68th Annual Report 1997
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 30, 1998
Tri-Continental Corporation had another year of solid investment results
in 1997. The Corporation's total return based on net asset value was 26.65%.
This was in line with the 26.72% total return of the Corporation's competitive
universe, as represented by the Lipper Closed-End Growth & Income Funds Average.
The Corporation's total return based on market price was also favorable, at
27.96%, reflecting a slight narrowing of the discount to net asset value. For
the year, the Standard & Poor's 500 Composite Stock Price Index (S&P 500) had a
total return of 33.36%, led by the gains of the largest "brand names" in the
Index.
The Corporation's investment results take into account the investment of
the $0.60 dividend and the $3.447 capital gain distributions paid in 1997. The
total distribution rate was 12.7%, marking the fourth consecutive year that the
total distributions exceeded 10% of the Corporation's average quarterly net
asset values. The Corporation has paid dividends to Common Stockholders for the
past 53 years.
Nineteen ninety-seven was the seventh year of economic expansion for the
US, with real domestic growth of 3.8%. Consumer price inflation slowed to less
than 2%, interest rates moved steadily lower, productivity rose, and
unemployment levels reached 27-year lows. Meanwhile, the federal budget deficit
virtually disappeared and corporate profits posted a third consecutive year of
strong gains. Despite year-end problems in Asia, the domestic business
environment remained positive.
The domestic equity markets, as measured by the Dow Jones Industrial
Average (DJIA), brought investors returns in excess of 20% for a third
consecutive year -- a feat unmatched in the DJIA's 101-year history. However,
the majority of the advances occurred in the first seven months of 1997, as
Asian troubles increased uncertainty in the equity markets in the last quarter.
Investors also had to contend with repeated cracks in share prices and unusual
volatility throughout the year, as nearly a third of the trading days brought
changes of one percent or more in the DJIA. Nonetheless, the S&P 500, the DJIA,
the Nasdaq, and the Russell 2000 all ended the year with returns of 20% or more.
Beginning in the second quarter, Tri-Continental Corporation's portfolio
was shifted away from the largest, or "mega-cap," companies in the
large-capitalization universe, where valuations were nearing 10-year highs. Our
expectation was that the markets would broaden, becoming more conscious of
1
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Tri-Continental Corporation
earnings growth potential and valuations. Indeed, the Corporation's investment
results improved as the markets broadened in the third calendar quarter. In the
fourth quarter, however, market participants focused their investments in the
largest, most liquid stocks, reacting to the Asian financial crisis and fears of
reduced future earnings.
The outlook for 1998 is somewhat uncertain, due to expectations of more
modest economic growth and the unforeseeable effect of the Asian crisis on
corporate profitability and the US economy. There is also a risk of temporary
price deflation linked to the Asian crisis, as those economies seek to export
their way out of trouble.
The record-setting three-year stretch has produced heightened expectations
among investors, and the equity markets have become less forgiving of earnings
disappointments. We believe that in such an environment, active management and
cautious stock selection based on superior fundamentals will become even more
important. The Corporation's long-term strategy of seeking current income and
capital appreciation potential at a reasonable price should be rewarded in a
market where investors place increased importance on earnings.
Thank you for your continued support of Tri-Continental Corporation, "an
investment you can live with." We look forward to serving your investment needs
in the many years to come. A discussion with your Portfolio Managers, the
Corporation's portfolio of investments, and financial statements, follow this
letter. Additional information on the Corporation's investment results appears
on page 4.
By order of the Board of Directors,
/s/ William C. Morris
William C. Morris
Chairman
/s/ Brian T. Zino
Brian T. Zino
President
2
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Tri-Continental Corporation
Interview With Your Portfolio Managers
[PHOTO OMITTED]
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. (Portfolio Manager), Amy Fujii
What were Tri-Continental Corporation's investment results in 1997?
"For the 12 months ended December 31, 1997, Tri-Continental Corporation
posted a solid total return of 26.65% based on net asset value. This return was
in line with that of the Corporation's peers, as measured by the Lipper
Closed-End Growth & Income Funds Average, which had a total return of 26.72% for
the year. The Lipper Growth & Income Funds Average, which measures the results
of mutual funds with similar investment objectives, posted a total return of
27.19% through December 31, 1997. Due to a slight narrowing of the discount from
net asset value, the Corporation's total return based on market price was
27.96%. The Standard & Poor's 500 Composite Stock Price Index (S&P 500) had a
total return of 33.36% for 1997."
Which economic and market factors affected the Corporation's investment results
in 1997?
"We would be hard pressed to imagine a better economic background. Healthy
growth and low inflation continued throughout the year, despite fears that the
lasting strength of the economy, combined with low unemployment levels, would
prompt an increase in inflationary pressures. Generally, equities benefited from
strong corporate earnings and investors' enthusiasm for common stocks.
"In this positive environment, the Corporation had strong investment
results, particularly in the third quarter when the markets broadened. However,
the Asian financial crisis created unease in the global equity markets, which
drove foreign and domestic investors to seek refuge in the largest, most liquid
US stocks. Your Corporation remains modestly underweighted in these issues due
to valuation concerns. This contributed to our underperformance in the fourth
quarter of the year."
What is your investment strategy?
"The Portfolio has been repositioned to increase earnings stability,
include stocks with attractive yields, and further reduce overall volatility.
These efforts will continue in 1998. The number of US common stocks held in the
portfolio was reduced from 110 in June to approximately 90 at this time. The
portfolio will be pared down further in 1998, to focus on companies with stable
earnings and dividends in order to seek growth of capital while continuing to
provide reasonable current income. Additionally, the portfolio's fixed-income
weighting was modestly increased to approximately 5% of assets to enhance
current income and reduce volatility. We have also increased our weighting in
telecommunications stocks, as these issues have had consistent earnings growth
and attractive dividend yields."
3
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Tri-Continental Corporation
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Investment Results Per Common Share
TOTAL RETURNS
For Periods Ended December 31, 1997
Average Annual
--------------------------
Three One Five 10
Months* Year Years Years
-------- ------ ----- -----
Market Price** 0.60% 27.96% 14.42% 15.29%
Net Asset Value** (0.77) 26.65 16.48 15.69
Lipper Closed-End
Growth & Income
Funds Average*** 0.66 26.72 16.72 15.53
S&P 500*** 2.87 33.36 20.27 18.05
PRICE PER SHARE
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997 June 30, 1997 March 31, 1997 December 31, 1996
----------------- ------------------ ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Market Price $26.6875 $29.3125 $27.0625 $24.50 $24.125
Net Asset Value 32.06 35.70 33.30 29.63 29.28
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
For the Year Ended December 31, 1997
Capital Gain
---------------------------------------------------
Dividends Paid+ Paid Realized Unrealized
-------------- --------- --------- ----------
$0.60 $3.447++ $4.32 $8.10+++
The net realized capital gain and dividend distributions paid in 1997 totaled
$4.047. This is equal to 12.7% of the Corporation's average end-of-quarter net
asset values for the prior four quarters (December 1996 to September 1997).
- ----------
* Returns for periods of less than one year are not annualized.
** These rates of return reflect changes in market price or net asset value,
as applicable, and assume that all distributions within the period are
taken in additional shares. The rates of return will vary and the
principal value of an investment will fluctuate. Shares, if sold, may be
worth more or less than their original cost. Past performance is not
indicative of future investment results.
*** The Lipper Closed-End Growth & Income Funds Average and the S&P 500 are
unmanaged benchmarks that assume investment of dividends. The Lipper
Closed-End Growth & Income Funds Average excludes the effect of sales
charges and the S&P 500 excludes the effect of fees and sales charges.
Investors cannot invest directly in an index or an average.
+ Preferred Stockholders were paid dividends totaling $2.50 per share.
++ Includes $0.807 of undistributed realized capital gains from 1996, which
were paid to Common Stockholders on July 1, 1997.
+++ Represents the per share amount of net unrealized appreciation of
portfolio securities as of December 31, 1997.
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4
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Tri-Continental Corporation
Interview With Your Portfolio Managers (continued)
Which industry groups in the portfolio improved the Corporation's investment
results?
"Finance and health care were the strongest industries in the portfolio
this year. The low-interest-rate environment provided a positive backdrop for
the performance of finance and insurance stocks, which were further aided by the
consolidation in the industry. In the Corporation's drugs and health care
holdings, pharmaceutical stocks had a very strong year as new products and
increased sales drove earnings growth. Another factor supporting the
appreciation of these stocks was the reduced earnings of HMOs. Investors
therefore redirected their assets into pharmaceuticals, where more stable
earnings were found. All in all, the valuations of pharmaceutical companies
continued to rebound from their 1994 lows.
"The capital goods sector also did well this year, supported by the strong
economy, corporate capital spending, and many companies' efforts to reduce costs
and improve profitability. Aerospace, building and construction, and electronics
were the three areas in the portfolio that benefited from these trends. However,
we have been taking profits in this area as valuations have risen. We plan to
further reduce our weighting in these industries as the anticipated slowing of
the economy in 1998 could reduce the earnings growth of some of these
economically-sensitive stocks."
