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65th ANNUAL REPORT 1994
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TRI-CONTINENTAL
CORPORATION
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an investment you can live with
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TRI-CONTINENTAL CORPORATION
Board of Directors
Fred E. Brown
Director and Consultant,
J. & W. Seligman & Co.
Incorporated
Alice S. Ilchman (3,4)
President, Sarah Lawrence College
Trustee, Committee for Economic Development
Director, NYNEX
Trustee, The Rockefeller Foundation
John E. Merow
Partner, Sullivan & Cromwell, Attorneys
Betsy S. Michel (2,4)
Director or Trustee, Various Organizations
William C. Morris (1)
Chairman
Chairman of the Board and President, J. & W. Seligman & Co. Incorporated
Chairman, Carbo Ceramics Inc.
Director, Daniel Industries, Inc.
Director, Kerr-McGee Corporation
Douglas R. Nichols, Jr. (2,4)
Management Consultant
James C. Pitney (3,4)
Partner, Pitney, Hardin, Kipp & Szuch, Attorneys
Director, Public Service Enterprise Group
James Q. Riordan (3,4)
Director, The Brooklyn Union Gas Company
Trustee, Committee for Economic Development
Director, Dow Jones & Co., Inc.
Director, Public Broadcasting
Service
Herman J. Schmidt (2,4)
Director, H.J. Heinz Company
Director, HON Industries, Inc.
Director, MAPCO, Inc.
Ronald T. Schroeder (1)
President
Managing Director, J. & W. Seligman & Co. Incorporated
Robert L. Shafer (3,4)
Vice President, Pfizer Inc.
Director, USLIFE Corporation
James N. Whitson (2,4)
Executive Vice President and Director,
Sammons Enterprises, Inc.
Director, C-SPAN
Brian T. Zino (1)
Managing Director, 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
Ronald T. Schroeder
President
Charles C. Smith, Jr.
Vice President
Lawrence P. Vogel
Vice President
Thomas G. Rose
Treasurer
Frank J. Nasta
Secretary
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Highlights of the Year
Assets at year end: 1994 1993
------------- -------------
Total assets ........................... $2,049,281,845 $2,249,978,091
Amounts owed ......................... 17,546,369 46,128,793
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Net investment assets $2,031,735,476 $2,203,849,298
Preferred Stock, at par value ........ 37,637,000 37,637,000
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Net assets for Common Stock ............ $1,994,098,476 $2,166,212,298
============== =============
Common shares outstanding .............. 84,144,106 78,812,785
Net assets behind each
Common share ......................... $23.70 $27.49
With 1994 gain distribution
taken in shares ...................... $25.94 --
Taxable gain:
Net capital gain realized* ............. $ 149,773,270 $ 133,505,475
Per Common share $ 1.90 $ 1.80
Unrealized capital gain, end of
year* ................................ $ 191,363,863 $ 471,377,172
Per Common share ..................... $ 2.27 $ 5.98
Distribution of current year's gain:
Per Common share ..................... $ 1.90 $ 1.80
Income:
Total income earned* ................... $ 79,332,941 $ 76,383,174
Expenses 13,705,939 14,141,470
Preferred Stock dividends ............ 1,881,850 1,881,850
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Income for Common Stock ................ $ 63,745,152 $ 60,359,854
============== =============
Dividends per Common share ............. $ .79 $ .80
With December 1993 gain
distribution taken in shares ....... $ .85 --
If the 15,822 Warrants remaining outstanding had been exercised at December 31,
1994, the Corporation would have issued 202,047 additional shares of Common
Stock for $355,603. The net assets behind each Common share would have been
$23.65 and, with the 1994 gain distribution taken in shares, $25.89.
*Amounts include the effect of related foreign currency transactions.
3
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TRI-CONTINENTAL CORPORATION
February 3, 1995
To the Stockholders:
We are pleased to provide you with Tri-Continental's 65th Annual Report.
1994 was another difficult year for investments in high-quality stocks and
bonds. We expect that an improvement in the overall conditions for investors,
and the Corporation's exposure to international holdings and its shift in
investment focus, will bring about better years in 1995 and in the future.
Your Corporation's net asset value per share was $23.70 at December 31,
compared to $26.37 at September 30, and $27.49 a year ago. Your Corporation's
market price per share was $19.875 at December 31, compared to $22.25 at
September 30, and $23.75 a year ago. The change in both net asset value and
market price is partly caused by the deduction of the $1.90 per share capital
gain payment made on December 21 to Common Stockholders of record December 8.
On December 21, your Corporation also paid a $0.21 per share dividend to
Common Stockholders of record December 16, which brought the total dividends for
1994 to $0.79 per share.
Your Corporation's total return was -0.68% for the three months and -2.20%
for the 12 months ended December 31, based on net asset value. For the same
periods, total return was -1.28% and -5.07%, respectively, based on market
price. (Total return reflects change in price, net asset value or market, as
applicable, and assumes that any dividends are invested and capital gain
distributions are taken in additional shares during the quoted period.) Your
Corporation's total returns in 1994 compare to the 1.32% total return for the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). However, more
broadly based market indicators fared far worse than the S&P 500; the New York
Stock Exchange Composite Index returned -3.14%, and the Value Line Index
returned -6.01%.
Looking back on 1994, the one generalization that can be made with
confidence is that it was a turbulent and trying year for equity and bond
investors alike. The Federal Reserve Board exhibited an aggressive stance
against inflation, putting through six short-term interest rate increases by the
end of the year. This caused an upheaval in the bond market, with yields
increasing and bond prices spiraling lower--an event in the financial markets
unmatched in magnitude since 1973-74.
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The equity market remained hostage to the bond market and demonstrated
lackluster performance for the year.
The U.S. economy continued to grow at a modest yet controlled pace,
accompanied by corporate news of solid growth and strong earnings. This economic
news, although positive, caused the underlying question to remain: Will the
economy overheat, opening the door to increased inflation? We don't believe so.
We believe an economic slowdown is close at hand. In March of 1995, the
current growth cycle will mark its fourth year. The consumer has both increased
debt as a percentage of income and drawn down savings--suggesting nearer-term
caution after a stronger-than-expected pattern of spending in 1994. We also
believe that inflation will remain under control in light of intense global
competition, low unit labor costs, and an aging population that should favor
saving over spending. Job creation remains strong despite gains in productivity,
and U.S. competitiveness in world markets is likely to be enhanced under
G.A.T.T.--General Agreement on Tariffs and Trade.
As of January 1, 1995, the portfolio management responsibilities of
Tri-Continental Corporation have been assumed by Mr. Charles C. Smith, Jr. Mr.
Smith is supported by a group of investment professionals dedicated to the
objectives of Tri-Continental Corporation. Please refer to page 6 for a
discussion about your Corporation, and page 9 for a more detailed look at your
Corporation's results for the year.
By order of the Board of Directors,
/s/ William C. Morris
William C. Morris
Chairman
/s/ Ronald T. Schroeder
Ronald T. Schroeder
President
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Your Portfolio Manager
Charles C. Smith, Jr. is a Managing
Director of J. & W. Seligman & Co.
Incorporated and Portfolio Manager of
Seligman Common Stock Fund, Seligman
Income Fund, and Tri-Continental [photograph of Charles C. Smith, Jr.]
Corporation. Mr. Smith joined Seligman
in 1985 as Vice President, Investment
Officer and was promoted to Senior Vice
President, Senior Investment Officer in
August 1992, and to Managing Director in
January 1994.
Economic Factors Affecting Tri-Continental
Corporation
"The rise in short-term interest rates and investors' concerns over
an increased rate of future inflation had a tremendous effect on both the equity
and bond markets. This made 1994 a challenging year for investors, and for
Tri-Continental Corporation."
