|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006*
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
86,219,926
|
|
$
|
34,495,799
|
|
Net realized gain on investments
|
|
|
172,825,141
|
|
|
289,119,992
|
|
Net realized gain on options written
|
|
|
8,407,353
|
|
|
5,823,683
|
|
Net change in unrealized appreciation of investments and options
written
|
|
|
(286,497,113
|
)
|
|
57,279,087
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Investment Assets from
Operations
|
|
|
(19,044,693
|
)
|
|
386,718,561
|
|
|
|
|
|
|
|
|
|
|
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: $0.87 and
$0.28)
|
|
|
(88,809,314
|
)
|
|
(29,500,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(90,691,164
|
)
|
|
(31,382,290
|
)
|
Net realized gain:
|
|
|
|
|
|
|
|
Common Stock (per share: $1.57 and $0)
|
|
|
(161,625,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in Net Investment Assets from Distributions
|
|
|
(252,316,940
|
)
|
|
(31,382,290
|
)
|
|
|
|
|
|
|
|
|
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
Value of shares of Common Stock issued at market price in
distributions (3,531,763 and 365,837 shares)
|
|
|
82,722,788
|
|
|
7,500,461
|
|
Value of shares of Common Stock issued for investment plans purchases
(192,264 and 180,945 shares)
|
|
|
4,512,976
|
|
|
3,680,127
|
|
Cost of shares of Common Stock purchased from investment plan
participants (1,893,815 and 3,346,991 shares)
|
|
|
(45,006,184
|
)
|
|
(68,106,687
|
)
|
Cost of shares of Common Stock purchased in the open market
(2,351,756 and 1,637,882 shares)
|
|
|
(54,673,126
|
)
|
|
(33,511,805
|
)
|
Net proceeds from issuance of shares of Common Stock upon exercise of
warrants (24,730 and 7,402 shares)
|
|
|
24,730
|
|
|
7,402
|
|
|
|
|
|
|
|
|
|
Decrease in Net Investment Assets from Capital Share
Transactions
|
|
|
(12,418,816
|
)
|
|
(90,430,502
|
)
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Investment Assets
|
|
|
(283,780,449
|
)
|
|
264,905,769
|
|
|
|
|
|
|
|
|
|
|
Net Investment Assets:
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
2,694,846,368
|
|
|
2,429,940,599
|
|
|
|
|
|
|
|
|
|
End of Year
(including
undistributed (dividends in excess of) net investment income of $(39,691) and
$4,373,364 respectively)
|
|
$
|
2,411,065,919
|
|
$
|
2,694,846,368
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
Notes to Financial
Statements
1. Organization
Tri-Continental Corporation (the
Corporation) is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the 1940 Act), as a closed-end
diversified management investment company.
2. Significant Accounting
Policies
The financial
statements of Tri-Continental Corporation (the Corporation) have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which require management to make certain estimates
and assumptions at the date of the financial statements. Actual results may
differ from these estimates. The following summarizes the significant
accounting policies of the Corporation:
|
|
|
|
a.
|
Security Valuation and
Risk
Securities traded on an
exchange are valued at the last sales price on the primary exchange or market
on which they are traded. Securities not listed on an exchange or security
market, or securities for which there is no last sales price, are valued at
the mean of the most recent bid and asked prices or are valued by J. & W.
Seligman & Co. Incorporated (the Manager) based on quotations provided
by primary market makers in such securities. Securities for which market
quotations are not readily available (or are otherwise no longer valid or
reliable) are valued at fair value determined in accordance with procedures
approved by the Board of Directors. This can occur in the event of, among
other things, natural disasters, acts of terrorism, market disruptions,
intra-day trading halts, and extreme market volatility. The determination of
fair value involves subjective judgments. As a result, using fair value to
price a security may result in a price materially different from the prices
used by other investment companies to determine net asset value or the price
that may be realized upon the actual sale of the security. Short-term
holdings that mature in more than 60 days are valued at current market
quotations. Short-term holdings maturing in 60 days or less are valued at
current market quotations or amortized cost if the Manager believes it
approximates fair value.
