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
CESQF2 10/98
SELIGMAN
-------- * --------
QUALITY
-------- * --------
MUNICIPAL
FUND, INC.
Annual Report
October 31, 1998
<PAGE>
TO THE STOCKHOLDERS
Seligman Quality Municipal Fund ended its fiscal year on October 31, 1998 on a
positive note as the USeconomic expansion became one of the longest in the
nation's history. Domestic economic growth continued, but at a slower pace,
while inflation and interest rates reached their lowest levels in a quarter
century. Furthermore, unemployment has not been this low since 1970. On the
negative side, the financial crisis that started in Asia in late 1997
intensified throughout the world during the last several months. Japan's
recession and banking problems deepened, Russia's economy neared ruin, many
emerging markets collapsed, and Brazil suffered fiscal problems that threatened
all of Latin America.
This global financial turmoil contributed to a slowdown in USeconomic growth,
while the rate of inflation remained muted. In September, and again in October,
the Federal Reserve Board lowered the Federal funds rate. The Fed's unexpected
second action in October underscored the potential threat to the US economy of
the overseas financial problems, heightening investor demand for US Treasuries.
The US municipal market fared well for the year. Interest rates declined,
leading to good performance results for bond investors. However, strong demand
for the safe haven of Treasury bonds, combined with heavy new issue supply in
the municipal market, caused the decline in long-term Treasury yields to exceed
the decline in municipal yields. As a result, the Treasury market outperformed
the municipal market for the year. Further, the yield differential between
30-year Treasury bonds and similar municipal obligations narrowed to levels not
seen since 1986. At one point in the period, selected long-term municipal
obligations actually traded at higher yields than long-term Treasuries, despite
the tax-exempt status of municipal bonds. As a positive result of the narrowing
of yield spreads, municipal bonds are currently trading at exceptionally
attractive levels compared with Treasury bonds.
Going forward, we believe the favorable climate for municipal bonds should
continue, and even improve. Decelerating US economic growth, coupled with global
financial turmoil, should serve to subdue domestic inflationary pressures.
Further, the yield spreads between municipal bonds and Treasury bonds should
return to more historic levels in the near future. Finally, there is widespread
anticipation that new issues of municipal bonds will decrease in the months
ahead.
Because municipal securities continue to offer a significant yield advantage
when compared with the after-tax returns of many other fixed-income investments,
we are confident that Seligman Quality Municipal Fund will continue to play an
important role in helping investors meet their long-term financial goals.
On November 19, 1998, the Board of Directors of the Fund approved a monthly
dividend payment of $0.0645 per share to Common Stockholders effective in
January 1999. This amount represents a $0.0105 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
<PAGE>
TO THE STOCKHOLDERS (continued)
Thank you for your continued support of Seligman Quality Municipal Fund. We
look forward to serving your investment needs in the many years to come. A
discussion with your Portfolio Manager, financial statements, and information
regarding the year 2000 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
November 27, 1998
2
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
[Picture]
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 26
years of experience, has spearheaded Seligman's municipal investment efforts
since joining the firm in 1983.
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED SELIGMAN QUALITY MUNICIPAL FUND IN
THE LAST 12 MONTHS?
"At the start of Seligman Quality Municipal Fund's fiscal year, financial
markets were coping with the fallout from the Asian financial crisis. Yields on
Treasury bonds fell sharply as a result of a "flight to quality" by nervous
equity investors. In the municipal market, long-term yields declined steadily
throughout the Fund's first quarter, reaching a 26-year low in mid-January. By
the start of the Fund's second quarter, the financial markets had begun to
normalize. Municipal yields trended higher due to a significant increase in new
issue volume, but remained at historically low levels. Treasury yields
stabilized, and the stock market soared to new highs. However, negative
developments in Asia and Latin America prompted a repeat of events of the
previous year. Between July and September, the stock market plummeted by almost
twenty percent. Investors once again sought the safety and liquidity of the
USTreasury market. This caused the 30-year bond to decline to the lowest yield
since its introduction in 1977. Long-term municipal yields fell through the
January lows. The Federal Reserve Board intervened in late September, October,
and again in November 1998, lowering the Fed funds rate in an attempt to calm
panicked investors. By the end of Seligman Quality Municipal Fund's fiscal year
on October 31, world financial markets had stabilized and the US equity markets
had recovered much of their losses.
