<PAGE> 1
As filed with the Securities and Exchange Commission
on January 28, 1997 (to be effective February 1, 1997)
Securities Act File No. 2-98681
Investment Company Act File No. 811-4344
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
___
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 11 X
___
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
___
Amendment No. 12 X
___
(Check appropriate box or boxes)
COWEN STANDBY TAX-EXEMPT 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.
Cowen Standby Tax-Exempt 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
One Citicorp Center
153 East 53rd Street
New York, New York 10022
<PAGE> 2
It is proposed that this filing will become effective (check appropriate box):
______ Immediately upon filing pursuant to paragraph (b), or
X on February 1, 1997 pursuant to paragraph (b), or
______
______ 60 days after filing pursuant to paragraph (a), or
______ on ____________ pursuant to paragraph (a) of Rule 485
DECLARATION PURSUANT TO RULE 24F-2
An indefinite number of shares of Common Stock of the Registrant have been
registered pursuant to Rule 24f-2 under the Investment Company Act of 1940. The
Rule 24f-2 Notice for the Registrant's most recent fiscal year was filed on
November 5, 1996.
<PAGE> 3
COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page..................... Cover Page
2. Synopsis....................... The Fund's Expenses
3. Financial Highlights........... Cowen Standby Tax-Exempt
Reserve Fund, Inc.-
Financial Highlights
4. General Description of
Registrant.................... Cover Page;
Investment Objective
and Policies -
Cowen Standby Tax-Exempt
Reserve Fund, Inc.;
Investment Objective
and Policies Applicable
to Both Funds;
Additional Information
5. Management of the Fund......... Management of the Funds
5.a.Management's Discussion of
Fund's Performance............ Not Applicable
6. Capital Stock and Other
Securities................... Dividends and Distributions;
Taxes; Management of the Funds
<PAGE> 4
Part A
Item No. Prospectus Heading
- -------- ------------------
7. Purchase of Securities
Being Offered................ Purchase of Shares;
Automatic Transactions;
Management of the Funds
8. Redemption or Repurchase....... Redemption of Shares;
Automatic Transactions
9. Pending Legal Proceedings...... Not applicable
Part B Heading in Statement
Item No. Additional Information
- -------- ----------------------
10. Cover Page..................... Cover Page
11. Table of Contents.............. Contents
12. General Information and
History...................... See Prospectus--
"Additional Information"
13. Investment Objectives and
Policies..................... Investment Objective
and Policies -
Cowen Standby Tax-Exempt
Reserve Fund, Inc.;
Investment Objective
and Policies Applic-
able to Both Funds
14. Management of the Fund......... Management of the Funds
15. Control Persons and
Principal Holders of
Securities................... See Prospectus--
"Management of the
Funds"; Management
of the Fund
<PAGE> 5
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
16. Investment Advisory and
Other Services............... Management of the
Fund; See Prospectus--
"Management of the Funds"
17. Broker Allocation
and Other Practices.......... Investment Objective
and Policies -
Cowen Standby Tax-Exempt
Reserve Fund, Inc.;
Investment Objective
and Policies Applic-
able to Both Funds
18. Capital Stock and Other
Securities................... See Prospectus--
"Dividends and Distribu-
tions"; "Taxes" and
"Additional Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered................ Additional Purchase
and Redemption
Information
20. Tax Status..................... See Prospectus--
"Dividends and Distribu-
tions" and "Taxes";
Additional Information
Concerning Taxes
21. Underwriters................... Additional Purchase and
Redemption Information;
See Prospectus--"Management
of the Funds"
22. Calculations
of Yield Quotations of
Money Market Funds........... Determination of Yield
23. Financial Statements........... Financial Statements
<PAGE> 6
PROSPECTUS FEBRUARY 1, 1997
------------------------
COWEN STANDBY RESERVE FUND, INC.
AND
COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC.
FINANCIAL SQUARE, NEW YORK, NEW YORK 10005, 800-262-7116 (212)
495-6724
------------------------
Cowen Standby Reserve Fund, Inc. ("CSRF") is a money market mutual fund
whose investment objective is the maximization of current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
Cowen Standby Tax-Exempt Reserve Fund, Inc. ("CSTXRF") is a money market
mutual fund whose investment objective is the maximization of current income
that is exempt from federal income taxes to the extent consistent with the
preservation of capital and the maintenance of liquidity.
CSRF and CSTXRF are each referred to in this Prospectus as a "Fund", and
collectively as the "Funds".
Shares of the Funds are sold and redeemed at net asset value without the
imposition of a sales or redemption charge by either Fund.
THE FUNDS ARE NOT INSURED BY THE U.S. GOVERNMENT AND THERE IS NO GUARANTEE
THAT THE SHARES OF THE FUNDS WILL MAINTAIN A CONSTANT NET ASSET VALUE.
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference.
Additional information about each Fund, contained in its Statement of
Additional Information, has been filed with the Securities and Exchange
Commission ("SEC") and is available to investors without charge by calling the
Funds' distributor at (212) 495-6724 or by contacting any account representative
at Cowen & Company ("Cowen"). The Statement of Additional Information bears the
same date as this Prospectus and is incorporated by reference into this
Prospectus.
------------------------
COWEN & COMPANY
PRINCIPAL UNDERWRITER
------------------------
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 7
COWEN STANDBY RESERVE FUND, INC.
FINANCIAL HIGHLIGHTS
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon for each of the five years in the
period ended September 30, 1996, appears in the Fund's annual report to
shareholders which is incorporated by reference in the Statement of Additional
Information. This information should be read in conjunction with the financial
statements and related notes which also appear in CSRF's annual report to
shareholders as of September 30, 1996. The information appearing herein for each
of the years prior to September 30, 1992, also has been audited by Ernst & Young
LLP, whose report thereon was unqualified.
PER SHARE INCOME AND CAPITAL CHANGES
For a share of Common Stock outstanding throughout each year.
<TABLE>
<CAPTION>
SRF
-----------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
---------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net Investment
Income............ .05 .05 .03 .03 .04 .06 .08 .08
Less Distributions:
Dividends from net
investment
income............ (.05) (.05) (.03) (.03) (.04) (.06) (.08) (.08)
---------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ======== ======== ======== ======== ========
Total Return.......... 4.97% 5.23% 3.14% 3.07% 4.16% 6.33% 8.06% 8.81%
Ratios/Supplemental
Data
Net Assets (000
omitted).......... $1,101,944 $890,888 $692,609 $682,379 $667,366 $605,212 $617,137 $474,475
Ratio of Expenses to
Average Net
Assets............ .71% .71% .64% .68% .70% .71% .63% .66%
Ratio of Net
Investment Income
to Average Net
Assets............ 4.89% 5.13% 3.11% 3.00% 4.06% 6.15% 7.74% 8.49%
<CAPTION>
1988 1987
-------- --------
<S> <C<C> <C>
Net Asset Value,
Beginning of Year... $ 1.00 $ 1.00
-------- --------
Income from Investment
Operations:
Net Investment
Income............ .07 .06
Less Distributions:
Dividends from net
investment
income............ (.07) (.06)
-------- --------
Net Asset Value, End
of Year............. $ 1.00 $ 1.00
======== ========
Total Return.......... 6.80% 5.80%
Ratios/Supplemental
Data
Net Assets (000
omitted).......... $348,097 $370,987
Ratio of Expenses to
Average Net
Assets............ .68% .70%
Ratio of Net
Investment Income
to Average Net
Assets............ 6.67% 5.72%
</TABLE>
2
<PAGE> 8
YIELD
For the seven-day period ended January 9, 1997, the Company's yield was
4.47%. At January 9, 1997, CSRF's average portfolio maturity was 64 days. CSRF's
Statement of Additional Information describes the method used to calculate its
yield.
EXPENSES
The following table lists the costs that an investor will incur, either
directly or indirectly, as a shareholder of CSRF, based upon CSRF's projected
annual operating expenses:
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a
percentage of offering price)...................... None
Maximum sales charge imposed on reinvested
dividends.......................................... None
Maximum deferred sales charge........................ None
Redemption fees...................................... None
Exchange fee......................................... None
ANNUAL CSRF EXPENSES
(as a percentage of average net assets)
Management fees...................................... .50%
12b-1 fees........................................... None
Other expenses....................................... .21%
----
Total CSRF Operating Expenses............................. .71%
====
</TABLE>
The nature of the services for which CSRF pays the management fees is
described under "Management of the Funds." "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees all for the Funds current fiscal year
ended September 30, 1996.
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in CSRF. These amounts are based upon payment by CSRF
of operating expenses at the levels set forth in the table above, and are also
based upon the following assumptions:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment assuming (1) 5%
annual return and (2) redemption at
the end of each time period*.......... $7 $23 $41 $ 91
</TABLE>
- ------------
* This example should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than those shown.
Moreover, while this table assumes a 5% annual return, CSRF's actual
performance will vary and may result in an actual return greater or less than
5%.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in CSRF will bear directly or
indirectly.
3
<PAGE> 9
COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC.
FINANCIAL HIGHLIGHTS
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon for each of the five years in the
period ended September 30, 1996, appears in the Company's annual report to
shareholders which is incorporated by reference in the Statement of Additional
Information. This information should be read in conjunction with the financial
statements and related notes which also appear in CSTXRF's annual report to
shareholders as of September 30, 1996. The information appearing herein for each
of the years prior to September 30, 1992, also has been audited by Ernst & Young
LLP, whose report thereon was unqualified.
PER SHARE INCOME AND CAPITAL CHANGES
For a share of Common Stock outstanding throughout each year.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net Investment
Income........... .03 .03 .02 .02 .03 .04 .05 .06 .05 .04
Less Distributions:
Dividends from net
investment
income........... (.03) (.03) (.02) (.02) (.03) (.04) (.05) (.06) (.05) (.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return........ 3.07% 3.19% 2.11% 2.03% 2.97% 4.50% 5.48% 5.88% 4.61% 3.94%
Ratios/Supplemental
Data:
Net Assets (000
omitted)......... $171,055 $122,536 $120,704 $116,618 $118,389 $107,838 $ 89,371 $ 84,629 $ 67,885 $ 64,102
Ratio of Expenses
to Average Net
Assets........... .59% .61% .58% .62% .61% .60% .62% .59% .57% .44%
Ratio of Net
Investment Income
to Average Net
Assets........... 3.01% 3.14% 2.03% 1.99% 2.87% 4.37% 5.35% 5.73% 4.55% 3.89%
Investment advisory
fees waived:
Amount............. $156,993 $124,784 $130,483 $119,582 $130,414 $105,431 $ 88,632 $132,101 $200,930 $275,072
Ratio of Average
Net Assets....... .10% .10% .10% .10% .10% .10% .10% .17% .30% .42%
</TABLE>
YIELD
For the seven-day period ended January 9, 1997 CSTXRF's yield was 2.78%. At
January 9, 1997, CSTXRF's average portfolio maturity was 58 days. CSTXRF's
Statement of Additional Information describes the methods used to calculate its
yield.
4
<PAGE> 10
EXPENSES
The following table lists the costs that an investor will incur, either
directly or indirectly, as a shareholder of CSTXRF, based upon CSTXRF's
projected annual operating expenses:
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a
percentage of offering price)...................... None
Maximum sales charge imposed on reinvested
dividends.......................................... None
Maximum deferred sales charge........................ None
Redemption fees...................................... None
Exchange fee......................................... None
ANNUAL CSTXRF EXPENSES
(as a percentage of average net assets)
Management fees...................................... .50%
12b-1 fees........................................... None
Other expenses....................................... .19%
----
Total CSTXRF Operating Expenses...................... .69%
====
</TABLE>
The nature of the services for which CSTXRF pays the management fees is
described under "Management of the Funds." Since CSTXRF's inception, Cowen has
voluntarily waived a portion of its investment management fee. However, as there
can be no assurance that Cowen will continue such a waiver, the table reflects
the amount of management fee computed at the rate provided for in the Investment
Management Agreement. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees all for the Fund's current fiscal year ended September 30,
1996.
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in CSTXRF. These amounts are based upon payment by
CSTXRF of operating expenses at the levels set forth in the table above, and are
also based upon the following assumptions:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and
(2) redemption at the end of each
time period*..................... $7 $23 $39 $ 88
</TABLE>
5
<PAGE> 11
- ------------
* This example should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than those shown.
Moreover, while this table assumes a 5% annual return, CSTXRF's actual
performance will vary and may result in an actual return greater or less than
5%.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in CSTXRF will bear directly or
indirectly.
INVESTMENT OBJECTIVE AND POLICIES
COWEN STANDBY RESERVE FUND, INC.
IN GENERAL
CSRF is a no-load, diversified, open-end investment company whose objective
is the maximization of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity. This objective may be
changed only with the approval of the shareholders.
CSRF will attempt to achieve its investment objective by investing in a
portfolio of short-term "money market" instruments consisting of United States
Treasury Securities, other obligations issued or guaranteed by the United States
government, its agencies or instrumentalities, marketable certificates of
deposit, including those issued by domestic banks, London branches of domestic
banks, domestic branches of foreign banks and savings and loan and similar
associations, banker's acceptances, repurchase agreements and high grade
commercial paper.
There can be no assurance that CSRF will achieve its investment objective.
The following is a brief description of the kinds of instruments in which CSRF
will invest:
Government Obligations. United States government, agency and
instrumentality securities in which CSRF 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.
Bank Instruments. Certificates of deposit ("CDs") and bankers' acceptances
("BAs") in which CSRF 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. CSRF will concentrate its investments in the banking industry,
investing in CD's and BA's of domestic branches of United States banks, London
branches of United States banks and domestic branches of foreign banks.
Commercial Paper. Commercial paper purchased by CSRF is limited to direct
obligations of issuers that at the time of purchase are rated A-1 or A-1+ by
Standard & Poor's Corporation ("S&P")
6
<PAGE> 12
or Prime-1 by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are
issued by companies having an outstanding unsecured debt issue currently rated
Aa or better by Moody's or AA or better by S&P. Included among the commercial
paper CSRF may purchase is paper that may be purchased or sold only in private
transactions; CSRF's investments in such commercial paper will be subject to
CSRF's limitation on investments in securities with contractual or other
restriction on resale. See "Special Considerations" below. A discussion of the
Moody's and S&P rating categories is contained in the Statement of Additional
Information.
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. CSRF will not purchase medium term notes maturing more than one year
after the date of purchase. It will purchase medium term notes only if they are
rated in one of the two highest categories by S&P, Moody's, Duff & Phelps, Inc.,
Fitch Investor Services, Inc., IBCA Limited and Thomson Bankwatch. See the
Statement of Additional Information for a discussion of these rating categories.
CERTAIN PORTFOLIO STRATEGIES
Repurchase Agreements. Under a repurchase agreement, CSRF 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 (the
"1940 Act"), repurchase agreements are considered loans by CSRF. CSRF will enter
into repurchase agreements with domestic banks or dealers with respect to
securities of the type in which it invests. 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, CSRF 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, CSRF 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.
SPECIAL CONSIDERATIONS
While CSRF will invest in obligations of foreign banks or London branches
of United States banks only if the investment manager deems the instruments to
present minimal credit risks, such investments may nevertheless entail risks
that are different from investments in domestic obligations of United States
banks due to differences in political, regulatory and economic systems and
conditions. Such risks include future political and economic developments and
the possible imposition of withholding taxes on interest income, possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. In addition, London branches of United States banks and
domestic branches of foreign banks may be
7
<PAGE> 13
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of United States Banks.
In general, immediately after the acquisition of any security (other than
government obligations), not more than 5% of CSRF's assets may be invested at
any time in the obligations (including repurchase agreements) of a single
issuer. Immediately after the acquisition of any put with respect to a portfolio
security, CSRF may not have more than 5% of its total assets invested in or
subject to puts from the same institution. In addition, CSRF may invest up to an
aggregate of 10% of its total assets in securities with contractual or other
restrictions on resale and other instruments which are not readily marketable
and repurchase agreements maturing in more than seven days from the date of
acquisition. CSRF is also authorized to borrow in an amount of up to 10% of its
total assets for temporary or emergency purposes, and to pledge its assets to
the same extent in connection with such borrowings. Finally, CSRF may attempt to
increase yields by trading to take advantage of short-term market rates which
may result in high portfolio turnover. A more detailed description of these
policies, together with an enumeration of additional investment restrictions
which CSRF has adopted and which cannot be changed without the approval of the
holders of a majority of CSRF's outstanding shares, is contained in its
Statement of Additional Information.
Investors should also be aware that CSRF's portfolio will be affected by
general changes in interest rates which will result in increases or decreases in
the value of the obligations held by CSRF. The market value of the obligations
in CSRF's portfolio can be expected to vary inversely to changes in prevailing
interest rates.
COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC.
IN GENERAL
CSTXRF is a no-load, diversified, open-end management investment company
whose objective is the maximization of current interest income that is exempt
from federal income taxes to the extent consistent with the preservation of
capital and the maintenance of liquidity. This objective may be changed only
with the approval of the shareholders. There can be, of course, no assurance
that CSTXRF will achieve its investment objective.
At least 80% of CSTXRF'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"). CSTXRF 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 the Fund's Board of Directors. Municipal Securities in
which CSTXRF 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
8
<PAGE> 14
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. CSTXRF may invest in commercial paper rated A-2 or
higher by Standard & Poor's Corporation ("S&P") or Prime-2 or higher by Moody's
Investors Service, Inc. ("Moody's"); notes rated SP-2 or higher by S&P or MIG-2
or higher by Moody's or rated VMIG-2 or higher by Moody's in the case of
variable rate demand obligations and bonds rated AA or higher by S&P or Aa or
higher by Moody's. CSTXRF may also purchase Municipal Securities which, if
unrated, are issued by entities having an outstanding unsecured debt issue
currently rated Aa or better by Moody's or AA or better by S&P.
Up to 25% of the assets of CSTXRF may be invested at any time in the debt
obligations of a single issuer. Immediately after the acquisition of any put
with respect to a portfolio security, as to 75% of its portfolio, CSTXRF may not
have more than 5% of its total assets invested in securities issued by or
subject to puts from the same institution, except that up to 10% of total assets
may be invested in securities subject to guarantees or unconditional puts from a
single institution. 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 security, such a guarantee would be considered a separate security
and would be treated as an issue of such government or other entity. In
addition, CSTXRF may invest up to an aggregate of 10% of its total assets in
securities with contractual or other restrictions on resale and other
instruments that are not readily marketable including repurchase agreements
providing for settlement in more than seven days. CSTXRF is also authorized to
borrow and to enter into reverse repurchase transactions in an amount up to 10%
of its total assets for temporary or emergency purposes including meeting
redemption requests, but not for leverage, and to pledge its assets to the same
extent in connection with such borrowings. Whenever borrowings exceed 5% of the
value of CSTXRF's assets, CSTXRF will not make any additional investments.
Finally, CSTXRF may attempt to increase yields by trading to take advantage of
short-term market rates which may result in high portfolio turnover. A more
detailed description of these policies, together with an enumeration of
additional investment restrictions which CSTXRF has adopted and which cannot be
changed without the approval of the holders of a majority of CSTXRF's
outstanding shares, is contained in its Statement of Additional Information.
It should also be noted that securities in which CSTXRF will invest may not
yield as high a level of current income as longer term or lower rated securities
which generally have less liquidity and greater fluctuation.
9
<PAGE> 15
CERTAIN PORTFOLIO STRATEGIES
Variable Rate Demand Notes. Municipal Securities purchased by CSTXRF 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
CSTXRF will be determined by CSTXRF's investment manager 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. CSTXRF may invest
in variable rate demand notes carrying stated maturities in excess of one year
at the date of purchase by CSTXRF if such variable rate demand notes carry
demand features permitting CSTXRF 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 CSTXRF's investment manager, 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 CSTXRF, CSTXRF 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
CSTXRF to dispose of the variable rate demand note involved, in the event the
issuer of the note defaulted on its payment obligations, and CSTXRF could, for
this or other reasons, suffer a loss of principal and interest.
CSTXRF 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 CSTXRF's investment manager,
participation interests will carry a liquidity feature permitting CSTXRF to
tender them back to the bank or will be backed by an irrevocable letter of
credit or guarantee of a bank which CSTXRF's investment manager has determined
to be equivalent to the quality standards set forth above.
When-Issued Securities. CSTXRF may also purchase Municipal Securities on a
"when-issued" basis. CSTXRF 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. CSTXRF 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 CSTXRF may purchase when-issued securities
without limit, CSTXRF 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 the 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 CSTXRF.
10
<PAGE> 16
Stand-By Commitments. CSTXRF 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 the
Fund's option, specified Municipal Securities at a specified price. CSTXRF
intends to enter into stand-by commitments only with dealers, banks and
broker-dealers which, in the opinion of CSTXRF's investment manager, present
minimal credit risks. If CSTXRF's investment manager deems it necessary or
advisable, CSTXRF 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, the investment manager will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information. CSTXRF
will acquire stand-by commitments solely to facilitate portfolio liquidity and
does not intend to exercise its rights thereunder for trading purposes.
