SELIGMAN
--------[]--------
QUALITY
--------[]--------
MUNICIPAL
FUND, INC.
[GRAPHIC OMITTED]
[LOGO]
THIRD QUARTER REPORT
JULY 31, 1999
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
CESQF3c 7/99
<PAGE>
- --------------------------------------------------------------------------------
TO THE STOCKHOLDERS
The fiscal quarter ended July 31, 1999, was a difficult period for fixed-income
markets and for Seligman Quality Municipal Fund. During this time, both market
participants and the Federal Reserve Board became increasingly concerned that
the US economy, in its ninth year of robust growth, would begin to show signs of
inflation.
In May, the Fed announced that it was leaning toward tighter policy. Then, in
June, it raised the federal funds rate 25 basis points, but at the same time
announced that it was changing its bias back to neutral. This shift gave the
bond market a temporary boost, but overall this was a period of steadily rising
rates and falling bond prices. On April 30, 1999, the 30-year US Treasury bond
yield was 5.66%. By July 31, 1999, it had risen to 6.10%. The Fed's August 24
increase of an additional 25 basis points was widely anticipated, and bond
yields began to move within a more narrow trading range following the
announcement.
While taxable interest rates have been rising since last autumn, municipal
yields were relatively stable until recently. This was largely the result of an
imbalance in municipal supply and demand. Rising yields were attracting
investors, while municipal issuers were reluctant to offer new supply at higher
rates. During this past fiscal quarter, however, municipal yields moved higher
almost in tandem with rising Treasury yields.
Looking ahead, we believe that the US economy will slow, as was intended by
the Fed's most recent actions, and that bond market volatility will moderate
accordingly. The municipal bond market has benefited from a healthy economy and
stable rate of inflation and we anticipate a continuation of these favorable
market conditions for the balance of the Fund's fiscal year.
We anticipate that the municipal market will continue to outperform the
Treasury market for the balance of the Fund's fiscal year, as a result of the
positive and continually improving credit outlook for the nation's
municipalities.
As the millennium approaches, we have become concerned that the media's focus
on the Year 2000 (Y2K) computer issue, and the fears that this attention may
spark, will cause some investors to take actions that are not in their best
long-term interests. In our view, the primary danger to investors is losing
sight of their long-term financial goals and altering their portfolios and asset
allocations in an attempt to respond to the confusion surrounding this issue.
In the US, governments and businesses have committed substantial resources to
this issue and, while there may be scattered inconveniences, we believe that the
US will enter the year 2000 relatively seamlessly, and that much of the rest of
the developed world is also well positioned to deal with the new millennium.
For the past several years, J. & W. Seligman & Co. Incorporated (Seligman),
your Fund's manager, and Seligman Data Corp. (Seligman Data), your Fund's
Stockholder service agent, have been working to ensure that Stockholders do not
experience any Y2K-related inconveniences. We are pleased to report that the
early start has paid off. During the spring of this year, Seligman and Seligman
Data participated in Y2K testing conducted by the Securities Industry
Association. These tests were completed without any Y2K-related problems on the
part of Seligman or Seligman Data. Tests with key service providers were also
conducted, all of which were successfully completed in a Y2K environment.
Seligman Quality Municipal Fund's 1999 annual meeting took place on May 20,
1999, in Palm Beach, Florida. All proposals set forth in the proxy you received
earlier in the year were passed. For complete results of the vote, please refer
to page 7.
Thank you for your continued support of Seligman Quality Municipal Fund. We
look forward to serving your investment needs for many years to come. A
discussion with your Portfolio Manager and the Fund's portfolio of investments
follow this letter.
By order of the Board of Directors,
/S/ WILLIAM C. MORRIS
- ---------------------
William C. Morris
Chairman
/S/ THOMAS G. MOLES
-------------------
Thomas G. Moles
President
August 31, 1999
1
<PAGE>
- --------------------------------------------------------------------------------
INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
[PICTURE OMITTED]
SELIGMAN MUNICIPALS TEAM: (FROM LEFT) AUDREY KUCHTYAK, THERESA BARION, DEBRA
McGUINNESS, (SEATED) EILEEN COMERFORD, THOMAS G. MOLES (PORTFOLIO MANAGER)
WHAT ECONOMIC AND MARKET FACTORS AFFECTED SELIGMAN QUALITY MUNICIPAL FUND DURING
ITS THIRD FISCAL QUARTER?
