<PAGE>
June 30, 1996
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COUNSELLORS
TANDEM SECURITIES
FUND, INC.
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Semiannual Report to Shareholders
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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
Reuben S. Leibowitz
Jack W. Fritz Vice President and
Chief Financial Officer
John L. Furth
Arnold M. Reichman
Thomas A. Melfe Executive Vice President
Alexander B. Trowbridge Stephen Distler
Treasurer and
Chief Accounting Officer
Eugene P. Grace
Vice President and Secretary
Janna Manes
Assistant Secretary
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INVESTMENT ADVISER ADMINISTRATOR
Warburg, Pincus Counsellors, Inc. PFPC Inc.
466 Lexington Avenue 400 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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Counsellors Tandem Securities Fund, Inc.
August 8, 1996
Dear Fellow Shareholder:
For the six months ended June 30, 1996, Counsellors Tandem Securities Fund,
Inc. (the "Fund") had a 6.54% total return (i.e., change in stock-market
price plus dividends), vs. same-period gains of 10.10% for the S&P 500 Index
and 7.94% for the Value Line Composite Index. The Fund's net asset value rose
3.03% over the six months (from $18.83 on December 31, 1995 to $19.40 on June
30, 1996).
The Fund saw mixed performance from its holdings during the period. Utility
stocks, which are heavily represented in the portfolio (combined, electric,
gas and telecommunications issues accounted for 46.8% of the Fund's net
assets as of June 30), in general posted weak returns, victims of a fairly
steep rise in interest rates. As the Fund's investors know, we must remain
invested in these high-yielding stocks in order to earn the income necessary
to pay the dividends on the Fund's Preferred Shares.
The Fund's metals & mining stocks also posted disappointing results, despite
a brief surge in the price of gold in January to $415 an ounce, its highest
level in several years. Gold-related shares initially rallied on the metal's
advance, but subsequently fell as the price of gold retreated to under $400
an ounce, and lagged the broader market for the full six months. The Fund's
industrial-cyclical exposure also proved disappointing, despite evidence of
renewed strength in the economy. Historically, expectations of stronger
economic growth have led to improved performance of cyclical stocks, but over
the first six months of 1996 that relationship failed to hold.
Areas of strength for the Fund during the period included its energy and
oil-services stocks, beneficiaries of a favorable supply-vs.-demand outlook.
The Fund's banking and financial-services stocks also performed well, despite
the rise in interest rates. We believe that the prospects for many of these
financial stocks remain, in general, favorable, and we increased the Fund's
weighting in these issues as the reporting period progressed (to 15.9% of the
portfolio as of June 30). Banks, in particular, stand to benefit from several
forces, including their ongoing restructuring efforts and share-buyback
programs, as well as the potential for a more-benign interest-rate
environment in the months ahead. Banking stocks added to the portfolio during
the period include Bank of New York, Chase Manhattan, Greenpoint Financial
and PNC Bank Corp.
Shareholders should note that the Fund will redeem its Preferred Shares (in
the principal amount of $30 million) on October 30, 1996. The redemption will
be carried forth as provided in the Fund's Prospectus and Articles of
Incorporation. After the Preferred Shares have been redeemed, the Fund's
Board of Directors will determine whether to liquidate the Fund or to call a
shareholder meeting to consider a proposal to convert the Fund to an open-end
investment company.
Sincerely,
/s/ JOHN L. FURTH
--------------------------
John L. Furth
Chief Executive Officer
/s/ ANTHONY G. ORPHANOS
--------------------------
Anthony G. Orphanos
President
The views of the Fund's Management are as of the date of this letter and
Portfolio Holdings described in this semiannual report are as of June 30,
1996; these views and positions may have changed subsequent to these dates.
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Counsellors Tandem Securities Fund, Inc.