Reverse Repurchase Agreements. CSTXRF 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 CSTXRF 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 CSTXRF 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
CSTXRF under the 1940 Act.
Taxable Investments. Under certain circumstances, CSTXRF may for temporary
defensive or other purposes invest in certain short-term taxable securities when
CSTXRF's investment manager believes that it would be in the best interests of
CSTXRF's investors to do so. Taxable securities in which CSTXRF 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; other debt securities rated within the two highest ratings assigned by
Moody's, S&P, Duff & Phelps, Inc., Fitch Investor Services, Inc., IBCA Limited
and Thomson Bankwatch; commercial paper rated in the highest grade by Moody's or
S&P; and bank obligations including certificates of deposit issued by domestic
branches of United States banks with assets of $1 billion or more. At no time
will more than 20% of CSTXRF's total assets be invested in taxable short-term
securities unless CSTXRF's investment manager 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 CSTXRF may invest all or any
part of its assets in Municipal Securities which are industrial development
bonds. Moreover, although CSTXRF 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
11
<PAGE> 17
investment is deemed necessary or appropriate by CSTXRF's investment manager. To
the extent that CSTXRF's assets are concentrated in Municipal Securities payable
from revenues on economically related projects and facilities, CSTXRF will be
subject to the peculiar risks presented by such projects to a greater extent
than it would be if CSTXRF's assets were not so concentrated.
INVESTMENT OBJECTIVES AND POLICIES APPLICABLE TO BOTH FUNDS
Lending of Portfolio Securities. Each Fund has the ability to lend
securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed 20% of that Fund's
total assets taken at value. Loans of portfolio securities by a Fund will be
collateralized by cash, letters of credit or securities issued or guaranteed by
the United States government or its agencies, which are maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities.
Portfolio securities of each Fund are valued on the basis of amortized
cost. In connection with its use of amortized cost valuation, each Fund limits
the dollar-weighted average maturity of its portfolio to not more than 90 days
and does not purchase any instrument with a remaining maturity of more than 397
calendar days, except that securities subject to liquidity puts may bear longer
maturities. The Funds follow these policies in order to maintain a constant net
asset value of $1.00 per share, although there is no assurance they can do so on
a continuing basis.
MANAGEMENT OF THE FUNDS
BOARDS OF DIRECTORS
The business and affairs of each of the Funds are managed under the
direction of their respective Boards of Directors. By virtue of the
responsibilities assumed by 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.
INVESTMENT MANAGER
Cowen, an investment adviser and broker-dealer registered with the SEC,
serves as the Funds' investment manager. 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"). Cowen's principal address is
Financial Square, New York, New York 10005.
Pursuant to the Investment Management Agreements between Cowen and the
Funds, Cowen has agreed to be responsible for each Fund's investment program.
Subject to the supervision and direction of the Funds' Boards of Directors,
Cowen manages each Fund's portfolio in accordance with the stated policies of
that Fund. Cowen makes investment decisions for each Fund and places the
purchase and sale orders for portfolio transactions. Cowen also furnishes each
Fund statistical and research data, clerical help, accounting, data processing,
bookkeeping, internal auditing and certain legal and other
12
<PAGE> 18
services required by that Fund, prepares reports to shareholders of each Fund,
tax returns, reports to and 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. For the services provided pursuant to the
Investment Management Agreement, Cowen is entitled to receive from each Fund a
fee, computed daily and payable monthly, at the annual rate of .50 of 1.00% of
that Fund's average daily net assets. 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 Cowen. Such compensation is paid solely from Cowen's resources and is not
paid directly or indirectly by either Fund.
DISTRIBUTOR
Cowen acts as distributor of the Funds' shares. No compensation is payable
by either Fund to Cowen for its distribution services.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company ("IFTC"), a subsidiary of State Street
Boston Corp., serves as the custodian of the Funds' investments and as transfer
and dividend agent. Communications to IFTC should be directed to P.O. Box
419111, Kansas City, MO 64141.
PURCHASE OF SHARES
Each Fund's shares are sold on a continuous basis on each day that such
Fund's net asset value is calculated, at their net asset value next determined
after an order and payment for shares in the form of Federal Funds have been
received. The minimum initial investment and subsequent investments must be in
the amount of at least $500, with the exception of purchases of Fund shares
through retirement plans for Self-Employed Persons and Individual Retirement
Accounts which require minimum initial investments and subsequent investments in
the amount of at least $100. Each Fund reserves the right at any time to vary
the initial and subsequent investment minimums, and has established a lower
minimum for investments under the Automatic Transaction program described below.
To invest in a Fund, a person who has, or who wishes to have, an account at
Cowen need only direct his representative to invest in that Fund in order to
become a shareholder in that Fund. There is no charge for establishing or
maintaining such account. A person who does not have, and does not intend to
establish, an account at Cowen may invest in either Fund by instructing his own
broker/dealer to purchase shares for him or by contacting the Fund directly at
1-800-309-1111. Persons who are interested in purchasing shares of the Funds by
Federal wire 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 Cowen with respect to the stock of
that Fund. Cowen reserves the right to reject any purchase order. From time to
time, Cowen's registered representatives and those of other broker-dealers that
enter into selected dealer agreements with Cowen and sell shares of the Funds
will receive non-cash compensation in the form of gifts or prizes such as
merchandise or trips.
13
<PAGE> 19
In the case of orders from its customers or customers of its correspondents
for purchase of shares paid for other than in Federal Funds. 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 Cowen or Federal wires received by 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 Cowen after 2:00 P.M., New York time, by Cowen will
become shareholders on the following business day. A shareholder will begin to
accrue daily dividends the day after becoming a shareholder. 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 Cowen serves as
distributor.
- Cowen Intermediate Fixed Income Fund, a fund that seeks current income
and stability of principal, by investing primarily in high quality
intermediate term fixed income securities. This fund is a series of Cowen
Funds, Inc.
- Cowen Government Securities Fund, a fund that seeks total return
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 Cowen Funds, Inc.
- 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.
- 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 Cowen 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 any Cowen account
representative, through account representatives of 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 Cowen 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 Cowen Intermediate Fixed Income Fund or
Cowen Government Securities Fund, Cowen Income + Growth Fund, Inc., or Cowen
Opportunity Fund, 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.
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<PAGE> 20
On May 16, 1994, Cowen Income + Growth Fund, Inc. and Cowen Opportunity
Fund and on July 11, 1994, Cowen Government Securities Fund and Cowen
Intermediate Fixed Income Fund (collectively, the "non-money market funds")
began offering three classes of shares (Class A, B and C shares). Shareholders
of CSRF and CSTXRF (collectively, the "money market funds") 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, corresponding shares of the
money market fund may be exchanged only for Class A shares (or Class C shares,
if eligible) of a non-money market fund.
REDEMPTION OF SHARES
PROCEDURES APPLICABLE TO ALL REDEMPTIONS
Each Fund will redeem its shares without charge on any day that such Fund's
net asset value is calculated at the net asset value per share next determined
after receipt of a redemption order in proper form by Cowen or IFTC. While each
Fund intends to use its best efforts to maintain its net asset value per share
at $1.00, the proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption.
Any redemption request received by Cowen prior to 2:00 P.M., New York time,
will earn that day's dividend, and will be transmitted to IFTC on that day; the
proceeds of such redemptions normally will be credited to the investor's account
at Cowen on the next business day. Shares redeemed pursuant to requests at or
after 2:00 P.M., New York time, will be effected on and dividends earned through
the next business day and the proceeds of such redemptions normally will be
credited to the investor's account at Cowen on the second business day
thereafter, but in any event payment will be made within seven days thereafter.
However, proceeds of any redemptions will not be sent until the check (including
a certified or cashier's check) used for investment has been cleared for payment
by the investor's bank, which may take up to 15 days. Pending such clearance,
Cowen will hold redemption proceeds in the investor's brokerage account under
circumstances resulting in no earnings to the investor.
Each Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recordation of the
transfer of its shares) for such periods as are permitted under the 1940 Act.
Each Fund reserves the right to redeem shares in any account at their net asset
value if the value of the account is $500 or less. The shareholder having the
account will first be notified in writing that its account has a value of $500
or less and will be allowed 30 days to make an additional investment before the
redemption is processed by the Fund.
REGULAR REDEMPTION PROVISIONS
Cowen 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
15
<PAGE> 21
fraudulent oral redemption instruction; the staff of the SEC is considering the
propriety of this policy. If shares are to be redeemed pursuant to an order sent
to IFTC by the shareholder, IFTC 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 to Cowen or IFTC with the
redemption request. Cowen or IFTC may require further documentation if the
shareholder is a corporation, partnership, trust, estate or other entity. Cowen
and certain other dealers may impose a charge in connection with redemptions
effected by federal wire.
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 IFTC. 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 IFTC, which will
be acting solely as transfer agent for the Fund. When a check is presented to
IFTC for payment, IFTC, 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 IFTC applies to checking accounts and the other restrictions
set forth herein. There is no charge to the investor for this checking service.
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 IFTC, P.O.
Box 419111 Kansas City, MO 46141.
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 IFTC.
NET ASSET VALUE
Each Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined as of 2:00 P.M., New York time, Monday through
Friday, except (i) on days on which changes in the value of that Fund's
portfolio securities will not materially affect the current net asset value of
the shares; (ii) on days during which no security is tendered for redemption and
no order to purchase or sell the stock is received by the Funds; and (iii) on
New Year's Day, Washington's Birthday
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<PAGE> 22
(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. Net asset value is computed by dividing the
value of the net assets of a Fund (i.e., the value of assets less liabilities)
by the total number of shares outstanding. 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.
AUTOMATIC TRANSACTIONS
For a shareholder who so elects, free credit balances in the shareholder's
securities account at Cowen will automatically be invested in shares of a Fund
daily, so long as the free credit balances are in excess of $100. In addition,
free credit balances in excess of $1.00 but below such minimum Fund requirements
will automatically be invested at the end of each week. For a participant in the
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 at Cowen. Shareholders who are investors in both CSRF and CSTXRF must
designate which Fund they consider their primary account at Cowen. Free credit
balances in a shareholder's securities account at Cowen will be automatically
invested into the primary account and debit balances will be satisfied from the
primary account before the remaining account.
No fee is charged with respect to these automatic transactions. Cowen
reserves the right, however, upon notification to all participants, to impose a
fee in the future.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's net investment income (other than net realized short-term
capital gains) will be declared daily and paid monthly as a dividend to
shareholders of record at the close of business on the day of declaration.
Shares begin accruing dividends on the day after the purchase order for the
shares becomes effective and continue to accrue dividends through, and
including, the day the redemption order for the shares is effected. Dividends
are reinvested automatically in additional shares of the same Fund at net asset
value or, at a shareholder's option, are paid in cash. Distributions of net
realized long and short-term capital gains, if any, will be distributed
annually. Income dividends will be paid through the business day preceding the
next to last Friday of the month except for December. In December, income
dividends will be paid through the last business day of the month.
TAXES
BOTH FUNDS
For their taxable years ended September 30, 1996, each of the Funds
qualified as a regulated investment company for purposes of the Internal Revenue
Code of 1986, as amended (the "Code"). They intend to so qualify in each
succeeding year. As a regulated investment company, each Fund will pay no
federal income tax on its net investment income and net capital gains, if any,
that it distributes to
17
<PAGE> 23
its shareholders, provided that it meets certain distribution requirements. Each
Fund will be subject to a non-deductible excise tax of 4% of the amount by which
it fails to distribute specified amounts of ordinary income and capital gains
during each calendar year. Each Fund intends to make such distributions as are
necessary to avoid the application of this tax.
Except as otherwise provided below, dividends paid from taxable net
investment income and distributions of net short-term capital gains, if any,
will be taxable to shareholders as ordinary income, whether received in cash or
reinvested in additional shares of a Fund. Because the Funds are not expected to
realize long-term capital gains, it is unlikely that any portion of the
dividends or distributions paid by a Fund will be taxable to shareholders as
long-term capital gains. The Funds' dividends will not qualify for the
dividends-received deduction for corporations. Statements as to the tax status
of each shareholder's dividends and distributions will be mailed annually by
IFTC. Shareholders should consult their tax advisers about any state and local
taxes that may apply to dividends and distributions received.
SPECIAL CONSIDERATIONS FOR CSRF
Dividends paid by CSRF may be subject to tax by certain states, even though
the interest on United States government obligations, from which such dividends
are derived, would be exempt from state income tax if received directly by the
shareholders.
SPECIAL CONSIDERATIONS FOR CSTXRF
CSTXRF will designate and pay exempt-interest dividends derived from
interest earned on qualifying Municipal Obligations. Such exempt-interest
dividends may be excluded by shareholders from their gross income for Federal
income tax purposes although (1) all or a portion of such exempt-interest
dividends will be a specific preference item for purposes of the Federal
individual and corporate alternative minimum tax to the extent they are derived
from certain types of private activity bonds issued after August 7, 1986 and (2)
all exempt-interest dividends will be a component of the "current earnings"
adjustment item for purposes of the Federal corporate alternative minimum tax.
In addition, corporate shareholders may incur a greater Federal "environmental
tax" liability through receipt of dividends and distributions from CSTXRF.
The exemption of interest income for federal income tax purposes in most
cases does not result in an exemption under the tax laws of any state or local
authority. CSTXRF will notify shareholders annually as to the percentage of
interest exempt from federal taxes earned by CSTXRF with respect to those states
or possessions in which the Fund had investments. CSTXRF will also notify
shareholders annually as to the percentage of the shareholder's income from
CSTXRF exempt from Federal personal and corporate income taxes and the
percentage, if any, subject to such taxes. These notices also designate the
amount of exempt-interest dividends which are a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes.
Shareholders who are subject to tax in states or localities should consult their
own tax advisers about the taxation of distributions from CSTXRF by such states
and localities.
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<PAGE> 24
ADDITIONAL INFORMATION
CSRF was incorporated on June 19, 1981 as Standby Reserve Fund, Inc. under
the laws of the State of Maryland, commenced operations on October 22, 1981 and
has authorized capital of 2,000,000,000 shares of common stock, $.01 par value
per share. On December 15, 1992, the Board of Directors of Standby Reserve Fund,
Inc. authorized the Fund to conduct business under the name Cowen Standby
Reserve Fund, Inc.
CSTXRF was incorporated on June 5, 1985 as the Standby Tax-Exempt Reserve
Fund, Inc. under the laws of the State of Maryland, commenced operations on
April 1, 1986 and has authorized capital of 1,000,000,000 shares of common
stock, $.001 par value per share. On December 15, 1992, the Board of Directors
authorized Standby Tax-Exempt Reserve Fund, Inc. to conduct business under the
name Cowen Standby Tax-Exempt Reserve Fund, Inc.
Shareholders of each Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held.
General inquiries regarding the Funds may be directed to the Funds'
distributor at (212) 495-6000, or to a Cowen account representative.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in either
Fund's official sales literature in connection with the offering of that Fund's
shares, and, if given or made, such other information or representations must
not be relied upon as having been authorized by a Fund. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
Although each Fund is offering only its own shares, it is possible that a
Fund might become liable for any material misstatement or omission in the
Prospectus about the other Fund. However, each Fund has acknowledged that it,
and not the other Fund, is liable for any material misstatement or omission
about it in the Prospectus. The Board of Directors of each Fund has considered
this factor in approving its use of a single combined Prospectus.
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<PAGE> 25
- ---
- -
- -
- -
- --- ---
CONTENTS
<TABLE>
<S> <C>
--Cowen Standby Reserve Fund, Inc.
Financial Highlights.............. 2
--Cowen Standby Tax-Exempt Reserve
Fund, Inc.
Financial Highlights.............. 4
Investment Objective and Policies
--Cowen Standby Reserve Fund,
Inc. ............................. 6
--Cowen Standby Tax-Exempt Reserve
Fund, Inc......................... 8
-- Investment Objectives and Policies
Applicable to Both Funds.......... 12
Management of the Funds................ 12
Purchase of Shares..................... 13
Redemption of Shares................... 15
Automatic Transactions................. 17
Dividends and Distributions............ 17
Taxes.................................. 17
Additional Information................. 19
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS
PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE
FUND'S OFFICIAL SALES LITERATURE
IN CONNECTION WITH THE OFFERING
OF THE FUND'S SHARES AND, IF
GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED ON AS HAVING
BEEN AUTHORIZED BY THE FUND.
THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE
IN WHICH, OR TO ANY PERSON TO
WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
I,2
- ---
- ---
- ---
- -
- -
- -
(LOGO)
COWEN STANDBY
RESERVE
FUND, INC.
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COWEN STANDBY
TAX-EXEMPT
RESERVE FUND, INC.
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Prospectus Dated
February 1, 1997
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Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE> 27
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1997
COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC.
Financial Square, New York, New York 10005
(212) 495-6724, (800) 262-7116
Contents
Page
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Investment Objective and Policies................................ 2
Municipal Securities............................................. 8
Management of the Fund........................................... 10
Additional Purchase and Redemption Information................... 13
Additional Information Concerning Taxes.......................... 14
Dividends........................................................ 15
Determination of Yield........................................... 16
Auditors and Counsel............................................. 16
Financial Statements............................................. 17
Appendix -- Description of Municipal Securities Ratings.......... 18
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Cowen Standby Tax-Exempt Reserve Fund, Inc.
(the "Fund") dated February 1, 1997, and is incorporated by reference in its
entirety into that Prospectus. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of the Fund
should be made solely upon the information contained herein. Copies of the
Fund's Prospectus may be obtained by calling Cowen & Co. ("Cowen"), the Fund's
principal underwriter, at (212) 495-6724 or by contacting any Cowen account
representative.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the 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.
Additional Information on Investment Practices
Variable Rate Demand Notes. Variable rate demand notes held by the
Fund may have maturities of more than one year, provided: (i) the Fund is
entitled to the payment of principal and accrued interest 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 and (ii) the rate of interest on such notes
is adjusted automatically at periodic intervals which normally will not exceed
seven days but may extend up to one year. In determining the Fund's average
weighted portfolio maturity and whether a variable rate demand note has a
remaining maturity of one year or less, each note will be deemed by the Fund to
have a maturity equal to the longer of the period remaining until its next
interest rate adjustment or the demand notice period. In determining whether
an unrated variable rate demand note is of comparable quality at the time of
purchase to instruments rated "high quality" by any major rating service, the
Fund's investment manager will consider the earning power, cash flow and other
liquidity ratios of the issuer of the note and will continuously monitor its
financial condition. In addition, when necessary to ensure that a note is of
"high quality," the Fund will require that the issuer's obligation to pay the
principal of the note be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend.
When-Issued Securities. As stated in the Prospectus, the Fund may
purchase Municipal Securities on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When the Fund
agrees to purchase when-issued securities, its custodian will set aside cash,
United States government securities or high-grade debt obligations equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment and in such a
case the Fund may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
Because the Fund will set aside cash and liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and ability to manage
its portfolio might be affected in the event its commitments to purchase
when-issued securities ever exceeded 25% of the value of its assets.
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When the Fund engages in when-issued transactions it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. The Fund may acquire "stand-by commitments"
with respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase at the Fund's option specified
Municipal Securities at a specified price. Stand-by commitments acquired by
the Fund may also be referred to as "put" options.
The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the Municipal
Securities (excluding any accrued interest which the Fund paid on their
acquisition) less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment
date during that period. Stand-by commitments can be acquired when the
remaining maturity of the underlying Municipal Securities is not greater than
one year and are exercisable by the Fund at any time before the maturity of
such obligations. Absent unusual circumstances, in determining net asset value
the Fund values the underlying Municipal Securities on an amortized cost basis.
Accordingly, the amount payable by a dealer upon exercise of a stand-by
commitment will normally be substantially the same as the portfolio value of
the underlying Municipal Securities.
The Fund's right to exercise stand-by commitments is unconditional and
unqualified. A stand-by commitment is not transferable by the Fund, although
the Fund can sell the underlying Municipal Securities to a third party at any
time.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. The total amount
paid in either manner for outstanding stand-by commitments held in the Fund's
portfolio will not exceed 1/2 of 1% of the value of the Fund's total assets
calculated immediately after each stand-by commitment is acquired.
The Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect
the valuation or assumed maturity of the underlying Municipal Securities which,
as noted, would continue to be valued in accordance with the amortized cost
method. Stand-by commitments acquired by the Fund would be valued at zero in
determining net asset value. Where the Fund paid any consideration directly or
indirectly for a stand-by commitment, its cost would be reflected as unrealized
depreciation for the period during which the commitment was held by the Fund.
Stand-by commitments would not affect the average weighted maturity of the
Fund's portfolio.
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The Fund understands that the Internal Revenue Service has issued a
revenue ruling to the effect that a registered investment company will be
treated for federal income tax purposes as the owner of the Municipal
Securities acquired subject to a stand-by commitment and the interest on the
Municipal Securities will be tax-exempt to the Fund.