|
|
|
|
|
|
To the extent that the
Corporation invests a substantial percentage of its assets in an industry,
the Corporations performance may be negatively affected if that industry
falls out of favor. Stocks of large-capitalization companies have at times
experienced periods of volatility and negative performance. During such
periods, the value of such stocks may decline and the Corporations
performance may be negatively affected.
|
|
|
|
|
b.
|
Equity-Linked Notes
The Corporation may purchase notes
created by a counterparty, typically an investment bank. The notes bear
interest at a fixed or floating rate. At maturity, the notes must be
exchanged for an amount based on the value of one or more equity securities
(Underlying Stocks) of third party issuers. The exchange value may be
limited to an amount less than the actual value of the Underlying Stocks at
the maturity date. Any difference between the exchange amount and the
original cost of the notes will be a gain or loss.
|
|
|
|
|
c.
|
Options
The Corporation is authorized to write
and purchase put and call options. When the Corporation writes an option, an
amount equal to the premium received by the Corporation is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Corporation
enters into a closing transaction), the Corporation realizes a gain or loss
on the option to the extent of the premiums received or paid (or gain or loss
to the extent the cost of the closing transaction exceeds the premium paid or
received). The Corporation, as writer of an option, bears the market risk of
an unfavorable change in the price of the security underlying the written
option.
|
|
|
|
|
d.
|
Repurchase Agreements
The Corporation may enter into
repurchase agreements. Generally, securities received as collateral subject
to repurchase agreements are deposited with the
|
27
Tri-Continental Corporation
Notes to Financial Statements
|
|
|
|
|
Corporations custodian
and, pursuant to the terms of the repurchase agreements, must have an
aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. On a daily basis, the market value of
repurchase agreements underlying securities are monitored to ensure the
existence of the proper level of collateral.
|
|
|
|
|
e.
|
Restricted Cash
Restricted cash represents deposits
that are being held by banks as collateral for letters of credit issued in
connection with the Corporations insurance policies.
|
|
|
|
|
f.
|
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 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 an accrual basis.
|
|
|
|
|
g.
|
Distributions to
Stockholders
Dividends and
other distributions to stockholders are recorded on ex-dividend date.
Effective May 30, 2007, the Corporation has a distribution policy providing
that the Corporation will distribute quarterly to holders of Common Stock a
minimum amount per share equal to 2.75% of the net asset value attributable
to a share of the Common Stock on the last business day of the preceding
calendar quarter (or approximately 11% annually).
|
|
|
|
|
h.
|
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 realized gain.
|
|
|
|
|
|
On January 1, 2007, the
Corporation adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109. FIN 48 requires the
Corporation to measure and recognize in its financial statements the benefit
of a tax position taken (or expected to be taken) on an income tax return if
such position will more likely than not be sustained upon examination based
on the technical merits of the position. The Corporation files income tax
returns in the US Federal jurisdiction, as well as the New York State and New
York City jurisdictions. Based upon its review of tax positions for the
Corporations open tax years of 2004-2007 in these jurisdictions, the
Corporation has determined that FIN 48 did not have a material impact on the
Corporations financial statements for the year ended December 31, 2007.
|
3. Capital Stock
Transactions
Under the
Corporations Charter, dividends on 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 Corporations 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, 2007, the Corporation purchased 1,893,815 shares of Common Stock
from Plan participants at a cost of $45,006,184 which represented a weighted
average discount of 9.0% from the net asset value of those acquired shares. A
total of 192,264 shares were issued to Plan participants during the year for
proceeds of $4,512,976, an average discount of 8.7% from the net asset value of
those shares. In addition, a total of 3,531,763 shares were issued at market
price in distributions during the year for proceeds of $82,722,788, an average
discount of 8.4% from the net asset value of those shares.