Which sectors impaired the Corporation's performance?
"The three main areas where the portfolio underperformed were electric and
gas utilities, transportation, and technology-related stocks. The portfolio was
underweight in utilities due to their high valuations. However, as the Asian
crisis unfolded, investors became concerned with the potential impact on 1998
corporate earnings and placed a greater portion of their assets in safe havens
with steady earnings, such as utilities. Tri-Continental, which had a very
modest weighting in the sector, did not fully participate in the fourth-quarter
appreciation of utilities.
"The portfolio was also underweight in transportation, where airlines had
a very strong year due to increased consumer and corporate demand and improved
profitability. However, industry fundamentals, which include a high cost of
doing business and tremendous competitive pressures, deterred us from making a
significant investment in airline stocks. The technology sector performed
unevenly in 1997, and was subject to a significant degree of volatility. The
Asian crisis, in particular, reduced valuations in the group due to the
importance of Asian demand in the industry. There were nonetheless some very
strong performers in the portfolio's technology-related holdings."
What is the outlook?
"In 1998, we anticipate a more difficult market environment in which stock
selection will be the key to positive investment results. Corporate profits are
coming under pressure as the Asian financial crisis and slowing domestic economy
reduce the earnings of US multinationals and their suppliers. There is a
possibility that the market will broaden as investors look outside the largest
stocks for more attractive valuations and solid earnings. In this environment,
we believe our strategy of identifying fundamentally sound companies with stable
earnings should be rewarded."
5
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Tri-Continental Corporation
Highlights of the Year
Net asset value of each share of Common Stock was $32.06 at December 31,
compared to $29.28 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 1997 was equivalent to $36.29 at year end. Assuming
the investment of dividends and gain distributions in shares, the total return
was 26.65%.
Distribution of Realized Gain
Your Directors declared a distribution of $0.807 per Common share from the
balance of taxable net gains realized from November 1, 1996, through December
31, 1996, consisting of $0.715 from net long-term gains and $0.092 from net
short-term gains, which was paid on July 1, 1997, to Stockholders of record June
18, 1997.
A distribution of $2.64 per Common share from taxable net gains realized
from January 1, 1997, through October 31, 1997, consisting of $2.53 from net
long-term gains and $0.11 from net short-term gains was paid on December 19,
1997, to Stockholders of record December 12, 1997.
The Corporation is required to distribute to Common Stockholders the total
undistributed net capital gains realized through October 31, 1997, to avoid a 4%
federal excise tax. The undistributed net capital gain realized from November 1,
1997, to December 31, 1997, of $1.85 per Common share remains a part of the
underlying market value of Common Stock shares as of December 31, 1997. This
amount will be distributed to Common Stockholders during 1998, 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 $27.375 and $26.50, the mean of the high and low market prices on the
New York Stock Exchange on June 16 and December 10, 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.
Operating expenses for the year were $19,518,138. The ratio of expenses to the
average value of net investment assets was 0.60%, down from 1996's expense ratio
of 0.62%.
Common Stock dividends, paid quarterly, totaled $0.60 per share on an average of
97,673,000 shares, compared to $0.66 in 1996 when, on average, there were
approximately 7,585,000 fewer shares outstanding. Common Stock dividends paid in
1997 with the December 1996 and July 1997 capital gain distributions taken in
additional shares were equivalent to $0.66 per share.
Preferred Stock dividends, paid each quarter, completed 68 years of
uninterrupted payments. Total net investment income available to cover the $2.50
Preferred Stock dividend was equivalent to $78.09 per Preferred share.
6
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Tri-Continental Corporation
Highlights of the Year (continued)
<TABLE>
<CAPTION>
Assets at Year End: 1997 1996
-------------- --------------
<S> <C> <C>
Total assets ...................................... $3,464,836,574 $2,875,674,116
Amounts owed ...................................... 35,383,654 3,010,792
-------------- --------------
Net Investment Assets ............................. $3,429,452,920 $2,872,663,324
Preferred Stock, at par value ..................... 37,637,000 37,637,000
-------------- --------------
Net Assets for Common Stock ....................... $3,391,815,920 $2,835,026,324
============== ==============
Common shares outstanding ......................... 105,796,914 96,836,874
Net Assets Behind Each Common Share ............... $ 32.06 $ 29.28
With 1997 gain distributions taken in shares ...... $ 36.29 --
Taxable Gain:
Net capital gain realized ......................... $ 456,753,728 $ 272,983,871
Per Common share .................................. $ 4.32 $ 2.82
Undistributed capital gains, end of year .......... $ 195,203,642 $ 77,104,262
Per Common share, end of year ..................... $ 1.85 $ 0.80
Unrealized capital gains, end of year ............. $ 857,350,871 $ 655,972,946
Per Common share, end of year ..................... $ 8.10 $ 6.77
Distribution of Gain
Per Common share* ................................. $ 3.447 $ 2.722
Income:
Total income earned ............................... $ 78,302,475 $ 78,706,060
Expenses .......................................... 19,518,138 16,885,209
Preferred Stock dividends ......................... 1,881,850 1,881,850
-------------- --------------
Income for Common Stock ........................... $ 56,902,487 $ 59,939,001
============== ==============
Expenses to average net investment assets ......... 0.60% 0.62%
Expenses to average net assets for Common Stock ... 0.60% 0.63%
Dividends per Common Share ........................ $ 0.60 $ 0.66
With December 1996 and July 1997 gain distributions
taken in shares ................................ $ 0.66 --
</TABLE>
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* The Corporation's net capital gain realized for the year 1997 was $4.32
per share of Common Stock outstanding at December 31, 1997. However, the
Corporation was required to distribute only the total undistributed net
capital gain realized during the period from November 1, 1996, through
October 31, 1997 ($3.447 per share), to avoid a 4% federal excise tax. The
undistributed net realized capital gain as of year end ($1.85 per share)
remains a part of the underlying market value of Common Stock shares as of
December 31, 1997. This amount will be distributed to Common Stockholders
during 1998, at which time Common Stockholders will be subject to federal
income taxes on the amount received.
7
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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 are made
by the Corporation in the open market and from Stockholders participating in
withdrawal plans to satisfy Plan requirements. Those shares are then sold to
Stockholders using the Plan. During 1997, 1,805,903 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 in 1997.
Traditional Individual Retirement Account (IRA). You may contribute up to $2,000
per year to a Traditional IRA provided you have earned income and are under age
70 1/2. A working or non-working spouse may also contribute up to $2,000 to a
separate Traditional IRA.Contributions to a Traditional IRA may be deductible or
non-deductible. If you are not covered by an employer's retirement plan, your
contribution will always be deductible. For individuals who are covered by a
plan, contributions will be deductible if your adjusted gross income (AGI) in
1998 is less than $30,000. For spouses who are both covered by a plan,
contributions will be fully deductible if your AGI is less than $50,000. If one
spouse does not work or is not covered by a retirement plan, that spouse's
contribution will be fully deductible provided your household AGI does not
exceed $150,000. If your contribution is not deductible, you may still take
advantage of the tax-deferred accumulation of earnings in your Traditional IRA.
Rollover IRA. 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 a Rollover 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. 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.
Roth IRA. You (and a working or non-working spouse) may each make an after-tax
contribution of up to $2,000 per year to a Roth IRA provided you have earned
income and meet the eligibility requirements. Your Adjusted Gross Income (AGI)
must be less than $95,000 (individuals) or $150,000 (married couples) to be
eligible to make a full contribution to a Roth IRA. Total contributions to a
Roth IRA and a Traditional IRA cannot exceed $2,000 in any year. Earnings grow
tax-free and will be distributed to you tax-free and penalty-free provided that
you hold your account for at least five years and you take the distribution
either after age 59 1/2, for disability, upon death, or to make a first-time
home purchase (up to $10,000). Unlike a Traditional IRA, you may contribute to a
Roth IRA even if you are over age 70 1/2 (if you have earned income), and you
are not required to take minimum distributions at age 70 1/2. You may convert
an existing Traditional IRA to a Roth IRA to take advantage of tax-free
distributions. You must pay taxes on any earnings and deductible contributions
in your Traditional IRA before converting it to a Roth IRA. Talk to your
financial advisor for more details on converting your Traditional IRA.
8
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Tri-Continental Corporation
Stockholder Services (continued)
Retirement Planning -- Qualified Plans. Unincorporated businesses and the
self-employed may take advantage of the same benefits in their retirement plans
that are available to corporations. Contribution levels can go as high as 25% of
earned income (reduced by plan contributions), to a maximum of $30,000 per
participant. For retirement plan purposes, no more than $160,000 may be taken
into account as earned income under the plan in 1998 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 US
and (212) 682-7600 outside the Continental US.
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 1997,
and the distributions from net short-term gain of $0.092 and $0.11 per Common
share paid on July 1 and December 19, respectively, are subject to federal
income tax as "ordinary income." Under the Internal Revenue Code, 74% of such
1997 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 for these
distributions, corporate Stockholders must have held their shares for 46 days or
more during the 90-day period beginning 45 days before each ex-dividend date.
