December 31, 1994
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Counsellors
Tandem Securities
Fund, Inc.
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Annual Report to Shareholders
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<PAGE>
DIRECTORS OFFICERS
Lionel I. Pincus John L. Furth
Chairman of the Board Chief Executive Officer
Richard N. Cooper Anthony G. Orphanos
President
Donald J. Donahue
Stuart M. Goode
Jack W. Fritz Vice President
John L. Furth Reuben S. Leibowitz
Vice President and
Thomas A. Melfe Chief Financial Officer
Alexander B. Trowbridge Arnold M. Reichman
Executive Vice President
Eugene P. Grace
Vice President and Secretary
Stephen Distler
Treasurer and
Chief Accounting Officer
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INVESTMENT ADVISER ADMINISTRATOR
Warburg, Pincus Counsellors, Inc. PFPC Inc.
466 Lexington Avenue 103 Bellevue Parkway
New York, New York 10017-3147 Wilmington, Delaware 19809
TRANSFER AGENT
PNC Bank, N.A.
c/o PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19899
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Dear Shareholder:
The net asset value of Counsellors Tandem Securities Fund, Inc. ("the Fund")
for the year ended December 31, 1994 was $14.37 per share -- a decrease of 18.8%
from the prior year.
The utility portion of the portfolio -- representing 56% of the Fund's
non-cash assets at year end -- declined 13.0% as compared to the 7.9% decline in
the S&P Utility Index. Although the Fund's investments in natural gas
outperformed those in the S&P Gas Index, this relative gain was offset by
weaker performance in the Fund's electric and telecommunications segments. The
Fund's weightings in higher-yielding electric utilities were especially
vulnerable during the sharp rise in long-term interest rates from 5 3/4% to 8
1/4% in the twelve months ended November 1994. The telecommunications seg ment
was impacted by regulatory and competitive issues. The Fund focuses its utility
investments in the higher yielding electric and telecommunication sectors in
order to earn the necessary income to meet preferred dividend requirements.
The nonutility portion of the portfolio -- representing 44% of the Fund's
non-cash assets at year end -- declined 1.8% as compared to a 1.3% rise in the
S&P 500 and a 4% decline for the Value Line Index. This portion of the portfolio
ended the year strongly after recovering from the sharp market decline in the
spring when interest rates rose more than 1% in a ten week period. Since the
Fund's inception in 1986, the nonutility portion of the portfolio has had a
compound rate of return of 11.9%, which exceeds the S&P 500 at 11.5% and the
Value Line Index at 4.6% for the same period.
Our outlook over the last several months has been cautious due to our belief
that the U.S. economy will remain robust. This would continue upward pressure on
interest rates and prevent the Federal Reserve from easing short-term interest
rates in the near term. To maximize total return in the nonutility portion of
the portfolio under this scenario, we have increased the liquid asset position
to $10 million, or approximately 15% of the Fund's total assets. In addition,
the financial services sector has been increased to more than 20% and
communications/media to over 10% of the nonutility portion of the portfolio.
These businesses can continue to show strong earnings growth during an economic
contraction. We are anticipating reinvesting our reserves in more cyclically
sensitive businesses such as technology/telecommunications when valuations
become more attractive.
As of the end of 1994, the Fund's largest holdings are as follows:
<TABLE>
<CAPTION>
Security Market Value Percentage of Portfolio
-------- ------------ -----------------------
<S> <C> <C>
General Electric ............................ $3,060,000 4.29%
Southwestern Bell Corp. ..................... 2,826,250 3.97
Houston Industries .......................... 2,493,750 3.50
PECO Energy Co. ............................. 2,450,000 3.44
Central & South West Corp. .................. 2,262,500 3.17
Eastern Utilities Associates ................ 2,200,000 3.09
Fund American Enterprises ................... 2,167,500 3.04
Public Service Co. Colorado ................. 2,056,250 2.88
Bell Atlantic Corp. ......................... 1,890,500 2.65
H & R Block ................................. 1,856,250 2.60
U.S. West ................................... 1,781,250 2.50
Minnesota Power & Light ..................... 1,767,500 2.48
Norwest Corp. ............................... 1,636,250 2.29
NIPSCO Industries ........................... 1,636,250 2.29
Public Service Ent. Group ................... 1,537,000 2.15
</TABLE>
We thank you for your support of the Fund.