Statement of Net Assets
June 30, 1996 (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Number of
Shares Value
----------- ------------
<S> <C> <C>
COMMON STOCK (92.8%)
Banks & Savings & Loans (10.3%)
BankAmerica Corp. 15,000 $1,136,250
Bank of New York Co., Inc. 25,000 1,281,250
Chase Manhattan Corp. 15,000 1,059,375
Greenpoint Financial Corp. 38,000 1,073,500
Mercantile Bancorporation 25,000 1,112,500
Norwest Corp. 50,000 1,743,750
PNC Bank Corp. 38,000 1,130,500
----------
8,537,125
----------
Business Services (4.1%)
H & R Block, Inc. 50,000 1,631,250
Manpower, Inc. 45,000 1,766,250
----------
3,397,500
----------
Communications & Media (0.8%)
Grupo Televisa SA Sponsor GDR + 21,000 645,750
----------
Computers (1.4%)
Honeywell, Inc. 21,000 1,144,500
----------
Conglomerates (6.3%)
General Electric Co. 60,000 5,190,000
----------
Energy (2.3%)
Noble Affiliates, Inc. 50,000 1,887,500
----------
Engineering & Construction (1.6%)
Stone & Webster, Inc. 38,000 1,296,750
----------
Financial Services (5.6%)
Aetna Life & Casualty Co. 21,000 1,501,500
Fund American Enterprises Holdings, Inc. 30,000 2,430,000
Student Loan Marketing Association 10,000 740,000
----------
4,671,500
----------
Industrial Manufacturing & Processing (2.9%)
Corning, Inc. 30,000 1,151,250
Inco, Ltd. 40,000 1,290,000
----------
2,441,250
----------
Metals & Mining (8.6%)
Allegheny Ludlum Corp. 80,000 1,510,000
Freeport-McMoRan Copper & Gold Inc. Class B 38,595 1,230,216
Homestake Mining Co. 76,000 1,301,500
Newmont Mining Corp. 34,000 1,678,750
Placer Dome Inc. 60,000 1,432,500
----------
7,152,966
----------
Oil Services (1.4%)
Baker Hughes Inc. 35,000 1,150,625
----------
Paper & Forest Products (0.7%)
Westvaco Corp. 21,000 627,375
----------
Utilities-Electric (24.3%)
Baltimore Gas & Electric Co. 50,000 1,418,750
Central & South West Corp. 100,000 2,900,000
Eastern Utilities Associates 80,000 1,570,000
</TABLE>
See Accompanying Notes to Financial Statements.
1
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Counsellors Tandem Securities Fund, Inc.
Statement of Net Assets (cont'd)
June 30, 1996 (Unaudited)
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<TABLE>
<CAPTION>
Number of
Shares Value
----------- ------------
<S> <C> <C>
COMMON STOCK (cont'd)
Utilities-Electric (cont'd)
Houston Industries, Inc. 140,000 $ 3,447,500
Minnesota Power & Light Co. 70,000 2,030,000
Montana Power Co. 65,000 1,446,250
NIPSCO Industries, Inc. 55,000 2,213,750
PECO Energy Co. 100,000 2,600,000
Public Service Co. of Colorado 70,000 2,572,500
-----------
20,198,750
-----------
Utilities-Gas (5.4%)
Equitable Resources, Inc. 37,500 1,059,375
KN Energy, Inc. 60,000 2,010,000
National Fuel Gas Co. 40,000 1,440,000
-----------
4,509,375
-----------
Utilities-Telecommunications (17.1%)
Airtouch Communications, Inc. + 44,000 1,243,000
AT&T Corp. 30,000 1,860,000
Bell Atlantic Corp. 38,000 2,422,500
Citizens Utilities Co. Series A + 116,235 1,336,708
Frontier Corp. 25,000 765,625
Lucent Technologies, Inc. 15,000 568,125
SBC Communications, Inc. 70,000 3,447,500
US West Communications Group 50,000 912,500
US West Media Group + 50,000 1,593,750
-----------
14,149,708
-----------
TOTAL COMMON STOCK (Cost $52,669,857) 77,000,674
-----------
</TABLE>
<TABLE>
<CAPTION>
Par
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (7.1%)
Repurchase agreement with Goldman Sachs & Co.
dated 06/28/96 at 5.25% to be repurchased at
$5,889,576 on 07/01/96. (Collateralized by
$6,010,000 U.S. Treasury Note 5.125%,
due 02/28/98, with a market value of
$6,010,000.)(Cost $5,887,000) $ 5,887,000 5,887,000
-----------
TOTAL INVESTMENTS AT VALUE (99.9%)
(Cost $58,556,857*) 82,887,674
OTHER ASSETS IN EXCESS OF LIABILITIES
(0.1%) 76,420
-----------
NET ASSETS (100.0%) 82,964,094
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 $52,964,094
===========
NET ASSET VALUE PER SHARE OF COMMON STOCK
($52,964,094 / 2,729,862 common shares) $19.40
======
</TABLE>
INVESTMENT ABBREVIATIONS
GDR = Global Depository Receipt
+ Non-income producing security.