Taxable Investments
Because the Fund's purpose is to provide income exempt from federal
taxes the Fund will invest in taxable obligations only if and when the
investment manager believes it would be in the best interests of the Fund's
investors to do so. Situations in which the Fund may invest up to 20% of its
total assets in taxable securities include: (a) pending investment of proceeds
of sales of Fund shares or the sale of its portfolio securities or (b) when the
Fund requires highly liquid securities in order to meet anticipated
redemptions. The Fund may temporarily invest more than 20% of its total assets
in taxable securities to maintain a temporary "defensive" posture when the
Fund's investment manager determines that it is advisable to do so because of
adverse market conditions affecting the market for Municipal Securities
generally.
Among the taxable investments in which the Fund may invest are
repurchase agreements and time deposits maturing in not more than seven days.
The Fund may agree to purchase money market instruments from financial
institutions such as banks and broker-dealers subject to the seller's agreement
to repurchase them at an agreed-upon date and price ("repurchase agreements").
The Fund's investment manager, acting under the supervision of the Fund's Board
of Directors, reviews the creditworthiness of those banks and non-bank dealers
with which the Fund enters into repurchase agreements. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price (including
accrued interest).
Other Investment Limitations
The following investment limitations may not be changed without the
affirmative vote of the holders of a majority of the 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
the Fund are present or represented by proxy, or (b) more than 50% of the
outstanding shares.
The 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 the Fund's investment manager;
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2. Purchase the securities of any issuer if as a result with respect
to 75% of the Fund's assets, more than 5% of the value of the total assets of
the 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 the 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 the 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 United States 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 the Fund's total assets (including the amount borrowed) valued at the
lesser of cost or market less liabilities (not including the amount borrowed)
at the time the borrowing is made;
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 the 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 the Fund's investment objective, policies and limitations may be deemed to
be underwriting;
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 the Fund may invest in
debt obligations secured by real estate, mortgages or interests therein;
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9. Make loans except that the 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 the 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 United States 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 Investment Company Act of 1940, as amended (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 the 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 the 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 the 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 United States 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. The
Fund may make commitments more restrictive than the restrictions listed above
so as to permit the sale of shares of the Fund in certain states. Should the
Fund determine that any such commitment is no
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longer in the best interests of the Fund and its shareholders, the Fund will
revoke the commitment by terminating the sale of shares of the Fund in the
state involved. The percentage limitations contained in the restrictions
listed above apply at the time of purchases of securities.
Portfolio Valuation
The Fund's portfolio securities are valued on the basis of amortized
cost. Under this method of valuation, the Fund will initially value the
portfolio securities at cost. If the security was purchased at a discount, the
Fund will thereafter assume a constant proportional increase in value until
maturity. If the security was purchased at a premium, the Fund will thereafter
assume a constant proportional decrease in value until maturity. In connection
with its use of amortized cost valuation, the Fund's Board of Directors has
established procedures that are intended to stabilize the Fund's net asset
value per share for purposes of sales and redemptions at $1.00. These
procedures include periodic review by the Board, at such intervals as it deems
appropriate, to determine the extent, if any, to which the Fund's net asset
value per share calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds 1/2 of 1%, the Board will
promptly consider what action, if any, should be initiated. If the Board
believes that the amount of any deviation from the Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to
investors or existing shareholders, it will take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the Fund's average portfolio
maturity; withholding or reducing dividends; redeeming shares in kind; reducing
the number of the Fund's outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
In connection with its use of amortized cost valuation, the Fund will
limit its investments to instruments the Board determines present minimal
credit risks and which are of high quality as determined by any major rating
service, or in the case of any instrument not so rated, of comparable quality
as determined by the Board of Directors. In addition, the Fund will not
purchase any instrument with a remaining maturity of more than 397 calendar
days and will maintain a dollar-weighted average portfolio maturity of 90 days
or less. Should the disposition of a portfolio security result in a
dollar-weighted average maturity of more than 90 days, the Fund would invest
its available cash in such a manner as to reduce the maturity to 90 days or
less as soon as reasonably practicable.
Portfolio Transactions
Purchases 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
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brokerage commissions paid by the Fund for such purchases. Purchases of
portfolio securities from underwriters, if any, will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers will be made at a discount from the retail price of
the securities. While Cowen generally seeks competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available on each transaction.
Allocation of transactions, including their frequency, to various
dealers is determined by Cowen in its best judgment and in a manner deemed fair
and reasonable to shareholders. The primary consideration is prompt execution
of orders in an effective manner at the most favorable price. Subject to this
consideration, dealers who provide supplemental investment research to Cowen
may receive orders for transactions by the Fund. Information so received will
supplement but will not replace that to be provided by Cowen, and Cowen's fees
are not reduced as a consequence of the receipt of such supplemental
information. Such information may be useful to Cowen in serving both the Fund
and other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to Cowen in carrying out
its obligations to the Fund.
The Fund may participate, if and when practicable, in bidding for the
purchase of Municipal Securities directly from an issuer in order to take
advantage of the lower purchase price available to members of such a group.
The Fund will engage in this practice, however, only when Cowen, in its sole
discretion, believes such practice to be otherwise in the Fund's interest.
The Fund may attempt to increase yields by trading to take advantage
of short-term market variations. The Fund's annual portfolio turnover will be
relatively high, although for regulatory reporting purposes, turnover is
expected to be zero. The Fund intends to derive not more than 30% of its gross
income from the sale of assets held less than three months.
MUNICIPAL SECURITIES
Under normal circumstances, substantially all of the Fund's assets
will be invested in Municipal Securities. Municipal Securities include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses
and the extension of loans to public institutions and facilities. Industrial
development bonds that are issued by or on behalf of public authorities to
finance various privately-operated facilities are included within the term
Municipal Securities if the interest paid thereon is exempt from federal income
tax.
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The two principal classifications of Municipal Securities consist of
"general obligation" and "revenue" issues, and the Fund's portfolio may include
"moral obligation" issues, which are normally issued by special purpose
authorities. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of
the facility being financed. Industrial development bonds held by the Fund are
in most cases revenue bonds and are not payable from the unrestricted revenues
of the issuer. Consequently, the credit quality of such industrial development
revenue bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
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 Corporation ("S&P"), Duff & Phelps, Inc. ("D&P"), Fitch Investors
Services, Inc. ("Fitch"), IBCA Limited and Thomson Bankwatch 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 the 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 the Fund. The Fund's investment manager will consider such an
event in determining whether the Fund should continue to hold the obligation.
See the Appendix attached hereto for further information concerning the ratings
of Moody's and S&P and their significance.
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.
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Among the short-term notes in which the Fund may invest are the
following:
1. Tax Anticipation Notes which are issued to finance working capital
needs of municipalities and are issued in anticipation of various seasonal
taxes and are payable from these specific future taxes.
2. Revenue Anticipation Notes which are issued in expectation of
receipt of other kinds of revenue, typically, federal or state aid.
3. Bond Anticipation Notes which are issued to provide interim
financing until long-term financing can be arranged. In most cases, the
long-term bonds provide the money for the repayment of the Notes.
MANAGEMENT OF THE FUND
Board of Directors
The names of the directors and executive 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
one or more investment companies of which Cowen is Investment Manager.
Directors of the Fund
James H. Carey, Director, age 63. Managing Director of Briarcliff
Financial Associates, Inc. (since June, 1991) and Chief Executive Officer,
Director and Treasurer of National Capital Benefits Corporation (since March,
1994). Mr. Carey is also a Director of Airborne Freight Corporation, Jonathan
Woodner Company, NCB Insurance Limited (Bermuda), The Midland Company, The
Murray & Isabella Rayburn Foundation and the U.S. Committee for UNICEF. Prior
thereto he was President and Chief Executive Officer, The Berkshire Bank (May
1989 to June 1991). His address is 44 Sleepy Hollow Road, Briarcliff Manor,
New York 10510.
*Joseph M. Cohen, Chairman and Chief Executive Officer of the Fund,
age 58. Principal Executive Officer and since March 1991 Class I Limited
Partner of Cowen and Chairman and President of Cowen Incorporated, the sole
general partner of Cowen. Prior thereto he was the Managing General Partner of
Cowen. Director, Chairman and Chief Executive Officer of the Cowen Mutual
Funds. Until December 15, 1993, he was also President of the Fund and the
Cowen Mutual Funds.
Dr. Peter P. Gil, Director, age 73. Director, Arthur D. Little
Management Institute Board since 1991 and currently Acting Dean of the
Institute; Trustee and
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Executive Committee Member, Plimoth Plantation, (Plymouth, Mass.); Member of
the Dominion Bridge Corporation's Technology Committee. 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 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 58. Chairman, Department of
Finance and Nomura Professor of Finance, Leonard N. Stern School of Business
Administration, New York University. He is also a Director of BT Pyramid
Mutual Funds, Japan Equity Fund, Inc., and the Taiwan Equity Fund, Inc.; and a
Trustee of BT Leadership Trust and the T.I.A.A. Board. His address is New York
University, 44 West 4th Street, New York, New York 10012.
*Gerald P. Kaminsky, Class I Limited Partner of Cowen and Managing
Director of Cowen Incorporated, age 57. Prior to that time, he was a General
Partner of Cowen since April, 1989. From April, 1986 to April, 1989 he was a
Special Limited Partner of Cowen. Mr. Kaminsky is a Senior Investment Officer
of the Funds.
*Creighton H. Peet, Vice President, Treasurer, Senior Investment
Officer and Director, age 58. Class I Limited Partner of Cowen and Managing
Director of Cowen Incorporated. Prior to that time he was a General Partner of
Cowen.
Burton J. Weiss, Director, age 65. Self-employed consultant since
March, 1988. His address is 103 Marin Drive, Chapel Hill, North Carolina
27516.
Officers of the Funds Not Noted Above
Rodd M. Baxter, Secretary. General Counsel of Cowen Asset Management
and Director of Cowen. His address is Financial Square, New York, New York
10005.
Gordon G. Ifill, Assistant Investment Officer. Portfolio Manager of
Cowen Asset Management since July, 1994. His address is Financial Square, New
York, New York 10005.
Alan Koepplin, Investment Officer. Senior Vice President of Cowen
Asset Management since May 1993. His address is Financial Square, New York,
New York 10005.
David Sarns, President. Chief Administrative Officer and Class I
Limited Partner of Cowen and Managing Director of Cowen Incorporated. His
address is Financial Square, New York, New York 10005.
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Irwood Schlackman, Controller. Mutual Fund Administrator of Cowen.
His address is Financial Square, New York, New York 10005.
Compensation
No officer, director, partner or employee of Cowen or its affiliates
will receive any compensation from the Fund for serving as an officer or
director of the Fund. Directors who are not officers, directors, partners,
stockholders or employees of Cowen or its affiliates receive a fee of $3,000
per annum plus $500 per meeting attended and $375 for each audit committee
meeting attended and reimbursement for travel and out-of-pocket expenses. For
the fiscal years ended September 30, 1994, 1995 and 1996 such fees and expenses
totaled $22,567, $20,918 and $21,253, respectively. To the knowledge of the
Fund and Cowen, no shareholder beneficially owned 5% or more of the Fund's
outstanding common stock, and none of the Fund's directors and officers, either
individually or as a group, beneficially owned more than 1% of the Fund's
outstanding stock as of the close of business on January 13, 1997.
Compensation Table
<TABLE>
<CAPTION>
Name of Aggregate Pension or Estimated Annual Total
Person Compensation Retirement Benefits Compensation
From Benefits Upon From
Registrant Accrued as Retirement Registrant
Part of Fund and Fund
Expenses Complex Paid
to Directors*
<S> <C> <C> <C> <C>
James H. Carey $5,000 -0- -0- $20,000
Peter Gil $5,000 -0- -0- $20,000
Martin J. Gruber $5,000 -0- -0- $20,000
Burton J. Weiss $5,000 -0- -0- $20,000
</TABLE>
*There are six funds in the complex.
Investment Manager
Cowen serves as investment manager to the Fund pursuant to an
investment management agreement (the "Investment Management Agreement").
Cowen, a limited partnership, is controlled by its general partner, Cowen
Incorporated. Cowen Incorporated is controlled by Mr. Joseph M. Cohen. The
services provided by, and the fees payable by the Fund to, Cowen under the
Investment Management Agreement are described in the Prospectus.
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Cowen has agreed that if in any fiscal year the aggregate expenses of
the Fund (including fees pursuant to the Investment Management Agreement, but
excluding interest, taxes, brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary-expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, Cowen will
reimburse such excess expense. Cowen's expense reimbursement obligation is
limited to the amount of the fees it receives under the Agreement, unless a
higher amount of reimbursement were to be required under applicable state law
or regulations. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis. The most stringent state expense
limitation applicable to the Fund currently requires reimbursement of expenses
in any year that such expenses exceed 2 1/2% of the first $30 million of
average net assets, 2% of the next $70 million, and 1 1/2% of average net
assets in excess of $100 million, provided that in no event shall the amount of
expense reimbursement required be greater than the investment advisory fee.
There was no reimbursement required under the expense limitation for the fiscal
year ended September 30, 1996. For the fiscal years ended September 30, 1996,
1995 and 1994, Cowen earned investment management fees of $784,964, $623,981,
and $652,414, respectively, but waived $156,993, $124,784, and $130,483,
respectively, of such fees.
Custodian and Transfer and Dividend Agent
Investors Fiduciary Trust Company, a subsidiary of State Street Boston
Corp., is custodian of the Fund's assets pursuant to a custody agreement (the
"Custody Agreement"). Under the Custody Agreement, Investors Fiduciary Trust
Company (i) maintains a separate account or accounts in the name of the Fund,
(ii) holds and transfers portfolio securities on account of the Fund, (iii)
makes receipts and disbursements of money on behalf of the Fund and (iv)
collects and receives all income and other payments and distributions on
account of the Fund's portfolio securities.
Investors Fiduciary Trust Company also serves as the Fund's transfer
and dividend disbursing agent pursuant to a Transfer Agency Agreement, under
which it (i) issues and redeems shares of the Fund, (ii) addresses and mails
all communications by the Fund to its shareholders and (iii) maintains
shareholder accounts.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are distributed by Cowen on a best efforts basis.
The Fund offers its shares continually and without a sales load. Information
on how to purchase and redeem Fund shares and how such shares are priced is
included in the Prospectus. The issuance of shares is recorded on the books of
the Fund, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
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<PAGE> 40
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange (the "NYSE") is closed, other than customary weekend
and holiday closings or during which trading on said 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 Fund may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
As described above and in the Fund's Prospectus, the Fund is designed
to provide investors with current income exempt from federal income taxes. The
Fund is not intended to constitute a balanced investment program and is not
designed for investors seeking capital gains or maximum tax-exempt income
irrespective of fluctuations in principal. Investment in the Fund would not be
suitable for tax exempt institutions, qualified retirement plans, H.R. 10 plans
and individual retirement accounts since such investors would not gain any
additional tax benefit from the receipt of tax-exempt income.
The Fund qualified in its taxable year ending September 30, 1996 and
intends to qualify in each succeeding year as a "regulated investment company"
under the Internal Revenue Code of 1986 as amended (the "Code") and to meet
certain distribution requirements that are a condition of conduit treatment.
If the Fund so qualifies and meets those distribution requirements, the Fund
will not be liable for federal income taxes on its taxable investment income
and any net realized short-term and long-term capital gains that are
distributed to its shareholders. Although the Fund expects to be relieved of
all or substantially all federal and state income or franchise taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or
in which it is otherwise deemed to be conducting business, that portion of the
Fund's income which is treated as earned in any such state or locality could be
subject to state and local tax. Any such taxes paid by the Fund would reduce
the amount of income and gains available for distribution to shareholders.
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 31% "backup
withholding tax" is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
-14-
<PAGE> 41
Each shareholder will receive after the close of the calendar year an
annual statement as to the federal tax status of his dividends or distributions
from the Fund for the prior year. Shareholders should consult their tax
advisors as to any state and local taxes that may apply to dividends and
distributions. The relative dollar amounts of dividends exempt from federal
income taxation and subject to federal income taxation, if any, will vary for
each shareholder depending upon the size and duration of each shareholder's
investment in the Fund. In the event that the Fund derives taxable investment
income (other than net realized long term or short-term capital gain), it
intends to designate as taxable the same percentage of each day's dividend as
the actual taxable income bears to the total investment income earned on that
day. Therefore, the percentage of the dividend designated as taxable, if any,
may vary from day to day.
Because the Fund will distribute exempt-interest dividends, interest
on indebtedness incurred by a shareholder to purchase or carry 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 Fund which represents income from industrial development
bonds held by the 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 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.
While the Fund does not expect to realize net long-term capital gains,
any such gains realized will be distributed annually. Such distributions will
be taxable to shareholders as long-term capital gain, regardless of how long a
shareholder has held Fund shares, and will be designated as capital gain
dividends in a written notice mailed by the Fund to shareholders shortly after
the close of the Fund's taxable year.
The foregoing is only a summary of certain tax considerations
generally affecting the Fund and its shareholders, and is not intended as a
substitute for careful tax planning. Individuals are often exempt from state
and local personal income taxes on distributions of tax-exempt interest income
derived from obligations of issuers located in the state in which they reside
when these distributions are received directly from these issuers, but are
usually subject to such taxes on income derived from obligations of issuers
located in other jurisdictions. Investors are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local tax liability.
-15-
<PAGE> 42
DIVIDENDS
Net investment income for dividend purposes consists of interest
accrued and interest earned (both original issue and market), if any, for the
applicable dividend period less amortization of market premium and applicable
expenses for such period.
DETERMINATION OF YIELD
The Fund will make available on each business day a "yield quotation",
which is a computation of the yield on its portfolio. The yield for the 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. The 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 the 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 current
yield of the Fund is affected by the kind and quality of the instruments in the
Fund's portfolio, its portfolio maturity, and its operating expenses. An
investor's principal is not guaranteed by the Fund.
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, 153 East 53rd Street, New York, New York
10019, serves as counsel for the Fund.
-16-
<PAGE> 43
FINANCIAL STATEMENTS
The Fund hereby incorporates by reference the financial statements and
related notes and the report of Ernst & Young LLP thereon included in the
Fund's Annual Report to Shareholders for the fiscal year ended September 30,
1996. The Fund will provide a copy of the Annual Report to each person who
requests a copy of this Statement of Additional Information. The Fund will
also furnish a copy of the Annual Report without charge to any shareholder upon
request directed to the Fund at the address or telephone number given on the
cover of this Statement of Additional Information.
-17-
<PAGE> 44
APPENDIX:
DESCRIPTION OF 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.
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.
-18-
<PAGE> 45
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.
-19-
<PAGE> 46
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.
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 Bankwatch ("Thomson"), Duff &
Phelps, Inc. ("Duff") or IBCA Limited ("IBCA").
COMMERCIAL PAPER
S&P
Commercial paper rated A-1 by Standard & Poor's indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
A-1+. Capacity for timely payment on commercial paper rated A-2 is strong, but
the relative degree of safety is not as high as for issues designated A-1.
Moody's
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced
-20-
<PAGE> 47
by many of the characteristics of issuers rated Prime-1 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 alternative 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 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 vary 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.
-21-
<PAGE> 48
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements included in Registration
Statement:
(i) Financial Highlights included in Part A.
(ii) Incorporated by reference under "Financial
Statements" in Part B is the Annual Report to
Shareholders for the fiscal year ended
September 30, 1996, which includes the
Statement of Investments and Statement of
Assets and Liabilities as of September 30,
1996; Statement of Operations for the year
ended September 30, 1996; Statement of
Changes in Net Assets for the years ended
September 30, 1995 and 1996; Notes to
Financial Statements; and Report of Ernst &
Young LLP, Independent Auditors, dated
October 29, 1996.
(b) Exhibits:
Exhibit No. Description of Exhibits
1. Articles of Incorporation of Registrant, June 10,
1985
2.A Amended and Restated By-Laws, Oct. 28, 1987
2.B. Amendment to the By-Laws, Dec. 15, 1992
3 Not applicable
4 Not applicable
5 Investment Management Agreement, March 29, 1991
6 Distribution Agreement, March 3, 1986
7 Not applicable
8 Custody Agreement with Investors Fiduciary Trust
Company, May 8, 1988
9 Transfer Agency Agreement with Investors Fiduciary
Trust Company, May 6, 1988
10 Opinion and consent of Willkie Farr & Gallagher,
March 3, 1986
C-1
<PAGE> 49
11 Consent of Independent Auditors, Jan. 24, 1997
12 Not applicable
13 Not applicable
14 Not applicable
15 Not applicable
Item 25. Persons Controlled by or Under Common Control with Registrant
None
C-2
<PAGE> 50
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of January 9, 1997
-------------- ------------------------
<S> <C>
Common Stock, par value $.01
per share ................... 4,497
</TABLE>
Item 27. Indemnification
Reference is hereby made to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on October 24, 1986.
Items 28 and 29. Business and Other Connections of Investment
Manager; and Principal Underwriter
Cowen & Company ("Cowen") serves as Investment Manager to Registrant
and is the principal underwriter and distributor of the Registrant's shares.
