<PAGE>
As filed with the Securities and Exchange Commission on
December 2, 1998 (to be effective February 1, 1999)
Securities Act File No. 2-73131
Investment Company Act File No. 811-3220
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 18 X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
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Amendment No. 19 X
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(Check appropriate box or boxes)
SG COWEN STANDBY RESERVE FUND, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Financial Square
New York, New York 10005
- ---------------------------------------- ----------
(address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 495-6000
Rodd M. Baxter, Esq.
SG Cowen Standby Reserve Fund, Inc.
Financial Square
New York, New York 10005-3597
---------------------------------------
(Name and Address of Agent for Service)
Copies to: Jon S. Rand, Esq.
Willkie, Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective
date of this Registration Statement
<PAGE>
It is proposed that this filing will become effective (check appropriate box):
Immediately upon filing pursuant to paragraph (b), or
- ---
on pursuant to paragraph (b), or
- ---
60 days after filing pursuant to paragraph (a), or
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X on February 1, 1999 pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.
- ---
<PAGE>
SG Cowen Standby Reserve
Fund, Inc.
SG Cowen Standby Tax-Exempt
Reserve Fund,Inc.
Financial Square New York, NY 10005-3597 800-262-7116 212-495-6724
Like shares of all mutual funds, these shares have not been approved or
disapproved by the Securities and Exchange Commission nor has the Commission
passed upon the accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Fund Profiles
SG Cowen Standby Reserve Fund............................ 3
SG Cowen Standby Tax-Exempt Reserve Fund................. 4
How We Manage the Funds.................................. 7
Our investment strategies................................ 7
The securities in which we typically invest.............. 7
SG Cowen Standby Reserve Fund.......................... 7
SG Cowen Standby Tax-Exempt Reserve Fund............... 8
The Risks of Investing in the Funds...................... 8
Who Manages the Funds.................................... 9
Investment manager....................................... 9
Management fees.......................................... 9
About Your Account....................................... 9
How to buy shares........................................ 9
How to sell shares....................................... 10
Account minimum.......................................... 10
Special services......................................... 10
Dividends, Distributions and Taxes....................... 11
Financial Highlights..................................... 12
</TABLE>
2
<PAGE>
SG Cowen Standby Reserve Fund
What are the Fund's goals?
The Fund is a money market fund and seeks maximum current income consistent
with preserving capital and maintaining liquidity. Although the Fund will strive
to achieve this goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest in short-term money market instruments. Following guidelines
established by the Fund's Board of Directors, we invest only in those securities
we determine to be of high quality and carry a minimum credit risk. While we
emphasize income from such investments, we consider carefully security of
principal, marketability, and diversity of investments.
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders and statement of
additional information.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk. An investment in the Fund is not
a complete investment program and you should consider it just one part of your
total investment program. Turn to page x for more complete discussion of risk.
An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
How has the Fund performed?
The bar chart and table below can help you evaluate the potential risks and
rewards of investing in the Fund. They show how returns for the Fund's shares
have varied over the past ten calendar years, as well as the average annual
returns of these shares for one, five, and ten years compared to the performance
of the IBC Money Fund Average (First Tier). The Fund's past performance is not
necessarily an indication of how it will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR BY YEAR RETURNS
<S> <C> <C>
IBC's First Tier
SG Cowen Standby Retail --
Reserve Fund AVG/Total
1997 Returns 4.94 4.90
1996 Returns 4.75 4.76
1995 Returns 5.26 5.31
1994 Returns 3.62 3.63
1993 Returns 2.69 2.60
1992 Returns 3.81 3.59
1991 Returns 5.43 5.89
1990 Returns 7.58 7.88
1989 Returns 8.56 8.90
1988 Returns 6.94 7.26
</TABLE>
3
<PAGE>
Year-by-Year Returns
FOOTNOTE TO BAR CHART: During the ten years illustrated in the bar chart,
the Fund's highest return in one calendar quarter was XX% and its lowest return
in one calendar quarter was XX%.
<TABLE>
<CAPTION>
Returns Returns Returns Returns Returns Returns Returns
1997 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SG Cowen Standby Reserve Fund........ 4.94 4.75 5.26 3.62 2.69 3.81 5.43
IBC's First Tier -- AVG/Total........ 4.90 4.76 5.31 3.63 2.60 3.59 5.89
<CAPTION>
Returns Returns Returns
1990 1989 1988
----------- ----------- -----------
<S> <C> <C> <C>
SG Cowen Standby Reserve Fund........ 7.58 8.56 6.94
IBC's First Tier -- AVG/Total........ 7.88 8.90 7.26
</TABLE>
Average Annual Returns as of 12/31/98
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
--------- --------- ---------
<S> <C> <C> <C>
SG Cowen Standby Reserve Fund........................
IBC Money Fund Average (First Tier)..................
</TABLE>
What are the Fund's fees and expenses?
These tables describe the fees and expenses you may pay in connection with
an investment in the Fund.
Annual Fund Operating Expenses for Fiscal Year Ended September 30, 1998
Paid from the Fund's Assets
<TABLE>
<S> <C>
Management Fees......................................................... 0.50%
Distribution and Service (12b-1) Fees................................... None
Other Expenses.......................................................... 0.15%
Total Annual Fund Operating Expenses.................................... 0.65%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds. We show the cumulative
amount of Fund expenses on a hypothetical investment of $10,000, assuming an
annual 5% return, the fund's operating expenses remain the same and you redeem
all of your shares at the end of each period. This is an example only, and does
not represent future expenses, which may be greater or less than those shown
here.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 66 $ 208 $ 362 $ 810
</TABLE>
SG Cowen Standby Tax-Exempt Reserve Fund
What are the Fund's goals?
The Fund is a money market fund and seeks maximum current income that is
exempt from federal income taxes consistent with preserving capital and
maintaining liquidity. Although the Fund will strive to achieve this goal, there
is no assurance that it will.
4
<PAGE>
What are the Fund's main investment strategies?
Under normal market conditions, we invest at least 80% of the Fund's net
assets in short-term, tax-exempt municipal securities. Following guidelines
established by the Fund's Board of Directors, we invest only in those municipal
securities we determine to be of high quality and carry a minimum credit risk.
While we emphasize income from such investments, we consider carefully security
of principal, marketability, and diversity of investments.
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders and statement of
additional information
What are the main risks of investing in the Fund?
Investing in any mutual Fund involves risk. An investment in the Fund is not
a complete investment program and you should consider it just one part of your
total investment program. Turn to page x for a more complete discussion of risk.
An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
How has the Fund performed?
The bar chart and table below can help you evaluate the potential risks and
rewards of investing in the Fund. We show how returns for the Fund's shares have
varied over the past ten calendar years, as well as the average annual returns
of these shares for one, five, and ten years compared to the performance of the
IBC Tax Free Fund Average (Broker and General Purpose). The Fund's past
performance is not necessarily an indication of how it will perform in the
future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR BY YEAR RETURNS
<S> <C> <C>
SG Cowen Standby IBC's National Retail --
AVG/Total -- Stock Broker &
T-E Reserve Fund General
1997 Returns 3.12 3.04
1996 Returns 2.95 2.89
1995 Returns 3.23 3.30
1994 Returns 2.30 2.32
1993 Returns 1.89 1.92
1992 Returns 2.51 2.54
1991 Returns 3.97 4.10
1990 Returns 5.30 5.39
1989 Returns 5.79 5.83
1988 Returns 4.74 4.76
</TABLE>
5
<PAGE>
Year-by-Year Returns
FOOTNOTE TO BAR CHART: During the ten years illustrated in the bar chart,
the Fund's highest return in one calendar quarter was XX% and its lowest return
in one calendar quarter was %.
<TABLE>
<CAPTION>
Returns Returns Returns Returns Returns Returns Returns
1997 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SG Cowen Standby T-E Reserve Fund.... 3.12 2.95 3.23 2.30 1.89 2.51 3.97
IBC's National Retail -- AVG/Total... 3.04 2.89 3.30 2.32 1.92 2.54 4.10
<CAPTION>
Returns Returns Returns
1990 1989 1988
----------- ----------- -----------
<S> <C> <C> <C>
SG Cowen Standby T-E Reserve Fund.... 5.30 5.79 4.74
IBC's National Retail -- AVG/Total... 5.39 5.83 4.76
</TABLE>
Average Annual Returns as of 12/31/98
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
--------- --------- ---------
<S> <C> <C> <C>
SG Cowen Standby Tax-Exempt Reserve Fund.............
IBC Tax Free Fund Average (Broker and General
Purpose)...........................................
</TABLE>
What are the Fund's fees and expenses?
These tables describe the fees and expenses you may pay in connection with
an investment in the Fund.
Annual Fund Operating Expenses Paid from the Fund's Assets.
<TABLE>
<S> <C>
Management Fees(1)...................................................... 0.50%
Distribution and Service (12b-1) Fees................................... None
Other Expenses(1)....................................................... 0.14%
Total Annual Fund Operating Expenses(2)................................. 0.64%
</TABLE>
- ------------
(1) The above table does not reflect SG Cowen's voluntary waiver of 0.10% of its
management fee. The total annual fund operating expenses after considering
this waiver was 0.54%. SG Cowen is under no obligation to continue this
waiver.
(2) These expenses include actual fees for shareholder services, custodial fees,
legal and accounting fees, printing costs and registration fees for the
Fund's fiscal year that ended September 30, 1998. These expenses vary from
year to year.
Example
This example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual Funds. We show the cumulative
amount of Fund expenses on a hypothetical investment of $10,000, assuming an
annual 5% return, the Fund's operating expenses remain the same and you redeem
all of your shares at the end of each period. This is an example only, and does
not represent future expenses, which may be greater or less than those shown
here.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 65 $ 205 $ 357 $ 798
</TABLE>
6
<PAGE>
HOW WE MANAGE THE FUNDS
Our Investment Strategies
We analyze economic and market conditions, seeking to identify the
securities that we think make the best investments in pursuit of our investment
objective of current income consistent with preserving capital and maintaining
liquidity. We blend a number of investment strategies to manage the Funds.
The Securities in which We Typically Invest
The following is a description of the securities in which we normally
invest.
SG Cowen Standby Reserve Fund
We invest only in those securities rated in the highest categories of a
nationally recognized rating organization. If a security is not rated, we invest
only in those which we deem to be of comparable quality to those securities
described in the previous sentence.
U.S. Government Securities
U.S. government securities include U.S. Treasury bills, notes and bonds, as
well as securities issued or guaranteed by U.S. government agencies or
instrumentalities.
Bank Instruments
Bank instruments include certificates of deposit and bankers' acceptances
issued by domestic and foreign banks, savings and loan associations and similar
institutions with a minimum of $1 billion in assets. We invest only in
instruments issued by domestic branches of U.S. and foreign banks, and London
branches of U.S. banks.
Commercial Paper
Short-term debt obligations, or notes, with maturities ranging from 2 to 270
days, issued by banks, corporations, and others are known as commercial paper.
Medium Term Notes
Medium term debt obligations, or notes, mature more than 270 days after they
are issued.
Variable Rate Notes
A variable rate note is a debt obligation whose interest rate is adjusted on
set dates according to a benchmark interest rate such as the London Interbank
Offered Rate (LIBOR), which is the rate that the most creditworthy international
banks charge each other for loans.
Floating Rate Notes
A floating rate note is a debt obligation whose interest rate changes
whenever a specified benchmark interest rate, such as the federal funds rate,
changes.
7
<PAGE>
Repurchase Agreements
A repurchase agreement is an agreement between a buyer and seller of
securities in which the seller agrees to buy the securities back within a
specified time at the same price the buyer paid for them, plus an amount equal
to an agreed upon interest rate.
SG Cowen Standby Tax-Exempt Reserve Fund
We invest only in those securities rated in the highest categories of a
nationally recognized rating organization. If a security is not rated, we invest
only in those which we deem to be of comparable quality to those securities
described in the previous sentence. The interest earned on all the securities
set forth below is exempt from federal taxation.
Municipal Securities
States, local governments and municipalities issue municipal bonds to raise
money for various public purposes such as building public facilities,
refinancing outstanding obligations, and financing general operating expenses. A
municipality may issue general obligation bonds which are secured by its taxing
power, or it may issue revenue bonds which are payable from the revenues of a
particular project or a special excise tax. A municipality may also issue
commercial paper which is a short-term, unsecured debt obligation.
Variable Rate Demand Notes
A variable rate note is a debt obligation whose interest rate is adjusted on
set dates according to a benchmark interest rate. The demand feature enables the
Fund to redeem the note at any time or at specified intervals.
Tax-Exempt Floating Rate Notes
A debt security whose interest rate is adjusted periodically, usually every
six months.
Tax-Exempt Commercial Paper
Short-term debt obligations or notes with maturities usually ranging from 30
to 270 days issued by municipalities.
THE RISKS OF INVESTING IN THE FUNDS
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment. Therefore, before you invest in
these Funds you should carefully evaluate the risks. The chief risk you assume
when investing in the Funds is interest rate risk, the possibility that as
interest rates rise the value of some fixed income securities, especially those
securities with longer maturities, may decrease. Market risk is the risk that
the securities in a certain market such as the bond market will decline in value
because of factors such as economic conditions, future expectations or investor
confidence. As money market funds, the Funds seek to preserve the value of your
investment at $1.00 per share.
