<PAGE> 1
As filed with the Securities and Exchange Commission
on March 30, 1998 (to be effective April 1, 1998)
Securities Act File No. 33-5676
Investment Company Act File No 811-4672
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. 15 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ X ]
Amendment No. 16 [ X ]
(Check appropriate box or boxes)
COWEN INCOME + GROWTH 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) 495-6724
Rodd M. Baxter, Esq.
Cowen Income + Growth Fund, Inc.
Financial Square
New York, New York 10005
...........................................
(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 April 1, 1998 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
Registrant has registered an indefinite number of shares of its Common
Stock, $.001 par value per share, under the Securities Act of 1933 pursuant to
Section (a)(1) of Rule 24f-2 under the Investment Company Act of 1940. The Rule
24f-2 Notice for Registrant's fiscal year ended November 30, 1997 was filed on
January 21, 1998.
2
<PAGE> 3
COWEN INCOME + GROWTH 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........... Financial Highlights
4. General Description of
Registrant..................... Cover Page;
Investment
Objectives and Policies; and
Additional Information
5. Management of the Fund......... Management of the Fund; and
Investment Objectives and Policies
5.a. Management Discussion of
Fund Performance............... Not Applicable
6. Capital Stock and Other
Securities..................... Dividends,
Distributions and Taxes
and Additional Information
7. Purchase of Securities
Being Offered.................. Cover Page;
Management of the Fund;
Net Asset Value;
Purchase of Shares; and
Dividends, Distributions and Taxes
8. Redemption or Repurchase....... Redemption of Shares
9. Pending Legal Proceedings...... Not applicable
3
<PAGE> 4
10. Cover Page..................... Cover Page
11. Table of Contents.............. Contents
12. General Information and
History........................ Not applicable
13. Investment Objectives and
Policies....................... Investment Objectives
and Policies
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
14. Management of the Fund......... Management of the Fund
15. Control Persons and
Principal Holders of
Securities..................... Management of the Fund
16. Investment Advisory and
Other Services................. Management of the Fund
17. Brokerage Allocation
and Other Practices............ Investment Objectives
and Policies
18. Capital Stock and Other
Securities..................... See in the Prospectus
"Dividends, Distributions
and Taxes" and
"Additional Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered.................. Purchases and Redemptions;
Investment Objectives and Policies; and
See in the Prospectus
"Purchase of Shares"
20. Tax Status..................... Taxes
4
<PAGE> 5
21. Underwriters................... Cover Page and
Purchases and Redemptions
22. Calculation
of Performance Data............ Performance Information
23. Financial Statements........... Financial Statements
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.
5
<PAGE> 6
- --------------------------------------------------------------------------------
PROSPECTUS APRIL 1, 1998
COWEN
INCOME + GROWTH
FUND, INC.
Financial Square New York, NY
10005-3597 800-262-7116 212-495-6724
Cowen Income + Growth Fund, Inc. is a mutual 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.
Capital appreciation is a secondary objective of the Fund.
This Prospectus briefly sets forth certain information
about the Fund that investors should know before
investing. Investors are advised to read this Prospectus
and retain it for future reference. For convenience,
certain terms that appear throughout this Prospectus have
been abbreviated: Cowen Income + Growth Fund, Inc. will be
referred to as the "Fund"; Cowen & Company, the Fund's
principal underwriter, will be referred to as "Cowen";
Cowen, through its investment management division, Cowen
Asset Management, will serve as the Fund's investment
manager and in that capacity will be referred to as "Cowen
Asset Management"; DST Systems, Inc. will serve as the
Fund's transfer and dividend agent and will be referred to
as "DST"; and Investors Fiduciary Trust Company, the
Fund's custodian, will be referred to as "IFTC."
Additional information about the Fund, contained in a
Statement of Additional Information, has been filed with
the Securities and Exchange Commission ("SEC") and is
available to investors without charge by calling the
Fund's distributor at 800-262-7116 or 212-495-6724 or by
contacting your account representative. The Statement of
Additional Information bears the same date as this
Prospectus and is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(COWEN LOGO)
COWEN & COMPANY
principal underwriter
CIGF-1 4/98
- --------------------------------------------------------------------------------
<PAGE> 7
CONTENTS
Financial Highlights...........................................................3
The Fund's Expenses............................................................5
Investment Objectives and Policies.............................................6
Management of the Fund.........................................................9
Net Asset Value...............................................................12
Purchase of Shares............................................................12
Redemption of Shares..........................................................17
Dividends, Distributions and Taxes............................................19
Additional Information........................................................20
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. THE STATEMENT OF ADDITIONAL
INFORMATION OR THE FUND'S OFFICIAL SALES
LITERATURE IN CONNECTION WITH THE OFFERING
OF THE FUND'S SHARES AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER
MAY NOT LAWFULLY BE MADE.
<PAGE> 8
FINANCIAL HIGHLIGHTS
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon for each of the two years in the
period ended July 31, 1994, for the four months ended November 30, 1994 and for
each of the three years in the period ended November 30, 1997 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
the Fund's annual report to shareholders as of November 30, 1997. The
information appearing herein for each of the periods prior to July 31, 1993,
also has been audited by Ernst & Young LLP, whose report thereon was
unqualified.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------------------
Four Months
Years Ended Nov. 30, Ended Years Ended July 31,
--------------------------------- Nov. 30, ---------------------------
1997 1996 1995 1994 1994 1993 1992
---- ---- ---- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $ 14.40 $ 13.19 $ 10.62 $ 11.06 $ 12.97 $ 12.85 $ 11.30
------- ------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income............. .36 .48 .51 .19 .52 .48 .46
Net Realized and Unrealized Gains
(Losses) on Investments......... 1.97 1.74 2.54 (.50) (.44) .68 1.57
------- ------- ------- ------- ------- ------- -------
Net from Investment Operations.... 2.33 2.22 3.05 (.31) .08 1.16 2.03
------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income.......................... (.36) (.52) (.48) (.13) (.52) (.49) (.48)
Distributions from Net Realized
Gains on Investments............ (1.82) (.49) -- -- (1.47) (.55) --
------- ------- ------- ------- ------- ------- -------
Total Distributions............... (2.18) (1.01) (.48) (.13) (1.99) (1.04) (.48)
------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period..................... $ 14.55 $ 14.40 $ 13.19 $ 10.62 $ 11.06 $ 12.97 $ 12.85
======= ======= ======= ======= ======= ======= =======
Total Return(3).................... 19.21% 17.86% 29.50% (8.50%)(1) .28% 9.45% 18.49%
Ratios/Supplemental Data Net Assets
(000 omitted)..................... $55,383 $52,502 $49,298 $32,104 $34,722 $35,016 $32,956
Ratio of Expenses to Average Net
Assets.......................... 1.21% 1.24% 1.31% .47%(2) 1.26% 1.33% 2.02%
Ratio of Net Investment Income to
Average Net Assets.............. 2.65% 3.56% 4.29% 1.65%(2) 4.32% 3.74% 3.84%
Decrease Reflected in Above
Expense Ratios Due to Expense
Reimbursements/ Waivers......... .14% .15% .19% .07%(2) .04% -- --
Portfolio Turnover Rate........... 75% 79% 72% 31% 76% 62% 73%
Average commission rate paid(4).... $ .0600 $ .0612 $ .0596
<CAPTION>
Class A
------------------------------------
Years Ended July 31,
------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $ 10.59 $ 11.91 $ 9.66 $ 10.70
------- ------- ------- -------
Income from Investment Operations:
Net Investment Income............. .44 .47 .42 .45
Net Realized and Unrealized Gains
(Losses) on Investments......... .72 (.85) 2.26 (.78)
------- ------- ------- -------
Net from Investment Operations.... 1.16 (.38) 2.68 (.33)
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income.......................... (.44) (.47) (.43) (.45)
Distributions from Net Realized
Gains on Investments............ (.01) (.47) -- (.26)
------- ------- ------- -------
Total Distributions............... (.45) (.94) (.43) (.71)
------- ------- ------- -------
Net Asset Value,
End of Period..................... $ 11.30 $ 10.59 $ 11.91 $ 9.66
======= ======= ======= =======
Total Return(3).................... 11.40% (3.51%) 28.50% (3.09%)
Ratios/Supplemental Data Net Assets
(000 omitted)..................... $32,098 $40,647 $47,260 $30,517
Ratio of Expenses to Average Net
Assets.......................... 2.26% 2.04% 2.05% 2.21%
Ratio of Net Investment Income to
Average Net Assets.............. 4.07% 4.13% 4.03% 4.64%
Decrease Reflected in Above
Expense Ratios Due to Expense
Reimbursements/ Waivers......... -- -- -- --
Portfolio Turnover Rate........... 41% 21% 35% 26%
Average commission rate paid(4)....
</TABLE>
- ---------------
(1) Annualized.
(2) Not annualized.
(3) Exclusive of sales charges.
(4) Disclosure required for years beginning after September 1, 1995.
3
<PAGE> 9
<TABLE>
<CAPTION>
Class B Class I
------------------------------------------------------ --------
Year Ended Four Months Period from Year Ended
Nov. 30, Ended 5/17/94(4) Nov. 30,
-------------------------- Nov. 30, through --------
1997 1996 1995 1994 7/31/94 1997
---- ---- ---- ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $14.31 $13.14 $10.58 $11.04 $10.85(1) $ 14.45
------ ------ ------ ------ ------ -------
Income from Investment
Operations:
Net Investment Income... .27 .37 .42 .16 .09 .41
Net Realized and
Unrealized Gains
(Losses) on
Investments........... 1.95 1.73 2.54 (.50) .20 1.97
------ ------ ------ ------ ------ -------
Net from Investment
Operations............ 2.22 2.10 2.96 (.34) .29 2.38
------ ------ ------ ------ ------ -------
Less Distributions:
Dividends from Net
Investment Income..... (.25) (.44) (.40) (.12) (.10) (.40)
Distributions from Net
Realized Gains on
Investments........... (1.82) (.49) -- -- -- (1.82)
------ ------ ------ ------ ------ -------
Total Distributions..... (2.07) (.93) (.40) (.12) (.10) (2.22)
------ ------ ------ ------ ------ -------
Net Asset Value,
End of Period........... $14.46 $14.31 $13.14 $10.58 $11.04 $ 14.61
====== ====== ====== ====== ====== =======
Total Return(5).......... 18.34% 16.89% 28.49% (9.33%)(2) 13.19%(2) 19.57%
Ratios/Supplemental Data
Net Assets (000
omitted)................ $4,478 $2,581 $1,453 $ 280 $ 56 $10,444
Ratio of Expenses to
Average Net Assets.... 1.99% 2.04% 2.07% .75%(3) .57%(3) .91%
Ratio of Net Investment
Income to Average Net
Assets................ 1.84% 2.76% 3.44% 1.31%(3) .45%(3) 2.98%
Decrease Reflected in
Above Expense Ratios
Due to Expense
Reimbursements/
Waivers............... .14% .15% .19% .07%(3) .04%(3) .14%
Portfolio Turnover
Rate.................. 75% 79% 72% 31% 76% 75%
Average commission rate
paid(6)................. $.0600 $.0612 $.0596 $ .0600
<CAPTION>
Class I
----------------------------------------------
Year Ended
Nov. 30,
------------------ Nov. 30, through
1996 1995 1994 7/31/94
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 13.23 $ 10.62 $11.06 $10.91(1)
------- ------- ------ ------
Income from Investment
Operations:
Net Investment Income... .58 .52 .20 .10
Net Realized and
Unrealized Gains
(Losses) on
Investments........... 1.69 2.59 (.50) .16
------- ------- ------ ------
Net from Investment
Operations............ 2.27 3.11 (.30) .26
------- ------- ------ ------
Less Distributions:
Dividends from Net
Investment Income..... (.56) (.50) (.14) (.11)
Distributions from Net
Realized Gains on
Investments........... (.49) -- -- --
------- ------- ------ ------
Total Distributions..... (1.05) (.50) (.14) (.11)
------- ------- ------ ------
Net Asset Value,
End of Period........... $ 14.45 $ 13.23 $10.62 $11.06
======= ======= ====== ======
Total Return(5).......... 18.25% 29.99% (8.37%)(2) 10.63%(2)
Ratios/Supplemental Data
Net Assets (000
omitted)................ $11,733 $19,309 $6,029 $4,988
Ratio of Expenses to
Average Net Assets.... .90% .96% .40%(3) .28%(3)
Ratio of Net Investment
Income to Average Net
Assets................ 3.90% 4.66% 1.68%(3) 1.13%(3)
Decrease Reflected in
Above Expense Ratios
Due to Expense
Reimbursements/
Waivers............... .16% .19% .07%(3) .05%(3)
Portfolio Turnover
Rate.................. 79% 72% 31% 76%
Average commission rate
paid(6)................. $ .0612 $ .0596
</TABLE>
- ---------------
(1) Based upon the Class A net asset value on the day prior to commencement of
distribution.
