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<PAGE> PAGE 12
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<PAGE> PAGE 18
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<PAGE> PAGE 19
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044 000400 0
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047 000400 Y
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049 000400 N
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054 A000400 Y
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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<PAGE> PAGE 24
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038 000700 0
SIGNATURE CREIGHTON S. PEET
TITLE TREASURER
Board of Directors
Cowen Funds, Inc.
In planning and performing our audit of the financial statements of
Cowen Funds, Inc. (comprising, respectively, Cowen Opportunity Fund,
Cowen Intermediate Fixed Income Fund and Cowen Government Securities Fund)
for the year ended November 30, 1996, we considered its internal control
structure, including procedures for safeguarding securities, in order to
determine our auditing procedures for the purpose of expressing our opinion
on the financial statements and to comply with the requirements of Form
N-SAR, not to provide assurance on the internal control structure.
The management of Cowen Funds, Inc. is responsible for establishing and
maintaining an internal control structure. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets
are safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. However, we noted no
matters involving the internal control structure, including procedures for
safeguarding securities, that we consider to be material weaknesses as defined
above as of November 30, 1996.
This report is intended solely for the information and use of management and
the Securities and Exchange Commission.
ERNST & YOUNG LLP
January 3, 1997
Board of Directors of Cowen Income + Growth Fund, Inc.
Board of Directors of Cowen Funds, Inc.
Partners of Cowen and Company New York, New York
We have examined the accompanying description of the multiple
distribution system of Cowen and Company (the "Advisor") for
calculating the net asset value and dividends and distributions
with respect to the allocation of income and expenses to the
three classes of shares of the Funds listed on Exhibit I (the
"Funds"). Our examination included procedures to obtain
reasonable assurance about whether (1) the accompanying
description presents fairly, in all material respects, the
aspects of the Advisor's policies and procedures that may be
relevant to the Fund's internal control structure, (2) the
control structure policies and procedures included in the
description were suitably designed to achieve the control
objectives specified in the description, if those policies and
procedures were complied with satisfactorily, and the Fund's
organization applied the internal control structure policies and
procedures contemplated in the design of the Advisor's policies
and procedures, and (3) such policies and procedures were in
existence as of November 30, 1996. The control objectives were
specified by the Advisor. Our examination was performed in
accordance with standards established by the American Institute
of Certified Public Accountants and included those procedures we
considered necessary in the circumstances to obtain a reasonable
basis for rendering our opinion.
In our opinion, the accompanying description of the
aforementioned system presents fairly, in all material respects,
the relevant aspects of the Advisor's policies and procedures
that had been placed in operation as of November 30, 1996. Also,
in our opinion, the policies and procedures, as described, are
suitably designed to provide reasonable assurance that the
specified control objectives would be achieved if the described
policies and procedures were complied with satisfactorily.
In addition to the procedures we considered necessary to render
our opinion as expressed in the previous paragraph, we applied
tests to specific policies and procedures, listed in the attached
description, to obtain evidence about their effectiveness in
meeting the control objectives described in the attached
description, during the period from December 1, 1995 to November
30, 1996. The specific policies and procedures and the nature,
timing, extent, and results of the tests are listed in the
attached description. In our opinion, the policies and procedures
that were tested, as described in the attached description, were
operating with sufficient effectiveness to provide reasonable,
but not absolute, assurance that the control objectives specified
in the attached description were achieved during the period from
December 1, 1995 to November 30, 1996. However, the scope of our
engagement did not include tests to determine whether control
objectives not listed in the attached description were achieved;
accordingly, we express no opinion on the achievement of control
objectives not included in the attached description.
The description of policies and procedures at the Advisor is as
of November 30, 1996 and information about tests of operating
effectiveness of specified policies and procedures covers the
period from December 1, 1995 to November 30, 1996. Any projection
of such information to the future is subject to the risk that,
because of change, the description may no longer portray the
system in existence. The potential effectiveness of specific
policies and procedures at the Advisor is subject to inherent
limitations and, accordingly, errors or irregularities may occur
and not be detected. Furthermore, the projection of any
conclusions, based on our findings, to future periods is subject
to the risk that changes may alter the validity of such
conclusions.
This report is intended solely for the use by the management of
the Advisor, the Funds, and the Securities and Exchange
Commission and should not be used for any other purpose.
ERNST & YOUNG LLP
New York, New York January 3, 1997
Policies and Procedures for Calculating Net Asset Value and
Dividends and Distributions Relating to the Allocation of Income
and Expenses to the Multiple Classes of Shares of the Cowen Group
of Funds
Description of the System
Cowen and Company (the "Advisor") and the Funds listed on Exhibit
I have implemented a plan relating to the establishment of a
multiple distribution arrangement (the "System") for different
classes of shares to be offered to different categories of
investors.