8
<PAGE>
Year 2000 Risks
Like other mutual funds, the Funds could be adversely affected if the
computer systems used by SG Cowen and other service providers do not properly
process and calculate date-related information after January 1, 2000. This is
commonly known as the "Year 2000 Problem." SG Cowen is taking steps that it
believes are reasonably designed to address the Year 2000 Problem with respect
to the computer systems that it uses, and to obtain satisfactory assurances that
comparable steps are being taken by the Funds' other major service providers. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Funds.
WHO MANAGES THE FUNDS
The officers of each Fund conduct the Fund's daily business operations,
subject to the supervision of the Funds' Boards of Directors.
Investment Manager
From the Funds' commencement of operations until July 1, 1998, Cowen & Co.
("Cowen") served as investment manager. On July 1, 1998, Cowen's business was
combined with Societe Generale Securities Corporation a subsidiary of Societe
Generale ("SG") to form SG Cowen Securities Corporation. SG, a leading
international commercial and investment bank established in 1864, has a global
network of offices in over 80 countries. Since July 1, 1998, SG Cowen has served
as the new investment manager to the Funds, with the existing investment
management personnel of Cowen continuing to provide investment management
services to the Funds for the same management fees described below. SG Cowen
Securities Corporation, which currently manages approximately $6 billion in
assets, manages the Funds' business affairs, including being responsible for
each Fund's investment program and provides daily administrative services.
Management Fees
For managing the SG Cowen Standby Reserve Fund, Inc. and its investments,
the adviser is paid a yearly fee of 0.50% for the first $1.5 billion of daily
net asset value, 0.475% for the next $1 billion, and 0.45% for assets over $2.5
billion.
For managing the SG Cowen Standby Tax-Exempt Reserve Fund, Inc. and its
investments, the adviser is paid a yearly fee of 0.50% of the Fund's daily net
asset value.
ALL ABOUT YOUR ACCOUNT
How to Buy Shares
To invest in a Fund, if you have an account at SG Cowen, merely direct your
representative to invest in the Fund. You do not need to have an account with SG
Cowen to purchase shares in a Fund. Simply have your financial representative
purchase the shares. You can also contact the Fund directly at (800) 309-1111.
There is no charge for establishing or maintaining an account. If you want to
purchase shares by wire, contact the Fund directly at (800) 309-1111. You can
open an account with an initial investment of $500, and make additional
investments at any time for as little as $500. The minimum investment for
SEP-IRA and IRA accounts is $100. The price you pay for shares will depend on
when we receive your purchase order.
9
<PAGE>
Each Fund reserves the right to vary these amounts. Each Fund's shares are
sold on each business day. If we receive your order before 2:00 p.m. Eastern
time on a business day, you will pay that day's closing share price which is
based on the Fund's net asset value. If we receive your order after 2:00 p.m.,
you will pay the next business day's price. A business day is any day that the
New York Stock Exchange is open for business. We reserve the right to reject any
purchase order.
Normally, we determine each Fund's net asset value (NAV) per share as of
2:00 p.m. Eastern time each day the New York Stock Exchange is open for
business. We calculate the net asset value by adding the market value of all the
securities and other assets in the Fund's portfolio, deducting all liabilities,
and dividing the resulting number by the number of shares outstanding. The
result is the net asset value per share. We price the investments of each Fund
on the basis of amortized cost.
How to Sell Shares
You can redeem your shares (sell them back to the fund) by mail by writing
to: DST Systems, Inc., 210 West 10th Street, Kansas City, MO. 64105. Your
request must be signed by all owners of the account, and you must include a
signature guarantee for each owner. Signature guarantees are also required when
redemption proceeds are going to anyone other than the account holder(s) of
record. You can redeem your shares by telephone or wire, with the proceeds sent
to your bank the next business day after we receive your request. However, you
bear the risk of loss for any fraudulent oral redemption order. You can sell
$100 or more of your shares by writing a check payable to the order of any
person. You may also sell your shares through a broker - dealer, who may charge
a fee for this service. If you hold your shares in certificates, you must submit
the certificates with your request to sell the shares.
When you send us a properly completed request to sell or exchange shares, by
2:00 p.m. Eastern time on any day the New York Stock Exchange is open for
business, you will receive the net asset value as determined on the business day
we receive your request. We will pay you promptly, normally the next business
day, but no later than seven days after we receive your request to sell your
shares. If you purchased your shares by check, we will wait until your check has
cleared, which can take up to 15 days, before we send you the proceeds from the
sale of your shares.
Account Minimum
If as a result of redemption your account balance falls below the required
minimum amount of $500, you will have 30 days to raise the balance to the
minimum after we notify you in writing. If your account is not at the minimum by
the required time, we may redeem it.
Special Services
To help make investing with us as easy as possible, and to help you build
your investments, we offer the following special services. You can get further
information about these programs by calling Shareholder Services at (800)
309-1111.
- - You can exchange all or part of your shares for shares in another SG Cowen
money market fund without paying a sales charge. When you exchange shares, you
are purchasing shares in another fund so you should be sure get a copy of the
fund's prospectus and read it carefully before buying shares through an
exchange. If you exchange your shares for shares in a SG Cowen non-money
market fund, you will have to pay any applicable sales charges for the shares
you purchase.
10
<PAGE>
- - You can automatically invest any free credit balance over $100 in your SG
Cowen securities account in a Fund daily. You can also automatically invest
any free credit balances over $1.00 but below a Fund's minimum requirement
weekly. For a participant in this program, redemption of shares of the Fund
will be effected automatically on each business day to satisfy the debit
balances in the shareholder's securities account. Shareholders who are
investors in both Funds must designate which Fund they wish to use. Free
credit balances in a shareholder's securities account will be automatically
invested into the chosen Fund and debit balances will be satisfied from the
Fund before debiting other assets in the account. No fee is charged with
respect to these automatic transactions. SG Cowen reserves the right, however,
upon notification to all participants, to impose a fee in the future.
- - You may buy shares in the SG Cowen Standby Reserve Fund, Inc. for your
individual or group retirement plan, including your Individual Retirement
Account (IRA), Roth IRA and Education IRA.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds declare dividends daily and pay them monthly, while any net
realized capital gains are distributed annually. We automatically reinvest all
dividends and any capital gains, unless you tell us otherwise. Your shares begin
accruing dividends on the day after your purchase order becomes effective and
they continue accruing dividends through and including the day your order to
redeem and sell your shares becomes effective.
The tax status of your dividends in these Funds are not affected by whether
you reinvest your dividends or receive them in cash.
Because the Standby Tax-Exempt Reserve Fund invests in municipal bonds,
certain dividends you receive will be exempt from regular federal income tax.
All or a portion of these dividends, however, may be subject to state and local
taxes or to the federal alternative minimum tax (AMT). If you receive social
security benefits, you should be aware that any tax-free income is taken into
account in calculating the amount of these benefits that may be subject to
federal income tax.
Dividends paid by the SG Cowen Standby Reserve Fund from short-term capital
gains and net investment income are generally taxable as ordinary income. In
addition, you may be subject to state and local taxes on distributions.
Because we do not expect either of the Funds to have long-term capital
gains, we do not expect any of the Funds' distributions or dividends to be
taxable as long-term capital gains. Tax laws are subject to change, so we urge
you to consult your tax adviser about your particular tax situation and how it
might be affected by current tax law.
We will send you a statement each year detailing the amount and tax status
of all dividends and capital gains that you were paid during the prior year.
11
<PAGE>
FINANCIAL HIGHLIGHTS
These financial highlights tables are intended to help you understand each
Fund's financial performance for the past five years. All information reflects
financial results for a single share in each Fund. This information has been
audited by Ernst & Young LLP, whose report, along with the Fund's financial
statements, is included in the Fund's annual report, which is available upon
request by calling (800) 309-1111.
<TABLE>
<CAPTION>
SG Cowen Standby Reserve Fund
------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of Year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................. 0.05 0.05 0.05 0.05 0.03
LESS DISTRIBUTIONS
Dividends from Net Investment Income.............. (0.05) (0.05) (0.05) (0.05) (0.03)
------ ------ ------ ----------- -----------
NET ASSET VALUE
End of Year....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ----------- -----------
------ ------ ------ ----------- -----------
Total Return........................................ 5.13% 4.98% 4.97% 5.23% 3.14%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000 omitted).......................... $1,475,639 $1,337,467 $1,101,944 $890,888 $692,609
Ratio of Expenses to Average Net Assets........... 0.65% 0.69% 0.71% 0.71% 0.64%
Ratio of Net Investment Income to Average Net
Assets........................................... 5.03% 4.89% 4.89% 5.13% 3.11%
<CAPTION>
SG Cowen Standby Tax-Exempt Reserve Fund
------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of Year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................. 0.03 0.03 0.03 0.03 0.02
LESS DISTRIBUTIONS
Dividends from Net Investment Income.............. (0.03) (0.03) (0.03) (0.03) (0.02)
------ ------ ------ ----------- -----------
NET ASSET VALUE
End of Year....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ----------- -----------
------ ------ ------ ----------- -----------
Total Return........................................ 3.10% 3.11% 3.07% 3.19% 2.11%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000 omitted).......................... $218,064 $187,213 $171,055 $122,536 $120,704
Ratio of Expenses to Average Net Assets*.......... 0.54% 0.56% 0.59% 0.61% 0.58%
Ratio of Net Investment Income to Average Net
Assets*.......................................... 3.06% 3.07% 3.01% 3.14% 2.03%
INVESTMENT ADVISORY FEES WAIVED
Amount............................................ $197,675 $181,100 $156,993 $124,784 $130,483
Ratio to Average Net Assets....................... 0.10% 0.10% 0.10% 0.10% 0.10%
</TABLE>
- ---------------
* Net of Waiver
12
<PAGE>
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. You can find more
detailed information about each Fund in its current Statement of Additional
Information, which we have filed electronically with the Securities and Exchange
Commission (SEC) and which is legally a part of this prospectus. If you want a
free copy of the Statement of Additional Information, the annual or semi-annual
report, or if you have any questions about investing in these Funds, you can
write to us at Financial Square, New York, NY 10005 or call toll-free (800)
309-1111.
You can find reports and other information about the Funds on the SEC Web
site (http://www.sec.gov), or you can get copies of this information, after
paying of a duplicating fee, by writing to the Public Reference Section of the
SEC, Washington, D.C. 20549-6009. Information about the Funds, including their
Statements of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D. C.
You can get information on the public reference room by calling the SEC at (800)
SEC-0330.
811-4344 811-3220
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STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
SG COWEN STANDBY RESERVE FUND, INC.
SG COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC.
Financial Square, New York, New York 10005
(212) 495-6724, (800) 262-7116
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Contents Page
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<S> <C>
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Investment Objective, Policies and Strategies . . . . . . . . . . . .2
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . .2
Tax-Exempt Fund. . . . . . . . . . . . . . . . . . . . . . . . .6
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . 12
Purchase, Redemption and Pricing of Shares. . . . . . . . . . . . . 16
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . 17
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Determination of Yield. . . . . . . . . . . . . . . . . . . . . . . 19
Auditors and Counsel. . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 22
APPENDIX- Description of Ratings. . . . . . . . . . . . . . . . . . 23
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This Statement of Additional Information is meant to be read in conjunction
with the Prospectus of SG Cowen Standby Reserve Fund, Inc. ("Reserve Fund") and
SG Cowen Standby Tax-Exempt Reserve Fund, Inc. ("Tax-Exempt Fund) also
collectively known as the "Funds" dated February 1, 1999, 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 Funds should be made solely upon the information contained herein. Copies
of the Funds' Prospectus may be obtained by calling Funds Distributor, Inc, the
Funds' principal underwriter, at 1-800-221-7930 or by
<PAGE>
contacting any SG Cowen Securities Corporation ("SG Cowen") account
representative. The Funds financial statements and auditor's report herein for
the fiscal year ended September 30, 1998 are incorporated by reference to the
Funds' Annual Report, which may be obtained without charge by calling the
toll-fee number above. SG Cowen is the investment manager to the Funds.
HISTORY
Reserve Fund was incorporated on June 19, 1981 under the laws of the State
of Maryland and commenced operations on October 22, 1981. Tax-Exempt Fund was
incorporated on June 5, 1985 under the laws of the State of Maryland and
commenced operations on April 1, 1986. On July 1, 1998, the names of the Funds
were changed from Cowen Standby Reserve Fund, Inc. and Cowen Standby Reserve
Fund, Inc. to SG Cowen Standby Reserve Fund, Inc. and SG Cowen Standby
Tax-Exempt Reserve Fund, Inc. respectively.
INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES
RESERVE FUND
Reserve Fund is a diversified open-end management investment company. The
investment objective of Reserve Fund is the maximization of current income to
the extent consistent with the preservation of capital and the maintenance of
liquidity. The following policies supplement the descriptions of Reserve Fund's
investment objective, policies and strategies in the Prospectus.
UNITED STATES GOVERNMENT, AGENCY AND INSTRUMENTALITY SECURITIES
United States government, agency and instrumentality securities in which
Reserve Fund may invest include Treasury Bills, Treasury Notes and Treasury
Bonds; other obligations which are supported by the full faith and credit of the
United States Treasury, such as Government National Mortgage Association
pass-through certificates; obligations which are supported by the right of the
issuer to borrow from the Treasury, such as securities of Federal Home Loan
Banks; and obligations which are supported only by the credit of the
instrumentality, such as Federal National Mortgage Association bonds.
Reserve Fund has the ability to invest in agency obligations which are
supported only by the credit of the instrumentality, such as Federal National
Mortgage Association bonds. Because the United States government is not
obligated by law to provide financial support to an instrumentality it sponsors,
Reserve Fund will invest in obligations issued by such an instrumentality only
when SG Cowen determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for investment by
Reserve Fund.