Sector Performance
"In 1994, your portfolio's strongest sector was technology, with holdings such
as EMC and Micron Technology. Consumer staples companies with solid
international exposure, such as Coca-Cola and Gillette, did well due to stronger
earnings growth and greater pricing flexibility. In addition, restructuring
corporations, such as IBM, provided solid returns as their earnings outlook
improved. On the other hand, consumer cyclicals and several interest
rate-sensitive industries, such as electric utilities and regional banks, had
difficulties in 1994 due to the rise in interest rates."
Investment Strategy
"Tri-Continental Corporation has been managed as a portfolio that consisted of
both fixed-income securities to obtain income and traditional growth stocks to
achieve capital appreciation. While this strategy was fruitful in the late 1980s
and early 1990s, it has been less effective in recent years.
"Although the investment objective and policy will not change, we view 1995 as a
transitional year in which we are shifting the structure of the portfolio by
reducing the fixed-income commitment and increasing the diversification in the
equity portion. It is our intention to obtain income by owning companies with
attractive rates of return in the form of dividends, and to achieve capital
appreciation by using a bottom-up stock selection process to identify companies
within a broad range of industries that offer the best opportunities for good
long-term growth. This strategy, we feel, may be able to enhance your
Corporation's earnings outlook for the future."
6
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Diversification of Assets
The diversification of portfolio holdings by industry on December 31, 1994 was
as follows. Individual securities owned are listed on pages 17 to 24.
Percent of
Net Investment
Assets
--------------
December 31,
Issues Cost Value 1994 1993
----- ------------- ------------- ------ ------
Net Cash and Short-Term
Holdings 2 $ 83,827,413 $ 83,827,413 4.2% 2.6%
U.S. Government Securities 2 70,318,125 67,440,598 3.3 8.3
Corporate Bonds 4 46,827,085 44,075,000 2.2 2.7
Tri-Continental
Financial Division 4 25,209,602 27,690,898 1.3 1.2
--- ------------- ------------- ----- -----
12 $ 226,182,225 $ 223,033,909 11.0% 14.8%
--- ------------- ------------- ----- -----
Common Stocks and
Convertible Issues:
Aerospace 2 $ 34,149,974 $ 33,850,000 1.7% --%
Automotive and related 4 76,196,340 82,337,500 4.0 6.2
Basic materials 6 72,834,421 75,276,848 3.7 5.3
Building and construction 2 19,333,162 17,341,697 0.9 0.7
Communications 8 79,187,622 81,728,844 4.0 5.4
Computers and business
services 6 74,794,783 106,050,625 5.2 3.4
Consumer goods and
services 14 164,477,245 215,512,749 10.6 9.0
Diversified 8 99,997,377 105,855,500 5.2 3.5
Drugs and health care 8 102,422,189 117,362,111 5.8 4.3
Electric and gas utilities 5 51,081,226 46,366,345 2.3 4.3
Electronics 3 30,426,861 56,139,375 2.8 3.3
Energy 15 192,352,785 192,274,816 9.4 8.3
Entertainment and leisure 3 23,156,680 24,316,250 1.2 3.7
Environmental management 1 15,911,127 14,187,500 0.7 0.7
Finance and insurance 16 190,746,426 212,803,141 10.5 11.8
Manufacturing and
industrial equipment 11 144,386,892 159,955,507 7.9 5.4
Packaging and paper 3 21,072,298 20,975,851 1.1 --
Publishing 1 5,615,308 6,784,890 0.3 --
Real estate investment trust10 86,487,038 99,881,250 4.9 3.0
Retail trade 6 79,914,198 90,995,000 4.4 4.3
Transportation 5 39,446,390 39,378,355 1.9 2.6
Miscellaneous 3 10,199,046 9,327,413 0.5 --
--- ------------- ------------- ----- -----
140 $1,614,189,388 $1,808,701,567 89.0% 85.2%
--- -------------- -------------- ----- -----
NET INVESTMENT
ASSETS 152 $1,840,371,613 $2,031,735,476 100.0% 100.0%
=== ============== ============== ===== =====
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LARGEST PORTFOLIO CHANGES*
October 1 to December 31, 1994
Shares
-----------------------------
Holdings
Additions Increase 12/31/94
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COMMON STOCKS
Bank of New York, Inc. 450,000 450,000
Bristol-Myers Squibb Company 250,000 250,000
Corning, Inc. 350,000 350,000
Dover Corporation 200,000 200,000
Eastman Kodak Company 450,000 450,000
Kimberly-Clark Corporation 300,000 300,000
Liz Claiborne, Inc. 500,000 500,000
Premark International, Inc. 300,000 300,000
Warner-Lambert Company 100,000 200,000
CONVERTIBLE PREFERRED STOCK
AK Steel Holdings Corporation, 7% 350,000 350,000
Holdings
Reductions Decrease 12/31/94
------------ ------------
COMMON STOCKS
AirTouch Communications Inc. 500,000 --
Engelhard Corporation 500,000 --
Georgia-Pacific Corporation 200,000 150,000
Intel Corporation 200,000 --
Micron Technology, Inc. 285,000 615,000
PPG Industries, Inc. 500,000 --
Teva Pharmaceutical Industries Ltd. (ADRs) 375,000 --
Weyerhaeuser Company 200,000 --
Wheelabrator Technologies, Inc. 780,000 --
CONVERTIBLE PREFERRED STOCK
Barnett Banks, Inc., $4.50 200,000 --
*Largest portfolio changes from the previous quarter to the current quarter are
based on cost of purchases and proceeds from sales of securities.
8
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RESULTS OF YEAR
The following table presents actual investment gains realized, dividends paid,
and year-end net asset values per Common share for the past 10 years. Also
presented are the corresponding amounts of realized gains, dividends earned, and
net asset values for a Common share owned at the beginning of the 10-year
period, assuming gain distributions had been taken in additional shares.
- - --------------------------------------------------------------------------------
Net asset
Gains Dividends value of a
earned earned Net asset share
Gain assuming assuming value of a assuming
realized gains Dividends gains share gains
per taken in paid per taken in outstanding taken in
share shares* share shares* at year end shares*
----- ------ ----- ------ --------- ------
1994 $1.90 $4.60 $0.79 $1.91 $23.70 $57.41
1993 1.80 4.05 0.80 1.80 27.49 61.87
1992 0.70 1.53 0.78 1.71 28.03 61.40
1991 1.80 3.69 0.78 1.60 28.57 58.53
1990 1.60 3.06 0.86 1.64 24.60 47.00
1989 2.55 4.38 0.84 1.44 27.44 47.08
1988 1.25 2.02 0.81 1.31 23.55 38.02
1987 3.68 5.09 0.89 1.23 23.94 33.08
1986 4.39 5.26 0.97 1.16 27.94 33.49
1985 2.62 2.88 1.04 1.14 29.78 32.68
*Reflects the compounding effect from additional shares that would have been
received had capital gain distributions been taken in shares since January 1,
1985, rather than in cash.
- - --------------------------------------------------------------------------------
NET INVESTMENT ASSETS were $2,031,735,476 at December 31.
NET ASSET VALUE of each share of Common Stock was $23.70 at December 31,
compared to $27.49 at the start of the year. If you took shares in payment of
the December gain distribution, the net asset value of each share you owned at
the beginning of 1994 was equivalent to $25.94 at year end. Assuming you
invested dividends and took the gain distribution in shares, your total return
was -2.20%. This compares with 1.32% for common stock prices generally, as
measured by the Standard & Poor's 500 Composite Stock Price Index.
