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69th Annual Report 1998
Tri-Continental
Corporation
an investment you can live with
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<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 29, 1999
Tri-Continental Corporation had a solid year of investment results in 1998,
posting a total return of 25.80% based on the net asset value. This return far
outpaced the 17.93% total return of the Corporation's peers, as measured by the
Lipper Closed-End Growth & Income Funds Average. The Corporation's total return
based on market price was an even stronger 26.19%, reflecting a slight narrowing
of the discount to net asset value. During the same time period, the Standard &
Poor's 500 Composite Stock Price Index (S&P 500) posted a total return of
28.58%.
Tri-Continental Corporation's returns take into account the investment of
the $0.52 in dividends and the $4.275 in capital gain distributions paid in
1998. The total distribution rate was 14.4%, marking the fifth 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 54 years. Once again, the Corporation's expense ratio for 1998 was
lower than it had been in the previous year. Tri-Continental Stockholders
benefit from a professionally managed investment, while at the same time
enjoying expenses of only 0.58% of net assets. A discussion with your Portfolio
Managers regarding the Corporation's results begins on page 3.
The past year was one of continued growth for the US economy, with real
domestic growth of 3.9%, marking the eighth year of economic expansion. 1998
marked the first time in history that the S&P 500 registered more than 20% gains
four years in a row. But, despite the strong year-end numbers, 1998 was the most
volatile year for the markets since 1987.
Once again in 1998, exceptional performance from an extremely narrow list
of stocks masked the true investment results in the broad market. Within the S&P
500, the successes of a few stocks blurred the total picture. In fact, 197
stocks within the S&P 500, representing 39% of the Index, actually lost market
value during the past year. Investment results between asset classes were also
more widely dispersed than usual. In fact, the disparity between large- and
small-cap performance was almost unprecedented.
A number of factors led to the markets' volatility in 1998 -- some
domestic, many international. The international economic background in 1998 was
one of steadily deteriorating conditions as the financial crisis, originally
limited to a few Asian countries, spread throughout other regions. Currency
instability and rising global recession/deflation fears exacerbated market
volatility. Anxiety increased following the Russian default and the near
collapse of Long-Term Capital Management LP, a large hedge fund plagued by a
series of bad currency investments. By late August, a stock market correction
threatened to turn into a more significant decline, as the Dow Jones Industrial
Average fell more than 850 points in two days, wiping out all of the year's
gains.
1
<PAGE>
Tri-Continental Corporation
During the second half of the year, the Federal Reserve Board cut the
federal-funds rate three times. These actions confirmed the Fed's resolve to
protect the US economy from the global financial crisis and markets responded
favorably throughout November and December.
Subdued inflation, low interest rates, improving prospects in Asia, and a
Federal Reserve leading the fight against global recession are all positive for
the US markets in 1999. Pressure on corporate profits is likely to continue, as
the US enters a period of slower growth. Valuations on some of the largest
stocks seem excessive, and any broadening of the market in 1999 may negatively
affect their share prices. In addition, low commodity prices are impacting much
of the world, making it harder for US multinationals to export. Looking forward,
we expect a challenging environment confronted with economic uncertainties and
continued high volatility. Nonetheless, we see moderately positive returns for
the year in line with our lower growth projections.
Seligman continues to work to ensure that all of its operations are
prepared for the challenges posed by the Year 2000 (Y2K) computer problem. We
are confident that there will be no disruption in the investment and shareholder
services provided by your Corporation as a result of Y2K. In addition, your
portfolio management team considers the potential ramifications of Y2K when
making decisions on which securities should be held by the Corporation.
This past November, Tri-Continental's Board of Directors authorized a share
repurchase program of up to 7.5% of the Corporation's shares over a 12-month
period. This action will increase the NAV for all of Tri-Continental's
outstanding shares, benefiting all Stockholders. Also, this repurchase program
reduces the dilutive impact of capital gain distributions on Stockholders who
take their gains in cash, potentially narrows the discount moderately over time,
and adds to the overall liquidity of Tri-Continental shares in the market.
Thank you for your continued support of Tri-Continental Corporation in
1998. We look forward to serving your investment needs in 1999 and invite you to
attend our Annual Meeting in Palm Beach, Florida, on May 20, 1999. We think you
will agree that 1998 proved once again that Tri-Continental Corporation is "an
investment you can live with."
By order of the Board of Directors,
/s/ William Morris
William C. Morris
Chairman
/s/ Brian T. Zino
Brian T. Zino
President
2
<PAGE>
Tri-Continental Corporation
Interview With Your Portfolio Managers
[PHOTO}
Growth and Income Team: (from left) Amy Fujii, John Roth, Melanie Ravenell
(Administrative Assistant), (seated) Charles Smith (Portfolio Manager), Rodney
Collins (Co-Portfolio Manager)
What were Tri-Continental Corporation's investment results in 1998?
For the 12 months ended December 31, 1998, Tri-Continental Corporation
posted a strong return of 25.80% based on net asset value. Tri-Continental
ranked #1 out of the six closed-end funds within the Lipper Closed-End Growth &
Income Funds Average, which measures the results of closed-end funds with
investment objectives similar to those of your Corporation. The Lipper
Closed-End Growth & Income Funds Average had a total return of 17.93% through
December 31, 1998. The Standard & Poor's 500 Composite Stock Price Index (S&P
500) had a total return of 28.58% for 1998. Tri-Continental's total return based
on market price was 26.19%.
Which economic and market factors affected the Corporation's investment results
in 1998?
In 1998, the US economy expanded for the eighth year in a row. Low
inflation, continued corporate earnings growth, and a benign interest-rate
environment all helped propel the major US markets higher. The year was one of
tremendous investor demand for US common stocks. Much of this demand was caused
by the continuing "flight to quality" as investors tried to insulate themselves
from troubles in Asia and Latin America by investing in the largest, most liquid
companies in the US. This trend, while positive for the largest-capitalization
stocks in the US, caused a narrowing in the market that left many stocks as
underperformers. In fact, 50 stocks in the S&P 500 accounted for about 94% of
the performance of the entire Index.
Market performance in 1998 was volatile and in the third quarter of the
year, the market weakened significantly. Your Corporation did well relative to
its peer group and to the market during this downturn because of our disciplined
investment process. During this time period, Tri-Continental posted a total
return of -7.94%; the Lipper Closed-End Growth & Income Funds Average posted a
total return of -12.89%; and the S&P 500 posted a total return of -9.95%.
What is your investment strategy?
The Corporation's portfolio has been repositioned to increase earnings
stability and reduce overall volatility. While still broadly diversified among
industry groups and individual holdings, the Portfolio has been pared down to
focus on companies with stable earnings and dividend growth that are selling at
reasonable valuations in their industry groups. Our investment approach led us
to be underweight in many of the excessively-valued large-capitalization stocks
that were hit the hardest by last summer's
3
<PAGE>
Tri-Continental Corporation
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Investment Results Per Common Share
TOTAL RETURNS
For Periods Ended December 31, 1998
<TABLE>
<CAPTION>
Average Annual
--------------------------------------------
Three One Five 10
Months* Year Years Years
------- ----- ----- -----
<S> <C> <C> <C> <C>
Market Price** 22.24% 26.19% 19.05% 17.65%
Net Asset Value** 19.84 25.80 19.86 17.40
Lipper Closed-End
Growth & Income
Funds Average*** 19.97 17.93 18.47 16.04
S&P 500*** 21.30 28.58 24.06 19.21
</TABLE>
PRICE PER SHARE
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998 June 30, 1998 March 31, 1998 December 31, 1997
----------------- ------------------ ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Market Price $28.50 $25.50 $27.875 $29.5625 $26.6875
Net Asset Value 34.13 31.15 34.02 35.80 32.06
</TABLE>
DIVIDEND AND CAPITAL GAIN INFORMATION
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Capital Gain
--------------------------------------------------------
Dividends Paid+ Paid Realized Unrealized
-------------- -------- --------- ----------
<S> <C> <C> <C>
$0.52 $4.275++ $2.96 $10.80+++
</TABLE>
The net realized capital gain and dividend distributions paid in 1998 totaled
$4.795. This is equal to 14.4% of the Corporation's average end-of-quarter net
asset values for the prior four quarters (December 1997 to September 1998).