(2) Annualized.
(3) Not annualized.
(4) Commencement of distribution.
(5) Exclusive of sales charges.
(6) Disclosure required for years beginning after September 1, 1995.
4
<PAGE> 10
THE FUND'S EXPENSES
Under the Multiple Pricing System, the Fund presently offers three methods
of purchasing shares, enabling investors to choose the Class that, given the
amount of purchase and intended length of investment, best suits their needs.
When purchasing shares of the Fund, investors must specify whether the purchase
is for Class A shares, Class B shares or Class C shares, as described below. The
following table lists the costs that an investor will incur, either directly or
indirectly, as a shareholder of the Fund, based upon the Fund's projected annual
operating expenses:
<TABLE>
<CAPTION>
Class A Class B Class I
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases of
shares (as a percentage of offering
price)...................................... 4.75% 0% 0%
Maximum sales charge imposed on reinvested
dividends................................... 0% 0% 0%
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds).......... 0% 5.00% 0%
Redemption fees............................... $ 0 $ 0 $ 0
Exchange fee (per transaction)................ $ 0 $ 0 $ 0
Annual Portfolio Operating Expenses (after expense
reimbursement)
(as percentage of average net assets)
Management fees............................... .75% .75% .75%
12b-1 fees (distribution and service fees).... .25% 1.00% 0%
Other expenses (after expense
reimbursement).............................. .35% .38% .30%
---- ---- ----
Total Fund Operating Expenses (after expense
reimbursement)................................... 1.35% 2.13% 1.05%
==== ==== ====
</TABLE>
The nature of the services for which the Fund pays management fees is
described below under "Management of the Fund." The Fund bears an annual Rule
12b-1 service fee of .25% of the value of the average daily net assets
attributable to Class A shares and an annual Rule 12b-1 fee of 1.00% of the
value of the average daily net assets attributable to Class B shares, consisting
of a .25% service fee and a .75% distribution fee. Long-term shareholders of
Class B shares may pay more than the economic equivalent of the maximum
front-end sales charge currently permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD") governing investment company
sales charges. See "Management of the Fund -- Distributor."
The percentage of "Other expenses" in the table above is based on amounts
for expenses that include fees for shareholder services, custodial fees, legal
and accounting fees, printing costs and registration fees.
5
<PAGE> 11
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table above and (3) complete redemption at the end of
the period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A............................................. $61 $88 $118 $202
Class B ............................................ $72 $97 $134 $246
Class I............................................. $11 $33 $ 58 $128
</TABLE>
An investor would pay the following expenses on the same investment in
Class B shares assuming no redemption.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$22 $67 $114 $246
</TABLE>
The above example is intended to assist an investor in understanding
various costs and expenses that the investor would bear upon becoming a
shareholder of the Fund. The example should not be considered to be a
representation of past or future expenses. Actual expenses of the Fund may be
greater or less than those shown above. The assumed 5% annual return shown in
the example is hypothetical and should not be considered to be a representation
of past or future annual return; the actual return of the Fund may be greater or
less than the assumed return.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The primary investment objective of the Fund is to realize a high level of
dividend income to the extent consistent with prudent investment management.
Capital appreciation is a secondary objective of the Fund. The Fund seeks to
achieve its investment objectives by investing at least 80 percent of its assets
under normal market conditions in equity securities, such as common and
preferred stock or securities convertible into or exchangeable for common stock.
Cowen Asset Management emphasizes investments in companies that have a record of
paying and increasing dividends and, in Cowen Asset Management's judgment, the
potential for increasing dividends. See "Investment Strategy." Cowen Asset
Management may also make temporary investments in investment grade corporate
debt obligations and U.S. Government securities for defensive purposes when it
believes market conditions warrant and as a cash management technique. See
"Temporary Investments." In addition, Cowen Asset Management may write covered
call options and engage in securities lending transactions in order to generate
additional income for the Fund. See "Covered Call Options" and "Lending of
Securities." The Fund's investment objectives may not be changed without
shareholder approval. There is no assurance that the Fund's investment
objectives will be achieved.
Although a consideration in the selection of the Fund's investments,
capital appreciation is not the primary objective of the Fund and investors
should not expect appreciation comparable to that of mutual funds with capital
appreciation as a primary objective. It also cannot be assured that the Fund
will earn the level of income
6
<PAGE> 12
that might be achieved through investment in a portfolio of fixed income
securities. Because the Fund will invest primarily in equity securities, it will
be subject to general conditions prevailing in securities markets and the net
asset value of the Fund's shares will fluctuate with changes in the market
prices of its portfolio securities. It is anticipated that the securities in
which the Fund will invest will be traded on the New York or American Stock
Exchanges, although the Fund may invest in securities traded in the
over-the-counter market. Cowen Asset Management will attempt to avoid investment
in speculative securities or those with speculative characteristics and the Fund
has adopted certain other policies designed to limit investment risk. See
"Investment Restrictions."
INVESTMENT STRATEGY
Cowen Asset Management uses its Dividend Method of Investing in managing
the Fund's assets, which is a screening process developed by Cowen Asset
Management to identify investment opportunities. In making investment
selections, Cowen Asset Management focuses on certain fundamental financial
characteristics of a company, including:
- Current dividend yield.
- Historic operating cash flow and dividend growth.
- Dividend payout ratio based on operating cash flow.
- Debt to capital ratios.
- Price-cash flow ratios.
- Market capitalization.
- Potential to continue its historic record and to maintain above-average
dividend growth.
With respect to common stocks, Cowen Asset Management considers each of the
characteristics described above. With the respect to preferred and convertible
preferred stocks and convertible debentures, Cowen Asset Management considers
all of the foregoing characteristics with the exception of that relating to
current dividend yield and historical dividend growth. Convertible securities
are fixed income securities that may be converted at either a stated price or
stated rate into underlying shares of common stock. Because of this conversion
feature, convertible securities enable an investor to benefit from increases in
the market price of the underlying common stock while permitting the investor to
obtain a yield that is generally greater than that obtainable from the
underlying common stock. In addition, convertible securities generally offer
greater stability of price than the underlying common stock during declining
market periods. Cowen Asset Management may make modifications of its investment
strategy for the Fund as it deems advisable in light of its experience in
managing the Fund or in response to changing market or economic conditions.
TEMPORARY INVESTMENTS
The Fund may invest up to 20 percent of its assets, and in excess of that
amount when Cowen Asset Management believes market conditions warrant a
temporary defensive posture, in corporate bonds rated at least Baa by Moody's
Investors Service, Inc. or BBB by Standard & Poor's Corporation, commercial
paper
7
<PAGE> 13
rated at least Prime-2 by Moody's or A-2 by Standard & Poor's and obligations
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities and repurchase agreements in respect of such obligations.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the "full
faith and credit" of the U.S. Government; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Export-Import Bank of the U.S., are supported by the right of
the issuer to borrow from the U.S. Treasury; and still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Bonds rated Baa by Moody's and BBB by S&P,
while considered "investment grade" obligations, may have speculative
characteristics.
COVERED CALL OPTIONS
In an effort to enhance the Fund's performance through receipt of premiums
and generally to assist in the management of its portfolio, the Fund may engage
without limitation in the writing (selling) of call option contracts on
securities at such times as Cowen Asset Management shall determine to be
appropriate. However, options shall be written solely as "covered" call options;
that is, options on securities that the Fund owns. The Fund will write covered
call options on securities held in the portfolio only at the exercise price
which would approximate the price at which the security's dividend yield would
fall below Cowen Asset Management's minimum criteria and cause it to be sold.
A call option gives the purchaser of the option the right to buy a security
from a writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price except insofar as the premium represents a profit. The Fund will
write call option contracts only if Cowen Asset Management believes that the
Fund's performance can be increased through receipt of premiums.
The Fund will purchase options only to close out a call option position. In
order to close out a position, the Fund will make a "closing purchase
transaction" which involves the purchase of a call option on the same security
with the same exercise price and expiration date as a call option which it has
previously written. When a security is sold from the Fund's portfolio, the Fund
will effect a closing purchase transaction so as to close out any existing call
option on that security. The Fund will realize a profit or loss from a closing
purchase transaction if the amount paid to purchase a call option is less or
more than the amount received from the sale thereof. There can be no assurance
that the Fund will be able to effect closing purchase transactions at a time
when it desires to do so. To facilitate closing purchase transactions, however,
the Fund will write options only if a secondary market for the options exists on
a national securities exchange.
Securities for the Fund's portfolio will at all times be bought and sold
solely on the basis of investment considerations and appropriateness to the
fulfillment of the Fund's objectives.
8
<PAGE> 14
LENDING OF SECURITIES
The Fund may lend its portfolio securities to broker-dealers and other
financial institutions pursuant to agreements requiring that the loans be
continuously secured by cash, letters of credit or U.S. Government securities of
a value equal to at least the fair market value of the securities lent. Such
loans will not be made if as a result the aggregate of all outstanding loans
exceeds 30 percent of the value of the Fund's total assets taken at current
value.
INVESTMENT RESTRICTIONS
In order to limit investment risk, the Fund has adopted certain investment
restrictions which are changeable only by shareholder vote. These restrictions,
among other things, prohibit the Fund from: purchasing securities of any issuer,
other than U.S. Government securities, if the purchase would cause more than
five percent of the Fund's assets, taken at market value, to be invested in the
securities of that issuer, except that 25 percent of the Fund's assets may be
invested without regard to this limit; purchasing more than 10 percent of the
voting securities or any class of securities of any issuer; engaging in short
sales or purchasing securities on margin; borrowing money or mortgaging or
hypothecating the Fund's assets, although the prohibition against borrowing does
not prohibit limited short-term borrowings to meet redemption requests and the
prohibition against mortgaging or hypothecating assets does not prohibit escrow
arrangements contemplated by writing covered call options; investing more than
10 percent of the Fund's assets in restricted or illiquid securities, including
repurchase agreements of greater than seven days' duration, or securities that
are not readily marketable; concentrating more than 25 percent of the Fund's
assets in any one industry; or buying or selling commodities or commodity
contracts.
PORTFOLIO TRANSACTIONS
All orders for transactions in securities and options on behalf of the Fund
are placed with broker-dealers selected by Cowen Asset Management. Cowen may
serve as the Fund's broker in effecting portfolio transactions on national
securities exchanges and retain commission in accordance with certain
regulations of the SEC. In addition, Cowen Asset Management may select
broker-dealers that provide it with research services and may cause the Fund to
pay these broker-dealers commissions that exceed those that other broker-dealers
may have charged, if it views the commissions as reasonable in relation to the
value of the brokerage and/or research services received.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors. By virtue of the responsibilities assumed by Cowen Asset
Management under its Investment Management Agreement with the Fund, the Fund
will not require any executive employees other than its officers, none of whom
will devote full time to the affairs of the Fund.
9
<PAGE> 15
INVESTMENT MANAGER
Cowen, an investment adviser and broker-dealer registered with the SEC,
through Cowen Asset Management, serves as the Fund's investment manager. Cowen
currently serves as investment manager for six other mutual funds, Cowen Standby
Reserve Fund, Inc., Cowen Standby Tax-Exempt Reserve Fund, Inc., Cowen Large Cap
Value Fund and Cowen Opportunity Fund, Cowen Intermediate Fixed Income Fund and
Cowen Government Securities Fund (all series of Cowen Funds, Inc.). Cowen Asset
Management also serves as investment manager for Cowen Special Value Fund, which
also is a series of Cowen Funds, Inc. and which has not yet commenced
operations. Cowen's principal address is Financial Square, New York, New York
10005-3597.
Pursuant to the Investment Management Agreement between Cowen Asset
Management and the Fund, Cowen Asset Management has agreed to be responsible for
the Fund's investment program. Subject to the supervision and direction of the
Fund's Board of Directors, Cowen Asset Management manages the Fund's portfolio
in accordance with the stated policies of the Fund. Cowen Asset Management makes
investment decisions for the Fund and places the purchase and sale orders for
portfolio transactions. Cowen Asset Management also furnishes the Fund's
statistical and research data, clerical help, accounting, data processing,
bookkeeping, internal auditing and certain legal and other services required by
the Fund; prepares reports to shareholders of the Fund, tax returns, reports to
and filings with the SEC and state Blue Sky authorities; calculates the net
asset value of shares of the Fund and generally assists in all aspects of the
Fund's operation. For the services provided pursuant to the Investment
Management Agreement, Cowen Asset Management is entitled to receive a fee,
computed daily and payable monthly, at the annual rate of .75 of one percent of
the Fund's average daily net assets, which exceeds the management fee paid by
most other investment companies.
