TRI-CONTINENTAL Corp — Annual Report 1998

Mar 6, 1998

68th Annual Report 1997 Tri-Continental Corporation an investment you can live with 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. Tri-Continental Corporation To the Stockholders: January 30, 1998 Tri-Continental Corporation had another year of solid investment results in 1997. The Corporation's total return based on net asset value was 26.65%. This was in line with the 26.72% total return of the Corporation's competitive universe, as represented by the Lipper Closed-End Growth & Income Funds Average. The Corporation's total return based on market price was also favorable, at 27.96%, reflecting a slight narrowing of the discount to net asset value. For the year, the Standard & Poor's 500 Composite Stock Price Index (S&P 500) had a total return of 33.36%, led by the gains of the largest "brand names" in the Index. The Corporation's investment results take into account the investment of the $0.60 dividend and the $3.447 capital gain distributions paid in 1997. The total distribution rate was 12.7%, marking the fourth consecutive year that the total distributions exceeded 10% of the Corporation's average quarterly net asset values. The Corporation has paid dividends to Common Stockholders for the past 53 years. Nineteen ninety-seven was the seventh year of economic expansion for the US, with real domestic growth of 3.8%. Consumer price inflation slowed to less than 2%, interest rates moved steadily lower, productivity rose, and unemployment levels reached 27-year lows. Meanwhile, the federal budget deficit virtually disappeared and corporate profits posted a third consecutive year of strong gains. Despite year-end problems in Asia, the domestic business environment remained positive. The domestic equity markets, as measured by the Dow Jones Industrial Average (DJIA), brought investors returns in excess of 20% for a third consecutive year -- a feat unmatched in the DJIA's 101-year history. However, the majority of the advances occurred in the first seven months of 1997, as Asian troubles increased uncertainty in the equity markets in the last quarter. Investors also had to contend with repeated cracks in share prices and unusual volatility throughout the year, as nearly a third of the trading days brought changes of one percent or more in the DJIA. Nonetheless, the S&P 500, the DJIA, the Nasdaq, and the Russell 2000 all ended the year with returns of 20% or more. Beginning in the second quarter, Tri-Continental Corporation's portfolio was shifted away from the largest, or "mega-cap," companies in the large-capitalization universe, where valuations were nearing 10-year highs. Our expectation was that the markets would broaden, becoming more conscious of 1 Tri-Continental Corporation earnings growth potential and valuations. Indeed, the Corporation's investment results improved as the markets broadened in the third calendar quarter. In the fourth quarter, however, market participants focused their investments in the largest, most liquid stocks, reacting to the Asian financial crisis and fears of reduced future earnings. The outlook for 1998 is somewhat uncertain, due to expectations of more modest economic growth and the unforeseeable effect of the Asian crisis on corporate profitability and the US economy. There is also a risk of temporary price deflation linked to the Asian crisis, as those economies seek to export their way out of trouble. The record-setting three-year stretch has produced heightened expectations among investors, and the equity markets have become less forgiving of earnings disappointments. We believe that in such an environment, active management and cautious stock selection based on superior fundamentals will become even more important. The Corporation's long-term strategy of seeking current income and capital appreciation potential at a reasonable price should be rewarded in a market where investors place increased importance on earnings. Thank you for your continued support of Tri-Continental Corporation, "an investment you can live with." We look forward to serving your investment needs in the many years to come. A discussion with your Portfolio Managers, the Corporation's portfolio of investments, and financial statements, follow this letter. Additional information on the Corporation's investment results appears on page 4. By order of the Board of Directors, /s/ William C. Morris William C. Morris Chairman /s/ Brian T. Zino Brian T. Zino President 2 Tri-Continental Corporation Interview With Your Portfolio Managers [PHOTO OMITTED] Seligman Growth and Income Team: (from left)Rodney Collins, Margaret Doyle, Jonathan Roth, Odette Galli (Co-Portfolio Manager), (seated) Melanie Ravenell (Administrative Assistant), Charles C. Smith, Jr. (Portfolio Manager), Amy Fujii What were Tri-Continental Corporation's investment results in 1997? "For the 12 months ended December 31, 1997, Tri-Continental Corporation posted a solid total return of 26.65% based on net asset value. This return was in line with that of the Corporation's peers, as measured by the Lipper Closed-End Growth & Income Funds Average, which had a total return of 26.72% for the year. The Lipper Growth & Income Funds Average, which measures the results of mutual funds with similar investment objectives, posted a total return of 27.19% through December 31, 1997. Due to a slight narrowing of the discount from net asset value, the Corporation's total return based on market price was 27.96%. The Standard & Poor's 500 Composite Stock Price Index (S&P 500) had a total return of 33.36% for 1997." Which economic and market factors affected the Corporation's investment results in 1997? "We would be hard pressed to imagine a better economic background. Healthy growth and low inflation continued throughout the year, despite fears that the lasting strength of the economy, combined with low unemployment levels, would prompt an increase in inflationary pressures. Generally, equities benefited from strong corporate earnings and investors' enthusiasm for common stocks. "In this positive environment, the Corporation had strong investment results, particularly in the third quarter when the markets broadened. However, the Asian financial crisis created unease in the global equity markets, which drove foreign and domestic investors to seek refuge in the largest, most liquid US stocks. Your Corporation remains modestly underweighted in these issues due to valuation concerns. This contributed to our underperformance in the fourth quarter of the year." What is your investment strategy? "The Portfolio has been repositioned to increase earnings stability, include stocks with attractive yields, and further reduce overall volatility. These efforts will continue in 1998. The number of US common stocks held in the portfolio was reduced from 110 in June to approximately 90 at this time. The portfolio will be pared down further in 1998, to focus on companies with stable earnings and dividends in order to seek growth of capital while continuing to provide reasonable current income. Additionally, the portfolio's fixed-income weighting was modestly increased to approximately 5% of assets to enhance current income and reduce volatility. We have also increased our weighting in telecommunications stocks, as these issues have had consistent earnings growth and attractive dividend yields." 3 Tri-Continental Corporation - -------------------------------------------------------------------------------- Investment Results Per Common Share TOTAL RETURNS For Periods Ended December 31, 1997 Average Annual -------------------------- Three One Five 10 Months Year Years Years -------- ------ ----- ----- Market Price 0.60% 27.96% 14.42% 15.29% Net Asset Value (0.77) 26.65 16.48 15.69 Lipper Closed-End Growth & Income Funds Average 0.66 26.72 16.72 15.53 S&P 500* 2.87 33.36 20.27 18.05 PRICE PER SHARE

DIVIDEND AND CAPITAL GAIN INFORMATION For the Year Ended December 31, 1997 Capital Gain --------------------------------------------------- Dividends Paid+ Paid Realized Unrealized -------------- --------- --------- ---------- $0.60 $3.447++ $4.32 $8.10+++ The net realized capital gain and dividend distributions paid in 1997 totaled $4.047. This is equal to 12.7% of the Corporation's average end-of-quarter net asset values for the prior four quarters (December 1996 to September 1997). - ---------- * Returns for periods of less than one year are not annualized. ** These rates of return reflect changes in market price or net asset value, as applicable, and assume that all distributions within the period are taken in additional shares. The rates of return will vary and the principal value of an investment will fluctuate. Shares, if sold, may be worth more or less than their original cost. Past performance is not indicative of future investment results. *** The Lipper Closed-End Growth & Income Funds Average and the S&P 500 are unmanaged benchmarks that assume investment of dividends. The Lipper Closed-End Growth & Income Funds Average excludes the effect of sales charges and the S&P 500 excludes the effect of fees and sales charges. Investors cannot invest directly in an index or an average. + Preferred Stockholders were paid dividends totaling $2.50 per share. ++ Includes $0.807 of undistributed realized capital gains from 1996, which were paid to Common Stockholders on July 1, 1997. +++ Represents the per share amount of net unrealized appreciation of portfolio securities as of December 31, 1997. - -------------------------------------------------------------------------------- 4 Tri-Continental Corporation Interview With Your Portfolio Managers (continued) Which industry groups in the portfolio improved the Corporation's investment results? "Finance and health care were the strongest industries in the portfolio this year. The low-interest-rate environment provided a positive backdrop for the performance of finance and insurance stocks, which were further aided by the consolidation in the industry. In the Corporation's drugs and health care holdings, pharmaceutical stocks had a very strong year as new products and increased sales drove earnings growth. Another factor supporting the appreciation of these stocks was the reduced earnings of HMOs. Investors therefore redirected their assets into pharmaceuticals, where more stable earnings were found. All in all, the valuations of pharmaceutical companies continued