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The rates of return will vary and the principal value of an investment will
fluctuate. Shares, if sold, may be worth more or less than their original cost.
Past performance is not indicative of future investment results.
* Returns for periods of less than one year are not annualized.
** These rates of return reflect changes in market price or net asset value,
as applicable, and assume that all distributions within the period are
taken in additional shares.
*** 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 any costs
associated with the purchase of shares, 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 $1.835 of undistributed realized capital gains from 1997, which
were paid on June 23, 1998.
+++ Represents the per share amount of net unrealized appreciation of portfolio
securities as of December 31, 1998.
- --------------------------------------------------------------------------------
4
<PAGE>
Tri-Continental Corporation
Interview With Your Portfolio Managers (continued)
market downturn. This allowed Tri-Continental to outpace the market and many of
its peers during that difficult environment.
Which areas added to the Corporation's investment results?
While we do not greatly overweight particular industry groups, we did
increase the Corporation's exposure to the technology sector in 1998. Our
technology weighting at year-end was about 15%. Microsoft and IBM are examples
of the large, liquid technology companies that we own. As technology stocks
rallied in the fourth quarter, our holdings did quite well. Unfortunately, our
weighting was slightly below the 17% weighting of the S&P 500, and we lost some
ground during that rally. Besides technology, our telecommunications and health
care holdings also performed well.
We also spent time in 1998 significantly reducing our international
holdings. With continued problems in the global economy, we felt that the US
market offered greater return potential. The few international stocks we still
hold in the Portfolio -- DaimlerChrysler, Royal Dutch Petroleum, and
Schlumberger, for example -- are large companies with fundamentals that have
remained attractive.
What areas hurt the Corporation's performance?
The weakest area of the Portfolio was cyclical stocks. While we were
generally underweight in these issues, they did negatively impact results.
DuPont was particularly hard hit as the ongoing problems in Asia led to weak
commodity chemical pricing. Our energy stocks also adversely affected our
returns. Weak demand from Asia, warm weather in the US, and an overall free-fall
in commodity prices around the world all contributed to the poor showing of
energy stocks in 1998. And while many of our energy holdings did better than the
sector as a whole, they lagged the overall market in 1998.
What is your outlook?
We continue to believe that the US economic environment offers an
attractive background for investing in common stocks. At the same time, we
remain cautious as valuations of many of the larger stocks already seem to
reflect that expectation. As a result, we continue to temper our positions in
some of the larger-capitalization stocks -- the top 20 names in the S&P 500. We
feel the high valuations accorded many of these stocks have been driven by
liquidity factors, not fundamentals. Therefore, we are focusing on identifying
companies whose valuations reflect their future prospects more fully, and where
there is a catalyst for earnings acceleration going forward. Any broadening of
the market should benefit these companies in the next year and beyond.
5
<PAGE>
Tri-Continental Corporation
Highlights of the Year
Net asset value of each share of Common Stock was $34.13 at December 31,
compared to $32.06 at the start of the year. If you took the June and December
gain distributions in additional shares, the net asset value of each share you
owned at the beginning of 1998 was equivalent to $39.59 at year end. Assuming
the investment of dividends and gain distributions in shares, the total return
was 25.80%.
Distribution of Realized Gain
Your Directors declared a distribution of $1.835 per Common share from the
balance of taxable net gains realized from November 1, 1997, through December
31, 1997, consisting of $1.655 from net long-term gains and $0.18 from net
short-term gains, which was paid on June 23, 1998, to Stockholders of record
June 10, 1998.
A net long-term distribution of $2.44 per Common share, realized on
investments from January 1, 1998 through October 31, 1998, was paid on December
18, 1998 to Stockholders, of record December 11, 1998.
The Corporation is required to distribute to Common Stockholders
substantially all of its undistributed net capital gains realized through
October 31, 1998, to avoid a 4% federal excise tax. The undistributed net
capital gain realized from November 1, 1998 to December 31, 1998, of $0.68 per
Common share remains a part of the underlying market value of Common Stock
shares as of December 31, 1998. This amount will be distributed to Common
Stockholders during 1999, 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 June and
December payments in shares was determined by dividing the total dollar amount
payable by $28.1563 and $27.4063, the means of the high and low market prices on
the New York Stock Exchange on June 8 and December 9, 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 $21,376,291. The ratio of expenses to the
average value of net investment assets was 0.58%, down from 1997's expense ratio
of 0.60%.
Common Stock dividends, paid quarterly, totaled $0.52 per share on an average of
108,068,000 shares, compared to $0.60 in 1997 when, on average, there were
approximately 10,395,000 fewer shares outstanding. Common Stock dividends paid
in 1998 with the December 1997 and June 1998 capital gain distributions taken in
additional shares were equivalent to $0.59 per share.
Preferred Stock dividends, paid each quarter, completed 69 years of
uninterrupted payments. Total net investment income available to cover the $2.50
Preferred Stock dividend was equivalent to $78.07 per Preferred share.
6
<PAGE>
Tri-Continental Corporation
Highlights of the Year (continued)
<TABLE>
<CAPTION>
Assets at Year End: 1998 1997
-------------- --------------
<S> <C> <C>
Total assets ...................................... $4,043,814,126 $3,464,836,574
Amounts owed ...................................... 3,660,628 35,383,654
-------------- --------------
Net Investment Assets ............................. $4,040,153,498 $3,429,452,920
Preferred Stock, at par value ..................... 37,637,000 37,637,000
-------------- --------------
Net Assets for Common Stock ....................... $4,002,516,498 $3,391,815,920
============== ==============
Common shares outstanding ......................... 117,276,903 105,796,914
Net Assets Behind Each Common Share ............... $ 34.13 $ 32.06
With 1998 gain distributions taken in shares ...... $ 39.59 --
Taxable Gain:
Net capital gain realized ......................... $ 347,172,591 $ 456,753,728
Per Common share .................................. $ 2.96 $ 4.32
Undistributed capital gains, end of year .......... $ 79,836,065 $ 195,203,642
Per Common share, end of year ..................... $ 0.68 $ 1.85
Unrealized capital gains, end of year ............. $1,266,872,573 $ 857,350,871
Per Common share, end of year ..................... $ 10.80 $ 8.10
Distribution of Gain:
Per Common share* ................................. $ 4.275 $ 3.447
Income:
Total income earned ............................... $ 79,558,868 $ 78,302,475
Expenses .......................................... 21,376,291 19,518,138
Preferred Stock dividends ......................... 1,881,850 1,881,850
-------------- --------------
Income for Common Stock ........................... $ 56,300,727 $ 56,902,487
============== ==============
Expenses to average net investment assets ......... 0.58% 0.60%
Expenses to average net assets for Common Stock ... 0.58% 0.60%
Dividends per Common Share ........................ $0.52 $0.60
With December 1997 and June 1998 gain distributions
taken in shares ................................ $0.59 --
</TABLE>
- ----------
* The Corporation's net capital gain realized for the year 1998 was $2.96 per
share of Common Stock outstanding at December 31, 1998. However, the
Corporation was required to distribute only the total undistributed net
capital gain realized during the period from November 1, 1997, through
October 31, 1998 ($4.275 per share), to avoid a 4% federal excise tax. The
undistributed net realized capital gain as of year end ($0.68 per share)
remains a part of the underlying market value of Common Stock shares as of
December 31,1998. This amount will be distributed to common stockholders
during 1999, at which time Common Stockholders will be subject to federal
income taxes on the amount received.