INVESTMENT INCOME was $79,332,941 in 1994, up 3.9% over last year.
OPERATING EXPENSES for the year were $13,705,939. The ratio of expenses to the
average value of net assets was 0.64%, down 3% from last year.
DIVIDENDS DECLARED totaled $64,024,229. Preferred Stock dividends paid each
quarter completed 65 years of uninterrupted payments. Income available to cover
the $2.50 Preferred dividend was equivalent to $87.18 per share.
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Common Stock dividends, paid quarterly, totaled $0.79 per share on an average of
78,668,000 shares, compared to $0.80 in 1993 when, on average, there were
approximately 4,213,000 fewer shares outstanding.
TAXABLE NET INVESTMENT GAIN of $149,773,270 was realized in 1994. This amounted
to $1.90 per share of Common Stock. The amount of net gain realized is the
result of sales of securities in the portfolio throughout the year.
UNREALIZED GAIN on investments totaled $191,363,863, or $2.27, per share of
Common Stock, as of December 31, 1994.
10 Largest Equity Holdings
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Increase (Decrease)
December 31, 1994 in Per Share Price
----------------------- ---------------------
Cost Value For Since
(000's) (000's) 1994 Purchase
--------- --------- --------- ---------
General Electric Company.. $ 23,043 $ 40,800 (2.8)% 77.1%
Coca-Cola Company......... 5,545 36,050 15.4 550.1
Citicorp $5.375
(Conv. Pfd.) ........... 21,988 28,656 4.6 30.3
American International
Group Inc............... 15,972 27,930 11.7 74.9
Microsoft Corporation .... 13,581 27,562 51.9 102.9
Chrysler Corporation
$4.625 (Conv. Pfd.) .... 21,308 27,475 (8.9) 28.9
Micron Technology, Inc.... 5,851 27,137 137.9 363.8
Dow Chemical Company...... 21,473 25,219 18.5 17.4
Procter & Gamble Company.. 22,124 24,800 8.8 12.1
Eaton Corporation......... 25,084 24,750 (2.0) (1.3)
-------- --------
$175,969 $290,379
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- - --------------------------------------------------------------------------------
The 10 largest equity investments at year end had an aggregate market value of
$290.4 million and accounted for 14.3% of net investment assets.
DISTRIBUTION OF REALIZED GAIN
Your Directors declared a distribution of $1.90 per Common share from taxable
net gains realized in 1994, which was paid on December 21 to Stockholders of
record on December 8.
The number of shares of Common Stock issued to those who took the December
payment in shares was determined by dividing the total dollar amount payable by
$20.063, the mean of the high and low market prices on the New York Stock
Exchange on December 16. Distributions should be taken into account in measuring
the results of an investment in Tri-Continental Common and should be taken in
shares if you wish to benefit from the compounding effect of the full amount of
your investment.
10
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PURCHASES OF COMMON STOCK
Under the Automatic Dividend Investment and Cash Purchase Plan, and other
stockholder plans, purchases of Common Stock were made by the Corporation in the
open market and from Stockholders participating in withdrawal plans to satisfy
Plan requirements. Those shares were then sold to Stockholders using the Plan.
During 1994, 2,106,411 shares were purchased by Stockholders through the Plan.
The Corporation may make additional purchases of its Common Stock in the open
market at such prices and in such amounts as the Board of Directors may deem
advisable. No such additional purchases were made during 1994.
STOCKHOLDER SERVICES
Tri-Continental provides a number of services to make maintaining an investment
in its Common Stock more convenient.
INDIVIDUAL RETIREMENT ACCOUNT TRUST (IRA) is available to individuals under age
70 1/2 who have earned income. The maximum annual deductible individual
contribution is $2,000. A married person with a non-working spouse may set aside
$2,250 annually, while a working couple may shelter up to $4,000 a year. If your
adjusted gross income as a single person exceeds $25,000 a year, or as a married
couple filing jointly exceeds $40,000, and you or your spouse are participating
in an employer's retirement plan, your deduction for the IRA contribution is
reduced or eliminated. To the extent that your deduction for an IRA contribution
is reduced, you will be able to make a non-deductible contribution, the earnings
on which accumulate tax-free. The IRA allows you to invest for your retirement,
to defer taxes on dividends and gain distributions, and to provide benefits for
your spouse, if you wish.
ROLLOVER IRAs
You may be eligible to roll over a distribution of assets received from another
IRA, from a qualified employee benefit plan, or tax-deferred annuity into an IRA
with Tri-Continental. To avoid a tax penalty, the transfer to a Rollover IRA
must occur within 60 days of receipt of the qualifying distribution. However, if
you do not make a direct transfer of a distribution from a qualified employee
benefit plan or a tax-deferred annuity to a Rollover IRA, the payor of the
distribution must withhold 20% of the distribution.
RETIREMENT PLANNING -- QUALIFIED PLANS. Unincorporated businesses and the
self-employed may take advantage of the same benefits in their retirement plans
that were previously available only to corporations. Maximum contribution levels
11
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are 25% of earned income (reduced by plan contributions), up to $30,000 per
participant for pension plans, and 15%, up to $30,000, for profit-sharing plans.
For retirement plan purposes, no more than $150,000 may be taken into account as
earned income under the plan in 1994 and future years (subject to adjustments to
reflect cost of living increases). Social Security integration and employee
vesting schedules are also available as options in the Tri-Continental prototype
retirement plans. Although you already may be participating in an employer's
retirement plan, you may be eligible to establish another plan based upon income
from other sources, such as director's fees.
RETIREMENT PLAN SERVICES provides information about our prototype retirement
plans. The toll-free telephone number is (800) 445-1777 in the Continental U.S.
GIFTS FREE OF FEDERAL TAX are often made using Tri-Continental Common Stock. You
may give as much as $10,000 a year to as many individuals as desired free of
federal gift tax, and a married couple may give up to $20,000 a year.
THE AUTOMATIC CASH WITHDRAWAL PLAN enables owners of Common shares with a market
value of $5,000 or more to receive a fixed amount from their investment at
regular intervals. Investors use the plan to supplement current or retirement
income, for educational expenses, or for other purposes.
FEDERAL TAXES
Quarterly dividends paid on both the Preferred and Common Stocks in 1994 are
subject to federal income tax as "ordinary dividend income." Under the Internal
Revenue Code, 61% of such 1994 ordinary dividend income paid to Common and
Preferred Stockholders qualifies for the dividends received deduction available
to corporate stockholders. In order to claim the dividends received deduction on
these distributions, corporate stockholders must have been treated as holding
the shares for at least 46 days.
The distribution of $1.90 from net long-term gain realized on investments during
1994 was paid to Common Stockholders on December 21, 1994. The long-term gain is
designated as a "capital gain dividend" for federal income tax purposes and is
taxable to stockholders in 1994 as a long-term gain from the sale of capital
assets no matter how long Tri-Continental Common may have been owned. If shares
on which a capital gain distribution was received are subsequently sold, and
such shares have been held for six months or less from date of purchase, any
loss would be treated as long-term to the extent it offsets the long-term gain
distribution. The tax cost basis of the December 21 distribution was $20.063 per
share.
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INTEREST ON U.S. GOVERNMENT OBLIGATIONS
Certain states do not tax dividends paid by regulated investment companies, such
as Tri-Continental, to the extent the income is derived from interest on U.S.
Government obligations. Tax treatment varies by state, and it is suggested that
you consult your tax advisor. Information regarding that portion of dividends
derived from interest on U.S. Government obligations and other relevant
information was included in the 1994 Important Tax Information attached to your
Form 1099-DIV.
