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001 A000000 COWEN INCOME + GROWTH FUND, INC.
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<PAGE> PAGE 2
080 A000000 VIGILANT INSURANCE CO.
080 C000000 2675
081 A000000 Y
081 B000000 5
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SIGNATURE CREIGHTON S. PEET
TITLE TREASURER
Board of Directors of Cowen Income + Growth Fund,
Inc.
Board of Directors of Cowen Funds, Inc.
Partners of Cowen and Company
New York, New York
We have examined the accompanying description of the
multiple distribution system of Cowen and Company
(the "Advisor") for calculating the net asset value
and dividends and distributions with respect to the
allocation of income and expenses to the three
classes of shares of the Funds listed on Exhibit I
(the "Funds"). Our examination included procedures
to obtain reasonable assurance about whether (1) the
accompanying description presents fairly, in all
material respects, the aspects of the Advisor's
policies and procedures that may be relevant to the
Fund_s internal control structure, (2) the control
structure policies and procedures included in the
description were suitably designed to achieve the
control objectives specified in the description, if
those policies and procedures were complied with
satisfactorily, and the Fund's organization applied
the internal control structure policies and
procedures contemplated in the design of the
Advisor's policies and procedures, and (3) such
policies and procedures were in existence as of
November 30, 1995. The control objectives were
specified by the Advisor. Our examination was
performed in accordance with standards established
by the American Institute of Certified Public
Accountants and included those procedures we
considered necessary in the circumstances to obtain
a reasonable basis for rendering our opinion.
In our opinion, the accompanying description of the
aforementioned system presents fairly, in all
material respects, the relevant aspects of the
Advisor's policies and procedures that had been
placed in operation as of November 30, 1995. Also,
in our opinion, the policies and procedures, as
described, are suitably designed to provide
reasonable assurance that the specified control
objectives would be achieved if the described
policies and procedures were complied with
satisfactorily.
In addition to the procedures we considered
necessary to render our opinion as expressed in the
previous paragraph, we applied tests to specific
policies and procedures, listed in the attached
description, to obtain evidence about their
effectiveness in meeting the control objectives
described in the attached description, during the
period from December 1, 1994 to November 30, 1995.
The specific policies and procedures and the nature,
timing, extent, and results of the tests are listed
in the attached description. In our opinion, the
policies and procedures that were tested, as
described in the attached description, were
operating with sufficient effectiveness to provide
reasonable, but not absolute, assurance that the
control objectives specified in the attached
description were achieved during the period from
December 1, 1994 to November 30, 1995. However, the
scope of our engagement did not include tests to
determine whether control objectives not listed in
the attached description were achieved; accordingly,
we express no opinion on the achievement of control
objectives not included in the attached description.
The description of policies and procedures at the
Advisor is as of November 30, 1995 and information
about tests of operating effectiveness of specified
policies and procedures covers the period from
December 1, 1994 to November 30, 1995. Any
projection of such information to the future is
subject to the risk that, because of change, the
description may no longer portray the system in
existence. The potential effectiveness of specific
policies and procedures at the Advisor is subject to
inherent limitations and, accordingly, errors or
irregularities may occur and not be detected.
Furthermore, the projection of any conclusions,
based on our findings, to future periods is subject
to the risk that changes may alter the validity of
such conclusions.
This report is intended solely for the use by the
management of the Advisor, the Funds, and the
Securities and Exchange Commission and should not be
used for any other purpose.
ERNST & YOUNG LLP
New York, New York
January 3, 1996
Policies and Procedures for Calculating Net Asset
Value and Dividends and
Distributions Relating to the Allocation of Income
and Expenses to the
Multiple Classes of Shares of the Cowen Group of
Funds
Description of the System
Cowen and Company (the "Advisor") and the Funds
listed on Exhibit I have implemented a plan relating
to the establishment of a multiple distribution
arrangement (the "System") for different classes of
shares to be offered to different categories of
investors.