to rebound from their 1994 lows. "The capital goods sector also did well this year, supported by the strong economy, corporate capital spending, and many companies' efforts to reduce costs and improve profitability. Aerospace, building and construction, and electronics were the three areas in the portfolio that benefited from these trends. However, we have been taking profits in this area as valuations have risen. We plan to further reduce our weighting in these industries as the anticipated slowing of the economy in 1998 could reduce the earnings growth of some of these economically-sensitive stocks." Which sectors impaired the Corporation's performance? "The three main areas where the portfolio underperformed were electric and gas utilities, transportation, and technology-related stocks. The portfolio was underweight in utilities due to their high valuations. However, as the Asian crisis unfolded, investors became concerned with the potential impact on 1998 corporate earnings and placed a greater portion of their assets in safe havens with steady earnings, such as utilities. Tri-Continental, which had a very modest weighting in the sector, did not fully participate in the fourth-quarter appreciation of utilities. "The portfolio was also underweight in transportation, where airlines had a very strong year due to increased consumer and corporate demand and improved profitability. However, industry fundamentals, which include a high cost of doing business and tremendous competitive pressures, deterred us from making a significant investment in airline stocks. The technology sector performed unevenly in 1997, and was subject to a significant degree of volatility. The Asian crisis, in particular, reduced valuations in the group due to the importance of Asian demand in the industry. There were nonetheless some very strong performers in the portfolio's technology-related holdings." What is the outlook? "In 1998, we anticipate a more difficult market environment in which stock selection will be the key to positive investment results. Corporate profits are coming under pressure as the Asian financial crisis and slowing domestic economy reduce the earnings of US multinationals and their suppliers. There is a possibility that the market will broaden as investors look outside the largest stocks for more attractive valuations and solid earnings. In this environment, we believe our strategy of identifying fundamentally sound companies with stable earnings should be rewarded." 5 Tri-Continental Corporation Highlights of the Year Net asset value of each share of Common Stock was $32.06 at December 31, compared to $29.28 at the start of the year. If you took the July and December gain distributions in additional shares, the net asset value of each share you owned at the beginning of 1997 was equivalent to $36.29 at year end. Assuming the investment of dividends and gain distributions in shares, the total return was 26.65%. Distribution of Realized Gain Your Directors declared a distribution of $0.807 per Common share from the balance of taxable net gains realized from November 1, 1996, through December 31, 1996, consisting of $0.715 from net long-term gains and $0.092 from net short-term gains, which was paid on July 1, 1997, to Stockholders of record June 18, 1997. A distribution of $2.64 per Common share from taxable net gains realized from January 1, 1997, through October 31, 1997, consisting of $2.53 from net long-term gains and $0.11 from net short-term gains was paid on December 19, 1997, to Stockholders of record December 12, 1997. The Corporation is required to distribute to Common Stockholders the total undistributed net capital gains realized through October 31, 1997, to avoid a 4% federal excise tax. The undistributed net capital gain realized from November 1, 1997, to December 31, 1997, of $1.85 per Common share remains a part of the underlying market value of Common Stock shares as of December 31, 1997. This amount will be distributed to Common Stockholders during 1998, at which time Common Stockholders will be subject to federal income taxes on the amount distributed. The number of shares of Common Stock issued to those who took the July and December payments in shares was determined by dividing the total dollar amount payable by $27.375 and $26.50, the mean of the high and low market prices on the New York Stock Exchange on June 16 and December 10, respectively. Distributions should be taken into account in measuring the results of an investment in Tri-Continental Common Stock, and should be taken in shares if you want your investment to benefit from the full effect of compounding. Operating expenses for the year were $19,518,138. The ratio of expenses to the average value of net investment assets was 0.60%, down from 1996's expense ratio of 0.62%. Common Stock dividends, paid quarterly, totaled $0.60 per share on an average of 97,673,000 shares, compared to $0.66 in 1996 when, on average, there were approximately 7,585,000 fewer shares outstanding. Common Stock dividends paid in 1997 with the December 1996 and July 1997 capital gain distributions taken in additional shares were equivalent to $0.66 per share. Preferred Stock dividends, paid each quarter, completed 68 years of uninterrupted payments. Total net investment income available to cover the $2.50 Preferred Stock dividend was equivalent to $78.09 per Preferred share. 6 Tri-Continental Corporation Highlights of the Year (continued)

• ---------- * The Corporation's net capital gain realized for the year 1997 was $4.32 per share of Common Stock outstanding at December 31, 1997. However, the Corporation was required to distribute only the total undistributed net capital gain realized during the period from November 1, 1996, through October 31, 1997 ($3.447 per share), to avoid a 4% federal excise tax. The undistributed net realized capital gain as of year end ($1.85 per share) remains a part of the underlying market value of Common Stock shares as of December 31, 1997. This amount will be distributed to Common Stockholders during 1998, at which time Common Stockholders will be subject to federal income taxes on the amount received. 7 Tri-Continental Corporation Stockholder Services Tri-Continental provides a number of services to make maintaining an investment in its Common Stock more convenient. Purchases of Common Stock. Under the Automatic Dividend Investment and Cash Purchase Plan, and other Stockholder plans, purchases of Common Stock are made by the Corporation in the open market and from Stockholders participating in withdrawal plans to satisfy Plan requirements. Those shares are then sold to Stockholders using the Plan. During 1997, 1,805,903 shares were purchased by Stockholders through the Plan. The Corporation may make additional purchases of its Common Stock in the open market at such prices and in such amounts as the Board of Directors may deem advisable. No such additional purchases were made in 1997. Traditional Individual Retirement Account (IRA). You may contribute up to $2,000 per year to a Traditional IRA provided you have earned income and are under age 70 1/2. A working or non-working spouse may also contribute up to $2,000 to a separate Traditional IRA.Contributions to a Traditional IRA may be deductible or non-deductible. If you are not covered by an employer's retirement plan, your contribution will always be deductible. For individuals who are covered by a plan, contributions will be deductible if your adjusted gross income (AGI) in 1998 is less than $30,000. For spouses who are both covered by a plan, contributions will be fully deductible if your AGI is less than $50,000. If one spouse does not work or is not covered by a retirement plan, that spouse's contribution will be fully deductible provided your household AGI does not exceed $150,000. If your contribution is not deductible, you may still take advantage of the tax-deferred accumulation of earnings in your Traditional IRA. Rollover IRA. You may be eligible to roll over a distribution of assets received from another IRA, a qualified employee benefit plan, or tax-deferred annuity into a Rollover IRA with Tri-Continental. To avoid a tax penalty, the transfer to a Rollover IRA must occur within 60 days of receipt of the qualifying distribution. If you do not make a direct transfer of a distribution from a qualified employee benefit plan or a tax-deferred annuity to a Rollover IRA, the payor of the distribution must withhold 20% of the distribution. Roth IRA. You (and a working or non-working spouse) may each make an after-tax contribution of up to $2,000 per year to a Roth IRA provided you have earned income and meet the eligibility requirements. Your Adjusted Gross Income (AGI) must be less than $95,000 (individuals) or $150,000 (married couples) to be eligible to make a full contribution to a Roth IRA. Total contributions to a Roth IRA and a Traditional IRA cannot exceed $2,000 in any year. Earnings grow tax-free and will be distributed to you tax-free and penalty-free provided that you hold your account for at least five years and you take the distribution either after age 59 1/2, for disability, upon death, or to make a first-time home purchase (up to $10,000). Unlike a Traditional IRA, you may contribute to a Roth IRA even if you are over age 70 1/2 (if you have earned income), and you are not required to take minimum distributions at age 70 1/2. You may convert an existing Traditional IRA to a Roth IRA to take advantage of tax-free distributions. You must pay taxes on any earnings and deductible contributions in your Traditional IRA before converting it to a Roth IRA. Talk to your financial advisor for more details on converting your Traditional IRA. 8 Tri-Continental Corporation Stockholder Services (continued) Retirement Planning -- Qualified Plans. Unincorporated businesses and the self-employed may take advantage of the same benefits in their retirement plans that are available to corporations. Contribution levels can go as high as 25% of earned income (reduced by plan contributions), to a maximum of $30,000 per participant. For retirement plan purposes, no more than $160,000 may be taken into account as earned income under the plan in 1998 and future years (subject to adjustments to reflect cost of living increases). Social Security integration and employee vesting schedules are also available as options in the Tri-Continental prototype retirement