Discount or Premium on Common Stock
[Market Discount or Premium from Asset Value graph appears here]
------------------
Tri-Continental Common Stock was priced in the market at a discount to net asset
value during 1994. At year end, the discount was 16.14%.
Market price for Tri-Continental Common Stock appears daily, and net asset value
and premium or discount are reported weekly, in The Wall Street Journal and
other newspapers and can also be obtained by calling our 24-Hour Automated
Telephone Access Service using a touch-tone telephone. The number is (800)
622-4597.
13
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TRI-CONTINENTAL CORPORATION
ASSETS AND LIABILITIES December 31, 1994
Assets:
Investments at value:
Common stocks (cost--$1,392,405,032).... $1,576,928,522
Convertible issues
(cost--$221,784,356).................. 231,773,045
U.S. Government securities
(cost--$70,318,125)................... 67,440,598
Corporate bonds (cost--$46,827,085)..... 44,075,000
Tri-Continental Financial Division
(cost--$25,209,602)................... 27,690,898
Short-term holdings (cost--$70,400,000). 70,400,000 $2,018,308,063
--------------
Cash...................................................... 12,326,049
Receivable for dividends and interest..................... 9,877,196
Receivable for securities sold............................ 8,035,344
Investment in, and expenses prepaid to, stockholder
service agent........................................... 575,001
Other..................................................... 160,192
--------------
Total Assets...................................... $2,049,281,845
--------------
Liabilities:
Payable for securities purchased.......................... $ 14,247,623
Dividends payable......................................... 470,463
Accrued expenses, taxes, and other........................ 2,828,283
--------------
Total Liabilities................................. $ 17,546,369
--------------
Net Investment Assets .................................... $2,031,735,476
Preferred Stock, at $50 par value................. 37,637,000
--------------
Net Assets for Common Stock .............................. $1,994,098,476
==============
Net Assets per share of Common Stock
(market value--$19.875).......................... $23.70
======
CAPITAL STOCK AND SURPLUS December 31, 1994
Capital Stock:
$2.50 Cumulative Preferred Stock, $50 par value,
asset coverage per share--$2,699.12
Shares authorized--1,000,000; issued
and outstanding--752,740............................ $ 37,637,000
Common Stock, $.50 par value:
Shares authorized--99,000,000; issued
and outstanding--84,144,106.......................... 42,072,053
Surplus:
Capital surplus......................................... 1,758,861,246
Undistributed net investment income..................... 1,794,265
Net unrealized appreciation of investments.............. 189,367,095
Net unrealized appreciation on translation of assets
and liabilities denominated in foreign currencies..... 2,003,817
--------------
$2,031,735,476
==============
- - ------------
See notes to financial statements.
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TRI-CONTINENTAL CORPORATION
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
Investment income:
Dividends (net of foreign taxes
withheld of $349,067)................ $ 52,950,519
Interest............................... 26,726,963
-----------
Total investment income ................ $79,677,482
Expenses:
Management fee......................... $ 9,372,713
Stockholder account and
registrar services................... 2,986,475
Stockholder reports and
communications....................... 626,447
Directors' fees and expenses........... 191,495
Stockholders' meeting.................. 169,984
Auditing and legal fees................ 161,164
Registration........................... 56,033
Miscellaneous.......................... 141,628
-----------
Total expenses .......................... 13,705,939
-----------
Net investment income ................... $65,971,543*
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions:
Net realized gain on investments....... $149,714,043
Net realized loss from foreign
currency transactions................ (285,314)
Net change in unrealized appreciation
of investments....................... (282,010,077)
Net change in unrealized appreciation
on translation of assets and liabilities
denominated in foreign currencies.... 2,003,817
------------
Net loss on investments and foreign
currency transactions ................. (130,577,531)
------------
Decrease in net investment assets
from operations ....................... $(64,605,988)
============
- - ------------
*Net investment income available for Common Stock is $63,745,152, which is net
of Preferred Stock dividends of $1,881,850 and net realized ordinary losses
from foreign currency transactions of $344,541.
See notes to financial statements.
15
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TRI-CONTINENTAL CORPORATION
STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
Year Ended December 31,
-----------------------------------
1994 1993
------------- ---------------
Operations:
Net investment income .................... $ 65,971,543 $ 62,241,704
Net realized gain on investments ......... 149,714,043 133,505,475
Net realized loss from foreign
currency transactions .................. (285,314) --
Net change in unrealized appreciation
of investments ......................... (282,010,077) (22,580,341)
Net change in unrealized appreciation on
translation of assets and liabilities
denominated in foreign currencies ...... 2,003,817 --
--------------- ---------------
Increase (decrease) in net investment
assets from operations ............... $ (64,605,988) $ 173,166,838
--------------- ---------------
Distributions to stockholders:
Net investment income:
Preferred Stock (per share: $2.50
and $2.50) ......................... $ (1,881,850) $ (1,881,850)
Common Stock (per share: $.79
and $.80) .......................... (62,142,379) (59,563,874)
--------------- ---------------
$ (64,024,229) $ (61,445,724)
Net realized gain on investments:
Common Stock (per share: $1.90
and $1.80) ......................... (149,879,009) (134,056,360)
--------------- ---------------
Decrease in net investment assets
from distributions ................. $ (213,903,238) $ (195,502,084)
--------------- ---------------
Capital share transactions:
Value of shares of Common Stock issued
at market price in gain distributions
(5,366,690 and 4,135,298 shares) ....... $ 107,671,901 $ 97,440,027
Value of shares of Common Stock issued
for investment plans (2,106,411
and 1,798,305 shares) .................. 46,577,919 44,786,885
Cost of shares purchased
for investment plans (2,142,604
and 1,673,427 shares) .................. (47,855,965) (41,884,303)
Net proceeds from issuance of shares of
Common Stock upon exercise of
Warrants (824 and 51,884 shares) ....... 1,549 103,031
--------------- ---------------
Increase in net investment assets
from capital share transactions .... $ 106,395,404 $ 100,445,640
--------------- ---------------
Increase (decrease) in net investment
assets ................................. $ (172,113,822) $ 78,110,394
Net investment assets:
Beginning of year ........................ 2,203,849,298 2,125,738,904
--------------- ---------------
End of year (including undistributed
net investment income of $1,794,265
and $297,231) .......................... $ 2,031,735,476 $ 2,203,849,298
=============== ===============
- - ------------
See notes to financial statements.