William Rechter, Senior Investment Officer and Senior Vice President, and
Benedict Capaldi, Senior Investment Officer, are primarily responsible for the
daily management of the Fund. Mr. Rechter has had such responsibility since the
Fund commenced operations on September 19, 1986 and a Managing Director of
Cowen. He has been with Cowen Asset Management since December, 1985. Mr. Capaldi
joined Cowen in December, 1996 as a Managing Director. Mr. Capaldi's prior
experience includes being Portfolio Manager for Provident Capital Management,
Inc., Senior Vice President and Portfolio Manager for Radnor Capital Management,
President of Chestnut Hill Advisors, Inc. and Managing Director for Brandywine
Asset Management, Inc.
DISTRIBUTOR
Cowen acts as distributor of the Fund's shares. Cowen is a member of the
NASD and of the New York, American and other principal national securities
exchanges. Cowen is paid monthly fees by the Fund in connection with (1) the
servicing of shareholder accounts in Class A and Class B shares and (2)
providing distribution related services in respect of Class B shares. A monthly
service fee, authorized pursuant to a Shareholder Servicing and Distribution
Plan (the "Plan") adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), is calculated at
the annual rate of .25% of the value of the average daily net assets of the Fund
attributable to each of Class A and Class B shares and is used by Cowen to
provide compensation for ongoing servicing and/or maintenance of shareholder
accounts with the Fund. Compensation is paid by Cowen to persons, including
Cowen employees, who respond to inquiries of shareholders of the Fund regarding
their ownership of shares or their accounts with the Fund or
10
<PAGE> 16
who provide other similar services not otherwise required to be provided by the
Fund's investment adviser, transfer agent or other agent of the Fund.
In addition, pursuant to the Plan, the Fund pays to Cowen a monthly
distribution fee at the annual rate of .75% of the Fund's average daily net
assets attributable to Class B shares. The distribution fee is used by Cowen to
provide (1) initial and ongoing sales compensation to its registered
representatives or those of other broker-dealers that enter into selected dealer
agreements with Cowen in respect of sales of Class B shares; (2) costs of
printing and distributing the Fund's Prospectus, Statement of Additional
Information and sales literature to prospective investors in Class B shares; (3)
costs associated with any advertising relating to Class B shares; and (4)
payments to, and expenses of, persons who provide support services in connection
with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the service and/or
distribution expenses actually incurred by Cowen, and the payments may exceed
expenses actually incurred by Cowen. The Board of Directors evaluates the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so considers all relevant factors, including expenses borne by Cowen and
amounts it receives under the Plan.
Under its terms, the Plan continues from year to year, so long as its
continuance is approved annually by vote of the Board of Directors, including a
majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plan (the
"Independent Directors"). The Plan may not be amended to increase materially the
amount to be spent for the services provided by Cowen without shareholder
approval, and all material amendments of the Plan also must be approved by the
Directors in the manner described above. The Plan may be terminated with respect
to a Class at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) represented by the Class on not more
than 30 days' written notice to Cowen.
Pursuant to the Plan, Cowen will provide the Board of Directors with
periodic reports of amounts expended under the Plan and the purpose for which
the expenditures were made. The Directors believe that the Fund's expenditures
under the Plan will benefit the Fund and its shareholders by providing better
shareholder services and by facilitating the distribution of shares.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, a subsidiary of State Street Boston
Corp., serves as the custodian of the Fund's investments. Communications to the
Bank should be directed at P.O. Box 419111, Kansas City, Missouri 64141. DST,
Inc. serves as the Fund's transfer and dividend agent. Communications to DST
should be directed to 210 West 10th Street, Kansas City, Missouri 64105.
EXPENSES OF THE FUND
Operating expenses for the Fund generally consist of all costs not
specifically borne by Cowen Asset Management, including investment management
fees, fees for necessary professional and brokerage services, the costs of
regulatory compliance and costs associated with maintaining legal existence and
shareholder relations. The Fund's Investment Management Agreement with Cowen
Asset Management provides that Cowen Asset Management will reimburse the Fund to
the extent required by applicable state law for certain expenses that are
described in the Statement of Additional Information. From time to time, Cowen
Asset
11
<PAGE> 17
Management, in its sole discretion and as it deems appropriate, may waive a
portion or all of the fees payable to it by the Fund.
Each Class bears its own expenses, which generally include all costs not
specifically borne by Cowen Asset Management. Included among a Class' expenses
are (1) transfer agency fees as identified by the transfer agent as being
attributable to a specific Class; (2) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; (3) Blue Sky registration fees incurred by
a Class; (4) SEC registration fees incurred by a Class; (5) the expenses of
administrative personnel and services as required to support the shareholders of
a specific Class; (6) litigation or other legal expenses relating solely to one
Class; and (7) directors' fees incurred as a result of issues relating to one
Class. In addition, each Class will bear an allocable portion of all other Fund
expenses not attributable to a particular Class based on the Class' relative net
assets.
NET ASSET VALUE
The net asset value per share of the Fund is calculated as of 4:15 p.m.
Eastern time, on each day on which the New York Stock Exchange, Inc. is open.
The Exchange is currently open on each Monday through Friday, except (a) January
1st, Martin Luther King Day (the third Monday in January), Washington's Birthday
(the third Monday in February), Good Friday, Memorial Day (the last Monday in
May), July 4th, Labor Day (the first Monday in September), Thanksgiving Day (the
fourth Thursday in November) and December 25th; and (b) the preceding Friday
when one of those holidays falls on a Saturday or the subsequent Monday when one
of those holidays falls on a Sunday. Net asset value per share is computed by
dividing the value of the Fund's net assets by the total number of its shares
outstanding. Assets traded on a securities exchange or other recognized market
are valued on the basis of market quotations. Assets for which quotations are
not readily available are valued at fair value as determined in good faith under
procedures approved by the Board of Directors. High quality money market
instruments with remaining maturities of 60 days or less are valued on the basis
of amortized cost, which involves valuing a portfolio instrument at its market
value on the 61st day prior to maturity and thereafter assuming a constant
amortization to maturity of any market discount or premium, generally without
regard to the effect of fluctuating interest rates on the market value of the
instrument.
PURCHASE OF SHARES
GENERAL INFORMATION
Shares of the Fund are sold at the net asset value per share next
determined after receipt of an order, plus a sales charge in the case of Class A
shares. Investors whose orders are received by Cowen not later than 4:15 p.m.,
New York time, will become shareholders on that day. Investors whose orders are
received after 4:15 p.m., New York time, will become shareholders on the
following business day. The Fund reserves the right to reject any order to
purchase shares. Certificates for shares will be issued only upon the specific
request of a shareholder.
The minimum initial investment in the Fund is $1,000 and the minimum
subsequent investment is $100, except that the minimum initial and subsequent
investments for purchases of Fund shares through Retirement Plans for
Self-Employed Persons and Individual Retirement Accounts will be $500 and $50,
respectively. The Fund reserves the right to vary these minimums at any time.
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<PAGE> 18
Retirement Plans. Shares may be purchased in connection with various
qualified tax-deferred retirement plans. Forms for establishing these plans are
available through any Cowen account representative. Investors are urged to
consult with a tax adviser in connection with the establishment of retirement
plans.
Automatic Investment Plan. The Fund offers an Automatic Investment Plan
whereby DST is permitted through preauthorized checks of $100 or more ($50 in
the case of Retirement Plans for Self-Employed Persons and Individual Retirement
Accounts) to charge the regular bank account of a shareholder on a regular basis
to provide systematic additions to the Fund account of the shareholder. While
there is no charge to shareholders for this service, a charge of $10.00 will be
deducted from a shareholder's Fund account for checks returned for insufficient
funds. A shareholder's Automatic Investment Plan may be terminated at any time
without charge or penalty by the shareholder, the Fund, DST or Cowen. Further
information regarding the Automatic Investment Plan may be obtained through any
Cowen account representative.
Under the Multiple Pricing System, the Fund presently offers three methods
of purchasing shares, enabling investors to choose the Class that, given the
amount of purchase and intended length of investment, best suits their needs.
Cowen account representatives and other persons remunerated on the basis of
sales of shares may receive different levels of compensation for selling one
Class of shares over another. From time to time, Cowen's registered
representatives and those of other broker-dealers that enter into selected
dealer agreements with Cowen will receive additional non-cash compensation in
the form of gifts or prizes such as merchandise or trips. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class I shares, as described below. In addition, the
Distributor will from its own resources make additional payments to Branch
Cabell and Company at a maximum annual rate of .25% of the net asset value of
all shares of the Fund sold by Branch Cabell and Company.
CLASS A SHARES
The public offering price of Class A shares is the net asset value per
Class A share next determined after a purchase order is received plus a sales
charge, if applicable. Class A shares are subject to a service fee at the annual
rate of .25% of the value of the Fund's average daily net assets attributable to
this Class. See "Management of the Fund -- Distributor." The sales charge
payable upon the purchase of Class A shares will vary with the amount of
purchase as set forth below.
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
Percentage of the Percentage of the
Shares Purchased in Public Offering Net Amount Dealer
Single Transaction Price Invested Reallowance
------------------- ----------------- ----------------- -----------
<S> <C> <C> <C>
Up to $49,999............................ 4.75% 5.00% 4.00%
$50,000-$99,999.......................... 4.00% 4.17% 3.25%
$100,000-$249,999........................ 3.75% 3.90% 3.00%
$250,000-$499,999........................ 2.50% 2.56% 2.00%
$500,000-$999,999........................ 2.00% 2.04% 1.50%
$1,000,000-$2,999,999.................... 0% 0% 1.00%
$3,000,000-$3,999,999*................... 0% 0% .50%
</TABLE>
- ---------------
* Investors who purchase $4 million or more of shares will receive Class I
shares, which are not subject to any front-end sales charge or service fee.
See "Class I Shares."
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<PAGE> 19
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (1) an individual; (2) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his or her
own accounts; (3) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account; (4) a pension, profit-sharing or
other employee benefit plan qualified or non-qualified under Section 401 of the
Internal Revenue Code of 1986 (the "Code"); (5) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; (6) employee benefit plans
qualified under Section 401 of the Code of a single employer or of employers who
are "affiliated persons" of each other, as defined in the 1940 Act and for
investments in Individual Retirement Accounts of employees of a single employer
through Systematic Payroll Deduction plans; or (7) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
You may benefit from a reduction of the sales charges in accordance with
the above schedule if the cumulative value (at current net asset value) of Class
A shares purchased in a single transaction, together with those Class A shares
previously purchased subject to payment of a sales charge, plus Class A shares
of Cowen Opportunity Fund, Cowen Intermediate Fixed Income Fund and Cowen
Government Securities Fund, each a series of Cowen Funds, Inc., previously or
simultaneously purchased subject to a sales charge, amounts to $50,000 or more.
The foregoing schedule of reduced sales charges will also be available to
investors who enter into a written Letter of Intent providing for the purchase,
within a 13-month period, of Class A shares of the Fund, Cowen Opportunity Fund,
Cowen Intermediate Fixed Income Fund and Cowen Government Securities Fund from
Cowen. Class A shares of the Fund, Cowen Opportunity Fund, Cowen Intermediate
Fixed Income Fund and Cowen Government Securities Fund previously purchased
during a 90-day period prior to the date of receipt by Cowen of the Letter of
Intent and still owned by the shareholder may also be included in determining
the applicable reduction.
A shareholder who has redeemed his Class A shares may reinvest all or part
of the redemption proceeds within 30 days without imposition of a sales charge.
This privilege may be exercised only once by a shareholder. Shareholders should
note that no loss will be allowed on the sale of Fund shares to the extent that
the shareholder acquired other shares in the Fund within a period beginning 30
days before the sale or disposition of the shares in which the shareholder
incurred a loss and ending 30 days after such sale.