The distributions of $0.715 and $2.53 from net long-term gain realized on
investments from November 1, 1996, through December 31, 1996, and January 1,
1997, through October 31, 1997, respectively, were paid to Common Stockholders
on July 1 and December 19, 1997, respectively. The federal Taxpayer Relief Act
of 1997 modified the classification of long-term capital gains to include a "28%
Rate Gain" category. Please note that 100% of the Corporation's July 1997
long-term capital gain distribution is categorized as "28% Rate Gain," while 41%
of the December 1997 long-term capital gain distribution is categorized as "28%
Rate Gain." The long-term gain is designated as a "capital gain dividend" for
federal income tax purposes and is taxable to Stockholders in 1997 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 the 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
19 capital gain distributions in additional shares was $27.375 and $26.50 per
share, respectively.
9
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Tri-Continental Corporation
A Record of Building Wealth and Income
Tri-Continental invests primarily to produce long-term growth of both
capital and income, while providing reasonable current income. The following
chart shows the growth of Tri-Continental Stockholders' capital over the past 20
years. The total price of 1,000 shares of Tri-Continental purchased on December
31, 1977, was $20,625. By taking capital gain distributions in shares, that
initial investment would have grown nearly ninefold to a year-end 1997 market
value of $180,639. For those individuals who did not need current income and who
chose to take their dividends and capital gains in additional shares, the value
of their investment in Tri-Continental Corporation would have grown to a market
value of $390,400 on December 31, 1997.
[The following table was depicted as a bar graph in the printed material.]
---------------------------------------------
Building Wealth
Original Investment $ 20,625
Invest Capital Gains Only* $180,639
Invest Capital Gains and Dividends* $390,400
---------------------------------------------
Number of Shares at
December 31, 1997* 1,000 6,769 14,629
* Assumes the Stockholder did not exercise or sell the transferable rights
granted in the 1992 rights offering. Either the exercise or sale of the
rights would improve the above results.
During those 20 years, both strategies also produced significant long-term
growth of income. In 1978, dividends of $1,129 were paid on the initial 1,000
share investment. A Stockholder who took capital gains in additional shares and
dividends in cash would have seen his or her dividend income rise to $3,639 in
1997, or 35% more than the increase in the Consumer Price Index over the same
20-year period. Stockholders who took their dividends and capital gains in
additional shares would have seen their dividend distributions grow to a total
of $7,762 in 1997.
[The following table was depicted as a line graph in the printed material.]
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Growing Dividend Income
Annual dividend income
with dividends and Annual dividend income with Annual dividend income
capital gains invested capital gains invested in needed to keep up with
in additional shares.* additional shares.* Consumer Price Index.
1978 1129.33 1129.00 1152.88
1979 1194.74 1279.09 1290.44
1980 1352.60 1439.18 1544.48
1981 1473.28 1567.59 1770.42
1982 1592.69 1627.63 2021.80
1983 1701.89 1689.33 2257.74
1984 2100.07 1756.04 2904.27
1985 2121.19 1822.74 3065.95
1986 2161.08 1842.75 3237.56
1987 2284.86 1924.47 3526.06
1988 2430.22 2009.52 3878.18
1989 2678.76 2102.91 4443.14
1990 3053.35 2231.32 5248.49
1991 2969.59 2299.69 5287.38
1992 3175.17 2366.40 5818.68
1993 3346.19 2431.44 6318.63
1994 3556.79 2496.47 6942.76
1995 3597.92 2559.84 7270.84
1996 3582.52 2644.90 7456.51
1997 3638.63 2689.92 7761.75
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* Assumes the Stockholder did not exercise or sell the transferable rights
granted in the 1992 rights offering. Either the exercise or sale of the
rights would improve the above results.
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.
10
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Tri-Continental Corporation
Tri-Continental's Discount
Tri-Continental Corporation is a closed-end investment company whose stock
is listed on the New York Stock Exchange. Unlike open-end mutual funds, whose
shares sell at net asset value plus any applicable sales charge, the price of
Tri-Continental stock is set by market forces. Therefore, the price of a share
of Tri-Continental stock can be above its net asset value, at a premium, or
below its net asset value, at a discount.
Discounts are common to equity closed-end investment companies like
Tri-Continental Corporation, and fluctuate over time; however, sometimes various
closed-end funds, including Tri-Continental, have sold at a premium. In recent
years, discounts on closed-end funds have tended to be wider than they were in
the early 1990s and have become a focus of media attention. In reaction to
Tri-Continental's discount, a small number of Stockholders in 1995, 1996, and
1997 proposed that the Board of Directors consider various actions, including
turning Tri-Continental into an open-end mutual fund. In each year, more than
80% of the voting Stockholders supported maintaining Tri-Continental's
closed-end structure.
Tri-Continental's discount has fluctuated over a wide range. The average
year-end discount for the 20 years ended December 31, 1997, was 12.94%. During
this period, the premium was as high as 2.45% on December 31, 1986, and the
discount was as wide as 25.12% at the end of 1980. Tri-Continental's year-end
1997 discount of 16.76% is narrower than the 17.61% discount at year-end 1996,
and is within the third quartile of the year-end premium/discount rates
experienced in the past 20 years.
[The following table was depicted as a line graph in the printed material.]
----------------------
Premium/Discount Range
1978-1997
1978 -22.00%
1979 -23.00%
1980 -25.00%
1981 -20.00%
1982 -8.00%
1983 -5.00%
1984 -2.00%
1985 -1.00%
1986 2.00%
1987 -14.00%
1988 -18.00%
1989 -16.00%
1990 -13.00%
1991 -3.00%
1992 -9.00%
1993 -14.00%
1994 -16.00%
1995 -18.00%
1996 -18.00%
1997 -16.00%
----------------------
While there can be no assurance that there will be any further reduction
in the current discount, there is likewise, no reason to believe that, in the
future, shares will not trade at a narrower discount or even a small premium, as
they have in the past. Of course, a widening of the discount could result in
capital losses. However, while discounts persist, investors are able to purchase
additional shares in the market and put more than a dollar of net assets to work
for them for every dollar invested. Purchasing Tri-Continental stock at a
discount results in a higher effective dividend yield and realized capital gains
return than would be realized had the shares been purchased at net asset value.
A discount also creates the opportunity for capital gains should the discount
narrow. In fact, 83% of the registered Stockholders* of the Corporation's common
stock are currently taking advantage of this situation, either by participating
in a plan that allows Stockholders to invest the Corporation's dividends,
capital gains, or both in additional shares, or by purchasing additional shares
through one of the plans offered by the Corporation.
The phenomenon of the discount has been an area of in-depth research and
study by the Manager, resulting in detailed reports to the Board of Directors
each year. Studies conducted by
- ----------
* Registered Stockholders are those Stockholders whose accounts are maintained
by Seligman Data Corp., on behalf of Tri-Continental. Approximately 54% of the
total common shares outstanding are held by registered Stockholders, with the
balance being held in "Streetname" through financial intermediaries such as
brokers.
11
<PAGE>
Tri-Continental Corporation
Tri-Continental's Manager have found that discounts among many closed-end funds
with characteristics similar to Tri-Continental Corporation tend to widen and
narrow together. There is no single variable or factor which seems capable of
explaining the reason many closed-end investment companies typically sell at
discounts, but can also sell at premiums. A recent statistical study conducted
at Princeton University, however, points to three variables as being
statistically significant regarding a widening of the discount: 1) an increase
in unrealized gains as a percent of net assets, presumably because of the
implicit increase in the embedded potential capital gains tax liability; 2) an
increase in illiquid assets as a share of total assets; and 3) a decrease in the
turnover ratio as a percent of assets.(1)
The Manager and the Board of Directors are concerned about
Tri-Continental's current discount. Possible ways to reduce the discount,
including actions taken by some other closed-end funds, have been considered
carefully by the Board as part of their regular investigation of the discount.
For example, several large, diversified closed-end funds have introduced a
managed distribution policy in which there is a "minimum payout" of 10% of net
asset value per annum, paid quarterly. The introduction of such a minimum payout
has been associated with a narrowing of the discount. Under such a policy,
however, the Manager could be forced to sell securities in a declining market to
raise cash to meet the minimum payout. This action would negate one of the
advantages of the closed-end structure, namely, a fixed amount of capital. In
the event insufficient net investment income and realized capital gains were
available, a portion of Stockholders' capital would be needed to meet the annual
minimum payout. The result would be an erosion of Tri-Continental's net asset
value.
Additionally, a minimum payout might have to be suspended during a
long-term market decline, which likely would be the very moment Stockholders
were relying the most on a minimum distribution. Moreover, a minimum payout
could lead potential investors to think of Tri-Continental as an income fund,
which it is not. A further issue for evaluation is the extent to which a minimum
payout might compromise the investment process by influencing -- if only subtly
- -- the Portfolio Managers' investment decisions.