16
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS December 31, 1994
Shares Value
---------- ------------
COMMON STOCKS - 77.6%
AEROSPACE - 1.7%
Boeing Company 400,000 $ 18,700,000
Aircraft manufacturer
Loral Corporation 400,000 15,150,000
Military electronic equipment -------------
$ 33,850,000
-------------
AUTOMOTIVE AND RELATED - 2.7%
Autoliv (ADRs)+* 200,000 $ 7,712,500
Swedish supplier of safety
restraint systems
Eaton Corporation 500,000 24,750,000
Equipment for trucks and automobiles
Ford Motor Company 800,000 22,400,000
Second largest automotive manufacturer -------------
$ 54,862,500
-------------
BASIC MATERIALS - 2.4%
AK Steel Holdings Corporation 300,000 $ 9,225,000
Integrated steel producer
Bayer AG 28,000 6,489,348
Producer of specialty chemicals,
pharmaceuticals, and plastics
Aluminum Company of America 100,000 8,662,500
Leading U.S. aluminum producer
Dow Chemical Company 375,000 25,218,750
Diversified chemicals -------------
$ 49,595,598
-------------
BUILDING AND CONSTRUCTION - 0.9%
Georgia-Pacific Corporation 150,000 $ 10,725,000
Plywood, lumber, and
paper manufacturer
Hopewell Holdings Ltd. 8,000,000 6,616,697
Hong Kong construction company -------------
$ 17,341,697
-------------
COMMUNICATIONS - 3.7%
Alcatel Alsthom Compagnie
Generale d'Electricite 65,000 $ 5,553,682
French developer of equipment
and systems for
public telecommunications
American Telephone & Telegraph Company 400,000 20,100,000
International and domestic
telecommunications services
Bell Atlantic Corporation 300,000 14,925,000
Local telephone services in
mid-Atlantic states
GTE Corporation 600,000 18,225,000
Telephone systems and equipment
Tele Danmark (ADSs) 300,000 7,650,000
Domestic and international
telephone services in Denmark
Telecom Italia-Di Risp 2,526,000 5,039,537
Single provider of the whole
spectrum of telecommunications
services throughout Italy
Telefonica de Espana (ADSs) 115,000 4,010,625
Domestic and international -------------
telephone services in Spain
$ 75,503,844
--------------
17
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (continued) December 31, 1994
Shares Value
---------- ------------
COMPUTERS AND BUSINESS SERVICES - 3.9%
EMC Corporation* 600,000 $ 12,975,000
Mainframe storage devices
COMPUTERS AND
BUSINESS SERVICES (continued)
First Data Corporation 500,000 $ 23,687,500
Information processing services
International Business Machines Corporation 200,000 14,700,000
Manufacturer and distributor of computers
and office equipment
Microsoft Corporation* 450,000 27,562,500
Computer software -------------
$ 78,925,000
-------------
CONSUMER GOODS AND SERVICES - 10.6%
Allied-Domecq PLC 870,000 $ 7,352,370
International food, drink, and hospitality
group
B.A.T. Industries PLC 1,200,000 8,103,570
UK financial services and tobacco company
Coca-Cola Company 700,000 36,050,000
Soft drinks, consumer products
Colgate-Palmolive Company 300,000 19,012,500
Household and personal care products
CPC International Inc. 300,000 15,975,000
International food company
Eastman Kodak Company 450,000 21,487,500
Film, chemicals, and health care products
Gillette Company 300,000 22,425,000
Personal care products
Liz Claiborne, Inc. 500,000 8,437,500
Designer and distributor of women's
apparel
LVMH Moet Hennessy 15,000 2,369,309
Producers of wine, spirits, and
luxury products
Maytag Corporation 700,000 10,500,000
Manufacturer of major home appliances
Philip Morris Companies, Inc. 275,000 15,812,500
Tobacco, food, and beverage manufacturer
Premark International, Inc. 300,000 13,125,000
Manufacturer of Tupperware and
food-equipment products
Procter & Gamble Company 400,000 24,800,000
Household and personal care products
Wendy's International, Inc. 700,000 10,062,500
Fast food restaurant franchise -------------
$ 215,512,749
-------------
DIVERSIFIED - 3.5%
Alco Standard Corporation 300,000 $ 18,825,000
Distributor of paper and
office equipment
Allied-Signal, Inc. 400,000 13,600,000
Aerospace and automotive materials
Corning, Inc. 350,000 10,456,250
Specialty glass products
Dover Corporation 200,000 10,325,000
Elevators; petroleum equipment; and
industrial products
Grace (W.R.) & Co. 500,000 19,312,500
Manufactures and sells -------------
specialty chemicals and
medical products
$ 72,518,750
-------------
18
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (continued) December 31, 1994
Shares Value
---------- ------------
DRUGS AND HEALTH CARE - 5.0%
Abbott Laboratories 600,000 $ 19,575,000
Diversified health care products
Bristol-Myers Squibb Company 250,000 14,468,750
Health and personal care products
Columbia/HCA Healthcare Corporation 500,000 18,250,000
Hospital management company
Merck & Co., Inc. 400,000 15,250,000
Pharmaceutical company
Quorum Health Group Corporation 7,496 143,361
Owner and operator of acute care hospitals
United Healthcare Corporation 400,000 18,050,000
National managed health care company
Warner-Lambert Company 200,000 15,400,000
Drug, toiletries, and food manufacturer -------------
$101,137,111
-------------
ELECTRIC AND GAS UTILITIES - 2.3%
AES Corporation* 470,000 $ 9,194,375
Constructor and operator of independent
power generating facilities
American Electric Power Company, Inc. 350,000 11,506,250
Utility holding company
China Light & Power Co. Ltd. (ADRs) 2,200,000 9,383,220
Electric utility in Hong Kong and China
Detroit Edison Company 500,000 13,062,500
Electric utility
Empresa Nacional de Electricidad (ADRs) 80,000 3,220,000
Major electric utility in Spain -------------
$ 46,366,345
-------------
ELECTRONICS - 2.8%
AMP Inc. 160,000 $ 11,640,000
Manufacturer of electronic connectors
and systems
Micron Technology, Inc. 615,000 27,136,875
Semiconductor manufacturer
Motorola Inc. 300,000 17,362,500
Producer of semiconductors and -------------
communications equipment
$ 56,139,375
-------------
ENERGY - 9.0%
Amoco Corporation 400,000 $ 23,650,000
Oil and gas producer
Atlantic Richfield Company 125,000 12,718,750
Oil producer and West Coast marketer
Baker Hughes Inc. 500,000 9,125,000
Oil service company
Enron Corporation 700,000 21,350,000
Pipeline exploration and production
Enron Global Power and Pipeline L.L.C. 250,000 5,500,000
Major natural gas pipeline systems
Exxon Corporation 350,000 21,262,500
Integrated oil and gas company
Royal Dutch Petroleum Company 56,000 6,020,000
International oil enterprise
Schlumberger Ltd. 300,000 15,112,500
Worldwide energy services
19
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (continued) December 31, 1994
Shares Value
---------- ------------
ENERGY (continued)
Sonat Inc. 410,000 $ 11,480,000
Natural gas company
Sun Company, Inc. 600,000 17,250,000
East Coast oil refiner and marketer
Texaco Inc. 300,000 17,962,500
International oil company
Total S.A. Class "B" 75,000 4,359,191
International oil enterprise
USX-Marathon Group, Inc. 700,000 11,462,500
Worldwide oil and gas producer and refiner
YPF Sociedad Anonima (ADRs) 275,000 5,878,125
Major Argentinean oil and gas company -------------
$183,131,066
-------------
ENTERTAINMENT AND LEISURE - 1.2%
Disney (Walt) Company 400,000 $ 18,450,000
Film entertainment, amusement parks, and
other forms of leisure related activities
News Corp. Ltd. (ADRs) 260,000 4,062,500
Worldwide media and television provider
News Corp. Ltd. (ADRs)*** 130,000 1,803,750
Worldwide media and television provider -------------
$ 24,316,250
-------------
ENVIRONMENTAL MANAGEMENT - 0.7%
Browning-Ferris Industries, Inc. 500,000 $ 14,187,500
Solid- and liquid-waste management services -------------
FINANCE AND INSURANCE - 8.2%
American International Group Inc. 285,000 $ 27,930,000
International insurance holding company
Corporacion Bancaria de Espana, S.A. (ADRs) 340,000 6,077,500
Spanish banking and financial services company
BankAmerica Corporation 450,000 17,775,000
Largest commercial bank in California
and Western states
Bank of New York, Inc. 450,000 13,050,000