* Cost for Federal income tax purposes is $58,557,147.
See Accompanying Notes to Financial Statements.
2
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Counsellors Tandem Securities Fund, Inc.
Statement of Operations
For the Six Months Ended June 30, 1996 (Unaudited)
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<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends $1,190,095
Interest 243,328
------------
Total investment income 1,433,423
------------
Expenses:
Investment advisory fee 307,797
Administration fee 50,000
Custodian and transfer agent fees 32,507
Legal fees 25,938
Directors fees 19,891
Amortization of organizational costs 12,871
Audit fee 11,542
Printing 8,701
Insurance 2,486
Other 37,371
------------
Total expenses 509,104
------------
Net investment income 924,319
------------
Net Realized and Unrealized Gain from Investments:
Net realized loss from security transactions (2,026)
Net increase in unrealized appreciation from
investments 1,443,262
------------
Net realized and unrealized gain from investments 1,441,236
------------
Net increase in net assets resulting from
operations $2,365,555
============
</TABLE>
See Accompanying Notes to Financial Statements.
3
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Counsellors Tandem Securities Fund, Inc.
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
For the Six
Months Ended For the
June 30, 1996 Year Ended
(Unaudited) December 31, 1995
--------------- -----------------
<S> <C> <C>
From Operations:
Net investment income $ 924,319 $ 2,151,102
Net realized gain (loss) from security
transactions (2,026) 1,944,661
Federal income tax 0 (177,983)
Net increase in unrealized appreciation
from investments 1,443,262 11,761,226
------------ ------------
Net increase in net assets resulting
from operations 2,365,555 15,679,006
------------ ------------
From Dividends:
Dividends from net investment income:
Common shares 0 (477,886)
Preferred shares (805,952) (1,612,500)
Distributions from short-term capital
gains:
Common shares 0 (1,419,772)
------------ ------------
Net decrease from distributions (805,952) (3,510,158)
------------ ------------
From Capital Share Transactions:
Cost of common shares repurchased 0 (144,819)
------------ ------------
Net increase in net assets 1,559,603 12,024,029
Net Assets:
Beginning of period 81,404,491 69,380,462
------------ ------------
End of period $ 82,964,094 $ 81,404,491
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
4
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Counsellors Tandem Securities Fund, Inc.
Financial Highlights
(For a Common Share of the Fund Outstanding Throughout Each Period)
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<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended December 31,
June 30, 1996 ---------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
-------------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $18.83 $14.37 $17.69 $16.54 $16.88 $12.67
------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment Income .34 .79 .71 .91 .79 .83
Net Gain (Loss) on Securities
(both realized and
unrealized) .53 5.01 (3.07) 1.02 (.33) 4.28
Federal income tax .00 .(.07) (.33) (.01) (.13) (.04)
------ ------ ------ ------ ------ ------
Total from Investment
Operations .87 5.73 (2.69) 1.92 .33 5.07
------ ------ ------ ------ ------ ------
Less Distributions:
Common stock equivalent of
dividends paid to preferred
shareholders (.30) (.59) (.66) (.75) (.75) (.73)
Dividends from Net Investment
Income .00 (.17) .00 .00 .00 (.12)
Distributions from Short-Term
Capital Gains .00 (.52) .00 .00 .00 .00
------ ------ ------ ------ ------ ------
Total Distributions (.30) (1.28) (.66) (.75) (.75) (.85)
------ ------ ------ ------ ------ ------
Gain (loss) on common shares
repurchased .00 .01 .03 (.02) .08 (.01)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $19.40 $18.83 $14.37 $17.69 $16.54 $16.88
====== ====== ====== ====== ====== ======
Market Value, End of Period $18.25 $17.13 $12.88 $15.25 $14.13 $14.13
====== ====== ====== ====== ====== ======
Total Return
Based on net asset value per
share 3.03%+ 35.91% (18.77)% 6.95% (2.01)% 34.41%
Based on market price per share 6.54%+ 38.43% (15.54)% 7.93% .00% 37.58%
Ratios/Supplemental Data:
Net Assets, End of Period (000s) $82,964 $81,404 $69,380 $78,200 $75,212 $76,879
Ratios to average daily net assets:
Operating expenses 1.24%* 1.29% 1.30% 1.27% 1.27% 1.35%
Net investment income 2.85%* 2.81% 2.60% 3.24% 2.97% 3.45%
Portfolio Turnover Rate 15.07%+ 32% 53% 33% 27% 26%
Average Commission Rate # $.0617 -- -- -- -- --
</TABLE>
+ Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total
number of shares purchased or sold during the period for which there was a
commission charged.