"The turmoil in world markets contributed to a modest slowdown in the pace of
US economic growth and prevented an acceleration in the rate of inflation.
Nevertheless, the economy remains strong eight years into the expansion. While
it is too early to predict the final outcome of recent events, the economy's
remarkable resilience may once more be sufficient to forestall a recession.
"Throughout the past year, the municipal market has underperformed the US
Treasury market. A net reduction in Treasury financing, occurring simultaneously
with an increase in demand, caused the decline in Treasury yields to
significantly outpace the decline in municipal yields. As a result, long-term
municipal bonds have not been this attractive, relative to long-term Treasuries,
since 1986 when proposed tax legislation threatened the tax-exempt status of
municipal securities."
WHAT WAS YOUR INVESTMENT STRATEGY?
"Our investment strategy reflected our positive outlook for interest rates,
inflation, and the economy. New purchases were concentrated in municipal bonds
with maturities of thirty years and longer. In general, the longer the maturity
of a bond, the more it will appreciate in price as interest rates decline (or
depreciate in price if interest rates rise). Cash positions were kept to a
minimum due to their low yields and lack of price appreciation potential.
3
<PAGE>
INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES (continued)
"During the year, we focused on improving the call protection of Seligman
Quality Municipal Fund. Most long-term municipal bonds contain call features
which give the issuer the option to redeem the bonds on specified dates prior to
maturity, at predetermined prices. Retiring outstanding, higher-coupon bonds can
result in significant savings to the issuer. Declining interest rates increase
the likelihood that bonds approaching their call dates will be redeemed. Because
issuers generally call their higher-coupon bonds, the proceeds of called bonds
must be reinvested at lower yields, reducing the income to the bondholder. Due
to the declining interest-rate environment, we chose to sell a portion of our
short-call bonds prior to their actual call dates and reinvested the proceeds at
current yields, rather than risk a further reduction in interest rates. Again,
even with these actions, the proceeds were reinvested at lower yields, which
reduced the portfolio's income. However, we have all but eliminated the Fund's
call exposure through the year 2000 and reduced exposure for 2001 and 2002.
"Seligman Quality Municipal Fund benefited by having a number of portfolio
holdings "advance refunded." Throughout the past year, many municipal issuers
took advantage of lower yields to refinance higher-coupon bonds with longer call
dates. In an advance refunding, new bonds are issued and the proceeds placed in
an escrow account (generally comprised of government securities) which secures
the outstanding bonds until they can be redeemed on a future call date. When a
bond is advance refunded, total return performance is improved and the bond's
rating is often upgraded."
WHAT IS THE OUTLOOK?
"Long-term municipal yields have fallen to levels not seen in many years, as
have interest rates in general. Nevertheless, municipal securities, as well as
Seligman Quality Municipal Fund, currently offer a significant yield advantage
when compared to the after-tax returns of Treasury securities and to the low
rate of inflation. As the yield spread between municipal bonds and Treasury
bonds normalizes going forward, municipal market performance should improve
relative to the Treasury market. Further, we believe that the municipal market's
record of safety and stability will continue to attract investment dollars away
from the more volatile equity markets."
4
<PAGE>
INVESTMENT RESULTS PER COMMON SHARE
TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 1998
AVERAGE ANNUAL
-----------------------------------
SINCE
THREE ONE FIVE INCEPTION
MONTHS YEAR YEARS 11/29/91
------ ------ ------ --------
Market Price** 3.57% 12.04% 7.79% 8.05%
Net Asset Value** 2.68 8.84 6.67 8.97
PRICE PER SHARE
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1998 1998 1998 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Market Price $15.5625 $15.25 $14.875 $15.6875 $15.00
Net Asset Value 15.47 15.29 15.02 15.41 15.35
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1998
CAPITAL GAIN
---------------------------------------
DIVIDENDS PAID+ PAID REALIZED UNREALIZED
--------------- ------- -------- ----------
$0.9064 $0.269 $0.314 $1.801++
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at October 31, 1998,
was 5.82%, which is equivalent to a taxable yield of 8.33% based on the maximum
federal tax rate of 39.6%.
- --------------------------------------------------------------------------------
The rates of return will vary and the principal value of an investment will
fluctuate. Shares, if sold, may be worth more or less than their original cost.
Past performance is not indicative of future investment results.
*Returns for periods of less than one year are not annualized.