Cowen is also the Investment Manager, principal underwriter and distributor of
shares of Cowen Income + Growth Fund, Inc. ("CI+G"), Cowen Standby Reserve
Fund, Inc. ("CSRF"), and the series of stock representing the Cowen Opportunity
Fund, Cowen Intermediate Fixed Income Fund ("CIFIF") and Cowen Government
Securities Fund ("CGSF") portfolios of Cowen Funds, Inc. ("CFI"). Listed on
the following pages are the names of all of the Partners of Cowen as of
December 31, 1996, their positions with the Registrant, if any, 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 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 (referred to on the following pages
as "CSTXRF").
C-3
<PAGE> 51
<TABLE>
<CAPTION>
NAME, CLASS OF PARTNER OTHER BUSINESS
AND POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
PRINCIPAL BUSINESS --------------------------------------------------- PRINCIPAL BUSINESS
ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- ------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER
Cowen Incorporated (1)
CLASS I LIMITED PARTNERS
Anthony J. Aliberti...... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Richard A. Altschuler (1) Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Michael H. Bassett (1)... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
William A. Belfiore (1).. Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Anthony R.Bergamaschi (1) Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Christopher A. Beyer (1). Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Andrew C. Brosseau (3)... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Kennedy M. Buckley (1)... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Richard S. Chu (3)....... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
William R. Church (1).... V, SI V, SI Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Jarrod M. Cohen (1)...... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Joseph M. Cohen (1)...... C, D C, D C, D C, D Since 3/30/91 -- Cowen
Incorporated (1) -- P, D
Peter E. Cohen (1)....... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Terrence R. Connelly (1). Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Philip A. Conti (1)...... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Arthur Cowen, III (1).... ETC Enterprises, Inc. (8)
P; Since 3/30/91 Cowen
Incorporated (1) -- MD
Nancy M. Crowell (6)..... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
John P. Dunphy (1)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
James R. Dwyer (1)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
</TABLE>
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<PAGE> 52
<TABLE>
<CAPTION>
NAME, CLASS OF PARTNER OTHER BUSINESS
AND POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
PRINCIPAL BUSINESS --------------------------------------------------- PRINCIPAL BUSINESS
ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- ------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Alec D. Green(7)......... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Edward I. Herbst (1)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Thomas L. Hyde (1)....... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Gerald P. Kaminsky (1)... D, SI D, SI Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Thomas King (3).......... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Albert F. Laub (3)....... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
William D. Lautman (1)... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Daniel T. Lemaitre (3)... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Dana T. Lerch (1)........ Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Maria F. Lewis-Kussmaul (3) Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Stuart S. Lovejoy (1).... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Arthur S. Lutzke (1)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
David E. Mack (1)........ Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Stephen Malfitano (1).... Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Joseph M. Marinaro (1)... Since 3/30/96 -- Cowen
Incorporated (1) -- MD
William O. Matthews (1).. Since 3/30/91 -- Cowen
Incorporated (1) -- MD
William K. McCormick (5). Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Carl A. Merz (1)......... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Raymond K. Moran (3)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
NAME, CLASS OF PARTNER OTHER BUSINESS
AND POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
PRINCIPAL BUSINESS --------------------------------------------------- PRINCIPAL BUSINESS
ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- ------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Jerrold B. Newman (6).... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Donald F. Novell (1)..... Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Gary S. Pardo (1)........ Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Elizabeth T. Pawel (1)... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Drew Peck................ Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Creighton H. Peet (1).... D, T D, T D, V, SI, T D, V, SI, T Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Antonio G. Pinto (1)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Edward M. Posner (1)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Peter J. Power (1)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Paul S. Raniolo (1)...... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
William Rechter (1)...... SI SI Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Stephen E. Reilly (3).... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Todd B. Robbins (1)...... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Richard L. Rugani
(1 and 3).............. Since 3/30/92 -- Cowen
Incorporated (1) -- MD
David R. Sarns (1)....... P P P P Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Ravi P. Singh (1)........ Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Arthur J. Stavaridis
(1 and 3).............. Since 3/30/92 -- Cowen
Incorporated (1) -- MD
David K. Stone (3)....... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Richard S. Striefler (1). Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Franklyn Theis (3)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
</TABLE>
C-6
<PAGE> 54
<TABLE>
<CAPTION>
NAME, CLASS OF PARTNER OTHER BUSINESS
AND POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
PRINCIPAL BUSINESS --------------------------------------------------- PRINCIPAL BUSINESS
ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- ------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Robert Valdez (6)........ Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Cai Von Rumohr (3)....... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Harold Vogel (1)......... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Stephen R. Weber (3)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Miriam C. Willard (1).... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Jonathan H. Zauderer (1). Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Michael Zolezzi (6)...... Since 3/30/94 -- Cowen
Incorporated (1) -- MD
</TABLE>
<TABLE>
<CAPTION>
LIMITED PARTNERS
- -------------------------
<S> <C> <C> <C> <C> <C>
Jacques Coe (4).......... None
George N. Cowen (4)...... None
Richard B. Frackman
(1).................... None
John B. Greene (5)....... None
Joseph V. Perri (1)...... None
Charles L. Wood (2)...... None
</TABLE>
- ---------------
(1) Financial Square, New York, New York 10005
(2) Texaco Heritage Plaza, 111 Bagby St., #2350, Houston, Texas 77002
(3) Two International Place, Boston, Massachusetts 02110
(4) West Building, 31st Floor, 280 Park Avenue, New York, New York 10017
(5) Courthouse Plaza Northeast, Dayton, Ohio 45402
C-7
<PAGE> 55
(6) Four Embarcadero Center, Suite 1200, San Francisco, California 94111
(7) One Angel Court, London, England ECZR, 7HJ
(8) 30 West 75th Street, New York, New York 10023
<TABLE>
<S> <C> <C>
P -- President
C -- Chairman of the Board
D -- Director
V -- Vice President
T -- Treasurer
S -- Secretary
SI -- Senior Investment Officer
AS -- Assistant Secretary
MD -- Managing Director
</TABLE>
C-8
<PAGE> 56
Item 29(c).
Not Applicable
Item 30. Location of Accounts and Records
(1) 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 31. Management Service
Not applicable.
Item 32. Undertakings
Not applicable.
C-9
<PAGE> 57
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 27 day of
January, 1997.
COWEN STANDBY TAX-EXEMPT
RESERVE FUND, INC.
/s/ Joseph M. Cohen
by Creighton H. Peet,
Attorney-in-Fact
Joseph M. Cohen, Chairman
Pursuant to the requirements of the Securities Act of 1933, and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933, and has duly caused this
Amendment to the Registration Statement 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 27 day of January, 1997.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph M. Cohen Chairman (Chief January 27, 1997
by Creighton H. Peet, Executive Officer)
Attorney-in-Fact and Director
- ----------------
Joseph M. Cohen
/s/ James H. Carey Director January 27, 1997
by Creighton H. Peet,
Attorney-in-Fact
- -----------------------
James H. Carey
/s/ Peter P. Gil Director January 27, 1997
by Creighton H. Peet,
Attorney-in-Fact
- -----------------------
Peter P. Gil
/s/ Martin J. Gruber Director January 27, 1997
by Creighton H. Peet,
Attorney-in-Fact
- -----------------------
Martin J. Gruber
/s/ Gerald P. Kaminsky Director January 27, 1997
by Creighton H. Peet,
Attorney-in-Fact
- -----------------------
Gerald P. Kaminsky
/s/ Creighton H. Peet Treasurer (Chief January 27, 1997
- --------------------- Financial Officer)
Creighton H. Peet and Director
C-10
<PAGE> 58
/s/ Burton J. Weiss Director January 27, 1997
by Creighton H. Peet,
Attorney-in-Fact
Burton J. Weiss
C-11
<PAGE> 59
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
1. Articles of Incorporation of Registrant, June 10, 1985
2.A. Amended and Restated By-Laws, Oct. 28, 1987
2.B. Amendment to the By-Laws, Dec. 15, 1992
5 Investment Management Agreement, March 29, 1991
6 Distribution Agreement, March 3, 1986
8 Custody Agreement with Investors Fiduciary Trust
Company, May 8, 1988
9 Transfer Agency Agreement with Investors Fiduciary
Trust Company, May 6, 1988
10 Opinion and consent of Willkie Farr & Gallagher,
March 3, 1986
11 Consent of Independent Auditors, Jan. 24, 1997
C-12
<PAGE> 1
ARTICLES OF INCORPORATION
OF
STANDBY TAX-EXEMPT RESERVE FUND, INC.
ARTICLE I
THE UNDERSIGNED, Victoria D. Salhus, whose post office address is
c/o Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, being at least eighteen years of age, does hereby act as
an incorporator, under and by virtue of the Maryland General Corporation Law
authorizing the formation of corporations.
ARTICLE II
NAME
The name of the Corporation is STANDBY TAX-EXEMPT RESERVE
FUND, INC.
ARTICLE III
PURPOSES AND POWERS The Corporation is formed for the following
purposes:
(1) To conduct and carry on the business of an investment company.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts and on such
terms and conditions and for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.
(4) To redeem, purchase or acquire in any other manner, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by these Articles of
Incorporation.
(5) To do any and all additional acts and to exercise any and all additional
powers or rights as may be necessary, incidental, appropriate or desirable for
the accomplishment of all or any of the foregoing purposes.
<PAGE> 2
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the Maryland General Corporation Law now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the State
of Maryland is c/o The Corporation V Trust Company Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in the State of Maryland is The Corporation Trust Company
Incorporated, a Maryland Corporation. The post office address of the resident
agent is 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock that the Corporation shall have
authority to issue is one billion (1,000,000,000) shares, of the par value of
one tenth of one cent ($.001) per share and of the aggregate par value of one
million dollars ($1,000,000) all of which one billion (1,000,000,000) shares
are designated Common Stock.
(2) Any fractional share shall carry proportionately the rights of a whole
share including, without limitation, the right to vote and the right to receive
dividends. A fractional share shall not, however, have the right to receive a
certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall acquire the
same subject to the provisions of these Articles of Incorporation and the
By-Laws of the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a holder
shall have any right to purchase or subscribe for any shares of the
Corporation's capital stock or any other security that the Corporation may
issue or sell(whether out of the number of shares authorized by these Articles
of Incorporation or out of any shares of the Corporations capital stock that
the Corporation may acquire) other than a right that the Board of Directors in
its discretion may determine to grant.
<PAGE> 3
(5) The Board of Directors shall have authority by resolution to classify and
reclassify any authorized but unissued shares of capital stock from time to
time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock. Subject to the provisions of Sections 6, 7 and 8 of this Article V and
applicable law, the power of the Board of Directors to classify or reclassify
any of the shares of capital stock shall include, without limitation, authority
to classify or reclassify the stock into a class or not more than ten (10)
classes of capital stock and to divide and classify shares of any class into
one or more series of the class, by determining, fixing or altering one or more
of the following:
(i) The distinctive designation of a class or series; provided that, unless
otherwise prohibited by the terms of the class or series, the number of shares
of any class or series may be decreased by the Board of Directors in connection
with any classification or reclassification of unissued shares and the number
of shares of the class or series may be increased by the Board of Directors in
connection with the classification or reclassification, and any shares of any
class or series that have been redeemed, purchased or acquired in any other
manner by the Corporation shall remain part of the authorized capital stock and
be subject to classification and reclassification as provided herein.
(ii) Whether or not and, if so, the rates, amounts and times at which, and the
conditions under which, dividends shall be payable on shares of the class or
series.
(iii) Whether or not shares of such class or series shall have voting rights,
in addition to any voting rights provided by law and, if so, the terms of such
voting rights.
(iv) The rights of the holders of shares of the class or series upon the
liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation.
(v) Any other rights, restrictions, including restrictions on transferability,
and qualifications of shares of the class or series, not inconsistent with law
and these Articles of Incorporation.
(6) All consideration received by the Corporation for the issue or sale of
stock of any class, together with all income, earnings, profits and proceeds
<PAGE> 4
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any
reinvestment of the proceeds in whatever form the same may be, shall
irrevocably belong to the class of shares of stock with respect to which the
assets, payments or funds were received by the Corporation for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Corporation. Such assets, income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of the
proceeds in whatever form, are herein referred to as "assets belonging to" such
class.
(7) In the event of the liquidation or dissolution of the Corporation,
shareholders of each class shall be entitled to receive, as a class, out of the
assets of the Corporation available for distribution to shareholders, but other
than general assets not belonging to any particular class of stock, the assets
belonging to the class; and the assets so distributable to the stockholders of
any class shall be distributed among the stockholders in proportion to the
number of shares of the class held by them and recorded on the books of the
Corporation. In the event that there are any general assets not belonging to
any particular class of stock and available for distribution, the distribution
shall be made to the holders of stock of all classes in proportion to the asset
value of the respective classes determined as hereinafter provided.
(8) The assets belonging to any class of stock shall be charged with the
liabilities of the class, and shall also be charged with the class's share of
the general liabilities of the Corporation, in proportion to the total net
asset value of the respective classes before taking into account general
liabilities, determined as hereinafter provided. The determination of the Board
of Directors shall be conclusive (i) as to the amount of such liabilities,
including the amount of accrued expenses and reserves; (ii) as to any
allocation of the same to a given class; and (iii) whether the same, or general
assets of the Corporation, are allocable to one or more classes. The
liabilities so allocated to a class are herein referred to as "liabilities
belonging to" the class.
(9) Notwithstanding any provision of law requiring any action to be taken or
authorized by the affirmative vote of the holders of a designated proportion of
the votes of all classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized by the affirmative
vote of a majority of the total number of votes entitled to be cast thereon,
except as otherwise provided in these Articles of
<PAGE> 5
Incorporation.
ARTICLE VI
REDEMPTION
Each holder of shares of the Corporation's capital stock shall be entitled to
require the Corporation to redeem all or any part of the shares of capital
stock of the Corporation standing in the name of the holder on the books of the
Corporation, and all shares of capital stock issued by the Corporation shall be
subject to redemption by the Corporation, at the redemption price of the shares
as in effect from time to time as may be determined by the Board of Directors
of the Corporation in accordance with the provisions of this Article VI,
subject to the right of the Board of Directors of the Corporation to suspend
the right of redemption or postpone the date of payment of the redemption price
in accordance with provisions of applicable law. Without limiting the
generality of the foregoing, the Corporation shall, to the extent permitted by
applicable law, have the right at any time to redeem the shares owned by any
holder of capital stock of the Corporation (i) if the redemption is, in the
opinion of the Board of Directors of the Corporation, desirable in order to
prevent the Corporation from being deemed a "personal holding company" within
the meaning of the Internal Revenue Code of 1954, as amended, or (ii) if the
value of the shares in the account maintained by the Corporation or its
transfer agent for any class of stock is less than $500 (five hundred dollars);
provided, however, that a shareholder shall be notified that the value of his
account is less than $500 (five hundred dollars) and shall be allowed 30
(thirty) days to make additional purchases of shares before the redemption is
processed by the Corporation. The redemption price of shares of capital stock
of the Corporation shall be net asset value as determined by the Board of
Directors of the Corporation from time to time in accordance with the
provisions of applicable law, less a redemption fee or other charge, if any, as
may be fixed by resolution of the Board of Directors of the Corporation.
Payment of the redemption price shall be made in cash by the Corporation at the
time and in the manner as may be determined from time to time by the Board of
Directors of the Corporation unless, in the opinion of the Board of Directors,
which shall be conclusive, conditions exist that make payment wholly in cash
unwise or undesirable; in such event the Corporation may make payment wholly or
partly by securities or other property included in the assets belonging or
allocable to the class of the shares redemption of which is being sought, the
value of which shall be determined as provided herein. The Board of Directors
may establish procedures for redemption of shares.
<PAGE> 6
ARTICLE VII
BOARD OF DIRECTORS
(1) The number of directors constituting the Board of Directors shall be three,
which number may be changed pursuant to the By-Laws of the Corporation. The
name of the directors who shall act until the first annual meeting of
shareholders or until their successors are duly chosen and qualified are:
Joseph M. Cohen
Arthur Cowen, Jr.
Stuart F. Goodman
(2) In furtherance, and not in limitation, of the powers conferred by the laws
of the State of Maryland, the Board of Directors is expressly authorized:
(i) To make, alter or repeal the By-Laws of the Corporation, except where such
power is reserved by the By-Laws to the stockholders, and except as otherwise
required by the Investment Company Act of 1940, as amended.
(ii) From time to time to determine whether and to what extent and at what
times and places and under what conditions and regulations the books and
accounts of the Corporation, or any of them other than the stock ledger, shall
be open to the inspection of the stockholders. No stockholder shall have any
right to inspect any account or book or document of the Corporation, except as
conferred by law or authorized by resolution of the Board of Directors or by
the stockholders.
(iii) Without the assent or vote of the stockholders, to authorize the issuance
from time to time of shares of the stock of any class of the Corporation,
whether now or hereafter authorized, and securities convertible into shares of
stock of the Corporation of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem
advisable.
(iv) Without the assent or vote of the stockholders, to authorize and issue
obligations of the Corporation, secured and unsecured, as the Board of
Directors may determine, and to authorize and cause to be executed
<PAGE> 7
mortgages and liens upon the real or personal property of the Corporation.
(v) Notwithstanding anything in these Articles of Incorporation to the
contrary, to establish in its absolute discretion the basis or method for
determining the value of the assets belonging to any class, the value of the
liabilities belonging to any class, and the net asset value of each share of
any class of the Corporation's stock for purposes of sales, redemptions,
repurchases of shares or otherwise.
(vi) To determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings, surplus or net
assets in excess of capital, and to determine what accounting periods shall be
used by the Corporation for any purpose; to set apart out of any funds of the
Corporation reserves for such purposes as it shall determine and to abolish the
same; to declare and pay any dividends and distributions in cash, securities or
other property from surplus or any funds legally available therefor, at such
intervals as it shall determine; to declare dividends or distributions by means
of a formula or other method of determination, at meetings held less frequently
than the frequency of the effectiveness of such declarations; to establish
payment dates for dividends or any other distributions on any basis, including
dates occurring less frequently than the effectiveness of declarations thereof;
and to provide for the payment of declared dividends on a date earlier or later
than the specified payment date in the case of stockholders of the Corporation
redeeming their entire ownership of shares of any class of the Corporation.
(vii) In addition to the powers and authorities granted herein and by statute
expressly conferred upon it, the Board of Directors is authorized to exercise
all powers and do all acts that may be exercised or done by the Corporation
pursuant to the provisions of the laws of the State of Maryland, these Articles
of Incorporation and the By-Laws of the Corporation.
(3) Any determination made in good faith, and in accordance with accepted
accounting practices, if applicable, by or pursuant to the direction of the
Board of Directors, with respect to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
the reserves or charges have been created has been paid or discharged or is
<PAGE> 8
then or thereafter required to be paid or discharged), as to the value of any
security owned by the Corporation, the determination of the net asset value of
shares of any class of the Corporation's capital stock, or as to any other
matters relating to the issuance, sale, redemption or other acquisition or
disposition of securities or shares of capital stock of the Corporation, and
any reasonable determination made in good faith by the Board of Directors
whether any transaction constitutes a purchase of securities on "margin," a
sale of securities "short," or an underwriting of the sale of, or a
participation in any underwriting or selling group in connection with the
public distribution of, any securities, shall be final and conclusive, and
shall be binding upon the Corporation and all holders of its capital stock,
past, present and future, and shares of the capital stock of the Corporation
are issued and sold on the condition and understanding, evidenced by the
purchase of shares of capital stock or acceptance of share certificates, that
any and all such determinations shall be binding as aforesaid. No provision of
these Articles of Incorporation of the Corporation shall be effective to (i)
require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission under
those Acts or (ii) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its Articles of Incorporation, now or hereafter authorized by law,
including any amendment that alters the contract rights, as expressly set forth
in its Articles of Incorporation, of any outstanding stock.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
Dated the 10th day of June, 1985.
/s/ Victoria D. Salhus, Incorporator
<PAGE> 1
AMENDED AND RESTATED
BY-LAWS OF
STANDBY TAX-EXEMPT RESERVE FUND, INC.
(A Maryland Corporation)
ARTICLE I STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing
shares of stock shall set forth thereon the statements prescribed by Section
2-211 of the General Corporation Law of Maryland ("General Corporation Law")
and by any other applicable provision of law and shall be signed by the
President or a Vice President and countersigned by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and may be
sealed with the corporate seal. The signatures of any such officers may be
either manual or facsimile signatures and the corporate seal may be either
facsimile or any other form of seal. In case any such officer who has signed
manually or by facsimile any such certificate ceases to be such officer before
the certificate is issued, it nevertheless may be issued by the corporation
with the same effect as if the officer had not ceased to be such officer as of
the date of its issue.
No certificate representing shares of stock shall be issued for any share of
stock until such share is fully paid, except as otherwise authorized in Section
2-207 of the General Corporation Law.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require, in its discretion, the owner
of any such certificate or his legal representative to give bond, with
sufficient surety, to the corporation to indemnify it against any loss or
claim that may arise by reason of the issuance of a new certificate.