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BANK OBLIGATIONS
Bank obligations will include U.S. dollar denominated instruments issued or
supported by the credit of U. S. banks or foreign banks or savings institutions.
Certificates of deposit ("CDs") and bankers' acceptances ("BAs") in which
Reserve Fund may invest generally are limited to those instruments issued by
domestic or foreign commercial banks, savings and loan associations and similar
institutions having total assets in excess of $1 billion. CDs are short-term
negotiable obligations of commercial banks, and BAs are time drafts drawn on
commercial banks by borrowers usually in connection with international
transactions. Reserve Fund will concentrate its investments in the banking
industry, investing in CD's and BA's of domestic branches of U. S. banks, London
branches of U. S. banks and domestic branches of foreign banks. Reserve Fund's
investments in the obligations of London branches of U. S. banks and domestic
branches of foreign banks may subject Reserve Fund to investment risks that are
different in some respects from those of investments in obligations of U. S.
issuers. For example, there may be less publicly available information about
such entities than about domestic banks and their domestic branches. Reserve
Fund will acquire securities issued by London branches of U. S. banks or
domestic branches of foreign banks only when SG Cowen believes that the risk
associated with such instruments is minimal.
REPURCHASE AGREEMENTS
Reserve Fund may purchase debt instruments and concurrently enter into
repurchase agreements with sellers of the securities. Under a repurchase
agreement, Reserve Fund may acquire an underlying debt instrument for a
relatively short period subject to an obligation of the seller to repurchase and
the Company to resell the instrument at a fixed price and time, thereby
determining the yield during the Company's holding period. This results in a
fixed rate of return insulated from market fluctuations during such period.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
repurchase agreements are considered loans by Reserve Fund. The obligation of
the seller to repurchase the instrument at the agreed-upon price and time is in
effect secured by the value of the instrument. If a seller defaults on its
obligation to repurchase the underlying security, Reserve Fund will incur a loss
to the extent that the proceeds it realizes on the sale of the collateral are
less than the repurchase price of the instrument. Furthermore, should the
defaulting seller file for bankruptcy, Reserve Fund could incur certain costs in
establishing its right to dispose of the collateral or experience delays or be
subject to limitations in its realization thereon. However, Reserve Fund will
not enter into repurchase agreements maturing in more than seven days in an
amount which, when added to any other securities which are restricted as to
resale or securities without readily available market quotations, would exceed
10% of Reserve Fund's total assets.
Reserve Fund will enter into repurchase agreements with respect to its
portfolio securities with member banks of the Federal Reserve System or certain
non-bank dealers. Under each repurchase agreement, the selling institution will
be required to maintain collateral deposits equal at all times to the value of
the securities subject to the repurchase agreement at not less than their
repurchase price. SG Cowen, acting under the
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supervision of Reserve Fund's Board of Directors, reviews the creditworthiness
of those non-bank dealers and member banks of the Federal Reserve System with
whom the Reserve Fund enters into repurchase agreements to evaluate these risks.
COMMERCIAL PAPER
Commercial paper purchased by Reserve Fund is limited to direct obligations
of issuers. Included among the commercial paper Reserve Fund may purchase is
paper that may be purchased or sold only in private transactions; Reserve Fund's
investments in such commercial paper will be subject to Reserve Fund's
limitation on investments in securities with contractual or other restriction on
resale.
MEDIUM TERM NOTES
Medium term notes are issued by banks and business corporations. They are
unsecured debt instruments evidencing an obligation to pay a stated principal
amount at a stated maturity date more than 270 days from issuance. Reserve Fund
will not purchase medium term notes maturing more than one year after the date
of purchase.
VARIABLE AND FLOATING RATE NOTES
Reserve Fund may acquire variable and floating rate notes. A variable rate
note is one whose terms provide for the adjustment of its interest rate on set
dates and which, upon such adjustment, can reasonably be expected to have a
market value that approximates its par value. A floating rate note is one whose
terms provide for the adjustment of its interest rate whenever a specified
interest rate changes and which, at any time, can reasonably be expected to have
a market value that approximates its par value. Such notes are frequently not
rated by credit rating agencies; however, unrated variable and floating rate
notes purchased by Reserve Fund will be determined by SG Cowen under guidelines
established by Reserve Fund's Board of Directors to be of comparable quality at
the time of purchase to rated instruments eligible for purchase. Although there
may be no active secondary market with respect to a particular variable or
floating rate note purchased by Reserve Fund, it may resell a note at any time
to a third party. The absence of an active secondary market, however, could make
it difficult for Reserve Fund to dispose of a variable or floating rate note in
the event the issuer of the note defaulted on its payment obligations and
Reserve Fund could, as a result or for other reasons, suffer a loss to the
extent of the default. Variable or floating rate notes may be secured by bank
letters of credit.
OTHER INVESTMENT LIMITATIONS
The following investment limitations may not be changed without the
affirmative vote of the holders of a majority of Reserve Fund's outstanding
shares. Such majority is defined as the lesser of (a) 67% of Reserve Fund's
shares present at a meeting, if the holders of more than 50% of the outstanding
shares are present in person or by proxy or (b) more than 50% of Reserve Fund's
outstanding shares.
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Reserve Fund may not:
1. Purchase common stocks, preferred stocks, warrants, other equity
securities, state bonds municipal bonds or industrial revenue bonds;
2. Borrow money except from banks for temporary or emergency purposes
including meeting redemption requests which might otherwise require
the untimely disposition of securities. Borrowing in the aggregate
may not exceed 10%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the value of Reserve 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. The borrowings will be repaid before any
additional investments are made;
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net total assets but only
to secure borrowings for temporary or emergency purposes;
4. Sell securities short or purchase securities on margin;
5. Write or purchase put or call options;
6. Underwrite the securities of other issuers or purchase securities with
contractual or other restrictions on resale;
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts or oil and gas interests;
8. Make loans to others except through purchasing qualified debt
obligations, loaning portfolio securities (see item 13, below), and
entering into repurchase agreements referred to under "Investment
Objective and Policies" (see also item 14, below);
9. Subject to the diversification requirements of Section 5 of the 1940
Act invest more than 15% of its assets in the obligations (including
repurchase agreements) of any one bank, or invest more than 5% of its
assets in the commercial paper of any one issuer;
10. Invest more than 25% of its assets in the securities of issuers in any
single industry, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the United States
government, its agencies or instrumentalities, certificates of deposit
and bankers acceptances;
11. Invest in companies for the purpose of exercising control;
12. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of
assets;
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<PAGE>
13. Lend its portfolio securities in excess of 20% of its total assets,
taken at their value. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and Reserve Fund's Board of Directors, including
maintenance of collateral of the borrower equal at all times to the
current market value of the securities loaned;
14. Invest more than 10% of its assets in unmarketable securities,
including restricted securities, other unmarketable securities, and
repurchase agreements maturing in more than seven days from the date
of acquisition.
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.
INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES
TAX-EXEMPT FUND
The Tax-Exempt Fund is a diversified open-end management investment
company. The investment objective of Tax-Exempt Fund 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.
At least 80% of Tax-Exempt Fund's assets will be invested in short-term
tax-exempt debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political sub-divisions ("Municipal
Securities"). Tax-Exempt Fund will invest in Municipal Securities only if they
are determined to be of high quality and to present minimal credit risk pursuant
to guidelines established by Tax-Exempt Fund's Board of Directors. Municipal
Securities in which Tax-Exempt Fund may invest include: (a) commercial paper,
which typically represents short-term, unsecured, negotiable promissory notes,
issued to meet seasonal working capital needs of municipalities or to provide
interim construction financing; (b) notes used to provide for short-term capital
needs, usually with a maturity of one year or less, such as Tax Anticipation,
Bond Anticipation and Revenue Anticipation Notes and other short-term loans; and
(c) bonds classified principally as (i) General Obligation Bonds, which are used
to finance public projects and are secured by the issuer's taxing power for the
payment of principal and interest and (ii) Revenue Bonds issued to finance a
specific, revenue-generating capital project and payable only from the proceeds
of the specific revenue source. The identification of the issuer of a Municipal
Security depends upon the terms and conditions of the security. If the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separated by those of the government creating the issuing entity
and a security is backed only by assets and revenues of the entity, the entity
would be deemed to be the sole issuer of the security. Similarly, in the case of
a private activity bond, if that bond is backed only by the assets and revenues
of the non-governmental user then the non-governmental user would be deemed to
be the sole issuer. If, however, the creating government or some other entity
guarantees a
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security, such a guarantee would be considered a separate security and would be
treated as an issue of such government or other entity.
There are, of course, variations in the quality of Municipal Securities,
both within a particular classification and among classifications, and the
yields on Municipal Securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Service a
division of The McGraw-Hill Companies Inc. ("S&P"), Duff & Phelps, Inc.
("D&P"), Fitch Investors Services, Inc. ("Fitch"), IBCA Limited ("IBCA") and
Thomson Bankwatch ("Thomson") represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Municipal Securities with
the same maturity interest rate and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by Tax-Exempt Fund,
an issue of Municipal Securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by Tax-Exempt Fund.
Tax-Exempt Fund's investment manager will consider such an event in determining
whether Tax-Exempt Fund should continue to hold the obligation. See the
Appendix attached hereto for further information concerning the ratings.
An issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
VARIABLE RATE DEMAND NOTES
Municipal Securities purchased by Tax-Exempt Fund may include variable rate
demand notes issued by industrial development authorities and other governmental
entities. Although variable rate demand notes are frequently not rated by credit
rating agencies, unrated notes purchased by Tax-Exempt Fund will be determined
by SG Cowen to be of comparable quality at the time of purchase to instruments
rated "high quality" (i.e., within the two highest ratings) by any major rating
service. Tax-Exempt Fund may invest in variable rate demand notes carrying
stated maturities in excess of one year at the date of purchase by Tax-Exempt
Fund if such variable rate demand notes carry demand features permitting
Tax-Exempt Fund to redeem at any time or, under certain conditions, at specified
periodic intervals, not exceeding one year, in either case upon such notice as
is deemed appropriate by the SEC or its staff, currently not more than seven
days. Frequently such obligations are secured by irrevocable letters of credit
or other credit support arrangements provided by banks. The quality of the
underlying creditor or of the bank, as the case may be, must, as determined by
SG Cowen, also be equivalent to the quality standards set forth above. In
addition, while there is no active secondary market with respect to a particular
variable rate demand note purchased by
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Tax-Exempt Fund, Tax-Exempt Fund may, upon the seven days notice specified in
the note, demand payment of the principal of and accrued interest on the note.
The absence of such an active secondary market, however, could make it difficult
for Tax-Exempt Fund to dispose of the variable rate demand note involved, in the
event the issuer of the note defaulted on its payment obligations, and
Tax-Exempt Fund could, for this or other reasons, suffer a loss of principal and
interest.
Tax-Exempt Fund may invest in participating interests purchased from banks
in variable rate Municipal Securities (such as industrial development bonds)
owned by banks. If necessary in the opinion of Tax-Exempt Fund's investment
manager, participation interests will carry a liquidity feature permitting
Tax-Exempt Fund to tender them back to the bank or will be backed by an
irrevocable letter of credit or guarantee of a bank which SG Cowen has
determined to be equivalent to the quality standards set forth above.
WHEN-ISSUED SECURITIES
Tax-Exempt Fund may also purchase Municipal Securities on a "when-issued"
basis. Tax-Exempt Fund will enter into a when-issued transaction for the purpose
of acquiring portfolio securities and not for the purpose of leverage.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. Tax-Exempt Fund will generally not
pay for such securities or start earning interest on them until they are
received; thus, they involve a form of leveraging. Securities purchased on a
when-issued basis are recorded as an asset and are subject to changes in value,
both before and after delivery, based upon changes in the general level of
interest rates and other market factors. Although Tax-Exempt Fund may purchase
when-issued securities without limit, Tax-Exempt Fund expects that commitments
to purchase when-issued securities normally will not exceed 25% of the value of
its total assets and that a commitment by Tax-Exempt Fund to purchase
when-issued securities will not exceed 45 days. Due to fluctuations in the value
of Municipal Securities purchased on a when-issued basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to Tax-Exempt Fund.
STAND-BY COMMITMENTS
Tax-Exempt Fund may acquire "stand-by commitments" (sometimes referred to
as "puts") with respect to Municipal Securities held in its portfolio. Under a
stand-by commitment, a dealer agrees to purchase, at Tax-Exempt Fund's option,
specified Municipal Securities at a specified price. Tax-Exempt Fund intends to
enter into stand-by commitments only with dealers, banks and broker-dealers
which, in the opinion of Tax-Exempt Fund's investment manager, present minimal
credit risks. If SG Cowen deems it necessary or advisable, Tax-Exempt Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for portfolio securities which are acquired subject to the commitment
(thus reducing the yield to maturity otherwise available for the same
securities). In evaluating the creditworthiness of the issuer of a stand-by
commitment, SG Cowen will review periodically the issuer's assets, liabilities,
contingent claims and other relevant financial information. Tax-Exempt Fund will
acquire stand-by
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commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
REVERSE REPURCHASE AGREEMENTS
Tax-Exempt Fund may borrow funds for temporary purposes and not for
leverage by agreeing to sell portfolio securities to financial institutions such
as banks and broker-dealers and to repurchase them at a mutually agreed-upon
date and price (a "reverse repurchase agreement"). At the time Tax-Exempt Fund
enters into a reverse repurchase agreement it will place in a segregated
custodial account cash, United States government securities or high-grade debt
obligations having a value equal to the repurchase price (including accrued
interest). Reverse repurchase agreements involve the risk that the market value
of the securities sold by Tax-Exempt Fund may decline below the repurchase price
of those securities. Repurchase agreements are considered to be loans and
reverse repurchase agreements are considered to be borrowings by Tax-Exempt Fund
under the 1940 Act.
