<PAGE> 1
- --------------------------------------------------------------------------------
PROSPECTUS JANUARY 2, 1998
COWEN
LARGE CAP VALUE FUND
Financial Square New York, NY
10005-3597 800-262-7116 212-495-6724
Cowen Large Cap Value Fund is a mutual fund that seeks capital
appreciation by investing primarily in equity securities which
are deemed to be undervalued. Current income from dividends is
a secondary objective of the Fund.
Cowen Large Cap Value Fund is a series of Cowen Series Funds,
Inc.
This Prospectus briefly sets forth certain information about
the Fund that investors should know before investing.
Investors are advised to read this Prospectus and retain it
for future reference. For convenience, certain terms that
appear throughout this Prospectus have been abbreviated: Cowen
Large Cap Value Fund will be referred to as the "Fund"; Cowen
& Company, the Fund's principal underwriter, will be referred
to as "Cowen"; Cowen, through its investment management
division, Cowen Asset Management, will serve as the Fund's
investment manager and in that capacity will be referred to as
"Cowen Asset Management"; and Investors Fiduciary Trust
Company, the Fund's custodian, will be referred to as the
"Bank" or "IFTC", and DST, Inc., the Fund's transfer and
dividend agent will be referred to as "DST."
Additional information about the Fund, contained in a
Statement of Additional Information, has been filed with the
Securities and Exchange Commission ("SEC") and is available to
investors without charge by calling the Fund's distributor at
800-262-7116 or 212-495-6724 or by contacting your account
representative. The Statement of Additional Information bears
the same date as this Prospectus and is incorporated by
reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[COWEN LOGO]
COWEN & COMPANY
principal underwriter
- --------------------------------------------------------------------------------
<PAGE> 2
CONTENTS
The Fund's Expenses............................................................3
Investment Objectives and Policies.............................................5
Management of the Fund.........................................................8
Net Asset Value...............................................................10
Purchase of Shares............................................................11
Redemption of Shares..........................................................16
Dividends, Distributions and Taxes............................................18
Additional Information........................................................19
The Cowen Family of Funds.....................................................20
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. THE STATEMENT OF ADDITIONAL
INFORMATION OR THE FUND'S OFFICIAL SALES
LITERATURE IN CONNECTION WITH THE OFFERING
OF THE FUND'S SHARES AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER
MAY NOT LAWFULLY BE MADE.
<PAGE> 3
THE FUND'S EXPENSES
Under the Multiple Pricing System, the Fund presently offers three methods
of purchasing shares. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares, as
described below. The following table lists the costs that an investor will
incur, either directly or indirectly, as a shareholder of the Fund, based upon
the Fund's projected annual operating expenses:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases of shares
(as a percentage of offering price)............... 4.75% 0% 0%
Maximum sales charge imposed on reinvested
dividends......................................... 0% 0% 0%
Maximum contingent deferred sales charge (as a
percentage
of redemption proceeds)........................... 0% 5.00% 0%
Redemption fees*.................................... $0 $0 $0
Exchange fee (per transaction)...................... $0 $0 $0
Annual Portfolio Operating Expenses (after expense
reimbursement)
(as percentage of average net assets)
Management fees..................................... .75% .75% .75%
12b-1 fees (distribution and service fees).......... .25% 1.00% 0%
Other expenses (after expense reimbursement)**...... .22% .22% .22%
Total Fund Operating Expenses (after expense
reimbursement)**....................................... 1.22% 1.97% .97%
</TABLE>
- ---------------
* There is a $10 charge for redemptions effected by wire transfer.
** Cowen is voluntarily absorbing all "Other expenses" for each Class in excess
of .22% of average daily net assets. It is currently anticipated that this
arrangement will continue through 1998. Based on the Fund's projected
annualized average net assets, if these expenses are not absorbed, "Other
expenses" would be .70%, 1.45% and .77% for Class A, B and C, respectively,
and "Total Fund Operating Expenses" would be 1.70%, 2.45% and 1.52% for Class
A, B and C, respectively.
The nature of the services for which the Fund pays management fees is
described below under "Management of the Fund." The Fund bears an annual Rule
12b-1 service fee of .25% of the value of the average daily net assets
attributable to Class A shares and an annual Rule 12b-1 fee of 1.00% of the
value of the average daily net assets attributable to Class B shares, consisting
of a .25% service fee and a .75% distribution fee. Long term shareholders of
Class B shares may pay more than the economic equivalent of the maximum
front-end-sales charge currently permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD") governing investment company
sales charges. See "Management of the Fund -- Distributor."
The percentage of "Other expenses" in the table above is based on amounts
for expenses that include fees for shareholder services, custodial fees, legal
and accounting fees, printing costs and registration fees.
3
<PAGE> 4
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table above and (3) complete redemption at the end of
the period.
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Class A........................................ $ 60 $85
Class B........................................ $ 71 $94
Class C........................................ $ 10 $32
</TABLE>
An investor would pay the following expenses on the same investment in
Class B shares assuming no redemption.
<TABLE>
<CAPTION>
1 Year 3 Years
- ------ -------
<S> <C>
$ 21 $64
</TABLE>
The above example is intended to assist an investor in understanding
various costs and expenses that the investor would bear upon becoming a
shareholder of the Fund. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF THE FUND MAY BE
GREATER OR LESS THAN THOSE SHOWN ABOVE. The assumed 5% annual return shown in
the example is hypothetical and should not be considered to be a representation
of past or future annual return; the actual return of the Fund may be greater or
less than the assumed return.
4
<PAGE> 5
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The primary investment objective of the Fund is to provide capital
appreciation. Current income from dividends is a secondary objective of the
Fund. The Fund seeks to achieve its investment objectives by investing at least
80% of its assets under normal market conditions in equity securities, such as
common or preferred stock or securities convertible into or exchangeable for
common stock, which are deemed to be undervalued. Cowen Asset Management
emphasizes investments in companies with value characteristics below that of the
Russell 1000 Value Index, as described under "Investment Strategy" below. Under
normal market conditions, at least 80% of the Fund's assets will be invested in
securities of issuers that, at the time of purchase, have market capitalizations
in excess of $2 billion and all of the equity securities held in the Fund's
portfolio will have market capitalizations in excess of $1 billion at the time
of purchase. It is expected that the average weighted market capitalization of
the Fund's portfolio will be in excess of $20 billion. Cowen Asset Management
may also make temporary investments in investment grade corporate debt
obligations and U.S. Government securities for defensive purposes when it
believes market conditions warrant a temporary defensive posture, and as a cash
management technique. See "Temporary Investments". In addition, Cowen Asset
Management may write covered call options and engage in securities lending
transactions in order to generate additional income for the Fund. See "Covered
Call Options" and "Lending of Securities". The Fund's investment objectives may
not be changed without shareholder approval. There is no assurance that the
Fund's investment objectives will be achieved.
Although a consideration in the selection of the Fund's investments,
current income from dividends is not the primary objective of the Fund and
investors should not expect dividend income comparable to that of mutual funds
with a high level of dividend income as a primary objective. Because the Fund
will invest primarily in equity securities, it will be subject to general
conditions prevailing in securities markets and the net asset value of the
Fund's shares will fluctuate with changes in the market prices of its portfolio
securities. It is anticipated that the securities in which the Fund will invest
will be traded on the New York or American Stock Exchanges, although the Fund
may invest in securities traded in the over-the-counter market. Cowen Asset
Management will attempt to avoid investment in speculative securities or those
with speculative characteristics and the Fund has adopted certain other policies
designed to limit investment risk. See "Investment Restrictions."
INVESTMENT STRATEGY
In managing the Fund's assets, Cowen Asset Management uses the Cowen Large
Cap Value approach, which is a five-step investment process seeking to identify
neglected or out-of-favor companies whose stock prices are low in relation to
current earnings, cashflow, book value and sales.
Stocks are selected out of a universe of approximately 650 stocks
worldwide, each with a capitalization in excess of $1 billion. The discipline
screens for these stocks whose price-to-earnings ratios are in the lower 40% of
the market and/or whose price-to-cashflow, price-to-book and/or price-to-sales
ratios are in the lower 20% of the market. For these purposes, the "market" is
defined as the Russell 1000 Value Index. The composition and characteristics of
this index may vary from time to time, but it is not anticipated that these
variations ordinarily would prompt a change in the Fund's value screening
methodology. In addition,
5
<PAGE> 6
independent and fundamental analyses are conducted with the goal of adding value
by selecting those stocks with reasonable prospects when expectations are low
and valuations are temporarily depressed.
Cowen Asset Management adheres to a strict risk management and sell
discipline. The approach attempts to control risk both through diversification
across sectors, industries and issues and also by monitoring sector and industry
weightings relative to appropriate benchmarks. It is the practice of this
approach to sell stocks either when they have achieved a relative valuation
target price or in the event that fundamentals fail to improve as expected or
deteriorate causing undue risk. Cowen Asset Management may make modifications of
its investment strategy for the Fund as it deems advisable in light of its
experience in managing the Fund or in response to changing market or economic
conditions.
TEMPORARY INVESTMENTS
The Fund may invest up to 20% of its assets, and in excess of that amount
when Cowen Asset Management believes market conditions warrant a temporary
defensive posture, in corporate bonds rated at least Baa by Moody's Investors
Service, Inc., or BBB by Standard & Poor's Corporation, commercial paper rated
at least Prime-2 by Moody's or A-2 by Standard & Poor's and obligations issued
or guaranteed by the U.S. Government or by its agencies or instrumentalities and
repurchase agreements in respect of such obligations. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as the Government
National Mortgage Association, are supported by the "full faith and credit" of
the U.S. Government; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; and still others, such as those of the
Export-Import Bank of the U.S., are supported by the right of the issuer to
borrow from the U.S. Treasury; and still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Bonds rated Baa by Moody's and BBB by S&P,
while considered "investment grade" obligations, may have speculative
characteristics.
COVERED CALL OPTIONS
In an effort to enhance the Fund's performance through receipt of premiums
and generally to assist in the management of its portfolio, the Fund may engage
in the writing (selling) of call option contracts on securities at such times as
Cowen Asset Management shall determine to be appropriate. However, options shall
be written solely as "covered" call options; that is, options on securities that
the Fund owns.