Sincerely,
/s/ JOHN L. FURTH /s/ ANTHONY G. ORPHANOS
----------------------- -------------------
John L. Furth Anthony G. Orphanos
Chief Executive Officer President
<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Statement of Net Assets
December 31, 1994
================================================================================
<TABLE>
<CAPTION>
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCK (86.0%)
Utilities-Electric (30.3%)
Baltimore Gas & Electric Co. 50,000 $ 1,106,250
Central & South West Corp. 100,000 2,262,500
Eastern Utilities Associates 100,000 2,200,000
Entergy Corp. 45,000 984,375
Houston Industries, Inc. 70,000 2,493,750
Minnesota Power & Light Co. 70,000 1,767,500
Montana Power Co. 65,000 1,495,000
NIPSCO Industries, Inc. 55,000 1,636,250
PECO Energy Co. 100,000 2,450,000
Public Service Co. of Colorado 70,000 2,056,250
Public Service Enterprise Group, Inc. 58,000 1,537,000
United Illuminating Co. 34,000 1,003,000
----------
20,991,875
----------
Utilities-Gas (5.0%)
Equitable Resources, Inc. 37,500 1,017,188
KN Energy, Inc. 60,000 1,425,000
National Fuel Gas Co. 40,000 1,020,000
----------
3,462,188
----------
Utilities-Telecommunications (13.4%)
AT&T Corp. 30,000 1,507,500
Bell Atlantic Corp. 38,000 1,890,500
Citizens Utilities Co. Series A + 105,887 1,323,586
Southwestern Bell Corp. 70,000 2,826,250
US West, Inc. 50,000 1,781,250
----------
9,329,086
----------
Other (37.3%)
Acclaim Entertainment, Inc. + 58,000 833,750
Allegheny Ludlum Corp. 80,000 1,500,000
Allstate Corp. 40,000 945,000
BankAmerica Corp. 21,000 829,500
CBI Industries, Inc. 30,000 768,750
Comcast Corp. Class A Special 50,000 784,375
Corning, Inc. 32,000 956,000
Federal Home Loan Mortgage Corp. 17,000 858,500
Freeport McMoran, Inc. 55,000 976,250
Fund American Enterprises Holdings, Inc. + 30,000 2,167,500
General Electric Co. 60,000 3,060,000
Halliburton Co. 21,000 695,625
Honeywell, Inc. 25,000 787,500
H&R Block, Inc. 50,000 1,856,250
Inco. Ltd. 32,000 916,000
Manpower PLC Sponsored ADR 45,000 1,265,625
</TABLE>
See Accompanying Notes to Financial Statements.
1
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Statement of Net Assets (cont'd)
December 31, 1994
================================================================================
<TABLE>
<CAPTION>
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCK (cont'd)
Other (cont'd)
Noble Affiliates, Inc. 50,000 $ 1,237,500
Norwest Corp. 70,000 1,636,250
Stone & Webster, Inc. 38,000 1,263,500
Tele-Communications, Inc. Class A + 30,000 652,500
Time Warner, Inc. 35,000 1,229,375
Travelers, Inc. 20,000 650,000
-----------
25,869,750
-----------
TOTAL COMMON STOCK (Cost $48,526,570) 59,652,899
-----------
</TABLE>
<TABLE>
<CAPTION>
Par
-----
<S> <C> <C>
SHORT-TERM INVESTMENTS (15.9%)
Repurchase agreement with PNC Securities Corp. dated 12/30/94 at
5.50% to be repurchased at $11,024,733 on 01/03/95.
(Collateralized by $11,215,000 U.S. Treasury Note 5.875%, due
05/31/96, with a market value of $11,018,738.)
(Cost $11,018,000) $11,018,000 11,018,000
-----------
TOTAL INVESTMENTS AT VALUE (101.9%)
(Cost $59,544,570*) 70,670,899
LIABILITIES IN EXCESS OF OTHER ASSETS (1.9%) (1,290,437)
-----------
NET ASSETS (100.0%) 69,380,462
Net Assets applicable to 600,000 shares of preferred stock
outstanding at $50.00 per share 30,000,000
-----------
NET ASSETS APPLICABLE TO COMMON STOCK $39,380,462
===========
NET ASSET VALUE PER SHARE OF COMMON STOCK
($39,380,462 / 2,740,262 common shares) $14.37
======
</TABLE>
+ Non-income producing security.
* Cost for Federal income tax purposes is $59,561,224.
See Accompanying Notes to Financial Statements.