TAXABLE INVESTMENTS
Under certain circumstances, Tax-Exempt Fund may for temporary defensive or
other purposes invest in certain short-term taxable securities when Tax-Exempt
Fund's investment manager believes that it would be in the best interests of
Tax-Exempt Fund's investors to do so. Taxable securities in which Tax-Exempt
Fund may invest on a short-term basis are obligations of the United States
government, its agencies or instrumentalities, including repurchase agreements
with banks or securities dealers involving such securities; time deposits
maturing in not more than seven days; commercial paper and other debt securities
rated within the two highest ratings by a nationally recognized statistical
rating organization ("NRSRO"); bank obligations including certificates of
deposit issued by domestic branches of U.S. banks with assets of $1 billion or
more. At no time will more than 20% of Tax-Exempt Fund's total assets be
invested in taxable short-term securities unless SG Cowen has determined to
adopt temporarily a defensive investment policy in the face of adverse market
conditions affecting the market for Municipal Securities in general.
SPECIAL CONSIDERATIONS
In seeking to achieve its investment objective Tax-Exempt Fund may invest
all or any part of its assets in Municipal Securities which are industrial
development bonds. Moreover, although Tax-Exempt Fund does not currently intend
to do so on a regular basis, it may invest more than 25% of its assets in
Municipal Securities the interest on which is paid solely from revenues of
economically related projects, if such investment is deemed necessary or
appropriate by SG Cowen. To the extent that Tax-Exempt Fund's assets are
concentrated in Municipal Securities payable from revenues on economically
related projects and facilities, Tax-Exempt Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if
Tax-Exempt Fund's assets were not so concentrated.
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OTHER INVESTMENT LIMITATIONS
The following investment limitations may not be changed without the
affirmative vote of the holders of a majority of Tax-Exempt Fund's outstanding
shares. Such majority is defined as the lesser of (a) 67% or more of the shares
present at the meeting, if the holders of more than 50% of the outstanding
shares of Tax-Exempt Fund are present or represented by proxy, or (b) more than
50% of the outstanding shares.
Tax-Exempt Fund may not:
1. Invest less than 80% of its assets in securities the interest on which
is exempt from federal income tax, except during temporary defensive periods as
determined by SG Cowen;
2. Purchase the securities of any issuer if as a result with respect to 75%
Of Tax-Exempt Fund's assets, more than 5% of the value of the total assets of
Tax-Exempt Fund would be invested in the securities of such issuer and not more
than 10% of the outstanding voting securities of such issuer. Moreover, not
more than 25% of the value of Tax-Exempt Fund's total assets will be invested in
the securities, other than Government securities, of any one issuer or of two or
more issuers that Tax-Exempt Fund is deemed to control and which are engaged in
similar or related trades or businesses. For purposes of these limitations a
Government security includes securities issued by the U. S. Government, its
agencies and instrumentalities. For purposes of these limitations in certain
situations, an issuer of an industrial development bond could be the issuing
government unit or the ultimate economic obligor of the industrial development
bond. Moreover, in certain situations, the guarantor of a guaranteed security
(or a direct or standby letter of credit obligor) may also be considered to be
an issuer of the guaranteed security;
3. Issue senior securities including reverse repurchase agreements or
borrow money, except from banks, for temporary or emergency purposes including
meeting redemption requests which might otherwise require the untimely
disposition of securities. Borrowing in the aggregate may not exceed 10%, and
borrowing for purposes other than meeting redemptions may not exceed 5%, of the
value of Tax-Exempt 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;
4. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net total assets but only to secure
borrowings for temporary or emergency purposes;
5. Purchase securities on margin, make short sales of securities or
maintain a short position;
6. Write or sell puts, calls, straddles, spreads or combinations thereof,
except that Tax-Exempt Fund may acquire stand-by commitments;
7. Underwrite any issue of securities except to the extent that the
purchase of debt obligations directly from the issuer thereof in accordance with
Tax-Exempt Fund's investment objective, policies and limitations may be deemed
to be underwriting;
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8. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or invest in oil, gas or mineral exploration
or development programs, except that Tax-Exempt Fund may invest in debt
obligations secured by real estate, mortgages or interests therein;
9. Make loans except that Tax-Exempt Fund may purchase or hold debt
obligations, and enter into repurchase agreements in accordance with its
investment objective, policies and limitations;
10. Purchase any securities which would cause more than 25% of the value of
Tax-Exempt Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of (i)
obligations issued by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political sub-divisions, (ii) certificates of
deposit issued by domestic branches of U. S. banks or (iii) Municipal Securities
the interest on which is paid solely from revenues of economically related
projects. For purposes of this restriction, industrial revenue bonds ultimately
payable by companies within the same industry are treated as if they were issued
by issuers in the same industry;
11. Invest in companies for the purpose of exercising control;
12. Purchase securities of other investment companies registered under the
1940 Act except in connection with a merger, consolidation, acquisition or
reorganization;
13. Lend its portfolio securities in excess of 20% of its total assets,
taken at their value. Any loans of portfolio securities will be made according
to guidelines established by the Securities and Exchange Commission ("SEC") and
Tax-Exempt Fund's Board of Directors, including maintenance of collateral of the
borrower equal at all times to the current market value of the securities
loaned;
14. Invest more than 10% of the value of Tax-Exempt Fund's assets in
securities which are illiquid because of legal or contractual restrictions on
resale, including securities for which there are no readily available markers,
repurchase agreements providing for settlement in more than seven days, variable
rate demand notes providing for settlement upon more than seven days notice by
Tax-Exempt Fund, and time deposits maturing in more than seven days;
15. Invest more than 5% of the value of its total assets in the securities
of issuers having a record, including predecessors, of fewer than three years of
continual operations, except obligations issued or guaranteed by the U.S
government, its agencies or instrumentalities.
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. Tax-Exempt Fund may
make commitments more restrictive than the restrictions listed above so as to
permit the sale of shares of Tax-Exempt Fund in
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certain states. Should Tax-Exempt Fund determine that any such commitment is no
longer in the best interests of Tax-Exempt Fund and its shareholders, Tax-Exempt
Fund will revoke the commitment by terminating the sale of shares of Tax-Exempt
Fund in the state involved. The percentage limitations contained in the
restrictions listed above apply at the time of purchases of securities.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS
The business and affairs of each of the Funds are managed under the
direction of their respective Boards of Directors which has overall supervisory
responsibility for the Fund. By virtue of the responsibilities assumed by SG
Cowen under the Investment Management Agreements, neither Fund will require
executive employees other than its officers, none of whom will devote full time
to the affairs of that Fund.
The names of the directors and officers of the Funds, 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 Funds, as
defined in the 1940 Act, is indicated by an asterisk; unless noted otherwise,
the business address of each such individual is Financial Square, New York, New
York 10005. Each of the directors is also a director of all of the investment
companies of which SG Cowen is Investment Manager.
DIRECTORS OF THE FUNDS
James H. Carey, Director, age 65. Managing Director of Briarcliff
Financial Associates, Inc. (since June, 1991) and former 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, former Director of NCB Insurance Limited (Bermuda),
Director of The Midland Company, The Murray & Isabella Rayburn Foundation,
Nantucket Industries, Inc. and Vice Chairman of the U.S. Committee for UNICEF.
His address is 44 Sleepy Hollow Road, Briarcliff Manor, New York 10510.
*Joseph M. Cohen, Chairman and Chief Executive Officer of the Funds, age
60. Chairman of SG Cowen Securities Corporation since July 1, 1998. Prior
thereto, Principal Executive Officer and Class I Limited Partner of Cowen & Co.
("Cowen") and Chairman and President of Cowen Incorporated. Director, Chairman
and Chief Executive Officer of the SG Cowen Mutual Funds.
Dr. Peter P. Gil, Director, age 75. Director, Arthur D. Little Management
Institute Board since 1991, former Executive Board Member and currently Acting
Dean of the Institute; Trustee and Executive Committee Member, Plimoth
Plantation, (Plymouth, Mass.). From July 1988 to July 1994, Dr. Gil served in a
variety of senior administrative positions at the Sloan School of Management,
Massachusetts Institute of
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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 60. Former Chairman, Department of
Finance and Nomura Professor of Finance, Leonard N. Stern School of Business
Administration, New York University. He is also a Trustee of BT Pyramid Mutual
Funds, Director of Japan Equity Fund, Inc., and the Taiwan Equity Fund, Inc.;
and a Trustee of BT Leadership Trust and the 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 67. Self-employed consultant since March,
1988. His address is 103 Marin Drive, Chapel Hill, North Carolina 27516.
OFFICERS OF THE FUNDS
Rodd M. Baxter, Secretary, age 48. Director and Senior Counsel of SG Cowen
since July 1, 1998. Prior thereto, he was General Counsel of Cowen Asset
Management and Director of Cowen.
Gordon G. Ifill, Assistant Investment Officer, age 35. Director and
Portfolio Manager of SG Cowen since July 1, 1998. Prior thereto, he was a
Director and Portfolio Manager of Cowen Asset Management.
Gerald P. Kaminsky, Senior Investment Officer, age 59. Managing Director
of SG Cowen since July 1, 1998. Prior thereto, he was a Class I Limited Partner
of Cowen and Managing Director of Cowen Incorporated.
Alan Koepplin, Investment Officer, age 46. Director and Portfolio
Manager of SG Cowen since July 1, 1998. Prior thereto, he was a Director and
Senior Vice President of Cowen Asset Management.
Creighton H. Peet, Vice President, Treasurer, Senior Investment Officer,
age 60, Managing Director of SG Cowen since July 1, 1998. Prior thereto, he was
a Class I Limited Partner of Cowen and Managing Director of Cowen Incorporated.
David Sarns, President, age 44. Chief Administrative Officer and Managing
Director of SG Cowen since July 1, 1998. Prior thereto, he was a Chief
Administrative Officer and Class I Limited Partner of Cowen and Managing
Director of Cowen Incorporated.
Irwood Schlackman, Controller, age 58. Vice President of SG Cowen since
July 1, 1998. Prior thereto, he was a Mutual Fund Administrator of Cowen.
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<PAGE>
COMPENSATION
No officer, director, partner or employee of SG Cowen or its affiliates
will receive any compensation from the Funds for serving as an officer or
director of the Funds. Directors who are not officers, directors, partners,
stockholders or employees of SG Cowen or its affiliates receive from each Fund a
fee of $3,000 per annum plus $500 per meeting and $375 for each audit committee
meeting attended and reimbursement for travel and out of pocket expenses. To
the knowledge of the Funds and SG Cowen, no shareholder beneficially owned 5% or
more of either Fund's outstanding common stock, and none of the Funds' directors
and officers, either individually or as a group, beneficially owned more than 1%
of the Funds' outstanding stock as of the close of business on January 15, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Aggregate Pension or Estimated Annual Total
Person Compensation Retirement Benefits Compensation
Received from Benefits Upon From
Each Fund Accrued as Retirement Registrant
Part of Fund and Fund
Expenses Complex 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 in the complex.
INVESTMENT MANAGER
Until July 1, 1998, Cowen served as investment manager and principal
underwriter to the Funds. On July 1, 1998, Cowen's business was combined with
Societe Generale Securities Corporation ("SGSC"), a subsidiary of Societe
Generale ("SG"), to form SG Cowen Securities Corporation ("SG Cowen") (the
"Acquisition"). SG, a leading international commercial and investment bank
established in 1864, has a global network of offices in over 80 countries.
Since July 1, 1998, SG Cowen has served as the new investment manager to the
Funds, with the existing investment management personnel of Cowen continuing to
provide investment management services to the Funds.
Each of the management agreements between Cowen and the Funds provided for
automatic termination in the event of its "assignment," which included
consummation of the Acquisition. Accordingly, new management agreements between
SG Cowen and each Fund (the "New Agreements"), identical in material respects
with the prior management agreements, were approved by the Board of Directors of
each Fund at a
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<PAGE>
meeting held on May 21, 1998. On June 16, 1998, Cowen and SGSC were granted an
exemptive order by the Securities and Exchange Commission pursuant to which the
New Agreements were permitted to be implemented without shareholder approval
beginning on July 1, 1998 and continuing, for a period of up to 150 days,
through the date on which each of the New Agreements are approved or disapproved
by the respective shareholders of the Funds.
The shareholders of the Reserve Fund and Tax-Exempt Fund approved the
continuance of the New Agreements on October 8, 1998 and September 17, 1998,
respectively. Each of the New Agreements contain substantially the same terms
and conditions as the corresponding prior management agreements, including the
management fee payable by the Funds.
SG Cowen is a member of the New York, American and other principal national
securities exchanges and of the National Association of Securities Dealers, Inc.
("NASD"). SG Cowen's principal address is 1221 Avenue of Americas, New York,
New York.
Pursuant to the Investment Management Agreements between SG Cowen and the
Funds, SG Cowen has agreed to be responsible for each Fund's investment program.