A call option gives the purchaser of the option the right to buy a security
from a writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price except insofar as the premium represents a profit. The Fund will
write call option contracts only if Cowen Asset Management believes that the
Fund's performance can be increased through receipt of premiums.
6
<PAGE> 7
The Fund will purchase options only to close out a call option position. In
order to close out a position the Fund will make a "closing purchase
transaction" which involves the purchase of a call option on the same security
with the same exercise price and expiration date as a call option which it has
previously written. When a security is sold from the Fund's portfolio, the Fund
will effect a closing purchase transaction so as to close out any existing call
option on that security. The Fund will realize a profit or loss from a closing
purchase transaction if the amount paid to purchase a call option is less or
more than the amount received from the sale thereof. There can be no assurance
that the Fund will be able to effect closing purchase transactions at a time
when it desires to do so. To facilitate closing purchase transactions, however,
the Fund will write options only if a secondary market for the options exists on
a national securities exchange.
Securities for the Fund's portfolio will at all times be bought and sold
solely on the basis of investment considerations and appropriateness to the
fulfillment of the Fund's objectives.
LENDING OF SECURITIES
The Fund may lend its portfolio securities to broker-dealers and other
financial institutions pursuant to agreements requiring that the loans be
continuously secured by cash, letters of credit or U.S. Government securities of
a value equal to at least the fair market value of the securities lent. Such
loans will not be made if as a result the aggregate of all outstanding loans
exceeds 30% of the value of the Fund's total assets taken at current value.
INVESTMENT RESTRICTIONS
In order to limit investment risk, the Fund has adopted certain investment
restrictions which are changeable only by shareholder vote. These restrictions,
among other things, prohibit the Fund from: purchasing securities of any issuer,
other than U.S. Government securities, if the purchase would cause more than
five percent of the Fund's assets, taken at market value, to be invested in the
securities of that issuer, except that 25% of the Fund's assets may be invested
without regard to this limit; purchasing more than 10% of the voting securities
or any class of securities of any issuer; engaging in short sales or purchasing
securities on margin; borrowing money or mortgaging or hypothecating the Fund's
assets, although the prohibition against borrowing does not prohibit limited
short-term borrowings to meet redemption requests and the prohibition against
mortgaging or hypothecating assets does not prohibit escrow arrangements
contemplated by writing covered call options; investing more than 10% of the
Fund's assets in restricted or illiquid securities, including repurchase
agreements of greater than seven days' duration, or securities that are not
readily marketable; concentrating more than 25% of the Fund's assets in any one
industry; or buying or selling commodities or commodity contracts.
PORTFOLIO TRANSACTIONS
All orders for transactions in securities and options on behalf of the Fund
are placed with broker-dealers selected by Cowen Asset Management. Cowen may
serve as the Fund's broker in effecting portfolio transactions on national
securities exchanges and retain commissions in accordance with certain
regulations of the SEC. In addition, Cowen Asset Management may select
broker-dealers that provide it with research services and may cause the Fund to
pay these broker-dealers commissions that exceed those that other broker-dealers
may have charged, if it views the commissions as reasonable in relation to the
value of the brokerage and/or research services received.
7
<PAGE> 8
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of the
Board of Directors of Cowen Series Funds, Inc. By virtue of the responsibilities
assumed by Cowen Asset Management under its Investment Management Agreement with
the Fund, the Fund will not require any executive employees other than its
officers, none of whom will devote full time to the affairs of the Fund.
INVESTMENT MANAGER
Cowen, an investment adviser and broker-dealer registered with the SEC,
through Cowen Asset Management, serves as the Fund's investment manager. Cowen
currently serves as investment manager for six other mutual funds: Cowen Standby
Reserve Fund, Inc., Cowen Standby Tax-Exempt Reserve Fund, Inc., Cowen
Opportunity Fund, Cowen Intermediate Fixed Income Fund and Cowen Government
Securities Fund (all series of Cowen Funds, Inc.), and Cowen Income + Growth
Fund, Inc. Cowen's principal address is Financial Square, New York, New York
10005-3597.
Pursuant to the Investment Management Agreement between Cowen Asset
Management and the Fund, Cowen Asset Management has agreed to be responsible for
the Fund's investment program. Subject to the supervision and direction of the
Board of Directors, Cowen Asset Management manages the Fund's portfolio in
accordance with the stated policies of the Fund. Cowen Asset Management makes
investment decisions for the Fund and places the purchase and sale orders for
portfolio transactions. Cowen Asset Management also furnishes the Fund's
statistical and research data, clerical help, data processing, internal auditing
and certain legal and other services required by the Fund; prepares reports to
shareholders of the Fund, tax returns, reports to and filings with the SEC and
state Blue Sky authorities; calculates the net asset value of shares of the Fund
and generally assists in all aspects of the Fund's operation. For the services
provided pursuant to the Investment Management Agreement, Cowen Asset Management
is entitled to receive a fee, computed daily and payable monthly, at the annual
rate of .75% of one percent of the Fund's average daily net assets, which
exceeds the management fee paid by most other investment companies.
Benedict Capaldi, Senior Investment Officer, is primarily responsible for
the daily management of the Fund. Mr. Capaldi joined Cowen in January 1997 as a
Managing Director. From July 1995 to December 1996, Mr. Capaldi was Portfolio
Manager for Provident Capital Management, Inc. and served as portfolio manager
for the Compass Large Cap Value Equity Fund. Prior to that, Mr. Capaldi was
Senior Vice President and Portfolio Manager of Radnor Capital Management from
June 1994 to May 1995, President of Chestnut Hill Advisors, Inc. from January
1994 to December 1994, and Managing Director of Brandywine Asset Management,
Inc. from June 1986 to December 1993.
DISTRIBUTOR
Cowen acts as distributor of the Fund's shares. Cowen is a member of the
NASD and of the New York, American and other principal national securities
exchanges. Cowen is paid monthly fees by the Fund in connection with (1) the
servicing of shareholder accounts in Class A and Class B shares and (2)
providing distribution-related services in respect of Class B shares. A monthly
service fee, authorized pursuant to a Shareholder Servicing and Distribution
Plan (the "Plan") adopted by the Fund pursuant to Rule 12b-1 under
8
<PAGE> 9
the Investment Company Act of 1940, as amended (the "1940 Act"), is calculated
at the annual rate of .25% of the value of the average daily net assets of the
Fund attributable to each of Class A and Class B shares and is used by Cowen to
provide compensation for ongoing servicing and/or maintenance of shareholder
accounts with the Fund. Compensation is paid by Cowen to persons, including
Cowen employees, who respond to inquiries of shareholders of the Fund regarding
their ownership of shares or their accounts with the Fund or who provide other
similar services not otherwise required to be provided by the Fund's investment
adviser, transfer agent or other agent of the Fund.
In addition, pursuant to the Plan, the Fund pays to Cowen a monthly
distribution fee at the annual rate of .75% of the Fund's average daily net
assets attributable to Class B shares. The distribution fee is used by Cowen to
provide (1) initial and ongoing sales compensation to its registered
representatives or those of other broker-dealers that enter into selected dealer
agreements with Cowen in respect of sales of Class B shares; (2) costs of
printing and distributing the Fund's Prospectus, Statement of Additional
Information and sales literature to prospective investors in Class B shares; (3)
costs associated with any advertising relating to Class B shares; and (4)
payments to, and expenses of, persons who provide support services in connection
with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the service and/or
distribution expenses actually incurred by Cowen, and the payments may exceed
expenses actually incurred by Cowen. The Board of Directors evaluates the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so considers all relevant factors, including expenses borne by Cowen and
amounts it receives under the Plan.
Under its terms, the Plan continues from year to year, so long as its
continuance is approved annually by vote of the Board of Directors, including a
majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan (the
"Independent Directors"). The Plan may not be amended to increase materially the
amount to be spent for the services provided by Cowen without shareholder
approval, and all material amendments of the Plan also must be approved by the
Directors in the manner described above. The Plan may be terminated with respect
to a Class at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) represented by the Class on not more
than 30 days' written notice to Cowen.
Pursuant to the Plan, Cowen will provide the Board of Directors with
periodic reports of amounts expended under the Plan and the purpose for which
the expenditures were made. The Directors believe that the Fund's expenditures
under the Plan will benefit the Fund and its shareholders by providing better
shareholder services and by facilitating the distribution of shares.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, a subsidiary of State Street Boston
Corp., serves as the custodian of the Fund's investments. Communications to the
Bank should be directed at P.O. Box 419111, Kansas City, Missouri 64141. DST,
Inc. serves as the Fund's transfer and dividend agent. Communications to DST
should be directed to 210 West 10th Street, Kansas City, Missouri 64105.
9
<PAGE> 10
EXPENSES OF THE FUND
Operating expenses for the Fund generally consist of all costs not
specifically borne by Cowen Asset Management, including investment management
fees, accounting fees, fees for necessary professional and brokerage services,
the costs of regulatory compliance and costs associated with maintaining legal
existence and shareholder relations. The Fund's Investment Management Agreement
with Cowen Asset Management provides that Cowen Asset Management will reimburse
the Fund to the extent required by applicable state law for certain expenses
that are described in the Statement of Additional Information. From time to
time, Cowen Asset Management, in its sole discretion and as it deems
appropriate, may waive a portion or all of the fees payable to it by the Fund.
Each Class bears its own expenses, which generally include all costs not
specifically borne by Cowen Asset Management. Included among a Class' expenses
are (1) transfer agency fees as identified by the transfer agent as being
attributable to a specific Class; (2) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; (3) Blue Sky registration fees incurred by
a Class; (4) SEC registration fees incurred by a Class; (5) the expenses of
administrative personnel and services as required to support the shareholders of
a specific Class; (6) litigation or other legal expenses relating solely to one
Class; and (7) directors' fees incurred as a result of issues relating to one
Class. In addition, each Class will bear an allocable portion of all other Fund
expenses not attributable to a particular Class based on the Class' relative net
assets.
NET ASSET VALUE
The net asset value per share of the Fund is calculated as of 4:15 p.m.
Eastern time, on each day on which the New York Stock Exchange, Inc. is open.