The Fund offers Class A shares without imposition of a sales charge to (1)
employees of Cowen and registered representatives of securities dealers that
participate in distribution of the Fund's shares; (2) Individual Retirement
Accounts for those persons; (3) the spouses, children, parents, grandparents,
siblings, spouse's parents and sibling's children of those persons when purchase
orders on their behalf are placed by those persons; (4) directors and trustees
of registered investment companies whose shares are distributed by Cowen,
Individual Retirement Accounts for those persons, employee benefit plans for
those persons, and the spouses and minor children of those persons when purchase
orders on their behalf are placed by those persons; (5) Cowen and its
subsidiaries; (6) participants in any pension, profit-sharing or other employee
benefit plan qualified or non-qualified under Section 401 of the Code when
purchase orders are placed by such participants pursuant to such plans; (7)
officers, directors, partners and employees of the Fund's counsel or auditors;
and (8) investors who purchase shares of the Fund to the extent that the
investment represents (a) the proceeds from the redemption made within the
preceding 60 days of shares of another mutual fund not affiliated with Cowen
Asset Management whose shares were purchased subject to a sales charge, or (b)
the net proceeds of the sale within the preceding 60 days of shares of any
closed-end investment
14
<PAGE> 20
company. The Distributor pays a sales commission equal to 1.00% of the amount
invested to dealers who sell Class A Shares without imposition of a sales charge
to investors described in items (6) and (8).
CLASS B SHARES
The public offering price of Class B shares is the net asset value per
share next determined after a purchase order is received without imposition of
any front-end sales charge. The Distributor pays a sales commission equal to
4.00% of the amount invested to dealers who sell Class B shares. Class B shares
may be subject upon redemption to a contingent deferred sales charge ("CDSC").
See "Redemption of Shares." Class B shares are subject to a service fee at the
annual rate of .25%, and a distribution fee at the annual rate of .75%, of the
value of the Fund's average daily net assets attributable to this Class. See
"Management of the Fund -- Distributor." Cowen has adopted guidelines, in view
of the relative sales charges, service fees and distribution fees, directing
account representatives that all purchases of shares should be for Class A
shares when the purchase is for $500,000 or more by an investor not eligible to
purchase Class I shares. Cowen reserves the right to vary these guidelines at
any time.
CLASS I SHARES
The public offering price of Class I shares is the net asset value per
share next determined after a purchase order is received without imposition of
any sales charge. Class I shares were previously designated as Class C shares.
Certain dealers may refer to Class I shares as "institutional shares." Class I
shares, which are not subject to any service fee or distribution fee, are
available exclusively to (1) employee benefit plans for employees of Cowen and
securities dealers that participate in distribution of the Fund's shares; (2)
charitable organizations (as defined in Section 501(c)(3) of the Code) investing
$100,000 or more; (3) any pension fund, corporation, state or local government,
Taft-Hartley plan, foundation and/or endowment which is a client of a consulting
firm, if such consulting firm has contacted the Fund, Cowen or any subsidiary of
Cowen with respect to furnishing advice to the client of that consulting firm or
with respect to the purchase of the securities of the Fund by such client; (4)
investors purchasing $4 million or more of shares of the Fund; (5) accounts as
to which a bank, registered investment adviser or broker-dealer charges an
account management fee, provided the bank, registered investment adviser or
broker-dealer has an agreement with Cowen relating to investment in the Fund;
(6) investors, and their spouses and minor children, who are investment advisory
clients of Cowen or any of its subsidiaries or who are affiliated persons or
sponsoring companies of those clients; and (7) purchasers placing orders through
a broker that maintains an omnibus account with the Fund and such purchases are
made (i) by investment advisers or financial planners placing trades for their
accounts or the accounts of their clients, and who charge a fee for their
services; (ii) clients of such investment adviser or financial planner who place
trades for their own accounts if the accounts are linked to a master account of
such investment adviser or financial planner on the books and records of the
broker or agent, or (iii) for retirement and deferred compensation plans and
trusts used to fund those plans, including but not limited to those defined in
section 401(a), 403(b) or 457 of the Internal Revenue Code or "rabbi trusts."
Investors who purchase pursuant to (7) may be charged a fee by the broker or
agent utilized to effect the transaction. The Distributor will from its own
resources compensate broker-dealers and service agents at a maximum annual rate
of .15%, 15% and .35%, respectively of the net asset value of shares purchased
pursuant to (3), (5) and (7), respectively.
15
<PAGE> 21
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same Class (or the
sole class offered) of the mutual funds listed below for which Cowen serves as a
distributor.
- Cowen Standby Reserve Fund, Inc., a money market fund whose investment
objective is the maximization of current income to the extent consistent
with preservation of capital and maintenance of liquidity.
- Cowen Standby Tax-Exempt Reserve Fund, Inc., a money market fund whose
investment objective is the maximization of current income that is exempt
from federal income taxes to the extent consistent with the preservation
of capital and the maintenance of liquidity.
- Cowen Intermediate Fixed Income Fund, a fund that seeks current income
and stability of principal by investing primarily in high quality
intermediate term fixed income securities. This fund is a series of Cowen
Funds, Inc.
- Cowen Government Securities Fund, a fund that seeks total return
consistent of current income and appreciation of capital through
investing primarily in securities issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. This fund is
a series of Cowen Funds, Inc.
- Cowen Opportunity Fund, a fund whose investment objective is appreciation
of capital through investing primarily in equity securities of small
capitalization companies.
- Cowen Large Cap Value Fund, a fund that seeks capital appreciation by
investing in securities which are deemed to be under valued. This fund is
a series of Cowen Series Funds, Inc.
For purposes of this discussion, Cowen Standby Reserve Fund, Inc. and Cowen
Standby Tax-Exempt Reserve Fund, Inc. are referred to as "money market funds"
and Cowen Opportunity Fund, Cowen Intermediate Fixed Income Fund and Cowen
Government Securities Fund are referred to as "non-money market funds."
Shares of these mutual funds are available only to investors residing in
states where these mutual funds are qualified for sale. They are sold pursuant
to separate prospectuses that may be obtained through any Cowen account
representative, through account representatives of Cowen correspondents, or
through any other member of the NASD, or any foreign nonmember of the NASD,
which has entered into a Sales Agreement with Cowen with respect to such funds.
An exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. The exchange privilege is subject to termination and its terms are
subject to change upon 60 days' notice to shareholders.
Under the Multiple Pricing System, an exchange of shares of the Fund with
other Cowen funds' shares will be limited to shares of the same class or the
sole class (money market funds only) of shares of a fund from which the exchange
is to be effected. For example, if a holder of Class A shares of a non-money
market fund exchanges his shares for shares of a money market fund and
thereafter wishes to exchange those shares for shares of the Fund, he may
receive only Class A shares in the latter transaction. As another example, if a
holder of shares of a money market fund acquired as a result of an initial
investment and not from an exchange wishes to exchange his shares for shares of
a non-money market fund, he may receive Class A shares, Class B shares or Class
I shares (depending on his eligibility for Class I shares) in the exchange
transaction.
16
<PAGE> 22
Thereafter, any further exchanges would be subject to the principal described
above limiting subsequent exchanges to the same class or the sole class of
shares of other funds.
Class A Exchanges. A shareholder may effect exchanges among the mutual
funds listed above and the Fund on the basis of relative net asset values
without imposition of a sales charge; provided, however, that where shares of a
money market fund acquired through a direct purchase are exchanged for Class A
shares of the Fund or another non-money market fund, the appropriate sales
charge will be imposed at the time of the exchange. Because a substantially
lower sales charge is paid upon purchase of Class A shares of Cowen Intermediate
Fixed Income Fund, holders of these shares will not be able to exchange their
shares with shares of the Fund or any of the non-money market funds for a period
of 90 days from the date of purchase. After the 90-day waiting period has
expired, Class A shares of Cowen Intermediate Fixed Income Fund will be
exchangeable without the imposition of any additional sales charge.
Class B Exchanges. As described below under "Redemption of Shares," the
CDSC payable by Class B shareholders upon redemption of their shares will vary
with the period of time that the shares are held (the "CDSC holding period").
For purposes of calculating the CDSC holding period, any Class B shares received
in an exchange will be deemed to have been purchased on the same date as the
Class B shares given in exchange. If, however, a Class B shareholder exchanges
his shares for shares of either money market fund, which do not offer a class of
shares subject to a CDSC, such exchange will toll, or suspend, the running of
the CDSC holding period for as long as the money market fund shares are held
and, if those shares are redeemed, a CDSC will be imposed based on the CDSC
holding period without regard to the period during which the money market fund
shares were held. For example, if a holder of Class B shares of the Fund who has
held those shares for a period of more than four but less than five years
exchanges his shares for shares of a money market fund, holds those shares of
the money market fund for a period of one year, and thereafter exchanges those
shares for Class B shares of the Fund, such shareholder will be deemed to have
held the Class B shares for a period of four full years on the date of the last
exchange. If the shareholder were to then immediately redeem his Class B shares
of the Fund, such redemption would be subject to a 2.00% CDSC. Similarly, the
same CDSC would be imposed if at any time the money market fund shares were
redeemed. Conversely, if the shareholder had held his Class B shares of the Fund
for the full six year period, no CDSC would have been imposed upon redemption.
Because a substantially lower CDSC schedule is applicable to Class B shares
of Cowen Intermediate Fixed Income Fund, holders of these shares will not be
able to exchange their shares with shares of the Fund or any of the non-money
market funds for a period of 90 days from the date of purchase. After the 90-day
waiting period has expired, if a holder of these shares wanted to exchange all
or a portion of his shares for Class B shares of the Fund or of any of the
non-money market funds that offer Class B shares subject to a higher CDSC than
that imposed by Cowen Intermediate Fixed Income Fund, the exchanged Class B
shares will not be subject to the higher applicable CDSC. Upon redemption, the
lower CDSC schedule applicable to Class B shares of Cowen Intermediate Fixed
Income Fund will apply.
REDEMPTION OF SHARES
REDEMPTION PROCEDURES
The Fund will redeem shares without charge at the net asset value per share
next determined after receipt of a redemption order in proper form by Cowen or
DST, less any CDSC imposed on Class B shares. Any redemption request received by
Cowen prior to 4:15 p.m., New York time, will be transmitted to DST on that
17
<PAGE> 23
day and the proceeds of such redemption will be transmitted in accordance with
the investor's instructions within seven days. Redemption requests received at
or after 4:15 p.m., New York time, will be effected on the next business day.
Proceeds of any redemptions will not be sent until the check (including a
certified or cashier's check) used for investment has been cleared for payment
by the investor's bank, which may take up to 15 days. Pending such clearance,
Cowen will hold redemption proceeds under circumstances resulting in no earnings
to investors. Investors can avoid the inconvenience associated with check
clearance delays by purchasing shares with immediately available funds held in a
brokerage account with Cowen or at a participating securities dealer or by
transmitting funds to DST by wire transfer.
Cowen generally will effect redemptions of shares upon oral instructions
received from the shareholders. If shares are to be redeemed pursuant to an
order sent to DST by the shareholder, DST will require written redemption
instructions signed by the shareholder of record, which signature must be
guaranteed by a commercial bank or trust company (not a savings bank) located or
having a correspondent in New York City, or by a member organization of the New
York Stock Exchange, Inc. The redemption order must specify which Class of
shares is being redeemed. If certificates have been issued representing the
shares to be redeemed, such certificates must also be endorsed, or a duly
executed stock power must be furnished, with signatures guaranteed as discussed
above, and must be submitted to Cowen or DST with the redemption request. Cowen
or DST may require further documentation if the shareholder is a corporation,
partnership, trust, estate or other entity. The payment of redemptions may be
wired to a shareholder's commercial bank account. There is a $10 charge for each
federal funds wire transaction. The minimum amount for wire redemptions is
$10,000. A shareholder who wishes to redeem by wire should contact DST at
1-800-262-7116.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recordation of the
transfer of its shares) for such periods as are permitted under the 1940 Act.
The Fund reserves the right to redeem shares in any account, other than an
Individual Retirement Account or other qualified retirement plan, at their net
asset value if the value of the account is less than $250. The shareholder
having the account will first be notified in writing that the account has a
value of less than $250 and will be allowed 60 days to make an additional
investment before the redemption is processed by the Fund.
The Fund offers a Systematic Withdrawal Plan under which a shareholder with
$10,000 or more in the Fund may elect to redeem periodic payments to himself or
a designated payee on a monthly, quarterly or annual basis. For accounts other
than qualified retirement plans, the minimum rate of withdrawal is $50 per month
and the maximum monthly withdrawal is one percent of the current account value
in the Fund as of commencement of participation in the plan. Maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund may be disadvantageous to the shareholder because of the sales charge
on such purchases. A shareholder who elects to use the Systematic Withdrawal
Plan should be aware that such periodic payments will be made from redemptions
of his shares. However, any Class B shares redeemed under the Systematic
Withdrawal Plan will not be subject to a CDSC as described below. Dividends and
distributions paid on his shares may not cover the full amount of each periodic
payment.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Cowen is imposed on any redemption of Class B shares held
less than six years equal to a specified percentage, as set forth below, of the
net asset value of the shares redeemed at the time of purchase or at the time of
redemption, whichever is lower. Class B shares held six years or longer and
Class B shares purchased through reinvestment of dividends or capital gains
distributions are not subject to the CDSC.