Subject to the supervision and direction of the Funds' Boards of Directors, SG
Cowen manages each Fund's portfolio in accordance with the stated policies of
that Fund. SG Cowen makes investment decisions for each Fund and places the
purchase and sale orders for portfolio transactions. SG Cowen also furnishes
each Fund statistical and research data, clerical help, accounting, data
processing, bookkeeping, internal auditing and certain legal and other filings
with the SEC and state Blue Sky authorities, calculates the net asset value of
shares of each Fund and generally assists in all aspects of the Funds'
operations. SG Cowen compensates certain securities dealers whose customers are
shareholders of either Fund for providing administrative services to those
shareholders that would otherwise be provided by SG Cowen. Such compensation is
paid solely from SG Cowen's resources and is not paid directly or indirectly by
either Fund.
For the fiscal years ended September 30, 1996, 1997 and 1998, the Fund's
Investment Manager received fees for services rendered to Reserve Fund of
$5,266,603, $6,144,043 and $7,259,032, respectively. For the fiscal years ended
September 30, 1998, 1997 and 1996, the Fund's investment manager earned
investment management fees from Tax-Exempt Fund of $988,377, $905,499 and
$784,964 respectively, but waived $197,675, $181,100 and $156,993,
respectively, of such fees.
PRINCIPAL UNDERWRITER
Funds Distributor, Inc., 60 State Street, Boston, MA 02109 is the principal
underwriter to the Funds.
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<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, P.O. Box 41911, Kansas City, MO 64141,
is the custodian of the Funds' assets.
DST Systems, Inc., 210 West 10th Street, Kansas City, MO 64105, is the
Funds' transfer and dividend disbursing agent.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Shares of the Funds are distributed by Funds Distributor, Inc. on a best
efforts basis. The Funds offer their shares continually and without a sales
load. Additional information on how to purchase and redeem Funds shares is
included in the Prospectus. The issuance of shares is recorded on the books of
the Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
Persons who are interested in purchasing shares of the Funds by wire
transfer should contact the Fund directly at 1-800-262-7116. Such broker/dealer
must be a member of the NASD, or a foreign non-member of the NASD, which has
entered into a Sales Agreement with Funds Distributor, Inc. with respect to the
stock of that Fund. Funds Distributor, Inc. reserves the right to reject any
purchase order. From time to time, registered representatives of broker-dealers
that enter into selected dealer agreements with Funds Distributors, Inc. and
sell shares of the Funds will receive non-cash compensation in the form of gifts
or prizes such as merchandise or trips.
In the case of orders from its customers or customers of its correspondents
for purchase of shares paid for other than in Federal Funds. SG Cowen will
complete the conversion into, or itself advance at no charge, Federal Funds on
the day following receipt of an order. Investors whose payments are received in
or converted into Federal Funds by SG Cowen or Federal wires received by SG
Cowen not later than 2:00 P.M., New York time, will become shareholders on that
day. Investors whose payments are received in or converted into Federal Funds or
Federal wires received by SG Cowen after 2:00 P.M., New York time, by SG Cowen
will become shareholders on the following business day. A shareholder will begin
to accrue daily dividends the day after becoming a shareholder. SG Cowen will
provide each shareholder with written confirmations monthly of each purchase and
sale transaction effected for his account during the period, including the
automatic reinvestment of dividends in additional shares of a Fund.
EXCHANGE PRIVILEGE. Shares of either Fund may be exchanged for shares of
the other Fund and/or the following mutual funds for which SG Cowen serves as
investment manager.
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<PAGE>
- -SG 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 SG Cowen Funds, Inc.
- - SG COWEN GOVERNMENT SECURITIES FUND, a fund that seeks total return consisting
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 SG Cowen Funds, Inc.
- -SG COWEN INCOME + GROWTH FUND, INC., a fund that seeks a high level of dividend
income, to the extent consistent with prudent investment management, by
investing primarily in income producing equity securities.
- -SG COWEN OPPORTUNITY FUND, a fund whose investment objective is appreciation of
capital through investing primarily in small capitalization issuers. This fund
is a series of SG Cowen Funds, Inc.
- -SG COWEN LARGE CAP VALUE FUND, a fund that seeks capital appreciation by
investing primarily in equity securities deemed to be undervalued. Current
income from dividends is a secondary objective. The fund is a series of SG Cowen
Series Funds, Inc.
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 Funds Distributor, Inc.,
any SG Cowen account representative, through account representatives of SG Cowen
Correspondents, or through any other member of the NASD, or foreign non-member
of the NASD, which has entered into a Sales Agreement with Funds Distributor,
Inc. with respect to such funds. A shareholder may effect exchanges among these
mutual funds and a Fund on the basis of relative net asset values without
imposition of a sales charge; provided, however, that where shares of a Fund
acquired through a direct purchase are exchanged for shares of SG Cowen
Intermediate Fixed Income Fund or SG Cowen Government Securities Fund, SG Cowen
Income + Growth Fund, Inc., or SG Cowen Opportunity Fund (collectively the
"non-money market funds"), the appropriate sales charge will be imposed at the
time of the exchange. 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.
The non-money market funds offer three classes of shares (Class A, B and I
shares). Shareholders of Reserve Fund and Tax-Exempt Fund may not exchange their
shares for Class A or Class B shares, and if eligible, Class C shares, of the
non-money market funds, unless the money market fund shares being exchanged were
acquired through an exchange from a non-money market fund and not by a direct
purchase; if those shares were acquired by exchange from a non-money market
fund, they may be exchanged only for shares of the same class that the
shareholder previously held. In cases where shares of the non-money market fund
previously held were acquired prior to May 16, 1994,
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<PAGE>
corresponding shares of the money market fund may be exchanged only for Class A
shares (or Class I shares, if eligible) of a non-money market fund.
The Funds' portfolio securities are valued on the basis of amortized cost.
Under this method of valuation, the Funds will initially value the portfolio
securities at cost. If the security was purchased at a discount, the Funds will
thereafter assume a constant proportional increase in value until maturity. If
the security was purchased at a premium, the Funds will thereafter assume a
constant proportional decrease in value until maturity. The Funds' Board of
Directors has established procedures reasonably designed to stabilize the net
asset value per share for the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Board deems appropriate, of the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. In the event the
difference between the two exceeds 1/2 of 1%, the Board will promptly consider
what action, if any, should be taken. The Board will also take such action as
it deems appropriate to eliminate or to reduce to the extent reasonably
practicable, any material dilution or other unfair results which might arise
from differences between the two. Such action may include redemption in kind,
selling portfolio instruments prior to maturity, shortening the average
portfolio maturity, withholding dividends or utilizing a net asset value per
share as determined by using available market quotations.
The New York Stock Exchange is currently closed on New Year's Day, Martin
Luther King Day (third Monday in January), Washington's Birthday (third Monday
in February), Good Friday, Memorial Day (last Monday in May), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday,
respectively.
Expenses and fees of each Fund, including the Investment Manager's fee, are
accrued daily and taken into account for the purpose of determining net asset
value. Although investments of each Fund will be valued on the basis of
amortized cost, the Funds will also monitor the value of their portfolios by
reference to fair market value computation.
SG Cowen and other broker-dealers that have entered into selected dealer
agreements with Funds Distributor, Inc. generally will effect redemptions of
shares upon oral instruction received from a shareholder. It is the Funds'
policy that the redeeming shareholder bear the risk of loss in the event of a
fraudulent oral redemption instruction. If shares are to be redeemed pursuant
to an order sent to DST by the shareholder, DST will require written redemption
instructions signed by the shareholder of record, which signature must be
guaranteed by a commercial bank or trust company located or having a
correspondent in New York City, or by a member firm of the New York Stock
Exchange. 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 signature guaranteed as discussed above, and must
be submitted your dealer DST with the redemption request. Your dealer or DST may
require further documentation if the shareholder is a corporation, partnership,
trust, estate or other entity. Certain dealers may impose a charge in
connection with redemptions effected by federal wire.
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<PAGE>
CHECK REDEMPTION PRIVILEGE
An investor may designate on an Application for Checks, or by later written
request, that a Fund of which he is a shareholder provide him with redemption
checks drawn on the Fund's account at DST. These checks will be sent only to the
person in whose name the account is registered and only to the address of
record. The Application must be manually signed by the registered owner(s).
Shareholders having jointly-owned accounts may authorize checks to be drawn with
the signature of only one of the owners. Checks may be payable to the order of
any person in an amount of $100 or more. Dividends are earned until the check
clears. After clearance, the check will be returned to the investor.
Shareholders should be aware that use of the check redemption procedure does not
give rise to a banking relationship between the shareholder and DST, which will
be acting solely as transfer agent for the Fund. When a check is presented to
DST for payment, DST, as the investor's agent, will cause the appropriate Fund
to redeem a sufficient number of shares from the investor's account to cover the
amount of the check. However, investors will be subject to the same rules and
regulations that DST applies to checking accounts and the other restrictions set
forth herein. There is no charge to the investor for this checking service. SG
Cowen representatives, upon request, will provide shareholders with the forms
which must be completed in order to avail themselves of this method of
redemption. Shareholders may also obtain these forms by writing to DST, 210 West
10th Street, Kansas City, MO 64105.
Shares for which stock certificates have been issued may not be redeemed by
check. If an investor's account is not adequate to cover the amount of the
check, the check will be returned marked insufficient funds. Checks should not
be used to close an account. The check redemption privilege may be modified or
terminated at any time by either Fund or by DST.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on the Exchange is restricted, or during which
(as determined by the SEC by rule or regulation) an emergency exists as a result
of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Funds may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
PORTFOLIO TRANSACTIONS
Purchase and sales of portfolio securities usually will be principal
transactions. Portfolio securities normally will be purchased directly from the
issuer or from an underwriter or market maker for the securities. There usually
will be no brokerage commissions paid by Funds for such purchases. Purchases of
portfolio securities from underwriters, if any, will include a commission or
concession paid by the issuer to the underwriters and purchases from dealers
serving as market makers will be made at a discount from the retail price of the
securities. While SG Cowen generally seeks competitive spreads or commissions,
the Funds will not necessarily be paying the lowest spread or commission
available on each transaction.
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<PAGE>
Allocation of transactions, including their frequency, to various dealers
is determined by SG Cowen in its best judgment and in a manner deemed fair and
reasonable to shareholders.
CAPITAL STOCK
Reserve Fund has authorized capital of 2,000,000,000 shares of common
stock, $.01 par value per share. Tax-Exempt Fund has authorized capital of
1,000,000,000 shares of common stock, $.001 par value per share. Shareholders
of each Fund are entitled to one vote for each full share held and fractional
votes for fractional shares held.
TAXATION
The Funds have qualified, and each intends to continue to qualify each
year, as a regulated investment company. As such, the Funds will not be subject
to federal income tax on its net investment income and net capital gains, if
any, that it distributes to its shareholders, provided that it distributes at
least 90% of its net investment income in each taxable year. Depending upon the
extent to which it is, or is deemed to be, conducting business in certain states
and localities, the Funds may be subject to taxation in such states or
localities.
If for any taxable year a Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deductions for distributions to its shareholders.) In such event, dividend
distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to shareholders to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deductions for corporations in case of corporate shareholders.
Foreign countries may impose withholding and other taxes on interest paid
to the Funds with respect to its foreign investments. However, certain of such
foreign countries may have entered into tax conventions with the United States
which reduce or eliminate such taxes.
At September 30, 1998, Reserve Fund and Tax-Exempt Fund has unused capital
loss carryovers of approximately $1,714,000 and $19,000, respectively, available
for Federal income tax purposes to be applied against future securities profits,
if any. If not applied, the carryovers expire in fiscal 2001 and 2006, and in
fiscal 2000, 2001 and 2002, respectively.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to fully report dividend or interest income, or fails to certify that he
has provided a correct taxpayer identification number and that he is not subject
to withholding then the shareholder may be subject to a 31% "backup withholding
tax" with respect to (i) taxable dividends and distributions, if any, and (ii)
the proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his social security number. The
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<PAGE>
31% "backup withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.
Because the Tax-Exempt Fund will distribute exempt-interest dividends,
interest on indebtedness incurred by a shareholder to purchase or carry
Tax-Exempt Fund shares is not deductible for federal income tax purposes. In
addition, the Code may require a shareholder, if he receives exempt-interest
dividends, to treat as taxable income a portion of certain otherwise non-taxable
social security and railroad retirement benefit payments. Furthermore, that
portion of any dividend paid by the Tax-Exempt Fund which represents income from
industrial development bonds held by the Tax-Exempt Fund may not retain its
tax-exempt status in the hands of an investor who is a "substantial user" of a
facility financed by such bonds or a "related person" thereof. In addition, the
receipt of Tax-Exempt Fund dividends and distributions may affect a foreign
corporate shareholder's federal "branch profits" tax liability and an S
corporation's shareholder's federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisors as to whether they may be
"substantial users" with respect to a facility or "related" to such users within
the meaning of the Code, or subject to the federal branch profits tax or excess
net passive income tax.
DETERMINATION OF YIELD
The Funds will make available on each business day a "yield quotation",
which is a computation of the yield on its portfolio. The yield for a Fund is
calculated by determining the net change in the value of a hypothetical
preexisting account in the Fund having a balance of one share at the beginning
of a seven calendar day period for which yield is to be quoted, dividing the net
change by the value of the account at the beginning of the period to obtain the
base period return, and annualizing the results (i.e., multiplying the base
period return by 365/7). The net change in the value of the account reflects
the value of additional shares purchased with dividends declared on the original
share and any such additional shares, but does not include realized gains and
losses or unrealized appreciation and depreciation. Each Fund may also
calculate an effective annualized yield quotation computed on a compound basis
by adding 1 to the base period return (calculated as described above), raising
that sum to a power equal to 365 divided by 7, and subtracting 1.