During the past one-, three-, five-, 10-, and 20-year periods,
Tri-Continental's aggregate dividend and capital gain distributions have
averaged more than the 10% minimum payout targeted by most managed distribution
plans. Looking forward, a minimum payout could risk the long-term growth of the
Stockholders' capital. For these and other reasons, the Manager and Board have
decided not to pursue a minimum payout at this time.
[The following table was depicted as a bar graph in the printed material.]
----------------------------------------
Average Annual Distributions as a
Percent of Net Asset Values+
1 Yr. 12.70%
3 Yrs. 11.60%
5 Yrs. 10.80%
10 Yrs. 10.30%
20 Yrs. 12.00%
+ Annual distributions divided by the
average end-of-quarter net asset
values for the prior four quarters,
e.g., December 1996 to September 1997.
----------------------------------------
Tri-Continental's discount is the subject of ongoing discussion by the
Manager and the Board of Directors. In evaluating possible steps that could be
taken with regard to the discount, your Board will continue to consider actions
that are consistent with maintaining Tri-Continental's closed-end structure,
achieving the Corporation's investment objective of long-term growth of capital
and income with reasonable current income, and acting in the long-term interests
of Tri-Continental Stockholders.
- ----------
(1) Burton G. Malkiel, "The Structure of Closed-End Fund Discounts Revisited,"
Journal of Portfolio Management, Summer 1995.
12
<PAGE>
Tri-Continental Corporation
Stockholder Survey Results
As part of Tri-Continental Corporation's ongoing Investor Relations
Program, the Manager continuously seeks ways to enhance the long-term value of
being a Tri-Continental Stockholder. For the past two years, the Manager has
commissioned a survey of registered Tri-Continental Stockholders. The surveys
were administered to a sampling totaling approximately 500 registered
Stockholders.*
The 1997 survey was completed in December 1997, just as the US and, in
particular, foreign stock markets were in the midst of a period of significant
volatility and uncertainty. An overwhelming majority of survey respondents said
they were very satisfied or somewhat satisfied with Tri-Continental Corporation.
According to Response Analysis Corporation of Princeton, New Jersey, who
conducted the survey, "This extremely high overall level of satisfaction was
attributed to a number of factors, including the Corporation's investment
results, as well as dividend income, the conservative manner in which the
Corporation's assets are invested, and confidence in J. & W. Seligman & Co.
Incorporated as the Corporation's investment manager."
A Close Look at
Tri-Continental Investors
[The following table was depicted as a pie chart in the printed material.]
----------------------------------------
Age Income
Under 35 5% Less than $30K 12.0 %
35-44 14% $30K-$49K 0.2
45-54 16% $50K-$99K 0.23
55-64 15% $100K or\rmore 0.15
65-74 23% Don't know 0.2
75 or older 25% No Response 0.28
No Response 2%
----------------------------------------
[The following table was depicted as a bar graph in the printed material.]
----------------------------------------
Types of Investments Owned
Treasury Bills 21%
Municipal Bonds 30%
CD's 50%
Open-End Mutual Funds 58%
Individual Stocks 75%
Closed-End Funds 100%
----------------------------------------
The survey indicated that Tri-Continental investors generally are highly
educated, with more than a third having obtained at least some graduate level
education. The typical Stockholder is married, and about 61 years of age. Half
are 65 years or older, and about half are retired. Asset and income levels of
the typical Tri-Continental Stockholder reflect this stage of life.
Tri-Continental Stockholders have diverse investment portfolios. More than
60% of Stockholders surveyed say Tri-Continental is a significant part of their
portfolios. In addition, three-quarters own individual stocks and 58% hold
open-end mutual funds. The largest percentage of a typical Stockholder's assets
are in individual stocks.
Saving for Retirement
Tri-Continental Stockholders regard a number of objectives when
considering investing in the Corporation. The two most important objectives,
cited by 84% of survey respondents, are increasing
- ----------
* Registered Stockholders are those Stockholders whose accounts are maintained
by Seligman Data Corp., on behalf of Tri-Continental. Approximately 54% of the
total common shares outstanding are held by registered Stockholders, with the
balance being held in "Streetname" through financial intermediaries such as
brokers.
13
<PAGE>
Tri-Continental Corporation
the value of their original investment over the long term and maintaining the
value of their original investment. The survey also found that 62% of
respondents seek an increase in the current annual dividend when considering
investing in Tri-Continental.
Saving for retirement is one of the most important goals of 45% of the
Tri-Continental Stockholders surveyed. About one-fifth name preserving assets,
having income for daily living, achieving growth, having money for emergencies,
or funding a child's education as top priorities.
Satisfaction
[The following table was depicted as a bar graph in the printed material.]
-------------------------------------------------------
Overall Stockholder Satisfaction
Somewhat Satisfied Very Satisfied
Investment in TY 36% 59%
Stockholder Services 19% 78%
-------------------------------------------------------
Stockholders were asked, "Overall, how satisfied are you as a Stockholder
of Tri-Continental Corporation?" Fully 95% of Stockholders said they were either
very satisfied or somewhat satisfied with Tri-Continental. When Stockholders
were asked why they are satisfied with the Corporation, the most frequent answer
was "performance" or "return." In addition, of the 44% of respondents who have
called Stockholder Services, 97% said they were somewhat or very satisfied with
the experience.
The survey also found some concern with regard to the discount to net
asset value at which Tri-Continental shares are currently priced in the open
market. When asked what they dislike about owning shares of Tri-Continental,
only 2% mentioned the discount. When prompted by the question, "How concerned
are you about the discount on Tri-Continental shares?" nearly three quarters
expressed no concern, but nearly one-quarter of respondents expressed some
concern. Nonetheless, four out of five of the individuals who expressed concern
take advantage of the discount by taking their capital gain distributions in
additional shares, and two-thirds of them indicated they are somewhat or very
likely to recommend Tri-Continental to a family member, friend, or associate.
The survey also asked Stockholders about their attitudes toward
Tri-Continental moving to a managed distribution system, in which the
Corporation would make an annual "minimum payout" of 10% paid quarterly. When
some of the advantages and disadvantages of such a policy were explained, less
than one-third of Stockholders expressed support for Tri-Continental moving
toward a minimum payout. Moreover, large majorities expressed some degree of
concern over each of the potential disadvantages discussed. For example, 87%
were concerned that an annual minimum payout could force the sale of securities
in a down market to raise cash to meet the minimum; 85% were concerned that a
minimum distribution would erode the value of Tri-Continental in a long-term
market decline; and 71% were concerned that a minimum payout might be suspended
during a long-term market decline.
Overall, the survey suggests that Tri-Continental is meeting the needs of
its investors. More than half of those surveyed said that they have purchased
additional shares of Tri-Continental. And just under half say they plan to buy
more stock in the future, while less than 10% say they plan to sell. Finally,
seven of 10 Stockholders said they were likely to recommend Tri-Continental to
someone they know.
14
<PAGE>
Tri-Continental Corporation
Diversification of Net Investment Assets
The diversification of portfolio holdings by industry on December 31,
1997, was as follows. Individual securities owned are listed on pages 17 to 23.
<TABLE>
<CAPTION>
Percent of
Net Investment
Assets
December 31,
--------------
Issues Cost Value 1997 1996
------ -------------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Short-Term Holdings and
Other Assets Less Liabilities 1 $ 49,288,669 $ 49,288,669 1.4% 9.4%
US Government Securities 4 141,719,531 142,282,945 4.2 --
Corporate Bonds 2 20,006,300 20,795,930 0.6 --
Tri-Continental
Financial Division 3 17,034,739 17,244,952 0.5 0.5
--- -------------- -------------- ----- -----
10 $ 228,049,239 $ 229,612,496 6.7% 9.9%
--- -------------- -------------- ----- -----
Common Stocks and
Convertible Issues:
Aerospace 2 $ 65,506,233 $ 81,926,563 2.4% 2.8%
Automotive and Related 5 98,297,897 113,426,000 3.3 4.0
Basic Materials 1 26,264,977 31,668,750 0.9 2.0
Building and Construction 1 10,822,199 16,650,000 0.5 0.6
Chemicals 3 79,963,684 82,894,438 2.4 2.6
Communications 11 182,627,113 227,662,706 6.6 4.1
Computer and Business Services 8 167,763,478 236,359,826 6.9 5.4
Consumer Goods and Services 10 314,995,609 384,862,436 11.2 9.9
Diversified 2 30,891,494 45,617,938 1.3 3.9
Drugs and Health Care 9 188,703,061 284,780,115 8.3 6.2
Electric and Gas Utilities 8 90,974,449 123,438,763 3.6 4.1
Electronics 8 192,744,163 202,334,844 5.9 5.8
Energy 9 217,293,814 284,323,835 8.3 6.4
Entertainment and Leisure 3 17,657,980 33,150,625 1.0 1.1
Environmental Management -- -- -- -- 0.5
Finance and Insurance 23 306,537,175 578,806,944 16.9 12.3
Manufacturing and
Industrial Equipment 6 158,224,703 225,653,449 6.6 7.2
Paper and Forest Products 3 85,952,437 91,043,750 2.7 3.1
Publishing 1 10,328,565 24,725,000 0.7 1.3
Real Estate Investment Trusts 1 12,440,000 14,200,000 0.4 1.1
Retail Trade 4 52,419,457 77,126,942 2.3 3.8
Steel 1 20,971,633 20,700,000 0.6 0.4
Transportation 1 12,672,689 18,487,500 0.5 1.5
--- -------------- -------------- ----- -----
120 $2,344,052,810 $3,199,840,424 93.3% 90.1%
--- -------------- -------------- ----- -----
Net Investment Assets 130 $2,572,102,049 $3,429,452,920 100.0% 100.0%
=== ============== ============== ===== =====
</TABLE>
15
<PAGE>
Tri-Continental Corporation
Largest Portfolio Changes
October 1 to December 31, 1997
Shares or Prin. Amt.