For
the year ended December 31, 2007, the Corporation purchased 2,351,756 shares of
its Common Stock in the open market at an aggregate cost of $54,673,126, which
represented a weighted average discount of 8.7% from the net asset value of
those acquired shares. Shares of Common Stock repurchased
28
Tri-Continental Corporation
Notes to Financial Statements
to satisfy Plan requirements
or in the open market are retired and no longer outstanding.
At
December 31, 2007, the Corporation reserved 254,852 shares of Common Stock for
issuance upon exercise of 10,985 Warrants, each of which entitled the holder to
purchase 23.20 shares of Common Stock at $0.97 per share.
Assuming
the exercise of all Warrants outstanding at December 31, 2007, net investment
assets would have increased by $247,206 and the net asset value of the Common
Stock would have been $22.98 per share. The number of Warrants exercised during
the year ended December 31, 2007 and 2006 was 1,068 and 329, respectively.
4. Management Fee,
Administrative Services, and Other Transactions
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
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 Corporations 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, 2007 was equivalent to an average annual rate of 0.41%
of the average daily net assets of the Corporation.
For
the year ended December 31, 2007, Seligman Data Corp., which is owned by the
Corporation and certain associated investment companies, charged the
Corporation at cost $3,595,430 for stockholder account services in accordance
with a methodology approved by the Corporations directors. Costs of Seligman
Data Corp. directly attributable to the Corporation were charged to the
Corporation. The remaining charges were allocated to the Corporation by
Seligman Data Corp. pursuant to a formula based on the Corporations net
assets, stockholder transaction volume and number of stockholder accounts. The
Corporations investment in Seligman Data Corp. is recorded at a cost of
$43,681.
The
Corporation and certain other associated investment companies (together, the
Guarantors) have severally but not jointly guaranteed the performance and
observance of all the terms and conditions of two leases entered into by
Seligman Data Corp., including the payment of rent by Seligman Data Corp. (the
Guaranties). The leases and the related Guaranties expire in September 2008
and January 2019, respectively. The obligation of the Corporation to pay any
amount due under the Guaranties is limited to a specified percentage of the
full amount, which generally is based on the Corporations percentage of the
expenses billed by Seligman Data Corp. to all Guarantors in the most recent
calendar quarter. At December 31, 2007, the Corporations potential obligation
under the Guaranties is $1,708,000. As of December 31, 2007, no event has
occurred which would result in the Corporation becoming liable to make any
payment under the Guaranties. A portion of the rent paid by Seligman Data Corp.
is charged to the Corporation as part of Seligman Data Corp.s stockholder
account services cost.
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/loss accrued thereon is included in directors
fees and and expenses and the accumulated balance thereof at December 31, 2007,
of $39,691 is included in accrued expenses and other liabilities. Deferred fees
and related accrued earnings are not deductible by the Corporation for federal
income tax purposes until such amounts are paid.
29
Tri-Continental Corporation
Notes to Financial Statements
5. Purchases and Sales of
Securities
Purchases and sales
of portfolio securities, excluding US Government obligations and short-term
investments, for the year ended December 31, 2007, amounted to $2,928,949,504
and $3,210,096,356, respectively.
6. Federal Tax Information
Certain components of income, expense
and realized capital gain and loss are recognized at different times or have a
different character for federal income tax purposes and for financial reporting
purposes. Where such differences are permanent in nature, they are reclassified
in the components of net assets based on their characterization for federal
income tax purposes. Any such reclassifications will have no effect on net
assets, results of operations or net asset value per share of the Corporation.
As a result of the differences described above, the treatment for financial
reporting 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. Further, the cost of investments also can differ
for federal income tax purposes.
At
December 31, 2007, the cost of investments for federal income tax purposes was
$2,580,585,025. The tax basis cost was greater than the cost for financial
reporting purposes primarily due to the tax deferral of losses on wash sales
and certain option transactions in the amount of $10,406,230, offset in part by
the tax losses passed through to the Corporation from its limited partnership
investment of $2,733,191.