The Exchange is currently open on each Monday through Friday, except (a) January
1st, Martin Luther King's Birthday (the third Monday in January), Washington's
Birthday (the third Monday in February), Good Friday, Memorial Day (the last
Monday in May), July 4th, Labor Day (the first Monday in September),
Thanksgiving Day (the fourth Thursday in November) and December 25th; and (b)
the preceding Friday when one of those holidays falls on a Saturday or the
subsequent Monday when one of those holidays falls on a Sunday. Net asset value
per share of each Class is computed by dividing the value of the Fund's net
assets attributable to the Class by the total number of its shares of the Class
outstanding. Assets traded on a securities exchange or other recognized market
are valued on the basis of market quotations. Assets for which quotations are
not readily available are valued at fair value as determined in good faith under
procedures approved by the Board of Directors. High quality money market
instruments with remaining maturities of 60 days or less are valued on the basis
of amortized cost, which involves valuing a portfolio instrument at its market
value on the 61st day prior to maturity and thereafter assuming a constant
amortization to maturity of any market discount or premium, generally without
regard to the effect of fluctuating interest rates on the market value of the
instrument.
10
<PAGE> 11
PURCHASE OF SHARES
GENERAL INFORMATION
Shares of the Fund are sold at the net asset value per share next
determined after receipt of an order plus a sales charge in the case of Class A
shares. Investors whose orders are received by Cowen not later than 4:15 p.m.,
New York time, will become shareholders on that day. Investors whose orders are
received after 4:15 p.m., New York time, will become shareholders on the
following business day. The Fund reserves the right to reject any order to
purchase shares. Certificates for shares will be issued only upon the specific
request of a shareholder.
The minimum initial investment in the Fund is $1,000 and the minimum
subsequent investment is $100 except that the minimum initial and subsequent
investments for purchases of Fund shares through Retirement Plans for
Self-Employed Persons and Individual Retirement Accounts will be $500 and $50,
respectively. The Fund reserves the right to vary these minimums at any time.
Retirement Plans. Shares may be purchased in connection with various
qualified tax-deferred retirement plans. Forms for establishing these plans are
available through any Cowen account representative. Investors are urged to
consult with a tax adviser in connection with the establishment of retirement
plans.
Automatic Investment Plan. The Fund offers an Automatic Investment Plan
whereby the Bank is permitted through preauthorized checks of $100 or more ($50
in the case of Retirement Plans for Self-Employed Persons and Individual
Retirement Accounts) to charge the regular bank account of a shareholder on a
regular basis to provide systematic additions to the Fund account of the
shareholder. While there is no charge to shareholders for this service, a charge
of $10.00 will be deducted from a shareholder's Fund account for checks returned
for insufficient funds. A shareholder's Automatic Investment Plan may be
terminated at any time without charge or penalty by the shareholder, the Fund,
the Bank or Cowen. Further information regarding the Automatic Investment Plan
may be obtained through any Cowen account representative.
Under the Multiple Pricing System, the Fund presently offers three methods
of purchasing shares, enabling investors to choose the Class that, given the
amount of purchase and intended length of investment, best suits their needs.
Cowen account representatives and other persons remunerated on the basis of
sales of shares may receive different levels of compensation for selling one
Class of shares over another. From time to time, Cowen's registered
representatives and those of other broker-dealers that enter into selected
dealer agreements with Cowen will receive additional non-cash compensation in
the form of gifts or prizes such as merchandise or trips. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares, as described below.
CLASS A SHARES
The public offering price of Class A shares is the net asset value per
Class A share next determined after a purchase order is received plus a sales
charge, if applicable. Class A shares are subject to a service fee at the annual
rate of .25% of the value of the Fund's average daily net assets attributable to
this Class. See
11
<PAGE> 12
"Management of the Fund -- Distributor." The sales charge payable upon the
purchase of Class A shares will vary with the amount of purchase as set forth
below.
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
Shares Purchased in Percentage of the Percentage of the Dealer
Single Transaction Public Offering Price Net Amount Invested Reallowance
----------------------------------- --------------------- ------------------- -----------
<S> <C> <C> <C>
Up to $49,999...................... 4.75% 5.00% 4.00%
$50,000 - $99,999.................. 4.00% 4.17% 3.25%
$100,000 - $249,999................ 3.75% 3.90% 3.00%
$250,000 - $499,999................ 2.50% 2.56% 2.00%
$500,000 - $999,999................ 2.00% 2.04% 1.50%
$1,000,000 - $2,999,999............ 0% 0% 1.00%
$3,000,000 - $3,999,999*........... 0% 0% .50%
</TABLE>
- ---------------
* Investors who purchase $4 million or more of shares will receive Class C
shares, which are not subject to any front-end sales charge or service fee.
See "Class C Shares."
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (1) an individual; (2) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his or her
own accounts; (3) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account; (4) a pension, profit-sharing or
other employee benefit plan qualified or non-qualified under Section 401 of the
Internal Revenue Code of 1986 (the "Code"); (5) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; (6) employee benefit plans
qualified under Section 401 of the Code of a single employer or of employers who
are "affiliated persons" of each other, as defined in the 1940 Act and for
investments in Individual Retirement Accounts of employees of a single employer
through Systematic Payroll Deduction plans; or (7) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
You may benefit from a reduction of the sales charges in accordance with
the above schedule if the cumulative value (at current net asset value) of Class
A shares purchased in a single transaction, together with those Class A shares
previously purchased subject to payment of a sales charge, plus Class A shares
of Cowen Opportunity Fund, Cowen Intermediate Fixed Income Fund and Cowen
Government Securities Fund, each a series of Cowen Funds, Inc., previously or
simultaneously purchased subject to a sales charge, amounts to $50,000 or more.
The foregoing schedule of reduced sales charges will also be available to
investors who enter into a written Letter of Intent providing for the purchase,
within a 13-month period, of Class A shares of the Fund, Cowen Opportunity Fund,
Cowen Intermediate Fixed Income Fund and Cowen Government Securities Fund from
Cowen. Class A shares of the Fund, Cowen Opportunity Fund, Cowen Intermediate
Fixed Income Fund and Cowen Government Securities Fund previously purchased
during a 90-day period prior to the date of receipt by Cowen of the Letter of
Intent and still owned by the shareholder may also be included in determining
the applicable reduction.
A shareholder who has redeemed his Class A shares may reinvest all or part
of the redemption proceeds within 30 days without imposition of a sales charge.
This privilege may be exercised only once by a shareholder. Shareholders should
note that no loss will be allowed on the sale of Fund shares to the extent
12
<PAGE> 13
that the shareholder acquired other shares in the Fund within a period beginning
30 days before the sale or disposition of the shares in which the shareholder
incurred a loss and ending 30 days after such sale.
The Fund offers Class A shares without imposition of a sales charge to (1)
employees of Cowen and registered representatives of securities dealers that
participate in distribution of the Fund's shares; (2) Individual Retirement
Accounts for those persons; (3) the spouses, children, parents, grandparents,
siblings, spouses' parents and siblings' children of those persons when purchase
orders on their behalf are placed by those persons; (4) directors and trustees
of registered investment companies whose shares are distributed by Cowen,
Individual Retirement Accounts for those persons, employee benefit plans for
those persons, and the spouses and minor children of those persons when purchase
orders on their behalf are placed by those persons; (5) Cowen and its
subsidiaries; (6) participants in any pension, profit-sharing or other employee
benefit plan qualified or non-qualified under Section 401 of the Code when
purchase orders are placed by such participants pursuant to such plans; (7)
officers, directors, partners and employees of the Fund's counsel or auditors;
and (8) investors who purchase shares of the Fund to the extent that the
investment represents (a) the proceeds from the redemption made within the
preceding 60 days of shares of another mutual fund not affiliated with Cowen
Asset Management whose shares were purchased subject to a sales charge, or (b)
the net proceeds of the sale within the preceding 60 days of shares of any
closed-end investment company. The Distributor pays a sales commission equal to
1.00% of the amount invested to dealers who sell Class A shares without
imposition of a sales charge to investors described in items (6) and (8).
CLASS B SHARES
The public offering price of Class B shares is the net asset value per
share next determined after a purchase order is received without imposition of
any front-end sales charge. The Distributor pays a sales commission equal to
4.00% of the amount invested to dealers who sell Class B shares. Class B shares
may be subject upon redemption to a contingent deferred sales charge ("CDSC").
See "Redemption of Shares." Class B shares are subject to a service fee at the
annual rate of .25%, and a distribution fee at the annual rate of .75%, of the
value of the Fund's average daily net assets attributable to this Class. See
"Management of the Fund -- Distributor." Cowen has adopted guidelines, in view
of the relative sales charges, service fees and distribution fees, directing
account representatives that all purchases of shares should be for Class A
shares when the purchase is for $500,000 or more by an investor not eligible to
purchase Class C shares. Cowen reserves the right to vary these guidelines at
any time.
CLASS C SHARES
The public offering price of Class C shares is the net asset value per
share next determined after a purchase order is received without imposition of
any sales charge. Class C shares, which are not subject to any service fee or
distribution fee, are available exclusively to (1) employee benefit plans for
employees of Cowen and securities dealers that participate in distribution of
the Fund's shares; (2) charitable organizations (as defined in Section 501(c)(3)
of the Code) investing $100,000 or more; (3) any pension fund, corporation,
state or local government, Taft-Hartley plan, foundation and/or endowment which
is a client of a consulting
firm, if such consulting firm has contacted the Fund, Cowen or any subsidiary of
Cowen with respect to furnishing advice to the client of that consulting firm or
with respect to the purchase of the securities of the Fund by such client; (4)
investors purchasing $4 million or more of shares of the Fund; (5) accounts as
to which a bank, registered investment adviser or broker-dealer charges an
account management fee, provided
13
<PAGE> 14
the bank, registered investment adviser or broker-dealer has an agreement with
Cowen relating to investment in the Fund; (6) investors, and their spouses and
minor children, who are investment advisory clients of Cowen or any of its
subsidiaries or who are affiliated persons or sponsoring companies of those
clients; and (7) purchasers placing orders through a broker that maintains an
omnibus account with the Fund and such purchases are made (i) by investment
advisers or financial planners placing trades for their accounts or the accounts
of their clients, and who charge a fee for their services; (ii) clients of such
investment adviser or financial planner who place trades for their own accounts
if the accounts are linked to a master account of such investment adviser or
financial planner on the books and records of the broker or agent, or (iii) for
retirement and deferred compensation plans and trusts used to fund those plans,
including but not limited to those defined in Section 401(a), 403(b) or 457 of
the Internal Revenue Code or "rabbi trusts." Investors who purchase pursuant to
(7) may be charged a fee by the broker or agent utilized to effect the
transaction. The Distributor will from its own resources compensate
broker-dealers and service agents at a maximum annual rate of .15%, .15% and
.35%, respectively, of the net asset value of shares purchased pursuant to (3),
(5) and (7), respectively.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same Class (or the
sole class offered) of the mutual funds listed below for which Cowen serves as a
distributor.
