- --------------------------------------------------------------------------------
67TH ANNUAL REPORT 1996
TRI-CONTINENTAL
CORPORATION
AN INVESTMENT YOU CAN LIVE WITH
- --------------------------------------------------------------------------------
<PAGE>
TRI-CONTINENTAL CORPORATION INVESTS PRIMARILY TO PRODUCE LONG-TERM GROWTH OF
BOTH CAPITAL AND INCOME, WHILE PROVIDING REASONABLE CURRENT INCOME.
TY is Tri-Continental Corporation's symbol for its Common Stock on the New York
Stock Exchange.
<PAGE>
TRI-CONTINENTAL CORPORATION
To the Stockholders: January 31, 1997
Nineteen ninety-six was another rewarding year for Tri-Continental Corporation.
For the year, the Corporation's total return based on net asset value was
21.45%. This investment result lagged only slightly the 22.96% total return of
the Standard & Poor's 500 Composite Stock Price Index (S&P 500) and the 22.26%
total return of the Corporation's competitor universe, as measured by the Lipper
Closed-End Growth & Income Funds Average. The Corporation's total return based
on market price was somewhat higher at 21.98%, reflecting a modest narrowing of
the discount from net asset value.
Nineteen ninety-six was also a strong year for the US equity markets, and the
second consecutive year of well above-average returns. In fact, the S&P 500's
average annual rate of return in the 1995-96 period of 29.8% was the best
two-year result since the economic recovery of 1975-76, when the S&P 500
advanced at an average annual rate of 30.3%. Though 1996's gains were driven by
the outstanding performance of a small number of the largest companies, they
were particularly extraordinary because they took place in the sixth year of an
economic expansion.
A positive economic environment also contributed to the gains in the markets.
In 1996, the real economy grew at an estimated 3.4%, significantly higher than
in 1995. This growth was accompanied by low levels of inflation, as the Consumer
Price Index increased only 3.3% in 1996. At the same time, corporate profits
continued to grow, and in spite of continued corporate downsizing and
restructuring, the unemployment rate fell as low as 5.2% in August and ended the
year at 5.3%, as compared to 5.6% in December 1995. Simply put, the increased
competitiveness of US industry and the low inflation environment provided strong
fundamental support to higher equity prices.
Your Corporation's investment results remain our first priority, and we are
pleased with the continued improvement in this area. Further, the Corporation's
total 1996 per share dividend distribution was maintained for Common
Stockholders who took their December 1995 and July 1996 capital gain
distributions in additional shares. The net realized capital gains paid on July
1 and December 20, 1996, totaled $246,856,282, or $2.722 per share, and the
total dividends distributed to Common Stockholders in 1996 were $59,457,756, or
$0.66 per share.
Important progress was also made in strengthening Tri-Continental's Investor
Relations Program this year. Three major Wall Street brokerage firms are now
covering Tri-Continental Corporation and are recommending the stock.
Additionally, with the approval of your Board of Directors, Tri-Continental has
initiated a program that is designed to promote and strengthen the Corporation's
identity among financial advisors and individual investors in 1997. Our goal
remains the enhancement of the long-term value of being a Tri-Continental
Stockholder.
1
<PAGE>
TRI-CONTINENTAL CORPORATION
Looking ahead, the environment for the US financial markets and investors
remains generally positive, given continued modest economic growth with low
inflation, bipartisan efforts to balance the federal budget without raising
taxes, and progress towards the reduction of the tax rate on capital gains. We
recognize, however, that there could be further short-term volatility, but we
remain positive on the long-term outlook for both the financial markets and your
Corporation.
On a final note, the activity witnessed in the equity markets in 1996, where
large one-day price increases followed abrupt corrections, is not unusual in the
challenging world of investing. We believe the best strategy for growth of
capital is long-term investing, as it is all but impossible for even the most
sophisticated investor to time the market. Time, not timing, is the key to a
successful investment strategy.
We thank you for your continued confidence in Tri-Continental Corporation and
look forward to serving your investment needs in the many years to come.
By order of the Board of Directors,
/s/ William Morris
- -----------------------
William C. Morris
Chairman
/s/ Brian T. Zino
----------------------
Brian T. Zino
President
2
<PAGE>
TRI-CONTINENTAL CORPORATION
- -----------------
[PHOTO]
- -----------------
SELIGMAN GROWTH AND INCOME TEAM: (FROM LEFT)RODNEY COLLINS, MARGARET DOYLE,
JONATHAN ROTH, ODETTE GALLI (CO-PORTFOLIO MANAGER), (SEATED) MELANIE RAVENELL
(ADMINISTRATIVE ASSISTANT), CHARLES C. SMITH, JR. (CO-PORTFOLIO MANAGER), AMY
FUJII.
INTERVIEW WITH YOUR
PORTFOLIO MANAGERS
MR. CHARLES C. SMITH, JR., Managing Director of J. & W. Seligman & Co.
Incorporated, and MS. ODETTE GALLI, Vice President of J. & W. Seligman & Co.
Incorporated, are supported by a group of investment professionals dedicated to
the growth and income investment discipline, and to the objectives of
Tri-Continental Corporation.
WHAT WERE TRI-CONTINENTAL CORPORATION'S INVESTMENT RESULTS IN 1996?
"Tri-Continental Corporation had strong investment results in 1996. The
Corporation's total returns of 21.45% based on net asset value and 21.98% based
on market price slightly lagged the 22.96% total return of the Standard and
Poor's 500 Composite Stock Index (S&P 500). However, on a risk adjusted basis,
as measured by the weighted average beta of the Corporation's holdings,
Tri-Continental's returns were competitive, having a beta less than that of the
S&P 500. Beta measures the volatility of an investment, as compared to that of
the overall market (represented by the S&P 500). The Corporation's investment
results also slightly lagged that of its peer group, as measured by the Lipper
Closed-End Growth & Income Funds Average. Additionally, the Corporation's total
1996 dividend distribution was maintained for Common Stockholders who took their
December 1995 and July 1996 capital gain distributions in additional shares."
WHAT ECONOMIC FACTORS AFFECTED TRI-CONTINENTAL CORPORATION'S INVESTMENT RESULTS
THIS YEAR?
"Throughout 1996, the economy grew at a moderate pace without any noticeable
increase in inflation. This beneficial economic environment led to
stronger-than-expected corporate profits in many industries, and helped most
major equity market indices reach record highs throughout the year.
Tri-Continental's investment results benefited from the positive economic and
financial environment. Tri-Continental's interest-rate-sensitive holdings, which
include financials and utilities, experienced unusual volatility and
underperformed the overall market in the first half of 1996, but an improving
interest rate environment in the later half of 1996 led to strong results in
financial stocks for the year as a whole."
WHAT MARKET FACTORS INFLUENCED THE CORPORATION'S INVESTMENT RESULTS IN THE LAST
12 MONTHS?
"The equity markets continued to reach record levels throughout the year despite
several short-term setbacks. Solid corporate profits and record mutual fund
inflows contributed to a second strong year for the equity markets. However, the
appreciation of a small number of the largest companies in the Dow Jones
Industrial Average and the S&P 500 drove the advances in both benchmarks. The
Corporation's portfolio did well in this market environment because it invests
in larger companies. On the other hand, the convertible market did not keep pace
with the equity markets, and the Corporation's convertible issues, while
providing high current income, underperformed most equity holdings.
"Overseas, the majority of the mature international markets lagged the S&P
500 throughout the year, and the strength of the US Dollar further impaired
investment results. However, in the fourth quarter, exceptional performance in
select European markets, including London, improved the Corporation's overall
results. We remain committed to finding quality investment opportunities
internationally and to seeking a higher potential rate of return over the long
term. We also anticipate that international markets should have better relative
performance in the future."
3
<PAGE>
TRI-CONTINENTAL CORPORATION
- --------------------------------------------------------------------------------
INVESTMENT RESULTS PER COMMON SHARE
TOTAL RETURNS*
FOR PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AVERAGE ANNUAL
-----------------------------------------
THREE ONE FIVE 10
MONTHS YEAR YEARS YEARS
-------- ---- ----- -------
<S> <C> <C> <C> <C>
MARKET PRICE 5.67% 21.98% 9.05% 10.91%
NET ASSET VALUE 6.62 21.45 12.70 13.35
S&P 500** 8.34 22.96 15.22 15.27
LIPPER CLOSED-END
GROWTH & INCOME
FUNDS AVERAGE** 6.63 22.26 12.91 12.91
</TABLE>
PRICE PER SHARE
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1996 JUNE 30, 1996 MARCH 31, 1996 DECEMBER 31, 1995
--------------- --------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
MARKET PRICE $24.125 $25.00 $24.00 $23.875 $22.625
NET ASSET VALUE 29.28 30.07 29.57 29.28 27.58
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CAPITAL GAIN
----------------------------------------------
DIVIDENDS PAID+ PAID REALIZED UNREALIZED++
--------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
$0.66 $2.722 $2.82 $6.77
</TABLE>
THE NET REALIZED CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS PAID IN 1996 TOTALLED
$3.382. THIS IS EQUAL TO 11.4% OF THE CORPORATION'S AVERAGE END-OF-QUARTER NET
ASSET VALUES.
- --------------------------------------------------------------------------------
* These rates of return reflect changes in market price or net asset value, as
applicable, and assume that all distributions within the period are taken in
additional shares. The rates of return will vary and the principal value of
an investment will fluctuate. Shares, if redeemed, may be worth more or less
than their original cost. Past performance is not indicative of future
investment results.