plans. Although you already may be participating in an employer's retirement plan, you may be eligible to establish another plan based upon income from other sources, such as director's fees. Retirement Plan Services provides information about our prototype retirement plans. The toll-free telephone number is (800) 445-1777 in the Continental US and (212) 682-7600 outside the Continental US. Gifts Free of Federal Tax are often made using Tri-Continental Common Stock. You may give as much as $10,000 a year to as many individuals as desired free of federal gift tax, and a married couple may give up to $20,000 a year. The Automatic Cash Withdrawal Plan enables owners of Common shares with a market value of $5,000 or more to receive a fixed amount from their investment at regular intervals. Investors use the plan to supplement current or retirement income, for educational expenses, or for other purposes. Federal Taxes Quarterly dividends paid on both the Preferred and Common Stocks for 1997, and the distributions from net short-term gain of $0.092 and $0.11 per Common share paid on July 1 and December 19, respectively, are subject to federal income tax as "ordinary income." Under the Internal Revenue Code, 74% of such 1997 ordinary dividend income paid to Common and Preferred Stockholders qualifies for the dividend received deduction available to corporate Stockholders. In order to claim the dividend received deduction for these distributions, corporate Stockholders must have held their shares for 46 days or more during the 90-day period beginning 45 days before each ex-dividend date. The distributions of $0.715 and $2.53 from net long-term gain realized on investments from November 1, 1996, through December 31, 1996, and January 1, 1997, through October 31, 1997, respectively, were paid to Common Stockholders on July 1 and December 19, 1997, respectively. The federal Taxpayer Relief Act of 1997 modified the classification of long-term capital gains to include a "28% Rate Gain" category. Please note that 100% of the Corporation's July 1997 long-term capital gain distribution is categorized as "28% Rate Gain," while 41% of the December 1997 long-term capital gain distribution is categorized as "28% Rate Gain." The long-term gain is designated as a "capital gain dividend" for federal income tax purposes and is taxable to Stockholders in 1997 as a long-term gain from the sale of capital assets, no matter how long Tri-Continental Common Stock may have been owned. However, if shares on which a capital gain distribution was received are subsequently sold, and such shares have been held for six months or less from the date of purchase, any loss would be treated as long-term to the extent it offsets the long-term gain distribution. The tax cost basis of shares acquired by investing the July 1 and December 19 capital gain distributions in additional shares was $27.375 and $26.50 per share, respectively. 9 Tri-Continental Corporation A Record of Building Wealth and Income Tri-Continental invests primarily to produce long-term growth of both capital and income, while providing reasonable current income. The following chart shows the growth of Tri-Continental Stockholders' capital over the past 20 years. The total price of 1,000 shares of Tri-Continental purchased on December 31, 1977, was $20,625. By taking capital gain distributions in shares, that initial investment would have grown nearly ninefold to a year-end 1997 market value of $180,639. For those individuals who did not need current income and who chose to take their dividends and capital gains in additional shares, the value of their investment in Tri-Continental Corporation would have grown to a market value of $390,400 on December 31, 1997. [The following table was depicted as a bar graph in the printed material.] --------------------------------------------- Building Wealth Original Investment $ 20,625 Invest Capital Gains Only $180,639 Invest Capital Gains and Dividends $390,400 --------------------------------------------- Number of Shares at December 31, 1997 1,000 6,769 14,629 * Assumes the Stockholder did not exercise or sell the transferable rights granted in the 1992 rights offering. Either the exercise or sale of the rights would improve the above results. During those 20 years, both strategies also produced significant long-term growth of income. In 1978, dividends of $1,129 were paid on the initial 1,000 share investment. A Stockholder who took capital gains in additional shares and dividends in cash would have seen his or her dividend income rise to $3,639 in 1997, or 35% more than the increase in the Consumer Price Index over the same 20-year period. Stockholders who took their dividends and capital gains in additional shares would have seen their dividend distributions grow to a total of $7,762 in 1997. [The following table was depicted as a line graph in the printed material.] - -------------------------------------------------------------------------------- Growing Dividend Income Annual dividend income with dividends and Annual dividend income with Annual dividend income capital gains invested capital gains invested in needed to keep up with in additional shares. additional shares. Consumer Price Index. 1978 1129.33 1129.00 1152.88 1979 1194.74 1279.09 1290.44 1980 1352.60 1439.18 1544.48 1981 1473.28 1567.59 1770.42 1982 1592.69 1627.63 2021.80 1983 1701.89 1689.33 2257.74 1984 2100.07 1756.04 2904.27 1985 2121.19 1822.74 3065.95 1986 2161.08 1842.75 3237.56 1987 2284.86 1924.47 3526.06 1988 2430.22 2009.52 3878.18 1989 2678.76 2102.91 4443.14 1990 3053.35 2231.32 5248.49 1991 2969.59 2299.69 5287.38 1992 3175.17 2366.40 5818.68 1993 3346.19 2431.44 6318.63 1994 3556.79 2496.47 6942.76 1995 3597.92 2559.84 7270.84 1996 3582.52 2644.90 7456.51 1997 3638.63 2689.92 7761.75 - -------------------------------------------------------------------------------- * Assumes the Stockholder did not exercise or sell the transferable rights granted in the 1992 rights offering. Either the exercise or sale of the rights would improve the above results. The information provided is based on past performance, which is no guarantee of future results, and excludes any commissions or costs associated with the purchase of Tri-Continental shares. In addition, capital gain and dividend distributions taken in additional shares are subject to personal income tax in the year earned. The examples shown do not reflect the effect of such taxes. 10 Tri-Continental Corporation Tri-Continental's Discount Tri-Continental Corporation is a closed-end investment company whose stock is listed on the New York Stock Exchange. Unlike open-end mutual funds, whose shares sell at net asset value plus any applicable sales charge, the price of Tri-Continental stock is set by market forces. Therefore, the price of a share of Tri-Continental stock can be above its net asset value, at a premium, or below its net asset value, at a discount. Discounts are common to equity closed-end investment companies like Tri-Continental Corporation, and fluctuate over time; however, sometimes various closed-end funds, including Tri-Continental, have sold at a premium. In recent years, discounts on closed-end funds have tended to be wider than they were in the early 1990s and have become a focus of media attention. In reaction to Tri-Continental's discount, a small number of Stockholders in 1995, 1996, and 1997 proposed that the Board of Directors consider various actions, including turning Tri-Continental into an open-end mutual fund. In each year, more than 80% of the voting Stockholders supported maintaining Tri-Continental's closed-end structure. Tri-Continental's discount has fluctuated over a wide range. The average year-end discount for the 20 years ended December 31, 1997, was 12.94%. During this period, the premium was as high as 2.45% on December 31, 1986, and the discount was as wide as 25.12% at the end of 1980. Tri-Continental's year-end 1997 discount of 16.76% is narrower than the 17.61% discount at year-end 1996, and is within the third quartile of the year-end premium/discount rates experienced in the past 20 years. [The following table was depicted as a line graph in the printed material.] ---------------------- Premium/Discount Range 1978-1997 1978 -22.00% 1979 -23.00% 1980 -25.00% 1981 -20.00% 1982 -8.00% 1983 -5.00% 1984 -2.00% 1985 -1.00% 1986 2.00% 1987 -14.00% 1988 -18.00% 1989 -16.00% 1990 -13.00% 1991 -3.00% 1992 -9.00% 1993 -14.00% 1994 -16.00% 1995 -18.00% 1996 -18.00% 1997 -16.00% ---------------------- While there can be no assurance that there will be any further reduction in the current discount, there is likewise, no reason to believe that, in the future, shares will not trade at a narrower discount or even a small premium, as they have in the past. Of course, a widening of the discount could result in capital losses. However, while discounts persist, investors are able to purchase additional shares in the market and put more than a dollar of net assets to work for them for every dollar invested. Purchasing Tri-Continental stock at a discount results in a higher effective dividend yield and realized capital gains return than would be realized had the shares been purchased at net asset value. A discount also creates the opportunity for capital gains should the discount narrow. In fact, 83% of the registered Stockholders of the Corporation's common stock are currently taking advantage of this situation, either by participating in a plan that allows Stockholders to invest the Corporation's dividends, capital gains, or both in additional shares, or by purchasing additional shares through one of the plans offered by the Corporation. The phenomenon of the discount has been an area of in-depth research and study by the Manager, resulting in detailed reports to the Board of Directors each year. Studies conducted by - ---------- * Registered Stockholders are those Stockholders whose accounts are maintained by Seligman Data Corp., on behalf of Tri-Continental. Approximately 54% of the total common shares outstanding are held by registered Stockholders, with the balance being held in "Streetname" through financial intermediaries such as brokers. 