Seligman Quality Municipal Fund's third fiscal quarter was marked by growing
concerns about the strength of the US economy, which is now in its ninth year of
robust growth. Market participants were watchful for any signs of inflation
which might cause the US Federal Reserve Board to begin reversing the actions it
took last fall, when it lowered the federal funds rate three times.
In May, the Fed put markets on notice that it was leaning toward higher
rates; this announcement sent yields in the market immediately higher. Then, at
its June meeting, the Fed followed through by raising rates 25 basis points.
However, at the same time, the Fed also changed its bias from tightening to
neutral. This provided some relief for the bond markets and, for a brief period,
the 30-year US Treasury bond yield once again dipped below 6%. Following the
August 24 Fed meeting, at which it raised the federal funds rate by 25 basis
points, bond yields began to trade within a more narrow range.
During the period, interest rates trended higher in response to the perceived
inflation threat. Long-term municipal yields peaked at 5.45%, the highest level
in two years, while long-term Treasury yields peaked at 6.17% in June, a level
not seen since the end of 1997. Until this most recent fiscal quarter, municipal
bonds had been relatively stable compared to the volatility of most other
fixed-income markets. During the first half of the Fund's fiscal year, long-term
municipal yields (as measured by the Bond Buyer 20-bond General Obligation
Index) fluctuated within a relatively narrow range of 20 basis points, while
long-term US Treasury bond yields fluctuated within a much wider range of 75
basis points. This lack of volatility in the municipal market was largely due to
an imbalance in municipal supply and demand. Higher yields attracted investors
while, at the same time, municipalities were reluctant to introduce new issues
at higher market rates. Through the end of the Fund's third fiscal quarter,
total new issue volume was down 23% versus the same period last year.
WHAT WAS YOUR INVESTMENT STRATEGY DURING THIS PAST THREE-MONTH PERIOD?
During the past three months, we continued to focus on reducing the Fund's
near-term call exposure. This has become necessary as older, higher-coupon bonds
begin approaching their optional call dates. (A callable bond can be redeemed by
the issuer, prior to maturity, on specified dates and at a predetermined price.)
To date, we have been successful in extending the call protection of the Fund.
For 1999 and 2000, the Fund's call exposure has been reduced to approximately 1%
of the portfolio. Additionally, we sold several holdings that were callable from
2006 through 2007 and replaced them with bonds callable in 2010. The latter call
extension was achieved without sacrificing income.
Seligman Quality Municipal Fund is required to maintain at least 80% of its
portfolio in triple-A-rated securities. Most of these bonds achieve this high
rating through municipal bond insurance. It is our policy, however, to require
that all municipal bonds in the Fund meet our credit criteria regardless of
insurance coverage. We perform in-depth credit analysis on every bond we
purchase and continually monitor portfolio holdings to ensure that they meet our
credit criteria. This enables us to identify deteriorating credits which can
then be replaced with stronger credits.
2
<PAGE>
- --------------------------------------------------------------------------------
INTERVIEW WITH YOUR PORTFOLIO MANAGER, THOMAS G. MOLES
WHAT IS YOUR OUTLOOK?
We remain optimistic about the prospects for the municipal market and Seligman
Quality Municipal Fund. The fiscal conditions of the nation's states, cities,
and municipalities continue to improve, as is evidenced by the favorable ratio
of credit quality ratings upgrades to downgrades. During the past fiscal
quarter, a combination of attractive municipal yields and lackluster equity
market returns generated more interest in the municipal market. While the yield
differential between municipal and Treasury bonds has widened, municipal bonds
still offer a significant yield advantage compared with the after-tax returns of
Treasury bonds. Finally, as the new millennium approaches, uncertainty
surrounding this historical event may, at times, result in unpredictable market
behavior. This may prompt some investors to make investment decisions
inconsistent with their financial objectives. However, we anticipate that any
Y2K-related market volatility, should it occur, will be temporary, given the
expected continuation of positive municipal market fundamentals. At J. & W.
Seligman & Co. Incorporated, we encourage the Fund's Stockholders to keep sight
of their long-term goals before making short-term investment decisions.