** The S&P 500 and the Lipper Closed-End Growth & Income Funds Average are
unmanaged benchmarks that assume investment of dividends. The S&P 500 does
not reflect fees and sales charges, and the Lipper Closed-End Growth & Income
Funds Average does not reflect sales charges. Investors may not invest
directly in an index or an average.
+ Preferred Stockholders were paid dividends totaling $2.50 per share.
++ Represents the per share amount of net unrealized appreciation of portfolio
securities as of December 31, 1996.
- --------------------------------------------------------------------------------
4
<PAGE>
TRI-CONTINENTAL CORPORATION
INTERVIEW WITH YOUR PORTFOLIO MANAGERS (CONTINUED)
WHAT WAS THE INVESTMENT STRATEGY DURING THE YEAR?
"We continued to maintain a broadly diversified portfolio. Investment strategy
focused on purchasing undervalued stocks with potential for long-term
appreciation. Within the portfolio, the most promising opportunities were found
in restructuring companies. We made investments in companies whose managements
were working to improve the corporate balance sheets, increase efficiency, and
therefore enhance profitability. Within this restructuring model, we purchased
General Signal Corporation, Olin Corporation, and Woolworth Corporation, which
all had a strong year as their managements' efforts were rewarded by the
markets. Similarly, we recently purchased Ford Motor Company, which we believe
should benefit from management's efforts to cut costs and improve productivity
and profitability. We also established meaningful positions in AMP Inc. and
Raytheon Company, as we anticipate improving performance from both companies due
to their managements' efforts to improve long-term results in 1997 and beyond."
WHICH SECTORS IN THE PORTFOLIO IMPROVED THE CORPORATION'S INVESTMENT RESULTS
DURING THE YEAR?
"The strength of the economy broadly benefited the capital goods sector. As the
Corporation's portfolio was overweighted in this area, overall investment
results were improved. The strongest capital goods stocks in the portfolio
included United Technologies Corporation, an aerospace company, General Electric
Company, a supplier of electrical equipment, and Illinois Tool Works Inc., a
tool manufacturer.
"Elsewhere, we were able to find good value in the technology market and
purchase selected companies as the sector experienced weakness early in 1996 and
again at mid year. Tri-Continental's technology holdings performed well,
particularly in the fourth quarter. The Corporation's investments in Compaq
Computer Corporation, Intel Corporation, and Microsoft Corporation benefited
stockholders in 1996.
"Early in the year, we were overweighted in consumer cyclical stocks such as
retailers, auto makers, and printers/publishers, whose performance is directly
affected by economic cycles and which benefited from the low inflation levels
and the economy's growth. Stocks such as Liz Claiborne, Inc. a retailer,
Harley-Davidson Inc., an auto and truck manufacturer, and Tribune Co., a
printer/publisher, all contributed to investment results. As several of the
portfolio's retail stocks reached full valuation during the year, we reduced the
portfolio's weighting in the sector, taking profits. Other strong sectors in the
portfolio included banking and financial services, which performed well in the
second half of the year as interest rates declined."
WHICH SECTORS IN THE PORTFOLIO IMPAIRED THE CORPORATION'S INVESTMENT RESULTS IN
1996?
"The portfolio's holdings in basic materials stocks had a lackluster year and
industries affected included the chemicals, paper, and steel industries.
However, we believe the strongest basic materials companies still have good
prospects, and should see improving performance in the coming year. Utilities
also underperformed due to continued problems associated with the deregulation
of the industry. Nonetheless, the Corporation's utility holdings, particularly
its natural gas stocks, outperformed the average of their peers in the overall
market. The Corporation's utility weighting was slowly reduced throughout the
year as prices approached the high end of their historic ranges."
WHAT IS THE OUTLOOK?
"We believe the Corporation is well positioned for 1997. Stock selection will be
crucial in the coming year, as we expect the marketplace to focus increasingly
on fundamentals. Currently, we find the greatest value in cyclical and
restructuring issues, and are overweighted in these areas. We will continue to
take a cautious approach as many companies are trading at historically high
valuations. We will also maintain our rigorous investment discipline, focusing
on companies with strong fundamentals which are selling at attractive
valuations."
5
<PAGE>
TRI-CONTINENTAL CORPORATION
HIGHLIGHTS OF THE YEAR
Net asset value of each share of Common Stock was $29.28 at December 31,
compared to $27.58 at the start of the year. If you took the July and December
gain distributions in additional shares, the net asset value of each share you
owned at the beginning of 1996 was equivalent to $32.62 at year end. Assuming
you invested dividends and took the gain distributions in shares, your total
return was 21.45%.
DISTRIBUTION OF REALIZED GAIN
Your Directors declared a distribution of $0.572 per Common share from the
balance of taxable net gains realized from November 1, 1995, through December
31, 1995, consisting of $0.440 from net long-term gains and $0.132 from net
short-term gains, which was paid on July 1, 1996, to Stockholders of record June
21, 1996.
A distribution of $2.15 per Common share from taxable net gains realized
from January 1, 1996, through October 31, 1996, consisting of $2.01 from net
long-term gains and $0.14 from net short-term gains was paid on December 20,
1996, to Stockholders of record December 13, 1996.
The Corporation was required to distribute to Common Stockholders the total
undistributed net capital gains realized through October 31, 1996, to avoid a 4%
federal excise tax. The undistributed net capital gain realized from November 1,
1996, to December 31, 1996, of $0.80 per Common share remains a part of the
underlying market value of Common Stock shares as of December 31, 1996. This
amount will be distributed to Common Stockholders during 1997, at which time
Common Stockholders will be subject to federal income taxes on the amount
distributed.
The number of shares of Common Stock issued to those who took the July and
December payments in shares was determined by dividing the total dollar amount
payable by $24.188 and $24.313, the mean of the high and low market prices on
the New York Stock Exchange on June 19 and December 11, respectively.
Distributions should be taken into account in measuring the results of an
investment in Tri-Continental Common Stock, and should be taken in shares if you
want your investment to benefit from the full effect of compounding. Please
refer to the discussion on page 12.
OPERATING EXPENSES for the year were $16,885,209. The ratio of expenses to the
average value of net assets was 0.62%, down from 1995's expense ratio of 0.63%.
COMMON STOCK DIVIDENDS, paid quarterly, totaled $0.66 per share on an average of
90,088,000 shares, compared to $0.73 in 1995 when, on average, there were
approximately 6,117,000 fewer shares outstanding. Common Stock dividends paid in
1996 with the December 1995 and July 1996 capital gain distributions taken in
additional shares were equivalent to $0.73 per share.
PREFERRED STOCK dividends paid each quarter completed 67 years of uninterrupted
payments. Total net investment income available to cover the $2.50 Preferred
Stock dividend was equivalent to $82.13 per Preferred share.
6
<PAGE>
TRI-CONTINENTAL CORPORATION
HIGHLIGHTS OF THE YEAR (CONTINUED)
ASSETS AT YEAR END: 1996 1995
------------ ------------
Total assets ........................... $2,875,674,116 $2,528,405,417
Amounts owed ......................... 3,010,792 21,619,659
-------------- --------------
NET INVESTMENT ASSETS .................. $2,872,663,324 $2,506,785,758
Preferred Stock, at par value .......... 37,637,000 37,637,000
-------------- --------------
Net assets for Common Stock ............ $2,835,026,324 $2,469,148,758
============== ==============
Common shares outstanding .............. 96,836,874 89,512,184
NET ASSETS BEHIND EACH
COMMON SHARE ......................... $29.28 $27.58
With 1996 gain distributions
taken in shares ...................... $32.62 --
TAXABLE GAIN:
Net capital gain realized .............. $ 272,983,871 $ 220,082,721
Per Common share ..................... $2.82 $2.46
Undistributed capital gains, end of year $ 77,104,262 $ 50,976,673
Per Common share, end of year ........ $0.80 $0.57
Unrealized capital gain, end of year ... $ 655,972,946 $ 494,660,634
Per Common share, end of year ........ $6.77 $5.53
DISTRIBUTION OF GAIN:
Per Common share* .................... $2.722 $2.01
INCOME:
Total income earned .................... $ 78,706,060 $ 76,774,096
Expenses ............................. 16,885,209 14,507,036
Preferred Stock dividends ............ 1,881,850 1,881,850
-------------- --------------
Income for Common Stock ................ $ 59,939,001 $ 60,385,210
============== ==============
Expenses to average net assets ......... 0.62% 0.63%
DIVIDENDS PER COMMON SHARE ............. $0.66 $0.73
With December 1995 and July 1996 gain
distributions taken in shares ........ $0.73 --
- ----------
* The Corporation's net capital gain realized for the year 1996 was $2.82 per
share of Common Stock outstanding at December 31, 1996. However, the
Corporation was required to distribute only the total undistributed net
capital gains realized November 1, 1995, through October 31, 1996 ($2.722), to
avoid a 4% federal excise tax. The undistributed net realized capital gain
remains a part of the underlying market value of Common Stock shares as of
December 31, 1996. This amount will be distributed to Common Stockholders
during 1997, at which time Common Stockholders will be subject to federal
income taxes on the amount received.
7
<PAGE>
TRI-CONTINENTAL CORPORATION
DIVERSIFICATION OF ASSETS
The diversification of portfolio holdings by industry on December 31, 1996, was
as follows. Individual securities owned are listed on pages 17 to 25.