2. SHARE TRANSFERS. Upon compliance with provisions restrict)
transferability of shares of stock, if any, transfers of shares of stock of the
corporation shall be made only on the stock transfer books of the corporation
by the record holder thereof or by his attorney "hereunto authorized by power
of attorney duly executed and filed with the Secretary of the corporation or
with a transfer agent or a registrar, if any, and on surrender of the
certificate or certificates for such shares of stock properly endorsed and the
payment of all taxes due thereon.
3. RECORD DATE FOR STOCKHOLDERS. The Board of Directors.
may fix, in advance, a date as the record date for the purpose of
<PAGE> 2
determining stockholders entitled to notice of, or to vote at, any meeting of
stockholders, or stockholders entitled to receive payment of any dividend or
the allotment of any rights or in order to make a determination of stockholders
for any other proper purpose. Such date, in any case, shall be not more than 90
days, and in case of a meeting of stockholders not less than 10 days, prior to
the date on which the meeting or particular action requiring such determination
of stockholders is to be held or taken. In lieu of fixing a record date, the
Board of Directors may provide that the stock transfer books shall be closed
for a stated period but not to exceed 20 days, If the stock transfer books are
closed for the purpose of determining stockholders entitled to notice of, or to
vote at, a meeting of stockholders, such books shall be closed for at least 10
days immediately preceding such meeting. If no record date is fixed and the
stock transfer books are not closed for the determination of stockholders: (1)
The record date for the determination of stockholders entitled to notice of, or
to vote at, a meeting of stockholders shall be at the close of business on the
day on which the notice of meeting is mailed or the day 30 days before the
meeting, whichever is the closer date to the meeting; and (2) The record date
for the determination of. stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of business on the
day on which the resolution of the Board of Directors declaring the dividend or
allotment of rights is adopted, provided that the payment or allotment date
shall not be more than 60 days after the date on which the resolution is
adopted.
4. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share of stock" or "shares of stock..
or "stockholder" or "stockholders" refers to an outstanding share or shares of
stock and to a holder or holders of record of outstanding shares of stock when
the corporation is authorized to issue only one class of shares of stock and
said reference also is intended to include any outstanding share or shares of
stock and any holder or holders of record of outstanding shares of stock of any
class or series upon which or upon whom the Charter confers such rights where
there are two or more classes or series of shares or upon which or upon whom
the General Corporation Law confers such rights notwithstanding that the
Charter may provide for more than one class or series of shares of stock, one
or more of which are limited or denied such rights thereunder.
5. STOCKHOLDER MEETINGS.
<PAGE> 3
A. ANNUAL MEETINGS. No annual meeting of stockholders of the
corporation shall be held unless required by applicable law or otherwise
determined by the Board of Directors.
B. PLACE AND TIME. Stockholder meetings shall be held at such place,
either within the State of Maryland or at such other place within the United
States, and at such date or dates as the directors from time to time may fix.
C. CALL. Stockholder meetings may be called by the Board of Directors
or the President and shall be called by the Secretary for the purpose of
removing a Director whenever the holders of shares entitled to at least ten
percent of all the votes entitled to be cast at such meeting shall make a duly
authorized request that such meeting be called and for all other purposes
whenever the holders of shares entitled to at least twenty-five percent of all
the votes entitled to be cast at such meeting shall make a duly authorized
request that such meeting be called.
D. NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. Written or printed notice
of all meetings shall be given by the Secretary and shall state the time and
place of the meeting. The notice of a meeting shall state in all instances the
purpose or purposes for which the meeting is palled. Written or printed notice
of any meeting shall be given to each stockholder either by mail or by
presenting it to him personally or by leaving it at his residence or usual place
of business not less than ten days and not more than ninety days before the date
of the meeting, unless any provisions of the General Corporation Law shall
prescribe a different elapsed period of time, to each stockholder at his address
appearing on the books of the corporation or the address supplied by him for the
purpose of notice. If mailed, notice shall be deemed to be given when deposited
in the United States mail addressed to the stockholder at his post office
address as it appears on the records of the corporation with postage thereon
prepaid. Whenever any notice of the time, place or purpose of any meeting of
stockholders is required to be given under the provisions of these by-laws, or
of the General Corporation Law, a waiver thereof in writing, signed by the
stockholder and filed with the records of the meeting, whether before or after
the holding thereof, or actual attendance or representation at the meeting shall
be deemed equivalent to the giving of such notice to such stockholder. The
foregoing requirements of notice also shall apply, whenever the corporation
shall have any class of stock which is not entitled to vote, to holders of stock
who are not entitled to vote at the meeting, but who are entitled to notice
thereof and to dissent from any action taken thereat.
<PAGE> 4
E. STATEMENT OF AFFAIRS. The President of the corporation or, if
the Board of Directors shall determine otherwise, some other executive officer
thereof, shall prepare or cause to be prepared annually a full and correct
statement of the affairs of the corporation, including a balance sheet and a
financial statement of operations-for the preceding fiscal year, which shall be
filed at the principal office of the corporation in the State of Maryland.
F. CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the President, the Chairman of the Board, a Vice President
or, if none of the foregoing is in office and present and, acting, by a
chairman to be chosen by the shareholders. The Secretary of the corporation or,
in his absence, an Assistant Secretary, shall act as secretary of every
meeting, but if neither the Secretary nor an Assistant Secretary is present
the chairman of the meeting shall appoint a secretary of the meeting.
G. PROXY REPRESENTATION. Every stockholder may authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether for the purpose of determining
his presence a. a meeting, or whether by waiving notice of any meeting, voting
or participating at a meeting, expressing consent or dissent without a meeting
or otherwise. Every proxy shall be executed in writing by the stockholder or by
his duly authorized attorney-in-fact and filed with the Secretary of the
corporation. No unrevoked proxy shall be valid after eleven months from the
date of its execution, unless a longer time is expressly provided therein.
H. INSPECTORS OF ELECTION. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one
or more inspectors. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering. upon the discharge of his
duties, shall take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the validity and effect of
<PAGE> 5
proxies, and shall receive votes, ballots or-consents, hear and determine all
challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine the result and do such
acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting or any
stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them.
I. VOTING. Each share of stock shall entitle the holder thereof to one vote,
except in the election of directors, at which each said vote may be cast for as
many persons as there are directors to be elected. Except for election of
directors, a majority of the votes cast at a meeting of stockholders, duly
called and at which a quorum is present, shall be sufficient to take or
authorize action upon any matter which may come before a meeting, unless more
than a majority of votes cast is required by the corporation's Articles of
Incorporation. A plurality of all the votes cast at a meeting at which a quorum
is present shall be sufficient to elect a director.
6. INFORMAL ACTION. Any action required or permitted to be taken at
a meeting of stockholders may be taken without a meeting if a consent in
writing, setting forth such action, is signed by all the stockholders entitled
to vote on the subject matter thereof and any other stockholders entitled to
notice of a meeting of stockholders (but not to vote thereat) have waived in
writing any rights which they may have to dissent from such action and such
consent and waiver are filed with the records of the corporation.
ARTICLE II BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed under the direction of a Board of Directors. The
use of the phrase "entire board" herein refers to the total number of directors
which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. Each director shall be a natural
person of full ace. A director need not be a stockholder, a citizen of the
United States or a resident of the State of Maryland. The initial Board of
Directors shall consist of two persons. Thereafter, the number of directors
constituting the entire board shall never be less than three or the number of
stockholders, whichever is less. At any regular meeting or at any special
meeting called for that purpose, a majority of the entire Board of Directors
may increase or decrease the number of directors, provided that the number
<PAGE> 6
thereof shall never be less than three or the number of stockholders,
whichever is less, nor more than eleven and further provided that the tenure of
office of a director shad' not be affected by any decrease in the number of
directors.
3. ELECTION AND TERM. The first Board of Directors shall consist of
the directors named in the Articles of Incorporation and shall hold office
until the first meeting of stockholders or until their successors have been
elected and qualified. Thereafter, directors who are elected at a meeting of
stockholders, and directors who are elected in the interim to fill vacancies
and newly created directorships, shall hold office until their successors have
been elected and qualified. Newly created directorships and any vacancies in
the Board of Directors by the stockholders, may be filled by the Board of
Directors, subject to the provisions of the Investment Company Act of 1940.
Newly created directorships filled by the Board of Directors shall be by action
of a majority of the entire board of Directors. All other vacancies to be
filled by the Board of Directors may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum
thereof.
4. MEETINGS.
A. TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors conveniently may assemble.
B. PLACE. Meetings shall be held at such place within or without the State of
Maryland as shall be fixed by the Board.
C. CALL. No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by or at the direction of
the President or of a majority of the directors in office.
D. NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. Whenever
any notice of the time, place or purpose of any meeting of directors or any
committee thereof -is required to be given under the provisions of the General
Corporation Law or of these by-laws, a waiver thereof in writing, signed by the
director or committee member entitled to such notice and f fled with the
records of the meeting, whether before or after the holding thereof, or actual
attendance at the meeting shall be deemed equivalent to the giving of such
notice to such director or such committee member.
E. QUORUM AND ACTION. A majority of the entire Board of Directors
<PAGE> 7
shall constitute a quorum except when a vacancy or vacancies prevents
such majority, whereupon a majority of the directors in office shall
constitute a quorum, provided such majority shall constitute at least
one-third of the entire Board and, in no event, less than two directors. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided and, except as in the General Corporation Law otherwise provided, the
action of a majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors.
F. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any
and if present and acting, or the President or any other director chosen by the
Board, shall preside at all meetings.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be
removed for cause or without cause by the stockholders, who may elect a
successor or successors to fill any resulting vacancy or vacancies for the
unexpired term of the removed director or directors.
6. COMMITTEES. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of two
or more directors and may delegate to such committee or committees, in the
intervals between meetings of the Board of Directors, any or all of the powers
of the Board of Directors in the management of the business and affairs of the
corporation, except the power to amend the by-laws, to approve any
consolidation, merger, share exchange or transfer of assets, to declare
dividends, to issue stock or to recommend to stockholders any action requiring
the stockholders' approval. In the absence of any member of any such committee,
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board of Directors to act in the place of
such absent member.
7. INFORMAL ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board of Directors or any such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or
any such committee.
Members of the Board of Directors or any committee designated thereby
may participate in a meeting of such Board or committee by means of a
conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the
<PAGE> 8
same time. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE III OFFICERS
The corporation may have a Chairman of the Board and shall have a
President, a Secretary and a Treasurer, who shall be elected by the Board of
Directors, and may have such other officers, assistant officers and agents as
the Board of Directors shall authorize from time to time. Any two or more
offices, except those of President and Vice-President, may be held by the same
person, but no person shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law to be executed,
acknowledged or verified by two or more officers.
Any officer or agent may be removed by the Board of Directors whenever, in its
judgment, the best interests of the corporation will be served thereby.
ARTICLE IV PRINCIPAL OFFICE - RESIDENT AGENT - STOCK
LEDGER
The address of the principal office of the corporation in the State of Maryland
prescribed by the General Corporation Law is 32 South Street, c/o The
Corporation Trust Incorporated, Baltimore, Maryland 21202. The name and address
of the resident agent in the state of Maryland prescribed by the General
Corporation Law are: The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland
The corporation shall maintain, at its principal office in the State of
Maryland prescribed by the General Corporation Law or at the business office or
an agency of the corporation, an original or duplicate stock ledger containing
the names and addresses of all stockholders and the number of shares of each
class held by each stockholder. Such stock ledger may be in written form or any
other form capable of being converted into written form within a reasonable
time for visual inspection.
The corporation shall keep at said principal office in the State of Maryland
the original or a certified copy of the by-laws, including all amendments
thereto, and shall duly file thereat the annual statement of affairs of the
corporation prescribed-by Section 2-314 of the General Corporation Law.
ARTICLE V CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the corporation
<PAGE> 9
and shall be in such form and contain such other words and/or figures as the
Board of Directors shall determine or the law require.
ARTICLE VI FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII CONTROL OVER BY-LAWS
The power to make, alter, amend and repeal the by-laws is vested in the Board
of Directors of the corporation.
ARTICLE VIII INDEMNIFICATION
Notwithstanding any provision in the Maryland General Corporation Law
or the corporation's Articles of Incorporation: In the event that a claim for
indemnification is asserted by a director, officer or controlling person of the
corporation in connection with the registered securities of the corporation,
the corporation will not make such indemnification unless (i) the corporation
has submitted, before a court or other body, the question of whether the person
to be indemnified was liable by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties, and has obtained a final decision
on the merits that such person was not liable by reason of such conduct or (ii)
in the absence of such decision, the corporation shall have obtained a
reasonable determination, based upon a review of the facts, that such person
was not liable by virtue of such conduct, by (a) the vote of a majority of
directors who are neither interested persons as such term is defined in the
Investment Company Act of 1940, nor parties to the proceeding or (b) an
independent legal counsel in a written opinion.
The corporation will not advance attorneys' fees or other expenses incurred by
the person to be indemnified unless the corporation shall have (i) received an
undertaking by or on behalf of such person to repay the advance unless it is
ultimately determined that such person is entitled to indemnification and one
of the following conditions shall have occurred: (x) such person shall provide
security for his undertaking, (y) the corporation shall be insured against
losses arising by reason of any lawful advances or (z) a majority of the
disinterested, non-party directors of the corporation, or an independent fecal
counsel in a written opinion, shall have determined that based on a review of
readily available facts there is reason to believe that such person ultimately
will be found entitled to
<PAGE> 10
indemnification.
Dated: October 28, 1987
<PAGE> 1
CERTIFICATE OF AMENDMENT OF
BY-LAWS OF
COWEN STANDBY TAX-EXEMPT RESERVE FUND, INC.
The undersigned, Faith Colish, hereby certifies as follows:
1. I am the Secretary of Cowen Standby Tax-Exempt Reserve Fund, Inc.
(the "Corporation"), a corporation organized under the Laws of the State of
Maryland.
2. Effective December 15, 1992, the first sentence of ARTICLE III of the
By-Laws of the Corporation was amended to read in its entirety as follows:
"The corporation shall have a Chairman, who shall be the Chief Executive
Officer of the corporation, a President, who shall be the Chief Operating
Officer of the corporation, a Secretary, and a Treasurer, all of whom shall be
elected by the Board of Directors and may have such other officers, assistant
officers and agents as the Board of Directors shall authorize from time to
time."
IN WITNESS WHEREOF, I have executed this Certificate as of this 22nd
day of January, 1993.
/s/ Faith Colish, Secretary
<PAGE> 1
INVESTMENT MANAGEMENT AGREEMENT
March 29, 1991
Cowen & Co.
Financial Square
New York, New York 10005
Dear Sirs:
Standby Tax-Exempt Reserve Fund, Inc. (the "Fund"), a corporation
organized under the laws of the State of Maryland, herewith confirms its
agreement with Cowen & Co. ("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 Prospectus and Statement 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 Prospectus, Statement of Additional
Information and Articles of Incorporation amended, amended, have been or will
be submitted to Cowen. The Fund desires to employ and hereby appoints Cowen to
act as its investment manager. 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,
Cowen will (a) act in strict conformity with the Fund's Articles of
Incorporation and by-laws, the Investment Company Act of 1940 and the
investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Fund's portfolio in accordance with the Fund's investment
objective and policies as stated in its 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
(ii) the specific issuers whose securities will be purchased or sold by the
Fund, (iii) the extent to which taxable securities will be purchased for and
held by the Fund, (iv) the appropriate maturity of its
<PAGE> 2
portfolio investments and (v) the appropriate average weighted maturity of its
portfolio in light of current market conditions and (d) supply office
facilities (which may be in 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 stationary 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, 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 Cowen will from time to time employ or associate with itself
such person or persons as Cowen 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 put by Cowen and that no
obligation may be incurred on the Fund's behalf in any such respect. Cowen, a
limited partnership formed under the laws of the State of New York, will notify
the Fund of any change in its membership within a reasonable time after such
change.
3. Information Provided to tile Fund; Books and Records
(a) Cowen will keep the Fund informed of developments materially
affecting the Fund's portfolio, and will, on its own initiative furnish the
Fund from time to time with whatever information Cowen believes is appropriate
for this purpose.
(b) In compliance with the requirements of Rule 31a-3 under the
Investment Company Act of 1940, 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
Cowen shall exercise is best judgment in rendering the services listed in
paragraph 2 above. 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 Cowen against any liability to
<PAGE> 3
the Fund or to its shareholders to which Cowen would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its past in the
performance of its duties or by reason of Cowen's reckless disregard of its
obligations and duties under this Agreement.
Any person, eves though also a partner, officer, employee, or agent of 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 Cowen even though paid by it.
5. Compensation
In consideration of the services rendered pursuant to this Agreement, the Fund
will pay 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. 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 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 or
Statement of Additional Information as from time to time in effect.
6. Expenses
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: taxes, interest brokerage fees and commissions, if
any; fees of directors of the fund who are not officers or employees of 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.
<PAGE> 4
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 and, if
permitted by state commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, Cowen will reimburse
the Fund for such excess expense. Cowen's expense reimbursement obligation will
be limited to the amount of its fees received pursuant to this Agreement.
However, 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. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
8. Services to Other Companies or Accounts
The Fund understands that 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 Cowen's so acting, provided that whenever the Fund and
one or more other accounts or investment companies advised by 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 Cowen to assist in the performance of 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 Cowen or any affiliate
of Cowen to engage in and devote time and attention to other businesses or to
sender services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective on the date first above written and shall
continue until the second anniversary of that date and thereafter shall
continue so long as 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 Investment Company Act of 1940) of the Fund's outstanding voting
securities, provided that in either event the
<PAGE> 5
continuance is also approved by a majority of the Board of Directors who are
not "interested persons" (as defined in said 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 the Fund's shares, or upon 90 days' written notice, by Cowen.
This Agreement will also terminate automatically in the event of its assignment
(as defined in said 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.
If the foregoing is in accordance with your understanding, kindly indicate your
acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
STANDBY TAX-EXEMPT RESERVE FUND, INC.
/s/ Stuart Goodman, Treasurer
Accepted and Agreed:
COWEN & CO.
By: COWEN INCORPORATED, GENERAL PARTNER
<PAGE> 6
/s/ Creighton H. Peet, Managing Director
<PAGE> 1
DISTRIBUTION AGREEMENT
March 3, 1986
Cowen & Co.
One Battery Park Plaza
New York, New York 10004
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Standby Tax-Exempt Reserve Fund, Inc. (the "Fund"),
a corporation organized under the laws of the State of Maryland, has agreed
that Cowen & Co. ("Cowen") shall be, for the period of this Agreement, the
distributor of shares of the Fund.
1. Services as Distributor
1.1 Cowen will act as agent for the distribution of shares of the Fund covered
by the registration statement, prospectus and statement of additional
information then in effect (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").
1.2 Cowen 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 will undertake such advertising and
promotion as it believes is reasonable in connection with such solicitation.
Cowen agrees to bear all selling expenses, including the cost of printing
prospectuses and statements of additional information and distributing them to
prospective shareholders.
1.3 All activities by Cowen as distributor of the Fund's shares shall comply
with all applicable laws, rules and regulations, including, without limitation,
all rules and regulations made or adopted by the Securities and Exchange
Commission (the "SEC") or by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Cowen will provide one or more persons during normal business hours to
respond to telephone questions concerning the Fund.
1.5 Cowen acknowledges that, whenever in the judgment of the Fund's
officers such action is warranted for any reason, including, without
<PAGE> 2
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.
1.6 Cowen will act only on its own behalf as principal should it choose to
enter into selling agreements with selected dealers or others.
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and all documents, to
furnish any and all information 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 Cowen may designate.
2.2 The Fund shall furnish from time to time, for use in connection with the
sale of the Fund's shares, such information reports with respect to the Fund
and its shares as Cowen 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 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
Cowen upon request with: (a) annual audits of the Fund's books and accounts
made by independent public accountants regularly retained by the Fund, (b)
semiannual 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 portfolio, (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 Cowen may
reasonably request.
3. Representations and Warranties
The Fund represents to Cowen that all registration statements,
prospectuses and statements of additional information filed by the Fund with
the SEC under the 1933 Act and the 1940 Act with respect to the shares of the
Fund have been carefully prepared in conformity with the requirements of the
1933 Act, the 1940 Act and the rules and regulations of the SEC thereunder. As
used in this Agreement the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration statement,
prospectus and statement of additional information filed by the Fund with the
SEC and any amendments and supplements thereto which at any time shall have
been filed with the SEC. The Fund represents and warrants to Cowen that any
registration
<PAGE> 3
statement, prospectus and statement of additional information, when such
registration statement becomes 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 any
registration statement, prospectus or statement of additional information will
be true and correct when such registration statement becomes effective; and
that neither any registration statement nor any prospectus or statement of
additional information when such registration statement becomes 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. Cowen may, but shall not be
obligated to, propose from time to time such amendment or amendments to any
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 Cowen'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 Cowen
to do so, Cowen may, at its option, terminate this Agreement. The Fund shall
not file any amendment to any registration statement or supplement to any
prospectus or statement of additional information without giving Cowen
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 any 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 Cowen and any dealers with whom Cowen 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 Cowen, its several officers and directors, and any
person who controls Cowen 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 cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Cowen, its officers and directors, or any such controlling person, may incur
under the 1933 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 any
<PAGE> 4
registration statement, any prospectus or any statement of additional
information, or arising out of or based upon any omission or alleged
omission to state a material fact required to be stated in any 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 Cowen, 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
statements or representations made by Cowen or its representatives or agents
other than such statements and representations as are contained in any
registration statement, prospectus or statement of additional information and
in such financial and other statements as are furnished to Cowen pursuant to
paragraph 2.2 hereof; and further provided that the Fund's agreement to
indemnify Cowen and the Fund's representations and warranties hereinbefore set
forth in paragraph 3 shall not be deemed to cover any liability to the Fund or
its shareholders to which Cowen would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of Cowen's reckless disregard of its obligations and duties under
this Agreement. The Fund's agreement to indemnify Cowen, 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 Cowen,
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 Cowen.