Commercial bank
Chemical Banking Corporation 400,000 14,350,000
Money center bank
EXEL Limited 300,000 11,850,000
Bermuda-based excess liability insurance company
Federal National Mortgage Association 200,000 14,575,000
Mortgage financing
General Re Corporation 140,000 17,325,000
Largest property casualty re-insurer in the US
Internationale Nederlanden Bank N.V. 138,875 6,567,330
Largest banking and insurance services
group in the Netherlands
MBNA Corporation 500,000 11,687,500
Issuer of bank credit cards
NationsBank Corporation 400,000 18,050,000
Southeast regional bank holding company
Travelers Inc. 250,000 8,125,000
Broad based financial services company -------------
$167,362,330
-------------
20
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (continued) December 31, 1994
Shares Value
---------- ------------
MANUFACTURING AND
INDUSTRIAL EQUIPMENT - 7.4%
BTR PLC 1,300,000 $ 5,971,257
UK global manufacturer of industrial goods
Caterpillar, Inc. 300,000 16,537,500
Manufacturer of earth moving machinery
Deere & Company 200,000 13,250,000
Manufacturer of farm and construction
equipment worldwide
Foster Wheeler Corporation 400,000 11,900,000
Engineering and construction services
General Electric Company 800,000 40,800,000
Supplier of electrical equipment and
other industrial and consumer products
General Signal Corporation 440,000 14,025,000
Capital goods producer
Illinois Tool Works, Inc. 350,000 15,312,500
Manufacturer of fasteners, tools, and plastic items
Ingersoll-Rand Company 400,000 12,600,000
Worldwide standard machinery and
equipment manufacturer
Pacific Dunlop Ltd. 1,500,000 3,987,375
Australian manufacturer of a wide range
of products
York International Corporation 425,000 15,671,875
Manufacturer of climate control systems -------------
$150,055,507
-------------
PACKAGING AND PAPER - 0.9%
Kimberly-Clark Corporation 300,000 $ 15,150,000
Consumer paper products; newsprint
Pechiney International 80,000 2,398,351
Producer of packaging and -------------
turbine blades for
jet engines $ 17,548,351
-------------
PUBLISHING - 0.3%
Elsevier 650,000 $ 6,784,890
-------------
Global printer and publisher of professional
trade journals and magazines
REAL ESTATE INVESTMENT TRUST - 4.9%
Avalon Properties, Inc. 300,000 $ 6,900,000
REIT focusing on apartment properties in the
Eastern United States
DeBartolo Realty Corporation 750,000 11,250,000
Large REIT operator of shopping malls
Developers Diversified Realty Corp. 450,000 14,062,500
REIT operator of powerstrip malls
Duke Realty Investments, Inc. 200,000 5,650,000
REIT focused on commercial
properties in the Midwest
First Industrial Realty Trust, Inc. 300,000 5,850,000
REIT operator of industrial properties
Kimco Realty Corporation 500,000 18,937,500
High-quality REIT operator of shopping centers
Macerich Company 500,000 10,656,250
REIT operator of shopping malls
21
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (continued) December 31, 1994
Shares Value
---------- ------------
REAL ESTATE
INVESTMENT TRUST (continued)
Post Properties, Inc. 250,000shs. $ 7,875,000
REIT aimed at apartment
communities in the Southeast
Property Trust of America 500,000 9,000,000
Real estate investment trust
Simon Property Group, Inc. 400,000 9,700,000
Nationwide REIT owner and -------------
operator of regional malls
$ 99,881,250
-------------
RETAIL TRADE - 3.4%
Home Depot, Inc. 410,000 $ 18,860,000
Home improvement store chain
May Department Stores Company 500,000 16,875,000
Large department store chain
Nordstrom, Inc. 500,000 21,062,500
Department store chain
Wal-Mart Stores, Inc. 600,000 12,750,000
Largest discount retail chain -------------
$ 69,547,500
-------------
TRANSPORTATION - 1.6%
Conrail Inc. 350,000 $ 17,675,000
Freight railroad system
Jurong Shipyard Ltd. 425,000 3,264,746
Leading ship repair company in Singapore
Kansas City Southern Industries, Inc. 300,000 9,262,500
Railroad and financial services
Roadway Services Inc. 50,000 2,831,250
Motor carrier -------------
$ 33,033,496
-------------
MISCELLANEOUS - 0.5%
European Vinyls Corporation* 112,000 $ 4,967,013
Market leader in the PVC industry
Huaneng Power International (ADRs)* 220,000 3,245,000
Flagship power company of China
Indosat (ADRs)* 31,200 1,115,400
International telecommunications -------------
to the Indonesian market $ 9,327,413
-------------
Total Common Stocks
(Cost: $1,392,405,032) $1,576,928,522
-------------
U.S. GOVERNMENT SECURITIES - 3.3%
U.S. Treasury Bonds, 11 7/8%, 11/15/2003 $ 10,000,000 $ 12,512,500
U.S. Treasury Notes, 11 1/4%, 5/15/1995 54,000,000 54,928,098
-------------
Total U.S. Government Securities
(Cost: $70,318,125) $ 67,440,598
-------------
22
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (continued) December 31, 1994
Shares Value
---------- ------------
CORPORATE BONDS - 2.2%
OrNda HealthCorp, 12 1/4%, 5/15/2002 $ 10,000,000 $ 10,650,000
Penn Traffic Co., 9 5/8%, 4/15/2005 15,000,000 13,162,500
Stone Container Corporation, 9 7/8%, 2/1/2001 10,000,000 9,412,500
Unisys Corporation, 13 1/2%, 7/1/1997 10,000,000 10,850,000
-------------
Total Corporate Bonds
(Cost: $46,827,085) $ 44,075,000
-------------
CONVERTIBLE ISSUES - 11.4%
Convertible Debentures - 3.1%
COMPUTER AND BUSINESS SERVICES - 0.4%
EMC Corporation, 4 1/4%, 1/1/2001 7,000,000 $ 8,478,750
-------------
DIVERSIFIED - 1.1%
MascoTech Inc., 4 1/2%, 12/15/2006 11,300,000$ 7,599,250
Thermo Electron Corporation, 4 5/8%, 8/1/1997+ 10,000,000 14,050,000
-------------
$ 21,649,250
-------------
FINANCE AND INSURANCE - 0.4%
AXA, 6%, 1/1/2001 17,733,000** $ 3,895,811
Liberty Life, 6 1/2%, 9/30/2004 3,500,000 3,596,250
-------------
$ 7,492,061
-------------
MANUFACTURING AND INDUSTRIAL
EQUIPMENT - 0.5%
TriMas Corporation, 5%, 8/1/2003 10,000,000 $ 9,900,000
-------------
TRANSPORTATION - 0.3%
Nippon Yusen, 2%, 9/29/2000 505,000,000++ $ 6,344,859
-------------
PACKAGING AND PAPER - 0.2%
Land and General Berhad, 4 1/2%, 7/26/2004 3,000,000$ 3,427,500
-------------
RETAIL TRADE - 0.2%
Home Depot, Inc., 4 1/2%, 2/15/1997 4,000,000 $ 4,760,000
-------------
Total Convertible Debentures
(Cost: $59,296,883) $ 62,052,420
-------------
Convertible Preferred Stocks - 8.3%
AUTOMOTIVE AND RELATED - 1.3%
Chrysler Corporation, $4.625+ 200,000shs.$ 27,475,000
-------------
BASIC MATERIALS - 1.3%
AK Steel Holdings Corporation, 7% 350,000 $ 10,981,250
Bethlehem Steel Corporation, $3.50+ 300,000 14,700,000
-------------
$ 25,681,250
-------------
COMMUNICATIONS - 0.3%
Nacional Financiera, S.A., 11 1/4%,
5/15/1998 (ADRs)# 150,000 $ 6,225,000
-------------
23
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (continued) December 31, 1994
Shares Value
---------- ------------
COMPUTER AND BUSINESS SERVICES - 0.9%
General Motors Corporation Series "C" $3.25 325,000 $ 18,646,875
-------------
DIVERSIFIED - 0.6%
Corning Delaware, 6% 250,000 $ 11,687,500
-------------
DRUGS AND HEALTH CARE - 0.8%
Beverly Enterprises Inc., $2.75 275,000 $ 16,225,000
-------------
ENERGY - 0.4%
Atlantic Richfield Company, 9%, 9/15/1997 ## 350,000 $ 9,143,750
-------------
FINANCE AND INSURANCE - 1.9%
Citicorp, $5.375+ 250,000 $ 28,656,250
Travelers Inc., 5 1/2% 180,000 9,292,500
-------------
$ 37,948,750
-------------
RETAIL TRADE - 0.8%
Sears, Roebuck & Co. Series "A" $3.75 300,000 $ 16,687,500
-------------
Total Convertible Preferred Stocks
(Cost: $162,487,473) $ 169,720,625
-------------
Total Convertible Issues
(Cost: $221,784,356) $ 231,773,045
-------------
TRI-CONTINENTAL FINANCIAL
DIVISION+++ - 1.3%
(Cost: $25,209,602) $ 27,690,898
-------------
SHORT-TERM HOLDINGS - 3.5%
(Cost: $70,400,000) $ 70,400,000
-------------
Total Investments - 99.3%
(Cost: $1,826,944,200) $2,018,308,063
Other Assets Less Liabilities - 0.7% 13,427,413
--------------
Net Investment Assets - 100.0% $2,031,735,476
==============
- - ---------------
* Non-income producing security.