2
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Statement of Operations
For the Year Ended December 31, 1994
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<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends $ 2,659,914
Interest 271,568
------------
Total investment income 2,931,482
------------
Expenses:
Investment advisory fee 564,029
Administration fee 100,000
Legal fees 74,239
Custodian and transfer agent fees 64,805
Directors fees 45,250
Amortization of organizational costs 37,500
Audit fee 24,600
Printing 14,557
Insurance 6,609
Other 43,456
------------
Total expenses 975,045
------------
Net investment income 1,956,437
------------
Net Realized and Unrealized Loss from Investments:
Net realized gain from security transactions 2,590,004
Federal income tax (906,501)
Net decrease in unrealized appreciation from
investments (11,112,568)
------------
Net realized and unrealized loss from investments (9,429,065)
------------
Net decrease in net assets resulting from operations $ (7,472,628)
============
</TABLE>
See Accompanying Notes to Financial Statements.
3
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, 1994 December 31, 1993*
----------------- ------------------
<S> <C> <C>
From Operations:
Net investment income $ 1,956,437 $ 2,554,280
Net realized gain from security
transactions 2,590,004 61,728
Federal income tax (906,501) (21,605)
Net increase (decrease) in unrealized
appreciation from investments (11,112,568) 2,779,689
------------ -----------
Net increase (decrease) in net
assets resulting from operations (7,472,628) 5,374,092
------------ -----------
From Dividends:
Dividends from net investment income:
Preferred shares (1,829,507) (2,091,559)
------------ -----------
From Capital Share Transactions:
Cost of common shares repurchased (645,046) (210,803)
Costs associated with tender offer 285,798 (83,273)
Proceeds from sale of 600,000
preferred shares (net of $310,250
placement fees) 29,689,750 0
Cost of 576,958 preferred shares
repurchased (28,847,900) 0
------------ -----------
Net increase (decrease) in net assets
from capital share transactions 482,602 (294,076)
------------ -----------
Net increase (decrease) in net assets (8,819,533) 2,988,457
Net Assets:
Beginning of year 78,199,995 75,211,538
------------ -----------
End of year $ 69,380,462 $78,199,995
============ ===========
</TABLE>
* Reclassification made for comparative purposes.
See Accompanying Notes to Financial Statements.
4
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Financial Highlights
(For a Common Share of the Fund Outstanding Throughout Each Year)
================================================================================
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 17.69 $ 16.54 $ 16.88 $ 12.67 $ 13.29
------- ------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income .71 .92 .79 .83 .73
Net Gain (Loss) on Securities
(both realized and unrealized) (3.07) 1.01 (.33) 4.28 (.50)
Federal income tax (.33) (.01) (.13) (.04) (.23)
------- ------- ------- --------- -------
Total from Investment
Operations (2.69) 1.92 .33 5.07 .00
------- ------- ------- ------- -------
Less Distributions from Net
Investment Income:
Common stock equivalent of
dividends paid to preferred
shareholders (.66) (.75) (.75) (.73) (.73)
Dividends to common
shareholders .00 .00 .00 (.12) (.12)
------- ------- ------- ------- -------
Total Distributions (.66) (.75) (.75) (.85) (.85)
------- ------- ------- ------- -------
Gain (loss) on common shares sold
(repurchased), net .03 (.02) .08 (.01) .23
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 14.37 $ 17.69 $ 16.54 $ 16.88 $ 12.67
======= ======= ======= ======= =======
Market Value, End of Year $ 12.88 $ 15.25 $ 14.13 $ 14.13 $ 10.38
======= ======= ======= ======= =======
Total Return
Based on net asset value per
share (18.77)% 6.95% (2.01)% 34.41% (3.96)%
Based on market price per share (15.54)% 7.93% .00% 37.58% (8.70)%
Ratios/Supplemental Data:
Net Assets, End of Year (000s) $69,380 $78,200 $75,212 $76,879 $64,974
Ratios to average daily net
assets:
Operating expenses 1.30% 1.27% 1.27% 1.35% 2.33%
Net investment income 2.60% 3.24% 2.97% 3.45% 3.10%
Portfolio Turnover Rate 53% 33% 27% 26% 41%
</TABLE>
See Accompanying Notes to Financial Statements.
5
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Notes to Financial Statements
December 31, 1994
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1. Significant Accounting Policies
Counsellors Tandem Securities Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund's investment objectives are long-term
capital appreciation consistent with the preservation of capital, and
stability and dependability of income, including, so long as preferred shares
are outstanding, earning sufficient current income to pay Regular and
Additional Dividends on the preferred shares.