7
<PAGE>
Tri-Continental Corporation
Stockholder Services
Tri-Continental provides a number of services to make maintaining an
investment in its Common Stock more convenient.
Purchases of Common Stock. Under the Automatic Dividend Investment and Cash
Purchase Plan, and other Stockholder plans, purchases of Common Stock 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 1998, 1,894,263 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. During 1998, the Corporation purchased 251,900 additional
shares.
Traditional Individual Retirement Account (IRA). You may contribute up to $2,000
per year to a Traditional IRAprovided you have earned income and are under age
701/2. A working or non-working spouse may also contribute up to $2,000 to a
separate Traditional IRA. Contributions to a Traditional IRAmay 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 IRAprovided 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 591/2, 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 701/2 (if you have earned income), and you are not
required to take minimum distributions at age 701/2. You may convert an existing
Traditional IRAto a Roth IRAto take advantage of tax-free distributions. You
must pay taxes on any earnings and deductible contributions in your Traditional
IRAbefore converting it to a Roth IRA. Talk to your financial advisor for more
details on converting your Traditional IRA.
8
<PAGE>
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 1999 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 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 1998
and the distribution from net short-term gain of $0.18 per Common share paid on
June 23 are subject to federal income tax as "ordinary income." Under the
Internal Revenue Code, 82.79% of the 1998 quarterly dividends paid to Common and
Preferred Stockholders qualifies for the dividends received deduction available
to corporate Stockholders. In order to claim the dividends 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 $1.655 and $2.44 from net long-term gain, realized on
investments from November 1, 1997 through December 31, 1997, and January 1, 1998
through October 31, 1998, respectively, were paid to Common Stockholders on June
23 and December 18, 1998, respectively. In 1997, Congress revised the capital
gains provisions, so that depending on how long a security was owned when it was
sold, investors may have been faced with a 28% capital gains rate, a 20% rate,
or both. In October 1998, Congress simplified the capital gains provisions so
that, generally, all gains on securities held more than one year are to be taxed
at a maximum 20% rate. The long-term gain is designated as a "capital gain
dividend" for federal income tax purposes and is taxable to Stockholders in 1998
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, 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 June 23 and December
18 capital gain distributions in additional shares was $28.1563 and $27.4063 per
share, respectively.
9
<PAGE>
Tri-Continental Corporation
A History of Building Long-Term Wealth and Income
Tri-Continental invests primarily to produce long-term growth of both
capital and income, while providing reasonable current income. The chart below
shows the growth of Tri-Continental Stockholders' capital over the past 20
years. As the chart indicates, the total price of 1,000 shares of
Tri-Continental purchased on December 31, 1978, was $17,625. Stockholders who
took capital gains distributions in shares would have realized an 11-fold
increase in the market value of these 1,000 shares to $210,036 by year-end 1998.
For those who chose to take their dividends as well as capital gains in
additional shares, the value of their investment in Tri-Continental Corporation
would have grown to a market value of $437,694 at the end of 1998.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Building Wealth
Original Investment $ 17,625
Invest Capital Gains Only* $210,036
Invest Capital Gains and Dividends* $437,694
Invest Invest
Original Capital Gains Capital Gains
Investment Only* and Dividends*
Number of Shares at
December 31, 1998* 1,000 7,370 15,358
* Assumes the Stockholder did not exercise or sell the transferable rights
distributed in connection with the 1992 rights offering. Either the exercise or
sale of the rights would improve the above results.
That same 20-year period also produced significant long-term growth of
income for both investment strategies. In 1979, dividends of $1,121 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 dividend income grow to
$3,411 in 1998, or 42% 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 $7,027 for 1998.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL]
Growing Dividend Income
- -----------------------------------------------------------------
- -- Annual dividend income with dividends and capital gains
invested in additional shares.*
== Annual dividend income with capital gains invested in
additional shares.*
__ Annual dividend income needed to keep up with Consumer Price
Index.
- -----------------------------------------------------------------
Dividends & Capital
Capital Gains Gains
in Shares Reinvested CPI
--------- ---------- ---
1979 $1,146 $1,121 $1,121
1980 $1,372 $1,270 $1,262
1981 $1,572 $1,383 $1,374
1982 $1,795 $1,495 $1,427
1983 $2,005 $1,597 $1,481
1984 $2,579 $1,971 $1,540
1985 $2,723 $1,991 $1,598
1986 $2,875 $2,028 $1,616
1987 $3,131 $2,145 $1,687
1988 $3,444 $2,281 $1,762
1989 $3,946 $2,514 $1,844
1990 $4,661 $2,866 $1,956
1991 $4,696 $2,787 $2,016
1992 $5,167 $2,980 $2,075
1993 $5,611 $3,141 $2,132
1994 $6,166 $3,338 $2,189
1995 $6,457 $3,377 $2,244
1996 $6,622 $3,363 $2,319
1997 $6,893 $3,415 $2,358
1998 $7,027 $3,411 $2,396
* Assumes the Stockholder did not exercise or sell the transferable rights
distributed in connection with the 1992 rights offering. Either the exercise or
sale of the rights would improve the above results.
The information provided above 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
<PAGE>
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 (NAV) plus any applicable sales charge, the price
of Tri-Continental stock is determined by the forces of supply and demand.
Therefore, the market price of Tri-Continental's stock can be at a "premium,"
above its NAV, or at a "discount," below its NAV.
Discounts are common to 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. In reaction to Tri-Continental's discount, a small number of
Stockholders have introduced proposals that the Board of Directors consider
various actions, including turning Tri-Continental into an open-end mutual fund.
In each case, voting Stockholders overwhelmingly supported maintaining
Tri-Continental's closed-end structure.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Premium/Discount Range
1979-1998
Year Premium/Discount
---- ----------------
1979 (22.54%)
1980 (25.12%)
1981 (20.44%)
1982 (7.58%)
1983 (4.69%)
1984 (1.91%)
1985 (1.36%)
1986 2.45%
1987 (13.85%)
1988 (18.26%)
1989 (16.18%)
1990 (13.11%)
1991 (2.87%)
1992 (9.03%)
1993 (14.06%)
1994 (16.14%)
1995 (17.97%)
1996 (17.61%)
1997 (16.76%)
1998 (16.50%)
Over the past 20 years, Tri-Continental's discount/premium has generally
been consistent with that of many other closed-end funds with similar investment
objectives. Tri-Continental's 20-year median discount, as of December 31, 1998,
was 16.14%. During the past two decades, Tri-Continental's discount has been as
wide as 25.12%, at the end of 1980, while its premium has been as high as 2.45%,
at the end of 1986. Tri-Continental's year-end 1998 discount was 16.50%,
moderately narrower than its 16.76% discount at year-end 1997. The year-end 1998
figure is within the bottom half of the year-end premium/discount rates
evidenced between 1978 and 1998.
Your Manager continues to conduct and review broad studies and in-depth
research of closed-end fund discounts in general and Tri-Continental's discount
in particular, and reports the findings to the Board of Directors each year.