** Principal amount reported in French Francs.
***One ADR represents 4 limited voting preference shares. Non-income producing
security.
+ Rule 144A security.
++ Principal amount reported in Japanese Yen.
## Exchangeable into shares of Lyondale Petro-Chemical Company.
# Exchangeable into shares of Telefonos de Mexico S.A. (ADRs).
+++Restricted securities, see note 6.
Descriptions of companies have not been audited by Deloitte & Touche LLP.
See notes to financial statements.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies followed, all in conformity with generally
accepted accounting principles, are given below:
a. Investments in U.S. Government securities, stocks, corporate bonds,
limited partnership interests, and short-term holdings maturing in more
than 60 days are valued at current market values or, in their absence,
fair value determined in accordance with procedures approved by the Board
of Directors. Securities traded on national exchanges are valued at last
sales prices or, in their absence and in the case of over-the-counter
securities, a mean of bid and asked prices. Short-term holdings maturing
in 60 days or less are valued at amortized cost.
b. The books and records of the Corporation are maintained in U.S. dollars.
The market value of investment securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at the
closing daily rate of exchange as reported by a pricing service. Purchases
and sales of investment securities, income, and expenses are translated
into U.S. dollars at the rate of exchange prevailing on the respective
dates of such transactions.
The Corporation separates that portion of the results of operations
resulting from changes in the foreign exchange rates from the fluctuations
arising from changes in the market prices of securities held in the
portfolio. Similarly, the Corporation separates the effect of changes in
foreign exchange rates from the fluctuations arising from changes in the
market prices of portfolio securities sold during the period.
c. The Corporation may enter into forward currency contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings, or other amounts receivable or payable in
foreign currency. A forward contract is a commitment to purchase or sell a
foreign currency at a future date at a negotiated forward rate. Certain
risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts. The
contracts are valued daily at current exchange rates and any unrealized
gain or loss is included in net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies
and forward currency contracts. The gain or loss, if any, arising from the
difference between the settlement value of the forward contract and the
closing of such contract, is included in net realized gain or loss from
foreign currency transactions.
d. There is no provision for federal income or excise tax. The Corporation
has elected to be taxed as a regulated investment company and intends to
distribute substantially all taxable net income and net gain realized.
e. Investment transactions are recorded on trade dates. Identified cost of
investments sold is used for both financial statements and federal income
tax purposes. Dividends receivable and payable are recorded on ex-dividend
dates. Interest income is recorded on the accrual basis.
f. The treatment for financial statement purposes of distributions made
during the year from net investment income or net realized gains may
differ from their ultimate treatment for federal income tax purposes.
These differences primarily are caused by differences in the timing of the
recognition of certain components of income, expense or capital gain, and
the recharacterization of foreign exchange gains or losses to either
ordinary income or realized capital gain for federal income tax purposes.
Where such differences are permanent in nature, they are reclassified in
the components of net investment 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 Corporation.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
2. Under the Corporation's Charter, dividends on the Common Stock cannot be
declared unless net assets, after such dividends and dividends on Preferred
Stock, equal at least $100 per share of Preferred Stock outstanding. The
Preferred Stock is subject to redemption at the Corporation's option at any time
on 30 days' notice at $55 per share (or a total of $41,400,700 for the shares
outstanding) plus accrued dividends, and entitled in liquidation to $50 per
share plus accrued dividends.
The Corporation, in connection with its Automatic Dividend Investment and
Cash Purchase Plan and other stockholder plans, acquires and issues shares of
its own Common Stock, as needed, to satisfy Plan requirements. For the year
ended December 31, 1994, 2,142,604 shares were purchased from Plan participants
and on the open market at a cost of $47,855,965 which represented a weighted
average discount of 14.7% from the net asset value of those acquired shares. A
total of 2,106,411 shares were issued to Plan participants during the year for
proceeds of $46,577,919, a discount of 15.2% from the net asset value of those
shares.
At December 31, 1994, 202,047 shares of Common Stock were reserved for
issuance upon exercise of 15,822 Warrants, each of which entitled the holder to
purchase 12.77 shares of Common Stock at $1.76 per share. Assuming the exercise
of all Warrants outstanding at December 31, 1994, net investment assets would
have increased by $355,603 and the net asset value of the Common Stock would
have been $23.65 per share. The number of Warrants exercised during the years
1994 and 1993, was 69 and 4,586, respectively.
3. Purchases and sales of portfolio securities, excluding short-term
investments, amounted to $1,463,914,192 and $1,530,670,979, respectively. At
December 31, 1994, 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,
including the effects of foreign currency transactions, amounted to $279,669,777
and $88,305,914, respectively.
4. At December 31, 1994, the Corporation owned short-term investments which
matured in less than 7 days.
5. J. & W. Seligman & Co. Incorporated (the "Manager") manages the affairs of
the Corporation and provides necessary personnel and facilities. Compensation of
all officers of the Corporation, all directors of the Corporation who are
employees or consultants of the Manager, and all personnel of the Corporation
and the Manager is paid by the Manager. The Manager receives a fee, calculated
daily and payable monthly, equal to a percentage of the Corporation's daily net
assets at the close of business on the previous business day. The management fee
rate is calculated on a sliding scale of 0.45% to 0.375%, based on average daily
net assets of all the investment companies managed by the Manager. The
management fee for the year ended December 31, 1994, was equivalent to an annual
rate of 0.44% of the average daily net assets of the Corporation. Effective June
1, 1994, Seligman Henderson Co. (the "Subadviser"), a 50% owned affiliate of the
Manager, is entitled to a portion of the Manager's fee for acting as subadviser
for certain of the international investments of the Corporation.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Seligman Data Corp., owned by the Corporation and certain associated
investment companies, charged the Corporation at cost $2,939,129 for stockholder
account services. The Corporation's investment in Seligman Data Corp. is
recorded at a cost of $43,681.
Certain officers and directors of the Corporation are officers or directors
of the Manager, the Subadviser, and/or Seligman Data Corp.
Fees of $55,500 were incurred by the Corporation for legal services of
Sullivan & Cromwell, a member of which firm is a director of the Corporation.