--------------------------------
Holdings
Additions Increase 12/31/97
- --------- ----------- -----------
Common Stocks
Ameritech
Corporation 440,000 shs. 440,000 shs.
Anheuser-Busch
Companies, Inc. 770,000 770,000
Applied Materials, Inc. 965,000 965,000
ConAgra, Inc. 1,190,000 1,190,000
Exxon Corporation 520,000 1,120,000
General Electric
Company 535,000 1,335,000
Philip Morris
Companies, Inc. 715,000 1,415,000
Unicom Corporation 1,065,000 1,065,000
US Government Securities
US Treasury Notes,
6 1/4%, 2/15/2007 $50,000,000 $50,000,000
US Treasury Notes,
5 3/4%, 11/30/2002 35,000,000 35,000,000
Shares
--------------------------------
Holdings
Reductions Decrease 12/31/97
- ---------- ----------- -----------
Common Stocks
AK Steel Holdings
Corporation 635,000 --
CBS Corporation* 1,200,000 --
Colgate-Palmolive
Company 500,000 --
Emerson Electric
Company 500,000 --
Guidant Corporation 550,000 --
Ingersoll-Rand
Company 750,000 --
Magna International
Inc., Class "A" 455,000 --
Parker-Hannifin
Corporation 937,500 --
The Hartford Financial
Services Group, Inc. 300,000 --
Warner-Lambert
Company 250,000 --
Largest portfolio changes from the previous quarter to the current quarter are
based on cost of purchases and proceeds from sales of securities.
* Formerly Westinghouse Electric Corporation.
10 Largest Equity Holdings
December 31, 1997
December 31, 1997 Increase in Value
--------------------- -------------------
Cost Value For Since
(000s) (000s) 1997 Purchase
---------- --------- -------- ---------
General Electric Company $ 62,860 $ 97,956 48.4% 55.8%
Exxon Corporation 48,317 68,530 24.9 41.8
Philip Morris Companies, Inc. 61,828 64,117 3.7 3.7
Bank of New York Company, Inc. 16,668 57,813 71.3 246.9
Bristol-Myers Squibb Company 33,261 55,356 74.0 66.4
Ahmanson (H. F.) & Company 30,925 53,550 73.2 73.2
RJR Nabisco Holdings Corporation 46,278 51,563 10.3 11.4
Royal Dutch Petroleum
Company (Netherlands) 51,071 51,478 0.8 0.8
Coca-Cola Company 44,947 51,301 14.1 14.1
Microsoft Corporation 33,896 50,783 56.3 49.8
-------- --------
$430,051 $602,447
======== ========
16
<PAGE>
Tri-Continental Corporation
Portfolio of Investments December 31, 1997
Shares Value
-------- ------------
COMMON STOCKS - 93.2%
AEROSPACE - 2.4%
General Dynamics Corporation 375,000 $ 32,414,063
Diversified defense contractor
United Technologies Corporation 680,000 49,512,500
Manufacturer of elevators, jet engines,
flight systems, and automotive parts
------------
$ 81,926,563
------------
AUTOMOTIVE AND RELATED - 3.3%
Chrysler Corporation 880,000 $ 30,965,000
Manufacturer of automobiles, trucks, and
related parts
Dana Corporation 400,000 19,000,000
Manufacturer and distributor of products and
systems for automotive and related markets
Eaton Corporation 217,000 19,367,250
Diversified manufacturer, including truck
transmissions and axles
Harley-Davidson Inc. 1,200,000 32,850,000
Manufacturer of motorcycles
Volkswagen AG (ADRs)* (Germany) 100,000 11,243,750
Manufacturer of automobiles
------------
$113,426,000
------------
BASIC MATERIALS - 0.9%
Aluminum Company of America 450,000 $ 31,668,750
Aluminum producer ------------
BUILDING AND CONSTRUCTION - 0.5%
Sherwin-Williams Corporation 600,000 $ 16,650,000
Manufacturer of paints and related products ------------
CHEMICALS - 2.4%
duPont (E.I.) de Nemours and Company 550,000 $ 33,034,375
Producer of chemicals
The B.F. Goodrich Company 747,000 30,953,813
Chemical manufacturer; supplier of systems
and component parts for the aerospace industry
Morton International, Inc. 550,000 18,906,250
Manufacturer and marketer of adhesives,
coatings, salt, and specialty products ------------
$ 82,894,438
------------
- ----------
See footnotes on page 23.
17
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
COMMUNICATIONS - 6.6%
Alcatel Alsthom (France) 65,000 $ 8,264,772
Developer of equipment and systems for
public telecommunications
Ameritech Corporation 440,000 35,420,000
Provider of telecommunications services
Bell Atlantic Corporation 392,200 35,690,200
Telephone services in the Atlantic region
GTE Corporation 600,000 31,350,000
Provider of telephone services, systems,
and equipment
Magyar Tavkozlesi Rt. (ADRs)* "Matav" (Hungary) 240,000 6,240,000
Provider of telecommunications services
SBC Communications, Inc. 425,000 31,131,250
Provider of telephone services in the Southwest
Sprint Corporation 381,900 22,388,887
Global communications company
Telecomunicacoes Brasileiros (ADRs)
"Telebras" (Brazil) 53,800 6,264,337
Provider of telecommunications services
Telecom Italia-SpA* (Italy) 1,468,600 6,475,272
Provider of the whole spectrum of mobile
telecommunications services
Telecom Italia-SpA (Italy) 1,600,000 10,220,175
Provider of the whole spectrum of mobile
telecommunications services
WorldCom Inc.* 1,130,000 34,217,813
Diversified telecommunications company
------------
$227,662,706
------------
COMPUTER AND BUSINESS SERVICES - 6.9%
Compaq Computer Corporation 625,000 $ 35,273,437
Global PC manufacturer
Computer Associates International,Inc 412,500 21,810,937
Developer of software utilities and databases
Hewlett-Packard Company 300,000 18,750,000
Computers and peripherals
Intel Corporation 638,000 44,799,563
Manufacturer of semiconductors and
memory circuits
International Business Machines Corporation 326,000 34,087,375
Manufacturer of micro and personal computers
Microsoft Corporation* 393,000 50,782,969
Developer of computer software
WPP Group plc (UK) 2,700,000 12,018,595
Provider of worldwide marketing services
Xerox Corporation 255,200 18,836,950
Developer and marketer of document
processing products and services
------------
$236,359,826
------------
CONSUMER GOODS AND SERVICES - 11.2%
Allied Domecq plc (UK) 870,000 $ 7,903,384
International food, drink, and hospitality group
Anheuser-Busch Companies, Inc. 770,000 33,880,000
Brewery; theme park operator; manufacturer and
recycler of aluminum beverage containers
B.A.T. Industries plc (UK) 1,670,000 15,294,990
Provider of financial services and
producer of tobacco products
- ----------
See footnotes on page 23.