These studies have concluded that discounts among many closed-end funds with
characteristics similar to those of Tri-Continental tend to widen and narrow
concurrently. Moreover, they point to no single determinant to explain why
closed-end companies sell at a discount or a premium.
11
<PAGE>
Tri-Continental Corporation
Several large, diversified closed-end funds have introduced a managed
distribution policy in which there is a "minimum payout" of 10% of NAV per
annum, paid quarterly. The introduction of such a minimum payout has been
associated with a narrowing of the discount. It is worth noting that, in 1998,
Tri-Continental distributed 14.42% of NAV to its Stockholders. Further, during
the past 1-, 3-, 5-, 10-, and 20-year periods, Tri-Continental's aggregate
dividend and capital gain distributions have averaged more than 10% of NAV.
There can be no assurance that there will be any further reduction in the
current discount, or that the discount will not increase; however, there is no
reason to believe that, at different times in the future, shares will not trade
at a narrower discount or even a small premium, as they have in the past. While
a widening of the discount could produce capital losses, the discount also makes
it possible for investors 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 the case had the
shares been purchased at NAV. A discount also creates the opportunity for
capital gains should the discount narrow. In fact, 81% of the registered
Stockholders of the Corporation's common stock are currently taking advantage of
this situation, either by investing the Corporation's dividends, taking their
capital gains in additional shares, or by purchasing additional shares through
one of the plans offered by the Corporation.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
Average Annual Distributions as a
Percent of Net Asset Values*
1 Yr. 14.42%
3 Yrs. 12.90%
5 Yrs. 11.86%
10 Yrs. 10.55%
20 Yrs. 12.02%
- --------------------------------------------------------------------------------
* Annual distributions divided by the average end-of-quarter net asset values
for the prior four quarters, e.g. December 1997 to September 1998.
Tri-Continental's discount will continue to be evaluated and discussed by
your Manager and the Board of Directors. Be assured that any decision will be in
accord 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, above all, acting in the best interests of
Tri-Continental's Stockholders.
12
<PAGE>
Tri-Continental Corporation
Stock Repurchase Program
In November 1998, the Board of Directors authorized a share repurchase
program of up to 7.5% of the Corporation's shares over a 12-month period. The
Board's decision benefits all Stockholders, allowing them to continue to enjoy
the advantages of Tri-Continental's closed-end structure, while increasing the
NAV of the Corporation's outstanding shares.
In recent years, Tri-Continental has produced strong investment results and
significant capital gain distributions. This, coupled with the fact that
Stockholders elect to take more than 70% of capital gains in additional shares,
has led to an acceleration in the number of shares outstanding. For each of the
three years ended December 31, 1997, capital gain distributions totaled 9.3% of
NAV, and as a result the Corporation's share count increased at an annual
compound rate of 7.8%. This compares to an average annual share growth of 6.2%
for the preceding 20 years, excluding a one-time rights offering. Capital gain
distributions during 1998 totaled 12.9% of net asset value, increasing all of
these averages.
In 1967, Stockholders voted that capital gain distributions that were taken
in shares would be provided by issuing additional shares at market value. This
program remains very popular today, and the high number of Stockholders who
choose to receive their capital gain distributions in additional shares reflects
Stockholder confidence in the Corporation and its investment results.
The stock repurchase program, while tempering an increase in shares
outstanding, will result in increases in NAV for all Stockholders. In addition,
the stock repurchase program reduces the dilutive impact of capital gain
distribution on Stockholders who take their gains in cash, potentially narrows
the discount moderately over time, and adds to market liquidity in
Tri-Continental shares.
As of December 31, 1998, the Corporation had purchased 251,900 shares in
the open market, representing 3.8% of the total shares authorized for
repurchase. The repurchase of additional shares is expected to take place
between January and November 1999, as long as the discount remains above 10%.
Introduce Tri-Continental to a Friend
At the 1998 Annual Meeting in St. Louis, Missouri, the Manager of
Tri-Continental Corporation unveiled a new Investor Relations Program --
"Introduce Tri-Continental to a Friend."
The Program is designed to help encourage potential investors to consider
investing in Tri-Continental. The initiative targets the more than 43,500
current Stockholders of record, individual investors, Wall Street analysts and
financial consultants through a comprehensive effort including advertising,
direct mail, and one-on-one meetings. Tri-Continental has also published a new
brochure that traces its history since its launch in 1929.
A reply card allowing Stockholders to request "The Story of
Tri-Continental" brochure and the "Introduce Tri-Continental to a Friend"
investor package was inserted in the 1998 Mid-Year Report. Response has been
excellent, with more than one thousand copies of the brochure and the investor
package distributed to date. A new reply card is inserted in this Annual Report.
Stockholders are invited to request that an investor package be sent to one
or more family members, friends or associates. This package includes a letter
from Mr. William C. Morris, Tri-Continental's Chairman, a copy of the most
recent Stockholder Report, a Prospectus, "The Story of Tri-Continental"
brochure, and a pamphlet explaining the attributes of closed-end funds.
13
<PAGE>
Tri-Continental Corporation
Diversification of Net Investment Assets
The diversification of portfolio holdings by industry on December 31, 1998,
was as follows. Individual securities owned are listed on pages 16 to 19.
<TABLE>
<CAPTION>
Percent of Net
Investment Assets
December 31,
-----------------
Issues Cost Value 1998 1997
------ -------------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Net Cash and
Short-Term Holdings 1 $ 61,237,247 $ 61,237,247 1.5% 1.4%
US Government Securities 5 294,228,516 294,593,800 7.3 4.2
Corporate Bonds -- -- -- -- 0.6
Tri-Continental
Financial Division 2 15,384,559 16,475,678 0.4 0.5
-- -------------- -------------- ----- -----
8 $370,850,322 $372,306,725 9.2% 6.7%
-- -------------- -------------- ----- -----
Common Stocks:
Aerospace 1 $15,920,461 $23,450,000 0.6% 0.9%
Automotive and related 3 112,492,974 152,106,154 3.8 3.3
Basic materials 1 20,216,865 20,504,687 0.5 0.9
Building and construction -- -- -- -- 0.5
Capital goods 1 38,208,236 33,893,750 0.8 --
Chemicals 1 35,150,946 31,572,187 0.8 2.4
Communications 5 206,593,851 345,368,125 8.5 6.6
Communications equipment 1 20,319,513 40,150,000 1.0 --
Computer and business services 7 240,238,013 453,169,844 11.2 6.9
Consumer goods and services 8 354,957,505 467,889,687 11.6 11.2
Diversified 1 29,448,134 52,288,750 1.3 1.3
Drugs and health care 8 243,477,864 443,825,939 11.0 8.3
Electric and gas utilities 3 107,211,734 132,139,687 3.3 3.6
Electronics 1 50,139,982 58,575,000 1.4 5.9
Energy 6 283,500,865 326,438,125 8.1 8.3
Entertainment and leisure -- -- -- -- 1.0
Finance and insurance 10 316,617,667 583,041,500 14.4 16.9
Manufacturing and
industrial equipment 3 159,677,416 249,858,962 6.2 8.1
Paper and forest products 2 77,354,637 88,257,500 2.2 2.7
Publishing 1 10,328,565 26,475,000 0.7 0.7
Real estate investment trust -- -- -- -- 0.4
Retail trade 2 51,597,843 105,411,563 2.6 2.3
Steel -- -- -- -- 0.6
Transportation 1 28,977,532 33,430,313 0.8 0.5
-- -------------- -------------- ----- -----
66 $2,402,430,603 $3,667,846,773 90.8% 93.3%
-- -------------- -------------- ----- -----
Net Investment Assets 74 $2,773,280,925 $4,040,153,498 100.0% 100.0%
== ============== ============== ===== =====
</TABLE>
14
<PAGE>
Tri-Continental Corporation
Largest Portfolio Changes
October 1 to December 31, 1998
Shares or Prin. Amt.