**These rates of return reflect changes in 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 October 31, 1998.
5
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Face Ratings+
State Amount Municipal Bonds Moody's/S&P Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALASKA-- 2.1% $ 715,000 Alaska Housing Finance Corporation (Collateralized
Mortgage Obligation), 7.05% due 6/1/2025 ................... Aaa/AAA $ 763,556
1,360,000 Alaska Housing Finance Corporation (Collateralized
Veterans' Mortgage Program), 6 1/2% due 6/1/2034 ........... Aaa/AAA 1,432,556
CALIFORNIA-- 7.9% 5,000,000 San Francisco City and County Airports Commission
Rev. (International Airport), 5.80% due 5/1/2021* .......... Aaa/AAA 5,306,300
2,750,000 San Joaquin Hills Transportation Corridor Agency Rev.
(Orange County Senior Lien Toll Road),
6 3/4% due 1/1/2032 ........................................ Aaa/AAA 3,127,520
GEORGIA-- 3.0% 3,000,000 Atlanta Airport Facilities Rev., 6 1/4% due 1/1/2021* ....... Aaa/AAA 3,185,370
HAWAII-- 1.8% 1,750,000 Hawaii State Airports System Rev., 7% due 7/1/2020* ......... Aaa/AAA 1,907,658
ILLINOIS-- 4.6% 5,000,000 Illinois Educational Facilities Authority Rev.
(University of Chicago), 5 1/8% due 7/1/2038 ............... Aa1/AA 4,863,350
KANSAS-- 3.1% 3,000,000 Burlington Pollution Control Rev. (Kansas Gas and
Electric Company Project), 7% due 6/1/2031 ................. Aaa/AAA 3,276,090
LOUISIANA-- 3.2% 935,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project),
8% due 5/15/2012 ........................................... NR/AAA 1,157,165
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 2,240,260
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 4,409,480
3,000,000 Massachusetts Housing Finance Agency Rev.
(Residential Development), 6 7/8% due 11/15/2021 ............ Aaa/AAA 3,271,710
MONTANA-- 5.4% 2,220,000 Forsyth Pollution Control Rev. (Puget Sound
Power & Light Co.), 7 1/4% due 8/1/2021* .................... Aaa/AAA 2,438,626
1,620,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ......................................... Aaa/AAA 1,777,253
845,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ......................................... Aaa/AAA 927,024
535,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6 7/8% due 6/1/2020 ......................................... Aaa/AAA 586,932
NEW YORK-- 16.7% 3,000,000 Metropolitan Transportation Authority Rev.
(Commuter Facilities), 6.10% due 7/1/2026 .................. Aaa/AAA 3,452,340
- ------------------------------------------------------------------------------------------------------------------------------------
See footnotes on page 7.
</TABLE>
6
<PAGE>
OCTOBER 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS+
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK (continued) $2,000,000 Metropolitan Transportation Authority Rev.
(Transit Facilities), 6.10% due 7/1/2026 ................... Aaa/AAA $ 2,301,560
2,640,000 New York City GOs, 6 1/4% due 4/15/2027 ...................... A3/A- 2,899,908
3,000,000 New York State Local Government Assistance
Corporation, 7% due 4/1/2021 ............................... Aaa/AAA 3,289,980
5,125,000 New York State Thruway Authority General Rev.,
6% due 1/1/2025 ............................................ Aaa/AAA 5,772,441
PENNSYLVANIA-- 9.7 % 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* ................ Aaa/AAA 2,726,850
2,000,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6 5/8% due 1/1/2022* ................ Aaa/AAA 2,177,440
5,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* ............. Aaa/AAA 5,461,750
SOUTH CAROLINA-- 7.7% 3,000,000 South Carolina Public Service Authority Rev.