The
tax basis components of accumulated earnings at December 31, 2007 are presented
below. Undistributed ordinary income primarily consists of net investment
income and net short-term capital gains.
|
|
|
|
|
|
|
Gross unrealized
appreciation of portfolio securities
|
|
$
|
142,335,578
|
|
|
Gross unrealized
depreciation of portfolio securities
|
|
|
(341,568,763
|
)
|
|
|
|
|
|
|
|
Net unrealized
depreciation of portfolio securities
|
|
|
(199,233,185
|
)
|
|
Undistributed ordinary
income
|
|
|
19,818,108
|
|
|
Undistributed net realized
gain
|
|
|
20,224,273
|
|
|
|
|
|
|
|
|
Total accumulated losses
|
|
$
|
(159,190,804
|
)
|
|
|
|
|
|
|
For
the year ended December 31, 2007, the tax characterization of distributions to
stockholders was $207,070,515 for Ordinary Income and $45,246,425 for Long-Term
Capital Gain.
7. Restricted Securities
At December 31, 2007, the Corporation
owned one investment that was purchased through private offerings and cannot be
sold without prior registration under the Securities Act of 1933 or pursuant to
an exemption therefrom. The investment is valued at fair value as determined in
accordance with procedures approved by the Board of Directors of the
Corporation.
|
|
|
|
|
|
|
Investment
|
|
Acquisition Date(s)
|
|
Cost
|
|
Value
|
|
|
|
|
|
|
|
WCAS Capital Partners II,
L.P.
|
|
12/11/90
to 3/24/98
|
|
$4,292,803
|
|
$1,784,956
|
8. Options Written
Transactions in options written during
the year ended December 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
Shares
Subject
to Call/Put
|
|
Premium
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2006
|
|
|
132,600
|
|
$
|
1,177,452
|
|
Options written
|
|
|
5,181,300
|
|
|
9,334,710
|
|
Options expired
|
|
|
(1,716,300
|
)
|
|
(2,930,031
|
)
|
Options exercised
|
|
|
(3,575,400
|
)
|
|
(7,529,297
|
)
|
Options terminated in
closing purchase transactions
|
|
|
(22,200
|
)
|
|
(52,834
|
)
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2007
|
|
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
30
Tri-Continental Corporation
Notes to Financial Statements
9. Other Matters
In late 2003, the Manager conducted an
extensive internal review concerning mutual fund trading practices. The
Managers review, which covered the period 2001-2003, noted one arrangement
that permitted frequent trading in certain open-end registered investment
companies managed by the Manager (the Seligman Funds); this arrangement was in
the process of being closed down by the Manager before September 2003. The
Manager identified three other arrangements that permitted frequent trading,
all of which had been terminated by September 2002. In January 2004, the
Manager, on a voluntary basis, publicly disclosed these four arrangements to
its clients and to shareholders of the Seligman Funds. The Manager also
provided information concerning mutual fund trading practices to the Securities
and Exchange Commission (the SEC) and the Office of the Attorney General of
the State of New York (NYAG).
In
September 2005, the New York staff of the SEC indicated that it was considering
recommending to the Commissioners of the SEC the instituting of a formal action
against the Manager and Seligman Advisors, Inc., the distributor of the
Seligman Funds, relating to frequent trading in the Seligman Funds. The Manager
responded to the staff in October 2005 that it believed that any action would
be both inappropriate and unnecessary, especially in light of the fact that the
Manager had previously resolved the underlying issue with the Independent
Directors of the Seligman Funds and made recompense to the affected Seligman
Funds.