<TABLE>
<CAPTION>
PERCENT OF NET
INVESTMENT ASSETS
DECEMBER 31,
------------------
ISSUES COST VALUE 1996 1995
--------- ------------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
Net Cash and Short-Term
Holdings 2 $ 270,304,248 $ 270,304,248 9.4% 6.9%
--- -------------- -------------- -------- -------
Common Stocks and
Convertible Issues:
Aerospace 5 $ 64,463,552 $ 80,650,000 2.8% 3.7%
Automotive and related 9 102,967,158 113,880,750 4.0 3.4
Basic materials 5 52,158,119 55,890,663 2.0 1.0
Building and construction 1 10,822,199 16,800,000 0.6 1.3
Chemicals 5 60,973,871 76,064,529 2.6 4.3
Communications 10 96,494,844 117,146,301 4.1 4.2
Computer and business services 8 99,772,733 155,659,375 5.4 3.8
Consumer goods and services 15 220,181,567 285,419,458 9.9 12.7
Diversified 6 77,172,942 111,806,250 3.9 4.0
Drugs and health care 12 114,678,333 177,470,704 6.2 6.6
Electric and gas utilities 11 94,440,473 117,265,323 4.1 2.3
Electronics 9 143,870,440 166,130,063 5.8 2.3
Energy 10 112,337,057 183,778,254 6.4 7.7
Entertainment and leisure 4 24,792,631 32,715,665 1.1 1.3
Environmental management 1 18,502,310 15,750,000 0.5 0.3
Finance and insurance 20 216,076,281 355,251,241 12.3 11.1
Manufacturing and
industrial equipment 13 157,327,946 205,266,784 7.2 5.8
Packaging and paper -- -- -- -- 0.1
Paper and forest products 5 77,385,819 88,324,846 3.1 2.7
Publishing 3 24,137,618 37,788,140 1.3 2.2
Real estate investment trusts 5 25,725,615 31,679,057 1.1 1.5
Retail trade 7 88,707,713 108,347,661 3.8 6.3
Steel 1 10,762,500 12,337,500 0.4 1.0
Transportation 4 39,040,939 41,653,581 1.5 2.3
---- -------------- -------------- ------ ------
169 $1,932,792,660 $2,587,076,145 90.1% 91.9%
---- -------------- -------------- ------ ------
Tri-Continental
Financial Division 3 $ 13,593,470 $ 15,282,931 0.5% 1.2%
---- -------------- ------------- ------ ------
NET INVESTMENT ASSETS 174 $2,216,690,378 $2,872,663,324 100.0% 100.0%
==== ============== ============= ====== ======
</TABLE>
8
<PAGE>
TRI-CONTINENTAL CORPORATION
LARGEST PORTFOLIO CHANGES
OCTOBER 1 TO DECEMBER 31, 1996
SHARES
-------------------
HOLDINGS
ADDITIONS INCREASE 12/31/96
-------- --------
COMMON STOCKS
Federal-Mogul Corporation 500,000 500,000
Ford Motor Company 300,000 300,000
Frontier Corporation 400,000 800,000
Great Western Financial
Corporation 400,000 400,000
Hercules, Inc. 300,000 300,000
Ikon Office Solutions Inc. 228,100 228,100
Novellus Systems, Inc. 200,000 200,000
Parker-Hannifin Corporation 325,000 325,000
Raytheon Company 200,000 500,000
Security Capital
US Realty Trust 1,000,000 1,000,000
SHARES
-------------------
HOLDINGS
REDUCTIONS DECREASE 12/31/96
-------- --------
COMMON STOCKS
Coca-Cola Company 300,000 --
Conrail Inc. 200,000 --
Donnelley (R.R.) & Sons
Company 600,000 --
Fleet Financial Group, Inc. 650,000 --
Gillette Company 200,000 --
Philip Morris
Companies, Inc. 150,000 --
Reader's Digest Association,
Inc. Class "A" 400,000 --
Rubbermaid Incorporated 800,000 --
SBC Communications Inc. 400,000 --
Largest portfolio changes are based on cost of purchases or proceeds from sales
of securities.
10 LARGEST HOLDINGS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INCREASE (DECREASE)
DECEMBER 31, 1996 IN PER SHARE PRICE
--------------------------- ----------------------
COST VALUE FOR SINCE
(000S) (000S) 1996 PURCHASE
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
General Electric Company $ 12,552 $ 34,606 37.3% 175.7%
General Signal Corporation 26,999 34,200 32.0 26.7
Bank of New York Company, Inc. 16,668 33,750 38.5 102.5
Intel Corporation 14,378 32,734 130.5 127.7
American International
Group, Inc. 10,386 32,475 17.0 212.7
General Re Corporation 25,039 31,550 1.8 26.0
International Flavors &
Fragrances Inc. 32,892 31,500 (4.2)* (4.2)
Motorola Inc. 24,138 30,688 7.7 27.1
AMP Inc. 27,743 29,414 0.0 6.0
Exxon Corporation 15,838 29,400 22.3 85.6
---------- ----------
$ 206,633 $ 320,317
========== ==========
</TABLE>
* From date of purchase.
9
<PAGE>
TRI-CONTINENTAL CORPORATION
Tri-Continental is a closed-end investment company whose stock is listed on the
New York Stock Exchange. Unlike mutual funds, whose shares sell at net asset
value, the market price of Tri-Continental stock is set by the forces of supply
and demand. Therefore, the market price of Tri-Continental's stock can be above
its net asset value, selling at a premium, or below its net asset value, selling
at a discount.
TRI-CONTINENTAL'S CURRENT DISCOUNT IN PERSPECTIVE
The chart below shows Tri-Continental's year-end premium or discount for the 20
years ended December 31, 1996. During this period, the premium was as high as
2.45% at December 31, 1986, and the discount was as wide as 25.12% on December
31, 1980. The median discount was 13.725%. Tri-Continental's year-end 1996
discount of 17.61% is narrower than the 17.97% discount at year-end 1995, and is
within the third quartile of the premium/discount range experienced in the past
20 years.
Tri-Continental's discounts and premiums in the past 20 years are generally
consistent with those of many other closed-end Funds with similar investment
objectives.
[THE FOLLOWING TABLE REPRESENTS A GRAPH IN THE PRINTED PIECE.]
YEAR PREMIUM/DISCOUNT RANGE
END 1977-1996
- ---- ---------
1977 -12%
1978 -22%
1979 -23%
1980 -25%
1981 -20%
1982 -8%
1983 -5%
1984 -2%
1985 -1%
1986 2%
1987 -14%
1988 -18%
1989 -16%
1990 -13%
1991 -3%
1992 -9%
1993 -14%
1994 -16%
1995 -18%
1996 -18%
10
<PAGE>
TRI-CONTINENTAL CORPORATION
A PRUDENT WAY TO PROTECT AND INCREASE ASSETS
Regardless of the changes in the discount or premium, an investment in
Tri-Continental has been a good way to protect and increase assets -- even over
periods as short as five years. The chart below illustrates how a $10,000
investment grew in each five-year period in the past 20 years. The table lists
these periods in order of the greatest widening of the discount to the greatest
narrowing of the discount ("Percentage Point Difference").
<TABLE>
<CAPTION>
PERCENTAGE MARKET VALUE OF COST OF LIVING
5-YEAR PREMIUM/DISCOUNT POINT $10,000 AT END ADJUSTMENT FOR INCREASE IN
HOLDING PERIOD START END DIFFERENCE OF PERIOD* $10,000 BUYING POWER
- --------------- -------- -------- ---------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 91-96 -2.87% -17.61% -14.74 $15,422 $11,501 $ 3,921
Dec. 31, 84-89 -1.91% -16.18% -14.27 21,063 11,975 9,088
Dec. 31, 83-88 -4.69% -18.26% -13.57 16,128 11,895 4,233
Dec. 31, 85-90 -1.36% -13.11% -11.75 16,169 12,242 3,927
Dec. 31, 82-87 -7.58% -13.85% -6.27 18,826 11,824 7,002
Dec. 31, 86-91 +2.45% -2.87% -5.32 18,262 12,480 5,782
Dec. 31, 90-95 -13.11% -17.97% -4.86 18,079 11,480 6,599
Dec. 31, 89-94 -16.18% -16.14% +0.04 14,618 11,872 2,746
Dec. 31, 76-81 -20.52% -20.44% +0.08 16,660 16,151 509
Dec. 31, 77-82 -12.01% -7.58% +4.43 25,115 15,717 9,398
Dec. 31, 88-93 -18.26% -13.60% +4.66 21,244 12,100 9,144
Dec. 31, 87-92 -13.85% -9.03% +4.82 21,152 12,296 8,856
Dec. 31, 78-83 -21.77% -4.69% +17.08 31,388 14,963 16,425
Dec. 31, 79-84 -22.54% -1.91% +20.63 26,287 13,729 12,558
Dec. 31, 81-86 -20.44% +2.45% +22.89 33,969 11,755 22,214
Dec. 31, 80-85 -25.12% -1.36% +23.76 26,834 12,665 14,169
</TABLE>
* Adjusted for the effect of the 1992 rights offering.
The five-year period ended December 31, 1996, for example, experienced the
greatest widening of the discount of any five-year period back to 1976. Even so,
a $10,000 investment in Tri-Continental at the beginning of this period
(December 31, 1991) would have grown to $15,422 at the end of the period
(December 31, 1996). To keep up with inflation (the Consumer Price Index) in
this five-year period, $10,000 would have had to increase to $11,501. Therefore,
a Tri-Continental investor's buying power would have increased by $3,921
($15,422 - $11,501).
A narrowing of the discount is generally associated with even better results.
