TRI-CONTINENTAL Corp — Interim / Quarterly Report 2000

Dec 7, 2000

TRI-CONTINENTAL CORPORATION To the Stockholders: In the third quarter of 2000, the stock market was volatile, as signs of a slowing economy made investors worry that companies would not continue to post strong earnings. During this period, Tri-Continental Corporation returned -0.58% based on net asset value and 3.78% based on market price, compared with 3.64% for the Lipper Closed-End Growth & Income Funds Average and -0.97% for the Standard & Poor's 500 Composite Stock Index (S&P 500). By June of this year, it was apparent that the Federal Reserve Board's efforts to slow the economy to a more sustainable pace were having an effect. Leading economic indicators such as new home sales, retail sales, and manufacturing all pointed to an economy that was still strong, but whose growth had slowed. The Fed responded by leaving interest rates untouched at meetings in June, August, and October of this year. The stock market's reaction to the slowing economy has so far been mixed and returns have been, in general, unimpressive. Periodically, the markets have rallied on news of an economic slowdown (and therefore an end to interest rate hikes). However, particularly in the third quarter, investors accustomed to vigorous corporate earnings have reacted to earnings disappointments with sell-offs; we saw this most acutely this past September and October. The Nasdaq, a technology-dominated index, has been hit particularly hard this year since experiencing a major correction in April. As of this writing, the index had fallen back to the sell-off lows of last spring. Technology investors have been made nervous by the prospect of slowing growth in these dynamic companies, whose stock prices were once extremely high relative to the broader market. We believe this readjustment of the Nasdaq is positive in the sense that valuations are becoming more commensurate with earnings. In the large-cap sector in which Tri-Continental Corporation invests, concerns about earnings and slowing growth are legitimate. However, we remain optimistic because the economy is still healthy and is growing at a reasonable rate. We believe the stock market will respond well after recognizing this reality. As we navigate this unpredictable market, we believe that the value of rigorous company research and a coherent investment strategy is more important than ever. We will continue to employ a long-term perspective and will seek to invest in quality companies with strong earnings. Thank you for your continued support of Tri-Continental Corporation. We look forward to serving your investment needs for many years to come. By order of the Board of Directors, /s/ William C. Morris - --------------------- William C. Morris Chairman /s/ Brian T. Zino ----------------- Brian T. Zino President November 3, 2000 TRI-CONTINENTAL CORPORATION INTERVIEW WITH YOUR PORTFOLIO MANAGERS, CHARLES C. SMITH, JR. AND RODNEY COLLINS - ------------------------------------------------------------------------------- [PHOTO OMITTED] - ------------------------------------------------------------------------------- [PHOTO CAPTION] SELIGMAN GROWTH AND INCOME TEAM: (FROM LEFT) AMY FUJII, JOHN ROTH, MELANIE RAVENELL (ADMINISTRATIVE ASSISTANT), (SEATED) CHARLES SMITH (PORTFOLIO MANAGER), RODNEY COLLINS (CO-PORTFOLIO MANAGER) HOW DID TRI-CONTINENTAL CORPORATION PERFORM DURING THE THIRD QUARTER OF 2000? For the quarter ended September 30, 2000, Tri-Continental posted a total return of -0.58% based on net asset value and 3.78% based on market price, compared to 3.64% for the Lipper Closed-End Growth & Income Funds Average and -0.97% for the Standard and Poor's 500 Composite Stock Index (S&P 500). WHAT ECONOMIC AND MARKET FACTORS AFFECTED TRI- CONTINENTAL'S PERFORMANCE IN THE THIRD QUARTER? Tri-Continental's third-quarter performance, as well as that of the stock market overall, was tied to investor worries about higher interest rates, a slowing economy, and corporate earnings. The Federal Reserve Board did not raise interest rates at its June, August, and October meetings, signaling its feeling that the economy had slowed to a more sustainable pace. Key companies issued warnings that earnings would fall short of estimates, and nervous investors (who had become accustomed to consistently strong earnings reports) punished the stocks that disappointed. Investors have become afraid that