In the event the Fund elects to assume the defense of any such suit and retain
counsel of good standing approved by Cowen, 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 Cowen does not approve of counsel chosen by the Fund, the
Fund will reimburse Cowen, its officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses or any counsel retained by Cowen or them. The Fund's
<PAGE> 5
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
Cowen, 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 Cowen's benefit, 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 Cowen
promptly of the commencement of any litigation or proceedings against the Fund
or any of its officers or directors in connection with the issuance and sale
of-any of the Fund's shares.
4.2 Cowen 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 costs of investigating
or defending such claims, demands or liabilities and any 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 Cowen to the Fund and used in the answers
to any of the items of the registration statement or in the corresponding
statements made in the prospectus or statement of additional information, 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 Cowen
to the Fund and required to be stated in such answers or necessary to make such
information not misleading. Cowen's agreement to indemnify the Fund, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon Cowen'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 Cowen at its
principal office in New York, New York and sent to Cowen by the person against
whom such action is brought, within ten days after the summons or other first
legal process shall have been served. Cowen 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 Cowen's part, and in any other event the Fund, its
officers or directors or such controlling person
<PAGE> 6
shall each have the right to participate in the defense or preparation of the
defense of any such action. The failure so to notify Cowen of any such action
shall not relieve Cowen from any liability that Cowen may have to the Fund, its
officers or directors, or to such controlling person by reason of any such
untrue or alleged untrue statement or omission or alleged omission otherwise
than on account of Cowen's indemnity agreement contained in this paragraph 4.2.
Cowen agrees to notify the Fund promptly of the commencement of any litigation
or proceedings against Cowen or any of its officers or directors in connection
with the issuance and sale of any of the Fund's shares.
5. Effectiveness of Registration
None of the Fund's shares shall be offered by either Cowen 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 then in effect 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 prospectus,
statement of additional information or articles of incorporation.
6. Notice to Cowen
The Fund agrees to advise Cowen 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, prospectus or statement of
additional information 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, prospectus or statement of additional
<PAGE> 7
information then in effect or that requires the making of a change
in such registration statement, prospectus or statement of additional
information in order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to any
registration statement, prospectus or statement of additional information which
may from time to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue until March 3, 1988 and thereafter shall continue
automatically for successive annual periods ending on March 3rd. of each year,
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 of the holders of a
majority of the Fund's shares, or on 90 days' written notice, by Cowen. This
agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act). 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,
STANDBY TAX-EXEMPT RESERVE FUND, INC.
By: /s/ Joseph Cohen, President
Accepted: Cowen & Co.
By: /s/ Antony Pinto, Authorized Officer
<PAGE> 1
CUSTODY AGREEMENT
THIS AGREEMENT made the 8th day of May, 1988, by and between
INVESTORS FIDUCIARY TRUST COMPANY, a trust company
chartered under the laws of the state of Missouri, having its trust office
located at 127 West 10th Street, 14th Floor, Kansas City, Missouri 64105
("Custodian"), and STANDBY TAX-EXEMPT RESERVE FUND, INC. a Maryland
corporation, having its principal office and place of business at Financial
Square, New York, New York 10005 ("Fund").
WITNESSETH:
WHEREAS, the Fund has issued its Common Stock, $.01 par value per
share with the proceeds of the sale allocated to the Fund's investment program;
and WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the securities and monies of the Fund; and WHEREAS, Investors
Fiduciary Trust Company is willing to accept such appointment; NOW THEREFORE,
for and in consideration of the mutual promises contained herein, the parties
hereto, intending to be legally bound, mutually covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN
Fund hereby constitutes and appoints Custodian as custodian of the
securities and monies at any time owned by the Fund;
2. DELIVERY OF CORPORATE DOCUMENTS
Fund has delivered or will deliver to Custodian prior to the effective date of
this Agreement, copies of the following documents and all amendments or
supplements thereto, properly certified or authenticated:
A. Resolutions of the Board of Directors of Fund appointing Custodian as
custodian hereunder and approving the form of this Agreement; and
B. Resolutions of the Board of Directors of Fund designating certain
persons to give instructions on behalf of Fund to Custodian and authorizing
Custodian to rely upon written instructions over their signatures.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN
A. Delivery of Assets
<PAGE> 2
Fund will deliver or cause to be delivered to Custodian on the effective date
of this Agreement, or as soon thereafter as practicable, and from time to time
thereafter, all portfolio securities acquired by it and monies then owned by it
except as permitted by the Investment Company Act of 1940 or from time -to time
coming into its possession during the time of this Agreement shall continue in
effect. Custodian shall have no responsibility or liability whatsoever for or
on account of securities or monies not so delivered. All securities so
delivered to Custodian (other than bearer securities) shall be registered in
the name of Fund or its nominee, or of a nominee of Custodian, or shall be
properly endorsed and in form for transfer satisfactory to Custodian.
B. Delivery of Accounts and Records
Fund shall turn over to Custodian all of the Fund's relevant accounts and
records previously maintained by it. Custodian shall be entitled to rely
conclusively on the completeness and correctness of the accounts and records
turned over to it by Fund, and Fund shall indemnify and hold Custodian harmless
of and from any and all expenses, damages and losses whatsoever arising out of
or in connection with any error, omission, inaccuracy or other deficiency of
such accounts and records or in the failure of Fund to provide any portion of
such or to provide any information needed by the Custodian knowledgeably to
perform its function hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time. Custodian will not deliver, assign, pledge
or hypothecate any such assets to any person except as permitted by the
provisions of this Agreement or any agreement executed by it according to the
terms of section 3.S. of this Agreement. Upon delivery of any such assets to a
subcustodian pursuant to Section 3.S.2 of this agreement, Custodian will create
and maintain records identifying those assets which have been delivered to the
subcustodian as belonging to Fund. The Custodian is responsible for the
securities and monies of Fund only until they have been transmitted to and
received by other persons as permitted under the terms of this Agreement,
except for securities and monies transmitted to a subcustodian as provided for
by section 3.S., for which Custodian remains responsible. Custodian shall be
responsible only for the monies and securities of Fund held by it or its
nominees or Subcustodians under this Agreement. Custodian may participate
directly or indirectly through a subcustodian in the Depository Trust Company
or
<PAGE> 3
Treasury/Federal Reserve Book Entry System (as such entity is defined at 17 CFR
Section 270.17f-4(b) or other depository approved by the Fund).
D. Registration of Securities
Custodian will hold stocks and other registerable portfolio securities of Fund
registered in the name of Fund or in the name of any nominee of Custodian for
whose fidelity and liability Custodian will be fully responsible, or in street
certificate form, so-called, with or without any indication of fiduciary
capacity. Unless otherwise instructed, Custodian will register all such
portfolio securities in the name of its authorized nominee. All securities,
and the ownership thereof by Fund, which are held by Custodian hereunder,
however, shall at all times be identifiable on the records of the Custodian.
The Fund agrees to hold Custodian and its nominee harmless for any liability as
a record holder of securities held in custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 4.A, Custodian will
exchange, or cause to be exchanged, portfolio securities held by it for the
account of Fund for other securities or cash issued or paid in connection with
any reorganization, recapitalization, merger, consolidation, split-up of
shares, change of par value, conversion or otherwise, and will deposit any such
securities in accordance with the terms of any reorganization or protective
plan. Without instructions, Custodian is authorized to exchange securities held
by it in temporary form for securities in definitive form, to effect an
exchange of shares when the par value of the stock is changed, and, upon
receiving payment therefor, to surrender bonds or other securities held by it
at maturity or when advised of earlier call for redemption, except that
Custodian shall receive instructions prior to surrendering any convertible
security.
F. Purchases of Investments of the Fund
Fund will, on each business day on which a purchase of securities shall be made
by it, deliver to Custodian instructions which shall specify with respect to
each such purchase:
1. The name of the issuer and description of the security;
2. The number of shares or the principal amount purchased, and accrued
interest, if any;
<PAGE> 4
3. The trade date;
4. The settlement date;
5. The purchase price per unit and the brokerage commission, taxes and other
expenses payable in connection with the purchase;
6. The total amount payable upon such purchase; and
7. The name of the person from whom or the broker or dealer through
whom the purchase was made; and
In accordance with such instructions, Custodian will pay for out of monies held
for the account of the Fund, but only insofar as monies are available therein
for such purpose, and receive the portfolio securities so purchased by or for
the account of the Fund except that Custodian may in its sole discretion
advance funds to the Fund which may result in an overdraft because the monies
held by the Custodian in the account of the Fund are insufficient to pay the
total amount payable upon such purchase. Such payment will be made only upon
receipt by Custodian of the securities so purchased in form for transfer
satisfactory to Custodian.
G. Sales and Deliveries of Investments of the Fund Other than Options and
Futures
Fund will, on each business day on which a sale of investment securities of
Fund has been made, deliver to Custodian instructions specifying with respect
to each such sale:
1. The name of the issuer and description of the securities;
2. The number of shares or principal amount sold, and accrued interest, if any;
3. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
4. The trade date;
5. The settlement date;
6. The sale price per unit and the brokerage commission, taxes or other
<PAGE> 5
expenses payable in connection with such sale;
7. The total amount to be received by Fund upon such sale; and
8. The name and address of the broker or dealer through whom or person to whom
the sale was made.
In accordance with such instructions, Custodian will deliver or cause to be
delivered the securities thus designated as sold for the account of the Fund to
the broker or other person specified in the instructions relating to such sale,
such delivery to be made only upon receipt of payment therefor in such form as
is satisfactory to Custodian, with the understanding that Custodian may deliver
or cause to be delivered securities for payment in accordance with the customs
prevailing among dealers in securities.
H. Purchases or Sales of Security Options, Options on Indices and Security
Index Futures Contracts
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such purchase or sale:
1. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring or closing
transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded;
<PAGE> 6
j. Name and address of the broker or dealer through whom the sale or
purchase was made.
2. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
h. Whether the transaction is an opening, exercising, expiring or closing
transaction;
i. Whether the transaction involves a put or call;
j. Whether the option is written or purchased;
k. The name and address of the broker or dealer through whom the sale or
purchase was made, or other applicable settlement instructions.
3. Security Index Future Contracts
a. The last trading date specified in the contract and, when available, the
closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements; and
e. The need for a segregated margin account (in addition to instructions, and
if not already in the possession of Custodian, Fund shall deliver a
substantially complete and executed custodial safekeeping account and
procedural agreement which shall be incorporated by reference into this Custody
Agreement).
<PAGE> 7
f. The name and address of the futures commission merchant through
whom the sale or purchase was made, or other applicable settlement
instructions.
4. Option on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising, expiring or closing
transaction;
g. Whether the transaction involves a put or call; h. Whether the option is
written or purchased
i. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the Registration Statement of Fund:
1. Upon receipt of instructions, Custodian will release or cause to be released
securities held in custody to the pledgee designated in such instructions by
way of pledge or hypothecation to secure any loan incurred by Fund; provided,
however, that the securities shall be released only upon payment to Custodian
of the monies borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, further securities may be released
or caused to be released for that purpose upon receipt of instructions. Upon
receipt of instructions, Custodian will pay, but only from funds available for
such purpose, any such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing such
loan.
2. Upon receipt of instructions, Custodian will release securities held in
custody to the borrower designated in such instructions; provided,
<PAGE> 8
however, that the securities will be released only upon deposit with
Custodian of full cash collateral as specified in such instructions, and that
Fund will retain the right to any dividends, interest or distribution on such
loaned securities. Upon receipt of instructions and the loaned securities,
Custodian will release the cash collateral to the borrower.
J. Routine Matters Custodian will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange, substitution,
purchase, transfer, or other dealings with securities or other property of Fund
except as may be otherwise provided in this Agreement or directed from time to
time by the Board of Directors of Fund.
K. Deposit Account
Custodian will open and maintain a special purpose deposit account or
accounts in the name of Custodian ("Account"), subject only to draft or order
by Custodian upon receipt of instructions. All monies received by Custodian
from or for the account of the Fund shall be deposited in one or more said
accounts which have been identified as being account(s) to hold assets
allocated to the Fund barring events not in the control of the Custodian such
as strikes, lockouts or labor disputes, riots, war or equipment or transmission
failure or damage, fire, flood, earthquake or other natural disaster, action or
inaction of governmental authority or other causes beyond its control, at 9:00
a.m., Kansas City time, on the second business day after deposit of any check
into the Fund's account(s). Custodian may open and maintain an Account in such
other banks or trust companies as may be designated by it or by properly
authorized resolution of the Board of Directors of Fund, such Account, however,
to be in the name of Custodian and subject only to its draft or order.
L. Income and other Payments to Fund Custodian will:
1. Collect, claim and receive and deposit for the account of Fund all income
and other payments which become due and payable on or after the effective date
of this Agreement with respect to the securities deposited under- this
Agreement, and credit the account of the Fund with such income when received;
2. Execute ownership and other certificates and affidavits for all federal,
state and local tax purposes in connection with the collection of bond and note
coupons; and
3. Take such other action as may be necessary or proper in connection
<PAGE> 9
with:
a. the collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for payment of:
1. all coupons and other income items requiring presentation; and
2. all other securities which may mature or be called, redeemed, retired or
otherwise become payable and regarding which the Custodian has actual
knowledge, or notice of which is contained in publications of the type to which
it normally subscribes for such purpose; and
b. the endorsement for collection, in the name of Fund, of all checks, drafts
or other negotiable instruments.
Custodian, however, will not be required to institute suit or take other
extraordinary action to enforce collection except upon receipt of instructions
and upon being indemnified to its satisfaction against the costs and expenses
of such suit or other actions. Custodian will receive, claim and collect all
stock dividends, rights and other similar items and will deal with the same
pursuant to instructions. Unless prior instructions have been received to the
contrary, Custodian will, without further instructions, sell any rights held
for the account of the particular Fund on the last trade date prior to the date
of expiration of such rights.
M. Payment of Dividends and other Distributions
On or before the declaration of any dividend or other distribution on the
shares of any class of Capital Stock of Fund ("Shares") by the Board of
Directors of Fund, Fund shall deliver to Custodian instructions with respect
thereto, including a copy of the Resolution of said Board of Directors
certified by the Secretary or an Assistant Secretary of Fund wherein there
shall be set forth the record date as of which shareholders entitled to receive
such dividend or other distribution shall be determined, the date of payment of
such dividend or distribution, and the amount payable per share on such
dividend or distribution. For purposes of the foregoing, it shall be sufficient
for the Fund to furnish a copy of the Resolution of the Board of Directors
specifying procedures by which the record date, payment date and amount of
dividend or other distribution shall be determined, and authorizing officers of
the Fund to act in accordance with such procedures. Except if the ex-dividend
date and the reinvestment date of any dividend are the came, in which case
funds shall remain in the Custody Account, on the date specified in such
Resolution for the payment of such dividend or
<PAGE> 10
other distribution, Custodian will pay out of the monies held for the
account of the Fund, insofar as the same shall be available for such
purposes, and credit to the account of the Dividend Disbursing Agent for Fund,
such amount as may be necessary to pay the amount per share payable in cash on
the Shares issued and outstanding on the record date established by such
Resolution.
N. Shares of Fund Repurchased or Redeemed by Fund
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the class of shares redeemed or
repurchased and the aggregate dollar amount to be paid for such shares and
shall confirm such advice in writing. Upon receipt of such advice, Custodian
shall charge such aggregate dollar amount to the custody account of the Fund
and either deposit the same in the account maintained for the purpose of paying
for the repurchase or redemption of such Shares or deliver the same in
accordance with such advice. Custodian shall not have any duty or
responsibility to determine that Fund Shares repurchased or redeemed by Fund
have been removed from the proper shareholder account or accounts or that the
proper number of such shares have been cancelled and removed from the
shareholder records.
O. Shares of Fund Purchased from Fund
Whenever the Shares are purchased from Fund, Fund will deposit or cause to be
deposited with Custodian the amount received for such shares, and will notify
Custodian of the class of shares purchased and to which the proceeds are to be
allocated.
Custodian shall not have any duty or responsibility to determine that Fund
Shares purchased from Fund have been added to the proper shareholder account or
accounts or that the proper number of such shares have been added to the
shareholder records.
P. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or mailed to Fund all
proxies properly signed, all notices of meetings, all proxy statements and
other notices, requests or announcements affecting or relating to securities
held by Custodian for Fund and will, upon receipt of instructions, execute and
deliver or cause its nominee to execute and deliver or mail or have delivered
or mailed such proxies or other authorizations as may be required. Except as
provided by this Agreement or pursuant to instructions
<PAGE> 11
hereafter received by Custodian, neither it nor its nominee will exercise any
power inherent in any such securities, including any power to vote the same, or
execute any proxy, power of attorney, or other similar instrument voting any of
such securities, or give any consent, approval or waiver with respect thereto,
or take any other similar action.
Q. Disbursements
Custodian will pay or cause to be paid insofar as funds are available for the
purpose, bills, statements and other obligations of Fund (including but not
limited to obligations in connection with the conversion, exchange or surrender
of securities owned by Fund, interest charges, dividend disbursements, taxes,
management fees, custodian fees, legal fees, auditors fees, transfer agents'
fees, brokerage commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting forth the account,
if more than one, from which payment is to be made, the name of the person to
whom payment is to be made, the amount of the payment, and the purpose of the
payment.
R. Daily Statement of Accounts
Custodian will, within a reasonable time, render to Fund as of the close of
business on each day, a detailed statement of the amounts received or paid and
of securities received or delivered for the account of the Fund during said
day. Custodian will, from time to time, upon request by Fund, render a detailed
statement of the securities and monies held for the Fund under this Agreement,
and Custodian will maintain such books and records as are necessary to enable
it to do so and will permit such persons as are authorized by Fund including
Fund's independent public accountants, access to such records or confirmation
of the contents of such records; and if demanded, will permit federal and state
regulatory agencies to examine the securities, books and records. Upon the
written instructions of Fund or as demanded by federal or state regulatory
agencies, Custodian will instruct any subcustodian to give such persons as are
authorized by Fund including Fund's independent public accountants, access to
such records or confirmation of the contents of such records; and if demanded,
to permit federal and state regulatory agencies to examine the books, records
and securities held by subcustodian which relate to Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, monies or
securities of Fund may be held in Custodian's own custody or in the
<PAGE> 12
custody of one or more other banks or trust companies selected by
Custodian. Any such subcustodian must have the qualifications required for
custodian under the Investment Company Act of 1940, as amended. The
subcustodian may participate directly or indirectly in the Depository Trust
Company or Treasury/Federal Reserve Book Entry System (as such entity is
defined at 17 CFR Sec. 270.17f-4(b)) or other depository approved by the Fund.
Neither Custodian nor subcustodian will be entitled to reimbursement by Fund
for any fees or expenses of any subcustodian. The appointment of a subcustodian
will not relieve Custodian of any of its obligations hereunder.
2. Notwithstanding any other provisions of this Agreement, Fund's foreign
securities (as defined in Rule 17f-5(c)(1) under the Investment Company Act of
1940) and Fund's cash or cash equivalents, in amounts reasonably necessary to
effect Fund's foreign securities transactions, may be held in the custody of
one or more banks or trust companies acting as Subcustodians, according to
Section 3.S.1; and thereafter, pursuant to a written contract or contracts as
approved by Fund's Board of Directors, may be transferred to an account
maintained by such subcustodian with an eligible foreign custodian, as defined
in Rule 17f-5(c)(2), provided that any such arrangement involving a foreign
custodian shall be in accordance with the provisions of Rule 17f-5 under the
Investment Company Act of 1940 as that Rule may be amended from time to time.
3. Custodian shall be responsible for insuring that any subcustodian has
appropriately segregated assets of the Fund.
T. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as they agree upon,
and Custodian may conclusively assume that no procedure approved by Fund, or
directed by Fund, conflicts with or violates any requirements of its
prospectus, "Articles of Incorporation," Bylaws, or any rule or regulation of
any regulatory body or governmental agency. Fund will be responsible to notify
Custodian of any changes in statutes, regulations, rules or policies which
might necessitate changes in Custodian's responsibilities or procedures.
