March 3, 2008

An Update on the Auction Rate Securities (ARS) market and their impact on the Municipal Income Preferred Shares of Seligman Select Municipal Fund, Inc. (NYSE: SEL) (the “Fund”).

What is an Auction Rate Security?

Auction Rate Securities (ARS) are typically long-term bonds or shares of perpetual preferred stock that pay short-term interest or preferred dividend rates that reset every seven, 28, or 35 days. The rate is typically established through a Dutch Auction or remarketing process which is conducted by the auction or remarketing agent (typically a large broker-dealer or bank). Until recently, ARS have been widely viewed as liquid, cash-like instruments because holders of ARS may elect to tender (sell) their securities on any auction or remarketing date. In a Dutch Auction, prospective buyers submit bids for the tendered securities. A successful auction is one in which there are sufficient bids to cover the number of ARS tendered for auction or remarketing.

Auction Rate Securities are issued by a wide range of entities, including municipalities, corporations, and closed-end funds like the Fund. The size of the ARS market is estimated to be $342 billion and is comprised of taxable and tax-exempt securities. Many closed-end funds leverage their portfolios through the issuance of a type of Auction Rate Security known as Auction Rate or Remarketed Preferreds or Tax- Exempt Preferreds (also referred to as AMPS or ARPS). In April 1990, the Fund was leveraged through the issuance of Remarketed Preferreds (ARPS) designated as “Municipal Income Preferred Shares.”

What are the details of the Fund’s Preferred Shares?

The Fund has two series of preferred shares outstanding that reset their dividend rates typically every 28 days. There are 375 shares of Series “A” and 375 shares of Series “B” (the “Fund’s ARPS”) outstanding. The total face value of all 750 shares outstanding is $75 million ($100,000 per share). The Fund’s ARPS have been rated Aaa by Moody’s and AAA by Standard & Poor’s (S&P) since they were issued in 1990. The Fund’s ARPS recently experienced failed remarketings. Preferred shareholders who were unable to tender their shares in the remarketing due to a lack of liquidity in the market will continue to receive scheduled dividends and will have an opportunity to tender shares every seven days until a successful auction occurs.

What is a “failed” auction (remarketing)?

Auction Rate Securities that are tendered must be purchased at a rate that does not exceed the Maximum Dividend Rate as defined in the ARS’ legal documents. A “failed auction” (remarketing) occurs when there are insufficient bids below the Maximum Dividend Rate to purchase all shares tendered. It should be emphasized that a “fail” in the remarketing of the Fund’s ARPS is not a default. Additionally, a “failed auction” does not imply that the Fund is unable to meet its dividend requirements. The “failed remarketings” are liquidity events for the holders of the Fund’s ARPS, not credit events.

How often do failed Auction Rate Security auctions occur?

A failure of an ARS auction by closed-end municipal bond funds has, historically, been a rare occurrence. We know of no instance of failed auctions of closed-end municipal preferred shares prior to 2008. The Fund’s ARPS had never experienced a failed remarketing before February 13, 2008.

What is the credit quality of the Fund’s portfolio holdings?

As of December 31, 2007, over 90% of the Fund’s portfolio is invested in AAA rated bonds. And as of February 29, 2008, the Fund’s ARPS had an asset coverage ratio of 287.5%. Given this percentage of collateral, we believe the Fund’s preferred shareholders are exposed to minimal credit risk.

What caused the auction failures?

There are two primary reasons for the failures in the market for ARS in recent times. First, many ARS are backed by insurance issued by monoline insurers (although the Fund’s ARPS are not), and as the financial condition of the monoline insurers has deteriorated in recent times, investors have increasingly shunned securities backed by the distressed insurers, leading to reduced demand for ARS. Second, the auction and remarketing failures that occurred recently were caused by a significant increase in the amount of ARS holders seeking to tender bonds at the same time; remarketing agents were becoming increasingly reluctant to provide liquidity due to, in some cases, their own credit constraints. Although auction and remarketing agents are not legally bound to support their auctions or remarketings, previously they have always maintained an orderly market by committing their own capital whenever there was insufficient demand.

Have other closed-end funds experienced failed auctions on Auction Rate Preferreds?

Yes, the problem of failed auctions/remarketings is currently widespread among closed-end funds. However, the penalty rates payable to the holders of many closed-end fund Auction Rate or Remarketed Preferred shares did not result in a significant increase in dividend rates and, in some instances, the rates payable actually declined compared to what the funds had been paying previously. The Fund’s ARPS have reset at a lower rate than the Fund was paying prior to the failed remarketings because the Maximum Dividend Rate is calculated at 125% of the 60-day Commercial Paper composite rate, which had dropped significantly in recent weeks.

Prior to the failed remarketings, the rates paid had been increasing because of the reduced demand for the ARPS as a result of the factors noted above.

How does the Fund’s remarketing failure affect holders of the Fund’s ARPS?

Holders of the Fund’s ARPS must generally retain their shares while being compensated at the new dividend rate (equal to the Maximum Dividend Rate) until an orderly auction market can be restored. The Fund is obligated, and fully able, to continue paying monthly dividends to the holders of the Fund’s ARPS.

Payments to the owners of the Fund’s ARPS, other than dividend payments, will be made solely from the proceeds of the remarketing. Neither the Fund nor the remarketing agent is obligated to provide funds to make payments to the owners of preferred shares tendered for remarketing in exchange for their shares. We cannot predict when the capital markets will correct themselves to achieve successful remarketings for the Fund’s ARPS.

What is being done to remedy the situation with respect to closed-end fund preferreds?

Although under no obligation to do so, like some other closed-end funds, the Fund has been discussing possible measures with the remarketing agent for the Fund’s ARPS to address the holders’ liquidity concerns. However, there can be no assurance that there will be a resolution to the liquidity issue in a timely manner.

ADDITIONAL NOTES ON SELIGMAN SELECT MUNICIPAL FUND:

Strong asset coverage: The Investment Company Act of 1940 requires minimum asset coverage of 200%. The Asset Coverage Ratio for the Fund on February 29, 2008 was 287.5%. Important Note: Asset Coverage Ratio is calculated daily and is, therefore, subject to change.

The Fund’s ARPS rated AAA: The Fund’s ARPS are rated Aaa by Moody’s and AAA by S&P and must continually meet strict criteria to maintain this rating. Ratings of AAA and Aaa, are respectively, the highest rankings given by Moody’s and S&P.

The Fund has no exposure to derivatives.

Seligman Select Municipal Fund (NYSE: SEL) Statistics (1-31-08):

IMPORTANT PERFORMANCE INFORMATION

The rate of return will vary and the principal value of your investment will fluctuate. Shares, if sold, may be worth more or less than their original cost. The net asset value of your shares may not always correspond to the market price of such shares. In fact, shares of many closed-end funds frequently trade at a discount from their net asset value.

An investment in Seligman Select Municipal Fund could be adversely affected by income risk, interest rate risk, call risk, and credit risk.