The five years ended December 31, 1985, for example, experienced the greatest
narrowing of the discount -- by 23.76 percentage points. A $10,000 investment
made at the beginning of this period (December 31, 1980) was worth $26,834 at
the end of the period (December 31, 1985). To keep up with inflation in this
five-year period, $10,000 would have had to increase to $12,665. Therefore, a
Tri-Continental investor's buying power would have increased by $14,169 ($26,834
- - $12,665).
The information provided is based on past performance, which is no guarantee
of future results, and excludes any commissions or costs associated with the
purchase of Tri-Continental shares. In addition, capital gain and dividend
distributions taken in additional shares are subject to personal income tax in
the year earned. The examples shown do not reflect the effect of such taxes.
THE EXAMPLES IN THE TABLE ASSUME THE INVESTMENT OF BOTH CAPITAL GAIN AND
DIVIDEND DISTRIBUTIONS IN ADDITIONAL SHARES -BOTH ARE IMPORTANT TO YOUR
PARTICIPATION IN THE FUTURE GROWTH OF BOTH CAPITAL AND INCOME PROVIDED BY
TRI-CONTINENTAL.
11
<PAGE>
TRI-CONTINENTAL CORPORATION
THE WAY TO BUILD YOUR CAPITAL INVESTMENT IN TRI-CONTINENTAL
In order for a Common Stockholder to fully realize the opportunity for capital
appreciation of his or her investment in Tri-Continental, capital gain
distributions must be taken in additional shares. Taking capital gain
distributions in cash, as opposed to taking them in additional shares, is
comparable to an investor selling an individual security at a profit and only
reinvesting the original cost of the investment. Such a strategy would maintain
only the value of the investor's portfolio at the original investment amount. Of
course, the portfolio's value would also reflect any unrealized gains or losses.
The following table illustrates how taking capital gain distributions in
additional shares contributes to the capital appreciation of an investment in
Tri-Continental. As an example of how to use this table, let's look at 1,000
shares of Tri-Continental purchased on December 31, 1976, at a cost of $22.00
per share ($22,000). In 1977, the realized capital gain distribution of $1.19
per share would have been worth $1,190 -- enough to purchase an additional 58.40
shares. Had this process of taking capital gain distributions in additional
shares continued, by the end of 1996 the initial 1,000 share purchase would have
grown to a holding of 6,550.03 shares. At the year-end 1996 market price of
$24.125, the market value of the initial $22,000 investment would have increased
to $158,020. By contrast, had the capital gain distributions not been taken in
additional shares over the 20-year period, the initial investment of $22,000
would be worth only $24,125 (1,000 shares x $24.125) at December 31, 1996.
<TABLE>
<CAPTION>
ENDING
GAIN PAID NEW SHARES NUMBER OF YEAR-END YEAR-END
YEAR PER SHARE PAID SHARES MARKET PRICE MARKET VALUE
---------- ---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1976 -- -- 1,000.00 $22.000 $ 22,000
1977 $1.19 58.40 1,058.40 20.625 21,830
1978 1.21 69.23 1,127.63 17.625 19,874
1979 1.01 65.31 1,192.94 19.875 23,710
1980 1.08 62.85 1,255.79 23.625 29,668
1981 1.64 100.16 1,355.95 20.750 28,136
1982 2.72 204.90 1,560.85 26.875 41,948
1983 1.48 91.71 1,652.56 29.375 48,544
1984 4.46 314.46 1,967.02 24.875 48,930
1985 2.40 191.71 2,158.73 29.375 63,413
1986 6.96 555.29 2,714.02 28.625 77,689
1987 3.73 461.50 3,175.52 20.625 65,495
1988 1.25 199.72 3,375.24 19.250 64,973
1989 2.55 382.52 3,757.76 23.000 86,428
1990 1.60 271.75 4,029.51 21.375 86,131
1991 1.80 278.97 4,308.48 27.750 119,560
1992 1.67 273.60 4,582.08 25.500 116,843
1993 1.80 350.03 4,932.11 23.750 117,138
1994 1.90 467.08 5,399.19 19.875 107,309
1995 2.01 479.66 5,878.85 22.625 133,009
1996 2.722 671.18 6,550.03 24.125 158,020
</TABLE>
12
<PAGE>
TRI-CONTINENTAL CORPORATION
THE WAY TO INCREASE DIVIDEND INCOME
The following chart compares the year-end annual dividend income paid on 1,000
shares of Tri-Continental purchased on December 31, 1976, at a total price of
$22,000, with and without the capital gain distributions taken in additional
shares.
Although the per-share dividends for these two strategies are identical, the
increase in shares due to the investment of capital gain distributions has a
significant impact on the total yearly dividend income -- an impact that builds
over time. In 1996, the total dividend income was $3,924.53 for the individual
who had taken capital gain distributions in additional shares over the 20-year
period. By contrast, for the individual who failed to take capital gain
distributions in additional shares, the share balance would have remained at
1,000 and just $660.00 in total income would have been produced in 1996.
GROWING DIVIDEND INCOME
[THE FOLLOWING TABLE REPRESENTS A GRAPH IN THE PRINTED PIECE.]
Annual dividend income Annual Dividend Income
WITH capital gains invested WITHOUT capital gains invested
in additional shares.* in additional shares.
---------------------- ---------------------
1976 $ 600 $ 600
1977 $ 1,048 $ 990
1978 $ 1,195 $ 1,060
1979 $ 1,265 $ 1,060
1980 $ 1,432 $ 1,140
1981 $ 1,559 $ 1,150
1982 $ 1,686 $ 1,080
1983 $ 1,801 $ 1,090
1984 $ 2,223 $ 1,130
1985 $ 2,245 $ 1,040
1986 $ 2,387 $ 970
1987 $ 2,418 $ 890
1988 $ 2,572 $ 810
1989 $ 2,835 $ 840
1990 $ 3,232 $ 860
1991 $ 3,143 $ 780
1992 $ 3,395 $ 780
1993 $ 3,666 $ 800
1994 $ 3,896 $ 790
1995 $ 3,941 $ 730
1996 $ 3,925 $ 660
* Adjusted for the effect of the 1992 rights offering.
13
<PAGE>
TRI-CONTINENTAL CORPORATION
THE WAY TO MAXIMIZE VALUE AND FUTURE INCOME
For those individuals who do not need current income, reinvesting dividend
income as well as capital gain distributions produces an even more rapid
accumulation of Tri-Continental shares with a commensurate increase in both
value and future income.
This chart illustrates how a purchase of 1,000 shares of Tri-Continental for
$22,000 in 1976 accumulates over a 20-year period through the investment of
capital gain distributions only, and through the investment of both dividends
and capital gains.
BUILDING WEALTH AND INCOME
[THE FOLLOWING TABLE REPRESENTS A GRAPH IN THE PRINTED PIECE.]
NO INVEST INVEST
INVESTMENT CAPITAL GAINS CAPITAL GAINS
OF DISTRIBUTIONS ONLY* AND DIVIDENDS*
---------------- ------------- --------------
$1,000 $ 6,550.032 $ 14,536.123
Market Value at December 31, 1996
$24,125.00 $158,019.52 $350,683.97
1996 Dividend Income
$ 660.00 $ 3,924.53 $ 8,570.22
* Adjusted for the effect of the 1992 rights offering.
Had you choosen to take BOTH capital gain and dividend distributions in
additional shares, at the end of 1996 you would have had 14,536.123 shares with
a total market value of $350,638.97, and $8,570.22 in total income would have
been produced in 1996.
14
<PAGE>
TRI-CONTINENTAL CORPORATION
STOCKHOLDER SERVICES
Tri-Continental provides a number of services to make maintaining an investment
in its Common Stock more convenient.
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 1996, 2,026,042 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 1996.
INDIVIDUAL RETIREMENT ACCOUNT TRUST (IRA) is available to individuals under age
701/2 who have earned income. The maximum annual deductible individual
contribution is $2,000. A married person with a non-working spouse may set aside
$4,000 annually, while a working couple may also 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 dividend 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, 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
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 1996 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.
15
<PAGE>
TRI-CONTINENTAL CORPORATION
STOCKHOLDER SERVICES (CONTINUED)
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 for 1996, and
the distribution from net short-term gain of $0.132 and $0.140 per Common share
paid on July 1 and December 20, respectively, are subject to federal income tax
as "ordinary income." Under the Internal Revenue Code, 73% of such 1996 ordinary
dividend income paid to Common and Preferred Stockholders qualifies for the
dividend received deduction available to corporate stockholders. In order to
claim the dividend received deduction on these distributions, corporate
stockholders must have held the shares for at least 46 days.
The distributions of $0.44 and $2.01 from net long-term gain realized on
investments from November 1 to December 31, 1995, and January 1, 1996, through
October 31, 1996, respectively, were paid to Common Stockholders on July 1 and
December 20, 1996, respectively. The long-term gain is designated as a "capital
gain dividend" for federal income tax purposes and is taxable to stockholders in
1996 as a long-term gain from the sale of capital assets, no matter how long
Tri-Continental Common Stock may have been owned. However, 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 shares acquired by investing the July 1 and December 20
capital gain distributions in additional shares was $24.188 and $24.313 per
share, respectively.