future earnings will be hurt by a weak euro, higher energy costs, and the overall slowdown in the economy. Some companies will indeed be affected by these factors, but we think the sharp sell-offs this quarter were something of an overreaction. September and October have traditionally been difficult months for the stock market, and this year, we had the added uncertainties of the presidential election and renewed conflict in the Middle East. WHAT SECTORS OF THE PORTFOLIO MOST IMPACTED TRI-CONTINENTAL'S RESULTS? The sectors that most positively influenced the portfolio in the third quarter were health care, utilities, and finance. Tri-Continental was overweighted in all three, and this mitigated an otherwise tough quarter. The technology, basic materials, and telecommunications sectors all performed poorly. Technology hurt Tri-Continental's performance most because it is the portfolio's largest sector weighting. Fortunately, however, the portfolio was underweighted in basic materials and, by the end of the quarter, was underweighted in telecommunications as well. The telecommunications sector suffered because of intense competition impacting companies' profitability. During the third quarter, we were underweighted in consumer cyclicals and consumer staples, not because we feared a decrease in consumer spending, but because we did not see a clear catalyst for earnings acceleration for many of these companies. 2 (continued on page 4) TRI-CONTINENTAL CORPORATION - ------------------------------------------------------------------------------- Investment Results Per Common Share TOTAL RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2000

DIVIDEND AND CAPITAL GAIN INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Capital Gain ------------------------------------------------------ Dividend Paid+ Paid Realized Unrealized - --------------- ----------- ----------- ------------- $0.25 $0.56++ $1.69 $6.81+++ - ------------------------------------------------------------------------------- The rates of return will vary and the principal value of an investment will fluctuate. Shares, if sold, may be worth more or less than their original cost. Past performance is not indicative of future investment results. * Returns for periods of less than one year are not annualized. ** These rates of return reflect changes in market price or net asset value, as applicable, and assume that all distributions within the period are taken in additional shares. *** The Lipper Closed-End Growth & Income Funds Average and the S&P 500 are unmanaged benchmarks that assume investment of dividends. The Lipper Closed-End Growth & Income Funds Average excludes the effect of any costs associated with the purchase of shares, and the S&P 500 excludes the effect of fees and sales charges. Investors cannot invest directly in an index or an average. + Preferred Stockholders were paid dividends totaling $1.875 per share. ++ Represents realized capital gains from 1999, which were paid on June 22, 2000. +++ Represents the per share amount of net unrealized appreciation of portfolio securities as of September 30, 2000. - -------------------------------------------------------------------------------- 3 TRI-CONTINENTAL CORPORATION INTERVIEW WITH YOUR PORTFOLIO MANAGERS (continued) WHAT WAS YOUR INVESTMENT STRATEGY? We took strategic advantage of the weakness in the technology sector by buying quality technology companies whose stocks, we believed, had been unfairly driven down by the overall flight from this sector. Over the short term, technology hurt performance, but we are taking a long-term perspective and anticipate that the leading technology companies will bounce back strongly. When and if that happens, we believe the portfolio will be well positioned to benefit. Technology is still the most dynamic sector of the economy, and we don't expect this to change. WHY HAS TRI-CONTINENTAL EXPERIENCED A DECLINE IN ITS DIVIDEND YIELD? We understand that some Stockholders are concerned about Tri-Continental's declining dividend yield. In recent years, we have observed a significant change in the market, in which dividend yields have declined and capital gains have become an increasingly greater component of the market's total return. (An asset's total return is comprised of two components: the asset's capital appreciation and the income the asset produces.) Tri-Continental's lower dividend yield reflects, to a