The Corporation has a compensation arrangement under which directors who
receive fees may elect to defer receiving such fees. Interest is accrued on the
deferred balances. The annual cost of such fees and interest is included in
directors' fees and expenses, and the accumulated balance thereof at December
31, 1994, of $331,035 is included in other liabilities. Deferred fees and the
related accrued interest are not deductible for federal income tax purposes
until such amounts are paid.
6. At December 31, 1994, the Tri-Continental Financial Division of the
Corporation was comprised of four investments that were purchased through
private offerings and cannot be sold without prior registration under the
Securities Act of 1933 or pursuant to an exemption therefrom. These investments
are valued at fair value as determined in accordance with procedures approved by
the Board of Directors of the Corporation. The acquisition dates of investments
in the limited partnerships and stock, along with their cost and values at
December 31, 1994, are as follows:
Investments Acquisition Date(s) Cost Value
- - -------------------- -------------------- ---------- ----------
Tempest Reinsurance
Company Ltd. 9/13/93 $10,000,000 $10,600,000
Water Street
Corporate Recovery
Fund I, L.P. 10/9/90 to 4/8/94 2,292,011 2,545,713
WCAS Capital
Partners II, L.P. 12/11/90 to 2/19/93 4,352,677 5,404,110
Whitney Subordinated
Debt Fund, L.P. 7/12/89 to 12/20/94 8,564,914 9,141,075
---------- ----------
Total $25,209,602 $27,690,898
=========== ===========
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
7. Following is a summary of unaudited quarterly results of operations, in
thousands of dollars except for per share amounts:
For quarters ended in the year 1994
-----------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Total investment income.... $17,474 $20,844 $20,662 $20,697
Net investment income for
Common Stock............. $13,479 $16,919 $16,847 $16,845
Per Common share......... $0.17 $0.21 $0.21 $0.21
Net realized and unrealized
investment gain (loss)... $(79,263) $(58,099) $48,127 $(41,343)
Per Common Share......... $(1.00) $(0.74) $0.60 $(0.53)
For quarters ended in the year 1993
-----------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Total investment income.... $16,912 $19,807 $18,857 $20,807
Net investment income for
Common Stock............. $12,867 $15,694 $14,946 $16,853
Per Common share......... $0.17 $0.21 $0.20 $0.22
Net realized and unrealized
investment gain (loss)... $34,822 $(26,511) $71,369 $31,245
Per Common Share......... $0.46 $(0.36) $0.95 $0.41
28
<PAGE>
FINANCIAL HIGHLIGHTS
The Corporation's financial highlights are presented below. The per share
operating performance data is designed to allow investors to trace the operating
performance, on a per Common share basis, from the Corporation's beginning net
asset value to the ending net asset value so that they can understand what
effect the individual items have on their investment, assuming it was held
throughout the year. Generally, the 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.
The total investment return based on market value measures the Corporation's
performance assuming investors purchased shares of the Corporation at the market
value as of the beginning of the period, invested dividends and capital gains
paid as provided for in the Corporation's Prospectus and Automatic Dividend
Investment and Cash Purchase Plan, and then sold their shares at the closing
market value per share on the last day of the period. The total investment
return based on net asset value is similarly computed except that the
Corporation's net asset value is substituted for the corresponding market value.
The total investment return computations do not reflect any sales commissions
investors may incur in purchasing or selling shares of the Corporation.
The ratios of expenses to average net assets and net investment income to
average net assets for the years presented do not reflect the effect of
dividends paid to Preferred Stockholders.
Year Ended December 31,
-----------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Per Share Operating Performance:
Net asset value,
beginning of year................. $27.49 $28.03 $28.57 $24.60 $27.44
------ ------ ------ ------ ------
Net investment income............... .83 .83 .81 .81 .81
Net realized and unrealized
investment gain (loss)............ (1.69) 1.46 1.19 5.79 (1.05)
Net realized and unrealized
gain on foreign currency
transactions .02 -- -- -- --
------ ------ ------ ------ ------
Increase (decrease) from
investment operations............. (.84) 2.29 2.00 6.60 (.24)
Dividends paid on
Preferred Stock................... (.03) (.03) (.03) (.03) (.03)
Dividends paid on
Common Stock...................... (.79) (.80) (.78) (.78) (.86)
Distribution from
net gain realized................. (1.90) (1.80) (.70) (1.80) (1.60)
Issuance of Common Stock
in gain distributions............. (.23) (.19) (.05) (.02) (.11)
Issuance of Common Stock
upon Warrant exercise............. -- (.01) -- -- --
Issuance of Common Stock
from exercise of Rights........... -- -- (.97) -- --
Rights offering costs............... -- -- (.01) -- --
------ ------ ------ ------ ------
Net increase (decrease)
in net asset value................ (3.79) (.54) (.54) 3.97 (2.84)
------ ------ ------ ------ ------
Net asset value,
end of year....................... $23.70 $27.49 $28.03 $28.57 $24.60
====== ====== ====== ====== ======
29
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Adjusted net asset value,
end of year*................ $ 23.65 $27.42 $27.95 $28.48 $ 24.52
Market value, end of year..... $19.875 $23.75 $25.50 $27.75 $21.375
Total investment return:
Based upon market value..... (5.07)% 3.47% .61%+ 42.98% 3.46%
Based upon net asset value.. (2.20)% 8.95% 7.42%+ 27.91% (.20)%
Ratios/Supplemental Data:
Expenses to average
net assets.................. .64% .66% .67% .67% .56%
Net investment income to
average net assets.......... 3.08% 2.88% 2.86% 2.90% 3.01%
Portfolio turnover rate....... 70.38% 69.24% 44.35% 49.02% 41.23%
Net investment assets,
end of year
(000's omitted):
For Common Stock ...........$1,994,098 $2,166,212 $2,088,102 $1,833,664 $1,500,281
For Preferred Stock ........ 37,637 37,637 37,637 37,637 37,637
------ ------ ------ ------ ------
Total net investment
assets .....................$2,031,735 $2,203,849 $2,125,739 $1,871,301 $1,537,918
========== ========== ========== ========== ==========
</TABLE>
- - ------------------
* Assumes the exercise of outstanding warrants.
+ The total investment returns for 1992 have been adjusted for the effect of
the exercise of Rights (equivalent to approximately $0.97 per share),
assuming full subscription by Common Stockholders.
See notes to financial statements.
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Security Holders,
Tri-Continental Corporation:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, and the statement of capital stock and
surplus of Tri-Continental Corporation as of December 31, 1994, the related
statements of operations for the year then ended and of changes in net
investment assets for 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
Corporation'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 as of
December 31, 1994, by correspondence with the Corporation's custodians and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 Tri-Continental
Corporation as of December 31, 1994, 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.
/s/ Deloitte & Touche LLP
---------------------
Deloitte & Touche LLP
New York, New York
February 3, 1995
- - --------------------------------------------------------------------------------
Manager
J. & W. Seligman & Co. Incorporated
100 Park Avenue
New York, NY 10017
Subadviser
Seligman Henderson Co.
100 Park Avenue
New York, NY 10017
Stockholder Service Agent
Seligman Data Corp.
100 Park Avenue
New York, NY 10017
Important Telephone Numbers
(800) TRI-1092 Stockholder
Services
(800) 445-1777 Retirement Plan
Services
(800) 622-4597 24-Hour Automated
Telephone Access
Service
31
<PAGE>
TRI-CONTINENTAL CORPORATION
Managed by
[Logo]
J. & W. SELIGMAN & CO.
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
This report is intended only for the information of stockholders or those who
have received the current prospectus covering shares of Common Stock of
Tri-Continental Corporation, which contains information about management fees
and other costs.
CETRI2 12/94