18
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
CONSUMER GOODS AND SERVICES (continued)
Coca-Cola Company 770,000 $ 51,301,250
Manufacturer of soft drinks and
consumer products
ConAgra, Inc. 1,190,000 39,046,875
Developer and manufacturer of prepared
foods and agricultural products
PepsiCo, Inc. 1,100,000 40,081,250
Manufacturer and marketer of soft drinks
and consumer products
Philip Morris Companies, Inc. 1,415,000 64,117,187
Manufacturer of tobacco products, food,
and beverages
Procter & Gamble Company 600,000 47,887,500
Manufacturer and distributor of household
and personal care products
RJR Nabisco Holdings Corporation 1,375,000 51,562,500
Manufacturer of tobacco products and
processed foods
Sara Lee Corporation 600,000 33,787,500
Manufacturer of processed foods and ------------
consumer products $384,862,436
------------
DIVERSIFIED - 1.3%
AlliedSignal Inc. 1,090,000 $ 42,441,875
Producer of aerospace and automotive materials
Pacific Dunlop Ltd. (Australia) 1,500,000 3,176,063
Diversified manufacturer ------------
$ 45,617,938
------------
DRUGS AND HEALTH CARE - 8.3%
Abbott Laboratories 300,000 $ 19,668,750
Developer and manufacturer of diversified
health care products
American Home Products Corporation 300,000 22,950,000
Developer and manufacturer of pharmaceuticals,
food, and housewares
Bristol-Myers Squibb Company 585,000 55,355,625
Developer and manufacturer of health and
personal care products
Elan Corporation plc (ADRs)* (Ireland) 300,000 15,356,250
Developer, manufacturer, and marketer of
drug delivery systems
Johnson & Johnson 600,000 39,525,000
Manufacturer of health care products
Merck & Co., Inc. 428,400 45,517,500
Manufacturer of pharmaceuticals
Novartis AG (Switzerland) 10,300 16,696,990
Manufacturer of pharmaceuticals
Pfizer Inc. 460,000 34,298,750
Manufacturer of health care consumer products
and specialty chemicals
Schering-Plough Corporation 570,000 35,411,250
Manufacturer of pharmaceuticals and health care ------------
and personal care products $284,780,115
------------
ELECTRIC AND GAS UTILITIES - 3.6%
BG plc (ADRs) (UK) 202,940 $ 4,667,620
Gas supplier
Companhia Energetica de Minas Gerais (ADRs)
"CEMIG" (Brazil) 87,400 3,933,000
Electric utility
Electricidade de Portugal, S.A. (ADRs)* (Portugal) 279,600 10,834,500
Generator and distributor of electricity
Endesa S.A. (ADRs) (Spain) 528,000 9,603,000
Provider of electric energy
- ----------
See footnotes on page 23.
19
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
ELECTRIC AND GAS UTILITIES (continued)
Huaneng Power International, Inc. (ADRs)* (China) 270,000 $ 6,260,625
Power company
Unicom Corporation 1,065,000 32,748,750
Electric utility
VEBA AG (Germany) 230,000 15,666,268
Provider of electric energy
The Williams Companies, Inc. 1,400,000 39,725,000
------------
Transporter and producer of natural gas $123,438,763
------------
ELECTRONICS - 5.9%
AMP Inc. 665,000 $ 27,930,000
Manufacturer of electronic connectors
and systems
Applied Materials, Inc.* 965,000 29,040,469
Developer, manufacturer, marketer, and
servicer of semiconductor wafer
fabrication equipment
Arrow Electronics, Inc.* 800,000 25,950,000
Distributor of electronic components
KLA-Tencor Corporation* 630,000 24,314,063
Manufacturer of wafer inspection and
metrology equipment
Motorola Inc. 325,000 18,545,312
Producer of semiconductors and
communications equipment
Philips Electronics N.V. (Netherlands) 225,000 13,612,500
Worldwide manufacturer of consumer electronics
and components
Raytheon Company 685,000 34,592,500
Producer of defense and commercial electronics
Thomas & Betts Corporation 600,000 28,350,000
------------
Manufacturer of electronic connectors and components $202,334,844
------------
ENERGY - 8.3%
Amoco Corporation 400,000 $ 34,050,000
Integrated petroleum and chemical company
Atlantic Richfield Company 250,000 20,031,250
Producer of oil; West Coast marketer
Baker Hughes Incorporated 300,000 13,087,500
Provider of products and services to explore for,
extract, recover, and process oil and gas
Exxon Corporation 1,120,000 68,530,000
Explorer and producer of natural gas, oil,
and petroleum products
Mobil Corporation 400,000 28,875,000
International oil enterprise
Royal Dutch Petroleum Company (Netherlands) 950,000 51,478,125
International oil services
Schlumberger Ltd. 200,000 16,100,000
Worldwide provider of energy services
Texaco Inc. 664,000 36,105,000
Explorer, producer, transporter, refiner, and
marketer of natural gas, oil, and
petroleum products
Total S.A. Class "B" (France) 147,583 16,066,960
------------
International oil enterprise $284,323,835
------------
- ----------
See footnotes on page 23.
20
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
ENTERTAINMENT AND LEISURE - 1.0%
Disney (Walt) Company 250,000 $ 24,765,625
Film entertainment; amusement parks;
other forms of leisure-related activities
News Corp. Ltd. (ADRs) (Australia) 260,000 5,801,250
Provider of worldwide media and
television services
News Corp. Ltd. (ADRs--Voting Preference
Shares) (Australia) 130,000 2,583,750
Provider of worldwide media and ------------
television services $ 33,150,625
------------
FINANCE AND INSURANCE - 16.8%
ABN-AMRO Holdings N.V. (Netherlands) 510,868 $ 9,957,703
Worldwide banking operator
ACE Limited 300,000 28,950,000
Provider of liability insurance
Ahmanson (H.F.) &Company 800,000 53,550,000
Provider of savings and loan services
throughout the US
American General Corporation 400,000 21,625,000
Diversified financial services provider
American International Group, Inc. 450,000 48,937,500
International insurance holding company
AXA-UAP (France) 235,209 18,206,072
Provider of financial services and insurance
BankAmerica Corporation 330,000 24,090,000
Commercial bank in California and
the Western states
Bank of Ireland (Ireland) 881,100 13,578,069
Provider of financial services
Bank of New York Company, Inc. 1,000,000 57,812,500
Commercial bank
Bayerische Vereinsbank AG (Germany) 375,000 24,187,495
Provider of universal banking services
Citicorp 200,000 25,287,500
Global commercial bank
Federal National Mortgage Association 600,000 34,237,500
Mortgage financer
First Union Corporation 700,000 35,875,000
Operator of financial centers
General Re Corporation 75,000 15,900,000
Property casualty re-insurer in the US
ING Groep N.V. (Netherlands) 437,624 18,442,186
Provider of banking and insurance services
Irish Life plc (Ireland) 700,000 3,988,856
Provider of insurance and related products
Mellon Bank Corporation 325,000 19,703,125
Provider of financial services
St. Paul Companies, Inc. 400,000 32,825,000
Property and casualty insurer
Societe Generale (France) 75,000 10,221,890
Provider of full banking and financial services
TIG Holdings, Inc. 500,000 16,593,750
Insurance provider
Travelers Incorporated 750,000 40,406,250
Provider of broad-based financial services
Zurich Versicherungs-Gesellschaft (Switzerland) 42,700 20,327,770
------------
Provider of insurance services $574,703,166
------------
- ----------
See footnotes on page 23.
21
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
MANUFACTURING AND
INDUSTRIAL EQUIPMENT - 6.6%
Deere & Company, Inc. 463,900 $ 27,051,169
Manufacturer, distributor, and financer
of farm machinery
GATX Corporation 350,000 25,396,875
Railcar leasing; equipment financing
General Electric Company 1,335,000 97,955,625
Supplier of electrical equipment and
other industrial and consumer products
Harnischfeger Industries, Inc. 477,000 16,844,062
Manufacturer and distributor of machinery
and mining equipment
Illinois Tool Works, Inc. 700,000 42,087,500
Manufacturer of fasteners, tools, and
plastic items
Mannesmann AG (Germany) 32,500 16,318,218
------------
Manufacturer of plant and machinery equipment $225,653,449
------------
PAPER AND FOREST PRODUCTS - 2.7%
Fort James Corporation 800,000 $ 30,600,000
Producer of paper and related products
The Mead Corporation 1,200,000 33,600,000
Manufacturer of paper, lumber, and
wood products
Union Camp Corporation 500,000 26,843,750
Producer of paper products, building ------------
materials, and chemicals $ 91,043,750
------------
PUBLISHING - 0.7%
Gannett Company, Inc. 400,000 $ 24,725,000
Newspapers; radio and television broadcasting ------------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Security Capital USRealty Trust 1,000,000 $ 14,200,000
Diversified investor in real estate companies ------------
RETAIL TRADE - 2.3%
May Department Stores Company 400,000 $ 21,075,000
Department store operator
J.C. Penney Company, Inc. 306,000 18,455,625
Operator of retail department stores and
drugstores; insurance
Tesco plc (UK) 1,478,000 11,961,942
Food retailer
Wal-Mart Stores, Inc. 650,000 25,634,375
------------
Discount retailer $ 77,126,942
------------
STEEL - 0.6%
Allegheny Teledyne Inc. 800,000 $ 20,700,000
Manufacturer of specialty metals and aviation ------------
and electronics products
TRANSPORTATION - 0.5%
Norfolk Southern Corporation 600,000 $ 18,487,500
Railroad holding company ------------
TOTAL COMMON STOCKS
(Cost: $2,340,552,810) $3,195,736,646
--------------
- ----------
See footnotes on page 23.