- Cowen Standby Reserve Fund, Inc., a money market fund whose investment
objective is the maximization of current income to the extent consistent
with preservation of capital and maintenance of liquidity.
- Cowen Standby Tax-Exempt Reserve Fund, Inc., a money market fund whose
investment objective is the maximization of current income that is exempt
from federal income taxes to the extent consistent with the preservation
of capital and the maintenance of liquidity.
- Cowen Intermediate Fixed Income Fund, a fund that seeks current income
and stability of principal by investing primarily in high quality
intermediate term fixed income securities. This fund is a series of Cowen
Funds, Inc.
- Cowen Government Securities Fund, a fund that seeks total return
consistent of current income and appreciation of capital through
investing primarily in securities issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. This fund is
a series of Cowen Funds, Inc.
- Cowen Opportunity Fund, a fund whose investment objective is appreciation
of capital through investing primarily in equity securities of companies
that, in the opinion of its investment manager, are expected to benefit
from scientific and technological improvements and advances.
- Cowen Income + Growth Fund, Inc., a fund that seeks a higher level of
dividend income, to the extent consistent with prudent investment
management, by investing primarily in income-producing equity securities.
For purposes of this discussion, Cowen Standby Reserve Fund, Inc. and Cowen
Standby Tax-Exempt Reserve Fund, Inc. are referred to as "money market funds"
and Cowen Opportunity Fund, Cowen Intermediate Fixed Income Fund, Cowen
Government Securities Fund and Cowen Income + Growth Fund, Inc. are referred to
as "non-money market funds."
14
<PAGE> 15
Shares of these mutual funds are available only to investors residing in
states where these mutual funds are qualified for sale. They are sold pursuant
to separate prospectuses that may be obtained through any Cowen account
representative, through account representatives of Cowen correspondents, or
through any other member of the NASD, or any foreign non-member of the NASD,
which has entered into a Sales Agreement with Cowen with respect to such funds.
An exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. The exchange privilege is subject to termination and its terms are
subject to change upon 60 days' notice to shareholders.
Under the Multiple Pricing System, an exchange of shares of the Fund with
other Cowen funds' shares will be limited to shares of the same class or the
sole class (money market funds only) of shares of a fund from which the exchange
is to be effected. For example, if a holder of Class A shares of a non-money
market fund exchanges his shares for shares of a money market fund and
thereafter wishes to exchange those shares for shares of the Fund, he may
receive only Class A shares in the latter transaction. As another example, if a
holder of shares of a money market fund acquired as a result of an initial
investment and not from an exchange wishes to exchange his shares for shares of
a non-money market fund, he may receive Class A shares, Class B shares or Class
C shares (depending on his eligibility for Class C shares) in the exchange
transaction. Thereafter, any further exchanges would be subject to the principal
described above limiting subsequent exchanges to the same class or the sole
class of shares of other funds.
Class A Exchanges. A shareholder may effect exchanges among the mutual
funds listed above and the Fund on the basis of relative net asset values
without imposition of a sales charge; provided, however, that where shares of a
money market fund acquired through a direct purchase are exchanged for Class A
shares of the Fund or another non-money market fund, the appropriate sales
charge will be imposed at the time of the exchange. Because a substantially
lower sales charge is paid upon purchase of Class A shares of Cowen Intermediate
Fixed Income Fund, holders of these shares will not be able to exchange their
shares with shares of the Fund or any of the non-money market funds for a period
of 90 days from the date of purchase. After the 90-day waiting period has
expired, Class A shares of Cowen Intermediate Fixed Income Fund will be
exchangeable without the imposition of any additional sales charge.
Class B Exchanges. As described below under "Redemption of Shares," the
CDSC payable by Class B shareholders upon redemption of their shares will vary
with the period of time that the shares are held (the "CDSC holding period").
For purposes of calculating the CDSC holding period, any Class B shares received
in an exchange will be deemed to have been purchased on the same date as the
Class B shares given in exchange. If, however, a Class B shareholder exchanges
his shares for shares of either money market fund, which do not offer a class of
shares subject to a CDSC, such exchange will toll, or suspend, the running of
the CDSC holding period for as long as the money market fund shares are held
and, if those shares are redeemed, a CDSC will be imposed based on the CDSC
holding period without regard to the period during which the money market fund
shares were held. For example, if a holder of Class B shares of the Fund who has
held those shares for a period of more than four but less than five years
exchanges his shares for shares of a money market fund, holds those shares of
the money market fund for a period of one year, and thereafter exchanges those
shares for Class B shares of the Fund, such shareholder will be deemed to have
held the Class B shares for a period of four full years on the date of the last
exchange. If the shareholder were to then immediately redeem his Class B shares
of the Fund, such redemption would be subject to a 2.00% CDSC. Similarly, the
same CDSC would be imposed if at any time the money market fund shares were
redeemed. Conversely, if the shareholder
15
<PAGE> 16
had held his Class B shares of the Fund for the full six-year period, no CDSC
would have been imposed upon redemption.
Because a substantially lower CDSC schedule is applicable to Class B shares
of Cowen Intermediate Fixed Income Fund, holders of these shares will not be
able to exchange their shares with shares of the Fund or any of the non-money
market funds for a period of 90 days from the date of purchase. After the 90-day
waiting period has expired, if a holder of these shares wanted to exchange all
or a portion of these shares for Class B shares of the Fund or of any of the
non-money market funds that offer Class B shares subject to a higher CDSC than
that imposed by Cowen Intermediate Fixed Income Fund, the exchanged Class B
shares will not be subject to the higher applicable CDSC. Upon redemption, the
lower CDSC schedule applicable to Class B shares of Cowen Intermediate Fixed
Income Fund will apply.
REDEMPTION OF SHARES
REDEMPTION PROCEDURES
The Fund will redeem shares without charge at the net asset value per share
next determined after receipt of a redemption order in proper form by Cowen or
the Bank, less any CDSC imposed on Class B shares. Any redemption request
received by Cowen prior to 4:15 p.m., New York time, will be transmitted to the
Bank on that day and the proceeds of such redemption will be transmitted in
accordance with the investor's instructions within seven days. Redemption
requests received at or after 4:15 p.m., New York time, will be effected on the
next business day. Proceeds of any redemptions will not be sent until the check
(including a certified or cashier's check) used for investment has been cleared
for payment by the investor's bank, which may take up to 15 days. Pending such
clearance, Cowen will hold redemption proceeds under circumstances resulting in
no earnings to investors. Investors can avoid the inconvenience associated with
check clearance delays by purchasing shares with immediately available funds
held in a brokerage account with Cowen or at a participating securities dealer
or by transmitting funds to the Bank by wire transfer.
Cowen generally will effect redemptions of shares upon oral instructions
received from the shareholders. If shares are to be redeemed pursuant to an
order sent to the Bank by the shareholder, the Bank will require written
redemption instructions signed by the shareholder of record, which signature
must be guaranteed by a commercial bank or trust company (not a savings bank)
located or having a correspondent in New York City, or by a member organization
of the New York Stock Exchange, Inc. The redemption order must specify which
Class of shares is being redeemed. If certificates have been issued representing
the shares to be redeemed, such certificates must also be endorsed, or a duly
executed stock power must be furnished, with signatures guaranteed as discussed
above, and must be submitted to Cowen or the Bank with the redemption request.
Cowen or the Bank may require further documentation if the shareholder is a
corporation, partnership, trust, estate or other entity. The payment of
redemptions may be wired to a shareholder's commercial bank account. There is a
$10 charge for each federal funds wire transaction. The minimum amount for wire
redemptions is $10,000. A shareholder who wishes to redeem by wire should
contact IFTC at 1-800-262-7116.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recordation of the
transfer of its shares) for such periods as are permitted under the 1940 Act.
The Fund reserves the right to redeem shares in any account, other than an
Individual Retirement Account or other qualified retirement plan, at their net
asset value if the value of the account is less
16
<PAGE> 17
than $250. The shareholder having the account will first be notified in writing
that the account has a value of less than $250 and will be allowed 60 days to
make an additional investment before the redemption is processed by the Fund.
The Fund offers a Systematic Withdrawal Plan under which a shareholder with
$10,000 or more in the Fund may elect to redeem periodic payments to himself or
a designated payee on a monthly, quarterly or annual basis. For accounts other
than qualified retirement plans, the minimum rate of withdrawal is $50 per month
and the maximum monthly withdrawal is one percent of the current account value
in the Fund as of commencement of participation in the plan. Maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund may be disadvantageous to the shareholder because of the sale charge on
such purchases. A shareholder who elects to use the Systematic Withdrawal Plan
should be aware that such periodic payments will be made from redemptions of his
shares. However, any Class B shares redeemed under the Systematic Withdrawal
Plan will not be subject to a CDSC as described below. Dividends and
distributions paid on his shares may not cover the full amount of each periodic
payment.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Cowen is imposed on any redemption of Class B shares held
less than six years equal to a specified percentage, as set forth below, of the
net asset value of the shares redeemed at the time of purchase or at the time of
redemption, whichever is lower. Class B shares held six years or longer and
Class B shares purchased through reinvestment of dividends or capital gains
distributions are not subject to the CDSC. Furthermore, no CDSC will be imposed
on an amount that represents an increase in value of the shareholder's account
resulting from capital appreciation.