11 Tri-Continental Corporation Tri-Continental's Manager have found that discounts among many closed-end funds with characteristics similar to Tri-Continental Corporation tend to widen and narrow together. There is no single variable or factor which seems capable of explaining the reason many closed-end investment companies typically sell at discounts, but can also sell at premiums. A recent statistical study conducted at Princeton University, however, points to three variables as being statistically significant regarding a widening of the discount: 1) an increase in unrealized gains as a percent of net assets, presumably because of the implicit increase in the embedded potential capital gains tax liability; 2) an increase in illiquid assets as a share of total assets; and 3) a decrease in the turnover ratio as a percent of assets.(1) The Manager and the Board of Directors are concerned about Tri-Continental's current discount. Possible ways to reduce the discount, including actions taken by some other closed-end funds, have been considered carefully by the Board as part of their regular investigation of the discount. For example, several large, diversified closed-end funds have introduced a managed distribution policy in which there is a "minimum payout" of 10% of net asset value per annum, paid quarterly. The introduction of such a minimum payout has been associated with a narrowing of the discount. Under such a policy, however, the Manager could be forced to sell securities in a declining market to raise cash to meet the minimum payout. This action would negate one of the advantages of the closed-end structure, namely, a fixed amount of capital. In the event insufficient net investment income and realized capital gains were available, a portion of Stockholders' capital would be needed to meet the annual minimum payout. The result would be an erosion of Tri-Continental's net asset value. Additionally, a minimum payout might have to be suspended during a long-term market decline, which likely would be the very moment Stockholders were relying the most on a minimum distribution. Moreover, a minimum payout could lead potential investors to think of Tri-Continental as an income fund, which it is not. A further issue for evaluation is the extent to which a minimum payout might compromise the investment process by influencing -- if only subtly - -- the Portfolio Managers' investment decisions. During the past one-, three-, five-, 10-, and 20-year periods, Tri-Continental's aggregate dividend and capital gain distributions have averaged more than the 10% minimum payout targeted by most managed distribution plans. Looking forward, a minimum payout could risk the long-term growth of the Stockholders' capital. For these and other reasons, the Manager and Board have decided not to pursue a minimum payout at this time. [The following table was depicted as a bar graph in the printed material.] ---------------------------------------- Average Annual Distributions as a Percent of Net Asset Values+ 1 Yr. 12.70% 3 Yrs. 11.60% 5 Yrs. 10.80% 10 Yrs. 10.30% 20 Yrs. 12.00% + Annual distributions divided by the average end-of-quarter net asset values for the prior four quarters, e.g., December 1996 to September 1997. ---------------------------------------- Tri-Continental's discount is the subject of ongoing discussion by the Manager and the Board of Directors. In evaluating possible steps that could be taken with regard to the discount, your Board will continue to consider actions that are consistent with maintaining Tri-Continental's closed-end structure, achieving the Corporation's investment objective of long-term growth of capital and income with reasonable current income, and acting in the long-term interests of Tri-Continental Stockholders. - ---------- (1) Burton G. Malkiel, "The Structure of Closed-End Fund Discounts Revisited," Journal of Portfolio Management, Summer 1995. 12 Tri-Continental Corporation Stockholder Survey Results As part of Tri-Continental Corporation's ongoing Investor Relations Program, the Manager continuously seeks ways to enhance the long-term value of being a Tri-Continental Stockholder. For the past two years, the Manager has commissioned a survey of registered Tri-Continental Stockholders. The surveys were administered to a sampling totaling approximately 500 registered Stockholders.* The 1997 survey was completed in December 1997, just as the US and, in particular, foreign stock markets were in the midst of a period of significant volatility and uncertainty. An overwhelming majority of survey respondents said they were very satisfied or somewhat satisfied with Tri-Continental Corporation. According to Response Analysis Corporation of Princeton, New Jersey, who conducted the survey, "This extremely high overall level of satisfaction was attributed to a number of factors, including the Corporation's investment results, as well as dividend income, the conservative manner in which the Corporation's assets are invested, and confidence in J. & W. Seligman & Co. Incorporated as the Corporation's investment manager." A Close Look at Tri-Continental Investors [The following table was depicted as a pie chart in the printed material.] ---------------------------------------- Age Income Under 35 5% Less than $30K 12.0 % 35-44 14% $30K-$49K 0.2 45-54 16% $50K-$99K 0.23 55-64 15% $100K or\rmore 0.15 65-74 23% Don't know 0.2 75 or older 25% No Response 0.28 No Response 2% ---------------------------------------- [The following table was depicted as a bar graph in the printed material.] ---------------------------------------- Types of Investments Owned Treasury Bills 21% Municipal Bonds 30% CD's 50% Open-End Mutual Funds 58% Individual Stocks 75% Closed-End Funds 100% ---------------------------------------- The survey indicated that Tri-Continental investors generally are highly educated, with more than a third having obtained at least some graduate level education. The typical Stockholder is married, and about 61 years of age. Half are 65 years or older, and about half are retired. Asset and income levels of the typical Tri-Continental Stockholder reflect this stage of life. Tri-Continental Stockholders have diverse investment portfolios. More than 60% of Stockholders surveyed say Tri-Continental is a significant part of their portfolios. In addition, three-quarters own individual stocks and 58% hold open-end mutual funds. The largest percentage of a typical Stockholder's assets are in individual stocks. Saving for Retirement Tri-Continental Stockholders regard a number of objectives when considering investing in the Corporation. The two most important objectives, cited by 84% of survey respondents, are increasing - ---------- * Registered Stockholders are those Stockholders whose accounts are maintained by Seligman Data Corp., on behalf of Tri-Continental. Approximately 54% of the total common shares outstanding are held by registered Stockholders, with the balance being held in "Streetname" through financial intermediaries such as brokers. 13 Tri-Continental Corporation the value of their original investment over the long term and maintaining the value of their original investment. The survey also found that 62% of respondents seek an increase in the current annual dividend when considering investing in Tri-Continental. Saving for retirement is one of the most important goals of 45% of the Tri-Continental Stockholders surveyed. About one-fifth name preserving assets, having income for daily living, achieving growth, having money for emergencies, or funding a child's education as top priorities. Satisfaction [The following table was depicted as a bar graph in the printed material.] ------------------------------------------------------- Overall Stockholder Satisfaction Somewhat Satisfied Very Satisfied Investment in TY 36% 59% Stockholder Services 19% 78% ------------------------------------------------------- Stockholders were asked, "Overall, how satisfied are you as a Stockholder of Tri-Continental Corporation?" Fully 95% of Stockholders said they were either very satisfied or somewhat satisfied with Tri-Continental. When Stockholders were asked why they are satisfied with the Corporation, the most frequent answer was "performance" or "return." In addition, of the 44% of respondents who have called Stockholder Services, 97% said they were somewhat or very satisfied with the experience. The survey also found some concern with regard to the discount to net asset value at which Tri-Continental shares are currently priced in the open market. When asked what they dislike about owning shares of Tri-Continental, only 2% mentioned the discount. When prompted by the question, "How concerned are you about the discount on Tri-Continental shares?" nearly three quarters expressed no concern, but nearly one-quarter of respondents expressed some concern. Nonetheless, four out of five of the individuals who expressed concern take advantage of the discount by taking their capital gain distributions in additional shares, and two-thirds of them indicated they are somewhat or very likely to recommend Tri-Continental to a family member, friend, or associate. The survey also asked Stockholders about their attitudes toward Tri-Continental moving to a managed distribution system, in which the Corporation would make an annual "minimum payout" of 10% paid quarterly. When some of the advantages and disadvantages of such a policy were explained, less than one-third of Stockholders expressed support for Tri-Continental moving toward a minimum payout. Moreover, large majorities expressed some degree of concern over each of the potential disadvantages discussed. For example, 87% were concerned that an annual minimum payout could force the sale of securities in a down market to raise cash to meet the minimum; 85% were concerned that a minimum distribution would erode the value of Tri-Continental in a long-term market decline; and 71% were concerned that a minimum payout might be suspended during a long-term market decline. Overall, the survey suggests that Tri-Continental is meeting the needs of its investors. More than half of those surveyed said that they have purchased additional shares of Tri-Continental. And just under half say they plan to buy more stock in the future, while less than 10% say they plan to sell. Finally, seven of 10 Stockholders said they were likely to recommend Tri-Continental to someone they know. 14 Tri-Continental Corporation Diversification of Net Investment Assets The diversification of portfolio holdings by industry on December 31, 1997, was as follows. Individual securities owned are listed on pages 17 to 23.

