaching their optional call
dates. (A callable bond can be redeemed by the issuer prior to maturity on
predetermined dates and at specified prices.) In a declining interest-rate
environment, such as we have been experiencing, bond calls typically increase as
issuers seek to retire higher-cost debt. We have attempted to mitigate the
reinvestment risk these calls pose to the portfolio by proactively selling bonds
that are approaching their call dates, rather than waiting until these bonds are
called and risk having to reinvest the proceeds at even lower yields.
Providing Seligman Quality Municipal Fund stockholders with a consistent
monthly dividend distribution has always been a primary focus. However, since
the Fund's introduction in 1991, interest rates have declined steadily, making
it increasingly difficult to maintain the Fund's dividend distribution. As a
result of bond calls and redemptions, the Fund's investment income has fallen,
necessitating the January 1999 reduction in the Fund's dividend distribution.
The steps that we have taken to reduce the Fund's bond call exposure should help
to stabilize its dividend during the fiscal year ahead.
2
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INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES (continued)
DO YOU FORESEE ANY IMPACT ON THE MUNICIPAL BOND MARKET AS A RESULT OF THE YEAR
2000 (Y2K) COMPUTER PROBLEM?
Y2K is certainly a major challenge facing the municipal market, and
individual states, cities, and municipalities vary widely in their current
capacity to manage it. Throughout the coming year, we will consider the
Y2K-readiness of an issuer when we evaluate a security. Our ability to remain
informed of an issuer's Y2K status was improved last year when the Securities
and Exchange Commission established disclosure guidelines requiring
municipalities to inform investors about material Y2K concerns.
WHAT IS YOUR OUTLOOK?
Long-term municipal bond yields, while at their lowest levels in many years,
continue to offer a significant after-tax advantage over those of long-term US
Treasuries. This current yield advantage, in addition to the likelihood that
new-issue supply will be lower than it was last year, should contribute to an
improvement in the performance of municipal bonds relative to Treasury bonds.
3
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Investment Results Per Common Share
TOTAL RETURNS*
FOR PERIODS ENDED JANUARY 31, 1999
AVERAGE ANNUAL
---------------------------------
SINCE
THREE ONE FIVE INCEPTION
MONTHS YEAR YEARS 11/29/91
------- ------ ------- --------
Market Price** (10.15)% (6.84)% 4.65% 6.17%
Net Asset Value** 1.57 6.61 6.45 8.89
PRICE PER SHARE
JANUARY 31, OCTOBER 31,
1999 1998
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Market Price $13.50 $15.5625
Net Asset Value 15.17 15.47
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
Capital Gain
-----------------------------------
Dividends Paid+ Paid Realized Unrealized
-------------- ------- -------- ----------
$0.2145 $0.314 $0.033 $1.793++
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at January 31, 1999,
was 5.89%, which is equivalent to a taxable yield of 9.64% 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 3.00%
to 4.85%. Earnings on the Fund's assets in excess of the preferred dividend
requirements constituted dividend income for Common Stockholders. A portion
of dividends paid to Common Stockholders may be taxable as ordinary income.
++Represents the per share amount of net unrealized appreciation of portfolio
securities as of January 31, 1999.
4
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Portfolio of Investments (unaudited) January 31, 1999
<TABLE>
<CAPTION>
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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-- 1.3% $ 295,000 Alaska Housing Finance Corporation (Collateralized
Mortgage Obligation), 7.05% due 6/1/2025 ............... Aaa/AAA $ 314,505
1,040,000 Alaska Housing Finance Corporation (Collateralized
Veterans' Mortgage Program), 61/2% due 6/1/2034 ........ Aaa/AAA 1,093,986
CALIFORNIA-- 8.0% 5,000,000 San Francisco City and County Airports Commission
Rev. (International Airport), 5.80% due 5/1/2021* ...... Aaa/AAA 5,302,100
2,750,000 San Joaquin Hills Transportation Corridor Agency Rev.
(Orange County Senior Lien Toll Road),
63/4% due 1/1/2032 ..................................... Aaa/AAA 3,129,335
COLORADO-- 1.9% 2,000,000 Denver City and County School District #1 GOs,
5% due 12/1/2023 ....................................... Aaa/AAA 2,005,520
GEORGIA-- 3.0% 3,000,000 Atlanta Airport Facilities Rev., 61/4% due 1/1/2021* .... Aaa/AAA 3,171,150
HAWAII-- 1.8% 1,750,000 Hawaii State Airports System Rev., 7% due 7/1/2020* ..... Aaa/AAA 1,903,913
ILLINOIS-- 4.7% 5,000,000 Illinois Educational Facilities Authority Rev.