18
<PAGE> 24
Furthermore, no CDSC will be imposed on an amount that represents an increase in
value of the shareholder's account resulting from capital appreciation.
In circumstances in which the CDSC is imposed, the amount of the charge
will depend on the number of years since the shareholder purchased the shares
being redeemed. The following table sets forth the rates of the CDSC for
redemptions of Class B shares by investors:
<TABLE>
<CAPTION>
Year Since Purchase in Which
Redemption is Effected CDSC
---------------------------- ----
<S> <C>
Year 1...................................................... 5.00%
Year 2...................................................... 4.00%
Year 3...................................................... 3.00%
Year 4...................................................... 3.00%
Year 5...................................................... 2.00%
Year 6...................................................... 1.00%
Thereafter.................................................. None
</TABLE>
In determining the applicability and rate of any CDSC, redemptions of Class
B shares are made first of amounts due to capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions, and then
of other shares held by the shareholder for the longest period of time. As a
result, the CDSC, if any, will be imposed at the lowest possible rate. For
example, assume that an investor owns 100,000 shares that he purchased seven
years ago, 100,000 shares that he purchased more than four but less than five
years ago at $10 per share and 1,000 shares received in respect of reinvestment
of dividends and distributions. The shares now have a net asset value of $20 per
share. The investor may redeem the 100,000 shares he purchased seven years ago
and the 1,000 shares he acquired through reinvestments without paying a CDSC. If
the investor redeems the balance of his shares, he would pay a CDSC based on the
net asset value at the time of purchase ($10 per share). Thus, the investor
would pay a CDSC equal to $20,000 (100,000 shares multiplied by $10 per share
times the applicable rate of 2%).
Waivers of CDSC. The CDSC, if any, will be waived in the case of (1)
redemptions of Class B shares held at the time a shareholder dies or becomes
disabled, including the Class B shares of a shareholder who owns the shares with
his or her spouse as joint tenants with right of survivorship, provided that the
redemption is requested within one year of the death or initial determination of
disability and (2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified retirement
plan following retirement; (b) distributions from an Individual Retirement
Account, Keogh plan or custodial account under Section 403(b)(7) of the Code
following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an Individual Retirement Account, and (d) distributions pursuant
to Systematic Withdrawal Plans.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to declare and pay dividends quarterly from its net
investment income. Any net realized long-term capital gains will generally be
paid annually, shortly after the close of the Fund's fiscal year. Unless a
shareholder elects in writing to receive dividends and distributions on shares
of any Class in cash, such amounts will be reinvested automatically in
additional shares of the same Class at net asset value, without a sales charge.
19
<PAGE> 25
The Fund has qualified and intends to continue to qualify and elect to be
treated each year as a regulated investment company ("RIC") for federal income
tax purposes. A RIC is not taxed on any income or gains distributed to its
shareholders if it distributes 90 percent of its investment income to them
within applicable time periods. In addition, the Fund will be subject to a
nondeductible excise tax of 4 percent of the amount by which the Fund fails to
distribute specified percentages of its investment income and capital gains
during any applicable 12 month period. The Fund will pay dividends and
distributions more frequently than stated above, if necessary, to avoid
application of the excise tax, if such payments are determined to be in the best
interest of the Fund's shareholders. The per share dividends and distributions
on Class C shares will be higher than those on Class A shares, which in turn
will be higher than those on Class B shares, as a result of the different
service, distribution and transfer agency fees applicable to the Classes. See
"The Fund's Expenses," "Purchase of Shares," "Management of the
Fund -- Distributor" and "Additional Information."
For federal income tax purposes, the Fund's dividends and distributions are
taxable to a shareholder whether paid in cash or reinvested in additional
shares. Dividends of the Fund's investment income and distributions of its
short-term capital gains will be taxable as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to a shareholder as such,
regardless of the length of time the shareholder has held shares of the Fund.
The portion of long-term capital gains distributed to individual shareholders
that is attributable to the sale of investments that the Fund has held more than
18 months will be eligible for a 20% maximum tax rate. If a shareholder receives
a distribution taxable as long-term capital gain with respect to Fund shares,
and redeems or exchanges the shares before holding them for more than six
months, any loss on the redemption or exchange up to the amount of the
distribution will be treated as a long-term capital loss. In general, only
dividends that reflect the Fund's income from certain dividend-paying stocks of
domestic corporations will be eligible for the federal dividends-received
deduction for corporate shareholders.
Each shareholder will receive an annual statement setting forth the dollar
amounts of dividends and any distributions for the prior calendar year and the
tax status of such dividends and distributions for federal income tax purposes.
Shareholders should consult their own tax advisers as to the state and local tax
consequences of investing in the Fund.
ADDITIONAL INFORMATION
The Fund is registered under the 1940 Act as an open-end, diversified,
management investment company and was incorporated on May 12, 1986 under the
laws of the State of Maryland. The Fund has an authorized capitalization of
750,000,000 shares with a par value of $.001 per share and transferable without
restriction of which 250,000,000 have been allocated in respect of each Class of
the Fund. All shares of the Fund have equal rights and privileges as to
participation in dividends and distributions and in the net distributable assets
of the Fund on liquidation.
When issued, shares are fully paid and nonassessable, and have no
preemptive, conversion or exchange rights. Each Class represents an identical
interest in the Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (1) the
designation of each Class; (2) the effect of the respective sales charges, if
any, for each Class; (3) the distribution and/or service fees, if any, borne by
each Class; (4) the expenses allocable exclusively to each Class; (5) voting
rights on matters
20
<PAGE> 26
exclusively affecting a single Class; and (6) the exchange privilege of each
Class. The Board of Directors does not anticipate that there will be any
conflicts among the interests of the holders of the different Classes. The
Directors, on an ongoing basis, will consider whether any conflict exists and,
if so, take appropriate action. Certain aspects of the shares may be changed,
upon notice to Fund shareholders, to satisfy certain tax regulatory
requirements, if the change is deemed necessary by the Directors.
From time to time, advertisements or reports to shareholders may compare
the performance of the Classes to that of other mutual funds (or classes
thereof) with a similar investment objective. The performance of the Classes
also might be compared to rankings prepared by Lipper Analytical Services, Inc.
and Morningstar, Inc., which are widely recognized, independent services that
monitor the performance of mutual funds, as well as to various unmanaged
indices, such as the Standard & Poor's 500 Composite Stock Price Index. To the
extent any advertisement or sales literature of a Fund describes the expenses or
performance of any Class, it will also disclose the information for other
Classes. Performance information may be useful in reviewing the performance of
the Classes and in providing a basis for comparison with other investment
alternatives. Investors should be aware that, because the performance of the
Classes changes in response to fluctuations in interest rates, price
fluctuations in securities markets, each Class' expenses and other factors, a
performance quotation should not be considered representative of the Classes'
performance for any future period. Shareholders may make inquiries regarding the
Fund, including current performance quotations, by calling any Cowen account
representative.
Year 2000 Risks. Like other mutual funds, the Fund could be adversely
affected if the computer systems used by Cowen and other service providers do
not properly process and calculate date-related information from and after
January 1, 2000. This is commonly known as the 'Year 2000 Problem.' Cowen is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
21
<PAGE> 27
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<PAGE> 28
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<PAGE> 29
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1998
COWEN INCOME + GROWTH FUND, INC.
Financial Square, New York, NY 10005, (212) 495-6724, (800) 262-7116
CONTENTS
Page
----
Investment Objectives and Policies. . . . . 2
Purchase and Redemptions. . . . . . . . . . 9
Management of the Fund. . . . . . . . . . . 9
Taxes. . . . . . . . . . . . . . . . . . . 14
Performance Information. . . . . . . . . . 15
Financial Statements. . . . . . . . . . . . 17
This Statement of Additional Information is meant to be read in conjunction with
the Prospectus of Cowen Income + Growth Fund, Inc. (the "Fund") dated April 1,
1998, and is incorporated by reference in its entirety into that Prospectus.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the Fund's Prospectus may be obtained by calling
Cowen & Co. ("Cowen"), the Fund's principal underwriter, at (212) 495-6724 or
(800) 262-7116 or by contacting any Cowen account representative.
COWEN & CO.
Principal Underwriter
1
<PAGE> 30
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to realize a high level of
dividend income to the extent consistent with the preservation of capital.
Capital appreciation is a secondary objective of the Fund. Cowen, through its
investment management division, Cowen Asset Management, will serve as the Fund's
investment manager. The Fund is not intended to constitute a balanced investment
program.
Additional Information on Investment Practices
U.S. Government Securities. Examples of the types of U.S. Government
securities that the Fund may hold include, in addition to those described in the
Prospectus and U.S. Treasury Bills, the obligations of the Federal Housing
Administration, Farmers Home Administration, Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks and Maritime
Administration. It is not anticipated that the Fund will in the foreseeable
future invest in excess of five percent of its net assets in U.S. Government
securities that represent interests in pools of mortgages.
Lending of Securities. The Fund has the authority to lend securities
to brokers, dealers and the other financial organizations. The Fund will not
lend securities to Cowen or its affiliates. By lending its securities, the Fund
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid by the borrower when
U.S. Government securities are used as collateral. The Fund will adhere to the
following conditions whenever its securities are loaned: (a) the Fund must
receive at least 100 percent cash collateral or equivalent securities from the
borrower; (b) the borrower must increase this collateral whenever the market
value of the securities including accrued interest rises above the level of the
collateral; (c) the Fund must be able to terminate the loan at any time; (d) the
Fund must receive reasonable interest on the loan, as well as any dividends,
interest or other distributions on the loaned securities and any increase in
market value; (e) the Fund may pay only reasonable custodian fees in connection
with the loan; and (f) voting rights on the loaned securities may pass to the
borrower; provided, however, that if a material event adversely affecting the
investment occurs, the Fund's Board of Director must terminate the loan and
regain the right to vote the securities.
Covered Call Options. Options written by the Fund will normally have
expiration dates between one and nine months from the date written. So long as
the obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice. To secure its obligation to deliver the underlying security
when it writes a call option the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the national securities
exchange on which the option is written.
2
<PAGE> 31
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized national
securities exchange in the over-the-counter market. In light of this fact and
current trading conditions the Fund expects to write options only on national
securities exchanges and in the over-the-counter market. As of the date of this
Statement of Additional Information, the national securities exchanges on which
options are traded are: The Chicago Board Options Exchange, The Board of Trade
of the City of Chicago, American Stock Exchange, Philadelphia Stock Exchange,
Pacific Stock Exchange and New York Stock Exchange ("NYSE"). Options are also
traded on the national securities exchanges with respect to unlisted securities
reported through the NASDAQ system.
Although the Fund will write only those options for which Cowen Asset
Management believes there is an active secondary market so as to facilitate
closing purchase transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will exist
for any particular option or at any particular time, and for some options no
such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the Clearing Corporation and the
national securities exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customer orders, will not recur. In such event, it might not
be possible to effect closing purchase transactions in particular options. If,
as a covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying security upon
exercise.
The national securities exchanges have established limitations
governing the maximum number of options of each class which may be held or
written, or exercised within certain time periods, by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different national securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the Fund and other clients of Cowen Asset Management and certain
of its affiliates may be considered to be such a group. A national securities
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose certain other sanctions.
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expenses in connection with any such
purchase or borrowing.
3
<PAGE> 32
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions involving its portfolio securities with banks, registered
broker-dealers and government securities dealers approved by the Fund's Board of
Directors. It is not anticipated that the Fund will in the foreseeable future
invest in excess of five percent of its net assets in repurchase agreements.
Under the terms of a typical repurchase agreement, the Fund would acquire an
underlying debt obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed price and time, thereby determining the
yield during the Fund's holding period. Thus, repurchase agreements may be seen
to be loans by the Fund collateralized by the underlying debt obligation. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
and the Fund is delayed in or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the value
of the underlying securities during the period in which the Fund seeks to assert
these rights. Cowen Asset Management, acting under the supervision of the Fund's
Board of Directors, reviews the credit-worthiness of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate these risks
and monitors on an ongoing basis the value of the securities subject to
repurchase agreements to ensure that the value is maintained at the required
level.
Investment Restrictions
The investment restrictions numbered 1 through 12 below have been
adopted by the Fund as fundamental policies, which means that they may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, which is defined as the lesser of (a) 67 percent or more of the shares
present at a shareholders meeting if the holders of more than 50 percent of the
outstanding shares of the Fund are present or represented by proxy, or (b) more
than 50 percent of the outstanding shares. Investment restrictions 13 through 19
may be changed by vote of a majority of the Fund's Directors at any time.