15 Tri-Continental Corporation Largest Portfolio Changes October 1 to December 31, 1997 Shares or Prin. Amt. -------------------------------- Holdings Additions Increase 12/31/97 - --------- ----------- ----------- Common Stocks Ameritech Corporation 440,000 shs. 440,000 shs. Anheuser-Busch Companies, Inc. 770,000 770,000 Applied Materials, Inc. 965,000 965,000 ConAgra, Inc. 1,190,000 1,190,000 Exxon Corporation 520,000 1,120,000 General Electric Company 535,000 1,335,000 Philip Morris Companies, Inc. 715,000 1,415,000 Unicom Corporation 1,065,000 1,065,000 US Government Securities US Treasury Notes, 6 1/4%, 2/15/2007 $50,000,000 $50,000,000 US Treasury Notes, 5 3/4%, 11/30/2002 35,000,000 35,000,000 Shares -------------------------------- Holdings Reductions Decrease 12/31/97 - ---------- ----------- ----------- Common Stocks AK Steel Holdings Corporation 635,000 -- CBS Corporation 1,200,000 -- Colgate-Palmolive Company 500,000 -- Emerson Electric Company 500,000 -- Guidant Corporation 550,000 -- Ingersoll-Rand Company 750,000 -- Magna International Inc., Class "A" 455,000 -- Parker-Hannifin Corporation 937,500 -- The Hartford Financial Services Group, Inc. 300,000 -- Warner-Lambert Company 250,000 -- Largest portfolio changes from the previous quarter to the current quarter are based on cost of purchases and proceeds from sales of securities. * Formerly Westinghouse Electric Corporation. 10 Largest Equity Holdings December 31, 1997 December 31, 1997 Increase in Value --------------------- ------------------- Cost Value For Since (000s) (000s) 1997 Purchase ---------- --------- -------- --------- General Electric Company $ 62,860 $ 97,956 48.4% 55.8% Exxon Corporation 48,317 68,530 24.9 41.8 Philip Morris Companies, Inc. 61,828 64,117 3.7 3.7 Bank of New York Company, Inc. 16,668 57,813 71.3 246.9 Bristol-Myers Squibb Company 33,261 55,356 74.0 66.4 Ahmanson (H. F.) & Company 30,925 53,550 73.2 73.2 RJR Nabisco Holdings Corporation 46,278 51,563 10.3 11.4 Royal Dutch Petroleum Company (Netherlands) 51,071 51,478 0.8 0.8 Coca-Cola Company 44,947 51,301 14.1 14.1 Microsoft Corporation 33,896 50,783 56.3 49.8 -------- -------- $430,051 $602,447 ======== ======== 16 Tri-Continental Corporation Portfolio of Investments December 31, 1997 Shares Value -------- ------------ COMMON STOCKS - 93.2% AEROSPACE - 2.4% General Dynamics Corporation 375,000 $ 32,414,063 Diversified defense contractor United Technologies Corporation 680,000 49,512,500 Manufacturer of elevators, jet engines, flight systems, and automotive parts ------------ $ 81,926,563 ------------ AUTOMOTIVE AND RELATED - 3.3% Chrysler Corporation 880,000 $ 30,965,000 Manufacturer of automobiles, trucks, and related parts Dana Corporation 400,000 19,000,000 Manufacturer and distributor of products and systems for automotive and related markets Eaton Corporation 217,000 19,367,250 Diversified manufacturer, including truck transmissions and axles Harley-Davidson Inc. 1,200,000 32,850,000 Manufacturer of motorcycles Volkswagen AG (ADRs) (Germany) 100,000 11,243,750 Manufacturer of automobiles ------------ $113,426,000 ------------ BASIC MATERIALS - 0.9% Aluminum Company of America 450,000 $ 31,668,750 Aluminum producer ------------ BUILDING AND CONSTRUCTION - 0.5% Sherwin-Williams Corporation 600,000 $ 16,650,000 Manufacturer of paints and related products ------------ CHEMICALS - 2.4% duPont (E.I.) de Nemours and Company 550,000 $ 33,034,375 Producer of chemicals The B.F. Goodrich Company 747,000 30,953,813 Chemical manufacturer; supplier of systems and component parts for the aerospace industry Morton International, Inc. 550,000 18,906,250 Manufacturer and marketer of adhesives, coatings, salt, and specialty products ------------ $ 82,894,438 ------------ - ---------- See footnotes on page 23. 17 Tri-Continental Corporation Portfolio of Investments (continued) December 31, 1997 Shares Value -------- ------------ COMMUNICATIONS - 6.6% Alcatel Alsthom (France) 65,000 $ 8,264,772 Developer of equipment and systems for public telecommunications Ameritech Corporation 440,000 35,420,000 Provider of telecommunications services Bell Atlantic Corporation 392,200 35,690,200 Telephone services in the Atlantic region GTE Corporation 600,000 31,350,000 Provider of telephone services, systems, and equipment Magyar Tavkozlesi Rt. (ADRs) "Matav" (Hungary) 240,000 6,240,000 Provider of telecommunications services SBC Communications, Inc. 425,000 31,131,250 Provider of telephone services in the Southwest Sprint Corporation 381,900 22,388,887 Global communications company Telecomunicacoes Brasileiros (ADRs) "Telebras" (Brazil) 53,800 6,264,337 Provider of telecommunications services Telecom Italia-SpA (Italy) 1,468,600 6,475,272 Provider of the whole spectrum of mobile telecommunications services Telecom Italia-SpA (Italy) 1,600,000 10,220,175 Provider of the whole spectrum of mobile telecommunications services WorldCom Inc. 1,130,000 34,217,813 Diversified telecommunications company ------------ $227,662,706 ------------ COMPUTER AND BUSINESS SERVICES - 6.9% Compaq Computer Corporation 625,000 $ 35,273,437 Global PC manufacturer Computer Associates International,Inc 412,500 21,810,937 Developer of software utilities and databases Hewlett-Packard Company 300,000 18,750,000 Computers and peripherals Intel Corporation 638,000 44,799,563 Manufacturer of semiconductors and memory circuits International Business Machines Corporation 326,000 34,087,375 Manufacturer of micro and personal computers Microsoft Corporation 393,000 50,782,969 Developer of computer software WPP Group plc (UK) 2,700,000 12,018,595 Provider of worldwide marketing services Xerox Corporation 255,200 18,836,950 Developer and marketer of document processing products and services ------------ $236,359,826 ------------ CONSUMER GOODS AND SERVICES - 11.2% Allied Domecq plc (UK) 870,000 $ 7,903,384 International food, drink, and hospitality group Anheuser-Busch Companies, Inc. 770,000 33,880,000 Brewery; theme park operator; manufacturer and recycler of aluminum beverage containers B.A.T. Industries plc (UK) 1,670,000 15,294,990 Provider of financial services and producer of tobacco products - ---------- See footnotes on page 23. 18 Tri-Continental Corporation Portfolio of Investments (continued) December 31, 1997 Shares Value -------- ------------ CONSUMER GOODS AND SERVICES (continued) Coca-Cola Company 770,000 $ 51,301,250 Manufacturer of soft drinks and consumer products ConAgra, Inc. 1,190,000 39,046,875 Developer and manufacturer of prepared foods and agricultural products PepsiCo, Inc. 1,100,000 40,081,250 Manufacturer and marketer of soft drinks and consumer products Philip Morris Companies, Inc. 1,415,000 64,117,187 Manufacturer of tobacco products, food, and beverages Procter & Gamble Company 600,000 47,887,500 Manufacturer and distributor of household and personal care products RJR Nabisco Holdings Corporation 1,375,000 51,562,500 Manufacturer of tobacco products and processed foods Sara Lee Corporation 600,000 33,787,500 Manufacturer of processed foods and ------------ consumer products $384,862,436 ------------ DIVERSIFIED - 1.3% AlliedSignal Inc. 1,090,000 $ 42,441,875 Producer of aerospace and automotive materials Pacific Dunlop Ltd. (Australia) 1,500,000 3,176,063 Diversified manufacturer ------------ $ 45,617,938 ------------ DRUGS AND HEALTH CARE - 8.3% Abbott Laboratories 300,000 $ 19,668,750 Developer and manufacturer of diversified health care products American Home Products Corporation 300,000 22,950,000 Developer and manufacturer of pharmaceuticals, food, and housewares Bristol-Myers Squibb Company 585,000 55,355,625 Developer and manufacturer of health and personal care products Elan Corporation plc (ADRs) (Ireland) 300,000 15,356,250 Developer, manufacturer, and marketer of drug delivery systems Johnson & Johnson 600,000 39,525,000 Manufacturer of health care products Merck & Co., Inc. 428,400 45,517,500 Manufacturer of pharmaceuticals Novartis AG (Switzerland) 10,300 16,696,990 Manufacturer of pharmaceuticals Pfizer Inc. 460,000 34,298,750 Manufacturer of health care consumer products and specialty chemicals Schering-Plough Corporation 570,000 35,411,250 Manufacturer of pharmaceuticals and health care ------------ and personal care products $284,780,115 ------------ ELECTRIC AND GAS UTILITIES - 3.6% BG plc (ADRs) (UK) 202,940 $ 4,667,620 Gas supplier Companhia Energetica de Minas Gerais (ADRs) "CEMIG" (Brazil) 87,400 3,933,000 Electric utility Electricidade de Portugal, S.A. (ADRs) (Portugal) 279,600 10,834,500 Generator and distributor of electricity Endesa S.A. (ADRs) (Spain) 528,000 9,603,000 Provider of electric energy - ---------- See footnotes on page 23. 