22
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Prin. Amt. Value
----------- ------------
US GOVERNMENT SECURITIES - 4.2%
USTreasury Notes, 6 1/4%, 4/30/2001 $15,000,000 $ 15,239,070
USTreasury Notes, 5 3/4%, 11/30/2002 35,000,000 35,043,785
USTreasury Notes, 5 7/8%, 2/15/2004 40,000,000 40,375,040
USTreasury Notes, 6 1/4%, 2/15/2007 50,000,000 51,625,050
------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $141,719,531) $142,282,945
------------
CORPORATE BONDS - 0.6%
AUTOMOTIVE AND RELATED - 0.3%
Ford Motor Credit Corp., 6 1/2%, 2/28/2002 10,000,000 $ 10,080,470
------------
COMMUNICATIONS - 0.3%
TCI Communications Inc., 8%, 8/1/2005 10,000,000 $ 10,715,460
------------
TOTAL CORPORATE BONDS
(Cost: $20,006,300) $ 20,795,930
------------
CONVERTIBLE BONDS - 0.1%
(Cost: $3,500,000)
FINANCE AND INSURANCE - 0.1%
LibLife International (UK), 6 1/2%, 9/30/2004 3,500,000 $ 4,103,778
------------
TRI-CONTINENTAL FINANCIAL DIVISION++ - 0.5%
(Cost: $17,034,739) $ 17,244,952
------------
SHORT-TERM HOLDINGS - 1.1%
(Cost: $37,700,000) $ 37,700,000
------------
TOTAL INVESTMENTS - 99.7%
(Cost: $2,560,513,380) $3,417,864,251
OTHER ASSETS LESS LIABILITIES - 0.3% 11,588,669
------------
NET INVESTMENT ASSETS - 100.0% $3,429,452,920
==============
- ----------
* Non-income producing security.
++ Restricted securities.
Descriptions of companies have not been audited by Deloitte and Touche LLP.
See Notes to Financial Statements.
23
<PAGE>
Tri-Continental Corporation
Statement of Assets and Liabilities December 31, 1997
Assets:
Investments at value:
Common stocks (cost -- $2,340,552,810) ....... $3,195,736,646
US Government securities
(cost -- $141,719,531) ...................... 142,282,945
Corporate bonds (cost -- $20,006,300) ........ 20,795,930
Tri-Continental Financial Division
(cost -- $17,034,739) ...................... 17,244,952
Convertible issues (cost -- $3,500,000) ...... 4,103,778
Short-term holdings (cost -- $37,700,000) .... 37,700,000 $3,417,864,251
--------------
Cash .......................................... 32,915,071
Receivable for dividends and interest ......... 10,817,073
Receivable for securities sold ................ 1,701,351
Investment in, and expenses prepaid to,
stockholder service agent ................... 441,778
Other ......................................... 1,097,050
--------------
Total Assets .................................. $3,464,836,574
--------------
Liabilities:
Payable for securities purchased .............. $ 31,701,053
Dividends payable ............................. 470,463
Accrued expenses, taxes, and other ............ 3,212,138
------------
Total Liabilities ............................. $ 35,383,654
------------
Net Investment Assets ......................... $3,429,452,920
Preferred Stock, at $50 par value ............. 37,637,000
--------------
Net Assets for Common Stock ................... $3,391,815,920
==============
Net Assets per Share of Common Stock
(market value--$26.6875) .................... $ 32.06
============
Statement of Capital Stock and Surplus December 31, 1997
Capital Stock:
$2.50 Cumulative Preferred Stock,
$50 par value, asset coverage per
share -- $4,555.96 Shares authorized
-- 1,000,000; issued and
outstanding -- 752,740 ...................... $ 37,637,000
Common Stock, $.50 par value:
Shares authorized -- 129,000,000; issued
and outstanding -- 105,796,914 .............. 52,898,457
Surplus:
Capital surplus .............................. 2,286,719,552
Accumulated net investment loss .............. (339,509)
Undistributed net realized gain .............. 195,203,642
Net unrealized appreciation of investments ... 865,108,232
Net unrealized depreciation on
translation of assets and liabilities
denominated in foreign currencies* .......... (7,774,454)
------------
$3,429,452,920
==============
- ----------
* Includes net unrealized depreciation on translation of investments
denominated in foreign currencies of $7,757,361.
See Notes to Financial Statements.
24
<PAGE>
Tri-Continental Corporation
Statement of Operations For the Year Ended December 31, 1997
Investment Income:
Dividends .................................... $65,021,562
Interest ..................................... 13,208,997
-----------
Total Investment Income (net of foreign taxes
withheld of $712,163) ....................... $ 78,230,559
Expenses:
Management fee ............................... $13,151,570
Stockholder account and registrar services ... 3,405,670
Stockholder reports and communications ....... 989,182
Custody and related services ................. 925,000
Stockholders' meeting ........................ 322,491
Auditing and legal fees ...................... 293,125
Directors' fees and expenses ................. 228,216
Registration ................................. 84,814
Miscellaneous ................................ 118,070
-----------
Total Expenses ................................ 19,518,138
------------
Net Investment Income ......................... $ 58,712,421*
Net Realized and Unrealized Gain (Loss)
On Investments and Foreign
Currency Transactions:
Net realized gain on investments ............. $463,458,808
Net realized loss from foreign
currency transactions ....................... (6,633,164)
Net change in unrealized appreciation
of investments .............................. 210,948,617
Net change in unrealized appreciation
on translation of assets and liabilities
denominated in foreign currencies ........... (9,609,797)
------------
Net Gain on Investments and Foreign
Currency Transactions ........................ 658,164,464
------------
Increase in Net Investment Assets
From Operations .............................. $716,876,885
============
- ----------
* Net investment income available for Common Stock is $56,902,487, 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 $71,916, which
is taxable as ordinary income.
See Notes to Financial Statements.
25
<PAGE>
Tri-Continental Corporation
Statements of Changes in Net Investment Assets
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income ........................ $ 58,712,421 $ 61,661,375
Net realized gain on investments ............. 463,458,808 273,265,510
Net realized loss from foreign currency
transactions ............................... (6,633,164) (122,163)
Net change in unrealized appreciation
of investments ............................. 210,948,617 163,203,213
Net change in unrealized appreciation on
translation of assets and liabilities
denominated in foreign currencies .......... (9,609,797) (1,863,034)
--------------- ---------------
Increase in Net Investment
Assets from Operations ..................... $ 716,876,885 $ 496,144,901
--------------- ---------------
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: $.60 and $.66) .... (58,603,778) (59,457,756)
--------------- ---------------
$ (60,485,628) $ (61,339,606)
Net realized gain on investments:
Common Stock (per share: $3.447 and $2.722) (338,654,348) (246,856,282)
--------------- ---------------
Decrease in Net Investment Assets
from Distributions ......................... $ (399,139,976) $ (308,195,888)
--------------- ---------------
Capital Share Transactions:
Value of shares of Common Stock issued
at market price in gain distributions
(9,018,136 and 7,302,117 shares) ........... $ 240,732,759 $ 177,343,090
Value of shares of Common Stock issued
for investment plans (1,805,903 and
2,026,442 shares) .......................... 48,297,075 49,236,168
Cost of shares purchased for investment plans
(1,864,646 and 2,017,316 shares) ........... (49,978,136) (48,673,006)
Net proceeds from issuance of shares of
Common Stock upon exercise of
Warrants (647 and 13,447 shares) ........... 989 22,301
--------------- ---------------
Increase in Net Investment Assets
from Capital Share Transactions ............ $ 239,052,687 $ 177,928,553
--------------- ---------------
Increase in Net Investment Assets ............ $ 556,789,596 $ 365,877,566
Net Investment Assets:
Beginning of year ............................ 2,872,663,324 2,506,785,758
--------------- ---------------
End of Year (including accumulated net
investment loss and undistributed net
investment income of $(339,509) and
$1,361,782, respectively) .................. $ 3,429,452,920 $ 2,872,663,324
=============== ===============
</TABLE>
- ----------
See Notes to Financial Statements.
26
<PAGE>
Tri-Continental Corporation
Notes to Financial Statements
1. Significant Accounting Policies -- The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the Corporation:
a. Security Valuation -- 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, at the mean of bid and asked prices.
Short-term holdings maturing in 60 days or less are valued at
amortized cost.
b. Foreign Currency Transactions -- The books and records of the
Corporation are maintained in US dollars. The market value of
investment securities, other assets and liabilities denominated in
foreign currencies are translated into US dollars at the 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. Forward Currency Contracts -- 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. Federal Taxes -- There is no provision for federal income 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. Security Transactions and Related Investment Income -- 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, except that certain dividends from foreign
securities where the ex-dividend dates may have passed are recorded
as soon as the Corporation is informed of the dividend. Interest
income is recorded on the accrual basis.
f. Distributions to Stockholders -- 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.
27
<PAGE>
Tri-Continental Corporation
Notes to Financial Statements (continued)
2. Automatic Dividend Investment and Cash Purchase Plans -- 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, 1997, 1,864,646 shares were purchased from Plan participants
at a cost of $49,978,136, which represented a weighted average discount of
18.14% from the net asset value of those acquired shares. A total of 1,805,903
shares were issued to Plan participants during the year for proceeds of
$48,297,075, a discount of 17.50% from the net asset value of those shares.
At December 31, 1997, 231,842 shares of Common Stock were reserved for
issuance upon exercise of 14,436 Warrants, each of which entitled the holder to
purchase 16.06 shares of Common Stock at $1.40 per share. Assuming the exercise
of all Warrants outstanding at December 31, 1997, net investment assets would
have increased by $324,579 and the net asset value of the Common Stock would
have been $31.99 per share. The number of Warrants exercised during the years
1997 and 1996 was 44 and 929, respectively.