The System would enable the Funds to offer investors the option
of purchasing shares subject to; (i) a conventional front-end
sales charge ("Class A shares"); or (ii) a contingent deferred
sales charge ("Class B shares"); or (iii) not subject to any such
sales charges ("Class C shares"). The Funds will pay to Cowen and
Company (also the "Distributor") a distribution fee pursuant to
the Fund Rule 12b-1 distribution plan at an annual rate of up to
.75 of 1% of the average daily net asset value of the Class B
shares. The Fund may also pay to the Distributor a service fee on
Class A and Class B shares at an annual rate of up to .25 of 1%
of the average daily net asset value of Class A and Class B
shares, respectively. The three classes each represent interests
in the same portfolio of investments of the Funds. For accounting
purposes, the three classes of the Funds will be identical except
that (i) the distribution fees payable by the Funds to the
Distributor will be only for Class B shares; (ii) the service
fees payable by the Funds to the Distributor may differ among the
Class A and Class B shares; (iii) Class-level expenses (limited
to: (a) transfer agency fees as identified by the transfer agent
as being attributable to a specific class; (b) printing and
postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current
shareholders; (c) Blue Sky registration fees incurred by a class
of shares; (d) Commission registration fees incurred by a class
of shares; (e) the expenses of administrative personnel and
services as required to support the shareholders of Class B
shares; (f) litigation or other legal expenses relating solely to
one class of shares; and (g) directors' fees incurred as a result
of issues relating to one class of shares) attributable to each
of the Class A, Class B and Class C shares may differ; (iv) each
class will bear any other incremental expenses subsequently
identified that should be properly allocated to the class which
shall be approved by the Commission pursuant to an amended order.
On a daily basis, the net asset value of all outstanding shares
of the three classes will be determined by dividing the ending
total net assets applicable to a specific class by the number of
shares outstanding relating to that class. Expenses are
attributable to each class of shares depending on the nature of
the expenditure and are accrued on a daily basis. These expenses
fall into two categories: (1) fund level expenses that are
attributable to each class that are allocated based on relative
net assets at the beginning of the day (e.g., legal, audit, etc.)
and, (2) certain class level expenses that may have a different
cost for one class versus the others (e.g., 12b-1 fees, service
fees and transfer agent fees). Because of the additional expense
that was borne by the Class A and Class B shares, the net income
attributable to and the dividends payable on Class A and Class B
shares will be lower than the net income attributable to and the
dividends payable on Class C shares.
Specific Control Objectives
The following are the specific control objectives of the Fund
system of internal accounting control relating to the allocation
of income and expenses to the three classes of shares within the
Funds:
o Income and expenses are properly allocated among the three
classes of shares within the Funds. o Distribution expenses and
service fee expenses with respect to each class are properly calculated.
o Dividends and distributions are recorded correctly as to
account, amount, period and class of shares of the Funds.
o Net asset value per share ("NAV") of each class of shares of
the Funds includes the appropriate amount of income and expense,
including those expenses allocated to each class of shares.
Procedures to Achieve Specific Control Objectives
The following procedures are designed to account for the three
classes of shares in the Funds:
o On a daily basis, a fund accountant calculates the distribution
fees to be charged to Class B shares by applying an annual fee
rate of up to .75 of 1% to the prior day's closing net assets.
The fund accountant also calculates the service fee to be charged
to Class A and Class B shares at a rate not to exceed .25 of 1%
of the prior day's closing net assets. In addition, the fund accountant
calculates fund-level expenses to be allocated to each class of shares.
o Using the Multiple Class NAV Rollforward, the fund accountant
allocates the total daily income and expenses (including realized
and/or unrealized gains or losses) among Class A, Class B and
Class C shares, based upon their respective net assets at the
beginning of the current day after considering prior day's capital
share transactions. The number of shares outstanding in each
class is provided to the fund accountant by the Fund's transfer
agent who maintains each class of shares in a separate account.
o Cowen Income + Growth Fund, Inc. and Cowen Opportunity Fund
(a series of Cowen Funds, Inc.) do not distribute net investment
income daily, therefore the sum of net investment income available
for all classes is determined (but before consideration of
expenses unique to each class) and this sum is divided by total
record date shares for all classes combined to arrive at a gross
dividend rate for all shares. From this gross rate, an amount per
share for each class(which represents unique and incrementally
higher, if any, expenses accrued during the period to that class
divided by record date shares for that class) is subtracted. The
result is the actual per share rate available to each class.
o Cowen Intermediate Fixed Income Fund and Cowen Government
Securities Fund (two series of Cowen Funds, Inc.) distribute net
investment income daily, therefore upon completion of the daily
Multiple Class NAV Roll forward, the fund accountant determines
the required distribution by class of shares by dividing daily net
investment income allocated to each class by the number of shares
eligible to receive dividends for the respective shares.