In circumstances in which the CDSC is imposed, the amount of the charge
will depend on the number of years since the shareholder purchased the shares
being redeemed. The following table sets forth the rates of the CDSC for
redemptions of Class B shares by investors:
<TABLE>
<CAPTION>
Year Since Purchase in Which
Redemption Is Effected CDSC
------------------------------------------------------------ -----
<S> <C>
Year 1...................................................... 5.00%
Year 2...................................................... 4.00%
Year 3...................................................... 3.00%
Year 4...................................................... 3.00%
Year 5...................................................... 2.00%
Year 6...................................................... 1.00%
Thereafter.................................................. None
</TABLE>
In determining the applicability and rate of any CDSC, redemptions of Class
B shares are made first of amounts due to capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions, and then
of other shares held by the shareholder for the longest period of time. As a
result, the CDSC, if any, will be imposed at the lowest possible rate. For
example, assume that an investor owns 100,000 shares that he purchased seven
years ago, 100,000 shares that he purchased more than four but less than five
years ago at $10 per share and 1,000 shares received in respect of reinvestment
of dividends and distributions. The shares now have a net asset value of $20 per
share. The investor may redeem the
17
<PAGE> 18
100,000 shares he purchased seven years ago and the 1,000 shares he acquired
through reinvestments without paying a CDSC. If the investor redeems the balance
of his shares, he would pay a CDSC based on the net asset value at the time of
purchase ($10 per share). Thus, the investor would pay a CDSC equal to $20,000
(100,000 shares multiplied by $10 per share times the applicable rate of 2%).
Waivers of CDSC. The CDSC, if any, will be waived in the case of (1)
redemptions of Class B shares held at the time a shareholder dies or becomes
disabled, including the Class B shares of a shareholder who owns the shares with
his or her spouse as joint tenants with the right of survivorship, provided that
the redemption is requested within one year of the death or initial
determination of disability and (2) redemptions in connection with the following
retirement plan distributions: (a) lump-sum or other distributions from a
qualified retirement plan following retirement; (b) distributions from an
Individual Retirement Account, Keogh plan or custodial account under Section
403(b)(7) of the Code following attainment of age 59 1/2; (c) a tax-free return
of an excess contribution to an Individual Retirement Account, and (d)
distributions pursuant to Systematic Withdrawal Plans.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to declare and pay dividends quarterly from its net
investment income. Any net realized long-term capital gains will generally be
paid annually, shortly after the close of the Fund's fiscal year. Unless a
shareholder elects in writing to receive dividends and distributions on shares
of any Class in cash, such amounts will be reinvested automatically in
additional shares of the same Class at net asset value, without a sales charge.
The Fund intends to qualify and elect to be treated each year as a
regulated investment company ("RIC") for federal income tax purposes. A RIC is
not taxed on any income or gains distributed to its shareholders if it
distributes 90% of its investment income to them within applicable time periods.
In addition, the Fund will be subject to a nondeductible excise tax of four
percent of the amount by which the Fund fails to distribute specified
percentages of its investment income and capital gains during any applicable
12-month period. The Fund will pay dividends and distributions more frequently
than stated above, if necessary, to avoid application of the excise tax, if such
payments are determined to be in the best interest of the Fund's shareholders.
The per share dividends and distributions on Class C shares will be higher than
those on Class A shares, which in turn will be higher than those on Class B
shares, as a result of the different service, distribution and transfer agency
fees applicable to the Classes. See "The Fund's Expenses," "Purchase of Shares,"
"Management of the Fund -- Distributor" and "Additional Information."
For federal income tax purposes, the Fund's dividends and distributions are
taxable to a shareholder whether paid in cash or reinvested in additional
shares. Dividends of the Fund's investment income and distributions of its
short-term capital gains will be taxable as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to a shareholder as such,
regardless of the length of time the shareholder has held shares of the Fund.
The Fund will provide information relating to that portion of a long-term
capital gains distribution that may be treated by investors as eligible for the
20% capital gains rate for capital assets held for more than 18 months. If a
shareholder receives a distribution taxable as long-term capital gain with
respect to Fund shares, and redeems or exchanges the shares before holding them
for more than six months, any loss on the redemption or exchange up to the
amount of the distribution will be treated as a long-term capital loss. In
general, only dividends that reflect the Fund's income from certain
dividend-paying stock of domestic corporations will be eligible for the federal
dividends-received deduction for corporate shareholders.
18
<PAGE> 19
Each shareholder will receive an annual statement setting forth the dollar
amounts of dividends and any distributions for the prior calendar year and the
tax status of such dividends and distributions for federal income tax purposes.
Shareholders should consult their own tax advisers as to the state and local tax
consequences of investing in the Fund.
ADDITIONAL INFORMATION
The Fund is a series of Cowen Series Funds, Inc., which was incorporated on
November 6, 1997 under the laws of the State of Maryland. All shares of the Fund
have equal rights and privileges as to participation in dividends and
distributions and in the net distributable assets of the Fund on liquidation.
When issued, shares are fully paid and nonassessable, and have no
preemptive, conversion or exchange rights. Each Class represents an identical
interest in the Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (1) the
designation of each Class; (2) the effect of the respective sales charges, if
any, for each Class; (3) the distribution and/or service fees, if any, borne by
each Class; (4) the expenses allocable exclusively to each Class; (5) voting
rights on matters exclusively affecting a single Class; and (6) the exchange
privilege of each Class. The Board of Directors does not anticipate that there
will be any conflicts among the interests of the holders of the different
Classes. The Directors, on an ongoing basis, will consider whether any conflict
exists and, if so, take appropriate action. Certain aspects of the shares may be
changed, upon notice to Fund shareholders, to satisfy certain tax regulatory
requirements, if the change is deemed necessary by the Directors.
When matters are submitted for shareholder vote, shareholders of each
series of Cowen Series Funds, Inc., including the Fund, will have one vote for
each full share held and proportional, fractional votes for each fractional
share held. Shareholders of all series of Cowen Series Funds, Inc. will vote
collectively on certain matters affecting all series, such as the election of
directors and the selection of accountants; shareholders of one series are not
entitled to vote on a matter that does not affect that series but that does
require a separate vote of another series, such as a particular series'
investment management agreement. In turn, all matters affecting only the
interests of one Class, such as the terms of the Plan as it relates to a Class,
require a separate vote of the shareholders of that Class. Unless otherwise
required by the 1940 Act, ordinarily it will not be necessary for Cowen Series
Funds, Inc. to hold annual meetings of shareholders. As a result, shareholders
may not consider each year the election of directors or the appointment of
accountants. However, pursuant to the By-Laws of Cowen Series Funds, Inc., the
holders of at least 10% of the shares outstanding and entitled to vote may
require a special meeting of shareholders to be held for any purpose, including
that of removing a director from office. Shareholders of Cowen Series Funds,
Inc. may remove a director by the affirmative vote of a majority of the
outstanding voting shares. In addition, the Board of Directors will call a
special meeting of shareholders for the purpose of electing directors if, at any
time, less than a majority of the directors holding office at that time was
elected by shareholders.
19
<PAGE> 20
THE COWEN FAMILY OF FUNDS
COWEN LARGE CAP VALUE FUND, a series of Cowen Series Funds, Inc., seeks
capital appreciation through investment in equity securities with earnings
growth potential.
COWEN INTERMEDIATE FIXED INCOME FUND, a series of Cowen Funds, Inc., seeks
current income and stability of principal. The Fund seeks to achieve its
objectives through the investment primarily in high quality intermediate term
fixed income securities.
COWEN GOVERNMENT SECURITIES FUND, a series of Cowen Funds, Inc., seeks
total return consisting of current income and appreciation of capital through
investment primarily in securities issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities.
COWEN OPPORTUNITY FUND, a series of Cowen Funds, Inc., seeks capital
appreciation through investment in the equity securities of companies that are
expected to benefit from scientific developments and advances.
COWEN INCOME + GROWTH FUND, INC. seeks a high level of dividend income, to
the extent consistent with prudent investment management, by investing primarily
in income-producing equity securities.
COWEN STANDBY RESERVE FUND, INC., a money market fund whose investment
objective is the maximization of current income to the extent consistent with
preservation of capital and maintenance of liquidity.
COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC., a money market fund whose
investment objective is the maximization of current income that is exempt from
federal income taxes to the extent consistent with the preservation of capital
and the maintenance of liquidity.
For more complete information regarding any of these funds, including
charges and expenses, contact your account representative or call 800-262-7116.
From time to time, advertisements or reports to shareholders may compare the
performance of the Classes to that of other mutual funds (or classes thereof)
with a similar investment objective. The performance of the Classes also might
be compared to rankings prepared by Lipper Analytical Services, Inc. and
Morningstar, Inc., which are widely recognized, independent services that
monitor the performance of mutual funds, as well as to various unmanaged
indices, such as the Standard & Poor's 500 Composite Stock Price Index. To the
extent any advertisement or sales literature of the Fund describes the expenses
or performance of any Class, it will also disclose the information for other
Classes. Performance information may be useful in reviewing the performance of
the Classes and in providing a basis for comparison with other investment
alternatives. Investors should be aware that, because the performance of the
Classes changes in response to fluctuations in interest rates, price
fluctuations in securities markets, each Class' expenses and other factors, a
performance quotation should not be considered representative of the Classes'
performance for any future period. Shareholders may make inquiries regarding the
Fund, including current performance quotations, by calling any Cowen account
representative.
20
<PAGE> 21
SUPPLEMENT TO
COWEN LARGE CAP VALUE FUND
PROSPECTUS DATED JANUARY 2, 1998
From January 2, 1998 through March 31, 1998, the Class A shares of Cowen
Large Cap Value Fund (the "Fund") will be sold at net asset value without the
imposition of a sales charge. Cowen & Co. reserves the right to terminate this
no sales charge offering prior to March 31, 1998, if assets raised collectively
in the Fund exceed $20 million. Cowen & Co. will from its own resources pay
broker-dealers up to a maximum annual rate of 1.15% of the net asset value of
shares purchased pursuant to this offering. Shares purchased pursuant to this
offering cannot be exchanged for shares of the other Cowen & Co. Mutual Funds
for ninety (90) days from the date of purchase.
January 2, 1998
<PAGE> 22
STATEMENT OF ADDITIONAL INFORMATION
January 2, 1998
COWEN LARGE CAP VALUE FUND
Financial Square, New York, NY 10005,
(212) 495-6724, (800) 262-7116
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . 2
Purchases and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . 8
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 9
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . 14
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
This Statement of Additional Information is meant to be read in conjunction
with the Prospectus of Cowen Large Cap Value Fund (the "Fund") dated January 2,
1998, and is incorporated by reference in its entirety into that Prospectus.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the Fund's Prospectus may be obtained by calling
Cowen & Co. ("Cowen"), the Fund's principal underwriter, at (212) 495-6724 or
(800) 262-7116 or by contacting any Cowen account representative.