The investment policies adopted by the Fund prohibit it from:
1. With respect to 75 percent of its assets, purchasing the
securities of any issuer, other than U.S. Government securities, if as a result
more than five percent of the Funds total assets would be invested in the
securities of the issuer.
2. Purchasing more than 10 percent of the voting securities of any
one issuer or more than 10 percent of the securities of any class of any one
issuer. This limitation shall not apply to investments in U.S.
Government securities.
3. Purchasing securities on margin, except that the Fund may obtain
any short-term credit necessary for the clearance of purchases and sales of
securities.
4
<PAGE> 33
4. Making short sales of securities or maintaining a short position.
5. Borrowing money, except that the Fund may borrow for temporary or
emergency (but not leveraging) purposes, including the meeting of redemption
requests that might otherwise require the untimely disposition of securities, in
an amount not exceeding 10 percent of the value of the Fund's total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. Whenever borrowing exceed five percent of the value of the Fund's total
assets, the Fund will not make any additional investments.
6. Pledging, hypothecating, mortgaging or otherwise encumbering more
than 10 percent of the value of the Fund's total assets, except that this
prohibition shall no longer prohibit the escrow arrangements contemplated by
writing covered call options.
7. Underwriting the securities of the issuers, except insofar as the
Fund may be deemed to be an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
8. Making loans to others, except through purchasing qualified debt
obligations or lending portfolio securities.
9. Investing in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation, reorganization,
acquisition of assets or offer of exchanges.
10. Purchasing any securities that would cause more than 25 percent
of the value of the Fund's total assets 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 U.S.
Government securities.
11. Investing in commodities.
12. Purchasing restricted securities, illiquid securities (such as
repurchase agreements with maturities in excess of five business days) or
securities that are not readily marketable if more than 10 percent of the total
assets of the Fund would be invested in those securities.
13. Purchasing or selling real estate or interests in real estate,
including interests in real estate limited partnerships, except that the Fund
may purchase and sell securities that are issued by companies that invest or
deal in real estate, including readily-marketable interests in real estate
investment trusts or readily marketable securities of other companies which
invest in real estate.
The Fund also reserves the right to own real estate used principally for its own
office space, although it has no current intention to do so.
14. Writing or selling puts, calls, straddles, spreads or
combinations thereof, except that the Fund may write covered call options and
enter into closing purchase transactions with respect to
5
<PAGE> 34
options it has written, provided these transactions are conducted in a manner
consistent with, and subject to the limitations set forth in, the description of
these transactions in the Prospectus and this Statement of Additional
Information.
15. Investing in oil, gas or other mineral exploration or development
programs or oil, gas or mineral leases, except that the Fund may invest in the
securities of companies that invest in or sponsor those programs.
16. Purchasing any security if as a result the Fund would then have
more than five percent of its total assets invested in securities of issuers
(including predecessors) that have been in continual operation for less than
three years. This limitation shall not apply to investments in U.S. Government
securities.
17. Making investments for the purpose of exercising control or
management.
18. Investing in warrants, although warrants acquired by the Fund as
part of a unit or attached to securities at the time of acquisition are not
subject to this limitation.
19. Purchasing or retaining the securities of any issuer if, to the
knowledge of the Fund, any of the officers of directors of the Fund or Cowen
individually owns more than 0.5 percent of the outstanding securities of the
issuer and together they own beneficially more than five percent of the
securities.
The percentage limitations contained in the restrictions listed
above apply at the time of purchases of securities. If a percentage restriction
is adhered to at the time of an investment, a later increase or decrease in
percentage resulting from a change in values or assets will not constitute a
violation of such restriction. 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 and such commitment is no
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.
Portfolio Turnover
For regulatory reporting purposes, the Fund's turnover rate is
calculated by dividing the lesser of purchases or sales of securities for the
fiscal year by the monthly average of the value of the Fund's securities, with
certain other obligations with less than one year to maturity at the time of
purchase excluded. Thus, a 100 percent turnover rate would occur, for example,
if all included securities were replaced once during the year. The Fund will not
normally engage in the trading of securities for the purpose of realizing short
term profits, but will adjust its holdings as considered advisable in view of
prevailing or anticipated market conditions, and turnover will not be a limiting
factor should Cowen Asset Management deem it advisable to purchase or sell
securities.
6
<PAGE> 35
Portfolio Transactions
Decisions to buy and sell securities and other financial instruments
for the Fund are made by Cowen Asset Management, which also is responsible for
placing these transactions, subject to the overall review of the Fund's Board of
Directors. Although investment requirements for the Fund are reviewed
independently from those of the other accounts managed by Cowen Asset
Management, investments of the type the Fund may make may also be made by these
other accounts. When the Fund and one or more other accounts managed by Cowen
Asset Management are prepared to invest in, or desire to dispose of, the same
security or other financial instrument, available investments or opportunities
for sales will be allocated in a manner believed by Cowen Asset Management to be
equitable to each. In some cases, this procedure may affect adversely the price
paid or received by the Fund or the size of the position obtained or disposed of
by the Fund.
Portfolio transactions are in most cases effected on U.S. stock
exchanges and involve the payment of negotiated brokerage commissions. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the prices of those securities may include
commissions or mark-ups. Purchases and sales of money market instruments and
debt securities usually are principal transactions. These securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. The cost of securities purchased from underwriters
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down. U.S. Government securities are generally purchased from underwriters
or dealers, although certain newly-issued U.S. Government securities may be
purchased directly from the U.S. Treasury or from the issuing agency or
instrumentality.
To the extent consistent with applicable provisions of the Act, other
securities laws and the rules and exemptions adopted by the Securities and
Exchange Commission (the "SEC") thereunder, the Fund's Board of Directors has
determined that portfolio transactions may be effected through Cowen if, in the
judgment of Cowen Asset Management, the use of Cowen normally is likely to
result in price and execution at least as favorable as those of other qualified
broker-dealers, and if, in particular transactions, Cowen charges the Fund a
rate consistent with that charged to comparable unaffiliated customers in
similar transactions. Over-the-counter purchases and sales are transacted
directly with principal market makers except in those cases in which better
prices and executions may be obtained elsewhere, and principal transactions are
not entered into with affiliates of the Fund except pursuant to exemptive rules
or orders adopted by SEC.
In selecting brokers or dealers to execute portfolio transactions on
behalf of the Fund, Cowen Asset Management seeks the best overall terms
available. In assessing the best overall terms available for any transaction,
Cowen Asset Management will consider the factors it deems relevant, including
the breadth of the market in the investment, the price of the investment, the
financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, Cowen Asset Management is authorized, in
selecting parties to execute a particular transaction and in evaluating the best
overall terms available, to consider the brokerage and research services, as
those terms are defined in Section 28(e) of the Securities Exchange Act of 1934,
provided to the Fund and/or other accounts over which
7
<PAGE> 36
Cowen Asset Management or its affiliates exercise investment discretion. Cowen
Asset Management's fees under its agreement with the Fund are not reduced by
reason of its receiving brokerage services. The Fund's Directors periodically
review the commissions paid by the Fund to determine if the commissions paid
over representative periods of time are reasonable in relation to the benefits
inuring to the Fund.
For the fiscal year ended November 30, 1995, the Fund paid an
aggregate of approximately $146,789 in commissions to broker-dealers for
execution of portfolio transactions. Cowen effected approximately 3.8% of the
aggregate dollar amount of such transactions for which it received approximately
$4,503 (3.1%) of the commissions paid by the Fund during that year. The balance
of the commissions ($142,286) was paid to other broker-dealers which furnished
research services to the Fund and which effected the remaining 96.2% of the
aggregate dollar amount of portfolio transactions involving the payment of
commissions.
For the fiscal year ended November 30, 1996, the Fund paid an
aggregate of approximately $188,848 in commissions to broker-dealers for
execution of portfolio transactions. Cowen effected approximately 4.0% of the
aggregate dollar amount of such transactions for which it received approximately
$8,050 (4.3%) of the commissions paid by the Fund during that year. The balance
of the commissions ($180,798) was paid to other broker-dealers which furnished
research services to the Fund and which effected the remaining 96.0% of the
aggregate dollar amount of portfolio transactions involving the payment of
commissions.
For the fiscal year ended November 30, 1997 the Fund paid an
aggregate of approximately $153,648 in commissions to broker-dealers for
execution of portfolio transactions, none of which was paid to Cowen.
Portfolio Valuation
The assets of the Fund are generally valued on the basis of market
quotations. Securities whose principal market is on an exchange are valued at
the last sales price on the exchange or, in the absence of currently reported
sales on the exchange, at the most recent bid price in the over-the-counter
market or, in the absence of a recent bid price, the bid equivalent as obtained
from one or more of the major market makers for the securities to be valued.
Securities traded principally in the over-the-counter market are valued at the
most recent bid price. Other investments and other assets, including restricted
securities and securities for which market quotations are not readily available,
are valued at fair value under procedures approved by the Board of Directors.
High-quality, short-term securities with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board of Directors. Amortized cost valuation involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument.
8
<PAGE> 37
Although this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.
PURCHASES AND REDEMPTIONS
Purchases
Shares of the Fund are offered on a continuous basis by the Fund and
are distributed on a best efforts basis by Cowen as principal underwriter for
the Fund pursuant to a Distribution Agreement. As noted elsewhere in this
Statement of Additional Information and in the Prospectus, Cowen receives an
investment advisory fee and brokerage commissions for effecting portfolio
transactions on behalf of the Fund.
The word "Cowen" in the Fund's name has been adopted pursuant to a
provision contained in the Distribution Agreement. Under that provision, Cowen
may terminate the Fund's license to use the word "Cowen" in its name when Cowen
ceases to act as the Fund's principal underwriter.
Redemptions
The right of redemption of shares of the Fund may be suspended or the
date of payment postponed (a) for any periods during which the NYSE is closed
(other than for customary weekend and holiday closings), (b) when trading in the
markets the Fund normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of the Fund's
investments or determination of its net asset value not reasonably practicable,
or (c) for such other periods as the SEC by order may permit for protection of
the Fund's shareholders.
MANAGEMENT OF THE FUND
Board of Directors
The names of the Fund's directors and executive officers, their
addresses, principal occupations during the past five years and other
affiliations are set forth below. Each Director who is an "interested person" of
the Fund, as defined in the Act is indicated by an asterisk. Each of the
directors is also a director of one or more other investment companies for which
Cowen serves as principal underwriter.
Directors of the Fund
9
<PAGE> 38
James H. Carey, Director, age 64. Managing Director of Briarcliff
Financial Associates, Inc. (since June, 1991) and former Chief Executive
Officer, Director and Treasurer of National Capital Benefits Corporation (since
March, 1994). Mr. Carey is also a Director of Airborne Freight Corporation,
Jonathan Woodner Company, former Director of NCB Insurance Limited (Bermuda),
The Midland Company, The Murray & Isabella Rayburn Foundation, Nantucket
Industries, Inc. and the Vice Chairman of U.S. Committee for UNICEF. Prior
thereto he was President and Chief Executive Officer, The Berkshire Bank (May
1989 to June 1991). His address is Village View and Canterbury Roads,
Manchester Center, VT 05255.
*Joseph M. Cohen, Chairman and Chief Executive Officer of the Fund,
age 59. Principal Executive Officer and since March 1991 Class I Limited Partner
of Cowen and Chairman and President of Cowen Incorporated, the sole general
partner of Cowen. Prior thereto he was the Managing General Partner of Cowen.
Director, Chairman and Chief Executive Officer of the Cowen Mutual Funds. Until
December 15, 1992, he was also President of the Fund and the Cowen Mutual Funds.
Dr. Peter P. Gil, Director, age 74. Director, Arthur D. Little
Management Institute Board since 1991 and former Executive Board Member and
currently Acting Dean of the Institute; Trustee and Executive Committee Member,
Plimoth Plantation, (Plymouth, Mass.); From July 1988 to July 1995, Dr. Gil
served in a variety of senior administrative positions at the Sloan School of
Management, Massachusetts Institute of Technology, as Director, Management of
Technology Program, the Senior Executive Program, External Relations of the
School; and Senior Lecturer. Prior to July 1988 he was Associate Dean of the
School. His address is 79 Main Street, New Castle, New Hampshire 03854-0651.
Dr. Martin J. Gruber, Director, age 59. Chairman, Department of
Finance and Nomura Professor of Finance, Leonard N. Stern School of Business
Administration, New York University. He is also a Trustee of BT Pyramid Mutual
Funds, Director of Japan Equity Fund, Inc., and the Taiwan Equity Fund, Inc.;
and a trustee of BT Leadership Trust and T.I.A.A. Board. His address is New
York University, 44 West 4th Street, New York, New York 10012.