In
September 2006, the NYAG commenced a civil action in New York State Supreme
Court against the Manager, Seligman Advisors, Inc., Seligman Data Corp. and
Brian T. Zino (collectively, the Seligman Parties), alleging, in substance,
that, in addition to the four arrangements noted above, the Seligman Parties
permitted other persons to engage in frequent trading and, as a result, the
prospectus disclosure used by the registered investment companies managed by
the Manager is and has been misleading. The NYAG included other related claims
and also claimed that the fees charged by the Manager to the Seligman Funds
were excessive. The NYAG is seeking damages of at least $80 million and
restitution, disgorgement, penalties and costs and injunctive relief. The
Seligman Parties answered the complaint in December 2006 and believe that the
claims are without merit.
Any
resolution of these matters may include the relief noted above or other
sanctions or changes in procedures. Any damages would be paid by the Manager
and not by the Seligman Funds. If the NYAG obtains injunctive relief, the
Manager and its affiliates could, in the absence of the SEC in its discretion
granting exemptive relief, be enjoined from providing advisory and underwriting
services to the Seligman Funds and other registered investment companies.
The
Manager does not believe that the foregoing legal action or other possible
actions will have a material adverse impact on the Manager or its clients,
including the Seligman Funds and other investment companies managed by it; however,
there can be no assurance of this or that these matters and any related
publicity will not affect demand for shares of the Seligman Funds and such
other investment companies or have other adverse consequences.
10. Recently Issued
Accounting Pronouncement
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157 (SFAS No. 157), Fair Value Measurements. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value of assets and
liabilities and expands disclosure about fair value measurements. SFAS No. 157
is effective for fiscal years beginning after November 15, 2007. The
Corporation is currently evaluating the impact of the adoption of SFAS No. 157
but believes the impact will be limited to expanded disclosures in the
Corporations financial statements.
31
Tri-Continental Corporation
Financial
Highlights
The
Corporations 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
year. Generally, the per share amounts are derived by converting the actual
dollar amounts incurred for each item, as disclosed in the financial
statements, to their equivalent per Common share amounts, using average shares
outstanding.
Total
investment return measures the Corporations performance assuming that
investors purchased shares of the Corporation at the market value or net asset
value as of the beginning of the year, invested dividends and capital gains
paid, as provided for in the Corporations 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 year. The
computations do not reflect any sales commissions investors may incur in
purchasing or selling shares of the Corporation, and taxes investors may incur
on distributions or on the sale of 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, Beginning of Year
|
|
$
|
25.66
|
|
$
|
22.16
|
|
$
|
21.87
|
|
$
|
19.55
|
|
$
|
15.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.84
|
|
|
0.33
|
|
|
0.26
|
|
|
0.26
|
|
|
0.18
|
|
Net realized and unrealized investment gain (loss)
|
|
|
(1.01
|
)
|
|
3.47
|
|
|
0.29
|
|
|
2.31
|
|
|
3.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) from Investment Operations
|
|
|
(0.17
|
)
|
|
3.80
|
|
|
0.55
|
|
|
2.57
|
|
|
4.02
|
|
Dividends paid on Preferred Stock
|
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Dividends paid on Common Stock
|
|
|
(0.87
|
)
|
|
(0.28
|
)
|
|
(0.24
|
)
|
|
(0.23
|
)
|
|
(0.17
|
)
|
Distributions from net realized gain
|
|
|
(1.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Asset Value
|
|
|
(2.63
|
)
|
|
3.50
|
|
|
0.29
|
|
|
2.32
|
|
|
3.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Year
|
|
$
|
23.03
|
|
$
|
25.66
|
|
$
|
22.16
|
|
$
|
21.87
|
|
$
|
19.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Asset Value, End of Year*
|
|
$
|
22.98
|
|
$
|
25.60
|
|
$
|
22.10
|
|
$
|
21.82
|
|
$
|
19.51
|
|
Market Value, End of Year
|
|
$
|
20.90
|
|
$
|
22.38
|
|
$
|
18.58
|
|
$
|
18.28
|
|
$
|
16.40
|
|
|
|
See footnotes on page 33.