COWEN & CO.
Principal Underwriter
1
<PAGE> 23
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to provide capital
appreciation. Current income from dividends is a secondary objective of the
Fund. Cowen, through its investment management division, Cowen Asset
Management, will serve as the Fund's investment manager. The Fund is not
intended to constitute a balanced investment program.
Additional Information on Investment Practices
U.S. Government Securities. Examples of the types of U.S.
Government securities that the Fund may hold include, in addition to those
described in the Prospectus and U.S. Treasury Bills, the obligations of the
Federal Housing Administration, Farmers Home Administration, Small Business
Administration, General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks and Maritime
Administration. It is not anticipated that the Fund will in the foreseeable
future invest in excess of five percent of its net assets in U.S. Government
securities that represent interests in pools of mortgages.
Lending of Securities. The Fund has the authority to lend
securities to brokers, dealers and the other financial organizations. The Fund
will not lend securities to Cowen or its affiliates. By lending its
securities, the Fund can increase its income by continuing to receive interest
on the loaned securities as well as by either investing the cash collateral in
short-term securities or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities are used as collateral. The Fund will
adhere to the following conditions whenever its securities are loaned: (a) the
Fund must receive at least 100 percent cash collateral or equivalent securities
from the borrower; (b) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (c) the Fund must be able to terminate the loan at any time;
(d) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and any
increase in market value; (e) the Fund may pay only reasonable custodian fees
in connection with the loan; and (f) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Fund's Board of Directors must terminate
the loan and regain the right to vote the securities.
Covered Call Options. Options written by the Fund will
normally have expiration dates between one and nine months from the date
written. So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was
2
<PAGE> 24
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned an exercise notice. To secure its obligation to deliver the
underlying security when it writes a call option the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with
the rules of the Options Clearing Corporation (the "Clearing Corporation") and
of the national securities exchange on which the option is written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized national
securities exchange in the over-the-counter market. In light of this fact and
current trading conditions the Fund expects to write options only on national
securities exchanges and in the over-the-counter market. As of the date of
this Statement of Additional Information, the national securities exchanges on
which options are traded are: The Chicago Board Options Exchange, The Board of
Trade of the City of Chicago, American Stock Exchange, Philadelphia Stock
Exchange, Pacific Stock Exchange and New York Stock Exchange ("NYSE"). Options
are also traded on the national securities exchanges with respect to unlisted
securities reported through the Nasdaq system.
Although the Fund will write only those options for which
Cowen Asset Management believes there is an active secondary market so as to
facilitate closing purchase transactions, there is no assurance that sufficient
trading interest to create a liquid secondary market on a securities exchange
will exist for any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or other unforeseen
events, have at times rendered certain of the facilities of the Clearing
Corporation and the national securities exchanges inadequate and resulted in
the institution of special procedures, such as trading rotations, restrictions
on certain types of orders or trading halts or suspensions in one or more
options. There can be no assurance that similar events, or events that may
otherwise interfere with the timely execution of customer orders, will not
recur. In such event, it might not be possible to effect closing purchase
transactions in particular options. If, as a covered call option writer, the
Fund is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying securities until the option expires
or it delivers the underlying security upon exercise.
The national securities exchanges have established limitations
governing the maximum number of options of each class which may be held or
written, or exercised within certain time
3
<PAGE> 25
periods, by an investor or group of investors acting in concert (regardless of
whether the options are written on the same or different national securities
exchanges or are held, written or exercised in one or more accounts or through
one or more brokers). It is possible that the Fund and other clients of Cowen
Asset Management and certain of its affiliates may be considered to be such a
group. A national securities exchange may order the liquidation of positions
found to be in violation of these limits and it may impose certain other
sanctions.
In the case of options written by the Fund that are deemed
covered by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stocks with respect to which the
Fund has written options may exceed the time within which the Fund must make
delivery in accordance with an exercise notice. In these instances, the Fund
may purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear any market risk, since
the Fund will have the absolute right to receive from the issuer of the
underlying security an equal number of shares to replace the borrowed stock,
but the Fund may incur additional transaction costs or interest expenses in
connection with any such purchase or borrowing.
Repurchase Agreements. The Fund may engage in repurchase
agreement transactions involving its portfolio securities with banks,
registered broker-dealers and government securities dealers approved by the
Fund's Board of Directors. It is not anticipated that the Fund will in the
foreseeable future invest in excess of five percent of its net assets in
repurchase agreements. Under the terms of a typical repurchase agreement, the
Fund would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed price and time,
thereby determining the yield during the Fund's holding period. Thus,
repurchase agreements may be seen to be loans by the Fund collateralized by the
underlying debt obligation. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Fund's holding period.
The value of the underlying securities will be at least equal at all times to
the total amount of the repurchase obligation, including interest. The Fund
bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed in or prevented
from exercising its rights to dispose of the collateral securities, including
the risk of a possible decline in the value of the underlying securities during
the period in which the Fund seeks to assert these rights. Cowen Asset
Management, acting under the supervision of the Fund's Board of Directors,
reviews the credit-worthiness of those banks and dealers with which the Fund
enters into repurchase agreements to evaluate these risks and monitors
4
<PAGE> 26
on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level.
Investment Restrictions
The investment restrictions below have been adopted by the
Fund as fundamental policies, which means that they may not be changed without
the vote of a majority of the outstanding voting securities of the Fund, which
is defined as the lesser of (a) 67 percent or more of the shares present at a
shareholders meeting if the holders of more than 50 percent of the outstanding
shares of the Fund are present or represented by proxy, or (b) more than 50
percent of the outstanding shares.
The investment policies adopted by the Fund prohibit it from:
1. With respect to 75 percent of its assets, purchasing
the securities of any issuer, other than U.S. Government securities, if as a
result more than five percent of the Fund's total assets would be invested in
the securities of the issuer.
2. Purchasing more than 10 percent of the voting
securities of any one issuer or more than 10 percent of the securities of any
class of any one issuer. This limitation shall not apply to investments in
U.S. Government securities.
3. Purchasing securities on margin, except that the Fund
may obtain any short-term credit necessary for the clearance of purchases and
sales of securities.
4. Making short sales of securities or maintaining a
short position.
5. Borrowing money, except that the Fund may borrow for
temporary or emergency (but not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition of
securities, in an amount not exceeding 10 percent of the value of the Fund's
total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. Whenever borrowing exceed five percent of the value of the
Fund's total assets, the Fund will not make any additional investments.
6. Pledging, hypothecating, mortgaging or otherwise
encumbering more than 10 percent of the value of the Fund's total assets,
except that this prohibition shall not prohibit the escrow arrangements
contemplated by writing covered call options or pledging assets to secure
permitted borrowings.
5
<PAGE> 27
7. Underwriting the securities of the issuers, except
insofar as the Fund may be deemed to be an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities.
8. Making loans to others, except through entering into
repurchase agreements, purchasing qualified debt obligations or lending
portfolio securities.
9. Investing in commodities, except that the Fund may
engage in transactions involving commodity futures and calls and options
thereon.
10. Purchasing or selling real estate or interests in
real estate, including interests in real estate limited partnerships, except
that the Fund may purchase and sell securities that are issued by companies
that invest or deal in real estate, including readily-marketable interests in
real estate investment trusts or readily marketable securities of other
companies which invest in real estate.
The Fund also reserves the right to own real estate used
principally for its own office space, although it has no current intention to
do so.
The percentage limitations contained in the restrictions
listed above apply at the time of purchases of securities. If a percentage
restriction is adhered to at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
Portfolio Turnover
The Fund expects its portfolio turnover rate not to exceed 75%
in its first year of operations. For regulatory reporting purposes, the Fund's
turnover rate is calculated by dividing the lesser of purchases or sales of
securities for the fiscal year by the monthly average of the value of the
Fund's securities, with certain other obligations with less than one year to
maturity at the time of purchase excluded. Thus, a 100 percent turnover rate
would occur, for example, if all included securities were replaced once during
the year. The Fund will not normally engage in the trading of securities for
the purpose of realizing short-term profits, but will adjust its holdings as
considered advisable in view of prevailing or anticipated market conditions,
and turnover will not be a limiting factor should Cowen Asset Management deem
it advisable to purchase or sell securities.
Portfolio Transactions
Decisions to buy and sell securities and other financial
instruments for the Fund are made by Cowen Asset
6
<PAGE> 28
Management, which also is responsible for placing these transactions, subject to
the overall review of the Fund's Board of Directors. Although investment
requirements for the Fund are reviewed independently from those of the other
accounts managed by Cowen Asset Management, investments of the type the Fund may
make may also be made by these other accounts. When the Fund and one or more
other accounts managed by Cowen Asset Management are prepared to invest in, or
desire to dispose of, the same security or other financial instrument, available
investments or opportunities for sales will be allocated in a manner believed by
Cowen Asset Management to be equitable to each. In some cases, this procedure
may affect adversely the price paid or received by the Fund or the size of the
position obtained or disposed of by the Fund.
Portfolio transactions are in most cases effected on U.S.
stock exchanges and involve the payment of negotiated brokerage commissions.
There is generally no stated commission in the case of securities traded in the
over-the-counter markets, but the prices of those securities may include
commissions or mark-ups. Purchases and sales of money market instruments and
debt securities usually are principal transactions. These securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. The cost of securities purchased from underwriters
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down. U.S. Government securities are generally purchased from
underwriters or dealers, although certain newly-issued U.S. Government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.
To the extent consistent with applicable provisions of the
Act, other securities laws and the rules and exemptions adopted by the
Securities and Exchange Commission (the "SEC") thereunder, the Fund's Board of
Directors has determined that portfolio transactions may be effected through
Cowen if, in the judgment of Cowen Asset Management, the use of Cowen normally
is likely to result in price and execution at least as favorable as those of
other qualified broker-dealers, and if, in particular transactions, Cowen
charges the Fund a rate consistent with that charged to comparable unaffiliated
customers in similar transactions. Over-the-counter purchases and sales are
transacted directly with principal market makers except in those cases in which
better prices and executions may be obtained elsewhere, and principal
transactions are not entered into with affiliates of the Fund except pursuant
to exemptive rules or orders adopted by the SEC.