See Accompanying Notes to Financial Statements.
5
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Counsellors Tandem Securities Fund, Inc.
Notes to Financial Statements
June 30, 1996 (Unaudited)
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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.
The Fund's investments are valued at market value, which is currently
determined using the last reported sales price. If no sales are reported,
investments are generally valued at the last reported mean price. In the
absence of market quotations, investments are generally valued at fair value
as determined by or under the direction of the Fund's governing Board.
Short-term investments that mature in 60 days or less are valued on the basis
of amortized cost, which approximates market value.
Security transactions are accounted for on a trade date basis. Interest
income is recorded on an accrual basis. Dividends are 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.
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 collateral will be maintained at an amount at
least equal to the total amount of the purchase obligation, including
interest. The collateral is in the Fund's possession.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
6
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Notes to Financial Statements (cont'd)
June 30, 1996 (Unaudited)
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2. INVESTMENT ADVISER
Warburg, Pincus Counsellors, Inc. ("Warburg"), a wholly owned subsidiary
of Warburg, Pincus Counsellors G.P. ("Counsellors G.P."), serves as the
Fund's investment adviser. The Fund pays Warburg an investment advisory fee
calculated at an annual rate of .75% of the Fund's average daily net assets.
For the six months ended June 30, 1996, Warburg earned $307,797 in investment
advisory fees.
3. INVESTMENTS IN SECURITIES
Purchases and sales of investment securities for the six months ended June
30, 1996 (excluding short-term investments) were $13,207,986 and $11,043,166,
respectively.
At June 30, 1996, the net unrealized appreciation from investments of
$24,330,527 was comprised of appreciation of $24,627,931 for those
investments having an excess of value over cost, and depreciation of $297,404
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 June 30, 1996, the Fund had approximately 47% 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 year ended December 31, 1995, the Fund
repurchased 10,400 common shares. For the period ended June 30, 1996, the
Fund did not repurchase common shares.
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 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
7
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<PAGE>
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Counsellors Tandem Securities Fund, Inc.
Notes to Financial Statements (cont'd)
June 30, 1996 (Unaudited)
===============================================================================
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.
The Fund will redeem its Preferred Shares in full (in the principal amount
of $30 million) on October 30, 1996. The redemption will be effected as
provided in the Fund's Prospectus and Articles of Incorporation. After the
Preferred Shares have been redeemed, the Fund's Board of Directors will then
meet to determine whether to liquidate the Fund or to call a shareholder
meeting to consider a proposal to convert the Fund to an open- end investment
company.
6. DIVIDENDS
Regular dividends to 5.375% preferred shareholders for the six months
ended June 30, 1996 amounted to $1.34 per preferred share.
Income distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
7. NET ASSETS
At June 30, 1996, 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 June 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Paid in capital, net $57,727,599
Undistributed net investment income 907,704
Accumulated net loss from security transactions (2,026)
Net unrealized appreciation from investments 24,330,817
-------------
$82,964,094
=============
</TABLE>
8
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COUNSELLORS
TANDEM SECURITIES
FUND, INC.
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
212 878-0600
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