The net asset values of the preferred and common shares will be determined
as of the close of regular trading on the last business day of the New York
Stock Exchange each week. Net asset value of the preferred shares will be the
lower of (a) the initial public offering price per share ($50.00) plus
accumulated and unpaid dividends, if any, less reductions for Special
Dividends ("Redemption Value"), or (b) the total net assets of the Fund
divided by the number of the preferred shares outstanding. Net asset value of
the common shares will be the total net assets of the Fund less the total net
asset value of the preferred shares, divided by the number of common shares
outstanding.
Securities listed on a securities exchange for which market quotations are
available are valued at the last quoted sale price of the day, or if there is
no such reported sale, at the most recent quoted bid price. Price information
on listed securities is taken from the exchange where the security is
primarily traded. Listed securities not traded on the valuation date and
unlisted securities are valued at the most recently quoted bid price. The
value of securities for which no quotations are readily available are
determined in good faith at fair value using methods determined by the Board
of Directors. There were no securities held at December 31, 1994, for which
market quotations were not readily available.
Security transactions are recorded on trade date. Interest income is
recorded on an accrual basis. Dividend income is recorded on ex-dividend
date. The cost of investments sold is determined by use of the specific
identification method for both financial reporting and income tax purposes.
The Fund intends to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies.
Accordingly, the Fund will not be subject to Federal income tax on any net
investment income and capital gains that it distributes to shareholders.
However, the Fund does not intend to distribute long-term capital gains, but
expects instead to retain such long-term capital gains, if any, and to pay
tax on such gains at the rate then applicable to net long-term capital gains
of corporations. Common shareholders will be entitled to a credit for their
pro rata share of such tax payments, and their basis for the common shares
will be increased by the amount of the undistributed gains less the tax paid
by the Fund. Federal income taxes so accrued for the year ended December 31,
1994 were $906,501.
Costs incurred by the Fund in connection with its organization have been
deferred and are being amortized over a period of ten years from the date the
Fund commenced its operations.
The Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, the Fund acquires an underlying security
subject to an obligation of the seller to repurchase the security. The value
of the underlying security will be maintained as collateral at an amount at
least equal to the total amount of the purchase obligation, including
interest. The collateral is in the Fund's possession.
2. Investment Adviser
Warburg, Pincus Counsellors, Inc. ("Counsellors"), a wholly-owned
subsidiary of Warburg, Pincus Counsellors G.P. ("Counsellors G.P."), serves
as the Fund's investment adviser. The Fund pays Counsellors an investment
advisory fee calculated at an annual rate of .75% of the Fund's average daily
net assets. For the year ended December 31, 1994, Counsellors earned $564,029
in investment advisory fees.
6
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Notes to Financial Statements (cont'd)
December 31, 1994
================================================================================
3. Investments in Securities
Purchases and sales of investment securities for the year ended December
31, 1994 (excluding short-term investments) were $36,119,275 and $46,181,317,
respectively.
At December 31, 1994, the net unrealized appreciation from investments of
$11,109,675 was comprised of appreciation of $12,365,962 for those
investments having an excess of value over cost, and depreciation of
$1,256,287 for those investments having an excess of cost over value (based
on cost for Federal income tax purposes).
A significant portion of the Fund's investments are in securities of
utilities involved in the generation, transmission or distribution of
electricity, gas, water or telecommunications. As a result of the Fund's
concentration of its investments, it is subject to fluctuation in value and
market risks associated with holding securities related to the utility
industry. At December 31, 1994, the Fund had approximately 49% of its net
assets invested in such securities.
4. Common Shares
The Fund intends to repurchase its outstanding common shares in the open
market from time to time when such shares trade at a discount of 10% or more
from their net asset value. For the years ended December 31, 1994 and 1993,
the Fund repurchased 49,000 and 14,200 common shares, respectively.
Subject to the requirement to maintain total assets of at least two times
the Redemption Value of the outstanding preferred shares, common shareholders
will be entitled to receive distributions from the net investment income and
net short-term capital gains remaining after payment of dividends (including
Additional and Special Dividends) on preferred shares. After redemption of
the preferred shares, the common shareholders will be entitled to all
distributions that may be declared or approved by the Board of Directors.
5. Preferred Shares
Preferred shareholders are entitled to receive cumulative dividends,
payable quarterly, at the annual rate of 5.375% of the initial public
offering price ($50.00) of the preferred shares ("Regular Dividends"), plus
cumulative Additional Dividends, if any, payable annually, and may receive
Special Dividends. Such dividends will be payable when, as and if declared by
the Board of Directors out of net investment income and net short-term
capital gains legally available therefor. Additional Dividends will be paid
if, for any taxable year, Regular Dividends do not qualify for the dividends
received deduction. The amount of Additional Dividends will be such that the
after tax return of the holders of preferred shares would be the same as if
the Regular Dividends qualified for the dividends received deduction. Special
Dividends may be paid when the Fund is unable to pay dividends to holders of
common shares, as described in Note 4.