large extent, the decline in the market. Ten years ago, the dividend yield of the S&P 500 stood at 3.92%. Five years later, it had declined to 2.40%, and by the end of September 2000, it was 1.14%. This downward trend reflects an increase in the number of growth-oriented companies in the S&P average; growth stocks tend to pay low dividends or none at all. Corporate America, as well, has focused less on dividends in light of current tax laws and investors' attention to growth. In order for Tri-Continental to maintain its high dividend payments as the market's dividends are declining, it would be forced to sacrifice capital appreciation potential. This is something that could negatively impact total return and which we feel would not be in the best interests of the Stockholders. Tri-Continental has not abandoned its pursuit of income, but strives for diversification among a variety of companies -- including growth-oriented companies. Going forward, dividend yields for Tri-Continental will vary both up and down in response to changes in the economy and in the financial markets. At the same time, we are very conscious of our Stockholders' income requirements. Options for Stockholders wishing to increase cash flow include taking capital gains in cash or participating in Tri-Continental's Systematic Withdrawal Plan, which allows Stockholders to receive fixed payments from their investment at specified regular intervals. WHAT IS YOUR OUTLOOK? We expect continued market volatility for the remainder of 2000. Corporate earnings will likely be mixed, and concerns about the slowing economy will linger. It's important to keep in mind, however, that economic growth is slowing, not ending. We anticipate a rebound in some of the sectors that have been hardest hit this year, especially technology. If earnings reports are good (and they should be for many companies), market sentiment should improve. The current market environment makes it important to invest in the right companies; Tri-Continental's investments are in the stocks of high-quality companies, and we expect them to post strong earnings growth. 4 TRI-CONTINENTAL CORPORATION LARGEST PORTFOLIO CHANGES July 1 to September 30, 2000 SHARES ------------------------ HOLDINGS ADDITIONS INCREASE 9/30/00 ---------- ---------- COMMON STOCKS Altera Corporation 705,000 705,000 Analog Devices, Inc. 598,500 598,500 Compaq Computer Corporation 1,275,000 1,275,000 Micron Technology, Inc. 497,500 497,500 Novellus Systems, Inc. 685,900 685,900 Pharmacia Corporation 530,000 530,000 QUALCOMM Inc. 655,700 655,700 St. Jude Medical Inc. 1,630,000 1,630,000 Vitesse Semiconductor Corporation 513,700 513,700 XL Capital Ltd. Class "A" (Bermuda) 600,000 600,000 SHARES ------------------------ HOLDINGS REDUCTIONS DECREASE 9/30/00 ---------- ---------- COMMON STOCKS American Home Products Corporation 610,600 705,800 Anheuser-Busch Companies, Inc. 533,500 327,000(1) CVS Corporation 1,511,500 -- Ford Motor Company 1,619,509(2) -- Hewlett-Packard Company 345,700 -- Morgan (J.P.) & Co. Incorporated 302,300 -- PepsiCo, Inc. 889,200 680,800 Schering-Plough Corporation 853,200 -- Sun Microsystems, Inc. 328,400 -- Wal-Mart Stores, Inc. 685,000 1,114,100 Largest portfolio changes from the previous period to the current period are based on cost of purchases and proceeds from sales of securities. (1) Includes 255,900 shares received as a result of a 2-for-1 stock split. (2) Includes 693,109 shares received as a result of a recapitalization. 10 LARGEST HOLDINGS September 30, 2000 VALUE - -------------------------------------------------------------------------------- General Electric Company $188,153,550 Bank of New York Company, Inc. 122,457,319 Chubb Corporation (The) 121,520,175 Microsoft Corporation 114,913,406 American International Group, Inc. 114,767,587 Citigroup Inc. 111,765,190 Cisco Systems, Inc. 106,135,250 Exxon Mobil Corporation 95,595,475 United Technologies Corporation 92,417,588 Bank of America Corporation 87,586,032 5 TRI-CONTINENTAL CORPORATION PORTFOLIO OF INVESTMENTS (unaudited) Shares Value ------- --------- COMMON STOCKS - 92.9% COMMUNICATION EQUIPMENT - 3.9% Ciena Corporation 198,600 $ 24,378,150 Lucent Technologies, Inc. 819,100 30,256,875 Nortel Networks Corporation (Canada) 877,600 52,272,050 QUALCOMM Inc. 655,700 46,718,625 -------------- $ 153,625,700 -------------- COMMUNICATIONS - 5.1% AT&T Corp. 1,334,500 $ 39,200,937 SBC Communications, Inc. 