In selecting brokers or dealers to execute portfolio
transactions on behalf of the Fund, Cowen Asset Management seeks the best
overall terms available. In assessing the best overall terms available for any
transaction, Cowen Asset Management will
7
<PAGE> 29
consider the factors it deems relevant, including the breadth of the market in
the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Cowen Asset Management is authorized, in selecting parties to execute
a particular transaction and in evaluating the best overall terms available, to
consider the brokerage and research services, as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, provided to the Fund
and/or other accounts over which Cowen Asset Management or its affiliates
exercise investment discretion. Cowen Asset Management's fees under its
agreement with the Fund are not reduced by reason of its receiving brokerage
services. The Fund's Directors periodically review the commissions paid by the
Fund to determine if the commissions paid over representative periods of time
are reasonable in relation to the benefits inuring to the Fund.
Portfolio Valuation
The assets of the Fund are generally valued on the basis of
market quotations. Securities whose principal market is on an exchange are
valued at the last sales price on the exchange or, in the absence of currently
reported sales on the exchange, at the most recent bid price in the
over-the-counter market or, in the absence of a recent bid price, the bid
equivalent as obtained from one or more of the major market makers for the
securities to be valued. Securities traded principally in the over-the-counter
market are valued at the most recent bid price. Other investments and other
assets, including restricted securities and securities for which market
quotations are not readily available, are valued at fair value under procedures
approved by the Board of Directors. High-quality, short-term securities with
maturities of 60 days or less are valued at amortized cost, which constitutes
fair value as determined by the Board of Directors. Amortized cost valuation
involves initially valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
Although this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than
the price the Fund would receive if it sold the instrument.
PURCHASES AND REDEMPTIONS
Purchases
Shares of the Fund are offered on a continuous basis by the
Fund and are distributed on a best efforts basis by Cowen as principal
underwriter for the Fund pursuant to a Distribution Agreement. As noted
elsewhere in this Statement of Additional Information and in the Prospectus,
Cowen receives an investment
8
<PAGE> 30
advisory fee and brokerage commissions for effecting portfolio transactions on
behalf of the Fund.
The word "Cowen" in the Fund's name has been adopted pursuant
to a provision contained in the Distribution Agreement. Under that provision,
Cowen may terminate the Fund's license to use the word "Cowen" in its name when
Cowen ceases to act as the Fund's principal underwriter.
Redemptions
The right of redemption of shares of the Fund may be suspended
or the date of payment postponed (a) for any periods during which the NYSE is
closed (other than for customary weekend and holiday closings), (b) when
trading in the markets the Fund normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists, making
disposal of the Fund's investments or determination of its net asset value not
reasonably practicable, or (c) for such other periods as the SEC by order may
permit for protection of the Fund's shareholders.
MANAGEMENT OF THE FUND
Board of Directors
The names of Cowen Series Funds, Inc.'s directors and
executive officers, their addresses, principal occupations during the past five
years and other affiliations are set forth below. Each Director who is an
"interested person" of the Fund, as defined in the Act, is indicated by an
asterisk. Each of the directors is also a director of one or more other
investment companies for which Cowen serves as principal underwriter.
Directors of the Fund
James H. Carey, Director, age 64. Managing Director of
Briarcliff Financial Associates, Inc. (since June 1991) and Chief Executive
Officer, Director and Treasurer of National Capital Benefits Corporation (since
March 1994). Mr. Carey is also a Director of Airborne Freight Corporation,
Jonathan Woodner Company, NCB Insurance Limited (Bermuda), The Midland Company,
The Murray & Isabella Rayburn Foundation and the U.S. Committee for UNICEF.
Prior thereto he was President and Chief Executive Officer, The Berkshire Bank
(May 1989 to June 1991). His address is Village View and Canterbury Roads,
Manchester Center, VT 05255.
Joseph M. Cohen, Chairman and Chief Executive Officer of the
Fund, age 59. Principal Executive Officer and since March 1991 Class I Limited
Partner of Cowen and Chairman and President of Cowen Incorporated, the sole
general partner of Cowen. Prior thereto he was the Managing General Partner of
Cowen. Director, Chairman and Chief Executive Officer of the Cowen Mutual
Funds.
9
<PAGE> 31
Until December 15, 1992, he was also President of the Fund and the Cowen Mutual
Funds.
Dr. Peter P. Gil, Director, age 74. Director, Arthur D.
little Management Institute Board since 1991 and currently Acting Dean of the
Institute; Trustee and Executive Committee Member, Plimoth Plantation
(Plymouth, Mass.); member of the Dominion Bridge Corporation's Technology
Committee. From July 1988 to July 1995, Dr. Gil served in a variety of senior
administrative positions at the Sloan School of Management, Massachusetts
Institute of Technology, as Director, Management of Technology Program, the
Senior Executive Program, External Relations of the School; and Senior
Lecturer. Prior to July 1988 he was Associate Dean of the School. His address
is 79 Main Street, New Castle, New Hampshire 03854-0651.
Dr. Martin J. Gruber, Director, age 59. Chairman, Department
of Finance and Nomura Professor of Finance, Leonard N. Stern School of Business
Administration, New York University. He is also a Director of BT Pyramid
Mutual Funds, Japan Equity Fund, Inc., and the Taiwan Equity Fund, Inc.; and a
trustee of BT Leadership Trust and T.I.A.A. Board. His address is New York
University, 44 West 4th Street, New York, New York 10012.
Burton J. Weiss, Director, age 66. Self-employed consultant
since March 1988. His address is 103 Marin Drive, Chapel Hill, North Carolina
27516.
Officers of the Fund Not Noted Above
Rodd M. Baxter, Secretary. General Counsel of Cowen Asset
Management and Director of Cowen. His address is Financial Square, New York,
New York 10005.
Benedict Capaldi, Senior Investment Officer. Senior Portfolio
Manager of Cowen Asset Management and Managing Director of Cowen. His address
is Financial Square, New York, New York 10005.
William Church, Vice President and Senior Investment Officer.
Class I Limited Partner of Cowen, Managing Director of Cowen Incorporated and
Chief Investment Officer of Cowen Asset Management. His address is Financial
Square, New York, New York 10005.
Creighton H. Peet, Vice President, Treasurer and Senior
Investment Officer. Class I Limited Partner of Cowen, Managing Director of
Cowen Incorporated. His address is Financial Square, New York, New York 10005.
David Sarns, President. Chief Administrative Officer and
Class I Limited Partner of Cowen and Managing Director of Cowen Incorporated.
His address is Financial Square, New York, New York 10005.
10
<PAGE> 32
Irwood Schlackman, Controller. Mutual Fund Administrator of
Cowen. His address is Financial Square, New York, New York 10005.
Compensation and Holders of Securities
No officer, director, partner or employee of Cowen or its
affiliates will receive any compensation from the Fund for serving as an
officer or director of the Fund. Directors who are not officers, directors,
partners, stockholders or employees of Cowen or its affiliates receive a fee of
$3,000 per annum plus $500 per meeting attended and $375 for each audit
committee meeting attended and reimbursement for travel and out-of-pocket
expenses.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Aggregate Pension or Estimated Annual Total
Person Compensation From Retirement Benefits Upon Compensation
Registrant Benefits Accrued Retirement From Registrant
as Part of Fund and Fund Complex
Expenses Paid to
Directors*
<S> <C> <C> <C> <C>
James H. Carey $5,750 -0- -0- $28,750
Peter Gil $5,750 -0- -0- $28,750
Martin J. Gruber $5,750 -0- -0- $28,750
Burton J. Weiss $5,750 -0- -0- $28,750
</TABLE>
*There are seven funds included in the complex.
Investment Manager
Cowen, through Cowen Asset Management, its investment
management division, serves as investment manager to the Fund pursuant to an
Investment Management Agreement which became effective on the date the Fund
commenced investment operations. Cowen, a limited partnership organized under
the laws of New York, is controlled by its general partner, Cowen Incorporated.
Cowen Incorporated is controlled by Mr. Joseph M. Cohen. The services provided
by, and the fees payable by the Fund to Cowen Asset Management under its
Investment Management Agreement are described in the Prospectus. From time to
time, Cowen, in its sole discretion and as it deems appropriate, may waive a
portion or all of the fees payable to it by the Fund.
Shareholder Servicing and Distribution Plan (the "Plan")
Cowen is paid monthly fees by the Fund in connection with (1)
the servicing of shareholder accounts in Class A and Class B shares and (2)
providing distribution related services in respect of Class B shares. A
monthly service fee, authorized
11
<PAGE> 33
pursuant to the Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), is calculated at
the annual rate of .25% of the value of the average daily net assets of the
Fund attributable to each of Class A shares and is used by Cowen to provide
compensation for ongoing servicing and/or maintenance of shareholder accounts
with the Fund. Compensation is paid by Cowen to persons, including Cowen
employees, who respond to inquiries of shareholders of the Fund regarding their
ownership of shares of their accounts with the Fund or who provide other
similar services not otherwise required to be provided by the Fund's investment
adviser, transfer agent or other agent of the Fund.
In addition, pursuant to the Plan, the Fund pays to Cowen a
monthly distribution fee at the annual rate of .75% of the Fund's average daily
net assets attributable to Class B shares. The distribution fee is used by
Cowen to provide (1) initial and ongoing sales compensation to its registered
representative or those of other broker dealers that enter into selected dealer
agreements with Cowen in respect of sales of Class B shares; (2) costs of
printing and distributing the Fund's Prospectus, Statement of Additional
Information and sales literature to prospective investors in Class B shares;
(3) costs associated with any advertising relating to Class B shares; and (4)
payments to, and expenses of, persons who provide support services in
connection with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the
service and/or distribution expenses actually incurred by Cowen, and the
payments may exceed expenses actually incurred by Cowen. The Board of
Directors evaluates the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so considers all relevant factors, including
expenses borne by Cowen and amounts it received under the Plan.
Custodian and Transfer and Dividend Agent
Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, Missouri 64105, is custodian of the Fund's assets pursuant to a
Custody Agreement. Under the Custody Agreement, the Bank (i) maintains a
separate account or accounts in the name of the Fund, (ii) holds and transfers
portfolio securities on account of the Fund, (iii) receives and disburses money
on behalf of the Fund and (iv) collects and receives all income and other
payments and distributions on account of the Fund's portfolio securities.