-----------------------------
Holdings
Additions Increase 12/31/98
- --------- -------- -----------
Common Stocks
BankAmerica
Corporation 476,572 shs. 850,000 shs.(1)
BP Amoco plc (ADRs) 300,000 725,000
Chubb Corporation
(The) 625,000 625,000
Crown Cork & Seal
Company 1,100,000 1,100,000
DQE Inc. 1,000,000 1,000,000
Electronic Data
Systems Corporation 900,000 900,000
J.P. Morgan & Co.
Incorporated 300,000 300,000
US Government
Securities
US Treasury Notes:
45/8%, 11/30/2000 $50,000,000 $ 50,000,000
65/8%, 5/15/2007 50,000,000 125,000,000
51/4%, 11/15/2028 25,000,000 25,000,000
Shares or Prin. Amt.
-----------------------------
Holdings
Reductions Decrease 12/31/98
- ---------- --------- -----------
Common Stocks
Baxter
International Inc. 525,000 shs. 400,000 shs.
Edison International 1,500,000 --
Marsh & McLennan
Companies, Inc. 780,000 --
Mobil Corporation 400,000 630,000
Raytheon Company
Class "B" 1,000,000 1,100,000
St. Paul Companies,
Inc. 1,110,000 --
Sprint Corporation 385,000 --
Texaco, Inc. 720,000 --
US WEST Communi-
cations Group 915,000 --
US Government
Securities
US Treasury Notes,
53/4%, 8/15/2003 $25,000,000 $25,000,000
Largest portfolio changes from the previous quarter to the current quarter are
based on cost of purchases and proceeds from sales of securities.
(1) Includes 43,428 shares received as a result of a stock merger.
10 Largest Equity Holdings
December 31, 1998
<TABLE>
<CAPTION>
December 31, 1998 Increase in Value
--------------------- -------------------------
Cost Value For Since
(000s) (000s) 1998 Purchase
------- -------- -------- --------
<S> <C> <C> <C> <C>
Microsoft Corporation $47,599 $121,215 114.4% 154.7%
General Electric Company 76,486 119,393 39.1 56.1
United Technologies Corporation 63,373 101,681 49.4 60.4
Exxon Corporation 58,086 93,234 19.5 60.5
International Business
Machines Corporation 50,351 90,528 76.7 79.8
MCI WorldCom, Inc. 32,181 87,573 137.0 172.1
Bank of New York Company, Inc. 21,707 86,940 39.2 300.5
Bristol-Myers Squibb Company 38,638 84,971 41.4 119.9
Philip Morris Companies, Inc. 66,820 81,855 18.1 22.5
DaimlerChrysler Corporation 50,571 81,653 70.2 61.5
-------- --------
$505,812 $949,043
======== ========
</TABLE>
15
<PAGE>
Tri-Continental Corporation
Portfolio of Investments December 31, 1998
<TABLE>
<CAPTION>
Shares Value
--------- ------------
<S> <C> <C>
COMMON STOCKS - 90.8%
AEROSPACE - 0.6%
General Dynamics Corporation 400,000 $ 23,450,000
Diversified defense contractor ------------
AUTOMOTIVE AND RELATED - 3.8%
DaimlerChrysler Corporation* 849,999 $ 81,653,029
Manufacturer of automobiles, trucks, and related parts
Dana Corporation 575,000 23,503,125
Manufacturer and distributor of products and
systems for automotive and related markets
Ford Motor Company 800,000 46,950,000
Manufacturer and distributor of automobiles, trucks, and related parts ------------
$152,106,154
------------
BASIC MATERIALS - 0.5%
Alcoa Inc. 275,000 $ 20,504,687
Manufacturer of containers ------------
CAPITAL GOODS - 0.8%
Crown Cork & Seal Company, Inc. 1,100,000 $ 33,893,750
Manufacturer of packaging products ------------
CHEMICALS - 0.8%
duPont (E.I.) de Nemours and Company 595,000 $ 31,572,187
Producer of chemicals ------------
COMMUNICATIONS - 8.5%
AT&TCorp 985,000 $ 74,121,250
Provider of communications services and products
Ameritech Corporation 955,000 60,523,125
Provider of telecommunications services
GTE Corporation 1,190,000 80,250,625
Provider of telephone services, systems, and equipment
MCI WorldCom, Inc.* 1,220,000 87,573,125
Provider of telecommunications services
SBC Communications, Inc. 800,000 42,900,000
Provider of telephone services ------------
$345,368,125
------------
COMMUNICATION EQUIPMENT - 1.0%
Lucent Technologies Inc. 365,000 $ 40,150,000
Manufacturer of communications equipment
------------
COMPUTER AND BUSINESS SERVICES - 11.2%
Cisco Systems, Inc.* 425,000 $ 39,458,594
Manufacturer of computer network products
Dell Computer Corporation 315,000 23,063,906
International provider of computer systems and services
Electronic Data Systems Corporation 900,000 45,225,000
Provider of management consulting and technology services
</TABLE>
- ----------
See footnotes on page 19.
16
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1998
<TABLE>
<CAPTION>
Shares Value
--------- ------------
<S> <C> <C>
COMPUTER AND BUSINESS SERVICES (continued)
Intel Corporation 640,000 $ 75,860,000
Manufacturer of semiconductors and memory circuits
International Business Machines Corporation 490,000 90,527,500
Manufacturer of micro and personal computers
Microsoft Corporation* 875,000 121,214,844
Provider of computer software products
Xerox Corporation 490,000 57,820,000
Developer, manufacturer, and marketer of office automation products ------------
$453,169,844
------------
CONSUMER GOODS AND SERVICES - 11.6%
Anheuser-Busch Companies, Inc. 1,180,000 $ 77,437,500
Brewery; theme park operator; manufacturer and
recycler of aluminum beverage containers
Coca-Cola Company (The) 770,000 51,493,750
Manufacturer of soft drinks and consumer products
ConAgra, Inc. 2,500,000 78,750,000
Developer and manufacturer of prepared foods and agricultural products
General Mills, Inc. 520,000 40,430,000
Manufacturer and marketer of consumer food products
PepsiCo, Inc. 1,190,000 48,715,625
Manufacturer and marketer of soft drinks and consumer products
Philip Morris Companies, Inc. 1,530,000 81,855,000
Manufacturer of tobacco products, food, and beverages
Procter & Gamble Company (The) 375,000 34,242,187
Manufacturer and distributor of household and personal care products
Sara Lee Corporation 1,950,000 54,965,625
Manufacturer of processed foods and consumer products ------------
$467,889,687
------------
DIVERSIFIED - 1.3%
AlliedSignal Inc. 1,180,000 $ 52,288,750
Producer of aerospace and automotive materials ------------
DRUGS AND HEALTH CARE - 11.0%
Abbott Laboratories 1,080,000 $ 52,920,000
Developer and manufacturer of diversified health care products
American Home Products Corporation 1,300,000 73,206,250
Developer and manufacturer of pharmaceuticals, food, and housewares
Baxter International Inc. 400,000 25,725,000
Manufacturer and distributor of hospital and laboratory products
Bristol-Myers Squibb Company 635,000 84,970,938
Developer and manufacturer of health and personal care products
Johnson & Johnson 650,000 54,518,750
Developer and manufacturer of health care products
Merck & Co., Inc. 515,000 76,059,063
Developer and manufacturer of pharmaceuticals
Pfizer Inc. 345,000 43,275,938
Manufacturer of health care consumer products and specialty chemicals
Schering-Plough Corporation 600,000 33,150,000
Manufacturer of pharmaceuticals and health and personal care products ------------
$443,825,939
------------
</TABLE>
- ----------
See footnotes on page 19.