(University of Chicago), 51/8% due 7/1/2038 ............ Aa1/AA 4,928,950
KANSAS-- 3.1% 3,000,000 Burlington Pollution Control Rev. (Kansas Gas and
Electric Company Project), 7% due 6/1/2031 ............. Aaa/AAA 3,267,990
LOUISIANA-- 3.3% 935,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project),
8% due 5/15/2012 ....................................... NR/AAA 1,164,019
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 2,247,120
MASSACHUSETTS -- 7.3% 4,000,000 Massachusetts Health & Educational Facilities
Authority Rev. (New England Medical Center),
65/8% due 7/1/2025 ..................................... Aaa/AAA 4,406,480
3,000,000 Massachusetts Housing Finance Agency Rev.
(Residential Development), 67/8% due 11/15/2021 ........ Aaa/AAA 3,262,620
MONTANA-- 5.4% 2,220,000 Forsyth Pollution Control Rev. (Puget Sound
Power & Light Co.), 71/4% due 8/1/2021* ................ Aaa/AAA 2,433,120
1,620,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
67/8% due 6/1/2020 ..................................... Aaa/AAA 1,773,074
845,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
67/8% due 6/1/2020 ..................................... Aaa/AAA 924,844
535,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
67/8% due 6/1/2020 ..................................... Aaa/AAA 585,552
NEW YORK-- 17.0% 3,000,000 Metropolitan Transportation Authority Rev.
(Commuter Facilities), 6.10% due 7/1/2026 .............. Aaa/AAA 3,485,760
2,000,000 Metropolitan Transportation Authority Rev.
(Transit Facilities), 6.10% due 7/1/2026 ............... Aaa/AAA 2,323,840
</TABLE>
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See footnotes on page 6.
5
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PORTFOLIO OF INVESTMENTS (Unaudited) (Continued) January 31, 1999
<TABLE>
<CAPTION>
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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) $2,600,000 New York City GOs, 61/4% due 4/15/2027 .................. A3/A- $ 2,867,020
40,000 New York City GOs, 61/4% due 4/15/2027 .................. A3/A- 46,655
3,000,000 New York State Local Government Assistance
Corporation, 7% due 4/1/2021 ........................... Aaa/AAA 3,287,880
5,125,000 New York State Thruway Authority General Rev.,
6% due 1/1/2025 ........................................ Aaa/AAA 5,823,179
PENNSYLVANIA-- 9.8 % 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* ............ Aaa/AAA 2,729,150
2,000,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 65/8% due 1/1/2022* ............ Aaa/AAA 2,174,920
5,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* ......... Aaa/AAA 5,441,500
SOUTH CAROLINA-- 5.7% 1,000,000 South Carolina Public Service Authority Rev.
(Santee Cooper), 6.10% due 7/1/2027 .................... Aaa/AAA 1,102,610
2,250,000 South Carolina Ports Authority Rev.,
63/4% due 7/1/2021* .................................... Aaa/AAA 2,435,017
2,250,000 South Carolina Ports Authority Rev.,
63/4% due 7/1/2021* .................................... Aaa/AAA 2,453,648
TEXAS-- 6.9% 5,000,000 Houston Water & Sewer Systems Rev.,
61/8% due 12/1/2015 .................................... Aaa/AAA 5,703,750
1,465,000 Texas State Veterans' Housing Assistance GOs,
6.80% due 12/1/2023* ................................... Aa2/AA 1,579,680
VIRGINIA-- 6.0% 2,500,000 Pocahontas Parkway Association Toll Road Bonds
(Route 895 Connector), 51/2% due 8/15/2028 ............. Baa3/BBB- 2,499,925
3,500,000 Virginia Housing Development Authority (Multi-
Family Housing), 7% due 11/1/2012 ...................... Aa1/AA+ 3,826,935
WASHINGTON -- 8.1% 2,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.),
51/4% due 7/1/2033* .................................... Aaa/AAA 2,001,620
860,000 Douglas County Public Utilities District No. 1
Hydroelectric Rev., 7.80% due 9/1/2018* ................ A/A+ 919,572
5,000,000 King County Sewer GOs, 61/8% due 1/1/2033 ............... Aaa/AAA 5,561,300
WISCONSIN-- 4.1% 4,000,000 Wisconsin Housing & Economic Development
Authority Housing Rev., 6.85% due 11/1/2012 ............ Aaa/AAA 4,305,320
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TOTAL MUNICIPAL BONDS (Cost $94,021,661)-- 97.4% ............................................................. 102,483,559
VARIABLE RATE DEMAND NOTES (Cost $1,300,000)-- 1.2% .......................................................... 1,300,000
OTHER ASSETS LESS LIABILITIES-- 1.4% ......................................................................... 1,420,168
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NET INVESTMENT ASSETS-- 100.0% ............................................................................... $105,203,727
============
</TABLE>
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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.
<PAGE>
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
CESQF3a 1/99