Distributions of realized gains are calculated by dividing the
realized gains available for distribution by the record date
shares for each class so that all shares receive the same per
share distribution.
o The NAV by class will be determined by dividing the ending
total net assets applicable to a specific class by the number of
shares outstanding relating to that class.
o On a daily basis, the Fund's accounting supervisor will review
the distribution, service and class-level expense calculations,
income and expense allocations, the NAV and dividends per share
calculations for each class, if applicable, and initial the
Multiple Class Fund daily checklist.
o If the fund accountant notes any unusual fluctuations among
NAVs and dividend rates of the classes in the Funds, the fund
accountant will research the matter and document the reasons. The
Funds' accounting supervisor reviews and initials this
documentation evidencing final approval of the NAVs and dividend
rates. o Before the NAVs and dividend rates are released, the
Fund's accounting supervisor reviews the reasonableness of the
NAVs and dividend rates. Special attention is paid to the
differences between the NAVs and dividend rates of each class of
shares. o Once the Fund's accounting supervisor is satisfied
that all of the above steps have been completed and that the NAVs
and dividend rates appear reasonable, the NAVs and dividend rates
are made available to the transfer agent for processing purposes.
Tests of Effectiveness of Control Structure Procedures
Our tests of the effectiveness of control structure procedures
were designed to determine whether:
o The description of the Advisor's policies and procedures
included in this report present fairly, in all material respects,
those aspects of the Advisor's control structure that may
be relevant to a user organization's internal control structure;
o the control structure procedures described in this report were
suitably designed to achieve the control objectives defined in
this report, if those policies and procedures were complied with
satisfactorily;
o the control structure procedures described in this report had
been placed in operation during the period from December 1, 1995
to November 30, 1996, and
o the control structure procedures were operating with sufficient
effectiveness to provide reasonable, but not absolute, assurance
that the control objectives described in this report were achieved
during the period from December 1, 1995 to November 30, 1996.
Our tests of the effectiveness of control structure procedures
included the following procedures, to the extent we considered
necessary: (a) a review of the Advisor's organizational
structure, including the segregation of functional
responsibilities, policy statements and personnel policies, (b)
discussions with management, accounting, administrative and other
personnel who are assigned responsibilities for developing,
ensuring adherence to and for applying control structure procedures,
(c) observations of personnel on the performance of their assigned
duties, and (d) a review of the actions taken in response to
recommendations to improve control structure procedures by
regulators having supervisory oversight over the Advisor's activities.
Our tests of the effectiveness of control structure procedures
included such other tests as we considered necessary in the
circumstances to evaluate whether those procedures, and the
extent of compliance with them, were sufficient to provide
reasonable, but not absolute, assurance that the specified control
objectives were achieved during the period from December 1, 1995
to November 30, 1996. Our tests of the operational effectiveness
of control structure procedures were designed to cover a
representative number of calculations throughout the period from
December 1, 1995 to November 30, 1996 for each of the
functions listed in this report which satisfy the control
objectives listed in this report. In selecting particular tests
of the operational effectiveness of control structure procedures,
we considered the: (a) nature of the items being tested, (b) the
kinds and competence of available evidential matter, (c) the
nature of the audit objectives to be achieved, (d) the assessed
level of control risk, and (e) the expected efficiency and
effectiveness of the tests.
Tests of effectiveness of control structure procedures included:
o Test of source documentation to ensure validity of information.
o Tests of supervisory control procedures in place to ensure
accuracy, completeness, validity and integrity of processing.
o Tests of recalculation of output to verify accuracy.
o Tests of output control procedures and resultant documentation
and reports relative to specific calculations to ensure that
accurate and timely updates of account records were achieved.
Testing procedures were designed and performed to enable us to
conclude whether the control objectives listed in this report were
achieved during the period December 1, 1995 to November 30, 1996.
EXHIBIT I
COWEN GROUP OF FUNDS
Cowen Income + Growth Fund, Inc.
Cowen Opportunity Fund (a series of Cowen Funds, Inc.)
CowenIntermediate Fixed Income Fund (a series of Cowen Funds, Inc.)
Cowen Government Securities Fund (a series of Cowen Funds, Inc.)