16
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
<CAPTION>
SHARES VALUE
---------------- ----------------
<S> <C> <C>
COMMON STOCKS - 87.0%
AEROSPACE - 2.8%
GENERAL DYNAMICS CORPORATION 200,000 $ 14,100,000
Diversified defense contractor
GENERAL MOTORS CORPORATION CLASS "H" 200,000 11,250,000
Diversified aerospace manufacturer-- missiles, satellites,
and communications systems
LOCKHEED MARTIN CORPORATION 125,000 11,437,500
Manufacturer of missiles and space systems, aeronautical systems,
and provider of technology services
RAYTHEON COMPANY 500,000 24,062,500
Producer of defense and commercial electronics
UNITED TECHNOLOGIES CORPORATION 300,000 19,800,000
Manufacturer of elevators, jet engines, flight systems, and
automotive parts ------------
$ 80,650,000
------------
AUTOMOTIVE AND RELATED - 3.6%
AUTOLIV (ADRS)+ 70,000 $ 3,045,000
Swedish supplier of safety restraint systems
BORG-WARNER AUTOMOTIVE, INC. 221,300 8,520,050
Manufacturer of automotive powertrain components
ECHLIN INC. 900,000 28,462,500
Manufacturer of brakes and auto replacement parts
FEDERAL-MOGUL CORPORATION 500,000 11,000,000
Manufacturer of transmission products
FORD MOTOR COMPANY 300,000 9,562,500
Manufacturer of automobiles, trucks, and related parts
GENUINE PARTS COMPANY 330,000 14,685,000
Supplier of retail and wholesale auto parts
HARLEY-DAVIDSON INC. 400,000 18,800,000
Motorcycle manufacturer
VOLKSWAGEN AG (ADRS)* 100,000 8,305,700
German manufacturer of automobiles ------------
$102,380,750
------------
BASIC MATERIALS - 2.0%
ALUMINUM COMPANY OF AMERICA 200,000 $ 12,750,000
US aluminum producer
IKON OFFICE SOLUTIONS INC. 228,100 11,775,663
Distributor of paper and office products
NUCOR CORPORATION 200,000 10,200,000
Mini-mill steel producer
POHANG IRON & STEEL (ADSS) 210,000 4,252,500
Korean steel producer
REYNOLDS METALS COMPANY 300,000 16,912,500
Manufacturer of finished aluminum products ------------
$ 55,890,663
------------
BUILDING AND CONSTRUCTION - 0.6%
SHERWIN-WILLIAMS CORPORATION 300,000 $ 16,800,000
Manufacturer of paints and related products ------------
</TABLE>
- ----------
See footnotes on page 25.
17
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
<CAPTION>
SHARES VALUE
------ ----------
CHEMICALS - 2.6%
<S> <C> <C>
BAYER AG 400,000 $ 16,220,779
German producer of specialty chemicals, pharmaceuticals, and plastics
DOW CHEMICAL COMPANY 250,000 19,593,750
Producer of diversified chemicals
HERCULES, INC. 300,000 12,975,000
Manufacturer of specialty chemicals
MORTON INTERNATIONAL, INC. 300,000 12,225,000
Manufacturer and marketer of adhesives, coatings, salt,
and specialty products
OLIN CORPORATION 400,000 15,050,000
Producer of chemicals, defense products, ammunition, and metals -----------
$ 76,064,529
-----------
COMMUNICATIONS - 4.1%
ALCATEL ALSTHOM COMPAGNIE GENERALE D'ELECTRICITE 65,000 $ 5,220,039
French developer of equipment and systems for
public telecommunications
ALLTEL CORPORATION 500,000 15,687,500
Telephone utility
FRONTIER CORPORATION 800,000 18,100,000
Telephone utility
GTE CORPORATION 600,000 27,300,000
Manufacturer of telephone systems and equipment
INDOSAT (ADRS) 84,200 2,304,975
International telecommunications for the Indonesian market
TELE DANMARK (ADSS) 415,000 11,308,750
Provider of domestic and international telephone services
in Denmark
TELECOM ITALIA-DI RISP 2,526,000 4,925,534
Provider of the whole spectrum of
telecommunications services throughout Italy
TELECOM ITALIA MOBILE-DI RISP 2,526,000 3,602,628
Provider of the whole spectrum of mobile
telecommunications services throughout Italy
TELEPORT COMMUNICATIONS GROUP INC. CLASS "A"* 300,000 9,150,000
Provider of telecommunications services
WORLDCOM INC.* 750,000 19,546,875
Telephone utility -----------
$117,146,301
-----------
COMPUTER AND BUSINESS SERVICES - 5.4%
AUTOMATIC DATA PROCESSING, INC. 350,000 $ 15,006,250
Provider of data processing services
COMPAQ COMPUTER CORPORATION* 250,000 18,562,500
Global PCmanufacturer
ELECTRONIC DATA SYSTEMS CORPORATION 450,000 19,462,500
Provider of computer systems and services
FIRST DATA CORPORATION 400,000 14,600,000
Provider of data processing services
HEWLETT-PACKARD COMPANY 300,000 15,075,000
Computers and peripherals
INTEL CORPORATION 250,000 32,734,375
Manufacturer of semiconductors/memory circuits
</TABLE>
- ----------
See footnotes on page 25.
18
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
<CAPTION>
SHARES VALUE
------ ---------
<S> <C> <C>
COMPUTER AND BUSINESS SERVICES (continued)
MICROSOFT CORPORATION* 300,000 $ 24,806,250
Developer of computer software
SUN MICROSYSTEMS, INC.* 600,000 15,412,500
Marketer of networked workstations ------------
$155,659,375
------------
CONSUMER GOODS AND SERVICES - 9.9%
ADIDAS AG 165,960 $ 14,332,909
German manufacturer of sporting equipment and footwear
ALLIED DOMECQ PLC 870,000 6,801,279
International food, drink, and hospitality group in the UK
B.A.T. INDUSTRIES PLC 1,440,000 11,947,770
Provider of financial services and producer of tobacco
products in the UK
COLGATE-PALMOLIVE COMPANY 300,000 27,675,000
Manufacturer and marketer of household and personal care products
CPC INTERNATIONAL INC. 250,000 19,375,000
International food processor
EASTMAN KODAK COMPANY 300,000 24,075,000
Manufacturer and marketer of film and chemicals
GENERAL MILLS, INC. 200,000 12,675,000
Manufacturer and marketer of consumer foods and restaurants
INTERNATIONAL FLAVORS & FRAGRANCES INC. 700,000 31,500,000
Developer and manufacturer of flavor and fragrance products
LIZ CLAIBORNE, INC. 400,000 15,450,000
Designer and distributor of women's apparel
MCDONALD'S CORPORATION 400,000 18,100,000
Franchiser of fast-food restaurants
PEPSICO, INC. 900,000 26,325,000
Manufacturer and marketer of soft drinks and consumer products
PROCTER & GAMBLE COMPANY 200,000 21,500,000
Manufacturer and distributor of household and personal care products
RJR NABISCO HOLDINGS CORPORATION 500,000 17,000,000
Manufacturer of processed foods and consumer products
SARA LEE CORPORATION 600,000 22,350,000
Manufacturer of processed foods and consumer products
SYSCO CORPORATION 500,000 16,312,500
Food distributor ------------
$285,419,458
------------
DIVERSIFIED - 2.9%
ALLIED SIGNAL INC. 300,000 $ 20,100,000
Producer of aerospace and automotive materials
CORNING, INC. 350,000 16,187,500
Manufacturer of specialty glass products
MINNESOTA MINING & MANUFACTURING COMPANY 300,000 24,862,500
Manufacturer of consumer and industrial goods and services
TENNECO, INC. 500,000 22,562,500
Shipbuilder and manufacturer of auto parts, chemicals,
and plastic packaging ------------
$ 83,712,500
------------
DRUGS AND HEALTH CARE - 6.2%
ABBOTT LABORATORIES 300,000 $ 15,225,000
Developer and manufacturer of diversified health care products
</TABLE>
- ----------
See footnotes on page 25.
19
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
<CAPTION>
SHARES VALUE
------ ---------
<S> <C> <C>
DRUGS AND HEALTH CARE (CONTINUED)
AMERICAN HOME PRODUCTS CORPORATION 300,000 $ 17,587,500
Developer and manufacturer of pharmaceuticals, food, and housewares
BAXTER INTERNATIONAL INC. 250,000 10,250,000
Manufacturer and distributor of hospital and laboratory products
BRISTOL-MYERS SQUIBB COMPANY 175,000 19,031,250
Developer and manufacturer of health and personal care products
GUIDANT CORPORATION 275,000 15,675,000
Designer and manufacturer of cardiac rhythm management and
coronary artery disease intervention equipment
MEDTRONIC, INC. 225,000 15,300,000
Manufacturer of pacemakers and related cardiovascular products
MERCK & CO., INC. 300,000 23,775,000
Manufacturer of pharmaceuticals
NOVARTIS AG* 6,800 7,770,704
Swiss manufacturer of pharmaceuticals
PHARMACIA & UPJOHN, INC. 250,000 9,906,250
Swedish manufacturer of pharmaceuticals
SCHERING-PLOUGH CORPORATION 200,000 12,950,000
Manufacturer of pharmaceuticals and health and personal care products
UNITED HEALTHCARE CORPORATION 250,000 11,250,000
Manager of health care services
WARNER-LAMBERT COMPANY 250,000 18,750,000
Manufacturer of pharmaceuticals, toiletries, and food products -----------
$177,470,704
-----------
ELECTRIC AND GAS UTILITIES - 4.1%
BALTIMORE GAS & ELECTRIC COMPANY 400,000 $ 10,700,000
Provider of electric and gas services
BRITISH GAS PLC (ADRS) 115,000 4,370,000
Gas supplier in UK
CENTRAL & SOUTH WEST CORPORATION 500,000 12,812,500
Integrated electric utility holding company
EMPRESA NACIONAL DE ELECTRICIDAD (ADRS) 132,000 9,240,000
Electric utility in Spain
ENTERGY CORPORATION 500,000 13,875,000
Owner of electric utility companies
HONG KONG & CHINA GAS COMPANY LTD. 4,800,000 9,277,911
Producer, distributor, and marketer of natural gas to industrial and
residential customers
HONG KONG & CHINA GAS COMPANY LTD. (WARRANTS)* 400,000 222,380
Producer, distributor, and marketer of natural gas to industrial and
residential customers
HUANENG POWER INTERNATIONAL, INC. (ADRS)* 270,000 6,075,000
Power company in China
SONAT INC. 400,000 20,600,000
Producer of oil and gas
VEBA AG 230,000 13,217,532
Provider of electric energy inGermany
THE WILLIAMS COMPANIES, INC. 450,000 16,875,000
Producer of oil and gas -----------
$117,265,323
-----------
ELECTRONICS - 5.8%
AMP Inc. 766,500 $ 29,414,438
Manufacturer of electronic connectors and systems
</TABLE>
- ----------
See footnotes on page 25.