(Santee Cooper), 6.10% due 7/1/2027 ........................ Aaa/AAA 3,301,560
2,250,000 South Carolina Ports Authority Rev.,
6 3/4% due 7/1/2021* ........................................ Aaa/AAA 2,448,517
2,250,000 South Carolina Ports Authority Rev.,
6 3/4% due 7/1/2021* ........................................ Aaa/AAA 2,438,640
TEXAS-- 7.0% 5,000,000 Houston Water & Sewer Systems Rev.,
6 1/8% due 12/1/2015 ........................................ Aaa/AAA 5,653,050
1,660,000 Texas State Veterans' Housing Assistance GOs,
6.80% due 12/1/2023* ....................................... Aa2/AA 1,791,223
VIRGINIA-- 6.0% 2,500,000 Pocahontas Parkway Association Toll Road
Bonds (Route 895 Connector),
5 1/2% due 8/15/2028 ........................................ Baa3/BBB- 2,501,925
3,500,000 Virginia Housing Development Authority (Multi-
Family Housing), 7% due 11/1/2012 .......................... Aa1/AA+ 3,838,135
WASHINGTON -- 7.9% 2,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.),
5 1/4% due 7/1/2033* ........................................ Aaa/AAA 1,990,900
860,000 Douglas County Public Utilities District No. 1
Hydroelectric Rev., 7.80% due 9/1/2018* .................... A/A+ 925,412
5,000,000 King County Sewer GOs, 6 1/8% due 1/1/2033 ................... Aaa/AAA 5,544,850
WISCONSIN-- 4.1% 4,000,000 Wisconsin Housing & Economic Development
Authority Housing Rev., 6.85% due 11/1/2012 ................ Aaa/AAA 4,318,000
------------
TOTAL MUNICIPAL BONDS (Cost $95,050,045)-- 97.4% .................................................................... 103,505,331
VARIABLE RATE DEMAND NOTES (Cost $700,000)-- 0.7% ................................................................... 700,000
OTHER ASSETS LESS LIABILITIES-- 1.9% ................................................................................ 2,013,452
------------
NET INVESTMENT ASSETS-- 100.0% ...................................................................................... $106,218,783
============
- --------------------
+ 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.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
<S> <C> <C>
ASSETS:
Investments at value:
Long-term holdings (cost $95,050,045)........................................ $103,505,331
Short-term holdings (cost $700,000).......................................... 700,000 $ 104,205,331
------------
Cash.............................................................................................. 76,887
Interest receivable............................................................................... 2,143,028
Expenses prepaid to stockholder service agent..................................................... 14,933
Other............................................................................................. 10,028
------------
TOTAL ASSETS...................................................................................... 106,450,207
------------
LIABILITIES:
Accrued expenses, taxes, and other................................................................ 231,424
------------
NET INVESTMENT ASSETS............................................................................. 106,218,783
Preferred Stock................................................................................... 33,600,000
------------
NET ASSETS FOR COMMON STOCK ...................................................................... $ 72,618,783
============
NET ASSETS PER SHARE OF COMMON STOCK (Market value $15.5625)...................................... $15.47
======
COMPOSITION OF NET INVESTMENT ASSETS:
Preferred Stock Series TH, $.01 par value, liquidation preference and asset
coverage per share--$50,000 and $158,064, 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-- 4,694,296.................................................................... 46,943
Additional paid-in capital........................................................................ 62,659,173
Accumulated net investment loss................................................................... (16,669)
Undistributed net realized gain................................................................... 1,474,050
Net unrealized appreciation of investments........................................................ 8,455,286
------------
NET INVESTMENT ASSETS............................................................................. $106,218,783
============
- ----------
See Notes to Financial Statements.
</TABLE>
8
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME:
INTEREST......................................................... $6,087,684
EXPENSES:
Management fee...................................... $ 684,845
Stockholder account and registrar services.......... 106,836
Auction agent fee................................... 83,852
Auditing and legal fees............................. 73,242
Stockholder reports and communications.............. 48,503
Stockholders' meeting............................... 30,061
Custody and related services........................ 20,440
Directors' fees and expenses........................ 11,949
Miscellaneous....................................... 112,603
-------
TOTAL EXPENSES................................................... 1,172,331
----------
NET INVESTMENT INCOME............................................ 4,915,353*
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.................... 1,473,840
Net change in unrealized appreciation of investments 918,601
-------
NET GAIN ON INVESTMENTS.......................................... 2,392,441
----------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS................ $7,307,794
==========
- ----------------
* Net investment income available for Common Stock is $3,661,643, which is net
of Preferred Stock dividends.