1,161,380 58,069,000 Sprint Corporation 750,000 21,984,375 Verizon Communications 997,722 48,327,159 WorldCom, Inc. 1,153,000 35,022,375 -------------- $ 202,603,846 -------------- CONSUMER GOODS AND SERVICES - 3.0% Anheuser-Busch Companies, Inc. 327,000 $ 13,836,187 Coca-Cola Company (The) 443,000 24,420,375 PepsiCo, Inc. 680,800 31,316,800 Procter & Gamble Company (The) 382,300 25,614,100 Ralston Purina Group 1,020,600 24,175,462 -------------- $ 119,362,924 -------------- DRUGS AND HEALTH CARE - 12.9% Abbott Laboratories 1,092,100 $ 51,943,006 American Home Products Corporation 705,800 39,921,812 Baxter International Inc. 658,200 52,532,587 Bristol-Myers Squibb Company 619,050 35,363,231 Ciphergen Biosystems, Inc. 2,500 80,391 Guidant Corporation 866,100 61,222,444 Johnson & Johnson 457,600 42,985,800 Merck & Co., Inc. 718,300 53,468,456 Pfizer Inc. 1,272,500 57,182,969 Pharmacia Corporation 530,000 31,899,375 St. Jude Medical Inc. 1,630,000 83,130,000 -------------- $ 509,730,071 -------------- ELECTRIC AND GAS UTILITIES - 3.6% Unicom Corporation 1,170,200 $ 65,750,613 Williams Companies, Inc. (The) 1,803,000 76,176,750 -------------- $ 141,927,363 -------------- ELECTRONIC TECHNOLOGY - 16.5% Altera Corporation 705,000 $ 33,685,781 Analog Devices, Inc. 598,500 49,413,656 Applied Materials, Inc. 1,394,400 82,618,200 Cisco Systems, Inc. 1,921,000 106,135,250 Compaq Computer Corporation 1,275,000 35,164,500 Dell Computer Corporation 1,555,300 47,874,078 EMC Corporation 306,900 30,421,463 Gateway, Inc. 337,100 15,759,425 Intel Corporation 2,047,800 85,047,694 International Business Machines Corporation 588,950 66,256,875 Micron Technology, Inc. 497,500 22,885,000 Novellus Systems, Inc. 685,900 31,958,653 Proton Energy Systems, Inc. 3,000 85,969 Vitesse Semiconductor Corporation 513,700 45,671,141 -------------- $ 652,977,685 -------------- ENERGY - 9.5% Baker Hughes Incorporated 530,500 $ 19,694,813 BP Amoco plc (ADRs) (United Kingdom) 1,009,300 53,492,900 Coastal Corporation (The) 1,040,000 77,090,000 Exxon Mobil Corporation 1,072,600 95,595,475 Royal Dutch Petroleum Company (Netherlands) 1,111,600 66,626,525 Schlumberger Ltd. 809,400 66,623,737 -------------- $ 379,123,450 -------------- FINANCE AND INSURANCE - 20.5% American General Corporation 1,009,300 $ 78,725,400 American International Group, Inc. 1,199,400 114,767,587 - ------------------------ See footnotes on page 7. 6 TRI-CONTINENTAL CORPORATION Shares Value ------- --------- FINANCE AND INSURANCE (continued) Bank of America Corporation 1,672,287 $ 87,586,032 Bank of New York Company, Inc. 2,184,300 122,457,319 Chubb Corporation (The) 1,535,800 121,520,175 Citigroup Inc. 2,067,333 111,765,190 Fannie Mae 726,500 51,944,750 Merrill Lynch & Co. Incorporated 1,160,400 76,586,400 XL Capital Ltd. Class "A" (Bermuda) 600,000 44,100,000 -------------- $ 809,452,853 -------------- MACHINERY AND INDUSTRIAL EQUIPMENT - 7.1% General Electric Company 3,261,600 $ 188,153,550 United Technologies Corporation 1,334,550 92,417,588 -------------- $ 280,571,138 -------------- OFFICE EQUIPMENT - 2.0% Pitney Bowes Incorporated 2,021,000 $ 79,703,188 -------------- RETAIL TRADE - 1.4% Wal-Mart Stores, Inc. 1,114,100 $ 53,616,063 -------------- TECHNOLOGY SERVICES - 7.4% Agilent Technologies, Inc. 731,849 $ 35,814,861 America Online, Inc. 541,200 29,089,500 Electronic Data Systems Corporation 1,292,000 53,618,000 JDS Uniphase Corporation 184,300 17,445,147 Microsoft Corporation 1,905,300 114,913,406 Oracle Corporation 526,600 41,469,750 -------------- $ 292,350,664 -------------- TOTAL COMMON STOCKS (Cost: $2,827,988,862) $3,675,044,945 -------------- Principal Amount Value ---------- -------- TRI-CONTINENTAL FINANCIAL DIVISION+ - 0.3% (Cost: $12,014,195) $ 12,158,008 -------------- FIXED TIME DEPOSITS - 7.2% ABN-Amro, Grand Cayman, 6.69%, 10/2/00 $76,100,000 $ 76,100,000 Bank of Montreal, Grand Cayman, 6.6562%, 10/2/00 70,000,000 70,000,000 Barclays Bank, Grand Cayman, 6.6875%, 10/2/00 70,000,000 70,000,000 National Westminster, Nassau, 6.625%, 10/2/00 70,000,000 70,000,000 -------------- TOTAL FIXED TIME DEPOSITS (Cost: $286,100,000) $ 286,100,000 -------------- TOTAL INVESTMENTS - 100.4% (Cost: $3,126,103,057) $3,973,302,953 OTHER ASSETS LESS LIABILITIES - (0.4)% (15,631,284) --------------- NET INVESTMENT ASSETS - 100.0% $3,957,671,669 =============== - ------------------------------------------------------------------------------- * Non-income