20
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
<CAPTION>
SHARES VALUE
------ ----------
<S> <C> <C>
ELECTRONICS (continued)
ARROW ELECTRONICS, INC. 400,000 $ 21,400,000
Distributor of electronic components
ATMEL CORPORATION* 200,000 6,650,000
Manufacturer of memory circuits
KEMET CORPORATION* 1,000,000 23,062,500
Manufacturer and supplier of ceramic capacitors
MOTOROLA INC. 500,000 30,687,500
Producer of semiconductors and communications equipment
NOVELLUS SYSTEMS, INC.* 200,000 10,837,500
Manufacturer of chemical vapor deposition equipment
SYNOPSYS, INC.* 250,000 11,500,000
Developer of integrated circuit design software
VISHAY INTERTECHNOLOGY, INC.* 1,000,000 23,375,000
Developer and manufacturer of electronic resistive systems
XILINX, INC.* 250,000 9,203,125
Supplier of field programmable gate arrays ------------
$166,130,063
------------
ENERGY - 6.4%
AMOCO CORPORATION 275,000 $ 22,137,500
Producer of oil and gas
ATLANTIC RICHFIELD COMPANY 125,000 16,562,500
Producer of oil and West Coast marketer
BAKER HUGHES INCORPORATED 500,000 17,250,000
Provider of products and services to explore for,
extract, recover, and process oil and gas
ENRON CORPORATION 500,000 21,562,500
Explorer, transporter, and marketer of natural gas and oil
EXXON CORPORATION 300,000 29,400,000
Explorer and producer of natural gas, oil, and petroleum products
PANENERGY CORPORATION 450,000 20,250,000
Producer of oil and gas
SCHLUMBERGER LTD. 200,000 19,975,000
Worldwide provider of energy services
TEXACO INC. 250,000 24,531,250
Explorer, producer, transporter, refiner, and marketer of
natural gas, oil, and petroleum products
TOTAL S.A. CLASS "B" 76,983 6,259,504
International oil enterprise in France
UNION PACIFIC RESOURCES GROUP INC. 200,000 5,850,000
Explorer, developer, and producer of natural gas ------------
$183,778,254
------------
ENTERTAINMENT AND LEISURE - 1.1%
DISNEY (WALT) COMPANY 250,000 $ 17,406,250
Film entertainment, amusement parks, and
other forms of leisure-related activities
NEWS CORP. LTD. (ADRS) 260,000 5,427,500
Provider of worldwide media and television services
NEWS CORP. LTD. (ADRS--VOTING PREFERENCE SHARES) 130,000 2,291,250
Provider of worldwide media and television services
TELEVISION BROADCAST 1,900,000 7,590,665
TV broadcasting; program production; rental of films; and advertising ------------
$ 32,715,665
------------
</TABLE>
- ----------
See footnotes on page 25.
21
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
<CAPTION>
SHARES VALUE
------ ----------
<S> <C> <C>
ENVIRONMENTAL MANAGEMENT - 0.5%
BROWNING-FERRIS INDUSTRIES, INC. 600,000 $ 15,750,000
Provider of solid and liquid waste management services ------------
FINANCE AND INSURANCE - 12.2%
ABN-AMRO HOLDINGS N.V. 127,717 $ 8,306,076
Worldwide banking operator based in the Netherlands
ACE LIMITED 300,000 18,037,500
Provider of liability insurance
AMERICAN INTERNATIONAL GROUP, INC. 300,000 32,475,000
International insurance holding company
AXA-UAP 166,509 10,587,277
French provider of financial services and insurance
BANKAMERICA CORPORATION 250,000 24,937,500
Commercial banker in California and the Western states
BANK OF NEW YORK COMPANY, INC. 1,000,000 33,750,000
Commercial banker
CITICORP 200,000 20,600,000
Global commercial banker
FEDERAL NATIONAL MORTGAGE ASSOCIATION 600,000 22,350,000
Mortgage financer
GENERAL RE CORPORATION 200,000 31,550,000
Property casualty re-insurer in the US
GREAT WESTERN FINANCIAL CORPORATION 400,000 11,600,000
Savings and loan operator in California and Florida
GRUPO FINANCIERO BANAMEX ACCIVAL, S.A. CLASS "B" 2,176,000 4,542,417
Financial company involved in banking and stockbroking in Mexico
HOUSEHOLD INTERNATIONAL, INC. 200,000 18,450,000
Provider of consumer loans, credit cards, equity loans, and life
insurance
HSBC HOLDINGS PLC 550,000 11,768,699
UK provider of banking and financial services
ING GROEP N.V. 431,093 15,514,659
Provider of banking and insurance services in the Netherlands
IRISH LIFE PLC 1,200,000 5,579,325
UK provider of insurance and related products
KRUNG THAI BANK PUBLIC COMPANY LIMITED 1,100,000 2,122,476
Provider of banking services in Taiwan
MELLON BANK CORPORATION 400,000 28,400,000
Commercial banker
ST. PAUL COMPANIES 400,000 23,450,000
Property and casualty insurer
TRAVELERS INCORPORATED 600,000 27,225,000
Provider of broad-based financial services ------------
$351,245,929
------------
MANUFACTURING AND
INDUSTRIAL EQUIPMENT - 6.7%
ABB AG (ADRs) 97,000 $ 12,028,184
Swedish manufacturer of heavy equipment for electric power
generation and distribution
BTR PLC 1,300,000 6,322,550
Global manufacturer of industrial goods in the UK
COOPER INDUSTRIES, INC. 600,000 25,275,000
Manufacturer of electrical products
EMERSON ELECTRIC CO. 250,000 24,187,500
Manufacturer of electric motors, hand-held tools, and miscellaneous
electrical equipment
</TABLE>
- ----------
See footnotes on page 25.
22
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
<CAPTION>
SHARES VALUE
------ ----------
<S> <C> <C>
MANUFACTURING AND
INDUSTRIAL EQUIPMENT (continued)
GENERAL ELECTRIC COMPANY 350,000 $ 34,606,250
Supplier of electrical equipment and other industrial
and consumer products
GENERAL SIGNAL CORPORATION 800,000 34,200,000
Producer of capital goods
ILLINOIS TOOL WORKS, INC. 200,000 15,975,000
Manufacturer of fasteners, tools, and plastic items
INGERSOLL-RAND COMPANY 300,000 13,350,000
Manufacturer of machinery, equipment, bearings, and tools
MANNESMANN 22,500 9,675,000
German manufacturer of plant and machinery equipment;
automotive technology
PARKER-HANNIFIN CORPORATION 325,000 12,593,750
Manufacturer of motion-control products
PACIFIC DUNLOP LTD. 1,500,000 3,814,800
Diversified Australian manufacturer -------------
$ 192,028,034
-------------
PAPER AND FOREST PRODUCTS - 3.1%
INTERNATIONAL PAPER COMPANY 600,000 $ 24,225,000
Manufacturer of paper, specialty, wood, and timber products
KIMBERLY-CLARK CORPORATION 200,000 19,050,000
Manufacturer of consumer paper products; newsprint
THE MEAD CORPORATION 400,000 23,250,000
Manufacturer of paper, lumber, and wood products
STORA KOPPARBERGS CLASS "B" 550,000 7,474,846
Swedish manufacturer of forestry products
UNION CAMP CORPORATION 300,000 14,325,000
Producer of paper products, building materials, and chemicals -------------
$ 88,324,846
-------------
PUBLISHING - 1.3%
ELSEVIER 650,000 $ 10,981,890
Dutch printer and publisher of professional trade
journals and magazines worldwide
GANNET CO., INC. 200,000 14,975,000
Newspapers, radio and TV broadcasting
TRIBUNE CO. 150,000 11,831,250
Book and newspaper publisher, newsprint operations ------------
$ 37,788,140
------------
REAL ESTATE INVESTMENT TRUSTS - 1.1%
HOMESTEAD VILLAGE, INC.* 50,278 $ 904,997
Owner and manager of extended-stay lodging facilities
HOMESTEAD VILLAGE, INC. (WARRANTS)* 33,730 274,060
Owner and manager of extended-stay lodging facilities
SECURITY CAPITAL INDUSTRIAL TRUST 400,000 8,550,000
REIT operator of shopping centers
SECURITY CAPITAL PACIFIC TRUST 400,000 9,150,000
REIT involved in multi-family residential properties
SECURITY CAPITAL USREALTY TRUST 1,000,000 12,800,000
Book and newspaper publisher, newsprint operations ------------
$ 31,679,057
------------
</TABLE>
- ----------
See footnotes on page 25.