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
YEAR ENDED OCTOBER 31,
--------------------------------
1998 1997
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................................................ $ 4,915,353 $ 5,058,552
Net realized gain on investments............................................. 1,473,840 1,249,355
Net change in unrealized appreciation of investments......................... 918,601 801,937
------------ ------------
INCREASE IN NET INVESTMENT ASSETS FROM OPERATIONS............................ 7,307,794 7,109,844
------------ ------------
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income:
Preferred Stock, Series TH (per share: $1,865.64 and $1,826.08)........... (1,253,710) (1,227,126)
Common Stock (per share: $.7823 and $.8254)............................... (3,661,643) (3,831,426)
------------ ------------
Total..................................................................... (4,915,353) (5,058,552)
Dividends in excess of net investment income:
Common Stock (per share: $.1241 and $.1130)............................... (580,696) (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......................... (6,748,585) (6,296,020)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Value of shares of Common Stock issued for investment plan
(62,307 and 68,714 shares)................................................ 945,639 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
(37,700 and 69,500 shares)................................................ (569,193) (1,016,195)
------------ ------------
INCREASE IN NET INVESTMENT ASSETS FROM CAPITAL SHARE TRANSACTIONS............ 643,263 134,141
------------ ------------
INCREASE IN NET INVESTMENT ASSETS............................................ 1,202,472 947,965
NET INVESTMENT ASSETS:
Beginning of year............................................................ 105,016,311 104,068,346
------------ ------------
END OF YEAR (including accumulated net investment
loss of $16,669 and $16,787, respectively)................................ $106,218,783 $105,016,311
============ ============
- -----------------
See Notes to Financial Statements.
</TABLE>
10
<PAGE>
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 year ended October 31,
1998, amounted to $14,931,725 and $14,452,455, respectively.
At October 31, 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 $8,464,386 and $9,100, respectively.
3. DIVIDEND INVESTMENT PLAN -- Under the Fund's Charter, dividends or other
distributions on the Common Stock cannot be declared unless the Fund can satisfy
the requirements of two separate asset maintenance tests after giving effect to
such distributions.
The Fund, in connection with its Dividend Investment Plan (the "Plan"),
acquires and issues shares of its own Common Stock, as needed, to satisfy Plan
requirements. For the year ended October 31, 1998, 37,700 shares were purchased
in the open market at a cost of $569,193, which represented a weighted average
discount of 1.28% from the net asset value of those acquired shares. A total of
62,307 shares were issued to Plan participants during this period for proceeds
of $945,639, a weighted average discount of 0.89% 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.
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
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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 $69,589 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 annual
cost of such fees and earnings accrued thereon is included in directors' fees
and expenses, and the accumulated balance thereof at October 31, 1998, of
$16,669 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.
12
<PAGE>
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, based on average shares outstanding.
"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.
The ratios of expenses and net investment income to average net investment
assets and to average net assets for Common Stock, for all years presented, do
not reflect the effect of dividends paid to Preferred Stockholders.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE: 1998 1997 1996 1995 1994
----- ----- ----- ----- -----
NET ASSET VALUE, BEGINNING OF YEAR ...................... $15.35 $15.18 $15.31 $13.76 $16.49
------ ------ ------ ------ ------
Net investment income ................................... 1.05 1.09 1.12 1.13 1.13
Net realized and unrealized
investment gain (loss) ............................... 0.51 0.43 0.06 1.72 (2.45)
------ ------ ------ ------ ------
INCREASE (DECREASE) FROM
INVESTMENT OPERATIONS ................................ 1.56 1.52 1.18 2.85 (1.32)
Dividends paid from net investment
income on Preferred Stock ............................ (0.27) (0.26) (0.27) (0.29) (0.20)
Dividends paid from net investment
income on Common Stock ............................... (0.78) (0.83) (0.90) (0.94) (0.94)
Dividends in excess of net investment
income paid on Common Stock .......................... (0.12) (0.11) (0.04) -- --
Distribution from net realized gain ..................... (0.27) (0.15) (0.10) (0.07) (0.27)
------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN NET
ASSET VALUE .......................................... 0.12 0.17 (0.13) 1.55 (2.73)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR ............................ $15.47 $15.35 $15.18 $15.31 $13.76
====== ====== ====== ====== ======
MARKET VALUE, END OF YEAR ............................... $15.5625 $15.00 $14.25 $13.625 $11.50
======== ====== ====== ====== ======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENT RETURN FOR YEAR: 1998 1997 1996 1995 1994
----- ----- ----- ----- ----
Based upon market value .................................. 12.04% 13.42% 12.62% 27.87% (20.50)%
Based upon net asset value ............................... 8.84% 8.95% 6.77% 20.09% (9.15)%
RATIOS/SUPPLEMENTAL DATA:
Expenses to average net
investment assets ..................................... 1.11% 1.11% 1.11% 1.08% 1.11%
Expenses to average net assets for
Common Stock .......................................... 1.63% 1.65% 1.65% 1.62% 1.63%
Net investment income to average
net investment assets ................................. 4.67% 4.88% 4.98% 5.19% 5.06%
Net investment income to average net
assets for Common Stock ............................... 6.85% 7.21% 7.36% 7.76% 7.48%
Portfolio turnover rate .................................. 14.17% 16.74% 14.05% 8.63% 12.36%
NET INVESTMENT ASSETS, END OF YEAR
(000s omitted):
For Common Stock ......................................... $ 72,619 $ 71,416 $ 70,468 $ 71,084 $63,906
For Preferred Stock ...................................... 33,600 33,600 33,600 33,600 33,600
-------- -------- -------- -------- --------
TOTAL NET INVESTMENT ASSETS .............................. $106,219 $105,016 $104,068 $104,684 $97,506
======== ======== ======== ======== ========
- -----------------------
See Notes to Financial Statements.