17
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1998
<TABLE>
<CAPTION>
Shares Value
--------- ------------
<S> <C> <C>
ELECTRIC AND GAS UTILITIES - 3.3%
DQE Inc. 1,000,000 $ 43,937,500
Electric energy supplier
Unicom Corporation 1,155,000 44,539,687
Electric utility
Williams Companies, Inc. (The) 1,400,000 43,662,500
Transporter and producer of natural gas, telecommunications provider ------------
$132,139,687
------------
ELECTRONICS - 1.4%
Raytheon Company Class "B" 1,100,000 $ 58,575,000
Producer of defense and commercial electronics ------------
ENERGY - 8.1%
BP Amoco plc (ADRs) (United Kingdom) 725,000 $ 64,978,125
Explorer, producer, refiner, and retailer of petroleum products
Chevron Corporation 480,000 39,810,000
Explorer, developer, and producer of crude oil and natural gas
Exxon Corporation 1,275,000 93,234,375
Explorer and producer of natural gas, oil, and petroleum products
Mobil Corporation 630,000 54,888,750
International oil enterprise
Royal Dutch Petroleum Company (Netherlands) 1,030,000 49,311,250
Provider of international oil services
Schlumberger Ltd. 525,000 24,215,625
Worldwide provider of energy services ------------
$326,438,125
------------
FINANCE AND INSURANCE - 14.4%
American General Corporation 1,000,000 $ 78,000,000
Diversified financial services provider
American International Group, Inc. 765,000 73,918,125
International insurance holding company
Bank of New York Company, Inc. 2,160,000 86,940,000
Commercial bank
BankAmerica Corporation 850,000 51,106,250
Commercial bank
Chubb Corporation (The) 625,000 40,546,875
International holding company specializing in property and casualty insurance
Citigroup Inc. 1,310,000 64,845,000
Provider of investment services and life insurance
Fannie Mae 720,000 53,280,000
Provider of mortgage financing
Mellon Bank Corporation 750,000 51,562,500
Provider of financial services
J.P. Morgan & Co. Incorporated 300,000 31,518,750
Provider of financial services
Washington Mutual, Inc. 1,344,000 51,324,000
Provider of diversified financial services ------------
$583,041,500
------------
MANUFACTURING AND
INDUSTRIAL EQUIPTMENT - 6.2%
GATX Corporation 760,000 $ 28,785,000
Railcar leasing; equipment financing
General Electric Company 1,169,800 119,392,712
Supplier of electrical equipment and other industrial and consumer products
</TABLE>
- ----------
See footnotes on page 19.
18
<PAGE>
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1998
<TABLE>
<CAPTION>
Shares Value
--------- --------------
<S> <C> <C>
MANUFACTURING AND
INDUSTRIAL EQUIPMENT (continued)
United Technologies Corporation 935,000 shs. $ 101,681,250
Manufacturer of elevators, jet engines, flight systems, and
automotive parts --------------
$ 249,858,962
--------------
PAPER AND FOREST PRODUCTS - 2.2%
Fort James Corporation 1,415,000 $ 56,600,000
Producer of paper and related products
Mead Corporation (The) 1,080,000 31,657,500
Manufacturer of paper, lumber, and wood products --------------
$ 88,257,500
--------------
PUBLISHING - 0.7%
Gannet Company, Inc. 400,000 $ 26,475,000
Newspapers; radio and television broadcasting --------------
RETAIL TRADE - 2.6%
May Department Stores Company 795,000 $ 47,998,125
Department store operator
Wal-Mart Stores, Inc. 705,000 57,413,438
Discount retailer --------------
$ 105,411,563
--------------
TRANSPORTATION - 0.8%
Norfolk Southern Corporation 1,055,000 $ 33,430,313
Railroad holding company --------------
TOTAL COMMON STOCKS
(Cost: $2,402,430,603) $3,667,846,773
--------------
US GOVERNMENT SECURITIES - 7.3%
US Treasury Notes:
45/8%, 11/30/2000 $ 50,000,000 $ 50,046,900
63/8%, 9/30/2001 50,000,000 52,187,500
53/4%, 8/15/2003 25,000,000 26,101,575
65/8%, 5/15/2007 125,000,000 140,625,000
51/4%, 11/15/2028 25,000,000 25,632,825
--------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $294,228,516) $ 294,593,800
--------------
TRI-CONTINENTAL FINANCIAL DIVISION+ - 0.4%
(Cost: $15,384,559) $ 16,475,678
--------------
SHORT-TERM HOLDINGS - 1.3%
(Cost: $51,500,000) $ 51,500,000
--------------
TOTAL INVESTMENTS - 99.8%
(Cost: $2,763,543,678) $4,030,416,251
OTHER ASSETS LESS LIABILITIES - 0.2% 9,737,247
--------------
NET INVESTMENT ASSETS - 100.0% $4,040,153,498
==============
</TABLE>
- ----------
* Non-income producing security.
+ Restricted security.
Descriptions of companies have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
19
<PAGE>
Tri-Continental Corporation
Statement of Assets and Liabilities December 31, 1998
<TABLE>
<S> <C> <C>
Assets:
Investments at value:
Common stocks (cost--$2,402,430,603) ................... $ 3,667,846,773
US Government securities (cost--$294,228,516) .......... 294,593,800
Tri-Continental Financial Division
(cost --$15,384,559) .................................. 16,475,678
Short-term holdings (cost--$51,500,000) ................ 51,500,000 $ 4,030,416,251
---------------
Cash ....................................................................... 3,432,028
Receivable for dividends and interest ...................................... 8,945,501
Investment in, and expenses prepaid to, stockholder
service agent ............................................................ 492,295
Receivable for securities sold ............................................. 35,654
Other ...................................................................... 492,397
---------------
Total Assets ............................................................... $ 4,043,814,126
---------------
Liabilities:
Dividends payable .......................................................... $ 470,463
Payable for Common Stock repurchased ....................................... 445,305
Accrued expenses, taxes, and other ......................................... 2,744,860
---------------
Total Liabilities .......................................................... $ 3,660,628
---------------
Net Investment Assets ...................................................... $ 4,040,153,498
Preferred Stock, at $50 par value .......................................... 37,637,000
---------------
Net Assets for Common Stock ................................................ $ 4,002,516,498
===============
Net Assets per Share of Common Stock
(market value--$28.50) ................................................... $ 34.13
===============
Statement of Capital Stock and Surplus December 31, 1998
Capital Stock:
$2.50 Cumulative Preferred Stock, $50 par value,
asset coverage per share--$5,367.26
Shares authorized--1,000,000; issued
and outstanding--752,740 ................................................. $ 37,637,000
Common Stock, $0.50 par value:
Shares authorized--129,000,000; issued
and outstanding--117,276,903 ............................................. 58,638,452
Surplus:
Capital surplus ........................................................... 2,597,551,600
Distribution in excess of net investment income ........................... (382,192)
Undistributed net realized gain ........................................... 79,836,065
Net unrealized appreciation of investments ................................ 1,266,872,573
---------------
$ 4,040,153,498
===============
</TABLE>
- ----------
See Notes to Financial Statements.