Current yield will fluctuate from time to time and is not necessarily
representative of future results. Current yield information may be useful in
reviewing a Fund's performance, but because current yield will fluctuate such
information may not provide a basis for comparison with bank deposits, or other
investments which pay a fixed yield for a stated period of time. The kind and
quality of the instruments in a Fund's portfolio, its portfolio maturity, and
its operating expenses affect the current yield of a Fund. An investor's
principal is not guaranteed by a Fund.
Investors should recognize that in periods of declining interest rates a
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates a Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to a
Fund from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of a
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<PAGE>
Fund's portfolio, thereby reducing the current yield of a Fund. In periods of
rising interest rates, the opposite can be expected to occur.
On occasion, Reserve Fund and Tax-Exempt Fund may compare their yields to
IBC's Money Fund Average (First Tier) and IBC's Tax-Free Fund Index,
respectively. Averages compiled by IBC's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market mutual
funds. As with yield quotations, yield comparisons should not be considered as
representative of the Funds' yields for any future period. For the seven-day
period ending September 30, 1998, the yields for Reserve Fund and Tax-Exempt
Fund were 4.98% and 3.10%, respectively.
AUDITORS AND COUNSEL
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has been
selected as the Fund's independent auditor.
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019,
serves as counsel for the Funds.
FINANCIAL STATEMENTS
The Funds hereby incorporate by reference the financial statements and
related notes and the report of Ernst & Young LLP thereon included in the Funds'
Annual Report to Shareholders for the fiscal year ended September 30, 1998. The
Funds will provide a copy of the Annual Report to each person who requests a
copy of this Statement of Additional Information. The Funds will also furnish a
copy of the Annual Report without charge to any Shareholder upon request
directed to the Funds at the address or telephone number given on the cover page
of this Statement of Additional Information.
APPENDIX
Description of the two highest grades of rating of commercial paper, medium
term notes, and bonds and municipal securities of S&P, Moody's, Fitch, Duff,
Thomson, and IBCA. The Funds do not purchase or hold instruments rated below
these two grades.
COMMERCIAL PAPER
S&P
The rating A1+ is the highest commercial paper rating assigned by S&P.
Commercial paper rated A1 by S&P indicates a very strong degree of safety
regarding timely payments. Commercial paper rated A1+ are those with an
"overwhelming degree of credit protection". Long term senior debt of the same
issuer is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and
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cash flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. Capacity for timely payment on issues with an A-2 designation is
strong. Relative strength or weakness of the above factors determine whether
the issuer's commercial paper is rated A1+ or A1 (which constitute the top
grade), or A2.
MOODY'S
The rating Prime1 ("P-1") is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers of P-1 paper must
have a superior capacity for repayment of short-term promissory obligations and
ordinarily will be evidenced by leading market positions in well established
industries, high rates of return of funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 ("P-2") have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch; it reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
DUFF
The highest category of Duff ratings includes Duff 1+, Duff 1 and Duff 1-.
Duff 1+ indicates the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations. Duff 1 indicates very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor. Duff 1- indicates high certainty
of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are very small. Duff 2 (Good
Grade) indicates good
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<PAGE>
certainty of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are small.
THOMSON
The highest Thomson short-term rating is TBW-1, which indicates a very high
degree of likelihood that principal and interest will be paid on a timely basis.
Thomson assigns its second highest rating, TBW-2, to short-term paper if, in
Thomson's judgment, while the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
IBCA
The highest category of IBCA short-term ratings is A1+, assigned to
obligations believed to be supported by the highest capacity for timely
repayment. The second category, A1, is assigned to obligations supported by a
strong capacity for timely repayment.
MEDIUM TERM NOTE RATINGS
Medium Term Notes are rated by the same rating agencies which rate
commercial paper.
S&P
Bonds rated AA by S&P are judged by S&P to be high-grade obligations, and
in the majority of instances differ only in small degrees from issues rated AAA.
Bonds rated AAA are considered by S&P to be the highest-grade obligations and
possess the ultimate degree of protection as to principal and interest.
MOODY'S
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by
all standards. Together with the Aaa group they are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger.
FITCH
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to only slight market fluctuations other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable
24
<PAGE>
question whatever changes occur in conditions. Bonds rated AA by Fitch are
judged by Fitch to be of safety virtually beyond question and are readily
salable, whose merits are not unlike those of the AAA class, but whose margin of
safety is less strikingly broad. The issue may be the obligation of a small
company, strongly secured but influenced as to rating by the lesser financial
power of the enterprise and more local type of market.
DUFF
Bonds rated AAA by Duff represent Duff's judgment of highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt. An AA rating (including AA+, AA and AA-) from
Duff indicates Duff's judgment of high credit quality. Risk is modest but may
vary slightly from time to time because of economic conditions.
THOMSON
The highest Thomson rating, A, indicates that the company possesses an
exceptionally strong balance sheet and earnings record, translating into an
excellent reputation and very good access to its natural money markets. If
weakness or vulnerability exists in any aspect of the company's business, it is
entirely mitigated by the strengths of the organization. The second highest
Thomson rating, A/B, indicates that the company is financially very solid with a
favorable track record and no readily apparent weakness. Its overall risk
profile, while low, is not quite as favorable as for companies in the highest
rating category.
IBCA
IBCA assigns its highest rating, AAA, to obligations for which it believes
there is the lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to increase investment
risk significantly. The second highest rating, AA, is assigned to obligations
for which there is very low expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in
business, economic, or financial conditions may increase investment risk albeit
not very significantly.
MUNICIPAL SECURITIES RATINGS
STANDARD & POOR'S CORPORATION ("S&P")
The following summarizes the highest two ratings used by S&P for Municipal
Securities:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
25
<PAGE>
To provide more detailed indications of credit quality, the "AA" rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
MOODY'S INVESTORS SERVICE, INC.
The following summarizes the highest two ratings used by Moody's for bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
maybe of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the bonds rated
Aa. The modifier 1 indicates that the bond being rated ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the bond ranks in the lower end of its Generic
rating category.
FITCH INVESTORS SERVICE INC. ("FITCH")
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions and
liable to only slight market fluctuations other than through changes in the
money rate. The prime feature of an AAA bond is a showing of earnings several
times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in
conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad.
The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
SHORT-TERM MUNICIPAL NOTES
S&P
The following summarizes the two highest ratings used by S&P for short-term
notes:
SP-1 - Loans bearing this designation evidence a very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics will be given a (+) designation.
26
<PAGE>
SP-2 - Loans bearing this designation evidence a satisfactory capacity to pay
principal and interest.
MOODY'S
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-1/VMlG-1 - Obligations bearing these designations are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad based access to the market for
refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of high quality with
margins of protection ample although not so large as in the preceding group.
Municipal securities are not rated by Thomson, Duff or IBCA.
27
<PAGE>
PART C
OTHER INFORMATION
Item 23: Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
- ----------- -----------------------
<S> <C>
(a)(1) Articles of Incorporation of Registrant, June 15, 1981(a)
(a)(2) Articles of Amendment of Registrant, June 11, 1998
(a)(3) Articles of Amendment, Sept. 14, 1981(a)
(a)(4) Articles of Revival of Registrant, Nov. 11, 1992(a)
(b)(1) Amended and Restated By-Laws, Oct. 28, 1987(a)
(b)(2) Amendment to the By-Laws, Dec. 15, 1992(a)
(c) Not applicable
(d) Investment Management Agreement, July 1, 1998
(e) Distribution Agreement, July 1, 1998
(f) Not applicable
(g) Custody Agreement with Investors Fiduciary
Trust Company, May 8, 1988(a)
(h) Not Applicable
C-1
<PAGE>
(i)(a) Opinion and consent of Venable, Baetjer and Howard, Oct.
19, 1981(a)
(i)(b) Opinion and consent of Willkie Farr & Gallagher, Oct. 20,
1981(a)
(j) Consent of Independent Auditors, November 30, 1998
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Financial Data Schedule
(o) Not applicable
</TABLE>
(a) Previously filed January 28, 1997
Item 24. Persons Controlled by or Under Common Control with
Registrant
None
Item 25. Indemnification
Reference is hereby made to Registrant's Registration Statement filed
on July 1, 1981, as amended on October 21, 1981.
C-2
<PAGE>
Item 26. Business and Other Connections of Investment
Manager; and Principal Underwriter
SG Cowen Securities Corporation ("SG Cowen") serves as Investment
Manager to Registrant. SG Cowen is also the Investment Manager of SG Cowen
Income + Growth Fund, Inc. ("CI+G"), SG Cowen Standby Tax-Exempt Reserve
Fund, Inc. ("CSTXRF"), the series of stock representing SG Cowen Large Cap
Value Fund ("CLCVF"), the sole portfolio of SG Cowen Series Funds, Inc.
("CSF"), the series of stock representing the SG Cowen Opportunity Fund
("COF"), SG Cowen Intermediate Fixed Income Fund ("CIFIF") and SG Cowen
Government Securities Fund ("CGSF") portfolios of SG Cowen Funds, Inc.
("CFI"). SG Cowen is also a registered broker-dealer and investment banker.
Listed below are the names of all of the Directors and Executive Officers of
SG Cowen as of November 15, 1998, their positions with SG Cowen, and under
the heading "Other Business Activities and Principal Business Addresses", any
business, profession, vocation or employment of a substantial nature (other
than business of SG Cowen) in which they have been engaged for their own
account or in the capacity of director, officer, employee, partner or trustee
during the past two fiscal years of the Registrant.
C-3
<PAGE>
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME POSITION ACTIVITIES
---- -------- ----------
<S> <C> <C>
Cohen, Joseph M. Chairman and Director 7/98 - Present
Chairman 6/67 - 7/98 Cowen & Co.
Welling, Curtis R. President, Chief Executive Officer
and Director 7/98 - Present
President and Chief Executive Officer 3/96 - 7/98 Societe Generale
Securities Incorporation
Peterson, Charles T. Chief Financial Officer 7/98 - Present
Chief Financial Officer 1/90 - 7/98 Cowen & Co.
Pinto, Antonio G. Chief Operations Officer and 7/98 - Present
Managing Director
Managing Director 7/68 - 7/97 Cowen & Co.
Bowden, William P., Jr. General Counsel 7/98 - Present
General Counsel 2/97 - Present - Societe Generale
General Counsel 12/96 - 2/97 Credit Suisse
First Boston Corp.
Walsh, James M. Director 7/98 - Present
Chief Operations Officer and Director 9/96 - 7/98 Societe Generale
Securities Corporation
Bouher, Jacques Director 7/98 - Present
General Manager, Int'l Division 11/95 - Present - Societe Generale
Paris, France
Guillebert, Jean-Benard Director 7/98 - Present
Chief Executive Officer - General Manager 9/95 - Present - Societe Generale
USA - Paris, France
Huet, Jean Director 7/98 - Present
Chief Executive Officer - General Manager 1/93 - Present - Societe Generale
USA
Joyet, Alain Director 7/98 - Present
Deputy General Manager 12/95 - Present - Societe Generale
Paris, France
Lacaze, Gerald Director 7/98 - Present
Officer 11/78 - Present - Societe Generale
Paris, France
LeRoux, Robert Director 7/98 - Present
Director 6/95 - Present - Societe Generale
Paris, France
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME POSITION ACTIVITIES
---- -------- ----------
<S> <C> <C>
Oudet, Jean-Paul Director 7/98 - Present
Director of Debt Currencies 6/93 - Present - Societe Generale
Paris, France
Tuloup, Yves Director 7/98 - Present
Chief Executive Officer - Global Equity 1/96 - Present - Societe Generale
Paris, France
</TABLE>
SG Securities Corporation
1221 Avenue of the Americas
New York, New York 10020
Societe Generale
29, Boulevard Haussmann
75009 Paris, France
C-5
<PAGE>
Item 27. Principal Underwriters.
- -------- -----------------------
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BIB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Kobrick-Cendant Investment Trust
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
C-6
<PAGE>
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.
<TABLE>
<S> <C>
Director, President and Chief - Marie E. Connolly
Executive Officer
Executive Vice President - George A. Rio
Executive Vice President - Donald R. Roberson
Executive Vice President - William S. Nichols
Senior Vice President, General - Margaret W. Chambers
Counsel, Chief Compliance Officer,
Secretary and Clerk
Senior Vice President - Michael S. Petrucelli
Director, Senior Vice President, - Joseph F. Tower, III
Treasurer and Chief Financial
Officer
Senior Vice President - Paula R. David
Senior Vice President - Allen B. Closser
Senior Vice President - Bernard A. Whalen
Chairman and Director - William J. Nutt
</TABLE>
(c) Not applicable.
C-7
<PAGE>
C-8
<PAGE>
Item 28. Location of Accounts and Records
(1) SG Cowen Standby Reserve Fund, Inc.
Financial Square
New York, New York 10005
(2) Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Item 29. Management Service
Not applicable.
Item 30. Undertakings
Not applicable.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of New York, and State of New York, on the 1st day of December, 1998.