The System would enable the Funds to offer investors
the option of purchasing shares subject to; (i) a
conventional front-end sales charge ("Class A
shares"); or (ii) a contingent deferred sales charge
("Class B shares"); or (iii) not subject to any such
sales charges ("Class C shares"). The Funds will
pay to Cowen and Company (also the "Distributor") a
distribution fee pursuant to the Funds_ Rule 12b-1
distribution plan at an annual rate of up to .75 of
1% of the average daily net asset value of the Class
B shares. The Fund may also pay to the Distributor
a service fee on Class A and Class B shares at an
annual rate of up to .25 of 1% of the average daily
net asset value of Class A and Class B shares,
respectively. The three classes each represent
interests in the same portfolio of investments of
the Funds. For accounting purposes, the three
classes of the Funds will be identical except that
(i) the distribution fees payable by the Funds to
the Distributor will be only for Class B shares;
(ii) the service fees payable by the Funds to the
Distributor may differ among the Class A and Class B
shares; (iii) Class-level expenses (limited to: (a)
transfer agency fees as identified by the transfer
agent as being attributable to a specific class; (b)
printing and postage expenses related to preparing
and distributing materials such as shareholder
reports, prospectuses and proxies to current
shareholders; (c) Blue Sky registration fees
incurred by a class of shares; (d) Commission
registration fees incurred by a class of shares; (e)
the expenses of administrative personnel and
services as required to support
the shareholders of Class B shares; (f) litigation
or other legal expenses relating solely to one class
of shares; and (g) directors' fees incurred as a
result of issues relating to one class of shares)
attributable to each of the Class A, Class B and
Class C shares
may differ; (iv) each class will bear any other
incremental expenses subsequently identified that
should be properly allocated to the class which
shall be approved by the Commission pursuant to an
amended order.
On a daily basis, the net asset value of all
outstanding shares of the three classes will be
determined by dividing the ending total net assets
applicable to a specific class by the number of
shares outstanding relating to that class. Expenses
are attributable to each class of shares depending
on the nature of the expenditure and are accrued on
a daily basis. These expenses fall into two
categories: (1) fund level expenses that are
attributable to each class that are allocated based
on relative net assets at the beginning of the day
(e.g., legal, audit, etc.) and, (2) certain class
level expenses that may have a different cost for
one class versus the others (e.g., 12b-1 fees,
service fees and transfer agent fees). Because of
the additional expense that is borne by the Class A
and Class B shares, the net income attributable to
and the dividends payable on Class A and Class B
shares will be lower than the net income
attributable to and the dividends payable on Class C
shares.
Specific Control Objectives
The following are the specific control objectives of
the Funds system of internal accounting control
relating to the allocation of income and expenses to
the three classes of shares within the Funds:
_ Income and expenses are properly
allocated among the three classes of shares within
the Funds.
_ Distribution expenses and service fee
expenses with respect to each class are properly
calculated.
_ Dividends and distributions are
recorded correctly as to account, amount, period and
class of shares of the Funds.
_ Net asset value per share ("NAV") of
each class of shares of the Funds includes the
appropriate amount of income and expense, including
those expenses allocated to each class of shares.
Procedures to Achieve Specific Control Objectives
The following procedures are designed to account for
the three classes of shares in the Funds:
_ On a daily basis, a fund accountant
calculates the distribution fees to be
charged to Class B shares by applying an annual fee
rate of up to .75 of 1% to the prior day's closing
net assets. The fund accountant also calculates the
service fee to be charged to Class A and Class B
shares at a rate not to exceed .25 of 1% of the
prior day's closing net assets. In addition, the
fund accountant calculates fund-level expenses to be
allocated to each class of shares.
_ Using the Multiple Class NAV Rollforward, the
fund accountant allocates the
total daily income and expenses (including realized
and/or unrealized gains or losses) among Class A,
Class B and Class C shares, based upon their
respective net assets at the beginning of the
current day after considering prior day's capital
share transactions. The number of shares
outstanding in each class is provided to the fund
accountant by the Fund's transfer agent who
maintains each class of shares in a separate
account.
_ Cowen Income + Growth Fund, Inc. and Cowen
Opportunity Fund (a series of
Cowen Funds, Inc.) do not distribute net investment
income daily, therefore the sum of net investment
income available for all classes is determined (but
before consideration of expenses unique to each
class) and this sum is divided by total record date
shares for all classes combined to arrive at a
gross dividend rate for all shares. From this gross
rate, an amount per share for each class (which
represents unique and incrementally higher, if any,
expenses accrued during the period to that class
divided by record date shares for that class) is
subtracted. The result is the actual per share rate
available to each class.
Cowen Intermediate Fixed Income Fund and
Cowen Government Securities Fund (two series of
Cowen Funds, Inc.) distribute net investment income
daily, therefore upon completion of the daily
Multiple Class NAV Rollforward, the fund accountant
determines the required distribution by class of
shares by dividing daily net investment income
allocated to each class by the number of shares
eligible to receive dividends for the respective
shares.