</TABLE>
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, 1998, the related statements of operations for the year then ended
and of changes in net investment assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and 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, 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 October 31, 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
November 27, 1998
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"), P.O. Box 9759, Providence, RI02940-9759.
Under the Plan, Stockholders appoint the Fund as Plan Agent to invest dividends
in shares of the Fund. Such shares will be acquired by the Fund for
Stockholders, either through open market purchases if the Fund is trading at a
discount, or through the issuance of authorized but unissued shares of Common
Stock if the Fund is trading at a premium. If the market price of a share on the
payable date of a dividend is at or above the Fund's net asset value per share
on such date, the number of shares to be issued by the Fund to each Stockholder
receiving shares in lieu of cash dividends will be determined by dividing the
amount of the cash distribution to which such stockholder would be entitled by
the greater of the net asset value per share on such date, or 95% of the market
price of a share on such date. If the market price of a share on such a
distribution date is below the net asset value per share, the number of shares
to be issued to such Stockholder will be determined by dividing such amount by
the per share market price.
Purchases will be made by the Fund from time to time on the New York Stock
Exchange (the "Exchange") or elsewhere to satisfy dividend and distribution
investment requirements under the Plan. Purchases will be suspended on any day
when the closing price (or closing bid price if there were no sales) of the
shares on the Exchange on the preceding trading day was higher than the net
asset value per share. If, on the dividend payable date, purchases by the Fund
are insufficient to satisfy dividend investments, and on the last trading day
immediately preceding the dividend payable date the closing sale or bid price of
the shares is lower than or the same as the net asset value per share, the Fund
will continue to purchase shares until all investments by Stockholders have been
completed, or the closing sale or bid price of the shares becomes higher than
the net asset value, in which case the Fund will issue the necessary additional
shares from authorized but unissued shares. If on the last trading day
immediately preceding the dividend payable date, the closing sale or bid price
of the shares of Common Stock is higher than the net asset value per share, and
if the number of shares previously purchased on the Exchange or elsewhere is
insufficient to satisfy dividend investments, the Fund will issue the necessary
additional shares from authorized but unissued shares of Common Stock. There
will be no brokerage charges with respect to shares of Common Stock issued
directly by the Fund to satisfy the dividend investment requirements. However,
each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Fund's open market purchases of shares. In each case, the
cost per share of shares purchased for each Common Stockholder's account will be
the average cost, including brokerage commissions, of any shares of Common Stock
purchased in the open market plus the cost of any shares issued by the Fund. For
the year ended October 31, 1998, the Fund purchased 37,700 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, 1998.
17
<PAGE>
YEAR 2000
As the millennium approaches, financial and business organizations, including
Seligman Quality Municipal Fund, Inc. (the "Fund"), and individuals could be
adversely affected if their computer systems do not properly process and
calculate date-related information and data on and after January 1, 2000. Like
other mutual funds and closed-end investment companies, the Fund relies upon
service providers and their computer systems for its day-to-day operations. Many
of the Fund's service providers in turn depend upon computer systems of their
vendors. J. & W. Seligman & Co. Incorporated (the "Manager") and Seligman Data
Corp. ("Seligman Data") have established a year 2000 project team. The team's
purpose is to assess the state of readiness of the Manager and Seligman Data,
and the Fund's other service providers and vendors. The team is comprised of
several information technology and business professionals, as well as outside
consultants. The Project Manager of the team reports directly to the
Administrative Committee of the Manager. The Project Manager and other members
of the team also report to the Fund's Board of Directors and its Audit
Committee.