Burton J. Weiss, Director, age 66. Self-employed consultant
since March, 1988. His address is 103 Marin Drive, Chapel Hill, North
Carolina 27516.
Officers of the Fund Not Noted Above
Rodd M. Baxter, Secretary. General Counsel of Cowen Asset
Management and Director of Cowen. His address is Financial Square, New York,
New York 10005.
Benedict Capaldi, Senior Investment Officer. Senior Portfolio
Manager of Cowen Asset Management and Managing Director of Cowen. His
address is Financial Square, New York, New York 10005.
10
<PAGE> 39
William Church, Vice President and Senior Investment Officer.
Class I Limited Partner of Cowen, Managing Director of Cowen Incorporated and
Chief Investment Officer of Cowen Asset Management. His address is Financial
Square, New York, New York 10005.
Paul Houk, Investment Officer. Senior Portfolio Manager of Cowen
Asset Management. Director of Cowen. His address is Financial Square, New
York, NY 10005.
Creighton H. Peet, Vice President, Treasurer and Senior Investment
Officer. Class I Limited Partner of Cowen, Managing Director of Cowen
Incorporated. His address is Financial Square, New York, New York 10005.
William Rechter, Senior Investment Officer and Senior Vice
President. Class I Limited Partner of Cowen and Managing Director of Cowen
Incorporated. His address is Financial Square, New York, New York 10005.
David Sarns, President. Chief Administrative Officer and Class I
Limited Partner of Cowen and Managing Director of Cowen Incorporated. His
address is Financial Square, New York, New York 10005.
Irwood Schlackman, Controller. Mutual Fund Administrator of
Cowen. His address is Financial Square, New York, New York 10005.
Compensation and Holders of Securities
No officer, director, partner or employee of Cowen or its affiliates
will receive any compensation from the Fund for serving as an officer or
director of the Fund. Directors who are not officers, directors, partners,
stockholders or employees of Cowen or its affiliates receive a fee of $3,000 per
annum plus $500 per meeting attended and $375 for each audit committee meeting
attended and reimbursement for travel and out-of pocket expenses. For the fiscal
years ending November 30, 1995, 1996 and 1997 such fees and expenses totaled
$21,995, $22,203 and $25,144, respectively. 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 March 4, 1998. As of
March 4, 1998, the following persons owned 5% or more of a class of the Fund's
securities: Class B -- Jack Salomone (8%), 3957 Provost Ave., Bronx, NY 10466;
Ernest F. Salomone (8%), 3957 Provost Ave., Bronx, NY 10466; Salco LLC (5%),
3957 Provost Ave., Bronx, NY 10466. Class I-- Batrus & Co. (18%), Post Office
Box 9005, Mail Stop 2174, Church Street Station, New York, New York 10006;
Branch Cabell & Co. 401K (6%), Post Office Box 27602, Richmond, Virginia
23261-7602; Charles Schwab & Co. (12%), 301 Pine St., San Francisco, CA 94104;
Guadi & Co. (7%) c/o Bankers Trust Co., PO Box 9005, Church St. Station, New
York, NY 10006 Cowen & Co. 401k (43%), Financial Square, New York, NY 10005.
11
<PAGE> 40
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 $5,750 -0- -0- $8,750
Peter Gil $5,750 -0- -0- $8,750
Martin J. Gruber $5,750 -0- -0- $8,750
Burton J. Weiss $5,750 -0- -0- $8,750
</TABLE>
*There are seven funds included in the complex.
Investment Manager
Cowen, through Cowen Asset Management, its investment management
division, serves as investment manager to the Fund pursuant to an Investment
Management Agreement which became effective on the date the Fund commenced
investment operations. Cowen, a limited partnership organized under the laws of
New York, is controlled by its general partner, Cowen Incorporated. Cowen
Incorporated is controlled by Mr. Joseph M. Cohen. The services provided by, and
the fees payable by the Fund to Cowen Asset Management under its Investment
Management Agreement is described in the Prospectus. From time to time, Cowen,
in its sole discretion and as it deems appropriate, may waive a portion or all
of the fees payable to it by the Fund. For the fiscal years ended November 30,
1995, 1996 and 1997. Cowen received investment management fees of $379,702,
$506,210 and $509,586, respectively.
From May 9, 1994 through August 31, 1995, Cowen voluntarily
reimbursed the Fund's expenses in an amount equal to an annual rate of .20 of 1%
through August 31, 1995, .18 of 1% from that date through March 31, 1996 and .14
of 1% through November 30, 1997 of the average daily value of the Fund's net
assets.
Shareholder Servicing and Distribution Plan (the "Plan")
Cowen is paid monthly fees by the Fund in connection with (1) the
servicing of shareholder accounts in Class A and Class B shares and (2)
providing distribution related services in respect of Class B shares. A monthly
service fee, authorized pursuant to the Plan adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), is
12
<PAGE> 41
calculated at the annual rate of .25% of the value of the average daily net
assets of the Fund attributable to each of Class A and Class B shares and is
used by Cowen to provide compensation for ongoing servicing and/or maintenance
of shareholder accounts with the Fund. Compensation is paid by Cowen to persons,
including Cowen employees, who respond to inquiries of shareholders of the Fund
regarding their ownership of shares of their accounts with the Fund or who
provide other similar services not otherwise required to be provided by the
Fund's investment adviser, transfer agent or other agent of the Fund.
In addition, pursuant to the Plan, the Fund pays to Cowen a monthly
distribution fee at the annual rate of .75% of the Funds average daily net
assets attributable to Class B shares. The distribution fee is used by Cowen to
provide (1) initial and ongoing sales compensation to its registered
representative or those of other broker-dealers that enter into selected dealer
agreements with Cowen in respect of sales of Class B shares; (2) costs of
printing and distributing the Fund's Prospectus, Statement of Additional
Information and sales literature to prospective investors in Class B shares; (3)
costs associated with any advertising relating to Class B shares; and (4)
payments to, and expenses of, persons who provide support services in connection
with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the service
and/or distribution expenses actually incurred by Cowen, and the payments may
exceed expenses actually incurred by Cowen. The Board of Directors evaluates the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so considers all relevant factors, including expenses borne by Cowen and
amounts it received under the Plan.
For the fiscal years ended November 30, 1995, 1996 and 1997, Cowen
received $102,414, $125,649 and $132,392, respectively, in servicing fees from
Class A shares and $9,341, $21,608 and $34,831 respectively, in servicing and
distribution fees from Class B shares.
Custodian and Transfer and Dividend Agent
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania,
Kansas City, Missouri 64105, is custodian of the Fund's assets pursuant to a
Custody Agreement. Under the Custody Agreement, IFTC (i) maintains a separate
account or accounts in the name of the Fund, (ii) holds and transfers portfolio
securities on account of the Fund, (iii) receives and disburses money on behalf
of the Fund and (iv) collects and receives all income and other payments and
distributions on account of the Fund's portfolio securities.
DST Systems Inc. ("DST"), 210 West 10th Street, Kansas City,
Missouri 64105, has agreed to serve as the Fund's transfer and dividend
disbursing agent pursuant to a Transfer Agency Agreement, under which
DST (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.
Auditors and Counsel
13
<PAGE> 42
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has
been selected as the Fund's independent auditors.
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022, serves as counsel for the Fund.
TAXES
Set forth below is a summary of certain general federal income tax
considerations which may affect the Funds and their shareholders. As the summary
is not intended as a substitute for individual tax planning, investors are urged
to consult their own tax advisers with specific reference to their particular
federal, state or local tax situations.
Taxation of Shareholders
The portion of long-term capital gains distributed to individual
shareholders that is attributable to the sale of investments that the Fund has
held more than 18 months will be eligible for a 20% maximum tax rate. If a
shareholder receives a distribution taxable as long-term capital gain, and
redeems or exchanges his or her shares of the Fund before he or she has held the
shares (without hedging them) for more than six months, any loss on such
redemption or exchange up to the amount of the distribution will be treated as
long-term capital loss.
Dividends of investment income from the Fund may qualify for the
dividends-received deduction for corporate shareholders only to the extent of
the aggregate amount of dividends received by the Fund from United States
corporations. The Fund must hold stock for more than 45 days (90 days in the
case of certain preferred stock), without hedging its investment in the stock in
certain ways, for dividends paid on the stock to be eligible dividends.
If the Fund is the holder of record of any stock on the record date
for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date the Fund acquired such stock. Accordingly, in order
to satisfy its income distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive dividends
in an earlier year than would otherwise be the case.
If a shareholder (a) incurs a sales charge in acquiring Fund shares,
(b) disposes of those shares within ninety days and (c) acquires shares in a
mutual fund for which the otherwise applicable sales charge is reduced by reason
of reinvestment right (i.e., an exchange privilege), the original sales charge
increases the shareholder's tax basis in the original shares only to the extent
that the otherwise applicable sales charge for the second acquisition is not
reduced. The portion of the original shares would be treated as incurred with
respect to the second acquisition and, as a general rule, would increase the
shareholder's tax basis in the newly acquired shares. Furthermore, the same rule
also applies to a disposition of the newly acquired shares made within ninety
days of the second acquisition.
14
<PAGE> 43
The provision prevents a shareholder from immediately deducting the sales charge
by shifting his investment in a family of mutual funds.
In general, if a shareholder fails to furnish a correct taxpayer
identification number, fails to report dividend and interest income in full, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to withholding, then the shareholder
may be subject to 31 percent federal backup withholding tax on dividends,
capital gains distribution and the proceeds of redemptions or exchange. An
individual's taxpayer identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be credited
against a shareholder's regular federal income tax liability.
Taxation of Fund Investments
Gain or loss on the sale of a security will generally be long-term
capital gain or loss if the Fund has held the security for more than one year.
If a Fund acquires a debt security at a discount, however, the portion of any
gain upon its sale or redemption that reflects the accrued market discount will
be taxed as ordinary income, rather than capital gain.
In general, when the Fund writes a covered call option on a security,
and either the option expires unexercised or the Fund enters into a closing
purchase transaction, the Fund will normally recognize a short-term capital gain
or loss (except that any losses on certain covered call stock options will be
treated as long-term capital losses). If a call option is exercised, the premium
received will be treated as additional proceeds from the sale of the underlying
security.
Although the Fund expects to be relieved of all or substantially all
federal and state income or franchise taxes, depending upon the extent of its
activities in certain states and localities, that portion of the Fund's income
which is treated as earned in any such state or locality could be subject to
state or local tax.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its "average annual total
return" for the different Classes over various periods of time. These total
return figures show the average percentage change in value of an investment in
the Fund from the beginning date of the measuring period to the end of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were invested in shares of the Fund. Figures
will be given for recent one, five and ten year periods, or the life of the Fund
to the extent it has not been in existence for any such periods, and may be
given for other periods as well, such as on a year-by-year basis. When
considering "average" total return figures for periods longer than one year, it
is important to note that the Fund's annual total return for any one year in the
period might have been greater or lesser than the average for the entire period.
The Fund may also use "aggregate" total return figures for various periods,
representing the cumulative period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions).
15
<PAGE> 44
Aggregate total returns may be shown by means of schedules, charts, or graphs,
and may indicate subtotals of the various components of total return (i.e.,
change in value of initial investment, income dividends, and capital gains
distributions). The performance of the Fund also might be compared to rankings
prepared by Lipper Analytical Services, Inc., and Morningstar, Inc. which are
widely recognized, independent services that monitor the performance of mutual
funds, as well as to various unmanaged indices, such as the Standard & Poor's
500 Composite Stock Price Index. Performance Information may be useful in
reviewing the performance of the Fund and in providing a basis for comparison
with other investment alternatives. Investors should be aware that, because the
performance of the Fund changes in response to fluctuations in interest rates,
price fluctuations in securities markets, the Fund's expenses and other factors,
a performance quotation should not be considered representative of the Fund's
performance for any future period. To the extent any advertisement or sales
literature of a Fund describes the expenses or performance of any Class, it will
also disclose the information for other Classes. Shareholders may make inquiries
regarding the Fund, including current performance quotations, by calling any
Cowen account representative.
The Fund's "average annual total return" will be computed in
accordance with the following formula prescribed by the Securities and Exchange
Commission:
TOTAL RETURN = P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at
the beginning of a 1, 5, or 10 year period at the end of the 1, 5, or 10
year periods (or fractional portion thereof), assuming reinvestment of all
dividends and distributions.