23
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
Shares
of Prin. Amt. Value
------------- ----------
RETAIL TRADE - 3.3%
MAY DEPARTMENT STORES COMPANY 400,000 shs. $ 18,700,000
Department store chain
THE PEP BOYS - MANNY, MOE AND JACK 400,000 12,300,000
Retailer of automotive parts and accessories
TESCO PLC 1,478,000 8,972,661
Food retailer in the UK
TOYS "R" US 300,000 9,000,000
Retailer of toys and children's clothing
WAL-MART STORES, INC. 1,000,000 22,875,000
Discount retailer
WOOLWORTH CORPORATION* 1,000,000 21,875,000
Discount and variety retailer
--------------
$ 93,722,661
--------------
TRANSPORTATION - 1.3%
BURLINGTON NORTHERN SANTA FE 200,000 $17,275,000
Operator of freight railroad systems
JURONG SHIPYARD LTD. 425,000 2,140,943
Ship repair company in Singapore
NORFOLK SOUTHERN CORPORATION 200,000 17,500,000
Railroad holding company, motor carrier
--------------
$ 36,915,943
--------------
TOTAL COMMON STOCKS
(COST: $1,851,963,202) $2,498,538,195
--------------
CONVERTIBLE ISSUES - 3.1%
CONVERTIBLE DEBENTURES - 1.6%
AUTOMOTIVE AND RELATED - 0.4%
MAGNA INTERNATIONAL INC., 5%, 10/15/2002 $ 10,000,000 $ 11,500,000
--------------
DIVERSIFIED - 0.4%
MASCOTECH INC., 4 1/2%, 12/15/2003 15,000,000 $ 12,187,500
--------------
FINANCE AND INSURANCE - 0.1%
LIBLIFE INTERNATIONAL, 6 1/2%, 9/30/2004 3,500,000 $ 4,005,312
--------------
MANUFACTURING AND
INDUSTRIAL EQUIPMENT - 0.5%
TECO ELECTRICAL AND MACHINERY, 2 3/4%, 4/15/2004 3,000,000 $ 2,238,750
TRIMAS CORPORATION, 5%, 8/1/2003 10,000,000 11,000,000
--------------
$ 13,238,750
--------------
TRANSPORTATION - 0.2%
NIPPON YUSEN (Japan), 2%, 9/29/2000 505,000,000** $ 4,737,638
--------------
TOTAL CONVERTIBLE DEBENTURES
(COST: $42,489,670) $ 45,669,200
--------------
- ----------
See footnotes on page 25.
24
<PAGE>
TRI-CONTINENTAL CORPORATION
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
Shares
of Prin. Amt. Value
------------- ------------
CONVERTIBLE PREFERRED STOCKS - 1.5%
DIVERSIFIED - 0.6%
CORNING INC. (Delaware), 6% 250,000 shs. $ 15,906,250
--------------
RETAIL TRADE - 0.5%
KMART FINANCING, 7 3/4% 300,000 $ 14,625,000
--------------
STEEL - 0.4%
AK STEEL HOLDINGS CORPORATION, 7% 350,000 $ 12,337,500
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST: $38,339,788) $ 42,868,750
--------------
TOTAL CONVERTIBLE ISSUES
(COST: $80,829,458) $ 88,537,950
--------------
TRI-CONTINENTAL FINANCIAL DIVISION++ - 0.5%
(COST: $13,593,470) $ 15,282,931
--------------
SHORT-TERM HOLDINGS - 8.8%
CANADIAN IMPERIAL BANK OF COMMERCE,
Grand Cayman,
Fixed Time Deposit, 6 1/2%, 1/2/1997 $ 127,000,000 $ 127,000,000
NATIONAL WESTMINSTER BANK,Nassau,
Fixed Time Deposit, 6 1/2%, 1/2/1997 127,000,000 127,000,000
--------------
TOTAL SHORT-TERM HOLDINGS
(COST: $254,000,000) $ 254,000,000
--------------
TOTAL INVESTMENTS - 99.4%
(COST: $2,200,386,130) $2,856,359,076
OTHER ASSETS LESS LIABILITIES - 0.6% 16,304,248
--------------
NET INVESTMENT ASSETS - 100.0% $2,872,663,324
==============
- ----------
* Non-income producing security.
** Principal amount reported in Japanese Yen.
+ Rule 144A security.
++ Restricted securities.
Descriptions of companies have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
25
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
ASSETS:
<S> <C> <C>
Investments at value:
Common stocks (cost--$1,851,963,202) ....................... $2,498,538,195
Convertible issues (cost--$80,829,458) ..................... 88,537,950
Tri-Continental Financial Division
(cost--$13,593,470) ....................................... 15,282,931
Short-term holdings (cost--$254,000,000) ................... 254,000,000 $2,856,359,076
--------------
Cash ........................................................ 10,804,773
Receivable for dividends and interest ....................... 6,679,014
Receivable for securities sold .............................. 900,575
Investment in, and expenses prepaid to, stockholder
service agent .............................................. 447,795
Other ....................................................... 482,883
--------------
TOTAL ASSETS ................................................ $2,875,674,116
--------------
Liabilities:
Dividends payable ........................................... $ 470,463
Accrued expenses, taxes, and other .......................... 2,540,329
--------------
TOTAL LIABILITIES ........................................... $ 3,010,792
--------------
NET INVESTMENT ASSETS ....................................... $2,872,663,324
Preferred Stock, at $50 par value ......................... 37,637,000
--------------
NET ASSETS FOR COMMON STOCK ................................. $2,835,026,324
==============
Net Assets per share of Common Stock
(market value--$24.125) ................................... $29.28
======
STATEMENT OF CAPITAL STOCK AND SURPLUS DECEMBER 31, 1996
CAPITAL STOCK:
$2.50 Cumulative Preferred Stock, $50 par value,
asset coverage per share--$3,816.28
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--96,836,874 ............................... 48,418,437
SURPLUS:
Capital surplus ............................................ 2,052,146,885
Undistributed net investment income ........................ 1,361,782
Undistributed net realized gain ............................ 77,104,262
Net unrealized appreciation of investments ................. 654,159,615
Net unrealized appreciation on translation of assets
and liabilities denominated in foreign currencies* ........ 1,835,343
--------------
$2,872,663,324
==============
</TABLE>
- ----------
* Includes unrealized appreciation on translation of investments denominated in
foreign currencies of $1,813,331.
See Notes to Financial Statements.
26
<PAGE>
TRI-CONTINENTAL CORPORATION
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividends .................................................. $ 64,767,679
Interest ................................................... 13,778,905
------------
TOTAL INVESTMENT INCOME (NET OF FOREIGN TAXES
WITHHELD OF $760,915) ..................................... $ 78,546,584
EXPENSES:
Management fee ............................................. $ 11,136,312
Stockholder account and
registrar services ........................................ 3,227,431
Custody and related services ............................... 911,000
Stockholder reports and
communications ............................................ 715,541
Stockholders' meeting ...................................... 311,685
Directors' fees and expenses ............................... 186,994
Auditing and legal fees .................................... 180,021
Registration ............................................... 81,898
Miscellaneous .............................................. 134,327
------------
TOTAL EXPENSES .............................................. 16,885,209
------------
NET INVESTMENT INCOME ....................................... $ 61,661,375*
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on investments ........................... $273,265,510
Net realized loss from foreign
currency transactions ..................................... (122,163)
Net change in unrealized appreciation
of investments ............................................ 163,203,213
Net change in unrealized appreciation
on translation of assets and liabilities
denominated in foreign currencies ......................... (1,863,034)
------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS ...................................... 434,483,526
------------
INCREASE IN NET INVESTMENT ASSETS
FROM OPERATIONS ............................................ $496,144,901
============
</TABLE>
- ------------
* Net investment income available for Common Stock is $59,939,001, which is net
of Preferred Stock dividends of $1,881,850, and includes a portion of the net
realized gain from foreign currency transactions of $159,476 which is taxable
as ordinary income.
See Notes to Financial Statements.
27
<PAGE>
TRI-CONTINENTAL CORPORATION
STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
-------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................ $ 61,661,375 $ 62,231,561
Net realized gain on investments ............................. 273,265,510 219,387,584
Net realized gain (loss) from foreign
currency transactions ...................................... (122,163) 730,636
Net change in unrealized appreciation
of investments ............................................. 163,203,213 301,589,307
Net change in unrealized appreciation on
translation of assets and liabilities
denominated in foreign currencies .......................... (1,863,034) 1,694,560
-------------- --------------
Increase in net investment
assets from operations ..................................... $ 496,144,901 $ 585,633,648
-------------- --------------
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: $.66 and $.73) .................... (59,457,756) (61,298,938)
-------------- --------------
$ (61,339,606) $ (63,180,788)
Net realized gain on investments
Common Stock (per share: $2.722 and $2.01) ................. (246,856,282) (169,106,048)
-------------- --------------
Decrease in net investment assets
from distributions ......................................... $ (308,195,888) $ (232,286,836)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Value of shares of Common Stock issued
at market price in gain distributions
(7,302,117 and 5,310,869 shares) ........................... $ 177,343,090 $ 120,158,419
Value of shares of Common Stock issued
for investment plans (2,026,442 and 1,890,436 shares) ...... 49,236,168 42,080,503
Cost of shares purchased
for investment plans (2,017,316 and 1,837,697 shares) ...... (48,673,006) (40,543,318)
Net proceeds from issuance of shares of
Common Stock upon exercise of
Warrants (13,447 and 4,470 shares) ......................... 22,301 7,866
-------------- --------------
Increase in net investment assets
from capital share transactions ............................ $ 177,928,553 $ 121,703,470
-------------- --------------
Increase in net investment assets ............................ $ 365,877,566 $ 475,050,282
NET INVESTMENT ASSETS:
Beginning of year ............................................ 2,506,785,758 2,031,735,476
-------------- --------------
End of year (including undistributed
net investment income of $1,361,782
and $880,537) .............................................. $2,872,663,324 $2,506,785,758
============== ==============
</TABLE>
- ------------
See Notes to Financial Statements.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies followed, all in conformity with generally
accepted accounting principles, are given below:
a. Investments in stocks, 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 US dollars. The
market value of investment securities and other assets and liabilities
denominated in foreign currencies are translated into US 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
US 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
are caused primarily 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.