U. Overdrafts
If Custodian shall in its sole discretion advance funds to the account of the
Fund which results in an overdraft because the monies held by Custodian on
behalf of the Fund are insufficient to pay the total amount payable upon
<PAGE> 13
a purchase of securities as specified in Fund's instructions or for some other
reason, the amount of the overdraft shall be payable out of the account of the
Fund to IFTC upon demand and shall bear a reasonable interest rate determined
by Custodian from the date advanced until the date of payment.
V. Accounts and Records Property of Fund
Custodian acknowledges that all of the accounts and records maintained by
Custodian pursuant to this Agreement are the property of Fund, and will be made
available to Fund for inspection or reproduction within a reasonable period of
time, upon demand. Custodian will assist Fund's independent auditors, or upon
approval of Fund, or upon demand, any regulatory body having jurisdiction over
the Fund or Custodian, in any requested review of Fund's accounts and records
but shall be reimbursed for all expenses and employee time invested in any such
review outside of routine and normal periodic reviews. Upon receipt from Fund
of the necessary information, Custodian will supply necessary data for Fund's
completion of any necessary tax returns, questionnaires, periodic reports to
Shareholders and such other reports and information requests as Fund and
Custodian shall agree upon from time to time.
4. INSTRUCTIONS
A. The term "instructions", as used herein, means written or oral
instructions to Custodian from a designated representative of Fund.
Certified copies of resolutions of the Board of Directors of Fund naming one or
more designated representatives to give instructions in the name and on behalf
of Fund, may be received and accepted from time to time by Custodian as
conclusive evidence of the authority of any designated representative to act
for Fund and may be considered to be in full force and effect (and Custodian
will be fully protected in acting in reliance thereon) until receipt by
Custodian of notice to the contrary. Unless the resolution delegating authority
to any person to give instructions specifically requires that the approval of
anyone else will first have been obtained, Custodian will be under no
obligation to inquire into the right of the person giving such instructions to
do so. Notwithstanding any of the foregoing provisions of this Section 4, no
authorizations or instructions received by Custodian from Fund, will be deemed
to authorize or permit any Director, Trustee, officer, employee, or agent of
Fund to withdraw any of the securities or similar investments of Fund upon the
mere receipt of such authorization or instructions from such director trustee,
officer, employee or agent.
Notwithstanding any other provision of this Agreement, Custodian, upon
<PAGE> 14
receipt (and acknowledgment if required at the discretion of Custodian) of the
instructions of a designated representative of Fund will undertake to deliver
for the account of the Fund monies, (provided such monies are on hand or
available) in connection with transactions for the account of the Fund and to
wire transfer such monies to such broker, dealer, subcustodian, bank or other
agent specified in such instructions by a designated representative of Fund.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such oral
instruction. At Custodian's sole discretion, Custodian may record on tape, or
otherwise, any oral instruction whether given in person or via telephone, each
such recording identifying the parties, the date and the time of the beginning
and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN
A. Custodian shall hold harmless and indemnify Fund from and against any loss
or liability arising out of Custodian's failure to comply with the terms of
this Agreement or arising out of Custodian's negligence, willful misconduct, or
bad faith. Custodian shall not be liable for consequential damages. Custodian
may request and obtain the advice and opinion of counsel for Fund, or of its
own counsel with respect to questions or matters of law, and it shall be
without liability to Fund for any action taken or omitted by it in good faith,
in conformity with such advice or opinion. If IFTC reasonably believes that it
could not prudently act according to the instructions of the Fund or the Fund's
counsel, it may in its discretion, with notice to the Fund, not act according
to such instructions.
B. Custodian may rely upon the advice of Fund and upon statements of
Fund's accountants and other persons believed by it, in good faith, to be
expert in matters upon which they are consulted, and Custodian shall not be
liable for any actions taken, in good faith, upon such statements.
C. If Fund requires Custodian in any capacity to take, with respect to any
securities, any action which involves the payment of money by it, or which in
Custodian's opinion might make it or its nominee liable for payment of monies
or in any other way, Custodian, upon notice to Fund given prior to such
actions, shall be and be kept reasonably indemnified by Fund in an amount and
form satisfactory to Custodian against any liability on account of such action.
D. Custodian shall be entitled to receive, and Fund agrees to pay to
<PAGE> 15
Custodian, on demand, reimbursement for such cash disbursements, costs and
expenses as may be agreed upon from time to time by Custodian and Fund.
E. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other instrument
or paper reasonably appearing to it to be genuine and to have been properly
executed and shall, unless otherwise specifically provided herein, be entitled
to receive as conclusive proof of any fact or matter required to be ascertained
from Fund hereunder, a certificate signed by the Fund's President, or other
officer specifically authorized for such purpose.
F. Without limiting the generality of the foregoing, Custodian shall be under
no duty or obligation to inquire into, and shall not be liable for:
1. The validity of the issue of any securities purchased by or for Fund, the
legality of the purchase thereof or evidence of ownership required by Fund to
be received by Custodian, or the propriety of the decision to purchase or
amount paid therefor;
2. The legality of the sale of any securities by or for Fund, or the propriety
of the amount for which the same are sold;
3. The legality of the issue or sale of any shares of the Capital Stock of
Fund, or the sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any shares of Fund
Shares, or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or the legality of
the issue of any Fund Shares in payment of any stock dividend.
G. Custodian shall not be liable for, or considered to be Custodian of, any
money represented by any check, draft, wire transfer, clearing house funds,
uncollected funds, or instrument for the payment of money received by it on
behalf of Fund, until Custodian actually receives such money, provided only
that it shall advise Fund promptly if it fails to receive any such money in the
ordinary course of business, and use its best efforts and cooperate with Fund
toward the end that such money shall be received.
H. Except for any Subcustodians appointed under section 3.S., Custodian shall
not be responsible for loss occasioned by the acts, neglects, defaults or
insolvency of any broker, bank, trust company, or any other person with
<PAGE> 16
whom Custodian may deal in the absence of negligence, misconduct, or bad faith
on the part of Custodian.
I. Notwithstanding anything herein to the contrary, Custodian may, and with
respect to any foreign subcustodian appointed under Section 3.S.2 must, provide
Fund for its approval, agreements with banks or trust companies which will act
as Subcustodians for Fund pursuant to Section 3.S of this Agreement.
J. Custodian may advance, or cause to be advanced, to Fund monies as a result
of orders or instructions of Fund or procedures for purposes pursuant to this
Agreement, including, among others, payments for securities, options or futures
purchased, return of securities loaned, pledged or sold pursuant to repurchase
or redemption of Fund Shares, payment of Custodian's fees, or where Custodian
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities for which Custodian is entitled to be reimbursed or indemnified
under this Agreement (collectively the "Liabilities"). To further secure
Custodian's right to repayment of the Liabilities, Fund herewith grants to
Custodian a security interest in the property of the Fund to which such
obligation(s) relate(s) at any time held by, or for the account of, or under
the control of, Custodian.
6. COMPENSATION
Fund will pay to Custodian such compensation as is stated in the Fee
Schedule attached hereto as Exhibit A which may be changed from time to time as
agreed to in writing by Custodian and Fund. Custodian may charge such
compensation against monies held by it for the account of the Fund to which
such obligation(s) relate(s). Custodian will also be entitled, notwithstanding
the provisions of Sections 5.C. or 5.D. hereof, to charge against any monies
held by it for the account of the Fund to which such obligation(s) relate(s)
the amount of any loss, damage, liability or expense for which it shall be
entitled to reimbursement under the provisions of this Agreement including fees
or expenses due to IFTC for other services provided to the Fund by the
Custodian. Custodian will not be entitled to reimbursement by Fund for any loss
or expenses of any subcustodian.
7. TERMINATION
The term of this Agreement shall be one year. Either party to this
Agreement may terminate the same by notice in writing, delivered or
mailed, postage prepaid, to the other party hereto and received not less than
ninety (90) days prior to the date upon which such termination will
<PAGE> 17
take effect. Upon termination of this Agreement, Fund will pay to
Custodian such compensation for its reimbursable disbursements, costs and
expenses paid or incurred to such date and Fund will use its best efforts to
obtain a successor custodian. Unless the holders of a "majority" (as that term
is defined under the Investment Company Act of 1940) of the outstanding shares
of "Capital Stock" of Fund vote to have the securities, funds and other
properties of the Fund held under this Agreement delivered and paid over to
some other person, firm or corporation specified in the vote, having not less
the Two Million Dollars ($2,000,000) aggregate capital, surplus and undivided
profits, as shown by its last published report, and meeting such other
qualifications for Custodian as set forth in the Bylaws of Fund, the Board of
Directors of Fund will, forthwith upon giving or receiving notice of
termination of this Agreement, appoint as successor custodian a bank or trust
company having such qualifications. Nothing hereinabove shall impose a duty
upon the Fund to call for a vote of its shareholders with respect to whether to
terminate the Agreement. Custodian will, upon termination of this Agreement
deliver to the successor custodian so specified or appointed, at Custodian's
office, all securities then held for the Fund by Custodian hereunder, duly
endorsed and in form for transfer, all funds and other properties of Fund
deposited with or held by Custodian hereunder, or will co-operate in effecting
changes in book-entries at the Depository Trust Company or in the
Treasury/Federal Reserve Book-Entry System pursuant to 31 CFR Sec. 306.118 In
the event no such vote has been adopted by the stockholders of Fund and no
written order designating a successor custodian has been delivered to Custodian
on or before the date when such termination becomes effective, then Custodian
will deliver the securities, funds and properties held for the Fund to a bank
or trust company at the selection of Custodian and meeting the qualifications
for custodian, if any, set forth in the Bylaws of Fund and having not less that
Two Million Dollars ($2,000,000) aggregate capital, surplus and undivided
profits, as shown by its last published report. Upon either such delivery to a
successor custodian, Custodian will have no further obligations or liabilities
under this Agreement. Thereafter such bank or trust company will be the
successor custodian under this Agreement and will be entitled to reasonable
compensation for its services. In the event that no such successor custodian
can be found, Fund will submit to its shareholders before permitting delivery
of the cash and securities owned by Fund to anyone other than a successor
custodian, the question of whether the Fund will be liquidated or function
without a custodian. Notwithstanding the foregoing requirement as to delivery
upon termination of this Agreement, Custodian may make any other delivery of
the securities, funds and property of the Fund permitted by the Investment
Company Act of 1940, Fund~s Certificate of Incorporation and Bylaws
<PAGE> 18
then in effect or apply to a court of competent jurisdiction for the
appointment of a successor custodian.
8. NOTICES
Notices, requests, instructions and other writings received by Fund at
Financial Square, New York, New York 10005 or at such other address as Fund may
have designated to Custodian in writing, will be deemed to have been properly
given to Fund hereunder; and notices, requests, instructions and other writings
received by Custodian at its offices at 127 West 10th Street, 14th Floor,
Kansas City, Missouri 64105, or to such other address as it may have designated
to Fund in writing, will be deemed to have been properly given to Custodian
hereunder. Until further notice is given to the Custodian, all notices and
writings to be delivered to the Fund by Custodian shall be given to Mr. Irwood
Schlackman, c/o Cowen & Co., Financial Square, New York, New York 10005 and
IFTC shall on a best efforts basis also give a copy to Mr. Stuart F. Goodman at
the same address.
9. MISCELLANEOUS
A. This Agreement is executed and delivered in the State of Missouri and shall
be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successor and assigns
of the parties hereto.
C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
D. 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.
E. This Agreement shall become effective at the opening of business-on the 9th
day of May, 1988.
F. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original but all of which
together will constitute one and the same instrument.
<PAGE> 19
G. If any part, term or provision of this Agreement is by the courts held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
H. Custodian will not release the identity of Fund to an issuer which
requests such information pursuant to the Shareholder Communications
Act of 1985 for the specific purpose of direct communications between
such issuer and Fund unless the Fund directs the Custodian otherwise.
I. This Agreement may not be assigned by either party without prior
written consent of the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Christopher E. Black, Vice President
ATTEST: /s/ Cheryl J. Naegler, Assistant Secretary
STANDBY TAX-EXEMPT RESERVE FUND, INC.
By: /s/ Stuart Goodman, Treasurer
ATTEST: /s/ Faith Colish, Secretary
<PAGE> 1
AGENCY AGREEMENT
THIS AGREEMENT made the 6th day of May, 1988, by and between STANDBY TAX-EXEMPT
RESERVE FUND, INC. a corporation existing under the laws of the State of
Maryland, having its principal place of business at Financial Square, New York,
New York 10005 ("Fund"), and INVESTORS FIDUCIARY TRUST COMPANY, a state
chartered trust company organized and existing under the laws of the State of
Missouri, having its principal place of business at 127 West 10th Street, Kansas
City, Missouri 64105 ("IFTC"):
WITNESSETH:
WHEREAS, the Fund has issued or intends to issue one or more series of its
Common Stock, $.01 par value per share, with the proceeds of the sale allocated
to the Fund's investment program; and
WHEREAS, Fund desires to appoint IFTC as Transfer Agent and Dividend
Disbursing Agent with respect to its common stock, and IFTC desires to accept
such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment
In connection with the appointment of IFTC as Transfer Agent and
Dividend Disbursing Agent for Fund, there will be filed with IFTC the
following documents:
A. A certified copy of the resolutions of the Board of Directors of Fund
appointing IFTC as Transfer Agent and Dividend Disbursing Agent, approving the
form of this Agreement, and designating certain persons to sign stock
certificates, if any, and give written instructions and requests on behalf of
Fund;
B. A certified copy of the Articles of Incorporation of Fund and all
amendments thereto;
C. A certified copy of the Bylaws of Fund;
D. Copies of Registration Statements and amendments thereto, filed with the
Securities and Exchange Commission.
<PAGE> 2
E. Specimens of all forms of outstanding stock certificates, in the forms
approved by the Board of Directors of Fund, with a certificate of the Secretary
of Fund, as to such approval;
F. Specimens of the signatures of the officers of the Fund authorized to sign
stock certificates and individuals authorized to sign written instructions and
requests;
G. An opinion of counsel for Fund with respect to:
(1) Fund's organization and existence under the laws of its state of
organization,
(2) Status of all shares of stock of Fund covered by the appointment under the
Securities Act of 1933, as amended, and any other applicable federal or state
statute and
(3) That all issued shares are, and all unissued shares will be, when issued,
validly issued, fully paid and nonassessable.
2. Certain Representations and Warranties of IFTC
IFTC represents and warrants to Fund that:
A. It is a trust company duly organized and existing and in good standing under
the laws of Missouri.
B. It is duly qualified to carry on its business in the State of Missouri.
C. It is empowered under applicable laws and by its Articles of
Incorporation and bylaws to enter into and perform the services
contemplated in this Agreement.
D. It is registered as a transfer agent to the extent required under the
Securities Exchange Act of 1934.
E. All requisite corporate proceedings have been taken to authorize it to enter
into and perform this Agreement.
F. It has and will continue to have and maintain the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
<PAGE> 3
3. Certain Representations and Warranties of Fund
Fund represents and warrants to IFTC that:
A. It is a corporation duly organized and existing and in good standing under
the laws of the State of Maryland.
B. It is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended.
C. A registration statement under the Securities Act of 1933 has been filed and
will be effective with respect to all shares of Fund being offered for sale.
D. All requisite steps have been or will be taken as necessary to qualify
Fund's shares for sale in all applicable states.
E. Fund is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement.
4. Scope of Appointment
A. Subject to the conditions set forth in this Agreement, Fund hereby
employs and appoints IFTC as Transfer Agent and Dividend Disbursing
Agent on or about May 6, 1988 or in accordance with the Fund's
Registration Statement.
B. IFTC hereby accepts such employment and appointment and agrees that it will
act as Fund's Transfer Agent and Dividend Disbursing Agent. IFTC agrees that it
will also act as agent in connection with Fund's periodic withdrawal payment
accounts and other open accounts or similar plans for shareholders, if any.
C. IFTC agrees to provide the necessary facilities, equipment and personnel to
perform its duties and obligations hereunder in accordance with industry
practice.
D. Fund agrees to use its best efforts to deliver to IFTC in Kansas City,
Missouri, as soon as they are available, all of its shareholder account
records.
E. Subject to the provisions of Sections 19. and 20. hereof, IFTC agrees
<PAGE> 4
that it will perform all of the usual and ordinary services of Transfer Agent
and Dividend Disbursing Agent and as Agent for the various shareholder
accounts, including, without limitation, the following: issuing, transferring
and cancelling stock certificates, maintaining all shareholder accounts
(including, determining that (i) Fund shares purchased from Fund have been
added to the proper shareholder account or accounts and (ii) Fund shares
repurchased or redeemed by Fund have been removed from the proper shareholder
account or accounts and (iii) the proper number of shares have been added,
removed or cancelled from the Fund's shareholder records), preparing
shareholder meeting lists, mailing proxies, receiving and tabulating proxies,
mailing shareholder reports and prospectuses, withholding taxes on nonresident
alien and foreign corporation accounts, for pension and deferred income, backup
withholding or other instances agreed upon by the parties, preparing and
mailing checks for disbursement of income dividends and capital gains
distributions, preparing and filing U.S. Treasury Department Form 1099 for all
shareholders, preparing and mailing confirmation forms to shareholders and
dealers with respect to all purchases and liquidations of Fund shares and other
transactions in shareholder accounts for which confirmations are required,
recording reinvestments of dividends and distributions in Fund shares,
recording redemptions of Fund shares and preparing and mailing checks for
payments upon redemption and for disbursements to withdrawal plan holders.
F. Whenever any Fund shares are repurchased or redeemed by Fund, IFTC
shall advise the Fund's custodian of the stock so repurchased or redeemed, the
aggregate dollar amount to be paid for such shares, and shall confirm such
advice in writing.
G. Whenever Fund shares are purchased from Fund, IFTC will deposit with the
Fund's custodian the amount received for such shares into the account of the
Fund.
H. IFTC agrees to generate reports which provide certain information for blue
sky reporting by the Fund at least on a monthly basis within five business days
after the end of the month.
5. Limit of Authority
Unless otherwise expressly limited by the resolution of appointment or by
subsequent action by the Fund, the appointment of IFTC as Transfer Agent will
be construed to cover the full amount of authorized stock of the class or
classes for which IFTC is appointed as the same will, from time to time, be
constituted and any subsequent increases in such authorized amount.
<PAGE> 5
In case of such increase Fund will file with IFTC:
A. If the appointment of IFTC was theretofore expressly limited, a certified
copy of a resolution of the Board of Directors of Fund increasing the authority
of IFTC;
B. A certified copy of the amendment to the Articles of Incorporation of Fund
authorizing the increase of stock;
C. A certified copy of the order or consent of each governmental or
regulatory authority required by law to consent to the issuance of the
increased stock, and an opinion of-counsel that the order or consent of no
other governmental or regulatory authority is required;
D. Opinion of counsel for Fund stating:
(1) The status of the additional shares of stock of Fund under the Securities
Act of 1933, as amended, and any other applicable federal or state statute; and
(2) That the additional shares are, or when issued will be, validly issued,
fully paid and nonassessable.
6. Compensation and Expenses
A. In consideration for its services hereunder as Transfer Agent and
Dividend Disbursing Agent, Fund will pay to IFTC from time to time a
reasonable compensation for all services rendered as Agent, and also, all its
reasonable out-of-pocket expenses, charges, counsel fees, and other
disbursements incurred in connection with the agency. Such compensation will be
set forth in a separate schedule to be agreed to by Fund and IFTC, a copy of
which is attached hereto and incorporated herein by reference as though fully
set out at this point. If and as permitted by applicable law, IFTC may charge
against any monies held under this Agreement, the amount of any compensation,
expense, loss, or liability for which IFTC shall be entitled to reimbursement
under this Agreement on account of services performed for the Fund.
B. Fund agrees to promptly reimburse IFTC for all reasonable
out-of-pocket expenses or advances incurred by IFTC in connection with the
performance of services under this Agreement, for postage (and first class mail
insurance in connection with mailing stock certificates),
<PAGE> 6
envelopes, check forms, continuous forms, forms for reports and
statements, stationery, and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers or shareholders, microfilm
used each year to record the previous year's transaction in shareholder
accounts and computer tapes used for permanent storage of records and cost of
insertion of materials in mailing envelopes by outside firms.
7. Operation of IFTC System
A. In connection with the performance of its services under this
Agreement, IFTC is responsible for such items as:
(1) The accuracy of entries in IFTC's records reflecting orders and
instructions received by IFTC from dealers, shareholders, Fund or its
principal underwriter;
(2) The availability and the accuracy of shareholder lists, shareholder account
verifications, confirmations and other shareholder account information to be
produced from its records or data;
(3) The accurate and timely issuance of dividend and distribution checks in
accordance with instructions received from Fund;
(4) The accuracy of redemption transactions and payments in accordance with
redemption instructions received from dealers, shareholders or Fund;
(5) The deposit daily in the appropriate special bank account established for
the Fund of all checks and payments received from dealers or shareholders for
investment in shares;
(6) The requiring of proper forms of instructions, signatures and signature
guarantees and any necessary documents supporting the legality of transfers,
redemptions and other shareholder account transactions, all in conformance with
IFTC's present procedures with such changes as may be required or approved by
Fund; and
(7) The maintenance of a current duplicate set of Fund's essential records at a
secure distant location, in a form available and usable forthwith in the event
of any breakdown or disaster disrupting its main operation.