Class A Shares/Average Annual Total Return for the periods ended November 30,
1997:
1 year = 13.53%
5 years = 13.14%
10 years = 11.32%
*Inception = 11.02%
*September 19, 1986
Class B Shares/Average Annual Total Return for the periods ended November 30,
1997:
1 year = 13.34%
*Inception = 16.92%
*May 17, 1994
Class I Shares/Average Annual Total Return for the periods ended November 30,
1997:
16
<PAGE> 45
1 year = 19.57%
*Inception = 18.54%
*May 9, 1994
The Class A total return figures calculated in accordance with the
above formula assumes that the maximum 4.75% sales load has been deducted from
the hypothetical $1,000 initial investment at the time of purchase. The Class B
total return figures calculated in accordance with the above formula assumes the
deduction of the appropriate contingent deferred sales charge at the end of each
period.
The ERV assumes complete redemption of the hypothetical investment
at the end of the measuring period. A Fund's net investment income changes in
response to fluctuations in interest rates and the expenses of the Fund.
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 period ended November 30, 1997. The Fund will
provide copies of the Annual Report to each person who requests a copy of this
Statement of Additional Information. The Fund will also furnish copies 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 page of this
Statement of Additional Information.
17
<PAGE> 46
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 of Cowen Income + Growth Fund is the Annual Report to
Shareholders dated November 30, 1997, which includes the
Statement of Investments and Statement of Assets and
Liabilities as of November 30, 1997; Statement of Operations
for the year ended November 30, 1997; Statement of Changes in
Net Assets for the years ended November 30, 1996 and 1997;
Notes to Financial Statements; and the Report of Ernst &
Young, LLP, Independent Auditors, dated January 9, 1998.
(b) Exhibits:
Exhibit No. Description of Exhibits
- ----------- -----------------------
1 (i) Articles of Incorporation of Registrant(a)
(ii) Articles of Amendment(a)
2 (i) By-Laws of Registrant(a)
(ii) Amendment of Article I, Sections 1 and 2 of Registrant's
By-Laws(a)
3 Not applicable
4 Not applicable
5 Investment Management Agreement(a)
6 Distribution Agreement(a)
7 Not applicable
8 Custody Agreement with Investors Fiduciary Trust
Company(a)
9 Transfer Agency Agreement with Investors Fiduciary Trust
Company(9)
10 (i) Opinion and consent of Venable Baetjer and Howard, Aug. 7,
1986(a)
(ii) Opinion and consent of Willkie Farr & Gallagher, Aug. 7,
1986(a)
C-1
<PAGE> 47
(iii) Opinion and consent of Venable Baetjer and Howard, April
29, 1994(a)
11 Consent of Independent Auditors
12 Not Applicable
13 Subscription Agreement(a)
14 Not applicable
15 (i) Form of Shareholder Servicing and Distribution Plan(a)
(ii) Form of Shareholder Servicing Agreement(a)
(iii) Form of Distribution Related Services Agreement(a)
(a) Incorporated by reference to Post-Effective No. 14 to
Registrant's Statement on Form N-1A filed on March 26, 1997.
Item 25. Persons Controlled by or Under Common Control with Registrant
The majority of the directors who serve on the Registrant's Board of
Directors also comprise the majority of the Board of Directors of Cowen Standby
Reserve Fund, Inc., Cowen Standby Tax-Exempt Reserve Fund, Inc. and Cowen Funds,
Inc. Each of these registered investment companies was incorporated under the
laws of Maryland.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of March 20, 1998
-------------- ------------------------
Common Stock, par value $.001
per share................... 2,412
Item 27. Indemnification
Reference is hereby made to Registrant's Registration Statement
filed on May 14, 1986, as amended on August 8, 1986.
Items 28 Business and Other Connections of Investment Manager;
and 29. Principal Underwriter
Cowen & Company ("Cowen"), through Cowen Asset Management, 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 Funds, Inc. ("CFI"),
Cowen Series Funds, Inc. ("CSF"), Cowen Standby Reserve Fund, Inc. ("CSRF")
and Cowen Standby Tax-Exempt Reserve Fund, Inc. ("CSTXF"). Listed on the
following pages are the names of all of the General Partners, Class I Limited
Partners and Limited Partners of Cowen as of March 5, 1998, their positions and
their positions with Registrant, if any, and under the heading "Other Business
Activities and Principal Business Addresses, and 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 "CI+G").
C-2
<PAGE> 48
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL ------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ------- ------ ------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
GENERAL PARTNER
Cowen Incorporated (1)
CLASS I LIMITED PARTNERS
Anthony J. Aliberti (1)...... Since 1/1/96 -- Cowen Incorporated
(1) -- MD
Domingo Alonso (1)........... Since 1/1/97 -- Cowen Incorporated
(1) -- MD
Richard A. Altschuler (3).... Since 1/1/96 -- Cowen Incorporated
(1) -- MD
Joseph Augustine (1)......... Since 1/1/97 -- Cowen Incorporated
(1) -- MD
Alice C. Avanian (3)......... Since 1/1/97 -- 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 V,SI Since 3/30/91 -- Cowen Incorporated
(1) -- MD
Jarrod M. Cohen (1).......... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
Jon M. Cohen (1)............. Since 1/1/97 -- Cowen Incorporated
(1) -- MD
Joseph M. Cohen (1).......... C, D C, D C, D C, D C 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); Since
3/30/91 Cowen Incorporated
(1) -- MD
Nancy M. Crowell (6)......... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
</TABLE>
C-3
<PAGE> 49
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Howard Dingley (7)............ Since 1/1/97--Cowen Incorporated (1)-
-MD
Kenneth Dowd (1).............. Since 1/1/97--Cowen Incorporated (1)-
-MD
John P. Dunphy (1)............ Since 3/30/92--Cowen Incorporated
(1)--MD
Alec D. Green (7)............. Since 1/1/96--Cowen Incorporated
(1)--MD
Jeremiah Harrington (1)....... Since 1/1/97--Cowen Incorporated
(1)--MD
Guy E. Heald (3).............. Since 1/1/97--Cowen Incorporated
(1)--MD
William F. Herbert (3)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Edward I. Herbst (1).......... Since 3/30/91--Cowen Incorporated
(1)--MD
James M. Hesburgh (1)......... Since 1/1/97--Cowen Incorporated
(1)--MD
Thomas L. Hgyde (1)........... Since 3/30/93--Cowen Incorporated
(1)--MD
Cornelius Howe (1)............ Since 1/1/97--Cowen Incorporated
(1)--MD
Gerald P. Kaminsky ........... D,SI D,SI Since 3/30/91--Cowen Incorporated
(1)--MD
Kurt B. Karmin (2)............ Since 1/1/97--Cowen Incorporated
(1)--MD
James C. Kedersha (3)......... Since 1/1/97--Cowen Incorporated
(1)--MD
Jamie Kiggen (3).............. Since 1/1/97--Cowen Incorporated
(1)--MD
Jeffrey B. Kiley (1).......... Since 1/1/97--Cowen Incorporated
(1)--MD
Christopher D. Kirby (6)...... Since 1/1/97--Cowen Incorporated
(1)--MD
Albert F. Laub (3)............ Since 3/30/91--Cowen Incorporated
(1)--MD
Daniel T. Lamaitre (3)........ 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 3/30/93--Cowen Incorporated
(1)--MD
David E. Mack (1)............. Since 3/30/91--Cowen Incorporated
(1)--MD
Joseph A. Majike, Jr. (3)..... Since 1/1/97--Cowen Incorporated
(1)--MD
</TABLE>
C-4
<PAGE> 50
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL ------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Malfitano (1).... Since 3/30/94--Cowen Incorporated
(1)--MD
Joseph M. Marinaro (1)... Since 3/30/96--Cowen Incorporated
(1)--MD
Paul Marsh (1)........... Since 1/1/97--Cowen Incorporated
(1)--MD
William O. Matthews(1)... Since 3/30/931--Cowen Incorporated
(1)--D
William K. McCormick (5). Since 3/30/91--Cowen Incorporated
(1)--MD
Malcolm G. McDonald (3).. Since 1/1/97--Cowen Incorporated
(1)--MD
Kelly McGowen (1)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Carl A. Mertz (1)........ Since 3/30/92--Cowen Incorporated
(1)--MD
Kathleen Miner (3)....... Since 1/1/97--Cowen Incorporated
(1)--MD
George G. Montgomery (6). Since 1/1/97--Cowen Incorporated
(1)--MD
Raymond K. Moran (3)..... Since 3/30/91--Cowen Incorporated
(1)--Cowen Incorporated MD
Adele M. Morrissette (1). Since 1/1/97--Cowen Incorporated
(1)--MD
Michael G. Mullen (3).... Since 1/1/97--Cowen Incorporated
(1)--MD
Jerrold B. Newman (6).... Since 3/30/92--Cowen Incorporated
(1)--MD
Donald F. Novell (1)..... Since 3/30/93--Cowen Incorporated
(1)--MD
Gary S. Pardo (1)........ Since 3/30/96--Cowen Incorporated
(1)--MD
Susan M. Passoni (3)..... Since 1/1/97--Cowen Incorporated
(1)--MD
Elizabeth T. Pawel (1)... Since 3/30/96--Cowen Incorporated
(1)--MD
Drew Peck................ Since 3/30/96--Cowen Incorporated
(1)--MD
Creighton H. Peet (1).... D,T D,T V,SI,T V,SI,T 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 3/30/92--Cowen Incorporated
(1)--MD
Peter J. Power (1)....... Since 3/30/92-Cowen Incorporated
(1)--MD
Charles J. Pradilla (1).. Since 1/1/97--Cowen Incorporated
(1)--MD
</TABLE>
C-5
<PAGE> 51
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
William Rechter (1)........ SI SI Since 3/30/92--Cowen Incorporated
(1)--MD
Stephen E. Reilly (3)...... Since 3/30/93--Cowen Incorporated
(1)--MD
Todd B. Robbins (1)........ Since 3/30/93--Cowen Incorporated
(1)--MD
Richard Lrugani (1 and 3).. Since 3/30/92--Cowen Incorporated
(1)--MD
David R. Sarns (1)......... P P P P P Since 3/30/93--Cowen Incorporated
(1)--MD
Stephen M. Scala (3)....... Since 1/1/97--Cowen Incorporated
(1)--MD
Thomas R. Schwartz (1)..... Since 1/1/97--Cowen Incorporated
(1)--MD
Kenneth Sheinberg (1)...... Since 1/1/97--Cowen Incorporated
(1)--MD
Hugh T. Shytle (3)......... Since 1/1/97--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
Robert W. Stone (3)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Alan Streeter (1).......... Since 1/1/97--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
Robert Valdez (6).......... Since 3/30/94--Cowen Incorporated
(1)--MD
Cai Von Rumohr (3)......... Since 3/30/91--Cowen Incorporated
(1)--MD
Hans C. Vitzthum (3)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Harold Vogen (1)........... Since 1/1/96--Cowen Incorporated
(1)--MD
Robert S. Walterman (4).... Since 1/1/97--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>
C-6
<PAGE> 52
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
LIMITED PARTNERS
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
(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
(6) Four Embarcadero Center, Suite 1200, San Francisco, California 9411
(7) One Angel Court, London, England ECZR, 7HJ
(8) 30 West 75th Street, New York, New York 10023
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
C-7
<PAGE> 53
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
801 Pennsylvania
Kansas City, Missouri 64105
(3) DST Systems, Inc.
210 West 10th Street
Kansas City, Missouri 64105
Item 31. Management Service
Not applicable.
Item 32. Undertakings
Not applicable.
C-8
<PAGE> 54
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 30th day of March, 1998.
COWEN INCOME + GROWTH FUND, INC.
/s/ Joseph M. Cohen
by: Rodd M. Baxter,
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
30th day of March, 1998.
Signature Title Date
- --------- ----- ----
/s/ Joseph M. Cohen Chairman (Chief March 30, 1998
by Rodd M. Baxter, Executive Officer)
Attorney-in-Fact and Director
- ----------------
Joseph M. Cohen
/s/ James H. Carey Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
- ----------------
James H. Carey
/s/ Peter P. Gil Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
- ----------------
Peter P. Gil
/s/ Martin J. Gruber Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
- ----------------
Martin J. Gruber
March 30, 1998
Treasurer (Chief,
Creighton H. Peet Financial Officer)
by Rodd M. Baxter,
Attorney-in Fact
- -----------------
Creighton H. Peet
/s/ Burton J. Weiss Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
- ----------------
Burton J. Weiss
C-9
<PAGE> 55
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
11 Consent of Independent Auditors
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus, "Auditors and Counsel" and "Financial
Statements" in the Statement of Additional Information and to the incorporation
by reference of our report dated January 9, 1998 on Cowen Income + Growth Fund,
Inc. in this Registration Statement (Form N-1A No. 33-5676).
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
March 27, 1998