producing security. + Restricted security. Note: Investments in common 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, at fair values determined in accordance with procedures approved by the Board of Directors. Securities traded on an exchange are valued at last sales prices or, in their absence and in the case of over-the-counter securities, at the mean of bid and ask prices. Short-term holdings maturing in 60 days or less are valued at amortized cost. 7 TRI-CONTINENTAL CORPORATION STOCKHOLDER SERVICES Tri-Continental provides a number of services to make maintaining an investment in its Common Stock more convenient. AUTOMATIC DIVIDEND INVESTMENT AND CASH PURCHASE PLAN. Stockholders may automatically purchase additional shares with dividends and capital gains. There is no charge for this service. Stockholders may also purchase additional shares directly from the Corporation. There is a service fee of a maximum of $2.00 for each cash purchase transaction. AUTOMATIC CASH WITHDRAWAL PLAN. Stockholders who hold common shares with a market value of $5,000 or more may elect to receive a fixed amount from their investment at regular intervals. TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT (IRA). Stockholders who have earned income and are under age 70 1/2 may contribute up to $2,000 per year to a Traditional IRA. 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 modified adjusted gross income (MAGI) in 2000 is less than $32,000. For spouses who are both covered by a plan, contributions will be fully deductible if your MAGI is less than $52,000. 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 MAGI 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 MAGI 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. If your MAGI is less than $100,000, 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 when 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 $170,000 may be taken into account as earned income under the plan in 2000 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 US and (212) 682-7600 outside the US. Gifts Free of Federal Tax are often made using Tri-Continental Common Stock. You may give as much as $10,000 a year to as many individuals as desired free of federal gift tax, and a married couple may give up to $20,000 a year. STOCK REPURCHASE PROGRAM. In November 1998, the Board of Directors authorized a stock repurchase program through which Tri-Continental may repurchase up to 7.5% of its then-outstanding common stock as long as its discount to net asset value remains wider than 10%. The repurchase program seeks, among other things, to moderate the growth in the number of shares outstanding, increase the net asset value of the Corporation's outstanding shares, reduce the dilutive impact on Stockholders who do not take capital gain distributions in additional shares, and increase the liquidity of the Corporation's common stock in the marketplace. As of September 30, 2000, 5.5 million shares had been repurchased. This is approximately 4.6% of the shares outstanding as of November 19, 1998, when the buy-back program was announced. 9 TRI-CONTINENTAL CORPORATION For information about your Corporation, write to Corporate Communications, J. & W. Seligman & Co. Incorporated, 100 Park Avenue, New York, NY 10017. If you want information about your investment account, write to Stockholder Services, Seligman Data Corp., at the same address. You may also call Stockholder Services at the telephone number listed below. - -------------------------------------------------------------------------------- IMPORTANT TELEPHONE NUMBERS STOCKHOLDER RETIREMENT PLAN 24-HOUR AUTOMATED SERVICES SERVICES TELEPHONE ACCESS SERVICE (800) TRI-1092 (800) 445-1777 (800) 622-4597 (8:30 a.m. to 6:00 p.m. EST) (8:30 a.m. to 6:00 p.m. EST) - ------------------------------------------------------------------------------- 10 TRI-CONTINENTIAL CORPORATION THIRD QUARTER REPORT 2000 INVESTS TO PRODUCE FUTURE GROWTH OF BOTH CAPITAL AND INCOME, WHILE PROVIDING REASONABLE CURRENT INCOME. [TRI-CONTINENTAL CORPORATION LOGO] Tri-Continental Corporation Managed by [LOGO OF JWS] 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 of those who have received the current prospectus covering shares of Common Stock of Tri- Continental Corporation, which contains information about management fees and other costs. CERTRI3c 9/00 AN INVESTMENT YOU CAN LIVE WITH