19 Tri-Continental Corporation Portfolio of Investments (continued) December 31, 1997 Shares Value -------- ------------ ELECTRIC AND GAS UTILITIES (continued) Huaneng Power International, Inc. (ADRs) (China) 270,000 $ 6,260,625 Power company Unicom Corporation 1,065,000 32,748,750 Electric utility VEBA AG (Germany) 230,000 15,666,268 Provider of electric energy The Williams Companies, Inc. 1,400,000 39,725,000 ------------ Transporter and producer of natural gas $123,438,763 ------------ ELECTRONICS - 5.9% AMP Inc. 665,000 $ 27,930,000 Manufacturer of electronic connectors and systems Applied Materials, Inc. 965,000 29,040,469 Developer, manufacturer, marketer, and servicer of semiconductor wafer fabrication equipment Arrow Electronics, Inc. 800,000 25,950,000 Distributor of electronic components KLA-Tencor Corporation 630,000 24,314,063 Manufacturer of wafer inspection and metrology equipment Motorola Inc. 325,000 18,545,312 Producer of semiconductors and communications equipment Philips Electronics N.V. (Netherlands) 225,000 13,612,500 Worldwide manufacturer of consumer electronics and components Raytheon Company 685,000 34,592,500 Producer of defense and commercial electronics Thomas & Betts Corporation 600,000 28,350,000 ------------ Manufacturer of electronic connectors and components $202,334,844 ------------ ENERGY - 8.3% Amoco Corporation 400,000 $ 34,050,000 Integrated petroleum and chemical company Atlantic Richfield Company 250,000 20,031,250 Producer of oil; West Coast marketer Baker Hughes Incorporated 300,000 13,087,500 Provider of products and services to explore for, extract, recover, and process oil and gas Exxon Corporation 1,120,000 68,530,000 Explorer and producer of natural gas, oil, and petroleum products Mobil Corporation 400,000 28,875,000 International oil enterprise Royal Dutch Petroleum Company (Netherlands) 950,000 51,478,125 International oil services Schlumberger Ltd. 200,000 16,100,000 Worldwide provider of energy services Texaco Inc. 664,000 36,105,000 Explorer, producer, transporter, refiner, and marketer of natural gas, oil, and petroleum products Total S.A. Class "B" (France) 147,583 16,066,960 ------------ International oil enterprise $284,323,835 ------------ - ---------- See footnotes on page 23. 20 Tri-Continental Corporation Portfolio of Investments (continued) December 31, 1997 Shares Value -------- ------------ ENTERTAINMENT AND LEISURE - 1.0% Disney (Walt) Company 250,000 $ 24,765,625 Film entertainment; amusement parks; other forms of leisure-related activities News Corp. Ltd. (ADRs) (Australia) 260,000 5,801,250 Provider of worldwide media and television services News Corp. Ltd. (ADRs--Voting Preference Shares) (Australia) 130,000 2,583,750 Provider of worldwide media and ------------ television services $ 33,150,625 ------------ FINANCE AND INSURANCE - 16.8% ABN-AMRO Holdings N.V. (Netherlands) 510,868 $ 9,957,703 Worldwide banking operator ACE Limited 300,000 28,950,000 Provider of liability insurance Ahmanson (H.F.) &Company 800,000 53,550,000 Provider of savings and loan services throughout the US American General Corporation 400,000 21,625,000 Diversified financial services provider American International Group, Inc. 450,000 48,937,500 International insurance holding company AXA-UAP (France) 235,209 18,206,072 Provider of financial services and insurance BankAmerica Corporation 330,000 24,090,000 Commercial bank in California and the Western states Bank of Ireland (Ireland) 881,100 13,578,069 Provider of financial services Bank of New York Company, Inc. 1,000,000 57,812,500 Commercial bank Bayerische Vereinsbank AG (Germany) 375,000 24,187,495 Provider of universal banking services Citicorp 200,000 25,287,500 Global commercial bank Federal National Mortgage Association 600,000 34,237,500 Mortgage financer First Union Corporation 700,000 35,875,000 Operator of financial centers General Re Corporation 75,000 15,900,000 Property casualty re-insurer in the US ING Groep N.V. (Netherlands) 437,624 18,442,186 Provider of banking and insurance services Irish Life plc (Ireland) 700,000 3,988,856 Provider of insurance and related products Mellon Bank Corporation 325,000 19,703,125 Provider of financial services St. Paul Companies, Inc. 400,000 32,825,000 Property and casualty insurer Societe Generale (France) 75,000 10,221,890 Provider of full banking and financial services TIG Holdings, Inc. 500,000 16,593,750 Insurance provider Travelers Incorporated 750,000 40,406,250 Provider of broad-based financial services Zurich Versicherungs-Gesellschaft (Switzerland) 42,700 20,327,770 ------------ Provider of insurance services $574,703,166 ------------ - ---------- See footnotes on page 23. 21 Tri-Continental Corporation Portfolio of Investments (continued) December 31, 1997 Shares Value -------- ------------ MANUFACTURING AND INDUSTRIAL EQUIPMENT - 6.6% Deere & Company, Inc. 463,900 $ 27,051,169 Manufacturer, distributor, and financer of farm machinery GATX Corporation 350,000 25,396,875 Railcar leasing; equipment financing General Electric Company 1,335,000 97,955,625 Supplier of electrical equipment and other industrial and consumer products Harnischfeger Industries, Inc. 477,000 16,844,062 Manufacturer and distributor of machinery and mining equipment Illinois Tool Works, Inc. 700,000 42,087,500 Manufacturer of fasteners, tools, and plastic items Mannesmann AG (Germany) 32,500 16,318,218 ------------ Manufacturer of plant and machinery equipment $225,653,449 ------------ PAPER AND FOREST PRODUCTS - 2.7% Fort James Corporation 800,000 $ 30,600,000 Producer of paper and related products The Mead Corporation 1,200,000 33,600,000 Manufacturer of paper, lumber, and wood products Union Camp Corporation 500,000 26,843,750 Producer of paper products, building ------------ materials, and chemicals $ 91,043,750 ------------ PUBLISHING - 0.7% Gannett Company, Inc. 400,000 $ 24,725,000 Newspapers; radio and television broadcasting ------------ REAL ESTATE INVESTMENT TRUSTS - 0.4% Security Capital USRealty Trust 1,000,000 $ 14,200,000 Diversified investor in real estate companies ------------ RETAIL TRADE - 2.3% May Department Stores Company 400,000 $ 21,075,000 Department store operator J.C. Penney Company, Inc. 306,000 18,455,625 Operator of retail department stores and drugstores; insurance Tesco plc (UK) 1,478,000 11,961,942 Food retailer Wal-Mart Stores, Inc. 650,000 25,634,375 ------------ Discount retailer $ 77,126,942 ------------ STEEL - 0.6% Allegheny Teledyne Inc. 800,000 $ 20,700,000 Manufacturer of specialty metals and aviation ------------ and electronics products TRANSPORTATION - 0.5% Norfolk Southern Corporation 600,000 $ 18,487,500 Railroad holding company ------------ TOTAL COMMON STOCKS (Cost: $2,340,552,810) $3,195,736,646 -------------- - ---------- See footnotes on page 23. 22 Tri-Continental Corporation Portfolio of Investments (continued) December 31, 1997 Prin. Amt. Value ----------- ------------ US GOVERNMENT SECURITIES - 4.2% USTreasury Notes, 6 1/4%, 4/30/2001 $15,000,000 $ 15,239,070 USTreasury Notes, 5 3/4%, 11/30/2002 35,000,000 35,043,785 USTreasury Notes, 5 7/8%, 2/15/2004 40,000,000 40,375,040 USTreasury Notes, 6 1/4%, 2/15/2007 50,000,000 51,625,050 ------------ TOTAL US GOVERNMENT SECURITIES (Cost: $141,719,531) $142,282,945 ------------ CORPORATE BONDS - 0.6% AUTOMOTIVE AND RELATED - 0.3% Ford Motor Credit Corp., 6 1/2%, 2/28/2002 10,000,000 $ 10,080,470 ------------ COMMUNICATIONS - 0.3% TCI Communications Inc., 8%, 8/1/2005 10,000,000 $ 10,715,460 ------------ TOTAL CORPORATE BONDS (Cost: $20,006,300) $ 20,795,930 ------------ CONVERTIBLE BONDS - 0.1% (Cost: $3,500,000) FINANCE AND INSURANCE - 0.1% LibLife International (UK), 6 1/2%, 9/30/2004 3,500,000 $ 4,103,778 ------------ TRI-CONTINENTAL FINANCIAL DIVISION++ - 0.5% (Cost: $17,034,739) $ 17,244,952 ------------ SHORT-TERM HOLDINGS - 1.1% (Cost: $37,700,000) $ 37,700,000 ------------ TOTAL INVESTMENTS - 99.7% (Cost: $2,560,513,380) $3,417,864,251 OTHER ASSETS LESS LIABILITIES - 0.3% 11,588,669 ------------ NET INVESTMENT ASSETS - 100.0% $3,429,452,920 ============== - ---------- * Non-income producing security. ++ Restricted securities. Descriptions of companies have not been audited by Deloitte and Touche LLP. See Notes to Financial Statements. 23 Tri-Continental Corporation Statement of Assets and Liabilities December 31, 1997 Assets: Investments at value: Common stocks (cost -- $2,340,552,810) ....... $3,195,736,646 US Government securities (cost -- $141,719,531) ...................... 142,282,945 Corporate bonds (cost -- $20,006,300) ........ 20,795,930 Tri-Continental Financial Division (cost -- $17,034,739) ...................... 17,244,952 Convertible issues (cost -- $3,500,000) ...... 4,103,778 Short-term holdings (cost -- $37,700,000) .... 37,700,000 $3,417,864,251 -------------- Cash .......................................... 32,915,071 Receivable for dividends and interest ......... 10,817,073 Receivable for securities sold ................ 1,701,351 Investment in, and expenses prepaid to, stockholder service agent ................... 441,778 Other ......................................... 1,097,050 -------------- Total Assets .................................. $3,464,836,574 -------------- Liabilities: Payable for securities purchased .............. $ 31,701,053 Dividends payable ............................. 470,463 Accrued expenses, taxes, and other ............ 3,212,138 ------------ Total Liabilities ............................. $ 35,383,654 ------------ Net Investment Assets ......................... $3,429,452,920 Preferred Stock, at $50 par value ............. 