DST, Inc., 333 West 11th Street, Kansas City, Missouri 64105,
has agreed to serve as the Fund's transfer and dividend disbursing agent
pursuant to a Transfer Agency Agreement, under which it (i) issues and redeems
shares of the Fund, (ii) addresses and mails all communications by the Fund to
its shareholders and (iii) maintains shareholder accounts.
12
<PAGE> 34
Auditors and Counsel
Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, has been selected as the Fund's independent auditors.
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as counsel for the Fund.
TAXES
Set forth below is a summary of certain general federal income
tax considerations which may affect the Fund and its shareholders. As the
summary is not intended as a substitute for individual tax planning, investors
are urged to consult their own tax advisers with specific reference to their
particular federal, state or local tax situations.
Taxation of Shareholders
If a shareholder receives a distribution taxable as long-term
capital gain, and redeems or exchanges his or her shares of the Fund before he
or she has held the shares (without hedging them) for more than six months, any
loss on such redemption or exchange up to the amount of the distribution will
be treated as long-term capital loss.
Dividends of investment income from the Fund may qualify for
the dividends-received deduction for corporate shareholders only to the extent
of the aggregate amount of dividends received by the Fund from United States
corporations. The Fund must hold stock for more than 45 days (90 days in the
case of certain preferred stock) during the 90 day period (180 days in the case
of certain preferred stock) beginning 45 days before the stock becomes
ex-dividend, without hedging its investment in the stock in certain ways.
If the Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date the Fund acquired such stock. Accordingly, in order
to satisfy its income distribution requirements, the Fund may be required to
pay dividends based on anticipated earnings, and shareholders may receive
dividends in an earlier year than would otherwise be the case.
If a shareholder (a) incurs a sales charge in acquiring Fund
shares, (b) disposes of those shares within ninety days and (c) acquires shares
in a mutual fund for which the otherwise applicable sales charge is reduced by
reason of reinvestment right (i.e., an exchange privilege), the original sales
charge
13
<PAGE> 35
increases the shareholder's tax basis in the original shares only to the extent
that the otherwise applicable sales charge for the second acquisition is not
reduced. The portion of the original shares would be treated as incurred with
respect to the second acquisition and, as a general rule, would increase the
shareholder's tax basis in the newly acquired shares. Furthermore, the same
rule also applies to a disposition of the newly acquired shares made within
ninety days of the second acquisition. The provision prevents a shareholder
from immediately deducting the sales charge by shifting his investment in a
family of mutual funds.
In general, if a shareholder fails to furnish a correct taxpayer
identification number, fails to report dividend and interest income in full, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to withholding, then the shareholder
may be subject to a 31 percent federal backup withholding tax on dividends,
capital gains distributions and the proceeds of redemptions or exchange. An
individual's taxpayer identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be
credited against a shareholder's regular federal income tax liability.
Taxation of Fund Investments
Gain or loss on the sale of a security will generally be
long-term capital gain or loss if the Fund has held the security for more than
one year. If a Fund acquires a debt security at a discount, however, the
portion of any gain upon its sale or redemption that reflects the accrued
market discount will be taxed as ordinary income, rather than capital gain.
The Fund will designate in a written notice to shareholders the portion of
long-term capital gains distributions that may be eligible for the 20% maximum
capital gains tax rate on gains realized by individuals from capital assets
held for more than 18 months.
In general, when the Fund writes a covered call option on a
security, and either the option expires unexercised or the Fund enters into a
closing purchase transaction, the Fund will recognize a short-term capital gain
or loss (except that any losses on certain covered call stock options will be
treated as long-term capital losses). If a call option is exercised, the
premium received will be treated as additional proceeds from the sale of the
underlying security.
Although the Fund expects to be relieved of all or
substantially all federal and state income or franchise taxes, depending upon
the extent of its activities in certain states and localities, that portion of
the Fund's income which is treated as earned in any such state or locality
could be subject to state or local tax.
14
<PAGE> 36
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its "average annual
total return" for the different Classes over various periods of time. These
total return figures show the average percentage change in value of an
investment in the Fund from the beginning date of the measuring period to the
end of the measuring period. These figures reflect changes in the price of the
Fund's shares and assume that any income dividends and/or capital gains
distributions made by the Fund during the period were invested in shares of the
Fund. Figures will be given for recent one, five and ten year periods, or the
life of the Fund to the extent it has not been in existence for any such
periods, and may be given for other periods as well, such as on a year-by-year
basis. When considering "average" total return figures for periods longer than
one year, it is important to note that the Fund's annual total return for any
one year in the period might have been greater or lesser than the average for
the entire period. The Fund may also use "aggregate" total return figures for
various periods, representing the cumulative period (again reflecting changes
in share prices and assuming reinvestment of dividends and distributions).
Aggregate total returns may be shown by means of schedules, charts, or graphs,
and may indicate subtotals of the various components of total return (i.e.,
change in value of initial investment, income dividends, and capital gains
distributions). The performance of the Fund also might be compared to rankings
prepared by Lipper Analytical Services, Inc., and Morningstar, Inc. which are
widely recognized, independent services that monitor the performance of mutual
funds, as well as to various unmanaged indices, such as the Standard & Poor's
500 Composite Stock Price Index. Performance Information may be useful in
reviewing the performance of the Fund and in providing a basis for comparison
with other investment alternatives. Investors should be aware that, because
the performance of the Fund changes in response to fluctuations in interest
rates, price fluctuations in securities markets, the Fund's expenses and other
factors, a performance quotation should not be considered representative of the
Fund's performance for any future period. To the extent any advertisement or
sales literature of a Fund describes the expenses or performance of any Class,
it will also disclose the information for other Classes. Shareholders may make
inquiries regarding the Fund, including current performance quotations, by
calling any Cowen account representative.
15
<PAGE> 37
The Fund's "average annual total return" will be computed in
accordance with the following formula prescribed by the Securities and Exchange
Commission:
n
TOTAL RETURN = P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the
beginning of a 1, 5, or 10 year period at the end of the 1, 5, or 10
year periods (or fractional portion thereof), assuming reinvestment
of all dividends and distributions.
16
<PAGE> 38
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COWEN SERIES FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 23, 1997
COWEN
LARGE CAP
VALUE
FUND
<S> <C>
ASSETS
CASH $ 100,000
DEFERRED ORGANIZATION COSTS 96,335
-------------
196,335
LIABILITIES
ORGANIZATION COSTS PAYABLE 96,335
-------------
NET ASSETS APPLICABLE TO
10,000 CLASS A SHARES OF
COMMON STOCK ISSUED AND
OUTSTANDING $.001 PAR VALUE,
250,000,000 SHARES AUTHORIZED $ 100,000
-------------
NET ASSET VALUE PER SHARE $ 10
-------------
</TABLE>
NOTE 1 - ORGANIZATION
THE COWEN LARGE CAP VALUE FUND IS A SERIES OF COWEN SERIES FUNDS, INC. (THE
"FUND") WHICH WAS INCORPORATED IN MARYLAND ON NOVEMBER 6, 1997. THE FUND IS AN
OPEN-END, DIVERSIFIED MANAGEMENT INVESTMENT COMPANY, WHICH OPERATES AS A SERIES
COMPANY. THE ONLY PORTFOLIO OF THE FUND AT THE PRESENT TIME IS THE COWEN LARGE
CAP VALUE FUND ("LARGE CAP VALUE"). LARGE CAP VALUE IS AUTHORIZED TO ISSUE
250,000,000 SHARES EACH OF CLASS A, CLASS B AND CLASS C COMMON STOCK, AND HAS
ISSUED 10,000 SHARES OF CLASS A COMMON STOCK TO COWEN & COMPANY FOR $100,000 ON
DECEMBER 23, 1997. COSTS INCURRED AND TO BE INCURRED IN CONNECTION WITH ITS
ORGANIZATION AND REGISTRATION WILL BE DEFERRED AND AMORTIZED BY LARGE CAP VALUE
OVER THE PERIOD OF BENEFIT NOT TO EXCEED 60 MONTHS FROM THE DATE IT COMMENCES
OPERATIONS. COWEN & COMPANY HAS AGREED THAT IF ANY OF THE INITIAL SHARES ARE
REDEEMED PRIOR TO AMORTIZATION OF THE ORGANIZATION COSTS, IT WILL REIMBURSE
LARGE CAP VALUE FOR ANY UNAMORTIZED ORGANIZATIONAL COSTS IN THE SAME PROPORTION
AS THE NUMBER OF INITIAL SHARES BEING REDEEMED BEARS TO THE NUMBER OF INITIAL
SHARES OUTSTANDING AT THE TIME OF REDEMPTION.
17
<PAGE> 39
NOTE 2 - INVESTMENT ADVISORY AGREEMENT
LARGE CAP VALUE HAS ENTERED INTO AN INVESTMENT ADVISORY AGREEMENT WITH COWEN &
COMPANY ("THE ADVISOR"). THE BASIC FEE PAYABLE TO THE ADVISOR UNDER THE
INVESTMENT ADVISORY AGREEMENT IS COMPUTED DAILY AND PAID MONTHLY AT THE ANNUAL
RATE OF .75% OF LARGE CAP VALUE'S AVERAGE DAILY NET ASSETS.
LARGE CAP VALUE HAS ALSO ENTERED INTO A SHAREHOLDER SERVICING AND DISTRIBUTION
PLAN WITH COWEN & COMPANY UNDER WHICH ITS SHARES WILL BE CONTINUOUSLY OFFERED BY
THE ADVISOR. A MONTHLY SERVICE FEE IS CALCULATED AT THE ANNUAL RATE OF .25% OF
THE VALUE OF ITS AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO EACH CLASS A AND B
SHARES, AND A MONTHLY DISTRIBUTION FEE IS CALCULATED AT THE ANNUAL RATE OF .75%
OF THE VALUE OF ITS AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO CLASS B SHARES.
18
<PAGE> 40
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Cowen Series Funds, Inc.
We have audited the accompanying statement of assets and liabilities of Cowen
Large Cap Value Fund, a portfolio of Cowen Series Funds, Inc., as of December
23, 1997. This statement of assets and liabilities is the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
statement of assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Cowen
Large Cap Value Fund at December 23, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
December 24, 1997
19