20
<PAGE>
Tri-Continental Corporation
Statement of Operations For the Year Ended December 31, 1998
Investment Income:
Dividends .................................. $ 68,963,367
Interest ................................... 11,178,644
-------------
Total Investment Income (net of foreign taxes
withheld of $469,003) ....................................... $ 80,142,011
Expenses:
Management fee ............................. $ 14,754,214
Stockholder account and registrar services . 3,849,834
Stockholder reports and communications ..... 1,291,266
Custody and related services ............... 522,000
Auditing and legal fees .................... 258,186
Directors' fees and expenses ............... 245,941
Stockholders' meeting ...................... 227,639
Registration ............................... 90,577
Miscellaneous .............................. 136,634
-------------
Total Expenses ............................................... 21,376,291
-------------
Net Investment Income ........................................ $ 58,765,720*
Net Realized and Unrealized Gain (Loss)
On Investments and Foreign
Currency Transactions:
Net realized gain on investments ........... $ 356,343,038
Net realized loss from foreign
currency transactions ..................... (9,753,590)
Net change in unrealized appreciation
of investments ............................ 401,764,341
Net change in unrealized depreciation
on translation of assets and liabilities
denominated in foreign currencies ......... 7,774,454
-------------
Net Gain on Investments and Foreign
Currency Transactions ....................................... 756,128,243
-------------
Increase in Net Investment Assets
From Operations ............................................. $ 814,893,963
=============
- ----------
* Net investment income available for Common Stock is $56,300,727, which is
net of Preferred Stock dividends of $1,881,850, and includes a portion of
the net realized loss from foreign currency transactions of $583,143, which
is a reduction to ordinary income.
See Notes to Financial Statements.
21
<PAGE>
Tri-Continental Corporation
Statements of Changes in Net Investment Assets
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 58,765,720 $ 58,712,421
Net realized gain on investments ...................... 356,343,038 463,458,808
Net realized loss from foreign currency transactions .. (9,753,590) (6,633,164)
Net change in unrealized appreciation
of investments ...................................... 401,764,341 210,948,617
Net change in unrealized appreciation/depreciation
on translation of assets and liabilities
denominated in foreign currencies ................... 7,774,454 (9,609,797)
--------------- ---------------
Increase in net Investment
Assets from Operations .............................. $ 814,893,963 $ 716,876,885
--------------- ---------------
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: $0.52 and $0.60) ........... (56,195,184) (58,603,778)
--------------- ---------------
$ (58,077,034) $ (60,485,628)
Net realized gain on investments:
Common Stock (per share: $4.275 and $3.447) ......... (463,498,251) (338,654,348)
--------------- ---------------
Decrease in Net Investment Assets
from Distributions .................................. $ (521,575,285) $ (399,139,976)
--------------- ---------------
Capital Share Transactions:
Value of shares of Common Stock issued
at market price in gain distributions
(11,748,613 and 9,018,136 shares) ................... $ 325,650,732 $ 240,732,759
Value of shares of Common Stock issued
for investment plans (1,894,263 and 1,805,903 shares) 52,067,826 48,297,075
Cost of shares of Common Stock purchased from
investment plan participants
(1,921,433 and 1,864,646 shares) .................... (53,367,830) (49,978,136)
Cost of shares of Common Stock purchased in the open
market (251,900 shares) ............................. (6,982,882) --
Net proceeds from issuance of shares of
Common Stock upon exercise of
Warrants (10,446 and 647 shares) .................... 14,054 989
--------------- ---------------
Increase in Net Investment Assets
from Capital Share Transactions ..................... $ 317,381,900 $ 239,052,687
--------------- ---------------
Increase in Net Investment Assets ..................... $ 610,700,578 $ 556,789,596
Net Investment Assets:
Beginning of year ..................................... 3,429,452,920 2,872,663,324
--------------- ---------------
End of Year (including distributions in excess of
net investment income of $382,192 and $339,509,
respectively) ....................................... $ 4,040,153,498 $ 3,429,452,920
=============== ===============
</TABLE>
- ----------
See Notes to Financial Statements.
22
<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, 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 an exchange 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 CurrencyContracts -- 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.
23
<PAGE>
Tri-Continental Corporation
Notes to Financial Statements (continued)
2. Capital Stock Transactions -- 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, 1998, 1,921,433 shares were purchased from Plan participants
at a cost of $53,367,830, which represented a weighted average discount of
17.66% from the net asset value of those acquired shares. A total of 1,894,263
shares were issued to Plan participants during the year for proceeds of
$52,067,826, a discount of 17.86% from the net asset value of those shares.
For the year ended December 31, 1998, the Corporation purchased 251,900
shares of its Common Stock in the open market at an aggregate cost of
$6,982,882, which represented a weighted average discount of 15.37% from the net
asset value of those acquired shares.
At December 31, 1998, 246,526 shares of Common Stock were reserved for
issuance upon exercise of 13,811 Warrants, each of which entitled the holder to
purchase 17.85 shares of Common Stock at $1.26 per share. Assuming the exercise
of all Warrants outstanding at December 31, 1998, net investment assets would
have increased by $310,623 and the net asset value of the Common Stock would
have been $34.06 per share. The number of Warrants exercised during the years
1998 and 1997, was 625 and 44, respectively.
3. Purchases and Sales of Securities -- Purchases and sales of portfolio
securities, excluding USGovernment obligations and short-term investments,
amounted to $1,863,893,226 and $2,167,939,276, respectively; purchases and sales
of USGovernment obligations amounted to $403,779,297 and $257,492,291,
respectively. At December 31, 1998, the cost of investments for federal income
tax purposes was substantially the same as the cost for financial reporting
purposes, and the tax basis gross unrealized appreciation and depreciation of
portfolio securities amounted to $1,284,426,674 and $17,554,101, respectively.
4. Short-Term Investments -- At December 31, 1998, 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 for the necessary personnel and facilities.
Compensation of all officers of the Corporation, all directors of the
Corporation who are employees or consultants of the Manager, and all personnel
of the Corporation and the Manager is paid by the Manager. The Manager receives
a fee, calculated daily and payable monthly, equal to a percentage of the
Corporation's daily net assets at the close of business on the previous business
day. The management fee rate is calculated on a sliding scale of 0.45% to
0.375%, based on average daily net assets of all the investment companies
managed by the Manager. The management fee for the year ended December 31, 1998,
was equivalent to an annual rate of 0.40% of the average daily net assets of the
Corporation.
Prior to March 31, 1998, Seligman Henderson Co., an entity owned 50% each
by the Manager and Henderson International, Inc., a subsidiary of Henderson plc,
supervised and directed all or a portion of the Corporation's foreign
investments. For this service, the Manager paid Seligman Henderson Co. a monthly
fee.
Seligman Data Corp., owned by the Corporation and certain associated
investment companies, charged the Corporation at cost $3,724,175 for stockholder
account services. The Corporation's investment in Seligman Data Corp. is
recorded at a cost of $43,681.
24
<PAGE>
Tri-Continental Corporation
Notes to Financial Statements (continued)
Certain officers and directors of the Corporation are officers or directors
of the Manager and/or Seligman Data Corp.
The Corporation has a compensation arrangement under which directors who
receive fees may elect to defer receiving such fees. Directors may elect to have
their deferred fees accrue interest or earn a return based on the performance of
the Corporation or other funds in the Seligman Group of Investment Companies.