37,637,000 -------------- Net Assets for Common Stock ................... $3,391,815,920 ============== Net Assets per Share of Common Stock (market value--$26.6875) .................... $ 32.06 ============ Statement of Capital Stock and Surplus December 31, 1997 Capital Stock: $2.50 Cumulative Preferred Stock, $50 par value, asset coverage per share -- $4,555.96 Shares authorized -- 1,000,000; issued and outstanding -- 752,740 ...................... $ 37,637,000 Common Stock, $.50 par value: Shares authorized -- 129,000,000; issued and outstanding -- 105,796,914 .............. 52,898,457 Surplus: Capital surplus .............................. 2,286,719,552 Accumulated net investment loss .............. (339,509) Undistributed net realized gain .............. 195,203,642 Net unrealized appreciation of investments ... 865,108,232 Net unrealized depreciation on translation of assets and liabilities denominated in foreign currencies .......... (7,774,454) ------------ $3,429,452,920 ============== - ---------- * Includes net unrealized depreciation on translation of investments denominated in foreign currencies of $7,757,361. See Notes to Financial Statements. 24 Tri-Continental Corporation Statement of Operations For the Year Ended December 31, 1997 Investment Income: Dividends .................................... $65,021,562 Interest ..................................... 13,208,997 ----------- Total Investment Income (net of foreign taxes withheld of $712,163) ....................... $ 78,230,559 Expenses: Management fee ............................... $13,151,570 Stockholder account and registrar services ... 3,405,670 Stockholder reports and communications ....... 989,182 Custody and related services ................. 925,000 Stockholders' meeting ........................ 322,491 Auditing and legal fees ...................... 293,125 Directors' fees and expenses ................. 228,216 Registration ................................. 84,814 Miscellaneous ................................ 118,070 ----------- Total Expenses ................................ 19,518,138 ------------ Net Investment Income ......................... $ 58,712,421 Net Realized and Unrealized Gain (Loss) On Investments and Foreign Currency Transactions: Net realized gain on investments ............. $463,458,808 Net realized loss from foreign currency transactions ....................... (6,633,164) Net change in unrealized appreciation of investments .............................. 210,948,617 Net change in unrealized appreciation on translation of assets and liabilities denominated in foreign currencies ........... (9,609,797) ------------ Net Gain on Investments and Foreign Currency Transactions ........................ 658,164,464 ------------ Increase in Net Investment Assets From Operations .............................. $716,876,885 ============ - ---------- * Net investment income available for Common Stock is $56,902,487, which is net of Preferred Stock dividends of $1,881,850, and includes a portion of the net realized gain from foreign currency transactions of $71,916, which is taxable as ordinary income. See Notes to Financial Statements. 25 Tri-Continental Corporation Statements of Changes in Net Investment Assets

• ---------- See Notes to Financial Statements. 26 Tri-Continental Corporation Notes to Financial Statements 1. Significant Accounting Policies -- The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the Corporation: a. Security Valuation -- Investments in stocks, bonds, limited partnership interests, and short-term holdings maturing in more than 60 days are valued at current market values or, in their absence, fair value determined in accordance with procedures approved by the Board of Directors. Securities traded on national exchanges are valued at last sales prices or, in their absence and in the case of over-the-counter securities, at the mean of bid and asked prices. Short-term holdings maturing in 60 days or less are valued at amortized cost. b. Foreign Currency Transactions -- The books and records of the Corporation are maintained in US dollars. The market value of investment securities, other assets and liabilities denominated in foreign currencies are translated into US dollars at the daily rate of exchange as reported by a pricing service. Purchases and sales of investment securities, income, and expenses are translated into US dollars at the rate of exchange prevailing on the respective dates of such transactions. The Corporation separates that portion of the results of operations resulting from changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held in the portfolio. Similarly, the Corporation separates the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the period. c. Forward Currency Contracts -- The Corporation may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, or other amounts receivable or payable in foreign currency. A forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. The contracts are valued daily at current exchange rates and any unrealized gain or loss is included in net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies and forward currency contracts. The gain or loss, if any, arising from the difference between the settlement value of the forward contract and the closing of such contract is included in net realized gain or loss from foreign currency transactions. d. Federal Taxes -- There is no provision for federal income tax. The Corporation has elected to be taxed as a regulated investment company and intends to distribute substantially all taxable net income and net gain realized. e. Security Transactions and Related Investment Income -- Investment transactions are recorded on trade dates. Identified cost of investments sold is used for both financial statements and federal income tax purposes. Dividends receivable and payable are recorded on ex-dividend dates, except that certain dividends from foreign securities where the ex-dividend dates may have passed are recorded as soon as the Corporation is informed of the dividend. Interest income is recorded on the accrual basis. f. Distributions to Stockholders -- The treatment for financial statement purposes of distributions made during the year from net investment income or net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense or capital gain, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net investment assets based on their ultimate characterization for federal income tax purposes. Any such reclassification will have no effect on net assets, results of operations, or net asset value per share of the Corporation. 27 Tri-Continental Corporation Notes to Financial Statements (continued) 2. Automatic Dividend Investment and Cash Purchase Plans -- Under the Corporation's Charter, dividends on the Common Stock cannot be declared unless net assets, after such dividends and dividends on Preferred Stock, equal at least $100 per share of Preferred Stock outstanding. The Preferred Stock is subject to redemption at the Corporation's option at any time on 30 days' notice at $55 per share (or a total of $41,400,700 for the shares outstanding) plus accrued dividends, and entitled in liquidation to $50 per share plus accrued dividends. The Corporation, in connection with its Automatic Dividend Investment and Cash Purchase Plan and other Stockholder plans, acquires and issues shares of its own Common Stock, as needed, to satisfy Plan requirements. For the year ended December 31, 1997, 1,864,646 shares were purchased from Plan participants at a cost of $49,978,136, which represented a weighted average discount of 18.14% from the net asset value of those acquired shares. A total of 1,805,903 shares were issued to Plan participants during the year for proceeds of $48,297,075, a discount of 17.50% from the net asset value of those shares. At December 31, 1997, 231,842 shares of Common Stock were reserved for issuance upon exercise of 14,436 Warrants, each of which entitled the holder to purchase 16.06 shares of Common Stock at $1.40 per share. Assuming the exercise of all Warrants outstanding at December 31, 1997, net investment assets would have increased by $324,579 and the net asset value of the Common Stock would have been $31.99 per share. The number of Warrants exercised during the years 1997 and 1996 was 44 and 929, respectively. 3. Purchases and Sales of Securities -- Purchases and sales of portfolio securities, excluding USGovernment obligations and short-term investments, amounted to $2,475,589,211 and $2,491,636,694, respectively; purchases and sales of USGovernment obligations amounted to $245,907,031 and $105,938,281, respectively. At December 31, 1997, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes, and the tax basis gross unrealized appreciation and depreciation of portfolio securities, including the effects of foreign currency translations, amounted to $879,986,666 and $22,635,795, respectively. 