|
32
Tri-Continental Corporation
Financial Highlights
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Return:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based upon market value
|
|
|
3.51
|
%
|
|
22.10
|
%
|
|
2.98
|
%
|
|
12.95
|
%
|
|
25.24
|
%
|
Based upon net asset value
|
|
|
(0.52
|
)%
|
|
17.38
|
%
|
|
2.66
|
%
|
|
13.36
|
%#
|
|
25.84
|
%
|
|
Ratios/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses to average net investment assets
|
|
|
0.65
|
%
|
|
0.79
|
%
|
|
0.64
|
%
|
|
0.65
|
%
|
|
0.68
|
%
|
Expenses to average net assets for Common Stock
|
|
|
0.66
|
%
|
|
0.80
|
%
|
|
0.65
|
%
|
|
0.66
|
%
|
|
0.70
|
%
|
Net investment income to average net investment assets
|
|
|
3.17
|
%
|
|
1.37
|
%
|
|
1.18
|
%
|
|
1.26
|
%
|
|
1.03
|
%
|
Net investment income to average net assets for Common
Stock
|
|
|
3.22
|
%
|
|
1.40
|
%
|
|
1.20
|
%
|
|
1.28
|
%
|
|
1.05
|
%
|
Portfolio turnover rate
|
|
|
123.02
|
%
|
|
121.81
|
%
|
|
70.77
|
%
|
|
47.36
|
%
|
|
138.65
|
%
|
Net Investment
Assets, End of Year
(000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Common Stock
|
|
$
|
2,373,429
|
|
$
|
2,657,209
|
|
$
|
2,392,304
|
|
$
|
2,470,781
|
|
$
|
2,310,999
|
|
For Preferred Stock
|
|
|
37,637
|
|
|
37,637
|
|
|
37,637
|
|
|
37,637
|
|
|
37,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Investment Assets
|
|
$
|
2,411,066
|
|
$
|
2,694,846
|
|
$
|
2,429,941
|
|
$
|
2,508,418
|
|
$
|
2,348,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Assumes the exercise of outstanding warrants.
|
#
|
Excluding the effect of the payments received from
the Manager in 2004, the total investment return would have been 13.33%.
|
See Notes to Financial Statements.
|
33
Tri-Continental Corporation
Report
of Independent Registered
Public Accounting Firm
The Board of Directors and Security Holders,
Tri-Continental
Corporation:
We have audited the
accompanying statement of assets and liabilities and the statement of capital
stock and surplus of Tri-Continental Corporation (the Corporation), including
the portfolio of investments, as of December 31, 2007, and the related
statement of operations for the year then ended, the statements of changes in
net investment assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Corporations 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 the standards of the Public Company Accounting Oversight Board
(United States). 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. The Corporation is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Corporations internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2007, by correspondence with the
Corporations custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the
financial statements and financial highlights referred to above present fairly,
in all material respects, the financial position of Tri-Continental Corporation
as of December 31, 2007, the results of its operations for the year then ended,
the changes in its net investment assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
February 27, 2008
34
Tri-Continental Corporation
Matters
Relating to the Directors Consideration of the Continuance of the
Management Agreement
The
directors of Tri-Continental Corporation unanimously approved the continuance
of the Management Agreement with the Manager at a meeting held on November 15,
2007.
Prior
to their approval of the continuance of the Management Agreement, the directors
requested and evaluated extensive materials from the Manager. They reviewed the
proposed continuance of the Management Agreement with the Manager and with
experienced counsel who advised on the legal standards for their consideration.
The independent directors also discussed the proposed continuance in a private
session with counsel.