8. Indemnification
<PAGE> 7
A. Except to the extent that IFTC is covered by and receives payment from any
insurance required hereunder, IFTC will not be responsible for, and Fund will
hold harmless and indemnify IFTC from and against any loss by or liability to
the Fund or a third party, including attorney's fees, in connection with any
claim or suit asserting any such liability arising out of or attributable to
actions taken or omitted by IFTC pursuant to this Agreement, unless IFTC has
acted negligently or in bad faith or in a manner constituting willful
misconduct. The matters covered by this indemnification include but are not
limited to those of Section 14 hereof.
Fund will be responsible for, and will have the right to conduct or control the
defense of any litigation asserting liability against which IFTC is indemnified
hereunder. IFTC will not be under any obligation to prosecute or defend any
action or suit in respect of the agency relationship hereunder, which, in its
opinion, may involve it in expense or liability, unless Fund will, as often as
requested, furnish IFTC with reasonable, satisfactory security and indemnity
against such expense or liability.
B. IFTC will hold harmless and indemnify Fund from and against any loss or
liability arising out of IFTC's failure to comply with the terms of this
Agreement or in breach of any representation or warranty of IFTC arising out of
IFTC's negligence, misconduct, or bad faith.
9. Certain Covenants of IFTC and Fund
A. All requisite steps will be taken by Fund from time to time when and as
necessary to qualify the Fund's shares for sale in all states in which Fund's
shares shall at the time be offered for sale and require qualification. If at
any time Fund will receive notice of any stop order or other proceeding in any
such state affecting such registration or the sale of Fund's shares, or of any
stop order or other proceeding under the Federal securities laws affecting the
sale of Fund's shares, Fund will give prompt notice thereof to IFTC.
B. IFTC hereby agrees to perform such transfer agency functions as are attached
hereto as Exhibit A and establish and maintain facilities and procedures
reasonably acceptable to Fund for safekeeping of stock certificates, check
forms, and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices, and to carry insurance as specified in Exhibit B which will not be
lowered without notice to Fund.
C. To the extent required by Section 31 of the Investment Company Act of
<PAGE> 8
1940 as amended and Rules thereunder, IFTC agrees that all records
maintained by IFTC relating to the services to be performed by IFTC under this
Agreement are the property of Fund and will be preserved and will be
surrendered promptly to Fund on request.
D. IFTC agrees to furnish Fund semiannual reports of its financial
condition, consisting of a balance sheet, earnings statement and any other
financial information reasonably requested by Fund. The annual financial
statements will be certified by IFTC's certified public accountants.
E. IFTC represents and agrees that it will use its best efforts to keep current
on the trends of the investment company industry relating to shareholder
services and will use its best efforts to continue to modernize and improve its
system without additional cost to Fund.
F. IFTC will permit Fund and its authorized representatives to make
periodic inspections of its operations at reasonable time during business
hours.
10. Recapitalization or Readjustment
In case of any recapitalization, readjustment or other change in the capital
structure of Fund requiring a change in the form of stock certificates, IFTC
will issue or register certificates in the new form in exchange for, or in
transfer of, the outstanding certificates in the old form, upon receiving:
A. Written instructions from an officer of Fund;
B. Certified copy of the amendment to the Articles of Incorporation or other
document effecting the change;
C. Certified copy of the order or consent of each governmental or
regulatory authority, required by law to the issuance of the stock in the new
form, and an opinion of counsel that the order or consent of no other
government or regulatory authority is required;
D. Specimens of the new certificates in the form approved by the Board of
Directors of Fund, with a certificate of the Secretary of Fund as to such
approval;
E. Opinion of counsel for Fund stating:
(1) The status of the shares of stock of Fund in the new form under the
<PAGE> 9
Securities Act of 1933, as amended and any other applicable federal or state
statute; and
(2) That the issued shares in the new form are, and all unissued shares will
be, when issued, validly issued, fully paid and nonassessable.
11. Stock Certificates
Fund will furnish IFTC with a sufficient supply of blank stock certificates and
from time to time will renew such supply upon the request of IFTC. Such
certificates will be signed manually or by facsimile signatures of the officers
of Fund authorized by law and by bylaws to sign stock certificates, and if
required, will bear the corporate seal or facsimile thereof.
12. Death, Resignation or Removal of Signing Officer
Fund will file promptly with IFTC written notice of any change in the
officers authorized to sign stock certificates, written instructions or
requests, together with two signature cards bearing the specimen signature of
each newly authorized officer. In case any officer of Fund who will have signed
manually or whose facsimile signature will have been affixed to blank stock
certificates will die, resign, or be removed prior to the issuance of such
certificates, IFTC may issue or register such stock certificates as the stock
certificates of Fund notwithstanding such death, resignation, or removal, until
specifically directed to the contrary by Fund in writing. In the absence of
such direction, Fund will file promptly with IFTC such approval, adoption, or
ratification as may be required by law.
13. Future Amendments of Charter and Bylaws
Fund will promptly file with IFTC copies of all material amendments to its
Articles of Incorporation or bylaws made after the date of this Agreement.
14. Instructions, Opinion of Counsel and Signatures
At any time IFTC may apply to any officer of Fund for instructions, and may
consult with legal counsel for Fund or its own legal counsel at the expense of
Fund, with respect to any matter arising in connection with the agency and it
will not be liable for any action taken or omitted by it in good faith in
reliance upon such instructions or upon the opinion of such counsel. IFTC will
be protected in acting upon any paper or document reasonably believed by it to
be genuine and to have been signed by the proper person or persons and will not
be held to have notice of any change of authority of
<PAGE> 10
any person, until receipt of written notice thereof from Fund. It will also be
protected in recognizing stock certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the officers of Fund, and the
proper countersignature of any former Transfer Agent or Registrar, or of a
co-Transfer Agent or co-Registrar.
15. Papers Subject to Approval of Counsel
The acceptance by IFTC, of its appointment as Transfer Agent and
Dividend Disbursing Agent and all documents filed in connection with such
appointment and thereafter in connection with the agencies, will be subject to
the approval of IFTC's in-house legal counsel (which approval will be not
unreasonably withheld). For the purpose of securing IFTC's approval, Fund
agrees to forward to IFTC a copy of any document that Fund intends to file with
any regulatory authority which refers to the appointment of IFTC as the Fund's
Transfer Agent and Dividend Disbursing Agent. If IFTC or its legal counsel
disapproves or otherwise objects to the use of its name in such document it
shall notify the Fund in writing of its disapproval or objection within a
reasonable time after receiving such document for review, but in any event not
less than one business day before such document must be filed with such
regulatory authority.
16. Certification of Documents
The required copy of the Articles of Incorporation of Fund and copies of all
amendments thereto will be certified by the Secretary of State (or other
appropriate official) of the State of Incorporation, and if such Articles of
Incorporation and amendments are required by law to be also filed with a
county, city or other officer of official body, a certificate of such filing
will appear on the certified copy submitted to IFTC. A copy of the order or
consent of each governmental or regulatory authority required by law to the
issuance of the stock will be certified by the Secretary or Clerk of such
governmental or regulatory authority, under proper seal of such authority. The
copy of the Bylaws and copies of all amendments thereto, and copies of
resolutions of the Board of Directors of Fund, will be certified by the
Secretary or an Assistant Secretary of Fund under the corporate seal.
17. Records
IFTC will maintain customary records in connection with its agency, and
particularly will maintain those records required to be maintained pursuant to
subparagraph (2) (iv) of paragraph (b) of Rule 31a-1, 31a-2 and 31a-3 under the
Investment Company Act of 1940, if any.
<PAGE> 11
18. Disposition of Books, Records and Cancelled Certificates
IFTC will send periodically to Fund, or to where designated by the
Secretary or an Assistant Secretary of Fund, all books, documents, and all
records no longer deemed needed for current purposes and stock certificates
which have been cancelled in transfer or in exchange, upon the understanding
that such books, documents, records, and stock certificates will not be
destroyed by Fund without the consent of IFTC (which consent will not be
unreasonably withheld), but will be safely stored for possible future
reference.
19. Provisions Relating to IFTC as Transfer Agent
A. IFTC will make original issues of stock certificates upon written request of
an officer of Fund and upon being furnished with a certified copy of a
resolution of the Board of Directors authorizing such original issue, an
opinion of counsel as outlined in paragraphs 1.D. and G. of this Agreement, any
documents required by paragraphs 5. or 10. of this Agreement, and necessary
funds for the payment of any original issue tax.
B. Before making any original issue of certificates Fund will furnish IFTC with
sufficient funds to pay all required taxes on the original issue of the stock,
if any. Fund will furnish IFTC such evidence as may be required by IFTC to show
the actual value of the stock. If no taxes are payable IFTC will be furnished
with an opinion of outside counsel to that effect.
C. Shares of stock will be transferred and new certificates issued in
transfer, or shares of stock accepted for redemption and funds remitted
therefor, upon surrender of the old certificates in form deemed by IFTC
properly endorsed for transfer or redemption accompanied by such documents as
IFTC may deem necessary to evidence that authority of the person making the
transfer or redemption, and bearing satisfactory evidence of the payment of any
applicable stock transfer taxes. IFTC reserves the right to refuse to transfer
or redeem shares until it is satisfied that the endorsement or signature on the
certificate or any other document is valid and genuine, and for that purpose it
may require a guaranty of signature by a firm having membership in the New York
Stock Exchange, Midwest Stock Exchange, American Stock Exchange Securities
Corporation, Pacific Coast Stock Exchange, or any other exchange acceptable to
IFTC or by a bank or trust company approved by it. IFTC also reserves the right
to refuse to transfer or redeem shares until it is satisfied that the requested
transfer or redemption is legally authorized, and
<PAGE> 12
it will incur no liability for the refusal in good faith to make transfers or
redemptions which, in its judgment, are improper or unauthorized. IFTC may, in
effecting transfers or redemptions, rely upon Simplification Acts or other
statutes which protect it and Fund in not requiring complete fiduciary
documentation. In cases in which IFTC is not directed or otherwise required to
maintain the consolidated records of shareholder's accounts, IFTC will not be
liable for any loss which may arise by reason of not having such records,
provided that such loss could not have been prevented by the exercise of
ordinary diligence. IFTC will be under no duty to use a greater degree of
diligence by reason of not having such records.
D. When mail is used for delivery of stock certificates IFTC will forward stock
certificates in "nonnegotiable" form by first class or registered mail and
stock certificates in "negotiable" form by registered mail, all such mail
deliveries to be covered while in transit to the addressee by insurance
arranged for by IFTC.
E. IFTC will issue and mail subscription warrants, certificates representing
stock dividends, exchanges or split ups, or act as Conversion Agent upon
receiving written instructions from any authorized officer of Fund pursuant to
section 1.A. hereunder and such other documents as IFTC deems necessary.
F. IFTC will issue, transfer, and split up certificates and will issue
certificates of stock representing full shares upon surrender of scrip
certificates aggregating one full share or more when presented to IFTC for that
purpose upon receiving written instructions from an officer of Fund and such
other documents as IFTC may deem necessary.
G. IFTC may issue new certificates in place of certificates represented to have
been lost, destroyed, stolen or otherwise wrongfully taken upon receiving
instructions from Fund and indemnity satisfactory to IFTC and Fund, and may
issue new certificates in exchange for, and upon surrender of, mutilated
certificates. Such instructions from Fund will be in such form as will be
approved by the Board of Directors of Fund and will be in accordance with the
provisions of law and the bylaws of Fund governing such matter.
H. IFTC will supply a list of the holders of each series of stock to Fund for
any meeting of shareholders called by the Fund upon receiving a request from an
officer of Fund. It will also supply lists at such other times as may be
requested by an officer of Fund.
<PAGE> 13
I. Upon receipt of written instructions of an officer of Fund, IFTC will
address and mail notices to shareholders.
J. In case of any request or demand for the inspection of the stock books of
Fund or any other books in the possession of IFTC, IFTC will endeavor to notify
Fund and to secure instructions as to permitting or refusing such inspection.
IFTC reserves the right, however, to exhibit the stock books or other books to
any person in case it is advised by its counsel that it may be held responsible
for the failure to exhibit the stock books or other books to such person.
20. Provisions Relating to Dividend Disbursing Agency
A. IFTC will, at the expense of Fund, provide a special form of check
containing the imprint of any device or other matter desired by Fund. Said
checks must, however, be of a form and size convenient for use by IFTC.
B. If Fund desires to include additional printed matter, financial statements,
etc., with the dividend checks, the same will be furnished IFTC within a
reasonable time prior to the date of mailing of the dividend checks, at the
expense of Fund.
C. If Fund desires its distributions mailed in any special form of envelopes,
sufficient supply of the same will be furnished to IFTC but the size and form
of said envelopes will be subject to the approval of IFTC. If stamped envelopes
are used, they must be furnished by Fund; or if postage stamps are to be
affixed to the envelopes, the stamps or the cash necessary for such stamps must
be furnished by Fund.
D. IFTC will maintain one or more deposit accounts as Agent for the Fund, into
which the funds for payment of dividends, distributions, redemptions or other
disbursements provided for hereunder with respect to the Fund's stock will be
deposited, and against which checks for amounts payable from will be drawn.
E. IFTC is authorized and directed to stop payment of checks theretofore issued
hereunder, but not presented for payment, when the payees thereof allege either
that they have not received the checks or that such checks have been mislaid,
lost, stolen, destroyed or through no fault of theirs, are otherwise beyond
their control, and cannot be produced by them for presentation and collection,
and, to issue and deliver duplicate checks in replacement thereof.
<PAGE> 14
21. Termination of Agreement
A. This Agreement may be terminated by either party upon receipt of
ninety (90) days written notice from the other party.
B. Fund, in addition to any other rights and remedies, shall have the right to
terminate this Agreement forthwith upon the occurrence at any time of any of
the following events:
(1) Any interruption or cessation of operations by IFTC or its assigns which
materially interferes with the business operation of Fund;
(2) The bankruptcy of IFTC or its assigns or the appointment of a receiver for
IFTC or its assigns;
(3) Any merger, consolidation or sale of substantially all the assets of IFTC
or its assigns;
(4) The acquisition of a controlling interest in IFTC or its assigns, by any
broker, dealer, investment adviser or investment company except as may
presently exist; or
(5) Failure by IFTC or its assigns to perform its duties in accordance with the
Agreement, which failure materially adversely affects the business operations
of Fund and which failure continues for thirty (30) days after receipt of
written notice from Fund.
C. If at any time this Agreement will be terminated by Fund pursuant
to clause (1), (2) or (5) of Section 21.B., IFTC will assign this Agreement to
DST Systems Inc. who will assume the duties and obligations agreed to by IFTC
under the same terms and conditions expressed herein.
D. In the event of termination, Fund will promptly pay IFTC all amounts due to
IFTC hereunder.
22. Assignment
A. Neither this Agreement nor any rights or obligations hereunder may be
assigned by IFTC without the written consent of Fund; provided, however, no
assignment will relieve IFTC of any of its obligations hereunder.
B. This Agreement will inure to the benefit of and be binding upon the
<PAGE> 15
parties and their respective successors and assigns.
23. Confidentiality
A. IFTC agrees that, except as provided in the last sentence of Section 19.J
hereof, or as otherwise required by law, IFTC will keep confidential all
records of and information in its possession relating to Fund or its
shareholders or shareholder accounts and will not disclose the same to any
person except at the request or with the consent of Fund.
B. Fund agrees to keep confidential all financial statements and other
financial records (other than statements and records relating solely to Fund's
business dealings with IFTC) and all manuals, systems and other technical
information and data, not publicly disclosed, relating to IFTC's operations and
programs furnished to it by IFTC pursuant to this Agreement and will not
disclose the same to any person except at the request or with the consent of
IFTC.
24. Survival of Representations and Warranties
A. All representations and warranties by either party herein contained will
survive the execution and delivery of this Agreement.
25. Miscellaneous
A. This Agreement is executed and delivered in the State of Missouri and shall
be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successor and assigns
of the parties hereto.
C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
D. 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.
E. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
<PAGE> 16
F. If any part, term or provision of this Agreement is by the court held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
G. Notices, requests, instructions and other writings received by Fund at
Financial Square, New York, New York 10005, or at such address as Fund may have
designated to IFTC in writing, will be deemed to have been properly given to
Fund hereunder; and notices, requests, instructions and other writings received
by IFTC at its offices at 127 West 10th Street, 14th Floor, Kansas City,
Missouri 64105, or 111 West 10th Street, Kansas City, Missouri 64105 or to such
other address as it may have designated to Fund in writing, will be deemed to
have been properly given to IFTC hereunder. Until further notice is given to
IFTC, all notices and writings to be delivered to the Fund by IFTC shall be
given to Mr. Irwood Schlackman, c/o Cowen & Co., Financial Square, New York,
New York 10005 and IFTC shall on a best efforts basis also give a copy to Mr.
Stuart F. Goodman, c/o Cowen & Co., Financial Square, New York, New York
10005.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
/s/ Christopher E. Black, Vice President
ATTEST:
/s/ Cheryl J. Naegler, Assistant Secretary
STANDBY TAX-EXEMPT RESERVE FUND, INC.
/s/ Stuart Goodman, Treasurer
ATTEST:
/s/ Faith Colish, Secretary Exhibit A
TRANSFER AGENCY SERVICES AND SYSTEMS FEATURES
<PAGE> 17
Functions
A. Issuance of stock certificates B. Recording of noncertificate shares C.
Purchase, redemptions, exchanges, transfers and legals D. Changes of address,
etc. E. Daily balancing of fund F. Dividend calculation and disbursement G.
Mailing of quarterly, semi-annual or annual reports H. Filing of 1099/1042
information to shareholders and government I. Provide N-SAR information J.
Systematic withdrawal plans K. Preauthorized checks L. Purchase reminders M.
Reconcilement of dividend and disbursement accounts N. Provide research and
correspondence to shareholder's inquiries 0. Daily communication of reports to
funds P. Provide listings, labels and other special reports Q. Proxy issuance
and tabulation R. Annual statements of shareholders on microfilm S. Blue-sky
reports T. Wire order processing
Exhibit B
INSURANCE COVERAGE
Insurance coverages maintained by IFTC effective January 1, 1988.
Description of Policy:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of
securities on or outside of premises while in possession of authorized person,
loss caused by forgery or alteration of checks or similar instruments.
Coverage: 75,000,000
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and
omissions.
Coverage: $10,000,000
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of
<PAGE> 18
customer processed by insured but drawn on or against them.
Coverage: $500,000
Mail Insurance (applies to all full service operations)
Provides indemnity for security lost in the mails.
Coverage:
$10,000,000 nonnegotiable securities mailed to domestic locations via
registered mail.
$1,000,000 negotiable securities mailed to domestic locations via first-class
or certified mail.
$1,000,000 nonnegotiable securities mailed to foreign locations via
registered mail.
$1,000,000 negotiable securities mailed to all locations via registered mail.
<PAGE> 1
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER 153
EAST 53RD STREET
NEW YORK, N.Y. 10022
(212) 935-8000
March 3, 1986
Standby Tax-Exempt Reserve Fund, Inc.
One Battery Park Plaza
New York, New York 10004
Gentlemen:
We have acted as counsel to Standby Tax-Exempt Reserve Fund, Inc. (the "Fund"),
a corporation organized under the laws of the State of Maryland, in connection
with the preparation of a Registration Statement on Form N-1A (the
"Registration Statement") covering the offer and sale of an indefinite number
of shares of Common Stock of the Fund, par value $.001 per share (the
"Shares").
We have examined copies of the Articles of Incorporation and By-Laws of the
Fund, the Registration Statement, all resolutions adopted by the Fund's Board
of Directors (the "Board") at its initial meeting held on January 14, 1986,
consents of the Board and other records and documents that we have deemed
necessary for the purpose of this opinion. We have also examined such other
documents, papers, statutes and authorities as we have deemed necessary to form
a basis for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied
upon statements and certificates of officers and representatives of the Fund
and others.
Based upon the foregoing, we are of the opinion that the Shares, when duly
sold, issued and paid for in accordance with the terms of the Prospectus and
the Statement of Additional Information included as part of the Registration
Statement, will be validly and legally issued and will be fully paid and
non-assessable shares of Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Statement of
<PAGE> 2
Additional Information included as part of the Registration Statement and to
the filing of this opinion as an exhibit to any application made by or on
behalf of the Fund or any distributor or dealer in connection with the
registration or qualification of the Fund or the Shares under the securities
laws of any state or other jurisdiction.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
EXHIBIT 11
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 October 29, 1996 in this
Registration Statement (Form N-1A No. 2-98681) of Cowen Standby Tax-Exempt
Reserve Fund, Inc.
ERNST & YOUNG LLP
New York, New York
January 24, 1997