Distributions of realized gains are
calculated by dividing the realized gains available
for distribution by the record date shares for each
class so that all shares receive the same per share
distribution.
_ The NAV by class will be determined by
dividing the ending total net assets applicable to a
specific class by the number of shares outstanding
relating to that class.
_ On a daily basis, the Fund's accounting
supervisor will review the distribution,
service and class-level expense calculations, income
and expense allocations, the NAV and dividends per
share calculations for each class, if applicable,
and initial the Multiple Class Fund daily checklist.
_ If the fund accountant notes any unusual
fluctuations among NAVs and
dividend rates of the classes in the Funds, the fund
accountant will research the matter and document the
reasons. The Funds' accounting supervisor reviews
and initials this documentation evidencing final
approval of the NAVs and dividend rates.
_ Before the NAVs and dividend rates are
released the Funds accounting supervisor reviews the
reasonableness of the NAVs and dividend rates.
Special attention is paid to the differences between
the NAVs and dividend rates of each class of shares.
_ Once the Fund's accounting supervisor is
satisfied that all of the above steps have been
completed and that the NAVs and dividend rates
appear reasonable, the NAVs and dividend rates are
made available to the transfer agent for processing
purposes.
Tests of Effectiveness of Control Structure
Procedures
Our tests of the effectiveness of control structure
procedures were designed to determine whether:
_ The description of the Advisor's policies and
procedures included in this report present fairly,
in all material respects, those aspects of the
Advisor's control structure that may be relevant to
a user organization's internal control structure;
_ the control structure procedures described in
this report were suitably designed to achieve the
control objectives defined in this report, if those
policies and procedures were complied with
satisfactorily;
_ the control structure procedures described in
this report had been placed in operation during the
period from December 1, 1994 to November 30, 1995,
and
_ the control structure procedures were
operating with sufficient effectiveness to provide
reasonable, but not absolute, assurance that the
control objectives described in this report were
achieved during the period from December 1, 1994 to
November 30,
1995.
Our tests of the effectiveness of control structure
procedures included the following procedures, to the
extent we considered necessary: (a) a review of the
Advisor's organizational structure, including the
segregation of functional responsibilities, policy
statements and personnel policies, (b) discussions
with management, accounting, administrative and
other personnel who are assigned responsibilities
for developing, ensuring adherence to and for
applying control structure procedures, (c)
observations of personnel on the performance of
their assigned duties, and (d) a review of the
actions taken in response to recommendations to
improve control structure procedures by regulators
having supervisory oversight over the Advisor's
activities.
Our tests of the effectiveness of control structure
procedures included such other tests as we
considered necessary in the circumstances to
evaluate whether those procedures, and the extent of
compliance with them, were sufficient to provide
reasonable, but not absolute, assurance that the
specified control objectives were achieved during
the period from December 1, 1994 to November 30,
1995. Our tests of the operational effectiveness of
control structure procedures were designed to cover
a representative number of calculations throughout
the period from December 1, 1994 to November 30,
1995 for each of the functions listed in this report
which satisfy the control objectives listed in this
report. In selecting particular tests of the
operational effectiveness of control structure
procedures, we considered the (a) nature of the
items being tested, (b) the kinds and competence of
available evidential matter, (c) the nature of the
audit objectives to be achieved, (d) the assessed
level of control risk, and (e) the expected
efficiency and effectiveness of the tests.
Tests of effectiveness of control structure
procedures included:
_ Test of source documentation to ensure
validity of information.
_ Tests of supervisory control procedures in
place to ensure accuracy,
completeness, validity and integrity of processing.
_ Tests of recalculation of output to verify
accuracy.
_ Tests of output control procedures and
resultant documentation and reports
relative to specific calculations to ensure that
accurate and timely updates of account records were
achieved.
Testing procedures were designed and performed to
enable us to conclude whether the control objectives
listed in this report were achieved during the
period December 1, 1994 to November 30, 1995.
EXHIBIT I
COWEN GROUP OF FUNDS
Cowen Income + Growth Fund, Inc.
Cowen Opportunity Fund (a series of Cowen Funds,
Inc.)
Cowen Intermediate Fixed Income Fund (a series of
Cowen Funds, Inc.) Cowen Government Securities Fund
(a series of Cowen Funds, Inc.)