3
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RESULTS PER COMMON SHARE
- --------------------------------------------------------------------------------
TOTAL RETURNS*
FOR PERIODS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------
SINCE
THREE NINE ONE FIVE INCEPTION
MONTHS MONTHS YEAR YEARS 11/29/91
------ ------ ----- ----- --------
<S> <C> <C> <C> <C> <C>
Market Price** (7.12)% (12.25)% (9.12)% 6.86% 5.43%
Net Asset Value** (2.79) (1.41) 1.23 7.19 7.87
</TABLE>
PRICE PER SHARE
<TABLE>
<CAPTION>
JULY 31, 1999 APRIL 30, 1999 JANUARY 31, 1999 OCTOBER 31, 1998
------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Market Price $12.8125 $14.00 $13.50 $15.5625
Net Asset Value 14.31 14.94 15.17 15.47
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE NINE MONTHS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
CAPITAL GAIN
------------------------------------
DIVIDENDS PAID+ PAID REALIZED UNREALIZED
-------------- ------- -------- -----------
<S> <C> <C> <C>
$0.6015 $0.314 $0.264 $0.699++
</TABLE>
ANNUAL DISTRIBUTION RATE
The annual distribution rate based on current market price at July 31, 1999, was
6.20%, which is equivalent to a taxable yield of 10.27% 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 3.00%
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 in November and December 1998 was
taxable as ordinary income.
++Represents the per share amount of net unrealized appreciation of portfolio
securities as of July 31, 1999.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (unaudited) JULY 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALABAMA --4.5% $5,000,000 Jefferson County Sewer Rev. (Capital Improvement
Warrants), 5.125% due 2/1/2039 ..................... Aaa/AAA $ 4,594,150
ALASKA -- 0.9% 70,000 Alaska Housing Finance Corporation (Collateralized
Mortgage Obligation), 7.05% due 6/1/2025 ........... Aaa/AAA 73,591
825,000 Alaska Housing Finance Corporation (Collateralized
Veterans' Mortgage Program), 61/2% due 6/1/2034 .... Aaa/AAA 857,010
CALIFORNIA -- 9.6% 5,000,000 San Diego Public Facilities Financing Authority Sewer
Rev., 5% due 5/15/2029 ............................. Aaa/AAA 4,649,100
5,000,000 San Francisco City and County Airports Commission
International Airport Rev., 5.80% due 5/1/2021* .... Aaa/AAA 5,086,850
COLORADO -- 1.9% 2,000,000 Denver City and County School District #1 GOs,
5% due 12/1/2023 ................................... Aaa/AAA 1,879,340
HAWAII -- 1.8% 1,750,000 Hawaii State Airports System Rev., 7% due 7/1/2020*.. Aaa/AAA 1,859,638
ILLINOIS -- 4.5% 5,000,000 Illinois Educational Facilities Authority Rev.
(University of Chicago), 5.125% due 7/1/2038 ....... Aa1/AA 4,559,200
KANSAS -- 3.2% 3,000,000 Burlington Pollution Control Rev. (Kansas Gas and
Electric Company Project), 7% due 6/1/2031 ......... Aaa/AAA 3,188,490
LOUISIANA -- 1.1% 895,000 Louisiana Public Facilities Authority Hospital Rev.
(Southern Baptist Hospitals, Inc. Project),
8% due 5/15/2012 ................................... NR/AAA 1,057,255
MASSACHUSETTS -- 7.4% 4,000,000 Massachusetts Health & Educational Facilities
Authority Rev. (New England Medical Center),
6.625% due 7/1/2025 ................................ Aaa/AAA 4,285,360
3,000,000 Massachusetts Housing Finance Agency Rev.
(Residential Development), 6.875% due 11/15/2021 ... Aaa/AAA 3,210,660
MONTANA -- 5.5% 2,220,000 Forsyth Pollution Control Rev. (Puget Sound
Power & Light Co.), 7.25% due 8/1/2021* ............ Aaa/AAA 2,366,675
1,620,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6.875% due 6/1/2020 ................................ Aaa/AAA 1,729,577
845,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6.875% due 6/1/2020 ................................ Aaa/AAA 902,156
535,000 Montana State Board of Investments Payroll Tax
Rev. (Workers' Compensation Program),
6.875% due 6/1/2020 ................................ Aaa/AAA 571,187
NEW YORK -- 16.9% 3,000,000 Metropolitan Transportation Authority Rev.
(Commuter Facilities), 6.10% due 7/1/2026 .......... Aaa/AAA 3,309,660
2,000,000 Metropolitan Transportation Authority Rev.
(Transit Facilities), 6.10% due 7/1/2026 ........... Aaa/AAA 2,211,460
</TABLE>
- ----------------------
See footnotes on page 6.