The cost of such fees and earnings accrued thereon is included in directors'
fees and expenses, and the accumulated balance thereof at December 31, 1998, of
$479,528 is included in other liabilities. Deferred fees and related accrued
earnings are not deductible for federal income tax purposes until such amounts
are paid.
6. Restricted Securities -- At December 31, 1998, the Tri-Continental Financial
Division of the Corporation was comprised of two 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, 1998, are as follows:
<TABLE>
Investments Acquisition Date(s) Cost Value
- ------------------------------------ ------------------- ----------- -----------
<S> <C> <C> <C>
WCAS Capital Partners II, L.P. 12/11/90 to 3/24/98 $ 6,951,702 $ 7,396,611
Whitney Subordinated Debt Fund, L.P. 7/12/89 to 11/10/98 8,432,857 9,079,067
----------- -----------
Total $15,384,559 $16,475,678
=========== ===========
</TABLE>
25
<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, using
average shares outstanding.
"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.
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,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value,
Beginning of Year .................... $ 32.06 $ 29.28 $ 27.58 $ 23.70 $ 27.49
-------- -------- -------- -------- --------
Net investment income ................. 0.54 0.60 0.68 0.74 0.83
Net realized and unrealized
investment gain (loss) ............... 7.01 6.94 4.84 6.14 (1.69)
Net realized and unrealized gain (loss)
from foreign currency transactions ... (0.01) (0.17) (0.02) 0.03 0.02
-------- -------- -------- -------- --------
Increase (Decrease) from
Investment Operations ................ 7.54 7.37 5.50 6.91 (0.84)
Dividends paid on Preferred Stock ..... (0.02) (0.02) (0.02) (0.02) (0.03)
Dividends paid on Common Stock ........ (0.52) (0.60) (0.66) (0.73) (0.79)
Distributions from net gain realized .. (4.28) (3.45) (2.72) (2.01) (1.90)
Issuance of Common Stock
in gain distributions ................ (0.65) (0.52) (0.40) (0.27) (0.23)
-------- -------- -------- -------- --------
Net Increase (Decrease)
in Net Asset Value ................... 2.07 2.78 1.70 3.88 (3.79)
-------- -------- -------- -------- --------
Net Asset Value,
End of Year .......................... $ 34.13 $ 32.06 $ 29.28 $ 27.58 $ 23.70
======== ======== ======== ======== ========
Adjusted Net Asset Value,
End of Year* ........................ $ 34.06 $ 31.99 $ 29.22 $ 27.52 $ 23.65
Market Value, End of Year ............. $ 28.50 $26.6875 $ 24.125 $ 22.625 $ 19.875
</TABLE>
- ----------
See footnotes on page 27.
26
<PAGE>
Tri-Continental Corporation
Financial Highlights (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total Investment Return:
Based upon market value .......... 26.19% 27.96% 21.98% 27.95% (5.07)%
Based upon net asset value ....... 25.80% 26.65% 21.45% 30.80% (2.20)%
Ratios/Supplemental Data:
Expenses to average net
investment assets .............. 0.58% 0.60% 0.62% 0.63% 0.64%
Expenses to average net assets for
Common Stock ................... 0.58% 0.60% 0.63% 0.64% 0.65%
Net investment income to
average net investment assets .. 1.59% 1.80% 2.27% 2.71% 3.08%
Net investment income to average
net assets for Common Stock .... 1.60% 1.82% 2.31% 2.75% 3.14%
Portfolio turnover rate .......... 63.39% 83.98% 53.96% 62.28% 70.38%
Net Investment Assets,
End of Year (000s omitted):
For Common Stock ................. $ 4,002,516 $ 3,391,816 $ 2,835,026 $ 2,469,149 $ 1,994,098
For Preferred Stock .............. 37,637 37,637 37,637 37,637 37,637
------------- ------------- ------------- ------------- -------------
Total Net Investment Assets ...... $ 4,040,153 $ 3,429,453 $ 2,872,663 $ 2,506,786 $ 2,031,735
============= ============= ============= ============= =============
</TABLE>
- ----------
* Assumes the exercise of outstanding warrants.
See Notes to Financial Statements.
27
<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, 1998, the related statements of
operations for the year then ended and of changes in net investment assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
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, 1998, by correspondence with the Corporation's custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Tri-Continental
Corporation as of December 31, 1998, the results of its operations, the changes
in its net investment assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
January 29, 1999
================================================================================
For More Information
Manager Important Telephone Numbers
J. & W. Seligman & Co. Incorporated (800) TRI-1092 Stockholder Services
100 Park Avenue
New York, NY 10017 (800) 445-1777 Retirement Plan Services
Stockholder Service Agent (212) 682-7600 Outside the United States
Seligman Data Corp. (800) 622-4597 24-Hour Automated
100 Park Avenue Telephone Access Service
New York, NY 10017
28
<PAGE>
Tri-Continental Corporation
Board of Directors
<TABLE>
<S> <C>
John R. Galvin (2,4) James Q. Riordan (3,4)
Dean, Fletcher School of Law and Director, KeySpan Energy Corporation
Diplomacy at Tufts University Trustee, Committee for Economic
Director, Raytheon Company Development
Director, Public Broadcasting Service
Alice S. Ilchman (3,4)
Trustee, Committee for Economic Richard R.Schmaltz (1)
Development Managing Director, Director of Investments,
Chairman, The Rockefeller Foundation J. & W. Seligman & Co. Incorporated
Trustee Emeritus,Colby College
Frank A. McPherson (2,4)
Director, Kimberly-Clark Corporation Robert L. Shafer (3,4)
Director, Baptist Medical Center Retired Vice President, Pfizer Inc.
John E. Merow (2,4) James N. Whitson (2,4)
Retired Chairman and Senior Partner, Director and Consultant,
Sullivan & Cromwell, Law Firm Sammons Enterprises, Inc.
Director, Commonwealth Industries, Inc. Director, C-SPAN
Director, New York Presbyterian Hospital Director, CommScope, Inc.
Betsy S. Michel (2,4) Brian T. Zino (1)
Trustee, The Geraldine R. Dodge Foundation President
Chairman of the Board of Trustees, President, J. & W. Seligman & Co. Incorporated
St. George's School Chairman, Seligman Data Corp.
Director, ICI Mutual Insurance Company
William C. Morris (1)
Chairman Director Emeritus
Chairman of the Board, Fred E. Brown
J. & W. Seligman & Co. Incorporated Director and Consultant,
Chairman, Carbo Ceramics Inc. J. & W. Seligman & Co. Incorporated
Director, Kerr-McGee Corporation
James C. Pitney (3,4) --------------------
Retired Partner, Pitney, Hardin, Kipp & Szuch,
Law Firm Member:
(1) Executive Committee
(2) Audit Committee
(3) Director Nominating Committee
(4) Board Operations Committee
</TABLE>
Executive Officers
William C. Morris Lawrence P. Vogel
Chairman Vice President
Brian T. Zino Thomas G. Rose
President Treasurer
Charles W. Kadlec Frank J. Nasta
Vice President Secretary
Charles C. Smith, Jr.
Vice President
29
<PAGE>
- --------------------------------------------------------------------------------
Tri-Continental Corporation
Managed by
[LOGO]
J. & W. SELIGMAN & CO.
INCORPORATED
Investment Managers and Advisors
ESTABLISHED 1864
100 Park Avenue, New York, NY 10017
This report is intended only for the information of stockholders or those who
have received the current prospectus covering shares of Common Stock of
Tri-Continental Corporation, which contains information about management fees
and other costs.
CETR12 12/98