The
directors considered their knowledge of the nature and quality of the services
provided by the Manager to the Corporation gained from their experience as
directors or trustees of each fund in the Seligman Group of Funds, their
overall confidence in the Managers integrity and competence gained from that
experience, the Managers initiative in identifying and raising potential
issues with the directors and its responsiveness, frankness and attention to
concerns raised by the directors in the past, including the Managers
willingness to consider and implement organizational and operational changes
designed to improve investment results and the services provided to the
Seligman Group of Funds. The directors noted that the Board has six regular
meetings each year, at each of which they receive presentations from the
Manager on the investment results of the Corporation and the trading price of
its common stock compared to net asset value and review extensive materials and
information presented by the Manager.
The
directors also considered all other factors they believed relevant, including
the specific matters discussed below. In their deliberations, the directors did
not identify any particular information that was all-important or controlling,
and directors may have attributed different weights to the various factors. The
directors determined that the selection of the Manager to manage the
Corporation, and the overall arrangements between the Corporation and the
Manager as provided in the Management Agreement, including the management fee,
were fair and reasonable in light of the services performed, expenses incurred
and such other matters as the directors considered relevant. The material
factors and conclusions that formed the basis for the directors determination
included the following:
Nature, Extent and Quality of Services Provided
The
directors considered the scope and quality of services provided by the Manager.
The directors considered the quality of the investment research capabilities of
the Manager and the other resources it has dedicated to performing services for
the Corporation. They also noted the professional experience and qualifications
of the Corporations portfolio management team and other senior personnel of
the Manager. The directors also considered the Managers selection of brokers
and dealers for portfolio transactions and noted that they receive regular
reports from the Manager concerning such selection. The quality of
administrative and other services, including the Managers role in coordinating
the activities of the Corporations other service providers, also was considered.
The directors concluded that, overall, they were satisfied with the nature,
extent and quality of services provided to the Corporation under the Management
Agreement.
On
an ongoing basis, the Manager reports to the directors on the status of various
matters described in the Corporations prospectus relating to market timing
activity, allegations of excessive fees and related matters for certain funds
in the Seligman Group of Funds. In connection with the continuance review, the
Manager provided an update on those matters. After discussion with the Manager,
the Managers counsel, the directors special counsel and other counsel
independent of the Manager, and consideration of the potential consequences of
the various matters, the independent
35
Tri-Continental Corporation
Matters
Relating to the Directors Consideration of the Continuance of the
Management Agreement
directors concluded that
they retained confidence in the integrity of the Manager and its ability to
provide management services to the Corporation.
Costs of Services Provided and Profitability to the Manager
The
directors reviewed information on profitability of the Managers investment
advisory and investment company activities and its financial condition based on
historical information and estimates for the current year, as well as
historical and estimated profitability data for the Corporation. The directors
reviewed with the Managers Chief Financial Officer, the assumptions and
methods of allocation used by the Manager in preparing the profitability data.
The directors recognized that it is difficult to make comparisons of
profitability from fund management contracts because comparative information is
not generally publicly available and is affected by numerous factors. In
reviewing profitability information, the directors considered the effect of
fall-out benefits on the Managers expenses. The directors focused on
profitability of the Managers relationships with the Corporation before taxes.
The directors concluded that they were satisfied that the Managers level of
profitability from its relationship with the Corporation was not excessive.
Fall-Out Benefits
The
directors considered that the Manager benefits from soft dollar arrangements
whereby it receives brokerage and research services from brokers that execute
the Seligman Group of Funds purchases and sales of securities on an agency
basis. They reviewed extensive information about the Managers practices with
respect to allocating portfolio brokerage for brokerage and research services.
The directors recognized that the Managers profitability would be somewhat
lower without this benefit. The directors noted that the Manager may derive
reputational and other benefits from its association with the Corporation.