29
<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, 1996, 2,017,316 shares were purchased from Plan participants
at a cost of $48,673,006, which represented a weighted average discount of
17.31% from the net asset value of those acquired shares. A total of 2,026,442
shares were issued to Plan participants during the year for proceeds of
$49,236,168, a discount of 17.61% from the net asset value of those shares.
At December 31, 1996, 212,711 shares of Common Stock were reserved for
issuance upon exercise of 14,480 Warrants, each of which entitled the holder to
purchase 14.69 shares of Common Stock at $1.53 per share. Assuming the exercise
of all Warrants outstanding at December 31, 1996, net investment assets would
have increased by $325,448 and the net asset value of the Common Stock would
have been $29.22 per share. The number of Warrants exercised during the years
1996 and 1995 was 992 and 350, respectively.
3. Purchases and sales of portfolio securities, excluding USGovernment
obligations and short-term investments, amounted to $1,361,048,511 and
$1,526,999,673, respectively. At December 31, 1996, 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
translations, amounted to $691,971,062 and $35,998,116, respectively.
4. 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, 1996, was equivalent to an annual
rate of 0.41% of the average daily net assets of the Corporation. Seligman
Henderson Co. (the "Subadviser"), an entity owned 50% each by the Manager and
Henderson plc, is entitled to a portion of the Manager's fee for acting as
Subadviser for certain of the international investments of the Corporation.
Seligman Data Corp., owned by the Corporation and certain associated
investment companies, charged the Corporation at cost $3,196,856 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 $85,000 were incurred by the Corporation for legal services of
Sullivan & Cromwell, a member of which firm is a director of the Corporation.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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, 1996, of $444,923 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.
5. At December 31, 1996, the Tri-Continental Financial Division of the
Corporation was comprised of three 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, 1996, are as follows:
<TABLE>
<CAPTION>
INVESTMENTS ACQUISITION DATE(S) COST VALUE
- ---------------------------------- ------------------ ---------- ----------
<S> <C> <C>
Water Street Corporate Recovery
Fund I, L.P. 10/9/90 to 7/22/96 $ 918,502 $ 916,794
WCAS Capital Partners II, L.P. 12/11/90 to 12/16/96 7,497,768 7,456,904
Whitney Subordinated Debt Fund, L.P. 7/12/89 to 12/30/96 5,177,200 6,909,233
----------- -----------
Total $13,593,470 $15,282,931
=========== ===========
</TABLE>
6. Following is a summary of unaudited quarterly results of operations, in
thousands of dollars except for per share amounts:
<TABLE>
<CAPTION>
For Quarters Ended in the Year 1996
------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Total investment income ...... $ 17,998 $22,596 $ 20,659 $ 17,294
Net investment income for
Common Stock ................ $ 13,578 $17,969 $ 15,951 $ 12,282
Per Common share ............ $0.15 $0.20 $0.18 $0.13
Net realized and unrealized
investment gain ............. $151,454 $74,655 $ 53,426 $154,949
Per Common share ............ $1.68 $0.83 $0.59 $1.72
</TABLE>
<TABLE>
<CAPTION>
For Quarters Ended in the Year 1995
------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Total investment income ...... $ 18,606 $ 20,059 $ 17,445 $20,629
Net investment income for
Common Stock ............... $ 14,661 $ 15,906 $ 13,331 $16,452
Per Common share ........... $0.17 $0.19 $0.16 $0.20
Net realized and unrealized
investment gain ............ $132,012 $159,391 $118,105 $113,894
Per Common share ........... $1.56 $1.88 $1.39 $1.34
</TABLE>
31
<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 amounts.
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.
Average commission rate paid represents the average commission paid by the
Corporation to purchase or sell portfolio securities. It is determined by
dividing the total commission dollars paid by the number of shares purchased and
sold during the period for which commissions were paid. This rate is provided
for the period beginning January 1, 1996.
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.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of year .................... $27.58 $23.70 $27.49 $28.03 $28.57
------ ------ ------ ------ ------
Net investment income ................. .68 .74 .83 .83 .81
Net realized and unrealized
investment gain (loss) ............... 4.84 6.14 (1.69) 1.46 1.19
Net realized and unrealized gain (loss)
on foreign currency transactions ..... (.02) .03 .02 -- --
------ ------ ------ ------ ------
Increase (decrease) from
investment operations ................ 5.50 6.91 (.84) 2.29 2.00
Dividends paid on Preferred Stock ..... (.02) (.02) (.03) (.03) (.03)
Dividends paid on Common Stock ........ (.66) (.73) (.79) (.80) (.78)
Distribution from net gain realized ... (2.72) (2.01) (1.90) (1.80) (.70)
Issuance of Common Stock
in gain distributions ................ (.40) (.27) (.23) (.19) (.05)
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 ................... 1.70 3.88 (3.79) (.54) (.54)
------ ------ ------ ------ ------
Net asset value,
end of year .......................... $29.28 $27.58 $23.70 $27.49 $28.03
====== ====== ====== ====== ======
Adjusted net asset value,
end of year* ........................ $29.22 $27.52 $23.65 $27.42 $27.95
Market value, end of year ............. $24.125 $22.625 $19.875 $23.75 $25.50
</TABLE>
- ----------
See page 33 for footnotes.
32
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Total Investment Return:
Based upon market value ....... 21.98% 27.95% (5.07)% 3.47% .61%+
Based upon net asset value .... 21.45% 30.80% (2.20)% 8.95% 7.42%+
Ratios/Supplemental Data:
Expenses to average
net assets .................. .62% .63% .64% .66% .67%
Net investment income to
average net assets .......... 2.27% 2.71% 3.08% 2.88% 2.86%
Portfolio turnover rate ....... 53.96% 62.28% 70.38% 69.24% 44.35%
Average commission rate paid .. $ .0478
Net investment assets,
end of period (000s omitted):
For Common Stock ............ $2,835,026 $2,469,149 $1,994,098 $2,166,212 $2,088,102
For Preferred Stock ......... 37,637 37,637 37,637 37,637 37,637
---------- ---------- ---------- ---------- ----------
Total net investment assets ... $2,872.663 $2,506,786 $2,031,735 $2,203,849 $2,125,739
========== ========== ========== ========== ==========
</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.
33
<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, 1996, 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
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, 1996, by correspondence with the Corporation's custodians. 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, 1996, 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
January 31, 1997
34
<PAGE>
TRI-CONTINENTAL CORPORATION
BOARD OF DIRECTORS
FRED E. BROWN
DIRECTOR AND CONSULTANT,
J. & W. Seligman & Co.
Incorporated
JOHN R. GALVIN (2,4)
DEAN, Fletcher School of Law and
Diplomacy at Tufts University
DIRECTOR, USLIFE Corporation
ALICE S. ILCHMAN (3,4)
PRESIDENT, Sarah Lawrence College
TRUSTEE, Committee for Economic
Development
DIRECTOR, NYNEX
CHAIRMAN, The Rockefeller Foundation
FRANK A. MCPHERSON (2,4)
CHAIRMAN AND CEO, Kerr-McGee
Corporation
DIRECTOR, Kimberly-Clark Corporation
DIRECTOR, Baptist Medical Center
JOHN E. MEROW
SENIOR PARTNER, Sullivan & Cromwell, Law Firm
DIRECTOR, Commonwealth Aluminum
Corporation
BETSY S. MICHEL (2,4)
DIRECTOR OR TRUSTEE,
Various Organizations
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)
PARTNER, Pitney, Hardin, Kipp & Szuch,
Law Firm
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
RONALD T. SCHROEDER (1)
MANAGING DIRECTOR, J. & W. Seligman & Co.
Incorporated
ROBERT L. SHAFER (3,4)
DIRECTOR OR TRUSTEE,
Various Organizations
JAMES N. WHITSON (2,4)
EXECUTIVE VICE PRESIDENT AND DIRECTOR,
Sammons Enterprises, Inc.
DIRECTOR, C-SPAN
DIRECTOR, Red Man Pipe and Supply
Company
BRIAN T. ZINO (1)
PRESIDENT
PRESIDENT AND MANAGING DIRECTOR,
J. & W. Seligman & Co. Incorporated
CHAIRMAN AND PRESIDENT, Seligman Data Corp.
- ----------
Member:
(1) Executive Committee
(2) Audit Committee
(3) Director Nominating Committee
(4) Board Operations Committee
35
<PAGE>
TRI-CONTINENTAL CORPORATION
EXECUTIVE OFFICERS
WILLIAM C. MORRIS
CHAIRMAN
BRIAN T. ZINO
PRESIDENT
CHARLES W. KADLEC
VICE PRESIDENT
CHARLES C. SMITH, JR.
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
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
36
<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 12/96