5
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (unaudited) (continued) JULY 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE RATINGS
STATE AMOUNT MUNICIPAL BONDS MOODY'S/S&P MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (continued) $2,300,000 New York City GOs, 6.25% due 4/15/2027 ............ A3/A- $ 2,465,508
340,000 New York City GOs, 6.25% due 4/15/2027 ............ A3/A- 376,098
3,000,000 New York Local Government Assistance
Corporation, 7% due 4/1/2021 ..................... Aaa/AAA 3,201,390
5,125,000 New York State Thruway Authority Rev.,
6% due 1/1/2025 .................................. Aaa/AAA 5,571,387
PENNSYLVANIA -- 9.9% 2,500,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.80% due 1/1/2010* ...... Aaa/AAA 2,658,575
2,000,000 Allegheny County Airport Rev. (Greater Pittsburgh
International Airport), 6.625% due 1/1/2022* ..... Aaa/AAA 2,121,300
5,000,000 Philadelphia Airport Rev., 6.10% due 6/15/2025* ... Aaa/AAA 5,186,050
SOUTH CAROLINA -- 4.7% 2,250,000 South Carolina Ports Authority Rev.,
6.75% due 7/1/2021* .............................. Aaa/AAA 2,380,747
2,250,000 South Carolina Ports Authority Rev.,
6.75% due 7/1/2021* .............................. Aaa/AAA 2,401,808
TEXAS -- 6.8% 5,000,000 Houston Water & Sewer Systems Rev.,
6.125% due 12/1/2015 ............................. Aaa/AAA 5,449,000
1,315,000 Texas State Veterans' Housing Assistance GOs,
6.80% due 12/1/2023* ............................. Aa1/AA 1,393,479
VIRGINIA -- 6.0% 2,500,000 Pocahontas Parkway Association Toll Road Rev.
(Route 895 Connector), 5.50% due 8/15/2028 ....... Baa3/BBB- 2,365,050
3,500,000 Virginia Housing Development Authority (Multi-
Family Housing), 7% due 11/1/2012 ................ Aa1/AA+ 3,731,210
WASHINGTON -- 7.9% 2,000,000 Chelan County Public Utility District No. 001
(Chelan Hydro Consolidated System Rev.),
5.25% due 7/1/2033* .............................. Aaa/AAA 1,859,740
860,000 Douglas County Public Utility District No. 1
(Wells Hydroelectric Rev.), 7.80% due 9/1/2018* .. A/A+ 900,927
5,000,000 King County Sewer GOs, 6.125% due 1/1/2033 ........ Aaa/AAA 5,259,800
WISCONSIN -- 4.2% 4,000,000 Wisconsin Housing & Economic Development
Authority Housing Rev., 6.85% due 11/1/2012 ...... Aaa/AAA 4,238,400
-----------
TOTAL MUNICIPAL BONDS (Cost $94,654,176)-- 96.8% ................................................... 97,951,828
VARIABLE RATE DEMAND NOTES (Cost $2,100,000)-- 2.1% ................................................ 2,100,000
OTHER ASSETS LESS LIABILITIES-- 1.1% ............................................................... 1,080,636
------------
NET INVESTMENT ASSETS-- 100.0% ..................................................................... $101,132,464
============
</TABLE>
- ---------------
* 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.
6
<PAGE>
- --------------------------------------------------------------------------------
PROXY RESULTS
Stockholders of Seligman Quality Municipal Fund, Inc. voted on the following
proposals at the Annual Meeting of Stockholders on May 20, 1999, in Palm Beach,
Florida. The description of each proposal and number of shares voted are as
follows:
ELECTION OF DIRECTORS:
Election by Holders of Preferred Shares and Common Shares:
FOR WITHHELD
------------- --------------
John E. Merow 4,220,508 40,960
James C. Pitney 4,220,754 40,714
Election by Holders of Preferred Shares:
FOR WITHHELD
------------- --------------
Betsy S. Michel 579 --
James N. Whitson 579 --
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR FISCAL 1999:
FOR AGAINST ABSTAIN
------------- -------------- -----------
4,209,534 9,778 42,156
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
<TABLE>
<CAPTION>
MANAGER INDEPENDENT AUDITORS IMPORTANT TELEPHONE NUMBERS
<S> <C> <C> <C>
J. & W. Seligman & Co. Incorporated Deloitte & Touche LLP (800) 874-1092 Stockholder Services
100 Park Avenue (212) 682-7600 Outside the United States
New York, NY 10017 STOCKHOLDER SERVICE AGENT (800) 622-4597 24-Hour Automated
Seligman Data Corp. Telephone Access
GENERAL COUNSEL 100 Park Avenue Service
Sullivan & Cromwell New York, NY10017
</TABLE>
7