Preferred shares are subject, at the option of the Fund, to redemption at
the then current redemption price. The redemption price is currently $50.00
per share. On October 30, 1996, the Fund will either redeem the preferred
shares or be liquidated. The redemption price is increased for any
accumulated and unpaid dividends and reduced as a result of Special
Dividends.
On January 19, 1994 the Fund received $30,000,000 from the issuance of
600,000 shares of $50.00 par value preferred stock with a rate of 5.375%, the
proceeds of which were used in the redemption of the Fund's previously
outstanding 7.25% $50.00 par value preferred stock plus accumulated dividends
on February 22, 1994.
7
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Notes to Financial Statements (cont'd)
December 31, 1994
================================================================================
6. Dividends
Regular dividends to 7.25% preferred shareholders in 1994 amounted to
$.5164 per share.
Regular dividends to 5.375% preferred shareholders in 1994 amounted to
$2.55 per share.
Income distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
7. Net Assets
At December 31, 1994, 6,000,000 preferred shares and 30,000,000 common
shares were authorized; both have a par value of $.01 per share.
Net assets at December 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Paid in capital, net $57,544,687
Undistributed net investment income 709,446
Net unrealized appreciation from investments 11,126,329
-----------
$69,380,462
===========
</TABLE>
8
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Notes to Financial Statements (cont'd)
December 31, 1994
================================================================================
8. Selected Quarterly Financial Data for a Common Share (Unaudited)
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease)
Total Net and Unrealized in Net Assets
Investment Per Investment Per Gain (Loss) on Per Resulting From Per
1994 Income Share Income Share Investments* Share* Operations Share
---- ------ ----- ------ ----- ------------ ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1994 $ 812,721 $ .29 $ 531,412 $.19 $(6,707,070) $(2.41) $(6,175,658) $(2.22)
June 30, 1994 619,685 .23 370,780 .13 (1,572,032) (.57) (1,201,252) (.44)
September 30, 1994 703,885 .26 463,742 .17 1,994,439 .73 2,458,181 .90
December 31, 1994 795,191 .29 590,503 .22 (3,144,402) (1.15) (2,553,899) (.93)
---------- ----- ---------- ---- ----------- ------ ----------- ------
$2,931,482 $1.07 $1,956,437 $.71 $(9,429,065) $(3.40) $(7,472,628) $(2.69)
========== ===== ========== ==== =========== ====== =========== ======
1993
----
March 31, 1993 $ 731,444 $ .26 $ 494,637 $.18 $ 4,296,578 $ 1.53 $ 4,791,215 $ 1.71
June 30, 1993 782,761 .28 539,873 .19 (183,893) (.06) 355,980 .13
September 30, 1993 794,309 .28 527,989 .19 2,993,237 1.07 3,521,226 1.26
December 31, 1993 1,246,841 .45 991,781 .36 (4,286,110) (1.54) (3,294,329) (1.18)
---------- ----- ---------- ---- ----------- ------ ----------- ------
$3,555,355 $1.27 $2,554,280 $.92 $ 2,819,812 $ 1.00 $ 5,374,092 $ 1.92
========== ===== ========== ==== =========== ====== =========== ======
</TABLE>
* Net of Federal income taxes.
9
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Report of Independent Accountants
================================================================================
To the Board of Directors and Shareholders of
Counsellors Tandem Securities Fund, Inc.:
We have audited the accompanying statement of net assets of Counsellors
Tandem Securities Fund, Inc., as of December 31, 1994, the related statement
of operations for the year then ended and the statements of changes in net
assets and the financial highlights for each of the two years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of Counsellors Tandem Securities Fund, Inc.
for each of the three years in the period ended December 31, 1992 were
audited by other auditors, whose report dated February 17, 1993, expressed an
unqualified opinion.
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, 1994, by correspondence with the custodian and
brokers. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Counsellors Tandem Securities Fund, Inc. as of December 31, 1994, and the
results of its operations for the year then ended, and the changes in its net
assets and its financial highlights for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1995
10
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<PAGE>
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Counsellors
Tandem Securities
Fund, Inc.
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
800-888-6878
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