4. Short-Term Investments -- At December 31, 1997, the Corporation owned short-term investments which matured in less than seven days. 5. Management Fee, Administrative Services, and Other Transactions -- J. & W. Seligman & Co. Incorporated (the "Manager") manages the affairs of the Corporation and provides or arranges for the necessary personnel and facilities. Seligman Henderson Co. (the "Subadviser"), an entity owned 50% each by the Manager and Henderson plc, supervises and directs all or a portion of the Corporation's foreign investments.For this service, the Subadviser receives a fee from the Manager, payable monthly. Compensation of all officers of the Corporation, all directors of the Corporation who are employees or consultants of the Manager, and all personnel of the Corporation and the Manager is paid by the Manager or by Henderson plc. The Manager receives a fee, calculated daily and payable monthly, equal to a percentage of the Corporation's daily net assets at the close of business on the previous business day. The management fee rate is calculated on a sliding scale of 0.45% to 0.375%, based on average daily net assets of all the investment companies managed by the Manager. The management fee for the year ended December 31, 1997, was equivalent to an annual rate of 0.40% of the average daily net assets of the Corporation. Seligman Data Corp., owned by the Corporation and certain associated investment companies, charged the Corporation at cost $3,373,098 for stockholder account services. The Corporation's investment in Seligman Data Corp. is recorded at a cost of $43,681. Certain officers and directors of the Corporation are officers or directors of the Manager, the Subadviser, and/or Seligman Data Corp. 28 Tri-Continental Corporation Notes to Financial Statements (continued) The Corporation has a compensation arrangement under which directors who receive fees may elect to defer receiving such fees. Interest is accrued on the deferred balances. The annual cost of such fees and interest is included in directors' fees and expenses, and the accumulated balance thereof at December 31, 1997, of $487,734 is included in other liabilities. Deferred fees and the related accrued interest are not deductible for federal income tax purposes until such amounts are paid. 6. Restricted Securities -- At December 31, 1997, the Tri-Continental Financial Division of the Corporation was comprised of three investments that were purchased through private offerings and cannot be sold without prior registration under the Securities Act of 1933 or pursuant to an exemption therefrom. These investments are valued at fair value as determined in accordance with procedures approved by the Board of Directors of the Corporation. The acquisition dates of investments in the limited partnerships, along with their cost and values at December 31, 1997, are as follows:

• Quarterly Results of Operations -- Following is a summary of unaudited quarterly results of operations, in thousands of dollars except for per share amounts: For Quarters Ended in the Year 1997 ------------------------------------------ March 31 June 30 Sept. 30 Dec. 31 -------- -------- -------- ------- Total investment income ........ $ 18,802 $ 18,929 $ 18,394 $ 22,106 Net investment income for Common Stock ................. $ 13,753 $ 13,716 $ 12,936 $ 16,426 Per Common share ............. $ 0.14 $ 0.14 $ 0.13 $ 0.17 Net realized and unrealized investment gain (loss) ....... $ 35,560 $433,804 $251,385 $(62,585) Per Common share ............. $ 0.37 $ 4.49 $ 2.54 $ (0.63) For Quarters Ended in the Year 1996 ------------------------------------------ March 31 June 30 Sept. 30 Dec. 31 --------- -------- --------- -------- Total investment income ........ $ 17,998 $ 22,596 $ 20,659 $ 17,294 Net investment income for Common Stock .................. $ 13,578 $ 17,969 $ 15,951 $ 12,282 Per Common share .............. $ 0.15 $ 0.20 $ 0.18 $ 0.13 Net realized and unrealized investment gain ............... $151,454 $ 74,655 $ 53,426 $154,949 Per Common share .............. $ 1.68 $ 0.83 $ $ 0.59 $ 1.72 29 Tri-Continental Corporation Financial Highlights The Corporation's financial highlights are presented below. "Per share operating performance" data is designed to allow investors to trace the operating performance, on a per Common share basis, from the beginning net asset value to the ending net asset value, so that investors can understand what effect the individual items have on their investment, assuming it was held throughout the period. Generally, the per share amounts are derived by converting the actual dollar amounts incurred for each item, as disclosed in the financial statements, to their equivalent per Common share amounts. "Total investment return" measures the Corporation's performance assuming that investors purchased shares of the Corporation at the market value or net asset value as of the beginning of the period, invested dividends and capital gains paid, as provided for in the Corporation's Prospectus and Automatic Dividend Investment and Cash Purchase Plan, and then sold their shares at the closing market value or net asset value per share on the last day of the period. The computations do not reflect any sales commissions investors may incur in purchasing or selling shares of the Corporation. "Average commission rate paid" represents the average commission paid by the Corporation to purchase or sell portfolio securities. It is determined by dividing the total commission dollars paid by the number of shares purchased and sold during the period for which commissions were paid. This rate is provided for periods beginning January 1, 1996. The ratios of expenses and net investment income to average net investment assets and to average net assets for Common Stock, for the years presented do not reflect the effect of dividends paid to Preferred Stockholders.

• ---------- See footnotes on page 31. 30 Tri-Continental Corporation Financial Highlights (continued)

• ---------- * Assumes the exercise of outstanding warrants. See Notes to Financial Statements. 31 Tri-Continental Corporation Report of Independent Auditors The Board of Directors and Security Holders, Tri-Continental Corporation: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, and the statement of capital stock and surplus of Tri-Continental Corporation as of December 31, 1997, the related statements of operations for the year then ended and of changes in net investment assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1997, by correspondence with the Corporation's custodians and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Tri-Continental Corporation as of December 31, 1997, the results of its operations, the changes in its net investment assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York January 30, 1998 32 Tri-Continental Corporation Board of Directors John R. Galvin (2,4) Dean, Fletcher School of Law and Diplomacy at Tufts University Director, Raytheon Company Director, USLIFE Corporation Alice S. Ilchman (3,4) President, Sarah Lawrence College Trustee, Committee for Economic Development Chairman, The Rockefeller Foundation Frank A. McPherson (2,4) Director, Kimberly-Clark Corporation Director, Baptist Medical Center John E. Merow (4) Retired Chairman and Senior Partner, Sullivan & Cromwell, Law Firm Director, Commonwealth Industries, Inc. Betsy S. Michel (2,4) Trustee, Geraldine R. Dodge Foundation Chairman of the Board of Trustees, St. George's School William C. Morris (1) Chairman Chairman of the Board, J. & W. Seligman & Co. Incorporated Chairman, Carbo Ceramics Inc. Director, Kerr-McGee Corporation James C. Pitney (3,4) Retired Partner, Pitney, Hardin, Kipp & Szuch, Law Firm James Q. Riordan (3,4) Director, The Brooklyn Union Gas Company Trustee, Committee for Economic Development Director, Dow Jones & Co., Inc. Director, Public Broadcasting Service Richard R.Schmaltz (1) Managing Director, J. & W. Seligman & Co. Incorporated Trustee Emeritus,Colby College Robert L. Shafer (3,4) Retired Vice President, Pfizer Inc. Director, USLIFE Corporation James N. Whitson (2,4) Executive Vice President and Director, Sammons Enterprises, Inc. Director, C-SPAN Director, CommScope, Inc. Brian T. Zino (1) President President, J. & W. Seligman & Co. Incorporated Chairman, Seligman Data Corp. Director Emeritus Fred E. Brown Director and Consultant, J. & W. Seligman & Co. Incorporated - ---------- Member: (1) Executive Committee (2) Audit Committee (3) Director Nominating Committee (4) Board Operations Committee 33 Tri-Continental Corporation Executive Officers William C. Morris Chairman Brian T. Zino President Charles W. Kadlec Vice President Charles C. Smith, Jr. Vice President Lawrence P. Vogel Vice President Thomas G. Rose Treasurer Frank J. Nasta Secretary - -------------------------------------------------------------------------------- For More Information Manager J. & W. Seligman & Co. Incorporated 100 Park Avenue New York, NY 10017 Subadviser Seligman Henderson Co. 100 Park Avenue New York, NY 10017 Stockholder Service Agent Seligman Data Corp. 100 Park Avenue New York, NY 10017 Important Telephone Numbers (800) TRI-1092 Stockholder Services (800) 445-1777 Retirement Plan Services (212) 682-7600 Outside the Continental United States (800) 622-4597 24-Hour Automated Telephone Access Service 34 Tri-Continental Corporation Managed by [LOGO] J. & W. SELIGMAN & CO. INCORPORATED Investment Managers and Advisors ESTABLISHED 1864 100 Park Avenue, New York, NY 10017 This report is intended only for the information of stockholders or those who have received the current porspectus covering shares of Common Stock of Tri-Continental Corporation, which contains information about management fees and other costs. CETR12 12/97