SG COWEN STANDBY RESERVE FUND, INC.
by Rodd M. Baxter,
Attorney-in-Fact
----------------
Joseph M. Cohen, Chairman
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
by Rodd M. Baxter,
Attorney-in-Fact
----------------
Joseph M. Cohen Chairman and Director December 1, 1998
(Chief Executive Officer)
by Rodd M. Baxter,
Attorney-in-Fact
----------------
Creighton H. Peet Treasurer (Chief December 1, 1998
Financial and Accounting
Officer)
by Rodd M. Baxter,
Attorney-in-Fact
----------------
James H. Carey Director December 1, 1998
by Rodd M. Baxter,
Attorney-in-Fact
----------------
Peter P. Gil Director December 1, 1998
by Rodd M. Baxter,
Attorney-in-Fact
----------------
Martin J. Gruber Director December 1, 1998
by Rodd M. Baxter,
Attorney-in-Fact
----------------
Burton J. Weiss Director December 1, 1998
</TABLE>
C-10
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
99(a)(2) Articles of Amendment
99(d) Investment Management Agreement
99(e) Distribution Agreement
99(j) Consent of Independent Auditors, November 30, 1998
99(n) Financial Data Schedule
C-11
<PAGE>
STATE DEPARMENT OF ASSESSMENTS RECEIVED
AND TAXATION '98 JUN 22 A11:29
APPROVED FOR RECORD ASSESS & TAX
6/22/98 at 11:29 a.m.
Effective: 7/1/98 at 9:00 a.m.
STANDBY RESERVE FUND, INC.
ARTICLES OF AMENDMENT
Standby Reserve Fund, Inc., a Maryland corporation having its
principal office in the State of Maryland in Baltimore, Maryland (hereinafter
called the "Corporation"), hereby certifies to the Maryland State Department of
Assessments and Taxation that:
FIRST: The Charter of the Corporation is hereby amended to change
its name by amending ARTICLE SECOND of the Articles of Incorporation, as
amended, of the Corporation to read:
SECOND The name of the Corporation is SG COWEN STANDBY RESERVE
FUND, INC. (hereinafter called the "Corporation").
SECOND: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
THIRD: The amendment to the Charter of the Corporation set forth
herein was approved by at least a majority of the entire Board of Directors of
the Corporation and is limited to changes expressly permitted by Section 2-605
of the Maryland General Corporation Law to be made without action of the
stockholders of the Corporation.
FOURTH: These Articles of Amendment will be become effective on July
1, 1998 at 9:00 a.m.
The undersigned President of the Corporation acknowledges these
Articles of Amendment to be the corporate act of the Corporation and states that
to the best of his knowledge, information and belief, the matters and facts set
forth in these Articles with respect to the authorization and approval of the
amendment of the Corporation's Charter are true in all material respects, and
that this statement is made under the penalties of perjury.
I.D. No# D1281575
ACKN. NO. - 247C3112643
SG COWEN STANDBY RESERVE FUND, INC.
06/22/98 AT 11:29 A.M.
<PAGE>
IN WITNESS WHEREOF, Standby Reserve Fund, Inc. has caused this
instrument to be signed in its name and on its behalf by its President, and
witnessed by its Secretary, as of the 16 day of June, 1998.
STANDBY RESERVE FUND, INC.
/s/ David R. Sarns
-----------------------------------
David R. Sarns, President
WITNESS:
/s/ Rodd M. Baxter
- -------------------------------------
Rodd M. Baxter, Secretary
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
SG COWEN STANDBY RESERVE FUND, INC.
July 1, 1998
SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Dear Sirs:
SG Cowen Standby Reserve Fund, Inc. (the "Fund"), a corporation organized
under the laws of the State of Maryland, herewith confirms its agreement with SG
Cowen Securities Corporation ("SG Cowen"), as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Articles of Incorporation, as amended, and in its Prospectuses and Statements of
Additional Information as from time to time in effect, and in such manner and to
such extent as may from time to time be approved by the Board of Directors of
the Fund. Copies of the Fund's Prospectuses, Statements of Additional
Information and Articles of Incorporation, as amended, have been or will be
submitted to SG Cowen. The Fund desires to employ and hereby appoints SG Cowen
to act as investment manager to its portfolio (the "Portfolio"). SG Cowen
accepts the appointment and agrees to furnish the services set forth below for
the compensation set forth below.
2. Services as Investment Manager
Subject to the supervision and direction of the Board of Directors of the
Fund, SG Cowen will (a) act in strict conformity with the Fund's Articles of
Incorporation and By-laws, the Investment Company Act of 1940 (the "Act") and
the Investment Advisers Act of 1940, as the same may from time to time be
amended, (b) manage the Portfolio in accordance with the Fund's investment
objective and policies as stated in the Fund's Prospectus and Statement of
Additional Information as from time to time in effect, (c) make general
investment decisions for the Fund including decisions concerning (i) the
specific types of securities to be held by the Fund and the proportion of the
Fund's assets that should be allocated to such investments during particular
market cycles and (ii) the specific issuers whose securities will be purchased
or sold by the Fund, and (d) supply office facilities (which may be in SG
Cowen's own offices); statistical and research data; data processing services;
clerical, accounting and bookkeeping services; internal auditing and legal
services; internal executive and administrative services; stationery and office
supplies; preparation of reports to shareholders of the Fund; preparation of tax
returns, reports to and filings with the Securities and Exchange Commission and
state Blue Sky authorities; calculation of the net asset value of shares of the
Fund; and general assistance in all aspects of the Fund's operations. In
providing those services, SG Cowen will supervise the Fund's investments
generally and conduct a continual program of evaluation of the Fund's assets.
In connection with the performance of its duties under this Agreement, it
is understood that SG Cowen will from time to time employ or associate with
itself such person or persons as SG Cowen
<PAGE>
may believe to be particularly fitted to assist it in the performance of this
Agreement, it being understood that the compensation of such person or persons
shall be paid by SG Cowen and that no obligation may be incurred on the Fund's
behalf in any such respect.
3. Information Provided to the Fund; Books and Records
(a) SG Cowen will keep the Fund informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Fund from time
to time with whatever information SG Cowen believes is appropriate for this
purpose.
(b) In compliance with the requirements of Rule 31a-3 under the Act, SG
Cowen hereby agrees that all records which it maintains for the Fund are the
property of the Fund and further agrees to surrender promptly to the Fund any of
such records upon the Fund's request.
4. Standard of Care
SG Cowen shall exercise its best judgment in rendering the services listed
in paragraph 2 above. SG Cowen shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing herein shall be
deemed to protect or purport to protect SG Cowen against any liability to the
Fund or to its shareholders to which SG Cowen could otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of SG Cowen's reckless disregard of its
obligations and duties under this Agreement.
Any person, even though also a partner, officer, employee, or agent of SG
Cowen, who may be or become a Director, officer, employee or agent of the Fund,
shall be deemed, when rendering services to the Fund or acting on any business
of the Fund, to be rendering such services to or acting solely for the Fund and
not as a Director, officer, employee, or agent or one under the control or
direction of SG Cowen even though paid by it.
5. Compensation
In consideration of the services rendered pursuant to this Agreement, the
Fund will pay SG Cowen on the first business day of each month a fee for the
previous month, calculated daily, at the annual rate of .50 of 1.00% of the
Fund's average daily net assets not in excess of $1.5 billion; .475 of 1.00% of
the Fund's average daily net assets over $1.5 billion but not in excess of $2.5
billion; and .45 of 1.00% of the Fund's average daily net assets over $2.5
billion. The fee for the period from the date the Fund commences investment
operations to the end of the month during which the Fund commences investment
operations shall be prorated according to the proportion that such period bears
to the full monthly period. Upon any termination of this Agreement before the
end of a month, the fee for such part of that month shall be prorated according
to the proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to SG Cowen, the value of the Fund's net assets shall
be computed at the times and in the manner specified in the Fund's Prospectus
and the Statement of Additional Information as from time to time in effect.
6. Expenses
SG Cowen will bear all expenses in connection with the performance of its
services under this Agreement. The Fund will bear certain other expenses to be
incurred in its operation, including:
-2-
<PAGE>
taxes, interest, brokerage fees and commissions, if any; fees of directors of
the Fund who are not officers or employees of SG Cowen; Securities and Exchange
Commission fees and state Blue Sky qualification fees; management, advisory and
administration fees; charges of custodians and transfer and dividend disbursing
agents; certain insurance premiums; outside auditing and legal expenses; costs
of maintenance of corporate existence; costs attributable to investor services,
including, without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders, officers or Board of
Directors of the Fund; and any extraordinary expenses.
7. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund (including fees
pursuant to this Agreement, but excluding interest, taxes, brokerage expenses,
an applicable portion of distribution expenses and, with the prior written
consent of the appropriate state securities commissions, extraordinary expenses)
exceed the applicable expense limitation of any state having jurisdiction over
the Fund, SG Cowen will reimburse the excess expense. SG Cowen's expense
reimbursement obligation will be limited to the amount of its fees received
pursuant to this Agreement, however, SG Cowen shall reimburse the Fund for such
excess expenses regardless of the amount of fees paid to it during such fiscal
year to the extent that the securities regulations of any state in which Fund
shares are registered and qualified for sale so require. This expense
reimbursement, if any, will be estimated, reconciled and paid on a monthly
basis. From time to time SG Cowen, in its sole discretion and as it deems
appropriate, may assume certain expenses of the Fund while retaining the ability
to be reimbursed by the Fund for such amounts prior to the end of the fiscal
year.
8. Services to Other Companies or Accounts
The Fund understands that SG Cowen now acts and will continue to act as
investment adviser to fiduciary and other managed accounts and now acts and will
continue to act as investment manager, investment adviser, sub-investment
adviser and/or administrator to one or more other investment companies, and the
Fund has no objection to SG Cowen's so acting, provided that whenever the Fund
and one or more other accounts or investment companies advised by SG Cowen have
available funds for investment, investments suitable and appropriate for each
will be allocated in a manner believed to be equitable to each entity. The Fund
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Fund. In addition, the Fund understands that the
persons employed by SG Cowen to assist in the performance of SG Cowen's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of SG Cowen or any
affiliate of SG Cowen to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective on the date first written above and
shall continue for an initial two year term and thereafter shall continue
automatically, provided such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund or (b) a vote of a "majority"
(as defined in the Act) of the Fund's outstanding voting securities, provided
that in either event the continuance is also approved by a majority of the Board
of Directors who are not "interested persons" (as defined in that Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of Directors of the Fund or by
vote of holders of a majority of
-3-
<PAGE>
the Fund's shares, or upon 90 days' written notice, by SG Cowen. This Agreement
will also terminate automatically in the event of its assignment (as defined in
the Act and the Rules thereunder).
10. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no material amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding voting
securities of the Fund.
11. Miscellaneous
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement shall be
held or made invalid by court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be invalidated or rendered unenforceable
thereby. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law without giving
effect to the conflict of law provisions thereof.
If the foregoing is in accordance with your understanding indicate your
acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SG COWEN STANDBY RESERVE FUND, INC.
By: /s/ David R. Sarns
-------------------------------
Name: David R. Sarns
Title: President
Accepted and Agreed:
SG COWEN SECURITIES CORPORATION
By: /s/ Kenneth L. Dowd
----------------------------
Name: Kenneth L. Dowd
Title: Managing Director
-4-
<PAGE>
DISTRIBUTION AGREEMENT
July 1, 1998
Funds Distributor, Inc.
60 State Street
Suite 1300
Boston, Massachusetts 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, each of the open-end investment management companies listed on
Schedule A, attached hereto, together with all other open-end management
investment companies subsequently established (including all series and classes
of shares of such series) and made subject to this Agreement in accordance with
paragraph 8.3 below (each a "Fund, collectively the "Funds"), has agreed that
Funds Distributor, Inc. ("FDI"), shall be, for the period of this Agreement, the
distributor of shares of the Fund.
1. Services as Distributor
1.1 FDI will act as agent for the distribution of shares of the
Funds covered by, and in accordance with, each Fund's registration statement on
Form N-1A (the "Registration Statement") under the Securities Act of 1933, as
amended (the "1933 Act"), and the Investment Company Act of 1940, as amended
(the "1940 Act"). As used in this Agreement, the terms "Registration Statement"
and "prospectus" shall mean any Registration Statement and prospectus, including
the statement of additional information incorporated by reference therein, filed
with the Securities and Exchange Commission (the "SEC") and any amendments and
supplements thereto which at any time shall have been filed with the SEC.
1.2 FDI agrees to use its best efforts to solicit orders for the
sale of shares of the Fund at the public offering price, as determined in
accordance with the Registration Statement and prospectus, and will undertake
such advertising and promotion as it believes is reasonable in connection with
such solicitation.
1.3 All activities by FDI as distributor of the Fund's shares shall
comply with all applicable laws, rules and regulations, including, without
limitation, the
<PAGE>
1940 Act, the 1933 Act, the Securities Exchange Act of 1934, and the rules of
the National Association of Securities Dealers, Inc. (the "NASD"), the SEC, the
Funds' Articles of Incorporation and By-Laws. FDI represents and warrants that
it is a broker-dealer registered with the SEC and that it is registered with the
relevant securities regulatory agencies in all fifty states, the District of
Columbia and Puerto Rico. FDI also represents and warrants that it is a member
of the NASD.
1.4 FDI will provide one or more persons during normal business
hours to respond to telephone questions concerning the Fund.
1.5 FDI acknowledges that, whenever in the judgment of the Fund's
officers such action is warranted for any reason, including, without limitation,
market, economic or political conditions, those officers may decline to accept
any orders for, or make any sales of, the Fund's shares until such time as those
officers deem it advisable to accept such orders and to make such sales and each
party shall advise promptly the other party of any such determination.