Investment Results
The
directors receive and review detailed performance information on the
Corporation and the trading price of its common stock compared to net asset
value at each regular Board meeting during the year in addition to the
information received for the meeting regarding the continuance of the
Management Agreement. At the meeting, the directors reviewed performance
information based on net asset value covering the first nine months of 2007,
the preceding seven calendar years and annualized one-, three-, five- and
ten-year rolling periods ending September 30, 2007. For each of these periods
the directors reviewed information comparing the Corporation to the Lipper
Large-Cap Core Funds Average, the Lipper Closed-End Core Funds Average and the
Standard & Poors 500 Composite Stock Price Index, as well as performance
relative to the other funds in the Lipper Closed-End Core Funds Average and a
group of competitor funds selected by the Manager. The directors also reviewed
information about portfolio turnover rates of the Corporation compared to other
investment companies with similar investment objectives. The directors noted
that the Corporations performance had shown improvement in the recent periods
and that the Corporations results were above each of its benchmarks, other
than the competitor average benchmark, for the first nine months of 2007, and
were above each of its benchmarks in 2006. The directors also noted that for
the three- and five-year periods, the Corporations results were above the two
Lipper benchmarks, although below the S&P 500 and competitor average
benchmarks and that the results were varyingly above or below its benchmarks in
the other periods shown. The directors also noted that the Corporations return
based on market prices had been favorably impacted by the implementation
earlier in the year of the distribution policy approved by stockholders on May
30, 2007. Taking into
36
Tri-Continental Corporation
Matters
Relating to the Directors Consideration of the Continuance of the
Management Agreement
account these comparisons
and the other factors considered, the directors concluded that the
Corporations investment results were satisfactory.
Management Fees and Other Expenses
The
directors considered the management fee rate paid by the Corporation to the
Manager. The directors recognized that it is difficult to make comparisons of
management fees because there are variations in the services that are included
in the fees paid by other funds. The directors compared the Corporations
management fee rate to a subset of funds in the Lipper Closed-End Core Funds
category and the Lipper Large-Cap Core Funds category (the Lipper peer
groups). The information showed that the Corporations current effective
management fee rate was among the lowest in each Lipper peer group. The
directors noted that the Corporations fee schedule includes breakpoints.
The
directors also considered the total expense ratio of the Corporation in
comparison to the fees and expenses of funds within its Lipper peer groups. The
directors noted that the Corporations expense ratio was significantly lower
than the median and the average for each Lipper peer group, which the Manager
attributed principally to the Corporations low management fee and its
relatively large asset base. The directors noted that in recent years the
Corporations expense ratio has been adversely affected by costs relating to
two proxy contests in 2006, a potential proxy contest in 2007, and expenses associated
with the recent implementation of the Corporations distribution plan. The
directors concluded that the Corporations expense ratio was satisfactory.
In
considering the expenses of the Corporation, the directors noted that the
Corporation has elected to have shareholder services provided at cost by
Seligman Data Corp. (SDC), a company owned by the Corporation and certain of
the other investment companies in the Seligman Group of Funds that provides
shareholder services to the Corporation and other investment companies in the
Seligman Group of Funds at cost. SDC provides services exclusively to the
Seligman Group of Funds. The directors believe that the arrangement with SDC
has provided the Corporation and its shareholders with a consistently high
level of service.
Economies of Scale
The
directors noted that the management fee schedule for the Corporation contains
breakpoints that take into account the net assets of all funds in the Seligman
Group of Funds, including the Corporation, and that the current effective
management fee rate reflects a reduction due to the effect of those
breakpoints. The directors recognized that there is no direct relationship
between the economies of scale realized by funds and those realized by their
investment adviser as assets increase. The directors do not believe that there
is a uniform methodology for establishing breakpoints that gives effect to fund
specific services provided by the Manager. The directors also observed that in
the investment company industry as a whole, as well as among funds similar to
the Corporation, there is no uniformity or pattern in the fees and asset levels
at which breakpoints (if any) apply, and that the advisory agreements for many
competitor funds do not have breakpoints at all. Having taken these factors
into account the directors concluded that the Corporations breakpoint
arrangements were acceptable under the Corporations circumstances.
37
Tri-Continental Corporation