The team has identified the service providers and vendors who furnish
critical services or software systems to the Fund, including firms with which
the Fund trades and firms responsible for stockholder account recordkeeping. The
team is working with these critical service providers and vendors to evaluate
the impact year 2000 issues may have on their ability to provide uninterrupted
services to the Fund. The team will assess the feasibility of their year 2000
plans. The team has made progress on its year 2000 contingency plans - recovery
efforts the team will employ in the event that year 2000 issues adversely affect
the Fund. The team anticipates finalizing these plans in the near future.
The Fund anticipates the team will have implemented all significant
components of the team's year 2000 plans by mid-1999, including appropriate
testing of critical systems and receipt of satisfactory assurances from critical
service providers and vendors regarding their year 2000 compliance. The Fund
believes that the critical systems on which it relies will function properly on
and after the year 2000, but this is not guaranteed. If these systems do not
function properly, or the Fund's critical service providers are not successful
in implementing their year 2000 plans, the Fund's operations may be adversely
affected, including pricing and securities trading and settlement, and the
provision of stockholder services.
In addition, the Fund holds securities issued by governmental or
quasi-governmental issuers, which, like other organizations, may be susceptible
to year 2000 concerns. Year 2000 issues may affect an issuer's operations,
creditworthiness, and ability to make timely payment on any indebtedness and
could have an adverse impact on the value of its securities. If the Fund holds
these securities, its performance could be negatively affected. The Manager
seeks to identify an issuer's state of year 2000 readiness as part of the
research it employs. However, the perception of an issuer's year 2000
preparedness is only one of the many factors considered in determining whether
to buy, sell, or continue to hold a security. Information provided by issuers
concerning their state of readiness may or may not be accurate or readily
available.
Seligman Data has informed the Fund that it does not expect the cost of its
services to increase materially as a result of the modifications to its computer
systems necessary to prepare for the year 2000. The Fund will not pay to
remediate the systems of the Manager or bear directly the costs to remediate the
systems of any other service providers or vendors, other than Seligman Data.
18
<PAGE>
BOARD OF DIRECTORS
JOHN R. GALVIN 2,4
DEAN, Fletcher School of Law and Diplomacy at Tufts University
DIRECTOR, Raytheon Company
ALICE S. ILCHMAN 3,4
TRUSTEE, Committee for Economic Development
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON 2,4
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW 2,4
RETIRED CHAIRMAN AND SENIOR PARTNER,
Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Industries, Inc.
DIRECTOR, New York Presbyterian Hospital
BETSY S. MICHEL 2,4
TRUSTEE, The Geraldine R. Dodge Foundation
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 3,4
RETIRED PARTNER, Pitney, Hardin, Kipp & Szuch, Law Firm
JAMES Q. RIORDAN 3,4
TRUSTEE, KeySpan Energy Corporation
TRUSTEE, Committee for Economic Development
DIRECTOR, Public Broadcasting Service
RICHARD R.SCHMALTZ 1
MANAGING DIRECTOR, DIRECTOR OF INVESTMENTS,
J. & W. Seligman & Co. Incorporated
TRUSTEE EMERITUS, Colby College
ROBERT L. SHAFER 3,4
RETIRED VICE PRESIDENT, Pfizer Inc.
JAMES N. WHITSON 2,4
DIRECTOR AND CONSULTANT, Sammons Enterprises, Inc.
DIRECTOR, C-SPAN
DIRECTOR, CommScope, Inc.
BRIAN T. ZINO 1
PRESIDENT, J. & W. Seligman &Co. Incorporated
CHAIRMAN, Seligman Data Corp.
DIRECTOR, ICI Mutual Insurance Company
DIRECTOR EMERITUS
FRED E. BROWN
DIRECTOR AND CONSULTANT,
J. & W. Seligman & Co. Incorporated
- ------------------------------------
Member: 1 Executive Committee
2 Audit Committee
3 Director Nominating Committee
4 Board Operations Committee
- --------------------------------------------------------------------------------
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 United States
19