1.6 FDI will act only on its own behalf as principal should it
choose to enter into selling agreements with selected dealers or others. Any
payments to dealers shall be governed by a separate agreement between FDI and
such dealer and in accordance with the Fund's Registration Statement and
prospectus.
2. Duties of Each Fund
2.1. Each Fund agrees to pay all costs and expenses in connection
with the registration of its shares under the 1933 Act and all expenses in
connection with maintaining facilities for the issue and transfer of shares and
for supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with the preparation and printing of
the Fund's prospectus and statement of additional information for regulatory
purposes and for distribution to shareholders; provided however, that the Fund
shall not pay any of the costs of advertising or promotion for the sale of
shares, except as authorized by a plan adopted pursuant to Rule 12b-1 under the
1940 Act. FDI shall also be entitled to compensation for FDI's services as
provided in any distribution plan adopted as to any series and class of the
Fund's shares pursuant to Rule 12b-1.
2.2 Each Fund agrees at its own expense to execute any and all
documents, to furnish any and all information and fees and to take any other
actions that may be reasonably necessary in connection with the qualification of
the Fund's shares for sale in those states that FDI may designate to the Fund
and the Fund may approve.
2.3 Each Fund shall furnish from time to time, for use in connection
with the sale of the Fund's shares, such information and reports with respect to
the Fund and its shares as FDI may reasonably request, all of which shall be
signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements
2
<PAGE>
contained in any such reports, when so signed by one or more of the Fund's
officers, shall be true and correct. The Fund shall also furnish FDI upon
request with: (a) annual audits of the Fund's books and accounts made by
independent public accountants regularly retained by the Fund, (b) semi-annual
unaudited financial statements pertaining to the Fund, (c) quarterly earnings
statements prepared by the Fund, (d) a monthly itemized list of the securities
in the Fund's portfolios, (e) monthly balance sheets as soon as practicable
after the end of each month and (f) from time to time such additional
information regarding the Fund's financial condition as FDI may reasonably
request.
3. Representations and Warranties
The Fund represents to FDI that the Registration Statement and
prospectus have been prepared in conformity with the requirements of the 1933
Act, the 1940 Act and the rules and regulations of the SEC thereunder. The Fund
represents and warrants to FDI that the Registration Statement and prospectus,
when such become effective, will include all statements required to be contained
therein in conformity with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of fact contained in the
Registration Statement and prospectus will be true and correct when such becomes
effective; and that neither any Registration Statement nor any prospectus when
such become effective will include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of the Fund's shares. FDI
may, but shall not be obligated to, propose from time to time such amendment or
amendments to the Registration Statement and such supplement or supplements to
any prospectus or statement of additional information as, in the light of future
developments, may, in the opinion of FDI's counsel, be necessary or advisable.
If the Fund shall not propose such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the Fund of a written request
from FDI to do so, FDI may, at its option, terminate this Agreement or decline
to make offers of the Fund's securities until such amendments are made. The Fund
shall not file any amendment to the Registration Statement or supplement to any
prospectus or statement of additional information without giving FDI reasonable
notice thereof in advance; provided, however, that nothing contained in this
Agreement shall in any way limit the Fund's right to file at any time such
amendments to the Registration Statement and/or supplements to any prospectus or
statement of additional information, of whatever character, as the Fund may deem
advisable, such right being in all respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes FDI and any dealers with whom FDI has
entered into dealer agreements to use any prospectus or statement of additional
information furnished by the Fund from time to time, in connection with the sale
of the Fund's shares. The Fund agrees to indemnify, defend and hold FDI, its
several officers and directors, and any person who controls FDI within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and
3
<PAGE>
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which FDI,
its officers and directors, or any such controlling person, may incur under the
1934 Act, the 1940 Act or common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, any prospectus or any statement of additional
information, or arising out of or based upon an omission or alleged omission to
state a material fact required to be stated in the Registration Statement, any
prospectus or any statement of additional information, or necessary to make the
statements in any of them not misleading; provided, however, that the Fund's
agreement to indemnify FDI, its officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of or based upon any such untrue statement, alleged untrue
statement, omission or alleged omission made in any Registration Statement or
any prospectus in reliance upon information furnished by FDI, its officers,
directors or any such controlling person to the Fund or its representatives for
use in the preparation thereof; and further provided that the Fund's agreement
to indemnify FDI and the Fund's representations and warranties set out in
paragraph 3 of this Agreement will not be deemed to cover any liability to the
Fund or its shareholders to which FDI would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of FDI's reckless disregard of its obligations and duties
under this Agreement ("Disqualifying Conduct"). The Fund's agreement to
indemnify FDI, its officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Fund's being notified of any action
brought against FDI, its officers or directors, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Fund at
its principal office in New York, New York and sent to the Fund by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. The failure so to notify the Fund of
any such action shall not relieve the Fund from any liability that the Fund may
have to the person against whom such action is brought by reason of any such
untrue or alleged untrue statement or omission or alleged omission otherwise
than on account of the Fund's indemnity agreement contained in this paragraph
4.1. The Fund will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by the Fund and approved
by FDI. In the event the Fund elects to assume the defense of any such suit and
retain counsel of good standing approved by FDI, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Fund does not elect to assume the defense of any
such suit, or in case FDI does not approve of counsel chosen by the Fund, the
Fund will reimburse FDI, its officers and directors, or the controlling person
or persons named as defendant or defendants in such suit, for the fees and
expenses of any counsel retained by FDI or them. The Fund's indemnification
agreement contained in this paragraph 4.1 and the Fund's representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of FDI, its officers and
directors, or any controlling person, and shall survive the delivery of any of
the Fund's shares. This agreement of indemnity will inure exclusively to FDI's
benefit,
4
<PAGE>
to the benefit of its several officers and directors, and their respective
estates, and to the benefit of the controlling persons and their successors. The
Fund agrees to notify FDI promptly of the commencement of any litigation or
proceedings against the Fund or any of it officers or directors in connection
with the issuance and sale of any of the Fund's shares.
4.2 FDI agrees to indemnify, defend and hold the Fund, its several
officers and directors, and any person who controls the Fund within the meaning
of Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the reasonable costs of
investigating or defending such claims, demands or liabilities and expenses and
any reasonable counsel fees incurred in connection therewith) that the Fund, its
officers or directors or any such controlling person may incur under the 1933
Act, the 1940 Act or common law or otherwise, but only to the extent that such
liability or expense incurred by the Fund, its officers or directors or such
controlling person resulting from such claims or demands shall arise out of or
be based upon (a) any unauthorized sales literature, advertisements,
information, statements or representations or (b) any untrue or alleged untrue
statement of a material fact contained in information furnished in writing by
FDI to the Fund and specifically for use in the Fund's Registration Statement
and prospectus and used in the answers to any of the items of the Registration
Statement or in the corresponding statements made in the prospectus, or shall
arise out of or be based upon any omission or alleged omission to state a
material fact in connection with such information furnished in writing by FDI to
the Fund and required to be stated in such answers or necessary to make such
information not misleading. FDI's agreement to indemnify the Fund, its officers
and directors, and any such controlling person, as aforesaid, is expressly
conditioned upon FDI's being notified of any action brought against the Fund,
its officers or directors, or any such controlling person, such notification to
be given by letter or telegram addressed to FDI at its principal address set
forth above and sent to FDI by the person against whom such action is brought,
within ten days after the summons or other first legal process shall have been
served. FDI shall have the right of first control of the defense of such action,
with counsel of its own choosing, satisfactory to the Fund, if such action is
based solely upon such alleged misstatement or omission on FDI's part, and in
any other event the Fund, its officers or directors or such controlling person
shall each have the right to participate in the defense or preparation of the
defense of any such action. The failure so to notify FDI of any such action
shall not relieve FDI from any liability that FDI may have to the Fund, its
officers or directors, or to such controlling persons by reason of any such
untrue or alleged untrue statement or omission or alleged omission otherwise
than on account of FDI's indemnity agreement contained in this paragraph 4.2 or
any Disqualifying Conduct in connection with the offering and sale of any shares
of the Fund. This agreement of indemnity will inure exclusively to the Fund's
benefit, to the benefit of the Fund's officers and directors, and their
respective estates, and to the benefit of any controlling persons and their
successors. FDI agrees to notify the Fund promptly of the commencement of any
litigation or proceedings against FDI or any of its officers or directors in
connection with the issuance and sale of any of the Fund's shares.
5
<PAGE>
5. Effectiveness of Registration
None of the Fund's shares shall be offered by either FDI or the Fund
under any of the provisions of this Agreement and no orders for the purchase or
sale of the shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the Registration Statement or any necessary amendments thereto
shall be suspended under any of the provisions of the 1933 Act or if and so long
as a current prospectus as required by Section 5 (b) (2) of the 1933 Act is not
on file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have an application to or bearing upon
the Fund's obligation to repurchase its shares from any shareholder in
accordance with the provisions of the Fund's prospectuses, statement of
additional information or articles of incorporation.
6. Notice to FDI
The Fund agrees to advise FDI immediately in writing:
(a) of any request by the SEC for amendments to the Registration
Statement, prospectus or statement of additional information then in effect or
for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or prospectus then in
effect or the initiation of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of
a material fact made in the Registration Statement or prospectus then in effect
or that requires the making of a change in the Registration Statement or
prospectus in order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to the
Registration Statement or prospectus which may from time to time be filed with
the SEC.
7. Term of Agreement
This Agreement shall become effective with respect to the Fund as of
the date hereof and will continue for an initial two year term and thereafter
shall continue automatically, provided such continuance is specifically approved
at least annually by (a) the Fund's Board of Directors or (b) a vote of a
majority (as defined in the 1940 Act) of the Fund's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Directors of the Fund who are not interested persons (as defined
in the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable, without penalty, on 60 days' written notice, by the Fund's Board of
Directors or by vote
6
<PAGE>
of the holders of a majority of the Fund's shares, or on 60 days' written
notice, by FDI. This Agreement will also terminate automatically in the event of
its assignment (as defined in the 1940 Act).
8. Miscellaneous
8.1 The Fund recognizes that, except to the extent otherwise agreed to by
the parties hereto, FDI's directors, officers and employees may from time to
time serve as directors, trustees, officers and employees of corporations and
business trusts (including other investment companies), and that FDI or FDI's
affiliates may enter into distribution or other agreements with other
corporations and trusts.
8.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8.3 This Agreement and the Schedule forming a part hereof may be amended
at any time by a writing signed by each of the parties hereto. In the event that
the Directors of any additional funds indicate by vote that such funds are to be
made parties to this Agreement, whether such funds were in existence at the time
of the effective date of this Agreement or subsequently formed, Schedule A
hereto shall be amended to reflect the addition of such new funds and such new
funds shall thereafter become parties hereto. In the event that any of the Funds
listed on Schedule A terminates its registration as a management investment
company, or otherwise ceases operations, Schedule A shall be amended to reflect
the deletion of such Fund and its various classes.
8.4 This Agreement shall be governed by the internal laws of the state of
New York without giving effect to principles of conflicts of laws.
8.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
7
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
COWEN FUNDS, INC.
COWEN INCOME + GROWTH FUND, INC.
COWEN STANDBY RESERVE FUND, INC.
COWEN STANDBY TAX-EXEMPT RESERVE
FUND, INC.
COWEN SERIES FUNDS, INC.
By: /s/ David R. Sarns
-------------------------------
Name: David R. Sarns
-----------------------------
Title: President
----------------------------
Accepted and Agreed:
FUNDS DISTRIBUTOR. INC.
By: /s/ Marie Connolly
-------------------------------
Name: Marie Connolly
-----------------------------
Title: Pres + CEO
----------------------------
8
<PAGE>
SCHEDULE A
COWEN FAMILY OF FUNDS
Cowen Funds, Inc.
Cowen Intermediate Fixed Income Fund
Class A Shares
Class B Shares
Class I Shares
Cowen Government Securities Fund
Class A Shares
Class B Shares
Class I Shares
Cowen Opportunity Fund
Class A Shares
Class B Shares
Class I Shares
Cowen Income + Growth Fund, Inc.
Class A Shares
Class B Shares
Class I Shares
Cowen Standby Reserve Fund, Inc.
Cowen Standby Tax-Exempt Reserve Fund, Inc.
Cowen Series Funds, Inc.
Cowen Large Cap Value Fund
Class A Shares
Class B Shares
Class I Shares
9
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Auditors and Counsel" and "Financial Statements" and to
the incorporation by reference of our report dated November 6, 1998 in
this Registration Statement (Form N-1A No. 2-73131) of SG Cowen Standby
Reserve Fund, Inc.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
November 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,470,315,386
<INVESTMENTS-AT-VALUE> 1,470,315,386
<RECEIVABLES> 7,635,479
<ASSETS-OTHER> 1,463,924
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,479,414,789
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,775,826
<TOTAL-LIABILITIES> 3,775,826
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,477,352,790
<SHARES-COMMON-STOCK> 1,477,352,790
<SHARES-COMMON-PRIOR> 1,339,161,662
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,713,827)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,475,638,963
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 82,329,386
<OTHER-INCOME> 0
<EXPENSES-NET> 9,371,953
<NET-INVESTMENT-INCOME> 72,957,433
<REALIZED-GAINS-CURRENT> (18,949)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 72,938,484
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 72,957,433
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,868,735,108
<NUMBER-OF-SHARES-REDEEMED> 6,799,989,377
<SHARES-REINVESTED> 69,445,396
<NET-CHANGE-IN-ASSETS> 138,191,127
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,259,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,371,953
<AVERAGE-NET-ASSETS> 1,451,935,879
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