3. Purchases and Sales of Securities -- Purchases and sales of portfolio
securities, excluding USGovernment obligations and short-term investments,
amounted to $2,475,589,211 and $2,491,636,694, respectively; purchases and sales
of USGovernment obligations amounted to $245,907,031 and $105,938,281,
respectively. At December 31, 1997, 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 $879,986,666 and $22,635,795, respectively.
4. Short-Term Investments -- At December 31, 1997, the Corporation owned
short-term investments which matured in less than seven days.
5. Management Fee, Administrative Services, and Other Transactions -- J. & W.
Seligman & Co. Incorporated (the "Manager") manages the affairs of the
Corporation and provides or arranges for the necessary personnel and facilities.
Seligman Henderson Co. (the "Subadviser"), an entity owned 50% each by the
Manager and Henderson plc, supervises and directs all or a portion of the
Corporation's foreign investments.For this service, the Subadviser receives a
fee from the Manager, payable monthly. 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 or by Henderson plc. 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, 1997, was equivalent to an annual rate of
0.40% of the average daily net assets of the Corporation.
Seligman Data Corp., owned by the Corporation and certain associated
investment companies, charged the Corporation at cost $3,373,098 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.
28
<PAGE>
Tri-Continental Corporation
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, 1997, of $487,734 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. Restricted Securities -- At December 31, 1997, 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,
along with their cost and values at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Investments Acquisition Date(s) Cost Value
--------------------- ------------ -----------
<S> <C> <C> <C>
Water Street Corporate Recovery
Fund I, L.P. 10/9/90 to 8/22/97 $ 234,509 $ 234,509
WCAS Capital Partners II, L.P. 12/11/90 to 9/5/97 7,367,379 6,728,259
Whitney Subordinated Debt Fund, L.P. 7/12/89 to 12/10/97 9,432,851 10,282,184
----------- -----------
Total $17,034,739 $17,244,952
=========== ===========
</TABLE>
7. Quarterly Results of Operations -- 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 1997
------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- -------
Total investment income ........ $ 18,802 $ 18,929 $ 18,394 $ 22,106
Net investment income for
Common Stock ................. $ 13,753 $ 13,716 $ 12,936 $ 16,426
Per Common share ............. $ 0.14 $ 0.14 $ 0.13 $ 0.17
Net realized and unrealized
investment gain (loss) ....... $ 35,560 $433,804 $251,385 $(62,585)
Per Common share ............. $ 0.37 $ 4.49 $ 2.54 $ (0.63)
For Quarters Ended in the Year 1996
------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------- -------- --------- --------
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
29
<PAGE>
Tri-Continental Corporation
Financial Highlights
The Corporation's financial highlights are presented below. "Per share
operating performance" data is designed to allow investors to trace the
operating performance, on a per Common share basis, from the beginning net asset
value to the ending net asset value, so that investors can understand what
effect the individual items have on their investment, assuming it was held
throughout the period. Generally, 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.
"Total investment return" measures the Corporation's performance assuming
that investors purchased shares of the Corporation at the market value or net
asset 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 or net asset value per share on the last day of the period.
The 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 periods beginning January 1, 1996.
The ratios of expenses and net investment income to average net investment
assets and to average net assets for Common Stock, for the years presented do
not reflect the effect of dividends paid to Preferred Stockholders.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value,
Beginning of Year .................... $ 29.28 $ 27.58 $ 23.70 $ 27.49 $ 28.03
-------- -------- -------- -------- --------
Net investment income ................. .60 .68 .74 .83 .83
Net realized and unrealized
investment gain (loss) ............... 6.94 4.84 6.14 (1.69) 1.46
Net realized and unrealized gain (loss)
from foreign currency transactions ... (.17) (.02) .03 .02 --
-------- -------- -------- -------- --------
Increase (Decrease) from
Investment Operations ................ 7.37 5.50 6.91 (.84) 2.29
Dividends paid on Preferred Stock ..... (.02) (.02) (.02) (.03) (.03)
Dividends paid on Common Stock ........ (.60) (.66) (.73) (.79) (.80)
Distribution from net gain realized ... (3.45) (2.72) (2.01) (1.90) (1.80)
Issuance of Common Stock
in gain distributions ................ (.52) (.40) (.27) (.23) (.19)
Issuance of Common Stock
upon Warrant exercise ................ -- -- -- -- (.01)
-------- -------- -------- -------- --------
Net Increase (Decrease)
in Net Asset Value ................... 2.78 1.70 3.88 (3.79) (.54)
-------- -------- -------- -------- --------
Net Asset Value,
End of Year .......................... $ 32.06 $ 29.28 $ 27.58 $ 23.70 $ 27.49
======== ======== ======== ======== ========
Adjusted Net Asset Value,
End of Year* ........................ $ 31.99 $ 29.22 $ 27.52 $ 23.65 $ 27.42
Market Value, End of Year ............. $26.6875 $ 24.125 $ 22.625 $ 19.875 $ 23.75
</TABLE>
- ----------
See footnotes on page 31.
30
<PAGE>
Tri-Continental Corporation
Financial Highlights (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Investment Return:
Based upon market value ................. 27.96% 21.98% 27.95% (5.07)% 3.47%
Based upon net asset value .............. 26.65% 21.45% 30.80% (2.20)% 8.95%
Ratios/Supplemental Data:
Expenses to average net investment assets .60% .62% .63% .64% .66%
Expenses to average net assets for
Common Stock .......................... .60% .63% .64% .65% .67%
Net investment income to
average net investment assets ......... 1.80% 2.27% 2.71% 3.08% 2.88%
Net investment income to average
net assets for Common Stock ........... 1.82% 2.31% 2.75% 3.14% 2.94%
Portfolio turnover rate ................. 83.98% 53.96% 62.28% 70.38% 69.24%
Average commission rate paid ............ $.0385 $.0478
Net Investment Assets,
End of Year (000s omitted):
For Common Stock ...................... $3,391,816 $2,835,026 $2,469,149 $1,994,098 $2,166,212
For Preferred Stock ................... 37,637 37,637 37,637 37,637 37,637
---------- ---------- ---------- ---------- ----------
Total Net Investment Assets ............. $3,429,453 $2,872,663 $2,506,786 $2,031,735 $2,203,849
========== ========== ========== ========== ==========
</TABLE>
- ----------
* Assumes the exercise of outstanding warrants.
See Notes to Financial Statements.
31
<PAGE>
Tri-Continental Corporation
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, 1997, 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, 1997, 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, 1997, the results of its operations, the changes
in its net investment assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
January 30, 1998
32
<PAGE>
Tri-Continental Corporation
Board of Directors
John R. Galvin (2,4)
Dean, Fletcher School of Law and
Diplomacy at Tufts University
Director, Raytheon Company
Director, USLIFE Corporation
Alice S. Ilchman (3,4)
President, Sarah Lawrence College
Trustee, Committee for Economic
Development
Chairman, The Rockefeller Foundation
Frank A. McPherson (2,4)
Director, Kimberly-Clark Corporation
Director, Baptist Medical Center
John E. Merow (4)
Retired Chairman and Senior Partner,
Sullivan & Cromwell, Law Firm
Director, Commonwealth Industries, Inc.
Betsy S. Michel (2,4)
Trustee, Geraldine R. Dodge Foundation
Chairman of the Board of Trustees,
St. George's School
William C. Morris (1)
Chairman
Chairman of the Board,
J. & W. Seligman & Co. Incorporated
Chairman, Carbo Ceramics Inc.
Director, Kerr-McGee Corporation
James C. Pitney (3,4)
Retired Partner, Pitney, Hardin, Kipp & Szuch,
Law Firm
James Q. Riordan (3,4)
Director, The Brooklyn Union Gas Company
Trustee, Committee for Economic
Development
Director, Dow Jones & Co., Inc.
Director, Public Broadcasting Service
Richard R.Schmaltz (1)
Managing Director, J. & W. Seligman & Co.
Incorporated
Trustee Emeritus,Colby College
Robert L. Shafer (3,4)
Retired Vice President, Pfizer Inc.
Director, USLIFE Corporation
James N. Whitson (2,4)
Executive Vice President and Director,
Sammons Enterprises, Inc.
Director, C-SPAN
Director, CommScope, Inc.
Brian T. Zino (1)
President
President, J. & W. Seligman & Co. Incorporated
Chairman, Seligman Data Corp.
Director Emeritus
Fred E. Brown
Director and Consultant,
J. & W. Seligman & Co. Incorporated
- ----------
Member:
(1) Executive Committee
(2) Audit Committee
(3) Director Nominating Committee
(4) Board Operations Committee
33
<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
- --------------------------------------------------------------------------------
For More Information
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
(212) 682-7600 Outside the Continental
United States
(800) 622-4597 24-Hour Automated
Telephone Access Service
34
<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 porspectus covering shares
of Common Stock of Tri-Continental Corporation, which contains
information about management fees and other costs.
CETR12 12/97
